Virginia Sur. Co. v. Northrop Grumman Corp., 96-56804

• Decision Date: 27 May 1998
• Docket Number: No. 96-56804,96-56804
• Citation: 144 F.3d 1243
• Parties: 98 Daily Journal D.A.R. 5501 VIRGINIA SURETY COMPANY, an Illinois corporation, Plaintiff-Appellant, v. NORTHROP GRUMMAN CORPORATION, a Delaware corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1243

144 F.3d 1243

98 Daily Journal D.A.R. 5501

VIRGINIA SURETY COMPANY, an Illinois corporation, Plaintiff-Appellant, v. NORTHROP GRUMMAN CORPORATION, a Delaware corporation Defendant-Appellee.

No. 96-56804.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 4, 1998.

Decided May 27, 1998.

Jack I. Samet and Angela C. Agrusa, Baker & Hostetler, Los Angeles, California; Shand S. Stephens, San Francisco, California, for plaintiff-appellant.

Mark Riera, Sheppard, Mullin, Richter & Hampton, Los Angeles, California, for defendant-appellee.

Appeal from the United States District Court for the Central District of California; Dickran M. Tevrizian, District Judge, Presiding. D.C. No. CV-96-06522-DT-(Ex).

Before: FLETCHER, MAGILL, ^* and T.G. NELSON, Circuit Judges.

MAGILL, Senior Circuit Judge:

Virginia Surety Company (Virginia Surety), an Illinois corporation, brought this suit for declaratory and injunctive relief against Northrop Grumman Corporation (Northrop Grumman), a Delaware corporation with its principal place of business in California, alleging diversity jurisdiction. Virginia Surety's suit sought a declaration of rights under an insurance underwriting contract between Anchor Underwriting Managers, Limited (Anchor), a Bermuda corporation, and Paumanock Insurance Company, Limited (Paumanock), also a Bermuda corporation. The district court dismissed the suit, holding that Virginia Surety lacked standing and that an indispensable party had not been joined. Virginia Surety now appeals. While we conclude that Virginia Surety had standing to bring this suit, we hold that the district court properly dismissed the suit for Virginia Surety's failure to join an indispensable party. Accordingly, we affirm.

I.

Anchor is a wholly-owned subsidiary of Virginia Surety. On August 21, 1989, Anchor entered into an Underwriting Management Agreement (UMA) with Paumanock to underwrite reinsurance policies in Bermuda. The UMA expressly stated that it was to be governed by the laws of Bermuda and provided that all services under it were to be performed in accordance with Bermuda law. While Virginia Surety was not specifically named in the UMA, the UMA provided that "Anchor and its parent company shall indemnify [Paumanock] and make [Paumanock] whole for losses ... associated with any act of employee dishonesty, misappropriation of funds, embezzlement, fraudulent or criminal acts or omissions, etc. of any person at any time employed by Anchor or its parent company ...." UMA at Art. 7(b) (emphasis added), reprinted in Appellant's Excerpts of R. at 86.

At the time it entered into the UMA, Paumanock was a wholly-owned subsidiary of Grumman Aerospace Company (Grumman), a New York corporation. On March 22, 1993, Grumman sold Paumanock to Visor Investments Limited (Visor), a Bermuda corporation. See Share Purchase Agreement (SPA) at §§ 2.01-2.03, reprinted in Appellant's Excerpts of R. at 13. Pursuant to § 7.11 of the SPA, Grumman had the right to negotiate with Visor for an interest in legal claims brought by Paumanock against third parties. ¹ In 1994, Grumman was acquired by Northrop Corporation, a Delaware corporation, and the two entities became Northrop Grumman. Northrop Grumman retained Grumman's right to negotiate with Visor for an interest in Paumanock's claims against third parties.

Paumanock accused Anchor of breaching Anchor's fiduciary duty under the UMA by "(1) trading lines of insurance to shift higher risks to Paumanock; (2) preferentially writing policies of reinsurance for other sureties; and (3) writing policies of professional liability insurance for Paumanock that were prohibited under the [UMA]." Def.'s Mem. in Support of Mot. to Dismiss Pl.'s Compl. at 5, reprinted in Appellant's Excerpts of R. at 61. Between 1994 and 1996, Paumanock and Northrop Grumman attempted to settle this dispute with Anchor. See Appellant's Excerpts of R. at 150-61. These efforts were unsuccessful, and Paumanock gave notice on August 30, 1996, that it intended to bring suit under the UMA. Pursuant to § 7.11 of the SPA, Northrop Grumman negotiated a twenty percent interest in Paumanock's suit against Anchor, which was filed in Bermuda court on November 5, 1996.

Paumanock subsequently amended its complaint to include Virginia Surety as a defendant. See Appellant's Req. to Take Judicial Notice at Tab A at 5. In its amended complaint, Paumanock alleged that Virginia Surety, along with Anchor, had breached the UMA. Paumanock noted that Article 7(b) of the UMA required Virginia Surety to indemnify certain losses suffered by Paumanock, see id. at 15, and Paumanock alleged that "Anchor acted as [Virginia Surety's] agent in entering into the covenant contained in and/or evidenced by Article 7(b) of the Management Agreement on its behalf." Id. at 16 (emphasis omitted). Alleging breaches of contract, breaches of fiduciary duty, breaches of the duty of care, and conspiracy, Paumanock sought damages of $14,047,955. ²

On September 17, 1996, after Virginia Surety received notice that Paumanock intended to file suit in Bermuda court, Virginia Surety filed the instant suit in the United States District Court for the Central District of California for declaratory and injunctive relief against Northrop Grumman. ³ For relief, Virginia Surety requested the district court to

declare the respective rights and duties of [Virginia Surety] and its affiliated companies with respect to any and all actions and conduct of Anchor in its capacity as Underwriting Manager for Paumanock... [and to issue] an order that [Northrop Grumman] and all of its related or subsidiary companies, be restrained from instituting, participating in, financing or causing to be instituted any action against [Virginia Surety] arising out of or in any way connected with Anchor's activities as Underwriting Manager for Paumanock in Bermuda, or otherwise, except as a counterclaim in this action

. . . . .

Compl. at 7-8, reprinted in Appellant's Excerpts of R. at 7-8.

On September 30, 1996, the district court denied Virginia Surety's request for a preliminary injunction, and on November 13, 1996, the district court dismissed Virginia Surety's suit. The district court held that Virginia Surety, as a shareholder, lacked standing to pursue Anchor's claims. In the alternative, the district court held that dismissal was also proper because Virginia Surety had failed to join Paumanock as a necessary and indispensable party. In reaching its decision, the district court concluded that Virginia Surety's suit represented "forum shopping and a race to the courthouse." Tr. of Mot. Hr'g (Nov. 12, 1996) at 20. Virginia Surety now appeals the district court's dismissal of its suit.

II.

This Court reviews the district court's determination of standing de novo. See San Diego County Gun Rights Comm. v. Reno, 98 F.3d 1121, 1124 (9th Cir.1996). "Standing is an essential, core component of the case or controversy requirement" of Article III. Id. at 1126. The burden in this case is on Virginia Surety, as the party seeking federal jurisdiction, to establish standing. Id. "[F]or purposes of ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Takhar v. Kessler, 76 F.3d 995, 1000 (9th Cir.1996) (quotations omitted).

The district court correctly held that Virginia Surety does not have standing to pursue this suit merely because Anchor is its subsidiary. See EMI Ltd. v. Bennett, 738 F.2d 994, 997 (9th Cir.1984) ("Generally, a shareholder does not have standing to redress an injury to the corporation in which it holds stock."); see also Shell Petroleum, N.V. v. Graves, 709 F.2d 593, 595 (9th Cir.1983) ("To have standing to maintain an action, a shareholder must assert more than personal economic injury resulting from a wrong to the corporation. A shareholder must be injured directly and independently of the corporation." (citation omitted)). Virginia Surety, however, argues that its potential liability to Paumanock constitutes a direct and independent injury, and that Northrop Grumman's relationship to Paumanock gives Virginia Surety standing to pursue a suit against Northrop Grumman. We agree.

To have standing, Virginia Surety must allege a concrete injury attributable to the defendant's actions that is remediable by the relief requested. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) "Where only injunctive or declaratory relief is sought, a plaintiff must show a very significant possibility of future harm in order to have standing to bring suit." Coral Constr. Co. v. King County, 941 F.2d 910, 929 (9th Cir.1991) (quotations omitted). Under the suit filed against it in Bermuda court, Virginia Surety faces over $14,000,000 in potential liability for its alleged breach of the UMA and its duty to indemnify Anchor. A potential judgment for $14,000,000 represents an imminent and concrete injury to Virginia Surety, thus satisfying the first element of standing. See Lujan, 504 U.S. at 560, 112 S.Ct. 2130 (to have standing, "the plaintiff must have suffered an injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical" (quotations, citations, and footnote omitted)).

We also believe that Virginia Surety has met the causation element of standing. See id. at 560, 112 S.Ct. 2130 ("[T]here must be a causal connection between the injury and the conduct complained of-the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court." (quotations and alterations omitted)). Although Northrop Grumman was not a party to the UMA, and is not a plaintiff in Paumanock's suit against ...