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Allied World Surplus Lines Insurance Company v. Day Surgery Limited Liability Company

United States District Court, S.D. West Virginia, Charleston Division

July 26, 2019




         Before the Court are Defendants Je. W. and Ja. W., J.L., A.G., and P.P.'s (collectively, “Defendants”) motions to dismiss for failure to join indispensable parties. (ECF Nos. 124, 129, 132, 145.) For the reasons provided herein, the Court DENIES the motions.

         I. BACKGROUND

         Plaintiffs Allied World Surplus Lines Insurance Company and Allied World Assurance Company (collectively, “Allied World”) filed this declaratory action to determine its rights and obligations with respect to two insurance policies issued to Defendant Day Surgery Limited Liability Company d/b/a Day Surgery Center, LLC (“Day Surgery”). (ECF No. 115 at 1 ¶ 1.) The insurance coverage issue arises out of alleged sexual misconduct by a physician, who formerly practiced medicine at Day Surgery. (Id. at 4 ¶¶ 34-35.) Several former patients have alleged that Steven R. Matulis, M.D. (“Matulis”), “engaged in sexual misconduct while performing procedures on them.” (Id. ¶ 35.) These claimants have asserted claims against Day Surgery in state court seeking to hold it and others liable for the alleged sexual misconduct (“underlying claims”). DS Holdings, Inc. (“DS Holdings”), Matulis, Charleston Gastroenterology Associates (“CGA”), and Charleston Area Medical Center (“CAMC”) are also named as defendants in some of these underlying claims. (See Id. at ¶¶ 38, 43, 55, 61, 65, 69.)

         In the present action, Allied World's operative complaint names Day Surgery and DS Holdings, the two parties that have sought coverage under the policies in connection with the underlying claims, and the claimants against Day Surgery and DS Holdings in the underlying claims as defendants. (See Id. at 2 ¶¶ 4-16.) In the complaint, Allied World asserts the following three causes of action related to the insurance it issued: (I) a declaration that the patients' claims are “Related Claims” under the primary policy and subject to a $1, 000, 000 descending limitation of liability with litigation costs and attorneys' fees, (II) a declaration that those claims are not covered under the umbrella policy pursuant to Exclusion D.19, “which excludes coverage for any Claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any actual or alleged sexual misconduct or sexual abuse, ” and (III) a declaration that DS Holdings is not a covered “Insured” under the policies for purposes of the underlying claims. (Id. at 19-20 ¶¶ 100-105, 21 ¶¶ 106-108, 21-22 ¶¶ 109-115.)

         On October 30, 2018, Defendants Ja. W. and Je. W. filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(7) and 19(a) for failure to join Matulis, CGA, and CAMC to this action. (ECF No. 124.) Defendants assert that Matulis, CGA, and CAMC are necessary and indispensable parties because Allied World seeks to establish that they are not insureds under the policies. (Id. at 4-5.) Thereafter, Defendants J.L., A.G., and P.P. filed materially similar motions to dismiss adopting and incorporating the facts, legal precedent, and arguments set forth in Je. W. and Ja. W.'s motion. (ECF Nos. 129, 132, 145.) Allied World responded to the motions on November 27, 2018. (ECF No. 155.) Defendants filed timely replies on December 4, 2018. (ECF Nos. 158, 159, 160, 161.) As such, the motions to dismiss are fully briefed and ripe for adjudication.


         Rule 12(b)(7) of the Federal Rules of Civil Procedure allows for dismissal of an action when a necessary and indispensable party has not been joined as required by Rule 19. See Tough Mudder, LLC v. Sengupta, 614 Fed.Appx. 643, 645 (4th Cir. June 26, 2015). In considering a 12(b)(7) motion, the court must first determine, pursuant to Rule 19(a), whether the absent party “is necessary to a proceeding because of its relationship to the matter under consideration.” Home Buyers Warranty Corp. v. Hanna, 750 F.3d 427, 433 (4th Cir. 2014) (internal quotations omitted) (quoting Teamsters Local Union No. 171 v. Keal Driveaway Co., 173 F.3d 915, 917 (4th Cir. 1999)). If the absent party is necessary, then the court must order its joinder. Fed.R.Civ.P. 19(a)(2). However, if joinder will destroy complete diversity, then the court must determine, pursuant to Rule 19(b), whether “in equity and good conscience” the case can continue in the party's absence. Fed.R.Civ.P. 19(b); see also Home Buyers Warranty Corp., 750 F.3d at 433. If not, then “the party is indispensable and the action should be dismissed.” Teamsters, 173 F.3d at 918.

         In deciding whether to dismiss an action, Rule 19 is to be applied “pragmatically, in the context of the substance of each case, and courts must take into account the possible prejudice to all parties, including those not before it.” Home Buyers Warranty Corp., 750 F.3d at 433. Dismissal for non-joinder is disfavored, see Owens-Illinois, Inc. v. Meade, 186 F.3d 435, 441 (4th Cir. 1999), and the moving party bears the burden of demonstrating that joinder is required, see Am. Gen. Life and Accident Ins. Co. v. Wood, 429 F.3d 83, 92 (4th Cir. 2005).


         Defendants aver that Matulis, CGA, and CAMC are necessary and indispensable to this declaratory action “to fully adjudicate the existence or non-existence of coverage for Matulis, CGA, and CAMC” under the Allied World policies. (ECF No. 124 at 3.) Additionally, Defendants argue that the resolution of the present dispute may result in inconsistent “contractual rights, interests, and obligations of those absent parties.” (Id. at 4.) Their absence, Defendants assert, requires the dismissal of portions of Allied World's complaint or the joinder of Matulis, CGA, and CAMC. (Id.)

         Allied World responds that Defendants' argument “ignores the declaratory relief [it] actually seeks” and is “based on the manifestly false premise” that the complaint asks the Court to declare that Matulis, CGA, and CAMC are not insureds under the policies. (ECF No. 155 at 4.) Allied World maintains that it does not seek a judicial determination that these absent parties are not insureds under the policies or any declaration concerning their rights. Therefore, Allied World argues there is no basis for requiring Matulis, CGA, and CAMC's joinder in this action, particularly “since they have shown no interest in seeking coverage under the policies at issue.” (Id. at 2.)

         After considering the specific facts of this case, the Court does not find that Matulis, CGA, and CAMC are necessary parties under Rule 19. Rule 19(a)(1) sets forth two standards for determining whether an absent party is necessary. First, a non-joined party is necessary to an action if “the court cannot accord complete relief among existing parties.” Fed.R.Civ.P. 19(a)(1)(A). Second, a non-joined party may be necessary if it “claims an interest relating to the subject of the action” and its absence may either “impair or impede [its] ability to protect the interest, ” Fed.R.Civ.P. 19(a)(1)(B)(i), or “leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.” Fed.R.Civ.P. 19(a)(1)(B)(ii).

         As an initial matter, Defendants' argument that Allied World seeks a declaration that Matulis CGA and CAMC are not covered insureds under the policies mischaracterizes the allegations in Paragraph 86 of the complaint as a claim for declaratory judgment.[1] This allegation in a background paragraph of the complaint does not seek declaratory relief on this point. Rather, the relief that may be accorded in the present case is readily identifiable in Counts I, II, and III and the “Relief Requested” Paragraph of the complaint. (See ECF No. 155 at 22-23.) These claims concern Allied World's coverage obligations as to Day Surgery and DS Holdings, the only two insureds seeking coverage under the policies at issue for the underlying claims. The term complete relief in the context of Rule 19 refers only “to relief between the persons already parties, not as between a party and the absent person whose joinder is sought.” United States v. Arlington Cty., Va., 669 F.2d 925, 929 (4th Cir. 1982) (citation omitted); see also Merrill Lynch, Pierce, Fenner & Smith Inc. v. Carico, No. 3:07-0240, 2007 WL 9718506, at *3 (S.D. W.Va. July 10, 2007) (explaining that “the Rule 19(a) inquiry is designed to ensure complete relief to those already party to the suit, not those parties ...

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