United Guar. Residential Ins. Co. of Iowa v. Philadelphia Sav. Fund Soc., s. 86-1655
| Decision Date | 27 May 1987 |
| Docket Number | Nos. 86-1655,86-1656,s. 86-1655 |
| Citation | 819 F.2d 473 |
| Parties | UNITED GUARANTY RESIDENTIAL INSURANCE COMPANY OF IOWA, an Iowa Corporation, Plaintiff- Appellee, v. PHILADELPHIA SAVINGS FUND SOCIETY, Party in Interest-Appellant, Epic Mortgage, Inc., a Delaware Corporation, Community Savings & Loan, Inc., a Maryland Association, Dominion Federal Savings & Loan Association, a federal savings and loan association, First National Bank of Maryland, a national banking corporation, Continental Federal Savings Bank, a federal savings bank, American Savings & Loan Association, an Indiana savings and loan association, individually and on behalf of others similarly situated, Defendants. UNITED STATES MORTGAGE INSURANCE COMPANY, Plaintiff-Appellee, v. PHILADELPHIA SAVINGS FUND SOCIETY, Party in Interest-Appellant, and Epic Mortgage, Inc., a Delaware Corporation, Dominion Federal Savings & Loan Association, a federal savings and loan association; First National of Maryland, a national banking corporation; Continental Federal Bank, a federal savings bank; American Savings Bank; Valley Federal Savings & Loan Association; Virginia First Federal Savings & Loan Association; Shadow Lawn Savings & Loan Association, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Edward M. Posner (James C. Ingram, Thomas Schaufelberger, Drinker, Biddle & Reath, William T. Freyvogel, Adams, Porter & Radigan, on brief) for party in interest-appellant.
Thomas Atherton Allen (Ellen K. Glessner, Steven J. Cooperstein, White & Williams, on brief) for plaintiffs-appellees.
Before WIDENER, Circuit Judge, HAYNSWORTH, Senior Circuit Judge, and MAXWELL, Chief Judge, United States District Court for the Northern
District of West Virginia, sitting by designation.
This dispute arises out of the collapse of Equity Programs Investment Corporation (EPIC), a real estate syndication firm which formed and sold real estate limited partnership interests. EPIC organized approximately 350 Limited partnerships which purchased in excess of 20,000 single-family homes. EPIC financed these homes with loans originating from EPIC Mortgage, Inc., an EPIC affiliate that originates and services mortgage loans. EPIC Mortgage packages these loans in pools and sells them to financial institutions in the form of Mortgage Pass Through Certificates. EPIC Mortgage also obtained private mortgage insurance on the loans from, among others, United Guaranty Residential Insurance Company of Iowa (UGI) and United States Mortgage Insurance Company (USMIC). The First National Bank of Maryland is the trustee for the holder of the mortgage certificates representing the interest of the purchasers of the mortgage loans.
Philadelphia Savings Fund Society claims to be the purchaser of approximately $217,000,000 of EPIC Mortgage's certificates, making it the largest holder of EPIC Mortgage loans. Of the $217,000,000 worth of loans and certificates held by Philadelphia, approximately $29,000,000 is insured by USMIC and in excess of $8,000,000 is insured by UGI. This leaves Philadelphia the largest beneficial holder of both USMIC-insured and UGI-insured EPIC Mortgage loans. It should be noted that other certificate holders bought certificates both before and after Philadelphia's purchases.
In late 1985, after EPIC's collapse, the insurance companies, UGI and USMIC, filed separate suits in various federal district courts, alleging that EPIC Mortgage engaged in a pattern of misrepresentations concerning material facts in its applications for policies and certificates of mortgage insurance. Accordingly, UGI and USMIC sought, inter alia, declarations that they were free to rescind those policies and certificates of mortgage insurance. On April 11, 1986, the Judicial Panel of Multi-District Litigation consolidated these and other related actions for coordinated pre-trial proceedings in the United States District Court for the Eastern District of Virginia. Prior to the consolidation and transfer of the cases, Philadelphia moved to intervene as a matter of right in the USMIC action. And after consolidation, Philadelphia moved for intervention as of right or, alternatively, permissive intervention in the UGI action, which motion was not opposed. By order dated July 10, 1986, the district court denied Philadelphia's motions to intervene in both actions, concluding "that [Philadelphia's interests] are adequately represented by an existing party, namely First National Bank." The lower court then rejected Philadelphia's argument that the Bank could not adequately protect its interests. Because we agree with the position taken by Philadelphia, we vacate and remand.
Intervention as of right is governed by Rule 24(a) of the Federal Rules of Civil Procedure which provides in pertinent part:
(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: ... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
In order to successfully intervene, Philadelphia "must show, first, an interest sufficient to merit intervention; second, that without intervention, its interest may be impaired; and, third, that the present litigants do not adequately represent its interest." Virginia v. Westinghouse Electric Corp., 542 F.2d 214, 216 (4th Cir.1976). Philadelphia must meet all three requirements to prevail.
There can be no doubt that Philadelphia has a significant interest in the subject of this action and that the disposition of this case may impair or impede its ability to protect that interest. Here, the insurance companies seek to rescind insurance on loans in which the Bank is trustee. Should the insurers prevail, Philadelphia may lose the benefit of insurance on about $37,000,000 in mortgage certificates of which it is the owner. Thus, the disposition of this case and inadequate protection of its interests might well deprive Philadelphia of the benefit of a substantial amount of mortgage insurance.
Having met the first two requirements under Rule 24(a), Philadelphia is entitled to intervene as a matter of right unless its interests are adequately represented by existing parties. The district Court ruled that Philadelphia's interests were adequately represented by its trustee, the Bank, but, as noted, we do not agree.
In Trbovich v. United Mine Workers, 404 U.S. 528, 92 S.Ct. 630, 30 L.Ed.2d 686 (1972), the Supreme Court stated that the application satisfies Rule 24(a)' § third requirement if it is shown that representation of its interest "may be" inadequate. Trbovich, 404 U.S. at 538 n. 10, 92 S.Ct. at 636 n. 10 (). The Court further added that the burden of making this showing should be treated as "minimal." In addition, Trbovich recognized that when a party to an existing suit is obligated to serve two distinct interests, which, although related, are not identical, another with one of those interests should be entitled to intervene. 404 U.S. at 538-39, 92 S.Ct. at 636. The test used by the Court in that case was to inquire whether each of the dual interests may "always dictate precisely the same approach to the conduct of the litigation." 404 U.S. 539, 92 S.Ct. at 636.
Trbovich was a case involving a suit by the Secretary of Labor to set aside an election of officers of the United Mine Workers of America. Trbovich was a member of the UMW and had filed the initial complaint with...
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