Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co.

• Decision Date: 15 November 2013
• Docket Number: No. 12-1761,12-1761
• Parties: HARTFORD FIRE INSURANCE COMPANY, Plaintiff - Appellant, v. HARLEYSVILLE MUTUAL INSURANCE COMPANY; ASSURANCE COMPANY OF AMERICA; FIRST FINANCIAL INSURANCE COMPANY; FIRST MERCURY INSURANCE COMPANY; G. R. HAMMONDS INC., Defendants - Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

HARTFORD FIRE INSURANCE COMPANY, Plaintiff - Appellant, v. HARLEYSVILLE MUTUAL INSURANCE COMPANY; ASSURANCE COMPANY OF

AMERICA; FIRST FINANCIAL INSURANCE COMPANY; FIRST MERCURY INSURANCE COMPANY;

G. R. HAMMONDS INC., Defendants - Appellees.

No. 12-1761

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: September 17, 2013

Decided: November 15, 2013

PUBLISHED

Appeal from the United States District Court for the District of South Carolina, at Charleston. Richard M. Gergel, District Judge. (2:11-cv-03081-RMG)

Before WILKINSON, DUNCAN, and AGEE, Circuit Judges.

Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge Duncan and Judge Agee joined.

ARGUED: Steven M. Klepper, KRAMON & GRAHAM, P.A., Baltimore, Maryland, for Appellant. David Leonard Brown, NELSON LEVINE DE LUCA & HAMILTON, LLC, Greensboro, North Carolina, for Appellees. ON BRIEF: Lee H. Ogburn, KRAMON & GRAHAM, P.A., Baltimore, Maryland, for Appellant. David G. Harris, II, NELSON LEVINE DE LUCA & HAMILTON, LLC, Greensboro, North Carolina; Robert C. Calamari, NELSON MULLINS RILEY & SCARBOROUGH LLP, Myrtle Beach, South Carolina, for Appellee Harleysville Mutual Insurance Company. Phillip E. Reeves, Elizabeth J. Smith, GALLIVAN WHITE

& BOYD, P.A., Greenville, South Carolina, for Appellee Assurance Company of America. M. Dawes Cooke, Jr., BARNWELL WHALEY PATTERSON HELMS, LLC, Charleston, South Carolina; Gary S. Kull, CARROLL MCNULTY KULL, LLC, Basking Ridge, New Jersey, for Appellee First Mercury Insurance Company. Mark S. Barrow, SWEENY WINGATE & BARROW, P.A., Columbia, South Carolina, for Appellee First Financial Insurance Company.

WILKINSON, Circuit Judge:

Nominal parties are excepted from the requirement that all defendants join in or consent to removal to federal court. This case concerns whether insured contractor G.R. Hammonds, Inc. ("Hammonds") is a nominal party in a contribution suit between its insurers. We affirm the district court's holding that Hammonds is a nominal party for purposes of the nominal party exception to the rule of unanimity governing removal.

I.

This action arises out of allegedly defective roofing work performed by defendant Hammonds, a North Carolina corporation, on a project in Charleston, South Carolina (the "Concord West Project"). The work was completed between early 1998 and March 2001. A series of different companies issued Hammonds liability insurance between 1995 and 2009. Plaintiff Hartford Fire Insurance Company ("Hartford"), the appellant here, insured Hammonds from 1995 to 2002. The remaining defendants, appellees here, insured Hammonds for overlapping or subsequent years: Assurance Company of America ("Zurich") from 2001 to 2002; First Financial Insurance Company ("First Financial") from 2002 to 2003; Harleysville Mutual Insurance Company ("Harleysville") from 2003 to 2006; and First Mercury Insurance Company ("First Mercury") from 2006 to 2009.

Hammonds was sued in 2008 by homeowners and their association in South Carolina state court for the alleged defects in its work on the Concord West Project. That lawsuit (the "Concord West Action") was settled on September 1, 2011, with all claims against Hammonds related to that construction project being dismissed with prejudice. Hartford, Harleysville, and Zurich each agreed to pay one third of a one-million-dollar settlement, subject to each insurer's right to subsequently resolve the proper allocation of the settlement through arbitration or litigation.

Five days later, Harleysville filed a declaratory judgment action in the district court for the Eastern District of North Carolina ("North Carolina Action"), joining Hammonds and all of the aforementioned insurers as defendants. That suit sought a declaration of the rights and obligations of the insurers with respect to damages arising out of Hammonds's work on the Concord West Project, as well as its allegedly defective work on two other projects. On September 21, 2011, Hartford filed the present action for a declaratory judgment in South Carolina state court. Hartford named Hammonds and the four other insurers that had covered Hammonds as defendants. Hartford seeks a declaration of each insurer's respective share of the one-million-dollar settlement in the Concord West Action andequitable contribution from the other insurers to the extent that Hartford is found to have overpaid its share.

Harleysville timely removed this action to the district court for the District of South Carolina pursuant to 28 U.S.C. § 1332. The other defendant insurers consented to the removal on the same day. Hammonds, however, neither consented nor objected to removal, nor claimed an interest in the outcome of the proceeding at that time. Upon removal, Harleysville filed a motion to dismiss on the grounds that the present action was duplicative of the parallel, previously-filed North Carolina Action.¹ Hartford moved to remand the present case on the basis of Hammonds's failure to join in or consent to the notice of removal. Months later, on February 24, 2012, Hammonds filed an untimely answer to Hartford's complaint in which it asserted an interest in the outcome of the proceeding.²

The district court found that Hammonds was a nominal party for purposes of the nominal party exception to the rule of unanimity governing removal. The district court determined that the action did not seek any relief from Hammonds but merely sought to determine the percentage that each insurer was required to pay of a settlement already agreed to by the insurers on behalf of Hammonds. Applying two different tests for nominal party status articulated by other circuits, the district court held that it was not possible for Hartford to establish a cause of action against Hammonds, and that there was no reasonable basis for predicting that Hammonds could be held liable in any way. It then dismissed the South Carolina suit under the first-to-file rule. This appeal followed.

II.

We review a district court's ruling on matters relating to the propriety of removal de novo. Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 815 (4th Cir. 2004). The burden of demonstrating jurisdiction and therefore the propriety of removal rests with the removing party. Id.

A.

28 U.S.C. § 1441(a) provides that a "civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants." To remove to federal court, the defendant or defendants must file "a notice of removal . . . containing a short and plain statement of grounds for removal." Id. § 1446(a). The Supreme Court has construed these statutes to require all defendants in a case to join in or consent to removal, creating the so-called "rule of unanimity." See Mayo v. Bd. of Educ. of Prince George's Cnty., 713 F.3d 735, 741 (4th Cir. 2013) (citing Lapides v. Bd. of Regents of Univ. Sys. of Ga., 535 U.S. 613, 620 (2002)). The rule of unanimity is consistent with our obligation "to construe removal jurisdiction strictly because of the significant federalism concerns implicated." Maryland Stadium Auth. v. Ellerbe Becket Inc., 407 F.3d 255, 260 (4th Cir. 2005) (internal quotation marks omitted); see also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 (1941). The rule of unanimity helps to effectuate Congress's intent in limiting removal to prevent it from being used too broadly or casually.

The federal courts have, however, long recognized an exception to the rule of unanimity, which states that a nominal party need not consent to removal. See Charles Alan Wright etal., 14C Fed. Prac. & Proc. Juris. § 3730 (4th ed. 2009) (collecting cases). This "nominal party exception" ensures that only those parties with a palpable interest in the outcome of a case, and not those without any real stake, determine whether a federal court can hear a case. See Tri-Cities Newspapers, Inc. v. Tri-Cities Printing Pressmen & Assistants' Local 349, Int'l Printing Pressmen & Assistants' Union of N. Am., 427 F.2d 325, 327 (5th Cir. 1970) ("[N]ominal or formal parties, being neither necessary nor indispensable, are not required to join in the petition for removal"). This exception helps to prevent a party from overriding congressionally prescribed bases for removal through strategic pleading.

This court has never defined a nominal party for purposes of the nominal party exception to the rule of unanimity necessary for removal. Courts outside of this circuit have devised various tests to define a nominal party. Some have required that a defendant be indispensable in order to avoid the nominal party exception. See Ryan v. State Bd. of Elections of Ill., 661 F.2d 1130, 1134 (7th Cir. 1981). Others have required only that a defendant be indispensable or necessary. See Farias v. Bexar Cnty. Bd. of Trustees for Mental Health Mental Retardation Servs., 925 F.2d 866, 871 (5th Cir. 1991); Tri-Cities Newspapers, 427 F.2d at 327. Both formulations appear to ask "whether in the absence of the [defendant], the Court canenter a final judgment consistent with equity and good conscience which would not be in any way unfair or inequitable to plaintiff." Tri-Cities Newspapers, 427 F.2d 325 at 327 (internal quotation marks omitted). Meanwhile, another line of case law provides that "[a] defendant is nominal if there is no reasonable basis for predicting that it will be held liable." Shaw v. Dow Brands, Inc., 994 F.2d 364, 369 (7th Cir. 1993), holding modified by Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536 (7th Cir. 2006); see also Thorn v. Amalgamated Transit Union, 305 F.3d 826, 833 (8th Cir. 2002) (describing nominal defendants as "those against whom no real relief is sought") (internal quotation marks omitted); Farias v. Bexar Cnty, 925 F.2d at 871 ("[T]he removing party must show . . . that there is no possibility that the plaintiff would be able to establish a cause of action against the non-removing defendants in state court") (internal quotation marks...