Ranger Ins. Co. v. United Housing of New Mexico, Inc.

• Decision Date: 21 January 1974
• Docket Number: No. 73-2434 Summary Calendar.,73-2434 Summary Calendar.
• Citation: 488 F.2d 682
• Parties: RANGER INSURANCE COMPANY, Plaintiff-Appellant, v. UNITED HOUSING OF NEW MEXICO, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

488 F.2d 682 (1974)

RANGER INSURANCE COMPANY, Plaintiff-Appellant, v. UNITED HOUSING OF NEW MEXICO, INC., et al., Defendants-Appellees.

No. 73-2434 Summary Calendar.^*

United States Court of Appeals, Fifth Circuit.

January 21, 1974.

L. W. Anderson, Dallas, Tex., for plaintiff-appellant.

T. Mike Field, Edward R. Smith, Lubbock, Tex., for defendants-appellees.

Before BELL, GODBOLD and GEE, Circuit Judges.

BELL, Circuit Judge:

This is a declaratory judgment action brought by the appellant-insurer seeking to establish that, under the coverage provisions of its insurance contract with the appellees, herein referred to as the "insureds," it is not liable for claims arising from a fatal crash of the insureds' plane. The jurisdictional basis is diversity, the appellant being a resident of Texas while the insureds are residents of New Mexico.¹ In order to preserve diversity the appellant did not join certain interested parties, residents of Texas, who are seeking damages against the insureds.² This appeal is from dismissal of the action for failure to join these claimants.

In reaching its decision the district court relied on the dictum in Abbott Laboratories v. Gardner, 1967, 387 U.S. 136, 155, 87 S.Ct. 1507, 1519, 18 L.Ed.2d 681, 695, that courts "may even refuse declaratory relief for nonjoinder of interested parties who are not, technically speaking, indispensable." The district court also quoted a similar principle from 6A Moore, Federal Practice § 57.25 at 3148 (2d ed.). See also Delno v. Market St. Ry. Co., 9 Cir., 1942, 124 F.2d 965. The theory is that the declaratory judgment remedy is inherently discretionary due to both its equitable nature and the permissive wording of the Declaratory Judgment Act, 28 U.S.C.A. § 2201 (1959). Thus, it is argued, a district court's power to dismiss for failure to join a party in a declaratory judgment action is not restricted to that provided by Rule 19(b) of the Federal Rules of Civil Procedure. However, we do not pass on this question because we conclude that the claimants are indispensable parties under the conventional Rule 19(b) approach.

Rule 19(b) states that when it is determined under Rule 19(a)³ that a person should be joined if feasible, but he cannot be, then the court should decide,

"whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed . . . . The factors to be considered by the court include: first, to what extent a judgment rendered in the person\'s absence might be prejudicial to him or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person\'s absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder."

In applying these factors we are mindful of the rule that:

"Where an initial appraisal of the facts reveals the possibility that an unjoined party is arguably indispensable, the burden devolves upon the party whose interests are adverse to the unjoined party to negate the unjoined party\'s indispensability to the satisfaction of the court."

Boles v. Greenville Housing Authority, 6 Cir., 1972, 468 F.2d 476, 478 (Tuttle, J., sitting by designation).

As for the first factor, the district court considered it "nonsensical to suggest that a declaration, in this Court, of liability or non-liability will have no practical effect upon the claimants," given the possibility (now an actuality), of their obtaining a judgment against the insureds. While a judgment in favor of the appellant probably would not operate to bar the absent claimants from proceeding under the policy's direct action clause, we are satisfied that the claimants' interests would be prejudiced. For example, they would have to contend with the stare decisis effect of such a judgment, or they might be forced to litigate its effect on the direct action clause.

Conceivably the district court could shape relief to avoid seriously prejudicing the absent claimants, possibly by enjoining appellant from raising its judgment of noncoverage as a defense to a direct action. However, at this point the basic difficulty with appellant's case becomes apparent — either a judgment might prejudice the claimants, violating the first Rule 19(b) factor, or it would not be adequate to finally resolve the...