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Continental Casualty Co. v. American Home Assurance Co.

April 14, 2008



In this action brought against Defendants American Home Assurance Company ("AHA") and Foamex, L.P. ("Foamex"), Plaintiffs Continental Casualty Company ("Continental") and Sealy, Inc. ("Sealy") assert several causes of action relating to AHA's obligations under certain insurance policies, and Foamex's obligations pursuant to an agreement between Foamex and Sealy. This matter comes before the Court on the motion of Defendants to dismiss the Amended Complaint pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure for failure to join a necessary and indispensable party. The Court has diversity jurisdiction of this action pursuant to 28 U.S.C. § 1332.

The critical issue in this case is whether Sealy Mattress Manufacturing Company ("Sealy Mattress"), an affiliate of Sealy, is a necessary and indispensable party to the action. The Court has considered thoroughly all the parties' submissions and, for the following reasons, Defendants' motion to dismiss the Amended Complaint is denied.


The following facts are taken as true for purposes of the instant motion practice. Plaintiff Continental is an Illinois corporation with its home office in Chicago, Illinois. (Am. Compl. ¶ 2.) Plaintiff Sealy is an Ohio corporation with its principal place of business in Trinity, North Carolina. (Id. ¶ 3.) Defendant American Home Assurance is a New York corporation with its principal place of business in New York, New York. (Id. ¶ 4.) Defendant Foamex is a Delaware limited partnership whose members are citizens of Delaware and Pennsylvania. (Id. ¶¶ 5-7.) Defendants assert that if Sealy Mattress, a Delaware corporation, were joined, diversity jurisdiction would be lacking.

At the time of the transactions underlying the claims asserted here, Foamex was in the business of developing, manufacturing, and supplying flexible polyurethane foam for bedding. (Id. ¶ 13.) Sealy was in the business of manufacturing mattress and foundation products. (Id. ¶ 14.) On January 1, 2002, Sealy and Foamex entered into an agreement (the "Supply Agreement") under which Sealy agreed to sell baled mattress scrap to Foamex and Foamex agreed to purchase the same from Sealy. (Id. ¶¶ 15, 19.) The Supply Agreement recited that Foamex "agrees to extend to each of Sealy's Affiliates ('Affiliates'), either held by Sealy or Sealy's owner Bain Funds[,] the same terms and conditions of this agreement." (Id. ¶ 16.) At all relevant times, Bain Funds had a significant ownership interest in Sealy Mattress. (Id. ¶18.) The Supply Agreement further required Foamex to obtain commercial general liability insurance and commercial automobile insurance, and name Sealy as an additional insured thereunder. (Id. ¶ 25.) Foamex was required to provide "Sealy Affiliates," such as Sealy Mattress, with this same coverage. (Id. ¶ 27.) Sealy was added as an additional insured under policies that AHA issued to Foamex. (Id. ¶ 28.)


On September 25, 2002, Delbert Wardwell, Sr. ("Wardwell"), while acting in the course of his employment with Foamex, was seriously injured while attempting to unload a trailer on Foamex's premises containing bundles of Sealy's baled mattress scrap. (Id. ¶ 20.) On or about December 31, 2002, Wardwell filed suit against Sealy Mattress and Satterfield Trucking Corporation, alleging negligent failure to properly load the bundles of bedding in the truck, among other allegations. (Id. ¶¶ 22, 23.) In July 2003, Sealy advised Foamex of the lawsuit and indicated that it would be filing a claim for defense and indemnity with Foamex's insurer, AHA. (Id. ¶ 36.) In May 2004, AHA disclaimed any obligation to defend or indemnify Sealy in connection with the Wardwell suit, citing the indemnification provision in the Supply Agreement, the language of the additional insured endorsements, and certain exclusions contained in AHA's insurance policies. (Id. ¶ 40.) As a result of AHA's denial of an obligation to defend and indemnify, Sealy's own insurance carrier, Continental, defended and indemnified Sealy Mattress in the suit. (Id. ¶ 44.) On September 12, 2005, Sealy Mattress and Satterfield settled with Wardwell. (Id. ¶ 24.) Continental and Sealy's share of this amount was $900,000. (Id.)

Plaintiffs Continental and Sealy seek relief in the form of a declaration that AHA has a duty to defend and indemnify Sealy and its Affiliates in connection with the underlying claims. (Id. ¶ 77.) Plaintiffs also seek consequential, compensatory and punitive damages for breach of contract against AHA and Foamex. (Id.)


Defendants move to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(7) on the ground that Plaintiffs have failed to name Sealy Mattress as a necessary and indispensable party pursuant to Federal Rule of Civil Procedure 19. Fed. R. Civ. P. 19 Standard Rule 19 governs whether Sealy Mattress is an indispensable party to this litigation. The rule establishes a two-step process for determining whether an action should be dismissed for non-joinder. First, the Court must evaluate whether the party is "necessary" under rule 19(a)(1). A party is necessary if (A) in the party's absence the court cannot accord complete relief among existing parties, or (B) that party claims an interest relating to the subject of the action and is so situated that disposing of the action in the party's absence may (i) as a practical matter impair or impede the party's ability to protect the interest, or (ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent liability obligations because of the interest. Fed. R. Civ. P.19(a)(1). If a party is deemed necessary, then it must be joined if feasible. Id.

Second, if joinder is infeasible because it would deprive the court of jurisdiction, the Court proceeds under Rule 19(b) to determine whether "in equity and good conscience" the action should continue among the existing parties or be dismissed. Rule 19(b) lists four factors to consider in determining whether a party is indispensable: (1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing party; (2) the extent to which any prejudice could be lessened or avoided by protective provisions in the judgment, shaping the relief, or other measures; (3) whether a judgment rendered in the person's absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for non-joinder. Fed. R. Civ. P. 19(b). Therefore, if a party is found to be necessary pursuant to Rule 19(a)(1) but joinder is infeasible, the action should only be dismissed if that party is also found to be indispensable pursuant to Rule 19(b). Polargrid v. VSNL, No. 04 Civ. 9578, 2006 WL 2266351, *9 (S.D.N.Y. Aug. 7, 2006).

For the following reasons, the Court finds that Sealy Mattress is not a necessary party, and therefore need not reach the issue of indispensability.

A. Rule 19(a)(1)(A): Can Complete Relief Be Granted Among Present Parties?

A party is deemed necessary to a litigation if, in the party's absence, complete relief cannot be granted among the parties present. Fed. R. Civ. P. 19(a)(1)(A). This prong of the rule "stresses the desirability of joining those persons in whose absence the court would be obligated to grant partial or 'hollow' rather than complete relief to the parties before the court." Fed. R. Civ. P. 19 (advisory committee's note). Here, complete relief can be granted among the parties present because every party from or against whom Plaintiffs seek relief on this matter is named as a defendant. Thus, there is no risk that the court will have to grant Plaintiffs "hollow" relief. Complete ...

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