United States v. Sherwood Distilling Co.

• Decision Date: 08 October 1964
• Docket Number: Civ. A. No. 10538.
• Citation: 235 F. Supp. 776
• Parties: UNITED STATES v. SHERWOOD DISTILLING CO., Inc., Aetna Casualty & Surety Company.
• Court: U.S. District Court — District of Maryland

235 F. Supp. 776

UNITED STATES v. SHERWOOD DISTILLING CO., Inc., Aetna Casualty & Surety Company.

Civ. A. No. 10538.

United States District Court D. Maryland.

October 8, 1964.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Joseph D. Tydings, U. S. Atty., and Stephen H. Sachs, Asst. U. S. Atty., Baltimore, Md., for the United States.

P. C. King, Jr., Washington, D. C., William B. Kempton, Barton, Wilmer, Bramble & Penniman, Baltimore, Md., for defendant and cross-claimant Aetna Cas. & Sur. Co., Inc.

L. Awalt Weller, Westminster, Md., John F. King, Anderson, Coe & King, Baltimore, Md., for defendant and cross-defendant Sherwood Distilling Co., Inc.

R. DORSEY WATKINS, District Judge.

This action was brought by the United States against Sherwood Distilling Company, Inc. (Sherwood), as distiller, for recovery of $263,896.50 for distilled spirits taxes, and against Aetna Casualty & Surety Company (Aetna) for recovery of $200,000, the principal amount of a transportation and warehousing bond, given to secure the payment of said taxes. The bond, on which Sherwood was principal and Aetna was surety, covered Sherwood's operation of an internal revenue bonded warehouse located in Westminster, Maryland. Aetna answered the complaint and pursuant to Rule 13(g) of the Federal Rules of Civil Procedure cross-claimed against Sherwood, in part, for any sums which it might be required to pay to the United States under the bond sued upon. Sherwood answered the complaint and cross-claim. Meanwhile the spirits on which the taxes were due were sold and the proceeds, after paying expenses of the sales, were applied to the taxes due.

Shortly thereafter payment in full of the balance of the tax due, penalties and interest, was made to the United States by Aetna. An order was signed, with consent of counsel, dismissing the complaint with prejudice and retaining Aetna's cross-claim against Sherwood for such further proceedings as might be appropriate. As of that time, June 6, 1960 Aetna had paid $159,535.57 to the United States, Sherwood had reimbursed Aetna to the extent of $5,000.00, and Aetna moved for summary judgment in the amount of $154,535.57. The motion was denied on the ground that there existed genuine issues as to material facts.

Thereafter, pursuant to Rule 15(d) of the Federal Rules of Civil Procedure, Aetna asked leave to file a supplemental cross-claim against Sherwood. The proposed supplemental cross-claim alleged:

"1. In May, 1941, this defendant and cross claimant reinsured a portion of its liability on the bond attached as Exhibit I to plaintiff's complaint with New Amsterdam Casualty Company for $40,000.00, Fidelity and Deposit Company of Maryland for $40,000.00. The Fidelity and Casualty Company of New York for $40,000.00 and Hartford Accident and Indemnity Company for $40,000.00.

"2. In February 1961, subsequent to the date of the original cross claim herein, New Amsterdam Casualty Company, Fidelity and Deposit Company of New York and Hartford Accident and Indemnity Company assigned in trust to this defendant all their right, title, and interest in their contracts of reinsurance with respect to the said bond, including all rights of action for indemnity or otherwise growing out of said bond."

Sherwood opposed Aetna's motion for leave to file a supplemental cross-claim on five grounds; (1) that the supplemental cross-claim presents claims contrary in theory to the theory of the original cross-claim, (2) that the motion was filed too late, (3) that the issues of law and fact in the cases of the four reinsurers are different from those raised in Aetna's original cross-claim thereby substantially prejudicing Sherwood should the supplemental cross-claim be filed, (4) that the supplemental cross-claim is not in proper form and (5) that the four corporate reinsurers are the real parties in interest for their respective payments and must assert them directly against Sherwood.

The court permitted the filing of the supplemental cross-claim. It has now been asked to reconsider this ruling. Four of the grounds of objection may be disposed of summarily. Ground number five only will require any extended discussion.

(1) The cause of action asserted by Aetna in its supplemental complaint is no different from that asserted in its original complaint¹ as it originally sought recovery for the entire amount paid by it or which it might have to pay to the United States and now seeks recovery of the same amount for the same reasons but, to the extent of 80 per cent of the original liability under the bond, as trustee for the insuring corporations. Indemnification remains the cause of action throughout. What Sherwood really opposed was granting Aetna leave to prosecute its original cross-claim individually and, by supplemenal cross-claim, in a representative capacity as trustee for its reinsurers. This ground of objection is but a restatement in a slightly different form of objection number five and will be fully treated in the portion of this opinion dealing with that objection.

(2) The motion for leave to file a supplemental cross complaint, while filed almost three years after the original cross complaint, shows on its face that it was filed one month after the subsequent transactions in question, i. e., the assignments in trust by the four reinsurers to Aetna of all their right, title and interest in their contracts of reinsurance with respect to the transportation and warehousing bond in question. Counsel for Sherwood admitted that any defense of laches or limitations as to the original cross-claim must await a trial on the merits.² Limitations, even when available as a defense, not being favored,³ ground number two of objection was overruled.

(3) Objection number three is also in fact a rehash of the true bone of contention in these proceedings — which corporation is or which corporations are the real parties in interest. The issues of law and fact in the case of the four reinsurers cannot be different from those raised in Aetna's original cross-claim as the reinsurers are not parties litigant in this case and therefore no claims have been asserted by, or defenses raised against, them. Any defenses available against the reinsurers were they parties to this suit could presumably be raised in this suit against Aetna in its representative capacity as trustee were leave granted to file the supplemental cross-claim.

(4) While it might have been desirable as claimed by Sherwood that Aetna set forth more specific details as to each of the four assignments and attach them as exhibits, such a procedure is not an absolute requirement. Nor does the fact that the supplemental cross-claim does not allege payment by the reinsurers to Aetna within twelve months of final settlement of Aetna's obligation under the bond affect the proposed supplemental cross-claim should leave otherwise be granted to permit its filing, and the fact of such payments was later established by uncontradicted evidence.

(5) In pressing its motion for leave to file a supplemental cross-claim against Sherwood, Aetna has taken the anomalous, and completely inconsistent, position that the assignments in trust, the sole subject matter of the proposed supplemental cross-claim,⁴ were not and are not necessary to enable it to prosecute the entire claim on behalf of itself and its reinsurers.

Rule 17(a), F.R.Civ.P., 28 U.S.C.A. provides:

"Real Party in Interest. Every action shall be prosecuted in the name of the real party in interest; but an executor, administrator, guardian, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party authorized by statute may sue in his own name without joining with him the party for whose benefit the action is brought; * * *."

The leading case construing this rule is United States v. Aetna Casualty and Surety Company, 1949, 338 U.S. 366, pages 380-381, 70 S.Ct. 207, page 215, 94 L.Ed. 171 in which it was said:

"`Every action shall be prosecuted in the name of the real party in interest,' and of course an insurer-subrogee, who has substantive equitable rights, qualifies as such. 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. 3 Moore, Federal Practice (2d Ed.) p. 1339. If it has paid only part of the loss, both the insured and insurer (and other insurers, if any, who have also paid portions of the loss) have substantive rights against the tortfeasor which qualify them as real parties in interest."

It is this language which is worrying Aetna and has occasioned the express transfers of all interest of the four reinsurers under their contracts of reinsurance to Aetna. One of the corporate reinsurers being a Maryland corporation, were its joinder necessary, there would be no diversity of citizenship between it and Sherwood and the jurisdiction of this court would thereby be destroyed. Hence, the question has been raised as to whether or not the transfer or transfers to Aetna by the reinsurers were for the purpose of conferring jurisdiction upon this court and thus were ineffective to do so.

The answer to this question is that Sherwood's objection to Aetna's status as a real party in interest is based upon a supposed transfer of Aetna's interest to the reinsurers subsequent to the commencement of this action. It should be recalled that this suit was brought by the United States against Sherwood and Aetna to recover on a bond for the payment of alcohol taxes to the full extent of the bond coverage. The cross-claim by Aetna against Sherwood was for the full amount that Aetna might have to pay to the United States. Payments by Aetna were made after this court's jurisdiction had vested over the main suit and the cross-claim. At the time of the filing of the cross-claim, as well as at the time of each payment by Aetna to the United States, Aetna was clearly the real party...