Angst v. Royal MacCabees Life Ins. Co. ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
2-20-1996
Angst v. Royal MacCabees Life Ins. Co.
Precedential or Non-Precedential:
Docket 95-1555
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Recommended Citation
"Angst v. Royal MacCabees Life Ins. Co." (1996). 1996 Decisions. Paper 237.
http://digitalcommons.law.villanova.edu/thirdcircuit_1996/237
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 95-1555
ROBERT ANGST,
Appellant
v.
ROYAL MACCABEES LIFE INSURANCE COMPANY;
FEDERAL KEMPER LIFE ASSURANCE COMPANY;
DAVID J. SCHILLER, ESQUIRE, Intervenor in D.C.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 95-06858)
Submitted under Third Circuit LAR 34.1(a)
on January 30, 1996
Before: GREENBERG and NYGAARD, Circuit Judges and
LAY, Senior Circuit Judge*
(Filed: February 20, l996)
OPINION OF THE COURT
* Honorable Donald P. Lay, United States Senior Circuit Judge for
the Eighth Circuit Court of Appeals, sitting by designation.
1
NYGAARD, Circuit Judge.
Robert Angst appeals from an order dismissing his case for
lack of subject matter jurisdiction under Fed. R. Civ. P.
12(b)(1). For the reasons below, we will affirm the decision of
the district court.
I.
Angst, a Pennsylvania citizen, sued Royal Maccabees Life
Insurance Company and Federal Kemper Life Assurance Company. For
diversity purposes, Royal is a citizen of the state of Michigan
and Kemper is a citizen of the state of Illinois. Royal and
Kemper each issued an insurance policy in which Angst is the
contingent beneficiary. Angst alleged that he is entitled to
proceeds from both policies, but that, in violation of their
respective insurance agreements, the defendants have refused to
pay.
The policies at issue were purchased by Appellant Robert
Angst's brother, Thomas Angst. The Royal policy was issued on
Thomas Angst's life, and the Kemper policy was issued on the life
of Cynthia Papanikos-Angst, Thomas Angst's wife. Each spouse had
named the other as the primary beneficiary and Robert Angst as
the alternate beneficiary. Thomas Angst killed his wife and his
son, then took his own life. Robert Angst believes that he is
entitled to the proceeds of both policies.
II.
On October 14, 1994, Appellee David J. Schiller was
appointed as the receiver for Thomas E. Angst & Associates, P.C.,
2
the deceased's law practice, by the Court of Common Pleas of
Montgomery County. By orders dated November 7 and 14, 1994, the
Court of Common Pleas ordered Royal to pay the proceeds of Thomas
Angst's policy into escrow. Robert Angst sought a dissolution of
these orders, which the state court denied.
On November 15, 1994 (the day after Robert Angst filed his
complaint in federal court), Schiller filed a complaint in the
Court of Common Pleas against Royal, Kemper and Robert Angst
seeking to have a constructive trust imposed on the proceeds of
the two insurance policies. He alleged that the life insurance
policies were purchased with funds misappropriated from the
escrow accounts of Thomas Angst's clients. He further alleged
that Robert Angst would be unjustly enriched if he were permitted
to receive the proceeds of the two policies, and that the
proceeds belonged to certain of the law firm's creditors.
Schiller filed a motion to intervene in the federal action.
The district court held a hearing on February 13, 1995, after
which it orally granted the motion.1 As a result of the
receiver's intervention, the court realigned the parties
according to their interests in the litigation. It rejected
Robert Angst's argument that the action constituted a Rule 22
interpleader in which the insurance companies would be the
1
Cynthia Papanikos-Angst's father, Konstantinos Papanikos filed
motions to intervene and to dismiss the action. Robert Angst
filed a motion for injunctive relief in the district court. He
essentially asked that Schiller be enjoined from pursuing his
action in the state courts.
3
stakeholders and Angst and Schiller the claimants.2 Instead, the
court determined that Angst and Schiller were "the true opposing
parties" in the action. Because they are both citizens of
Pennsylvania, diversity of citizenship was destroyed and the
court dismissed the case for lack of subject matter jurisdiction.
III.
Angst does not dispute the propriety of Schiller's
intervention. Rather, he asserts that the district court should
have realigned the parties to reflect a Rule 22 interpleader
action. We exercise plenary review over a district court's
alignment of the parties with respect to diversity jurisdiction.
Employers Ins. of Wausau v. Crown Cork & Seal Co., 942 F.2d 862,
864 (3d Cir. 1991).
A. Alignment of the Parties
Angst relies primarily upon Kerrigan's Estate v. Joseph E.
Seagram & Sons, Inc., 199 F.2d 694 (3d Cir. 1952), to demonstrate
that his situation would properly be construed as an
interpleader. He also cites several other cases to support the
position that the federal courts have uniformly held that where a
stakeholder is diverse from its claimants, diversity is satisfied
under 28 U.S.C. § 1332, regardless of the citizenship of the
claimants.
2
Rule 22 provides that "[p]ersons having claims against the
plaintiff may be joined as defendants and required to interplead
when their claims are such that the plaintiff is or may be
exposed to double or multiple liability. . . ." Fed. R. Civ. P.
22(1).
4
Nonetheless, whether a Rule 22 interpleader requires minimal
or complete diversity is not the issue here. It appears to be
well-settled that diversity between the stakeholder and claimants
is sufficient to confer federal jurisdiction if the amount in
controversy is met. See Kerrigan's Estate, 199 F.2d at 696; 7
Charles A. Wright et al., Federal Practice and Procedure § 1710
(1986). The dispute here concerns the proper alignment of the
parties according to their interests.
In City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 62
S. Ct. 15 (1941), the U.S. Supreme Court stated that the
positioning of the parties for purposes of diversity "must be
ascertained from the 'principal purpose of the suit,' . . . and
the 'primary and controlling matter in dispute.'" 314 U.S. at 68
(citations omitted). We have reaffirmed that the correct inquiry
turns not on some artificial position, but the "principal
purpose" of the action: "[A] court must first identify the
primary issue in controversy and then determine whether there is
a real dispute by opposing parties over that issue." Wausau, 942
F.2d at 864.
To identify the primary issue, we must first look to the
pleadings submitted by the parties. Id. at 866. We also have a
duty to look beyond the pleadings to determine the actual
interests of the parties. Development Finance Corp. v. Alpha
Housing & Health Care, Inc., 54 F.3d 156 (3d Cir. 1995). In this
case, Angst's complaint indicates that he seeks to compel the
insurance companies to pay him benefits to which he believes he
is entitled. If Angst's complaint were the only pleading guiding
5
the "principal purpose" analysis, then an interpleader alignment
might be proper. As the cases cited by Angst indicate, an
interpleader structure is often used in cases involving
disinterested insurance companies and claimants asserting
entitlement to insurance proceeds. See, e.g., Aetna Life and
Casualty Co. v. Spain, 556 F.2d 747 (5th Cir. 1977); John Hancock
Mutual Life Insurance Co. v. Kraft, 200 F.2d 952 (2d Cir. 1953).
Nonetheless, we must also take into consideration the receiver's
motion to intervene, together with the circumstances surrounding
the case.
Unlike the cases cited by Angst, in which the primary issue
concerned which claimant was the intended beneficiary of the
policy, in this case Schiller does not dispute that Angst is the
correct beneficiary. Rather, Schiller seeks to have a
constructive trust placed on the proceeds once they are received
by Angst. Schiller's motion to intervene and state court
complaint indicate that the only issue he raises is whether
appellant should be allowed to keep the proceeds despite the fact
that he might be the named alternate beneficiary under the
contract. As such, the "principal purpose" of the litigation is
not simply to determine who is entitled to the benefits under the
contract, but whether appellant's potential entitlement to them
can be upheld in equity. It is for this reason that Schiller
intervened in the action, to which appellant did not and does not
object.
Therefore, Kerrigan's Estate does not support appellant's
argument. In that case, this Court let stand the district
6
court's exercise of federal diversity jurisdiction in a suit
between an executor of an estate and a relative of the deceased,
both Pennsylvania residents, who claimed an entitlement to
proceeds from a contract. However, the two parties had agreed
that they would be disinterested stakeholders in an interpleader
action and would later resolve the ownership of the res between
themselves. 199 F.2d at 696. Like the insurance companies in
John Hancock and Aetna, in Kerrigan's Estate the plaintiff was
the stakeholder who sought a determination of the claimant's
rights. Under these circumstances, the district court correctly
determined that an interpleader would not have been proper
because Schiller and Angst are adverse to each other.
However, the parties' adversity does not dispose of the
jurisdictional question. If an intervenor's entry in the case
can be supported by ancillary jurisdiction, diversity of
citizenship between the intervenor and the other parties to the
litigation is unnecessary. See generally 7C Charles A. Wright et
al., Federal Practice and Procedure § 1917 (1986); 3A James W.
Moore, Moore's Federal Practice ¶ 19.34 (2d ed. 1995). If,
however, the non-diverse intervenor was an indispensable party
under Rule 19 when the complaint was filed, the action must be
dismissed. See Freeport-McMoRan, Inc. v. KN Energy, Inc., 498
U.S. 426, 111 S. Ct. 858 (1991) (per curiam); Constain Coal
Holdings, Inc. v. Resource Inv. Corp., 15 F.3d 733 (7th Cir.
1994). As the district court failed to make an explicit Rule 19
determination, we shall make an independent analysis. See Sindia
7
Expedition, Inc. v. Wrecked & Abandoned Vessel, 895 F.2d 116, 121
(3d Cir. 1990).
B. Rule 19 Analysis
Our analysis involves two steps: first, we must determine
whether a party is necessary under 19(a); second, we must
determine whether it is indispensable under 19(b). Schulman v.
J.P. Morgan Inv. Management, Inc., 35 F.3d 799 (3d Cir. 1994).
Rule 19(a) requires the joinder of a party who is subject to
service of process and within the court's subject matter
jurisdiction when:
(1) in the person's absence complete relief cannot be
accorded among those already parties, or
(2) the person claims an interest relating to the
subject of the action and is so situated that the
disposition of the action in the person's absence may
(i) as a practical matter impair or impede
that person's ability to protect that
interest or
(ii) leave any of the persons already parties
subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent
obligations by reason of the claimed
interest.
Fed. R. Civ. P. 19(a)(1) & (2).
Accordingly, we first consider whether complete relief can
be accorded among those who are already parties in the receiver's
absence. See Sindia, 895 F.2d at 121. Completeness is
determined on the basis of those persons who are already parties,
and not as between a party and the absent person whose joinder is
sought. Id. (quoting 3A Moore's Federal Practice ¶ 19.07-1[1] at
93-98 (2d ed. 1989)). Angst and the insurance companies would
8
not receive "hollow" relief without the receiver. As discussed
above, the only issue between Angst, Royal and Kemper is whether
Angst is entitled to proceeds as a named beneficiary under the
contract. Schiller's interest in the litigation would
theoretically not come into play until after Angst had received
the proceeds, as he seeks to impose a constructive trust on them.
The possibility that the successful party to the original
litigation might have to defend its rights in a subsequent suit
by the receiver does not make it a necessary party to the action.
Sindia, 895 F.2d at 122. Therefore, Angst, Royal and Kemper
would not necessarily be deprived of complete relief in the
receiver's absence.
Notwithstanding a determination of complete relief, a party
may still be necessary under subsection (a)(2) of the rule. We
first analyze the case under section (i), to determine whether
disposition of the action without the receiver will "as a
practical matter impair or impede" its ability to protect his
interest in the litigation. In order to do so, the effect of the
federal judgment must have a "direct and immediate" effect on the
state court proceedings. See Janney Montgomery Scott, Inc. v.
Shepard Niles, Inc., 11 F.3d 399, 407 (3d Cir. 1993). "[I]t must
be shown that some outcome of the federal case that is reasonably
likely can preclude the absent party with respect to an issue
material to the absent party's rights or duties under standard
principles governing the effect of prior judgments." Id.
As the Janney Court noted, under Pennsylvania law a party
may be precluded from relitigating an issue if the issues are
9
identical, the parties are in privity and the party against whom
preclusion is asserted had a full and fair opportunity to
litigate the issue in a prior action. Id. at 399 n. 12
(citations omitted). Because Schiller would not have a full and
fair opportunity to litigate the issue if he were not joined,
state law would accord no preclusive effect to the federal court
judgment. As such, his absence would not, as a practical matter,
impair his interest. See also Schulman, 35 F.3d at 806
(discussing Pennsylvania law and issue preclusion for purposes of
19(b)).
However, the receiver's absence might subject the already
existing parties to multiple obligations, as envisioned by
subdivision (ii). In this case, Angst and the insurance
companies are already parties to a state action being prosecuted
by the receiver. If both actions proceed, the insurance
companies will be asked to deposit the proceeds for the same
insurance policies into two different escrow accounts.
Subdivision(ii) addresses not only multiple or inconsistent
obligations; "[t]his subdivision also helps to protect defendants
from 'needless' multiple litigation." Sindia, 895 F.2d at 122
(citations omitted). Together with the fact that a federal
action would not have a preclusive effect on the state action,
the existence of a prior state action in this case would subject
the already existing parties to "needless" multiple litigation.
Under Rule 19(a), we need only find that the party's absence
results in any of the problems identified in the rule. Estrella
v. V & G Management Corp., 158 F.R.D. 575, 579 (D.N.J. 1994).
10
Accordingly, Schiller is a "party which must be joined" in the
action pursuant to Rule 19(a).3
Because we determine that the receiver would have been a
"necessary party" at the time the complaint was filed, but his
citizenship would destroy diversity jurisdiction, we also must
determine whether he would have been an "indispensable party."
Under section 19(b), "the court shall determine whether in equity
and good conscience the action should proceed among the parties
before it . . . ." The Rule lists four factors to be
considered, but does not accord a particular weight to any of
them. "This must be determined by the court in terms of the
facts of a given case and in light of the governing equity-and-
good-conscience test." 7 Wright et al. § 1608.
In this case, the fourth factor listed in Rule 19(b),
whether the plaintiff will have an adequate remedy if the action
is dismissed, is dispositive. As discussed above, Angst will
have an adequate remedy by way of the existing state court
3
Angst makes much of the fact that this federal action was filed
one day before the state action which named him as a defendant.
However, as the district court pointed out during the hearing,
the November 15, 1994 complaint is a related proceeding to the
receivership proceedings. Appellant's arguments to the contrary
belie common sense. The nature of a receivership is such that
the appointed individual represents the entity in all actions
regarding its past obligations. David Schiller did not bring the
November 15, 1994 state action because he personally has an
interest in the insurance proceeds, but because the assets of the
corporation he was appointed to manage are allegedly at stake.
See Black's Law Dictionary 1268 (6th ed. 1990) ("[receiver is a]
person appointed by a court for the purpose of preserving
property of a debtor pending an action against him, or applying
the property in satisfaction of a creditor's claim. . .").
Schiller was appointed a receiver to the professional corporation
by order entered October 14, 1994.
11
action, which involves all of the parties he desires to have
included in his federal action.
Angst has not presented any persuasive arguments as to why
his case should not be heard in state court. In his brief, he
implies that because the state court actions were assigned to the
same state judge that handled the receivership proceedings, some
sort of bias is operating against him. He also alleges that the
receivership orders came about by way of wrongful ex parte
actions. Again, these allegations simply do not comport with
common sense. A more reasonable explanation of the state court's
judicial assignment process is that all related cases are
assigned to the same judge. With respect to appellant's
allegations of ex parte conduct, appellant appears to
misunderstand the nature of a receivership. A receiver is a
court-appointed individual who is to act under the supervision of
the court. Furthermore, no decisions made by the state court
judge have affected appellant's substantive rights; the orders
which he complains of require only that the insurance proceeds be
deposited in escrow pending a substantive determination regarding
their ownership. In the event that the state court were to make
some sort of legal error with respect to the case, appellant
could simply appeal. Under these circumstances, "equity and good
conscience" urge us to affirm the district court's dismissal of
the action.
IV.
We hold that the district court correctly declined to
recognize an interpleader structure among the parties involved in
12
this case. We also hold that because Schiller, the receiver, a
non-diverse intervenor of right, was a necessary and
indispensable party under Rule 19 when the complaint was filed,
the action must be dismissed. For the foregoing reasons, we will
affirm the district court's June 27, 1995 order.
13