Church Mut. Ins. Co. v. Storm Team Constr.

• Decision Date: 31 March 2022
• Docket Number: 2:21-CV-31-D
• Parties: CHURCH MUTUAL INSURANCE COMPANY, Plaintiff, v. STORM TEAM CONSTRUCTION, INC. d/b/a STORM TEAM USA, Defendant
• Court: U.S. District Court — Eastern District of North Carolina

CHURCH MUTUAL INSURANCE COMPANY, Plaintiff,
v.
STORM TEAM CONSTRUCTION, INC. d/b/a STORM TEAM USA, Defendant

No. 2:21-CV-31-D

United States District Court, E.D. North Carolina, Northern Division

March 31, 2022

ORDER

JAMES C. DEVER III UNITED STATES DISTRICT JUDGE

On July 13, 2021, Church Mutual Insurance Company ("Church Mutual" or "plaintiff) filed suit against Storm Team Construction, Inc. ("Storm Team" or "defendant") seeking injunctive and declaratory relief arising from an insurance dispute [D.E. 1]. On August 13, 2021, Storm Team filed an answer and asserted counterclaims for breach of contract and violations of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. §§ 75-1.1 et seq, ("UDTPA") [D.E. 9]. On November 30, 2021, the court granted Church Mutual's motion to dismiss Storm Team's UDTPA claim, denied Storm Team's motion to amend, and dismissed Storm Team's UDTPA claim without prejudice [D.E. 24].

On November 9, 2021, the court entered a scheduling order [D.E. 21]. In the scheduling order, the court stated that any motion to join additional parties and to amend pleadings must be made by November 26, 2021, and that any motion made after that date must meet the standards in Federal Rules of Civil Procedure 15 and 16. See Id. at 2. When the court entered its scheduling order, Storm Team had timely filed its motion for leave to amend, and that motion was still pending

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before the court. In its order denying the motion to amend, the court stated that if Storm Team transferred some or all of its interests in this lawsuit back to Murfreesboro United Methodist Church ("MUMC"), as Storm Team had proposed doing, see, e.g. [D.E. 14] 3, then Storm Team could "again seek to amend its pleadings under Rule 15 and seek to substitute Murfreesboro United Methodist Church as a party under Rule 25." [D.E. 24] 3. The court did not address whether it would allow such amendments or substitution. See id.

On January 21, 2022, Storm Team moved to substitute MUMC as the defendant and in this action and moved to amend its answer and counterclaims against Church Mutual [D.E. 25]. On February 11, 2022, Church Mutual responded in opposition [D.E. 26]. On March 28, 2022, the court granted Church Mutual's motion to extend the discovery deadlines. See [D.E. 28]. As explained below, the court grants Storm Team's motion to substitute and grants MUMC leave to amend its answer and counterclaims.

I.

Storm Team moves to substitute MUMC as the defendant and counterclaimant in this lawsuit. See [D.E. 25] 2-3.^[1] Church Mutual sued Storm Team after MUMC transferred to Storm Team its interest in certain insurance claims under MUMC's policy with Church Mutual. See [D.E. 1-2]. On December 30, 2021, Storm Team transferred that interest back to MUMC, see [D.E. 25-3], and now seeks to substitute MUMC as the defendant and counterclaimant under Federal Rule of Civil Procedure 25(c). In opposition, Church Mutual argues substitution is improper because Storm Team failed to serve MUMC with the motion to substitute and because Storm Team retains a

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financial interest in this litigation. See [D.E. 26] 5-7.

Under Federal Rule of Civil Procedure 25(c), "[i]f an interest is transferred, the action may be continued by or against the original party unless the court, on motion, orders the transferee to be substituted in the action or joined with the original party. The motion must be served as provided in Rule 25(a)(3)." Fed.R.Civ.P. 25(c). In turn, Rule 25(a)(3) states that a motion to substitute "must be served on the parties as provided in Rule 5 and on nonparties as provided in Rule 4." Fed.R.Civ.P. 25(a)(3).

Rule 25(c) is a procedural mechanism that does not affect the substantive rights of the parties or the transferee. See Citibank v. Grupo Cμpey. Inc., 382 F .3d 29, 32 (1st Cir. 2004); ELCA Enters., Inc. v. Sisco Equip. Rental & Sales, Inc., 53 F.3d 186, 191 (8th Cir. 1995); Luxliner P.L. Exp., Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 71-72 (3d Cir. 1993); SEC v. Collector's Coffee Inc., 451 F.Supp.3d 294, 297-98 (S.D.N.Y. 2020); Branch Ranking & Tr. Co. v. Morehouse, C/A No.10-0912 DAR, 2011 WL 13257608, at *3-4 (D.D.C. Oct. 11, 2011) (unpublished). ''The rule is designed to allow an action to continue unabated when an interest in a lawsuit changes hands, rather than requiring the initiation of an entirely new lawsuit." ELCA Enters., 53 F.3d at 191 (quotation omitted); see Rodriguez-Miranda v. Benin, 829 F.3d 29, 40 (1st Cir. 2016) ("[T]he rule serves as a procedural mechanism to bring a successor in interest into court when it has come to own the property in issue" (quotation omitted)); In re Covington Grain Co., Inc., 638 F.2d 1362, 1364 (5th Cir.1981); Collector's Coffee Inc., 451 F.Supp.3d at 297-98; Branch Banking & Tr. Co., 2011 WL 13257608, at *4. "Substitution of a successor in interest or its joinder as an additional party under Rule 25(c) is generally within the sound discretion of the trial court." Prop-Jets, Inc. v. Chandler, 575 F.2d 1322, 1324 (10th Cir. 1978); see Citibank, 382 F.3d at 32; Burka v. Aetna Life Ins. Co., 87 F.3d 478, 482 (D.C. Cir. 1996); ELCA Enters., 513 F.3d at 190; Luxliner P.L. Exp., 13 F.3d at

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71-72; E. I. du Pont de Nemours & Co. v. Lyles & Lang Constr. Co.. 219 F.2d 328, 332 (4th Cir. 1955); Collector's Coffee Inc.. 451 F.Supp.3d at 297-98.

The parties agree that Storm Team transferred its interest in the storm-damage claims under MUMC's insurance policy with Church Mutual back to MUMC. See [D.E. 25-3]. Thus, as to Church Mutual's claims against Storm Team, MUMC would bear the burden of an adverse judgment. See Maldonado v. Valsyn SA. 434 F.Supp.2d 90, 92 (D.P.R. 2006); Moody v. Albemarle Paper Co., 50 F.R.D. 494, 498 (E.D. N.C. 1970) (allowing Rule 25(c) substitution when "any or all of the parties sought to be added or joined have or could have the burden of liability in the event of a determination of liability"). And as to Storm Team's counterclaim against Church Mutual, MUMC would benefit from any favorable ruling. Accordingly, the court grants Storm Team's motion to substitute and orders that MUMC be added as the defendant and counterclaimant in place of Storm Team.

In opposition, Church Mutual argues substitution is improper because Storm Team failed to comply with Rule 25(c)'s requirement to serve nonparties (i.e., MUMC) with the motion to substitute using the procedures in Rule 4. See [D.E. 26] 5; see also Fed.R.Civ.P. 25(a)(3), (c). Service incident to bringing a nonparty into a lawsuit, which substitution or joinder of a nonparty under Rule 25(c) effectively does, implicates the court's jurisdiction over that party. See Murphy Bros, v. Michetti Pipe Stringing. Inc.. 526 U.S. 344, 350-51 (1999); Life Techs. Corp. v. Govindaraj, 931 F.3d 259, 264-65 (4th Cir. 2019); Lobacz v. United States, No. 5:19-CV-453-D, 2022 WL 821160, at *4 (E.D. N.C. Mar. 17, 2022) (unpublished). A defense based on insufficient service is personal to the party to be served, and a different party may not raise insufficient service on another party's behalf. See State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d 514, 520-21 (10th Cir. 1994) ("[A]ny alleged defect in the district court's jurisdiction over [the party] was a personal defense that

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could not be raised for him by another party."); Bekris v. Greek M/V Aristoteles, 437 F.2d 219, 220 (4th Cir. 1971) (stating "inadequacy of service of process" and "lack of personal jurisdiction" are "personal defenses"); Revilla v. H&E Equip. Servs. Inc., No. 2:20-CV-194, 2020 WL 9259087, at *1 n2 (S.D. Tex. Oct. 6, 2020) (unpublished); Thunder Mountain Custom Cycles. Inc. v. Thiessen, No. 06-cv-2527-EWN-BNB, 2008 WL 618898, at *9 (D. Colo. Mar. 5, 2008) (unpublished).

Storm Team and MUMC executed a written agreement assigning Storm Team's rights under MUMG's insurance policy with Church Mutual back to MUMC, including "any and all breach of contract and tort claims that may arise." [D.E. 25-3]. MUMC knows that this litigation concerns claims regarding work to repair damage to MUMC's property. See [D.E. 26-2] (emails discussing subpoenas served on MUMC and its pastor); cf Scott v. Md. State Dep't of Labor, 673 Fed.Appx. 299, 304 (4th Cir. 2016) (per curiam) (unpublished); Armco. Inc. v. Penrod-Stauffer Bldg. Sys. Inc., 733 F.2d 1087, 1089 (4th Cir. 1984).^[2] MUMC has not raised insufficient service of process as a defense, and Church Mutual may not raise it on MUMC's behalf. Moreover, Church Mutual does not argue that Storm Team failed to serve Church Mutual, an existing party, with the motion to substitute in accordance with Rule 5. See Fed.R.Civ.P. 5(b)(2)(E), 23(a)(3), 23(c).

Additionally, Church Mutual argues the court should deny Storm Team's motion to substitute because Storm Team retains a financial interest in this lawsuit. See [D.E. 26] 6-7. Specifically, Church Mutual argues Storm Team retains a financial interest in the litigation because the reassignment back to MUMC requires MUMC "to hand over any payments to Storm Team." Id. at 6 (emphasis omitted). But this argument overstates the language in the Storm Team-to-MUMC

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agreement. That agreement only states that MUMC agrees to use Storm Team as its general contractor for repairs of the storm damage that gave rise to this lawsuit. See [D.E. 25-3]. In the agreement, MUMC also authorizes Church Mutual to pay Storm Team "[t]o the extent any work is covered" by MUMC s policy with Church Mutual. Id. This lawsuit primarily concerns the appraisal provision in the insurance policy, see Compl. [D.E. 1], and whether Church Mutual is liable for breach of contract under the policy. See Countercl. [D.E.9] 11-12. These issues concern the rights and obligations of Church Mutual vis-a-vis MUMC to determine who will pay for which repairs to MUMC s property. To the extent Storm Team retains a financial interest, that interest is getting paid for its...