Nova Cas. Co. v. Guzman

NOVA CASUALTY COMPANY, Plaintiff and Counter-Defendant, v. JOSE E. GUZMAN and RITO SOSA, Defendants and Counter-Claimants.

CIVIL ACTION NO. 3:20-CV-3440-B

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

May 20, 2021

MEMORANDUM OPINION AND ORDER

Before the Court is Defendants Jose E. Guzman and Rito Sosa's Motion for Leave to File First Amended Counterclaim and Joinder of Party (Doc. 17). In this motion, Defendants seek leave to allege a new counterclaim against a third party, Knorpp Bloodstock Insurance Agency, LLP. For the reasons set forth below, the Court GRANTS Defendants' motion (Doc. 17).

I.BACKGROUND¹

This is an insurance dispute arising from the death of a quarter horse named Mr. Jess Jenkins ("Mr. Jenkins"). Plaintiff Nova Casualty Insurance Company alleges that in September 2019, Defendants obtained insurance policies of $250,000 each, effective from September 2019 to September 2020, insuring their respective one-half interests in Mr. Jenkins "for the use of racing[.]" Doc. 1, Compl., ¶¶ 9-10. Plaintiff further alleges that in May 2020, an equine hospital diagnosed Mr. Jenkins with lameness and recommended that he retire from racing, so Mr. Jenkins returned toDefendant Guzman's farm. Id. ¶¶ 12-14. But "[n]either [Plaintiff] nor any of its representatives" received notice of Mr. Jenkins's poor physical condition. Id. ¶ 14. Rather, in September 2020, Plaintiff alleges, Defendants submitted "Declarations of Health" to Plaintiff in which they affirmed that Mr. Jenkins had no injury or lameness and had not received veterinary treatment beyond "routine care[.]" Id. ¶ 15. Shortly thereafter, Defendants' "insurance broker advised [Plaintiff's] claims representative that Jenkins had been sent to [an equine hospital] for lameness." Id. ¶ 16. At that point, Plaintiff learned about the May 2020 hospital visit. Id. Unfortunately, Mr. Jenkins's condition did not improve, and he "was humanely destroyed[.]" Id. ¶ 18. One month later, Defendants each submitted $250,000 claims under their respective policies insuring Mr. Jenkins. Id. ¶¶ 19-20.

Plaintiff denied these claims, id., and brought a declaratory-judgment action in this Court. See generally id. Plaintiff seeks a declaratory judgment that Defendants' claims are not covered under their policies, because they breached a condition precedent for coverage under the policies "by failing to promptly give notice to Independent Adjusters, [Plaintiff], or any of [Plaintiff's] designated representatives" that Mr. Jenkins was injured as early as May 2020. Id. ¶ 23.

Defendants filed an answer asserting two counterclaims against Plaintiff. See generally Doc. 8, Answer & Counterclaim. First, Defendants seek a declaratory judgment that they are entitled to coverage under their policies. See id. ¶¶ 15-16 (Counterclaim). Second, Defendants allege Plaintiff breached contracts with Defendants by failing to pay their claims. Id. ¶¶ 18-20 (Counterclaim).

Then, Defendants filed a motion for leave to amend their counterclaims to add a new counterclaim of negligence against Knorpp Bloodstock Insurance Agency, LLP ("Knorpp"). In their proposed counterclaim, Defendants allege that in June 2020, they "informed Knorpp that Jenkinshad been put on rest and would not be racing for the remainder of 2020," but Knorpp did not further inquire into the rest period "and failed to notify [Plaintiff] of Jenkins' condition until September 2020." Doc. 17, Ex. 1, ¶ 15. Additionally, Defendants allege that despite their limited ability to speak English, Knorpp did not "explain the provisions" of Defendants' insurance policies or their obligations thereunder. Id. ¶ 12. Based on these allegations, Defendants seek leave to assert a negligence claim against Knorpp. Id. ¶ 24. Defendants' motion for leave is now ripe for review, so the Court considers it below.

II.LEGAL STANDARD

Under Federal Rule of Civil Procedure 13(h), "Rules 19 and 20 govern the addition of a person as a party to a counterclaim or cross claim." Rule 20, in relevant part, states that parties "may be joined in one action as defendants" provided that: (1) "any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences;" and (2) "any question of law or fact common to all defendants will arise in the action." Fed. R. Civ. P. 20(a)(2).

III.ANALYSIS

A. Rule 13 Permits the Assertion of a New Counterclaim Against a New Counter-Defendant.

Plaintiff first contends that Defendants' motion should be denied because the Federal Rules of Civil Procedure do not permit the assertion of a new claim against a new counter-defendant. Doc. 20, Pl.'s Resp., 4. In response, Defendants assert that Federal Rule of Civil Procedure 13(h) "specifically addresses this situation" and permits the joinder of new parties to a counterclaim. Doc.21, Defs.' Reply, 2.

The Court agrees with Defendants. Rule 13(h) states that "Rules 19 and 20 govern the addition of a person as a party to a counterclaim . . . ." Nothing in Rule 13 suggests that the situation here—the addition of a new party by way of a new counterclaim—is prohibited. Indeed, the Fifth Circuit appeared to recognize this use of Rule 13(h) in State National Insurance Company Inc. v. Yates, 391 F.3d 577, 578 (5th Cir. 2004). In Yates, the Fifth Circuit explained that the defendant-insured counterclaimed against the plaintiff-insurer and then brought distinct claims "against an additional party"—the defendant's insurance agency. See id. The court thereafter clarified in a footnote that Rule 13(h) "permits joinder of additional parties to a counterclaim 'in accordance with the provisions of Rules 19 and 20.'" Id. at 578 n.2 (quoting Fed. R. Civ. P. 13(h)). Although dicta, this footnote suggests that Rule 13(h) allows for joinder of a new counter-defendant even if the claims against the counter-defendant are not alleged against the current counter-defendants.

The Court recognizes that courts disagree about whether Rule 13(h) allows the assertion of new counterclaims against a new counter-defendant. Bates Energy Oil & Gas, LLC v. Complete Oil Field Servs., LLC, 2017 WL 10576036, at *5 (W.D. Tex. Sept. 7, 2017). In NatureSweet, Ltd. v. Mastronardi Produce, Ltd., for example, another court in the Northern District of Texas held Rule 13(h) does not allow for this sort of joinder. 2013 WL 460068, at *2-3 (N.D. Tex. Feb. 6, 2013) (citations omitted). It reasoned that other provisions of Rule 13 "suggest that counterclaims and crossclaims are, as an initial matter, proper only as to existing parties." Id. at *2 (quoting, inter alia, Fed. R. Civ. P. 13(a)(1)).²

But the Court is not convinced that Rule 13(h) should be construed so strictly, particularly given the Fifth Circuit's language in Yates. As the Western District of Texas has noted, courts typically "construe[] Rule 13(h) liberally in an effect to avoid multiplicity of litigation and foster judicial economy[.]" Bates, 2017 WL 10576036, at *5. Accordingly, the Court concludes that Rule 13(h) is the proper vehicle for Defendants' motion and proceeds to the Rule 20 analysis.³

B. Joinder of Knorpp Satisfies Rule 20.

Next, Plaintiff contends that joinder is improper because Defendants fail to satisfy the requirements of Rule 20. Doc. 20, Pl.'s Resp., 4. Under Rule 20, parties may be joined in an action as defendants if "(A) any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and (B) any question of law or fact common to all defendants will arise in the action." Fed. R. Civ. P. 20(a)(2)(A)-(B).

As an initial matter, the Court rejects Plaintiff's suggestion that because Defendants do not allege "joint and several" liability against Knorpp, Rule 20 is not satisfied. See Doc. 20, Pl.'s Resp., 5. Rule 20 permits the joinder of defendants if, among the other requirements, "any right to relief is asserted against them jointly, severally, or in the alternative . . . ." Rule 20(a)(2) (emphasis added). As Plaintiff admits, Defendants' claim against Knorpp is "asserted as alternative relief[.]" Doc. 20, Pl.'s Resp., 5. Although Defendants' claim against Knorpp does not explicitly seek relief in thealternative, it is clear that Defendants seek to hold Plaintiff or Knorpp liable for damages. See Doc. 17, Ex. 1, ¶ 27 (seeking, among other forms of relief, "[a] finding that Knorpp was negligent"). This is sufficient to invoke Rule 20, as "the fact that the defendants are independent actors does not preclude joinder as long as their actions are part of the same transaction, occurrence, or series of transactions or occurrences." In re EMC Corp., 677 F.3d 1351, 1356 (Fed. Cir. 2012) (quotation marks omitted); see 7 Wright & Miller, Federal Practice & Procedure § 1652 (3d ed. 2021) ("[T]he rule permits the joinder of persons whose presence is procedurally convenient but is not regarded as essential to the court's complete disposition of any particular claim."); see also Arrington v. City of Fairfield, 414 F.2d 687, 693 (5th Cir. 1969) ("Rule 20 . . . allows [the joinder of] one who has some relation to the action where that relation is not so close as to categorize him as a necessary or indispensable party."). Thus, the Court proceeds in its Rule 20 analysis.

First, the Court examines whether the claims against Defendants and Knorpp "aris[e] out of the same transaction [or] occurrence[.]" Fed. R. Civ. P. 20(a)(2)(A). "The transaction requirement . . . is not a stringent test and should be read broadly to increase judicial efficiency." Immudyne, Inc. v. Sorgente, 2005 WL 8165654, at *3 (S.D. Tex. Aug. 9, 2005) (citing, inter alia, Battison v. City of Electra, 2001 WL 497769, at *1 (N.D. Tex. May 8, 2001)). As Defendants point out, the claims against Plaintiff and Knorpp all arise from Defendants'...