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Va. Elec. & Power Co. v. Westinghouse Elec. Corp. - 485 F.2d 78 (4th Cir. 1973)

Rule:

The meaning and object of the real party in interest principle embodied in Fed. R. Civ. P. 17 is that the action must be brought by a person who possesses the right to enforce the claim and who has a significant interest in the litigation. Whether a plaintiff is entitled to enforce the asserted right is determined according to the substantive law. In a diversity action such as this one, the governing substantive law is the law of the state. While the question of in whose name the action must be prosecuted is procedural, and thus governed by federal law, its resolution depends on the underlying substantive law of the state. 

If either the subrogor or subrogee brings suit, joinder is often appropriate upon proper motion by the defendant. But joinder is not appropriate, and certainly not required by Fed. R. Civ. P. 17, for the purpose of destroying diversity jurisdiction and requiring dismissal. Even without joinder the partial subrogee is generally precluded from bringing a subsequent action against the defendants where a judgment has been rendered in a suit by the subrogor for the entire loss. Multiplicity of suits, one by the subrogor for his loss and one by the subrogee for the reimbursed loss, is thus prevented as fully as if joinder were compelled. 

Facts:

Virginia Electric and Power Company (VEPCO) suffered losses amounting to $2.2 million due to failure of one of its power generating stations. Pursuant to an insurance policy, Insurance Company of North America (INA) paid VEPCO $1.9 million because of a $100,000 deductible clause. VEPCO sued Westinghouse Electric Corporation, station builder, and Webster Engineering Corporation on its own behalf for $200,000 ($100,000 for deductible clause and $100,000 for expediting expenses) and on behalf of INA for $1.9 million. VEPCO sued INA separately for $200,000 balance due from the policy. VEPCO and INA settled where the latter paid the former $50,000 leaving the former with an unreimbursed loss of $150,000. In consideration of the settlement, INA would furnish counsel and have exclusive control over the action against Westinghouse and INA would prosecute VEPCO’s claims for the remaining uninsured loss. Under a subrogation agreement, INA became a subrogee to VEPCO’s rights against Westinghouse and the others.

Westinghouse and the others moved to dismiss on the ground that INA, a real party-in-interest, must be impleaded as plaintiff. INA, however, cannot be impleaded without destroying diversity jurisdiction because INA and Westinghouse are both Pennsylvania corporations. Alternatively, INA was an indispensable party but for the same reasons, cannot be impleaded.

The District Court denied the motion to dismiss. It ruled that VEPCO retained a pecuniary interest and that it had standing because of its intent to recover the uninsured loss. While INA was a real party in interest, its non-joinder does not warrant the dismissal of the case because parties are not prejudiced, danger of double claim is protected by appropriate decrees, and no other adequate forum existed to resolve the dispute given its interstate character.

Issue:

Was the non-joinder of INA sufficient to dismiss the case?

Answer:

No

Conclusion:

The Court ruled that VEPCO is a real party in interest because it retained a significant pecuniary interest in the litigation although INA will ultimately receive the majority of the portion recovered. Due to the partial subrogation two parties may institute the action: VEPCO as the subrogor for the entire loss or only unreimbursed loss, or INA as the insurer-subrogee to the extent that it reimbursed VEPCO. Joinder is appropriate in case either the subrogor or subrogee brings the suit. In this case, however, joinder of INA is unnecessary since it is not an indispensable party to the case. The non-joinder of INA is not prejudicial to INA since the agreement with VEPCO provides that INA has control of the litigation; furthermore, any prejudice may be avoided by the shaping of relief. Parties’ interests will also be protected despite INA’s absence and Westinghouse et. al has not sought any affirmative reliefs from VEPCO or INA. Lastly, it is unclear that VEPCO will have an adequate remedy in court of Virginia or other states against Westinghouse et.al. The Court affirmed the District Court’s decision.

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