State Auto Ins. Cos. v. Whirlpool Corp., 13-cv-602-wmc

CourtUnited States District Courts. 7th Circuit. Western District of Wisconsin
Writing for the CourtWILLIAM M. CONLEY District Judge
Docket NumberNo. 13-cv-602-wmc,13-cv-602-wmc
Decision Date14 October 2014

In this subrogation action, plaintiff State Automobile Insurance Corporation d/b/a State Auto Insurance Companies ("State Auto") seeks to recover payments made to the involuntary plaintiffs, each of whom had insurance policies through three of State Auto's member companies -- State Auto Insurance Company of Wisconsin, State Auto Property and Casualty Insurance Company, and State Auto Insurance Company (collectively, "the original plaintiffs").1 These involuntary plaintiffs all suffered property damage and submitted insurance claims due to an alleged defect in a valve manufactured by Elbi of America, Inc. ("Elbi"), which was in turn installed in dishwashers and washing machines manufactured and sold by defendant Whirlpool Corporation ("Whirlpool"). (Am. Compl. (dkt. #18).)

Because none of the original plaintiffs who filed this suit on August 28, 2013, had an individual claim worth $75,000 or more in controversy, 28 U.S.C. § 1332(a), this court granted Whirlpool's original motion to dismiss, but also granted the original plaintiffs' request to substitute the parent company, State Auto, as plaintiff. (Dkt. #15.) On December 23, 2013, State Auto filed an amended complaint bringing essentially the same claims against Whirlpool. (Dkt. #16.)2 As the holding company for the three original plaintiffs, State Auto alleges that the aggregate value of its members' combined claims meet the amount in controversy requirement.

In response, Whirlpool again moved to dismiss. This time, Whirlpool argues that: (1) "State Auto Insurance Companies" is merely a trade name and not a legal entity with the capacity to sue; (2) even if a trade name could bring a lawsuit, State Auto lacks standing to assert a right to subrogation based merely on the fact that it directly paid the insureds' claims; (3) the court should dismiss the entire case for improper venue; (4) the court should dismiss the entire case for failure to join required parties; and (5) State Auto cannot assert a claim against Earl Baines, one of the insureds, because it did not pay his deductible. (Dkt. #18.) Whirlpool's motion will be denied in part and granted in part.


The amended complaint advances various state law claims for negligence and strict liability, invoking this court's diversity jurisdiction pursuant to 28 U.S.C. § 1332(a). State Auto alleges that Whirlpool negligently designed and installed the faulty Elbi valves into appliances it sold to five individuals in five different states: Shulfer; Baines; Kowalski; Smith; and Brown (collectively, "the insureds"). State Auto further alleges that the faulty valves in these appliances failed, causing significant water damage to the insureds homes.

The original plaintiffs are actually all "members" of the "State Auto Group," a collection of insurance companies. (Christenson Decl., Ex. 1 (dkt. #13-1) 2.) Some of the companies in the State Auto Group, including two of the original plaintiffs, State Auto Insurance Company and State Auto Property and Casualty Insurance Company, are consolidated subsidiaries of State Auto Financial Corporation. (Springer Decl., Ex. 1 (dkt. #20-1) 5.) State Automobile Mutual Insurance Corporation owns 62% of the outstanding shares of State Auto Financial Corporation. (Id.) The third original plaintiff, State Auto Insurance Company of Wisconsin, is a pooled subsidiary of State Automobile Mutual Insurance Corporation. (Id.) Thus, while the three original plaintiffs fall along distinct branches of subsidiaries, State Automobile Mutual Insurance Corporation ultimately sits on top of the corporate umbrella that includes each of them.

State Automobile Mutual Insurance Corporation is an Ohio corporation with its principal place of business in Columbus, Ohio. (Id., Ex. 3 (dkt. #20-3) 1.) State Autohas registered for and operated under the trade name "State Auto Insurance Companies," the name used here. (Am. Compl. (dkt. #16) ¶ 3.) Defendant Whirlpool is a Delaware corporation, with its principal place of business in Michigan. (Id. ¶ 9.) As such, complete diversity exists between the parties.4 To meet the amount in controversy requirement, State Auto proposes to aggregate the amounts it paid to each of the insureds, which would total $156,336.90. (Am. Compl., Ex. A (dkt. #16-1).)


Whirlpool identifies five, separate reasons why this court should dismiss State Auto's amended complaint, either in part or in its entirety. The court will address each argument in turn.5

I. State Auto's Capacity to Bring Suit

Federal Rule of Civil Procedure 17(a) requires a "real party in interest" to prosecute a case. Here, State Auto signed the checks to the insureds and controlled the bank account that provided the funds for the insureds' claims. (Pl.'s Opp'n (dkt. #21) 5; Butters Decl., Ex. 1 (dkt. #23-1).) As State Auto now seeks reimbursement for those payments, it is a real party in interest. Krueger v. Cartwright, 996 F.2d 928, 931 (7th Cir. 1993) ("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.").

Even though State Auto is the party in interest, it must still have the capacity to sue under Rule 17(b). Whirlpool argues that "State Auto Insurance Companies" is merely a trade name, and not a legal entity. In support, Whirlpool cites Fed. R. Civ. P. 17(b)(3), which provides that for parties who are not corporations or individuals, the capacity to sue is determined "by the law of the state where the court is located." Thus, according to Whirlpool, Wisconsin law should determine whether State Auto can sue using its trade name.6

State Auto counters by arguing that Rule 17(b)(2) governs its capacity to sue. This provision, applicable to corporations, provides that capacity to sue is determined "by the law under which [the corporation] was organized." If 17(b)(2) applies, Ohio law determines whether State Auto can sue as a trade name and not surprisingly, Ohio law permits corporations to sue in their trade names, so long as the name is registered with the Ohio Secretary of State. See Ohio Rev. Code § 1329.10(B).7

The parties propose two distinct approaches for analyzing State Auto's capacity to sue. Whirlpool argues that the court must begin by looking at the name of the plaintiff -- State Auto -- and then select the provision of Rule 17(b) that best describes what the named plaintiff is (i.e., a person, a corporation, or an unincorporated association). In contrast, State Auto argues that the court should look past the name of the plaintiff to the entity underneath -- State Automobile Mutual Insurance Company -- and select the appropriate provision. The court concludes that State Auto's approach is correct.

Rule 17 emphasizes looking to the law of the state of incorporation when determining a corporation's capacity to sue. A dissolved corporation, for example, may not technically be a corporation, but federal courts still look to the law of the state of incorporation when determining whether the entity can sue or be sued. See Williams v.Bd. of Educ. of Chi., 506 F. App'x 517, 519 (7th Cir. 2013) (looking to the law of the state of incorporation pursuant to Rule 17(b)(2) when determining a dissolved corporation's capacity to sue). This approach to Rule 17 is consistent with the view that the entity underneath a claim matters, meaning that courts cannot determine an entity's capacity to sue solely by looking at the name a party puts on top of its complaint. Other district courts favor this same reading of Rule 17. See, e.g., Adams Wrecker Serv. v. City of Blanchard, Okla., No. 13-cv-126, 2013 WL 5726022, at *1 n.2 (W.D. Okla. Oct. 21, 2013) (applying Rule 17(b)(3) to a sole proprietorship and looking to state law to determine whether the entity can sue in its trade name); Sensory Technologies, LLC v. Sensory Tech. Consultants, Inc., No. 13-cv-834, 2013 WL 5230700, at *2 (S.D. Ind. Sept. 17, 2013) (first applying Rule 17(b)(3) to a limited liability company and looking to state law).

The cases Whirlpool cites in support of its position are distinguishable. For example, Whirlpool relies on Com-Pac Int'l, Inc. v. Packmate Co., No. 06-cv-467, 2007 WL 2458231 (S.D. Ill. Aug. 24, 2007), for the proposition that "you can't sue a trade name." In Com-Pac Int'l, however, the plaintiff insisted that the defendant (a trade name) was a corporation. 2007 WL 2458231, at *2. The court was willing to use Rule 17(b)(2) to look at the law of the state of incorporation, but ultimately dismissed the case because the plaintiff could not identify the appropriate state. The court held that "[w]ithout such information, [it] must look to the law of the state in which the district court is held . . . to determine who may sue and be sued." Id. In contrast, State Auto has identified (and Whirlpool has conceded) Ohio as its state of incorporation and has shown thatOhio law allows trade names to bring lawsuits. If anything, Com-Pac, Int'l contradicts Whirlpool's argument and supports using Rule 17(b)(2).8

Finally, because "State Auto Insurance Companies" is merely the trade name for State Automobile Mutual Insurance Company, the true entity behind this suit, Rule 17(b)(2) directs this court to answer questions of capacity to sue by looking to Ohio law, where State Auto is incorporated and principally does business. Since Ohio law allows corporations to bring suit using their trade names, State Auto has the capacity to sue using its trade name.

II. State Auto's Subrogation Rights

Whirlpool next argues that State Auto lacks the subrogation rights to pursue the claims of the...

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