Ocean Ships, Inc. v. Stiles

• Decision Date: 24 December 2002
• Docket Number: Docket No. 02-7936.
• Citation: 315 F.3d 111
• Parties: OCEAN SHIPS, INC., Plaintiff-Appellee, v. Thomas E. STILES and Stiles & Wright, P.C., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

315 F.3d 111

OCEAN SHIPS, INC., Plaintiff-Appellee, v. Thomas E. STILES and Stiles & Wright, P.C., Defendants-Appellants.

Docket No. 02-7936.

United States Court of Appeals, Second Circuit.

Argued: October 28, 2002.

Decided: December 24, 2002.

COPYRIGHT MATERIAL OMITTED

Cheryl F. Korman, Rivkin Radler LLP, Uniondale, New York (Evan H. Krinick, Merril S. Biscone, Daniel Hughes, Harris J. Zakarin, of counsel), for Defendants-Appellants.

Richard G. Menaker, Menaker & Herrmann LLP, New York, New York (Mark

G. Duncan, of counsel), for Plaintiff-Appellee.

Before FEINBERG, JACOBS, and SACK, Circuit Judges.

JACOBS, Circuit Judge.

Defendants Thomas E. Stiles and the law firm of Stiles & Wright (collectively, "Stiles") appeal from a judgment entered in the United States District Court for the Southern District of New York (Casey, J.), granting summary judgment in favor of Ocean Ships, Inc. on its legal malpractice claim against Stiles. The district court held that Stiles' failure timely to perfect a meritorious interlocutory appeal challenging personal jurisdiction over Ocean Ships in the underlying personal injury action was the proximate cause of Ocean Ships' loss, and that the loss is measured by the full amount of the personal injury judgment. We conclude that Stiles raised a material issue of fact as to whether the personal injury plaintiff would have pursued his tort claim against Ocean Ships in Texas if the New York action was dismissed for lack of personal jurisdiction. We therefore vacate the judgment and remand for further proceedings on the issue of the amount of damages (if any) caused by the malpractice.

BACKGROUND

In the underlying suit, Matthew Horan sued his employer, Ocean Ships, in 1992 for a personal injury he suffered aboard ship off the British coast. The suit was brought in state court in New York under the Jones Act, 46 App. U.S.C.A. § 688; Horan v. Ocean Ships, Inc., No. 29556/92 (N.Y.Sup.Ct. Dec. 24, 1997). Ocean Ships alleged lack of personal jurisdiction in New York, and moved to dismiss on that ground. The trial judge denied the motion immediately before trial in February 1996, but did not publish the corresponding order until after the trial, on May 10, 1996 ("May 10, 1996 Order"). Just in case Horan had engaged Texas counsel who filed a protective suit against Ocean Ships in Harris County, Texas, on August 2, 1995.

In March 1996, the New York jury returned a verdict against Ocean Ships in the sum of $1,071,165.00.

Stiles was retained soon afterward to assist with Ocean Ships' post-trial motions and to be solely responsible for the appeal. On April 22, 1996, Ocean Ships filed a post-trial motion to set aside the verdict and reargue the prior decision on personal jurisdiction. While that motion was pending, the trial court issued the May 10, 1996 Order, which denied the motion to dismiss for lack of personal jurisdiction; Stiles filed a notice of appeal from that Order on June 21, 1996 (the "Initial Appeal").

By decision and order dated October 2, 1996, the trial court decided the reargument motion and reaffirmed its ruling that Ocean Ships was subject to personal jurisdiction in New York. By then, the ruling on personal jurisdiction had become more vulnerable: between the submission of the post-trial motion and the court's decision, two other cases against Ocean Ships in New York were dismissed for lack of personal jurisdiction.

Additional disputes delayed entry of the final judgment until December 24, 1997. The verdict plus pre-judgment interest totaled $1,245,779.95.

Procedure in the Appellate Division, Second Department requires that appeals be perfected within six months of filing the notice of appeal by filing of appellant's brief and the record. See N.Y. Comp. Codes R. & Regs. tit. 22, § 670.8. The Initial Appeal was never perfected, however. In January 1997, the dismissal calendar published in the New York Law Journal warned that the Initial Appeal would be dismissed unless a motion was made within ten days to enlarge the time to perfect. Stiles failed to do so, and the Initial Appeal was dismissed on February 4, 1997.

Stiles explains that he decided not to perfect the Initial Appeal because he believed that the personal jurisdiction issue would be subsumed in the appeal from the trial court's decision on the reargument motion. Acting on that belief, Stiles perfected a new appeal after the December 24 final judgment was entered, raising the personal jurisdiction issue (among others). The Appellate Division, however, ruled that the dismissal of the Initial Appeal amounted to an adjudication on its merits, refused to consider personal jurisdiction, and affirmed the judgment. See Horan v. Ocean Ships, Inc., 262 A.D.2d 531, 692 N.Y.S.2d 660 (2d Dep't 1999).

Ocean Ships' liability insurer was The Steamship Mutual Underwriting Association ("Steamship Mutual"). In February 2000, Steamship Mutual paid $1,489,952.69 into Stiles' escrow account, and the judgment was satisfied.

Ocean Ships later filed this diversity action in the Southern District of New York, alleging that Stiles (1) negligently failed timely to perfect the appeal on the personal jurisdictional issue, (2) breached his professional services contract, and (3) negligently failed to ensure that the final judgment in Horan was entered timely so as to prevent the accumulation of interest.

On cross-motions for summary judgment, the district court granted summary judgment in favor of Ocean Ships on its claim that Stiles committed legal malpractice by failing timely to perfect the appeal on the personal jurisdiction issue, and awarded as damages $1,778,980.24, representing the amount paid to Horan ($1,489,952.66), plus interest from the date the judgment was paid ($282,152.13), plus disbursements ($6875.45). Because Ocean Ships thereby received the full measure of its damages, the district court did not address the other two causes of action.

DISCUSSION

A. Subject Matter Jurisdiction

Stiles contends that because Steamship Mutual paid all of the Horan judgment except for the policy deductible, the maximum malpractice damages incurred by Ocean Ships is $5000, and argues that Ocean Ships therefore cannot satisfy the amount-in-controversy requirement of 28 U.S.C. § 1332(a).¹ We disagree.

Our analysis is controlled by the "legal certainty" test announced by the Supreme Court:

The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.

St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938) (footnotes omitted).

The complaint alleges legal malpractice, breach of contract, and negligence claims and seeks no less than $850,000 in damages, alleged to be the difference between the Horan judgment and the lesser judgment Horan would have won in Texas if the New York action had been dismissed on appeal. "This Court recognizes a rebuttable presumption that the face of the complaint is a good faith representation of the actual amount in controversy." Wolde-Meskel v. Vocational Instruction Project Cmty. Servs., Inc., 166 F.3d 59, 63 (2d Cir.1999).

Stiles attempts to rebut this presumption by claiming that Ocean Ships is limited to recovering only its $5000 deductible. But this ignores New York law, which (as the parties agree) provides the substantive law in this case. New York generally follows the "collateral source" rule,² under which "damages recoverable for a wrong are not diminished by the fact that the party injured has been wholly or partially indemnified for his loss by insurance effected by him and to the procurement of which the wrongdoer did not contribute." Healy v. Rennert, 9 N.Y.2d 202, 206, 213 N.Y.S.2d 44, 46, 173 N.E.2d 777 (1961); see also Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 623 n. 15 (2d Cir.2001); Kish v. Bd. of Educ., 76 N.Y.2d 379, 383-84, 559 N.Y.S.2d 687, 689, 558 N.E.2d 1159 (1990). Ocean Ships' recovery therefore is not necessarily limited to $5000 — or to any other figure below the amount-in-controversy requirement.³

B. Real Party in Interest

Stiles argues that Steamship Mutual — not Ocean Ships — is the real party in interest within the meaning of Rule 17(a) because Steamship Mutual paid the entire judgment and all costs in the Horan action, minus only the $5000 deductible.

Rule 17(a) requires that "[e]very action shall be prosecuted in the name of the real party in interest." Fed.R.Civ.P. 17(a). Status as a real party in interest is a procedural matter; therefore, "in diversity cases federal law governs the issue of in whose name a lawsuit must be brought." Brocklesby Transp. v. E. States Escort Servs., 904 F.2d 131, 133 (2d Cir.1990).⁴ The Supreme Court has provided the Rule 17(a) analysis applicable to subrogation arrangements:

If the subrogee has paid an entire loss suffered by the insured, it is the only real party in interest and must sue in its own name. If it has paid only part of the loss both the insured and insurer... have substantive rights against the tortfeasor which qualify them as real parties in interest.

United States v. Aetna Cas. & Sur. Co., 338 U.S. 366, 380-81, 70 S.Ct. 207, 94 L.Ed. 171 (1949) (internal citation omitted). Ocean Ships' payment of the $5000 deductible created a sufficient independent interest. See Brocklesby Transp., 904 F.2d at 133;⁵ see also 6A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1546, at 360 (2d ed.1990). Ocean Ships is therefore a real party in interest under Rule 17(a).⁶ And if the policyholder achieves a judgment that exceeds the deductible amount, that is a matter of contract between the policyholder and the insurer.

C. Legal Malpractice

We...