Krueger v. Cartwright

Citation996 F.2d 928
Decision Date24 June 1993
Docket NumberNo. 92-2433,92-2433
PartiesPatricia M. KRUEGER, Plaintiff-Appellee, and American States Insurance Company, Intervening Plaintiff-Appellant, v. James S. CARTWRIGHT, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Bruce C. Conybeare, John C. Johnson (argued), H. Kevin Haight, St. Joseph, MI, for Patricia M. Krueger.

James M. Straub (argued), John M. Donahue, Straub, Seaman & Allen, St. Joseph, MI, for American States Ins. Co.

Before MANION and KANNE, Circuit Judges, and WILL, Senior District Judge. *

KANNE, Circuit Judge.

This diversity case requires us to examine joinder under Federal Rule of Civil Procedure 19 in light of the recently enacted supplemental jurisdiction statute, 28 U.S.C. § 1367. The facts, briefly stated, are these. Patricia Krueger, a Michigan resident, was injured when the car in which she was a passenger left the road in Pleasant Township, Indiana, struck a telephone pole, and rolled over. The driver and owner of the car was James Cartwright, an Indiana resident. At the time of the accident, Ms. Krueger was insured under a Michigan no-fault insurance policy issued by American States Insurance Company, which is incorporated in Indiana, the state of its principal place of business. Pursuant to the Michigan No-Fault Act, Mich.Comp.Laws § 500.3101 et seq. (1991), and the terms of the insurance contract, American States paid to Ms. Krueger certain first party economic loss benefits totalling $19,268.25. These benefits covered medical expenses, lost wages, and replacement services.

On November 26, 1991, Ms. Krueger sued Cartwright in federal court in Indiana, claiming damages for her non-economic losses under Michigan law as well as for economic losses in excess of those compensable under that state's No-Fault Act. Federal jurisdiction was predicated on diversity of citizenship, 28 U.S.C. § 1332. The plaintiff reached a settlement agreement with Cartwright and his insurance carrier, State Farm Insurance Company, for $75,000 on December 20. American States learned of the proposed settlement and notified the plaintiff's counsel that it intended to assert a statutory lien, pursuant to Mich.Comp.Laws § 500.3116, against any recovery for the amount of no-fault benefits American States had paid, or would in the future pay, to Ms. Krueger. 1

On January 24, 1992, Ms. Krueger filed a motion asking the district court to approve her settlement with Cartwright and to reject her insurer's lien, asserting that the settlement covered only non-economic losses and specifically excluded any claim for economic loss damages compensable under the Michigan No-Fault Act. On March 11, American States filed a motion requesting the district court to join it as a party-plaintiff under Federal Rule of Civil Procedure 19(a) and to validate its lien in the amount of $19,268.25. According to the company, it was subrogated to the rights of its insured by dint of the no-fault benefits paid to her, 2 and was entitled to reimbursement from any recovery because the Release and Settlement Agreement between Ms. Krueger and Cartwright covered economic as well as non-economic losses. American States also asserted an independent state claim against Cartwright for the amount of benefits previously paid to Ms. Krueger.

After a motion hearing on April 17, the district court ruled that the settlement agreement expressly covered only non-economic damages and was otherwise valid. A month later, the court issued an order granting American States' motion to intervene but denying the validity of its lien, granting Ms. Krueger's motion to approve the consent judgment in the amount of $75,000, and dismissing American States' state claim against Cartwright for want of jurisdiction. A judgment dismissing the case was entered on May 19. American States filed a timely appeal, and we have jurisdiction based on 28 U.S.C. § 1291.


This case begins and ends with the issue of jurisdiction. Courts in the federal system are obliged to police the statutory and constitutional limitations on their subject matter jurisdiction. Kanzelberger v. Kanzelberger, 782 F.2d 774, 777 (7th Cir.1986). "An appellate federal court must satisfy itself not only of its own jurisdiction, but also of that of the lower courts in a cause under review." Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934). When it appears from the record that diversity jurisdiction under 28 U.S.C. § 1332 may have been lacking, it is the duty of the court of appeals to raise and consider the issue sua sponte. See id.; Hiley v. United States, 807 F.2d 623, 626 (7th Cir.1986). In so doing, we assess diversity of citizenship at the time the complaint is filed, Freeport-McMoRAN, Inc. v. KK N Energy, Inc., 498 U.S. 426, 428, 111 S.Ct. 858, 860, 112 L.Ed.2d 951 (1991) (per curiam); Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 549, 6 L.Ed. 154 (1824); American National Bank and Trust Company of Chicago v. Bailey, 750 F.2d 577, 582 (7th Cir.1984), cert. denied, 471 U.S. 1100, 105 S.Ct. 2324, 85 L.Ed.2d 842 (1985), confining our inquiry to the citizenship of the named parties. F. & H.R. Farman-Farmaian Consulting Engineers Firm v. Harza Engineering Company, 882 F.2d 281, 284 (7th Cir.1989), cert. denied, 497 U.S. 1038, 110 S.Ct. 3301, 111 L.Ed.2d 809 (1990).

Under the rule of complete diversity, if there are residents of the same state on both sides of a lawsuit, the suit cannot be maintained under the diversity jurisdiction even when there is also a nonresident party. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). See also Owen Equipment and Erection Company v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 2402, 57 L.Ed.2d 274 (1978); City of Indianapolis v. Chase National Bank of City of New York, 314 U.S. 63, 69, 62 S.Ct. 15, 17, 86 L.Ed. 47 (1941). This rule applies fully to parties joined under Rule 19. Freeman v. Northwest Acceptance Corporation, 754 F.2d 553, 555 (5th Cir.1985). Thus, in a diversity case, while the nature of the interest sought to be enforced is determined by state substantive law, Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), the issues of joinder and whether or not the court should proceed in the absence of an interested party are matters of federal law. Provident Tradesmens Bank & Trust Company v. Patterson, 390 U.S. 102, 125 n. 22, 88 S.Ct. 733, 746 n. 22, 19 L.Ed.2d 936 (1968).

Under the general diversity statute, a corporation such as American States is deemed to be a citizen of any state in which it has been incorporated and of the state where it has its principal place of business. 28 U.S.C. § 1332(c)(1). This circuit defines principal place of business as the place where the corporation has its nerve center. Kanzelberger, 782 F.2d at 777. In its brief to this court, as well as at oral argument, American States averred that this place and the state of its incorporation are one and the same: Indiana. 3

The hitch, of course, is that the defendant in this case, James Cartwright, is also a resident of Indiana. The first question put to counsel for American States at oral argument was whether jurisdiction over American States' claim in intervention was proper. Counsel responded that he perceived no problem because Ms. Krueger and James Cartwright were citizens of different states. Moreover, according to counsel, American States sought to intervene in the district court as a party-plaintiff in accordance with the subrogation provisions of its policy with Ms. Krueger. As the subrogee of its insured, American States may succeed to Ms. Krueger's rights against Cartwright for economic loss damages resulting from the automobile accident and paid by American States to Ms. Krueger. However, neither federal law nor the federal procedural rules permits a subrogee to avoid the prerequisites of diversity jurisdiction.


The general rule in federal court is that if an insurer has paid the entire claim of its insured, the insurer is the real party in interest under Federal Rule of Civil Procedure 17(a) and must sue in its own name. United States v. Aetna Casualty & Surety Company, 338 U.S. 366, 380-81, 70 S.Ct. 207, 215, 94 L.Ed. 171 (1949). On the other hand, an insurer who pays a part of the loss of its insured is only partially subrogated to the insured's rights. 6A Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 1546 (2d ed. 1990). In such a case, "both insured and the insurer 'own' portions of the substantive right and should appear in the litigation in their own names." Aetna Casualty, 338 U.S. at 381, 70 S.Ct. at 215-16. See also Virginia Electric and Power Company v. Westinghouse Electric Corporation, 485 F.2d 78, 84 (4th Cir.1973) ("Where there is partial subrogation, there are two real parties in interest under Rule 17."), cert. denied, 415 U.S. 935, 94 S.Ct. 1450, 39 L.Ed.2d 493 (1974). Thus, if an insured brings suit against a tortfeasor, the insurer who is partially subrogated may intervene in the action to protect its pro rata share of the potential recovery. 6A Wright, Miller & Kane § 1546.

The instant case is one of partial subrogation. Ms. Krueger sued James Cartwright because a portion of her losses--specifically non-economic losses relating to pain and suffering and disfigurement--were not compensable under her American States policy, which covered only economic losses. Neither the plaintiff nor the defendant sought to join American States as a party. Rather, American States on its own behalf filed a "Motion to Join as Party Plaintiff" and supporting brief, contesting the terms of the settlement agreement and claiming the proposed recovery settled claims for economic loss damages.

In its brief to the district court, the company argued that it should be joined as a party-plaintiff under Rule 19(a). The text of that Rule provides for mandatory...

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