Barnes v. Security Life of Denver ( 2019 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS December 23, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
ROBERT BARNES,
Plaintiff - Appellee,
v. No. 18-1487
SECURITY LIFE OF DENVER
INSURANCE COMPANY,
Defendant - Amicus Curiae.
------------------------------
JACKSON NATIONAL LIFE
INSURANCE COMPANY,
Movant - Appellant.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:18-CV-00718-WJM-SKC)
_________________________________
Waldemar J. Pflepsen, Jr. (Shaunda Patterson-Strachan, with him on the briefs), Carlton
Fields Jorden Burt, P.A., Washington, DC, appearing for Appellant.
J. Toji Calabro, Stueve Siegel Hanson, LLP, Kansas City, Missouri (Daniel C. Girard,
Jordan Elias, and Elizabeth A. Kramer, Girard Sharp, LLP, San Francisco, California;
Norman E. Siegel, Stueve Siegel Hanson, LLP, Kansas City, Missouri; and John J.
Schirger and Matthew W. Lytle, Miller Schirger, LLC, Kansas City, Missouri, with him
on the brief), appearing for Appellee.
Kathryn A. Reilly and Chuan (Cici) Cheng, Wheeler Trigg O’Donnell LLP, Denver,
Colorado; Clark C. Johnson and Michael T. Leigh, Kaplan Johnson Abate & Bird LLP,
Louisville, Kentucky, for amicus curiae Security Life Insurance Company.
_________________________________
Before BRISCOE, EBEL, and HARTZ, Circuit Judges.
_________________________________
BRISCOE, Circuit Judge.
_________________________________
Plaintiff Robert Barnes filed this putative class action against defendant
Security Life of Denver Insurance Company (SLD) alleging that SLD, in the course
of administering life insurance policies purchased by Barnes and other similarly-
situated class members, breached its contractual duties and committed the tort of
conversion by imposing certain administrative costs that were not authorized under
the terms of the policies. Jackson National Life Insurance Company (Jackson)
moved to intervene, asserting that, as a result of reinsurance agreements entered into
by SLD, Jackson was actually the entity responsible for administering Barnes’s
policy and numerous other policies listed within the putative class. The district court
denied Jackson’s motion. Jackson now appeals.
We have jurisdiction over Jackson’s appeal pursuant to 28 U.S.C. § 1291
“[b]ecause an order denying intervention is final and subject to immediate review if it
prevents the applicant from becoming a party to an action . . . .” WildEarth
Guardians v. United States Forest Serv., 573 F.3d 992, 994 (10th Cir. 2009)
(quotations and brackets omitted). After reviewing the parties’ briefs and the record
on appeal, we conclude that Jackson has established the requirements for intervention
as of right, and accordingly reverse the decision of the district court and remand with
directions to grant Jackson’s motion to intervene.
2
I
Plaintiff Barnes is a citizen of the State of North Carolina. Defendant SLD is a
corporation incorporated under the laws of the State of Colorado, with its principal
place of business in Denver, Colorado.
In 1984, Barnes, who was then 29 years of age, purchased from Southland Life
Insurance Company (Southland) a “Flexible Premium Adjustable Life Insurance
Policy” (the Policy), Policy Number 851502124, with an effective date of May 20,
1984, and an initial specified amount of $50,000. Aplt. App., Vol. 1 at 13, 32. In
addition to a death benefit, the Policy provides Barnes with “an investment, savings,
or interest-bearing component that accumulates value over time (‘the Cash Value’).”
Id. at 14. When Barnes receives an account statement, this component is referred to
as “Accumulated Value.” Id.
The Cash Value on the date the Policy was issued was equal to the amount of
the initial net premium. Thereafter, the Cash Value for any given month was, and
continues to be, “calculated by: (a) adding a percentage of each monthly premium
received to the prior month’s Cash Value; (b) subtracting from that amount the
amounts of any charges assessed and deducted by [SLD]; and (c) adding to that total
one month’s interest earned on the difference between the prior month’s Cash Value
minus the current month’s charges assessed and deducted by [SLD].” Id. at 15.
The Policy states that the insurer “may assess and deduct only those charges
allowed by the Policy,” and it in turn “expressly defines the specific charges that [the
insurer] may assess and deduct from the Policy’s Cash Value.” Id. The permissible
3
deductible costs under the Policy include “the cost of insurance for the policy
month,” “the sum of the monthly expense charges,” and “the cost of any
supplemental benefits provided by rider.” Id. at 16. Under the terms of the Policy,
“[t]he cost of insurance rate is based on the sex, attained age, and rate classification
of the Insured.” Id. at 17.
On July 1, 2002, Southland entered into an indemnity reinsurance agreement
with the Life Insurance Company of Georgia (LOG). Under the terms of that
agreement, Southland ceded and transferred certain liabilities arising under a group
of its life insurance policies (the Transferred Policies), including Barnes’s Policy, to
LOG as reinsurer. On that same date, Southland and LOG also entered into an
Administrative Services Agreement covering the Transferred Policies. Together,
these agreements required LOG to assume certain administrative duties on behalf of
Southland, including determining the cost of insurance rates and other administrative
charges. LOG also expressly assumed liability arising out of or relating to the
manner in which LOG set those rates and charges.
In 2004, Southland merged into Security Life of Denver Insurance Company
(SLD). As a result of this merger, SLD became the effective and liable insurer of the
Policy. But LOG continued to reinsure and administer the Policy and all of the other
Transferred Policies.
On May 25, 2005, SLD and LOG entered into an Amended and Restated
Administrative Services Agreement. Under the terms of that amended agreement,
4
LOG’s authorization to perform certain administrative functions relevant to the
Transferred Policies continued.
In 2005, Jackson acquired LOG and assumed the administration of the
Transferred Policies, including the authority to set non-guaranteed elements, such as
the cost of insurance.
On December 22, 2010, SLD and Jackson entered into an Amended and
Restated Indemnity Reinsurance Agreement. The purpose of that agreement was, in
part, “to make certain changes to the Original Agreement to reflect the results of [the]
mergers.” Id. at 102. A year later, on December 22, 2011, SLD and Jackson entered
into a Second Amended and Restated Indemnity Reinsurance Agreement in order to
make certain changes mandated by New York state insurance laws. These
agreements expressly continued Jackson’s authority to administer the Transferred
Policies. Id. at 235 (“the Company [SLD] continues to desire that the Reinsurer
[Jackson] perform certain administrative functions on behalf of the Company with
respect to the Policies in accordance with the terms of the Administrative Services
Agreement entered into by Southland and LOG”).
Thus, for many years now, SLD and Jackson have independently administered
separate groups of life insurance policies that were originally issued by SLD. There
is no indication “that SLD and Jackson made the same subjective, discretionary
decisions with respect to policy administration, or that such decisions were supported
by identical reasoning and analysis.” SLD Br. at 3.
5
II
On March 27, 2018, Barnes initiated this action by filing a complaint against
SLD in the United States District Court for the District of Colorado. The complaint
asserted subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d)(2).
Section I of the complaint, titled “NATURE OF ACTION,” stated, in
pertinent part: “This is a class action for breach of contract and conversion to recover
amounts that [SLD] charged Plaintiff and the proposed class in excess of the amounts
authorized by the express terms of their life insurance policies.” Id. at 11. Section I
further stated that “[t]he terms of Plaintiff’s life insurance policy provide for a ‘Cash
Value’ consisting of monies held in trust by [SLD] for Plaintiff, and [SLD] is
contractually bound to deduct from the Cash Value only those charges that are
explicitly identified and authorized by the policy’s terms,” yet, “[d]espite
unambiguous language in the policy, . . . [SLD] breaches the policy by deducting
charges from Plaintiff’s Cash Value in amounts exceeding those specifically
permitted by the policy, and those breaches are continuous and ongoing.” Id. at 12.
More specifically, the complaint alleged that, although SLD was authorized under the
Policy “to use only its ‘expectations as to future mortality experience’ when
determining Cost of Insurance Rates,” SLD actually “used other factors not
authorized by the Policy when determining such rates, including without limitation:
expense experience, persistency, taxes, profit assumptions, investment earnings,
capital and reserve requirement, and other unspecified factors.” Id. at 18.
The complaint identified the class as
6
[a]ll persons who own or owned a life insurance policy issued or
administered by [SLD], or its predecessors in interest, the terms of
which provide or provided for: 1) an insurance or cost of insurance
charge or deduction calculated using a rate that is determined based on
[SLD]’s expectations as to future mortality experience; 2) additional but
separate policy charges, deductions, or expenses; 3) an investment,
interest-bearing, or savings component; and 4) a death benefit.
Id. at 20.
Counts I through III of the complaint asserted distinct breach of contract
claims. Count I alleged, in pertinent part, that, “[b]y including unauthorized and
undisclosed factors in the monthly Cost of Insurance Rates, [SLD] deducts amounts
in excess of those contractually authorized under the terms of the [p]olicies” owned
by the class members. Id. at 23. Count II alleged, in pertinent part, that, “[b]y
including unauthorized expense factors in monthly Cost of Insurance Rates, [SLD]
impermissibly deducts expense charges from the Cash Values of Plaintiff and the
class in amounts in excess of the fixed and maximum expense charges expressly
authorized by their policies.” Id. at 24. Count III alleged, in pertinent part, that
SLD’s “failure to lower” the monthly Cost of Insurance Rates for the policies owned
by the class members, “even though its expectations of future mortality experience
improved[,] constitutes a breach of the [p]olicies.” Id.
Count IV of the complaint asserted a claim for conversion. Id. at 25. It
alleged that “Plaintiff and the class had a property interest in the funds [SLD]
deducted from the Cash Values in excess of the amounts permitted by the terms of
the Policies” and that, “[b]y deducting Cost of Insurance charges and expense
charges in unauthorized amounts from the Cash Values of Plaintiff and the class,
7
[SLD] assumed and exercised ownership over, and misappropriated or misapplied,
specific funds held in trust for the benefit of Plaintiff and the class, without
authorization or consent and in hostility to the rights of Plaintiff and class members.”
Id. Lastly, Count V of the complaint asserted a claim for declaratory and injunctive
relief.
On August 1, 2018, Jackson filed a motion for leave to intervene in the
proceedings. Jackson argued that it should be allowed to intervene as of right
because it has an interest related to the property or transaction that is the subject of
plaintiff’s action. Jackson explained that, “as the entity that currently administers
and reinsures the [plaintiff’s] Policy, [it] has a direct, substantial, and legally
protectable interest in defending the manner in which the Policy has been
administered by it.” Id. at 69. In other words, Jackson stated that, “[a]s
administrator, [it] has responsibility for certain administrative functions, including
the authority to set the [cost of insurance] rates and other charges at issue” in this
lawsuit. Id. at 69–70. Jackson in turn asserted that its interest might be impaired or
impeded if intervention was not permitted. Jackson noted, for example, that the
complaint effectively “challenges current activities and decision making by Jackson
and seeks declaratory and injunctive relief that seek to mandate that Jackson make
material changes to its administrative practices, specifically, its administration and
management of the relevant policies, including the ongoing determination of the
policy rates and charges at issue.” Id. at 70 (emphasis in original). Jackson noted
that “[f]or Plaintiff to obtain this prospective relief would require Jackson to stop
8
collecting charges and expenses in the amounts it determines are contractually
permissible, because Jackson is the entity currently responsible for administering the
[plaintiff’s] Policy.” Id. at 71 (emphasis in original). Jackson argued that it “would
[also] be ultimately responsible for damages awarded to Plaintiff and the putative
class for the past amounts [it] collected . . . .” Id. Lastly, Jackson argued that SLD
could not adequately represent Jackson’s interest. Jackson emphasized that there
were “two groups of policies implicated here [by the complaint’s class definition]—
those Jackson administered and those it did not,” and it noted that, as a result of this,
“the manner in which the charges and expenses at issue have been administered for
the two groups of policies . . . would have varied, and likely significantly so as
different entities were independently responsible for the actions alleged in the
Complaint . . . .” Id. Thus, Jackson argued, “there is a distinct possibility that [its]
and SLD’s interests and defense strategies may diverge in this litigation.” Id.
Jackson also argued that it met the requirements for permissive intervention.
Jackson noted that it sought “to intervene to defend its conduct with regard to the
administration of the reinsured policies” and that its “defense [wa]s central to the
essence of this case, which will turn on questions about how Jackson (or LOG before
it) administered the Policy and whether those acts constitute a breach of the Policy
terms.” Id. at 72. Jackson further argued that its “presence in this case w[ould] add
value to this litigation” because it “holds documents and controls witnesses that bear
on the administration of the rates and charges for Plaintiff’s Policy and other
Jackson-administered Southland policies challenged in this litigation.” Id. at 73.
9
Barnes opposed Jackson’s motion for leave to intervene. From a factual
perspective, Barnes asserted that he “never entered into a contract with Jackson,” and
that “SLD remain[ed] the insurer obligated to pay any insurance claims arising under
his policy.” Id. at 107–08. Barnes also asserted that the reinsurance agreement
afforded Jackson “the right to ‘assume the defense and control’ of the litigation,” as
well as the right to approve any settlement entered into between SLD and Barnes. Id.
at 111. In addition, Barnes noted that the reinsurance agreement required “Jackson
. . . to cooperate with any litigation against SLD relating to the policies subject to the
reinsurance agreement, including by producing documents and witnesses for
deposition.” Id.
As for his legal arguments, Barnes argued that Jackson’s “interest, if any,
relate[d] only to a subset of policies within the putative class period, and only for a
portion of the time relevant here.” Id. at 112. Barnes argued that he “should not be
required to litigate separately against Jackson . . . when Jackson . . . can direct the
defense of [his] claims and its interests in avoiding liability under the form policy
language are derivative of—and thus adequately represented by—SLD.” Id. In
terms of Jackson’s purported interest in the action, Barnes argued that Jackson’s
“assumption of liability would give it an indirect derivative interest, at most, in the
outcome of [his] claims.” Id. at 113. Barnes also argued that Jackson’s “objectives
in this litigation would be no different from SLD’s” because “[b]oth entities . . .
[we]re interested in successfully defending Plaintiff’s claim of breach of a form
contract, and hence in obtaining a ruling that the policy’s provisions permitted SLD
10
(whether acting through Jackson . . . or otherwise) to make the deductions it did.” Id.
at 117.
On October 29, 2018, Jackson filed a motion for leave to file a supplemental
brief in support of its motion for leave to intervene. Jackson noted in its motion for
leave “that recent [factual] developments in the litigation,” specifically a September
18, 2018 “Discovery Hearing” before the magistrate judge, “further confirm[ed] that
intervention . . . [wa]s appropriate.” Id. at 314. Those “discovery developments,”
Jackson asserted, “reveal[ed] that . . . Jackson, not having been served with either
party or non-party discovery, nevertheless [wa]s placed in an untenable position of
being without an appropriate forum in which to fully protect its interest as the current
parties proceed[ed] to make discovery demands on it.” Id. at 315. “For example,”
Jackson noted, it “lack[ed] appropriate standing under the Federal Rules of Civil
Procedure” to dispute the parties’ “contract interpretation” regarding Jackson’s
discovery obligations. Id.
On November 21, 2018, the district court issued a written order denying
Jackson’s motion to intervene and denying as moot Jackson’s motion to supplement.
At the outset of its order, the district court recounted the relevant factual history and
noted, in pertinent part, that “[i]n 2005, Jackson acquired LOG and assumed
responsibility for the administration and reinsurance of the Barnes Policy and
others.” Id. at 362. The district court in turn concluded that “[t]he administrative
services and reinsurance agreement” that Jackson inherited from LOG “address[ed]
SLD and Jackson’s rights and obligations when faced with litigation over the
11
Jackson-administered policies.” Id. The district court proceeded to describe those
rights and obligations. “Generally,” the district court noted, “Jackson ‘shall sue or
defend, at its own expense and in the name of [SLD] when necessary . . . any action
brought upon a Policy.’” Id. (quoting ECF No. 42-5 at 14, § 2.3(c)). “However,
SLD retains ‘the exclusive right to exercise control of and direction over any claim or
litigation involving Retained Liabilities.’” Id. “When SLD makes a timely notice of
a third-party claim, Jackson may ‘assume the defense and control’ of the litigation
and may, under certain circumstances, settle litigation without the consent of SLD.”
Id. at 362–363 (quoting ECF No. 42-6 at 42, § 1). “Importantly, however, SLD
cannot settle litigation without Jackson’s prior written consent,” and “[i]f Jackson
exercises its right to assume defense and control of the claim, SLD has the right (but
not the obligation) to reasonably participate in (but not control) the defense of claims
with its own counsel and at its own expense.” Id. at 363.
The district court in turn noted that “[o]n April 26, 2018, SLD sent a notice of
claim to Jackson informing Jackson of Barnes’ claim implicating life insurance
policies for which Jackson had assumed responsibility.” Id. The district court
further noted that, “[o]n May 7, 2018, Jackson responded to SLD’s letter
acknowledging its responsibility to indemnify SLD with respect to the Barnes
Policy.” Id.
The district court then proceeded to analyze Jackson’s request to intervene as
of right, concluding that “Jackson . . . fail[ed] to establish inadequate representation,
thus foreclosing intervention as of right.” Id. at 366. The district court explained
12
that “[t]wo facts persuade[d] [it] that Jackson’s interests [we]re already adequately
protected by SLD.” Id. at 367. “First,” the district court stated, “Jackson and SLD
have identical interests in the litigation: defending the cost of insurance coverage, as
well as the administration of the subject policies, including the Barnes Policy, from
1984 to present.” Id. Second, the district court noted that “Jackson ha[d] failed to
show that its interests would be inadequately represented [by SLD] absent
intervention,” and that, in fact, “Jackson has a contractual right to control this
litigation.” Id. at 368 (emphasis in original). Although the district court
acknowledged “Jackson[’s] conten[tion] that SLD ha[d] prevented it from exercising
its contractual right to direct and control the litigation,” the district court concluded
that Jackson’s remedy was to “assert a separate breach of contract claim in an
independent action against SLD,” or to “possibly assert breach of contract as a
defense if SLD [wa]s ultimately held liable in this litigation.” Id.
As for Jackson’s request for permissive intervention, the district court
concluded “that Jackson ha[d] not shown that permissive intervention would
contribute to the just resolution of this lawsuit.” Id. The district court acknowledged
that “Jackson’s control of documents and witnesses [wa]s admittedly complicated by
its ambiguous status (neither third party nor defendant).” Id. “However,” the district
court stated, “Jackson ha[d] not adequately addressed why party status [wa]s
preferable for the purposes of discovery, particularly in light of the availability to
Barnes of the issuance of third-party subpoenas, as well as Jackson’s contractual
13
obligations during litigation under the reinsurance and administrative service
contracts.” Id.
On December 20, 2018, Jackson filed a notice of appeal from the district
court’s order denying its motion to intervene.
III
Jackson argues on appeal that the district court erred in holding that Jackson
failed to satisfy the requirements for intervention as of right, and also abused its
discretion in holding that Jackson failed to satisfy the requirements for permissive
intervention. For the reasons that follow, we agree that the district court erred in
denying Jackson’s motion to intervene as of right. Consequently, we need not
address Jackson’s permissive intervention arguments.
Intervention as of right – requirements and standard of review
Intervention as of right is governed by Federal Rule of Civil Procedure
24(a)(2), which states:
On timely motion, the court must permit anyone to intervene who . . .
claims an interest relating to the property or transaction that is the
subject of the action, and is so situated that disposing of the action may
as a practical matter impair or impede the movant’s ability to protect its
interest, unless existing parties adequately represent that interest.
Fed. R. Civ. P. 24(a)(2). We have construed the plain language of this rule to mean
that “a nonparty seeking to intervene as of right must establish (1) timeliness, (2) an
interest relating to the property or transaction that is the subject of the action, (3) the
potential impairment of that interest, and (4) inadequate representation by existing
parties.” Kane Cty. v. United States, 928 F.3d 877, 889 (10th Cir. 2019).
14
Notably, we “follow[] a somewhat liberal line in allowing intervention.” Utah
Ass’n of Counties v. Clinton, 255 F.3d 1246, 1249 (10th Cir. 2001) (quotations
omitted). “The central concern in deciding whether intervention is proper is the
practical effect of the litigation on the applicant for intervention.” San Juan Cty. v.
United States, 503 F.3d 1163, 1193 (10th Cir. 2007) (en banc).
“We review a district court’s timeliness ruling for an abuse of discretion,
unless the district court makes no findings on timeliness; in that case, we review de
novo.” Kane Cty., 92 F.3d at 889. We review de novo the district court’s rulings on
the remaining three requirements. Id.
Analysis of Jackson’s motion to intervene as of right
Because it is undisputed that Jackson’s motion to intervene was timely, we
focus our analysis on the remaining three requirements for intervention as of right
and apply de novo review.
A. Barnes’s interest in the subject of the action
“Whether an applicant has an interest sufficient to warrant intervention as a
matter of right is a highly fact-specific determination, and the interest test is
primarily a practical guide to disposing of lawsuits by involving as many apparently
concerned persons as is compatible with efficiency and due process.” Id. (citations
and quotations omitted). Coal. of Ariz./N.M. Ctys. for Stable Econ. Growth v. Dep’t
of Interior, 100 F.3d 837, 840 (10th Cir. 1996). We “require that the interest in the
proceedings be direct, substantial, and legally protectable.” Id. (quotations and
brackets omitted). “A protectable interest is one that would be impeded by the
15
disposition of the action.” W. Energy All. v. Zinke, 877 F.3d 1157, 1165 (10th Cir.
2017) (quotations omitted).
Jackson makes a number of compelling arguments for why its interest in this
proceeding satisfies these requirements. To begin with, Jackson notes that “the
subject of the underlying action is the Barnes Policy,” and Jackson in turn asserts
that, “as the entity that currently administers (and reinsures)” the Barnes Policy, it
“has a direct, substantial, and legally protectable interest in defending the manner in
which the Policy has been administered by it.” Aplt. Br. at 17. “More specifically,”
Jackson argues that, “as administrator, [it] has contractual responsibility for certain
administrative functions, including the authority to set the [cost of insurance] rates
and other charges — the principal activity challenged here.” Id. at 18 (emphasis in
original). Further, Jackson asserts, “[a]s the 100% indemnity reinsurer, [it] also has
the responsibility for any covered liabilities that arise under or relate to the Barnes
Policy, including its administration, and thereby may ultimately be liable to SLD for
any nonmonetary judgment imposed against SLD for the reinsured policies, including
the Barnes Policy.” Id. Lastly, Jackson notes that the declaratory and injunctive
relief sought by Barnes, if granted, would effectively “compel Jackson prospectively
to make material changes to its administrative practices.”1 Id. (emphasis in original).
1
As SLD itself notes in its appellate brief, “[a]n order entered in an action
Jackson was not named to and was not allowed to join would at a minimum raise
serious questions about its enforceability—and very likely would be ineffective—as
to the Jackson block” of policies. SLD Br. at 2 n.2. Notably, the dissent wholly
ignores Barnes’s request for prospective injunctive relief. Further, the dissent
concludes, incorrectly, that “Jackson’s only interest in the Barnes litigation is in its
16
Barnes argues, in response, that the interests identified by Jackson are not
direct interests, but rather interests that “are derivative of SLD’s.” Aple. Br. at 15.
In support, Barnes asserts that, under the terms of the Amended and Restated
Administrative Services Agreement entered into between SLD and LOG and assumed
by Jackson, “Jackson makes ‘recommendations’ regarding all ‘Non-Guaranteed
Elements of the Policies’ such as the cost of insurance rates, and SLD has the right to
reject those recommendations.” Id. at 15–16. But Barnes misreads the terms of the
Amended and Restated Administrative Services Agreement in making this argument.
That agreement gave Jackson, in pertinent part, the responsibility of “(i) making
recommendations to, and consulting with, [SLD] with respect to the reserving
methodology related to the Policies . . . and (ii) the establishment and variance of all
Non-Guaranteed Elements of the Policies,” including the cost of insurance rates.
Aplt. App., Vol. I at 208. The phrase “making recommendations” modified only the
duties outlined in subsection (i), and not the duties outlined in subsection (ii).
Subsection (ii) quite clearly gave Jackson the responsibility of “establishing” and
“varying” cost of insurance rates, and not just making recommendations about those
rates to SLD. Thus, the allegations in Barnes’s complaint quite clearly implicate,
with respect to the Transferred Policies, a duty that SLD and Jackson expressly
agreed to allocate exclusively to Jackson, and that Jackson and its predecessor LOG
capacity as an indemnitor of SLD.” Dissent at 9. As noted, Jackson’s role as
administrator of the Transferred Policies gives it a significant interest in the outcome
of this case.
17
have been carrying out since 2002. See SLD Br. at 1 (“[F]or most of this century,
Jackson has made all challenged decisions with respect to Barnes’s policy.”).
Barnes also argues that Jackson’s “indemnity obligation is a derivative interest
too.” Aple. Br. at 16. More specifically, Barnes argues that “SLD is the effective
and liable insurer of the putative class Policies,” and Jackson’s financial
responsibility “is to SLD—not Barnes—and arises out of SLD’s indemnification
claim.” Id. (quotations and brackets omitted). Again, however, Barnes misreads or
misrepresents the relevant facts. To be sure, under the terms of the Second Amended
and Restated Indemnity Reinsurance Agreement, Jackson acts as the indemnity
reinsurer for all of the Transferred Policies, including Barnes’s Policy, and thus
effectively indemnifies SLD for any “gross liabilities and obligations arising under or
relating to” the Transferred Policies. Aplt. App., Vol. I at 237, 241. That indemnity
reinsurance obligation does not extend, however, to “extra contractual obligations”
relating to the policies, including “consequential, exemplary or other form[s] of
extra-contractual damages, which liabilities or obligations arise from any act, error or
omission . . . relating to . . . administration of the Policies.” Id. at 237. Instead,
under the terms of the Second Amended and Restated Indemnity Reinsurance
Agreement, Jackson “agree[d] to assume and discharge one hundred percent (100%)
of all Extra Contractual Obligations,” and thus bears the sole “responsibility for
paying or otherwise discharging, as and when due, all Extra Contractual
Obligations.” Id. at 242. Thus, it appears that Jackson, and not SLD, will bear the
responsibility for paying any liability arising out of the misadministration of the
18
Transferred Policies. Further, even assuming, for purposes of argument, that the
Second Amended and Restated Indemnity Reinsurance Agreement did obligate
Jackson to reimburse SLD for any liability imposed in this action, it is clear that
Jackson has a financial interest in the proceeding that is sufficient to satisfy the
minimal burden we have imposed for intervention as of right.
For these reasons, we conclude that Jackson has established an interest in this
action that is direct, substantial, and legally protectable for the purposes of
intervention under Rule 24(a)(2). Further and relatedly, we conclude that Jackson
has established that its participation in this action would be “compatible with
efficiency and due process.”2 Coal. of Ariz., 100 F.3d at 841.
b) Impairment of Jackson’s interest if intervention is denied
“To satisfy [the impairment] element of the intervention test, a would-be
intervenor must show only that impairment of its substantial legal interest is possible
if intervention is denied. This burden is minimal.” WildEarth, 573 F.3d at 995
(quotations omitted). “Such impairment or impediment need not be of a strictly legal
nature.” Coal. of Ariz., 100 F.3d at 844 (quotations omitted). Rather, this court
“may consider any significant legal effect in the applicant’s interest and [is] not
restricted to a rigid res judicata test.” Id. (quotations and brackets omitted). “If an
absentee would be substantially affected in a practical sense by the determination
2
The dissent’s suggested approach—requiring Jackson to await a final
judgment in this case and then, perhaps, being subjected to a subsequent suit by
SLD—is counter to the notions of efficiency and due process.
19
made in an action, he should, as a general rule, be entitled to intervene.” WildEarth,
573 F.3d at 995 (quotations omitted).
Jackson argues that its “legally protectable interest in the Barnes Policy—
including its ability to manage the Policy in its economic interest and its potential
responsibility for liabilities that arise under or relate to the Policy—may be impaired
if [it] is not permitted to intervene.” Aplt. Br. at 19. In other words, Jackson argues,
“the very foundation for the economic benefits that Jackson obtained in acquiring
[from SLD] the block of policies it administers and reinsures are directly threatened
by Barnes’s Complaint.” Id.
Barnes argues, however, that “[b]ecause Jackson has no direct interest at issue
in this litigation, Jackson cannot establish that this case sufficiently threatens to
impair its interests to warrant intervention.” Aple. Br. at 20. Having already
concluded that Jackson does indeed have a direct interest at issue in this litigation,
we reject Barnes’s argument.
Moreover, for essentially the reasons outlined above, we conclude that this
case does pose a threat of impairment to Jackson’s interests. To begin with, Jackson
is responsible for administering the Transferred Policies, including Barnes’s Policy,
and Barnes’s claims directly implicate those administrative duties. Specifically,
Barnes’s complaint effectively alleges (although it mentions only SLD) that Jackson
acted improperly in calculating and deducting certain administrative costs with
respect to the Transferred Policies. And, if Barnes were to prevail in this action, that
would impact Jackson both monetarily and practically, in terms of having to modify
20
(or at least deciding whether or not to modify) the manner in which it carries out its
administrative duties with respect to the Transferred Policies.
Thus, we conclude that Jackson easily satisfies the minimal burden of showing
the potential for impairment of its interests.
c) Will SLD adequately represent Jackson’s interest?
“The remaining requisite for intervention is that [Jackson’s] interest not be
adequately represented by the existing parties to the litigation.” WildEarth, 573 F.3d
at 996. Notably, we have also characterized this burden as “minimal.” Id.
(quotations omitted). “The possibility of divergence need not be great in order to
satisfy th[is] burden.” Id. (quotations and brackets omitted). “An intervenor need
only show the possibility of inadequate representation.” Id. (brackets and quotations
omitted; emphasis in original). Only “when the objective of the applicant for
intervention is identical to that of one of the parties” is representation considered to
be adequate.3 Coal. of Ariz., 100 F.3d at 845 (quotations omitted).
The district court concluded “that Jackson’s interests are already adequately
protected by SLD.” Aplt. App., Vol. 2 at 367. In support, the district court noted
that “Jackson and SLD have identical interests in the litigation: defending the cost of
insurance coverage, as well as the administration of the subject policies, including
3
The dissent suggests that “a concrete showing of inadequacy is necessary.”
Dissent at 15. But that assumes, incorrectly, that the interests of Jackson and SLD
are identical. Quite clearly they are not. Under the express terms of the Second
Amended and Restated Indemnity Reinsurance Agreement, only Jackson is
responsible for administering the Transferred Policies and, in turn, for discharging
any liabilities arising out of errors or improprieties in that administration.
21
the Barnes Policy, from 1984 to present.” Id. The district court also noted that
“Jackson has a contractual right to control this litigation.” Id. at 368 (emphasis in
original). The district court noted that “[i]f SLD has prevented Jackson from
exercising a contractual obligation under the reinsurance and administrative services
agreements, Jackson may assert a separate breach of contract claim in an independent
action against SLD, or could possibly assert breach of contract as a defense if SLD is
ultimately held liable in this litigation.” Id.
We conclude that the district court erred in both regards. To begin with, we
conclude that the interests of Jackson and SLD are not identical. To be sure, Jackson
and SLD are both undoubtedly interested in defending against, and ultimately
defeating, the claims asserted in Barnes’s complaint. From there, however, their
interests clearly diverge. SLD will presumably defend against Barnes’s claims, in
part, by asserting that it was Jackson, and not SLD, that was responsible for
administering the Transferred Policies. Moreover, as Jackson asserts on appeal,
“given that the charges and expenses for the two distinct groups of policies
implicated here have been managed by different insurers, there is no good reason to
assume that Jackson’s and SLD’s interests and defense strategies will coincide in all
respects at every stage in this litigation with respect to what amounts to two different
sub-classes of policies.” Aplt. Br. at 21. “Differences in their pertinent
administrative practices could prompt different factual defenses and strategies, both
as to class certification-related arguments and the merits.” Id. Further, and relatedly,
SLD’s counsel cannot be expected to act in the best interests of both SLD and
22
Jackson. Rather, SLD’s counsel will, and should, act only in the best interests of its
client, SLD. And, indeed, SLD admits as much in its appellate brief, noting that it
“has no incentive to reduce liabilities imposed on Jackson for Jackson’s unique
conduct.”4 SLD Br. at 4. We therefore conclude that Jackson easily satisfies the
“minimal” burden of establishing a “possibility” that its interests will not be
adequately represented by SLD.
As for Jackson’s purported right to control the litigation, SLD correctly notes
in its appellate brief that, “[b]ecause of the way Barnes pled his Complaint, there is
no simple solution for a single party to control the entire defense of this matter.” Id.
at 6. Jackson and SLD are each entitled to control the defense of the claims asserted
against them: Jackson with respect to the Transferred Policies that it administers, and
SLD with respect to the other policies that it administers. Consequently, and
understandably, SLD is “unwilling to cede unfettered control of the [entire] litigation
to Jackson, because to do so would be to allow Jackson to control the defense of
claims for which SLD (and not Jackson) is liable.” Id. at 4.
Jackson argues, and correctly so, that the district court erred in concluding that
Jackson made “an unsupported allegation that SLD has withheld authorization for
Jackson to direct the litigation because of a divergence of interests.” Aplt. App., Vol.
2 at 368 (emphasis in original). The district court characterized this as a “sweeping,
4
Notably, SLD fully supports Jackson’s position regarding intervention and
asserts that “the district court erred in denying Jackson’s Rule 24 motion to
intervene.” SLD Br. at 1.
23
unsupported claim[].” Id. As a matter of fact, however, Jackson’s assertion is
correct. As noted, SLD acknowledges in its appellate brief that it has refused to
allow Jackson to control the litigation because SLD believes, and reasonably so, that
its own unique interests are at stake, i.e., the fact that SLD was and is responsible for
administering a sub-class of the policies at issue.
In sum, we conclude that Jackson has “made the minimal showing necessary to
suggest that [SLD]’s representation may be inadequate.” Coal. of Ariz., 100 F.3d at
846.
d) Conclusion
Because Jackson has satisfied each of the four requirements for intervention as
of right under Rule 24(a)(2), we conclude that the district court erred in denying
Jackson’s motion to intervene.
III
We REVERSE the district court’s denial of Jackson’s motion to intervene as
of right and REMAND with directions to grant that motion.
24
18-1487, Barnes v. Security Life
HARTZ, Circuit Judge, dissenting.
The question before this court is whether Jackson is entitled to intervene as of
right in litigation by Barnes (and other potential class members) against SLD. Jackson
has a contractual duty to indemnify SLD with respect to Barnes’s claims based on SLD
insurance policies administered by Jackson. In holding that Jackson is entitled to
intervene, the majority opinion determines that Jackson has made a sufficient showing
that SLD may not adequately represent Jackson’s interests regarding claims on those
policies. I disagree and respectfully dissent.
I. Overview
The majority opinion ignores the impact of the law of judgments on the
relationship between an indemnitor (such as Jackson) and an indemnitee (such as SLD).
I will discuss the law of judgments at some length below. For the present purpose of
introducing my dissent, an abbreviated version will suffice. In light of the law of
judgments, it would ordinarily be irrational of SLD not to forcefully represent Jackson’s
interests in the Barnes litigation. This is because if SLD does not adequately represent
Jackson’s interests, a judgment against SLD in the Barnes litigation will have no
preclusive effect against Jackson if SLD seeks indemnification from Jackson. To obtain
indemnification, SLD would thus need to prove from scratch in litigation against Jackson
that SLD was truly liable to the Barnes plaintiffs with respect to the insurance policies
administered by Jackson. The risk is obvious. If SLD does a poor job of defending itself
with respect to the Jackson-administered policies (for which it expects to be indemnified
by Jackson), it could find itself stuck with paying the Barnes judgment on its own.
The only circumstance that could justify SLD in not vigorously representing
Jackson’s interests would be if the two insurers had a true conflict of interest—that is, if
SLD could not represent an interest of Jackson without harming its own interests. Yet
Jackson does not even articulate such a conflict of interest. All it does is speculate that it
and SLD have differed in the way they compute cost-of-insurance expenses for the
insurance policies they administer. It does not suggest in any way that for SLD to defend
the computations by Jackson, it (SLD) would have to undermine its defense of its own
computations. Moreover, Jackson does not even provide any evidence that it and SLD in
fact differ in the way they compute cost-of-insurance expenses, despite the fact that it
would be easy to obtain that information.
For this court to reverse the district court’s denial of intervention as of right on the
slim (devoid of evidence) record before us is to read the inadequate-representation
requirement out of the rule governing intervention as of right. The majority may believe
that it is no big deal to add an additional party whenever that party thinks it is
advantageous to join the litigation; but that is not the law. Adding a party necessarily
imposes additional burdens on the court and other parties. To do so when there is every
reason to expect (and no reason not to expect) that the interests of the party will be well
represented in its absence hardly increases the efficiency of the judicial process. That is
why the rulemakers included the inadequate-representation requirement. We should
respect that decision.
2
The majority opinion relies on the general rule that a movant seeking intervention
as of right has a “minimal” burden to show inadequate representation when the movant
has interests different from those of any of the existing parties. To begin with, I question
whether even that “minimal” standard has been satisfied. Jackson’s argument for
intervention amounts to a claim that Jackson and SLD may have calculated (and may still
be calculating) cost-of-insurance expenses in a different manner from one another and
that SLD may not adequately defend Jackson’s method of calculation. But Jackson
provides no reason to believe that its method of calculation differs from SLD’s nor does
it explain why they might differ. This is remarkable given how easy it would be for
Jackson to show the difference, particularly when SLD is supporting Jackson’s motion to
intervene (even going so far as to submit a brief in this court). One can only conclude
that Jackson has failed to make any effort to determine whether its method of calculation
is different from that of SLD. And the obvious inference from that failure is that
Jackson’s desire to intervene has nothing to do with the possibility of different methods
of calculation. Some other motive is at play. Perhaps Jackson’s motive for intervention
(and SLD’s motive for supporting intervention) is simply to enable the two insurers to tag
team the Barnes plaintiffs. In the circumstances presented here, I would say that not even
the “minimal” standard has been met.
More importantly, however, Jackson has failed to show that it has any interest in
the litigation that is not shared by its indemnitee, SLD. It is important to understand what
is meant by interest in this context. Courts care whether the person moving to intervene
and a party to the litigation have different interests only if that difference could cause the
3
party not to adequately represent the interests of the movant. The relevant interest,
therefore, is an interest in proving or disproving something in the litigation. If the
movant and a party have identical interests in what ultimately is proved or disproved in
the case—that is, they share the same litigation objectives—then it is of no concern to the
court whether they have different interests in some other dimension. This meaning of
interests in the adequate-representation context is of the utmost importance in this case,
because, as already mentioned and as will be more fully explained below, an indemnitee
has compelling reasons to adopt all the litigation objectives of its indemnitor in litigation
against the indemnitee. To do otherwise, is to invite disaster; the indemnitee would risk
having a judgment against it for which it could not obtain indemnification from the
indemnitor. An indemnitee’s failure to adopt the interests of the indemnitor could be
justified only if there was a true conflict of interest between the indemnitor and
indemnitee, not just differing interests that the indemnitee could accommodate without
sacrificing its own interests. But there is zero evidence of such conflict in this case.
Indeed, Jackson does not even allege such a conflict, only a difference of interests.
The remainder of this opinion will (1) analyze the relevant interests of Jackson at
stake in the Barnes litigation, (2) discuss the relevant law-of-judgments doctrine, (3)
summarize the relevant portions of the law governing intervention as of right,1 and (4)
apply the law to the facts of this case.
1
I do not address permissive intervention. The majority opinion does not suggest that
the district court abused its discretion in denying permissive intervention.
4
II. Jackson’s Interests in the Barnes Litigation
Barnes’s suit alleges that SLD improperly calculated cost-of-insurance expenses,
thereby reducing the cash value of life-insurance policies issued to Barnes and putative
class members beyond what was contractually authorized. Barnes and some other
putative class members have SLD policies administered by Jackson. A contract between
SLD and Jackson requires Jackson to indemnify SLD for any liabilities arising from
Jackson’s administration of those policies. It also provides that Jackson has a right to
assume and control the defense of such claims against SLD (which, of course, protects
SLD against any claim that it did not adequately defend Jackson’s interests in any suit
against SLD arising out of those policies). The other putative class members, however,
have SLD policies not administered by Jackson. This complicates matters because SLD
reasonably desires to maintain its own representation to defend claims by those policy
owners. Jackson may be willing to defend those claims as well as the claims based on
policies administered by Jackson. But Jackson would have no skin in the game regarding
those policies that it does not administer; if it unsuccessfully defends against claims
based on policies it does not administer, it has no duty to indemnify SLD for any
judgment against SLD on those policies. One can understand why SLD would not wish
to turn over defense of the claims to someone who has no financial interest in a
successful defense of the claims.
On the other hand, leaving the defense of the Barnes litigation solely to SLD
could, theoretically, also be problematic. Jackson expresses concern that if SLD controls
the defense of all the claims against it under the Barnes litigation, SLD will not
5
adequately represent Jackson’s interests with respect to the claims based on policies
administered by Jackson, for which Jackson has a duty to indemnify SLD. (Perhaps
Jackson has not been aware that SLD would have strong incentives to properly represent
Jackson because of the effect of the law of judgments, which is never referenced in its
briefing.)
It is therefore necessary to examine carefully what interests Jackson has in the
Barnes litigation. Before identifying those interests, however, it is necessary to clear a
little smoke from the air. The majority opinion makes an incorrect statement about the
nature of the potential liabilities of Jackson and SLD to the Barnes plaintiffs; and even if
it were true, it would be irrelevant to the intervention issue. The opinion says that “it
appears that Jackson, and not SLD, will bear the responsibility for paying any liability
arising out of the misadministration of the [policies administered by Jackson].” Maj. Op.
at 18–19. I read this as saying that SLD would not be liable to the plaintiffs for
miscalculating the cost-of-insurance expenses but that Jackson could be held liable. This
is incorrect. The opinion relies on a contract provision between Jackson and SLD stating
that Jackson “agrees to assume and discharge one hundred percent (100%) of all Extra
Contractual Obligations.” Aplt. App., Vol. I at 242. But the Barnes complaint is not
based on any extracontractual obligations. It alleges only violations of SLD’s contracts
with the plaintiffs.2 So the above-quoted language of the contract between Jackson and
2
Barnes’s complaint also contains a conversion claim. But the claim is essentially the
same as the contract claim; it alleges only that SLD took funds that, under the insurance
contracts, belong to the insureds.
6
SLD does not even apply on its face. In addition, the plaintiffs entered into contracts
with SLD, not Jackson. If the contracts were, as alleged in the Barnes complaint,
administered in violation of the contract, liability lies with the contractual partner of the
plaintiffs, which is SLD, not Jackson. Further, I do not see how a contract between
Jackson and SLD could relieve SLD of its contractual obligations (or any other
obligations for that matter) to policyholders.
In any event, even if the statement in the majority opinion were true, it would not
present a reason why Jackson should be allowed to, or even want to, intervene. If the
Barnes court determined that liability rests with Jackson rather than SLD, Jackson would
have nothing to fear. In that circumstance, SLD would be exonerated and would not be
seeking any indemnification from Jackson. And the determination that liability lies with
Jackson could have no effect on Jackson. The majority opinion does not explain how
liability could be imposed directly on Jackson when it is not a defendant in the Barnes
litigation. Thus, Jackson (if it is not permitted to intervene) would hardly suffer if the
Barnes litigation determines that it is Jackson, rather than SLD, that is liable to the
plaintiffs. The fact that Jackson, rather than SLD, might be the insurer liable to the
Barnes plaintiffs would not be a reason for Jackson to wish to intervene; on the contrary,
it would be a reason for Jackson to stay out of the litigation to avoid an adverse judgment
against it.
7
Now to Jackson’s actual interests. As I understand the briefs, Jackson has
expressed concerns about two possible rulings against SLD. The first is that Barnes will
obtain a judgment that SLD has miscomputed the cash value of the class members’
insurance policies by deducting too much in cost-of-insurance expenses over the years. (I
suspect that for many, perhaps most, policyholders the judgment will require nothing
more than changes in bookkeeping entries.3) Jackson apparently assumes that if such a
judgment is entered against SLD, it will be required to indemnify SLD for any loss
sustained on the policies that Jackson administered.
The second possible ruling that Jackson is worried about is a declaratory judgment
and injunction requiring a change for the future in how the cost-of-insurance expenses are
calculated. As far as I can tell, this is essentially the same claim as the one for past
excessive deductions for cost-of-insurance expenses; it just requires that the corrective
actions be continued in future years. Although Jackson characterizes such a judgment as
affecting its administration of the policies, the judgment would not, for example, tell
Jackson what its hiring or compensation practices would have to be. The plaintiffs have
no particular interest in the administrative practices of SLD (or Jackson). They are
interested in the bottom line—money, the cash value of their policies. The first
paragraph of the Barnes complaint states that it is “a class action for breach of contract
3
There will, however, be occasions on which the cash-value entry has already had
financial consequences. For example, (1) if the policyholder died, the beneficiaries
should have received the policy death benefit plus the cash value of the policy; and (2) if
the cash value has disappeared because of deductions for improper expenses, the
policyholder may have had to make premium payments that should have come out of the
cash value.
8
and conversion to recover amounts that [SLD] charged [Barnes] and the proposed class
in excess of the amounts authorized by the express terms of their life insurance policies.”
Aplt. App. at 11 (emphasis added). The judgment would be purely financial in nature,
simply ordering that certain expenses not be deducted from the cash value of the policies
in the future. A Barnes judgment could require SLD to credit the insured with a greater
policy cash value. But it could not in itself require Jackson, who is not a party, to do
anything. In particular, it could not require Jackson to pay out any more money than it
believes is due or even to change its bookkeeping practices. And SLD could not compel
Jackson to do anything different without either showing that Jackson is bound by the
Barnes judgment or proving in litigation against Jackson that the judgment against SLD
was correct.4
In short, Jackson’s only interest in the Barnes litigation is in its capacity as an
indemnitor of SLD. Its concern is that if judgment is entered against SLD, requiring SLD
to credit and pay money to the Barnes plaintiffs, SLD will make Jackson assume the duty
to credit and pay that money to the plaintiffs. Although the majority opinion insists that
Jackson has an interest as an administrator, not just as an indemnitor, the opinion does
not identify anything that a Barnes judgment could ultimately compel Jackson to do
except credit and pay money. Moreover, the opinion does not explain why the label for
4
The majority opinion interprets the agreement between SLD and Jackson as permitting
Jackson to compute the cost-of-insurance expenses without obtaining approval from
SLD.
9
Jackson’s duties (administrator, as opposed to indemnitor) makes any difference in the
analysis of the ultimate issue—whether SLD (because of the law of judgments) has the
same litigation objectives as Jackson and is therefore presumed to adequately represent
Jackson’s interests.
Hence it is necessary to examine the effects on Jackson of a potential judgment
against SLD in the Barnes litigation. This is a matter addressed by the law of judgments.
III. Indemnitees Under the Law of Judgments
The Restatement (Second) of Judgments (the Restatement) § 57 (1982), entitled
“Effect on Indemnitor of Judgment Against Indemnitee,” addresses when an indemnitor
(such as Jackson) is bound by a judgment against the indemnitee (such as SLD). (Section
58, which addresses the same issue when the indemnitor has an independent duty to
defend the indemnitee, is not applicable here.) As it turns out, § 57 provides Jackson
with the protection it seeks in this case—it cannot be bound as an indemnitor to SLD
unless either (1) SLD adequately represents Jackson’s interests in the Barnes litigation or
(2) it has an opportunity to defend against the Barnes allegations (by challenging those
allegations in a separate suit against it by SLD for indemnification). The blackletter of §
57 states in full:
(1) Except as stated in Subsection (2), when one person (the indemnitor)
has an obligation to indemnify another (the indemnitee) for a liability of the
indemnitee to a third person, and an action is brought by the injured person
against the indemnitee and the indemnitor is given reasonable notice of the
action and an opportunity to assume or participate in its defense, a
judgment for the injured person has the following effects on the indemnitor
in a subsequent action by the indemnitee for indemnification:
10
(a) The indemnitor is estopped from disputing the existence and
extent of the indemnitee’s liability to the injured person; and
(b) The indemnitor is precluded from relitigating issues determined
in the action against the indemnitee if:
(i) the indemnitor defended the action against the indemnitee;
or
(ii) the indemnitee defended the action with due diligence and
reasonable prudence.
(2) If there is a conflict of interest between the indemnitee and the
indemnitor regarding the injured person’s claim against the indemnitee, so
that the indemnitor could not properly have assumed the defense of the
indemnitee, a judgment for the injured person precludes the indemnitor
only with respect to issues determined in that action as to which:
(a) there was no conflict of interest between the indemnitee and the
indemnitor; and
(b) the indemnitee conducted a defense with due diligence and
reasonable prudence.
(3) A “conflict of interest” for purposes of this Section exists when the
injured person’s claim against the indemnitee is such that it could be
sustained on different grounds, one of which is within the scope of the
indemnitor’s obligation to indemnify and another of which is not.
(emphasis added).
Thus, if SLD defends the suit brought against it by Barnes, then Jackson may be
“estopped from disputing the existence and extent of [Jackson’s] liability to [the Barnes
plaintiffs]” and may be “precluded from relitigating issues determined in the action
against [SLD],” but only if SLD “defended the [Barnes] action with due diligence and
reasonable prudence.” Restatement § 57. (If SLD does not adequately defend Jackson’s
interests, it could still obtain indemnification from Jackson, but it would have to prove
from scratch that it was liable to Barnes in the amount of the judgment.) Also, if there is
a conflict of interest between Jackson and SLD regarding the Barnes claims against SLD,
11
then Jackson can be bound “only with respect to issues determined in [the Barnes
litigation] as to which . . . there was no conflict of interest between [SLD] and [Jackson].”
The comments to this Restatement section express the rule in terms of adequate
representation. Comment a to § 57 explains, “[I]f the indemnitor does not assume control
of the defense, he can be bound by the determinations in the action only to the extent the
indemnitee can be said to have adequately represented him in defending the action.”
(emphasis added). Comment c addresses conflicts of interest: “Accordingly, when the
claim against the indemnitee is one as to which he and the indemnitor have a conflict of
interest, the indemnitor is not estopped in a subsequent action on the indemnity obligation
to dispute the existence or extent of the indemnitee’s liability to the injured person.”
Later the comment explains:
When, because of conflict of interest between the indemnitee and
indemnitor, the indemnitor cannot properly take over the defense of the
indemnitee, the situation is one of a justified refusal by the indemnitor to
defend the action. If the indemnitee defaults or otherwise does not conduct
a reasonably proper defense of the action, the judgment has no effects on
the indemnitor because it cannot be said that the indemnitee adequately
represented him.
(emphasis added).
In other words, if SLD has a conflict of interest with Jackson or otherwise does not
adequately represent Jackson’s interests in the Barnes litigation, then Jackson is not
bound by a judgment in the Barnes litigation as far as its indemnification of SLD is
concerned.
Given this law, it is apparent that a defendant-indemnitee has powerful reasons for
vigorously representing the interests of the indemnitor when it is sued if it wishes
12
ultimately to be indemnified by the indemnitor. If the defendant adequately defends the
plaintiff’s claims against it but nevertheless loses, the indemnitor cannot later challenge
the existence and extent of the defendant’s liability to the plaintiff. To obtain
indemnification, the defendant need only show that the indemnification contract
encompasses the liability incurred. If, on the other hand, the defendant does not
adequately defend the plaintiff’s claim, it can be whipsawed. It will be liable on the
judgment obtained by the plaintiff against it; but in seeking indemnification from the
indemnitor, it will need to prove its own case that it was in fact liable to the plaintiff. It
faces the possibility that the plaintiff will succeed in proving liability against it but that it
will fail to prove its own liability in seeking indemnification against the indemnitor. To
avoid this whipsaw, the indemnitee will, absent special circumstances, align its interests
with those of its indemnitor.
IV. Intervention/Adequate Representation
Fed. R. Civ. P. 24(a) governs whether a movant is entitled to intervene as of right
in ongoing litigation. The movant must make certain showings. Among them is that its
interests will not be adequately represented by existing parties. See Fed. R. Civ. P.
24(a)(2); Nat. Res. Def. Council, Inc. v. U.S. Nuclear Regulatory Comm’n, 578 F.2d
1341, 1345 (10th Cir. 1978) (burden is on movant to show inadequate representation).
The Supreme Court and this court have said that this is a minimal burden of showing that
the representation of its interests “may be” inadequate. Trbovich v. United Mine Workers
of Am., 404 U.S. 528, 538 n.10 (1972) (citing 3B J. Moore, Federal Practice 24.09—1 [4]
(1969)); Nat. Res. Def. Council, 578 F.2d at 1345. But the requirement “may not be
13
ignored entirely.” 6 James Wm. Moore et al., Moore’s Federal Practice § 24.03[4][a]
(3d ed. 2011) (“For example, a difference between the existing parties and the movants to
intervene as to the motives for litigation does not establish inadequacy of representation
in the litigation.”); see Kane Cty., Utah v. United States, 928 F.3d 877, 892 (10th Cir.
2019) (“[R]epresentation is not inadequate simply because the applicant and the
representative disagree regarding the facts or law of the case.” (internal quotation marks
omitted)). After the Civil Rules Committee liberalized the standard for intervention as of
right in 1966, the summary of the revisions by the Reporter for the Committee spoke in
terms of “thrash[ing] out” whether representation would be adequate in the particular
case. Benjamin Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of
the Federal Rules of Civil Procedure (I), 81 Harv. L. Rev. 356, 402 (1967). Thrashing
out, I would think, requires a more vigorous examination by the court than mere passive
acceptance of assertions unsupported by concrete evidence.
The movant’s burden cannot be satisfied by mere speculation. See Students for
Fair Admissions, Inc. v. President & Fellows of Harvard College, 807 F.3d 472, 475 (1st
Cir. 2015) (the potential intervenors—a group of current and prospective Harvard
students—had to produce “something more than speculation as to the purported
inadequacy of representation” by Harvard College in a suit challenging the college’s
consideration of race in admissions decisions, and the students failed to meet this
minimal burden because they had adopted “four-square” Harvard’s goal of defending its
admission policies (internal quotation marks omitted)).
14
The burden of showing the likelihood of inadequacy of representation is
particularly important when, as in this case, a party and the prospective intervenor have
the same objectives. In that circumstance, we require more than a showing that
representation may be inadequate; a concrete showing of inadequacy is necessary. See,
e.g., Tri-State Generation & Transmission Ass’n, Inc. v. New Mexico Pub. Regulation
Comm’n, 787 F.3d 1068, 1072–73 (10th Cir. 2015) (applying a presumption of adequate
representation, which can be overcome only by a “concrete showing,” when the
prospective intervenor, a member of the plaintiff regional electric distribution
cooperative, shared the same litigation objective as the government defendant:
preserving the defendant’s jurisdiction over the cooperatives’ wholesale electricity rates);
City of Stilwell, Okl. v. Ozarks Rural Elec. Co-op. Corp., 79 F.3d 1038, 1042–43 (10th
Cir. 1996) (requiring a cooperative that supplies electric power to member distributors to
make a concrete showing of inadequate representation by its member in order to
intervene in a condemnation action brought against the member by the city); Bottoms v.
Dresser Indus., Inc., 797 F.2d 869, 872 (10th Cir. 1986) (applying a presumption of
adequate representation where the prospective intervenor, although claiming that the
plaintiff owed him a 50% interest in a patent, nonetheless shared the plaintiff’s goal of
obtaining the greatest possible recovery for defendant’s alleged breach of the patent
licensing agreement). Other circuits agree. See, e.g, Stuart v. Huff, 706 F.3d 345, 350–
52 (4th Cir. 2013) (applying a presumption of adequate representation, which could be
overcome only by a strong showing, because the government agency in the suit and the
would-be intervenors both sought to have an abortion-related statute upheld as
15
constitutional); Maine v. Dir., U.S. Fish & Wildlife Serv., 262 F.3d 13, 19 (1st Cir. 2001)
(employing an “assumption, subject to evidence to the contrary,” that federal agencies
would adequately defend their designation of an endangered species against a challenge
brought by Maine and several business groups; district court did not abuse its discretion
in concluding that proposed intervenors did not give adequate explanation of why their
interests would not be adequately represented); United States v. Hooker Chems. &
Plastics, 749 F.2d 968, 984–90 (2d Cir. 1975) (environmental groups had to make a
strong affirmative showing of inadequate representation by the United States government
in order to intervene in the government’s action against a chemical-and-plastics
corporation for illegal disposal of chemical waste).
V. Resolution of this Dispute
Applying the above legal principles to the present case, I do not see how one could
say that Jackson has made an acceptable showing that SLD would not adequately
represent its interests in the Barnes litigation. To begin with, SLD has all the litigation
objectives that Jackson would have. Because of the law of judgments, it will be in the
interest of SLD to prove everything Jackson would want to prove and to disapprove
everything Jackson would want to disapprove. As is true for any defendant-indemnitee,
SLD has a compelling incentive to vigorously defend claims for which it may seek
indemnification. It is very much in SLD’s interest to avoid any challenge by Jackson that
it has not adequately represented Jackson’s interests, because a successful challenge
could defeat an indemnification claim against Jackson. SLD would hardly want to be in
the position of having to prove (in an indemnification suit against it by Jackson) that it
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was liable to Barnes on the Jackson policies in order to obtain indemnification from
Jackson. Given this shared litigation objective, our precedents presume that SLD will
adequately represent Jackson’s interests, yet Jackson has presented no concrete evidence
to overcome the presumption. To be sure, as pointed out by the majority opinion, SLD’s
brief on appeal asserts that it “has no incentive to reduce liabilities imposed on Jackson
for Jackson’s unique conduct.” SLD Br. at 5. But SLD never made that remarkable
assertion before the district court denied intervention; and the assertion could hardly have
withstood cross-examination based on the law of judgments.
This is not to say that there are no occasions in which a defendant-indemnitee
could rationally decide to forgo arguments or evidence that could defeat the indemnified
claim. For example, the arguments or evidence might undermine the defense of a claim
that would not be covered by an indemnification agreement. If the indemnification is
only for negligence, and not for willful misconduct, the indemnitee could rationally
decide not to argue its own willfulness, even though proof of willfulness would be quite
helpful to the indemnitor.
In this case, however, there is no reason to think that a defense of Jackson’s
calculations of cost-of-insurance expenses would contradict or undermine SLD’s defense
of its own calculations of those expenses. It would be quite easy for Jackson to compare
notes with SLD (which supports Jackson’s intervention) to determine whether their
calculations are inconsistent with one another. (It would not be enough that the two
companies simply have different ways of calculating cost-of-insurance expenses. The
question is whether defending Jackson’s calculations would make it harder to defend
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SLD’s). Yet Jackson has not even gone so far as to assert that there are such
contradictions, much less provide supporting evidence. (Nor, for that matter, has SLD.)
In fact, Jackson has even questioned whether the calculations by Jackson and SLD
differed in any respect. See Aplt. Reply Br. at 10 (“Barnes . . . fails even to allege that
[cost-of-insurance] rates were ever changed [after Jackson assumed administration of
SLD policies].”).
With absolutely no evidence to the contrary, it appears that the interests of SLD
and Jackson in prevailing against Barnes on the Jackson policies are fully congruent.
Hence, Jackson must make a strong showing that SLD will not represent its interests.
This case fits well within the precedents holding that a movant with the same litigation
objectives as a party has not made an acceptable showing that its interests will not be
adequately represented. It would be offensive to the adequate-representation requirement
of Fed. R. Civ. P. 24(a) to permit Jackson to intervene when it has not attempted even the
easily-made showing that it has departed from SLD’s prior method of calculating cost-of-
insurance expenses, much less provided evidence of divergent litigation objectives.
It is important to keep in mind that Jackson’s interest in intervention is not of great
moment. To an extent, Jackson would be better off if it did not intervene.
Nonintervention would give it two bites at the apple. First, SLD may successfully defend
the Barnes lawsuit. In that event, Jackson has no exposure. Second, if SLD is held liable
with respect to the Jackson policies, Jackson can argue against indemnification on the
grounds that SLD did not adequately represent its interests and that Barnes’s claims with
respect to the Jackson policies are not meritorious. Perhaps this is why there appear to be
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no federal-court decisions holding that an indemnitor is entitled to intervene as of right as
a party to dispute the plaintiff’s claims against the indemnitee. Neither Jackson nor the
majority opinion cite any such cases, nor am I aware of any.
Barnes argues that the real reason why Jackson and SLD want Jackson to
intervene is so that they can double-team Barnes. I have no opinion on that allegation.
But the very possibility of improper motives should make us cautious about ignoring the
requirements of Rule 24(a).
I would affirm the decision of the district court denying intervention. The
affirmance would, however, be without prejudice to allowing intervention if evidence of
a true conflict of interest were later shown.
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