San Joaquin College of Law
Civil Procedure – Interim Exam Mar 2004 / Cartier
Time: 1 hour 30 minutes
Penny Purchaser (“Penny”), a resident of Washington, bought a house in Westside, Washington. Shortly after the close of escrow, she hired DK Contracting (“DK”), as a general contractor, to install new cedar siding; DK arranged for Del, doing business as Del’s Painting (“Del”), as a subcontractor, to paint the siding after installation. During the time the house was being painted, a fire broke out severely damaging the house. The cause of the fire is allegedly an exterior halogen light that was masked for painting, overheated, and caused the paper to catch fire. Pacific Insurance (“Pacific”), a California corporation, as subrogee for Penny, filed a diversity action in the United States District Court for the Western District of Washington, where Penny’s house was located, against DK, a Washington corporation, to recoup the funds paid to Penny for the loss. Although state law provides that the general contractor is responsible for any work performed by a subcontractor, DK filed an answer denying liability and alleging that Del, a Californian who was temporarily working in Washington while attending a local college, was solely responsible for any fire damage resulting from masking or painting. DK then filed a claim in this action against Del for comparative indemnity, as permitted by state law. Upon being served in California, Del filed a general denial and asserted a claim against DK for $18,000 that remained due for the materials and labor expended on Penny’s house. Del also sought $10,000 that remained unpaid on another job he completed for DK. DK filed a motion for summary judgment claiming there was no evidence it was responsible for the fire. In opposition to the summary judgment, Pacific provided a sworn affidavit from Del, along with a copy of the contract, to establish that DK, as the general contractor, hired Del, as a subcontractor, on Penny’s project. Pacific also provided an authenticated copy of the fire marshal’s report indicating the probable cause of the fire was improper masking around the halogen lamp. In an unrelated case, the Washington Supreme Court recently held that, as a matter of substantive law, a subrogation action must be prosecuted in the name of the insured, as the real party in interest. Del subsequently filed a motion to dismiss Pacific’s suit against DK on grounds that Penny is the real party in interest and that, as stated, the claim fails to set forth a valid cause of action.
Considering all relevant facts:
1. Applying the applicable rules for joinder of claims and parties, which, if any, of the claims (claims, counterclaims, cross-claims and/or third-party claims) asserted were properly before the court at the time of filing? DISCUSS.
2. How should the court rule on DK’s motion for a summary judgment? DISCUSS.
3. How should the court rule on Del’s motion to dismiss? DISCUSS.
4. Which of the claims will remain properly before the court after the court rules on the motion for summary judgment and the motion to dismiss? DISCUSS.
San Joaquin College of Law
Civil Procedure – Draft Answer (Mar 04) / Cartier
1. Which of the claims were properly before the court when filed?
Pacific v. DK is a diversity action by the insurer for subrogation from the general contractor that was in charge of a project at insured’s house. The action was filed in federal court in the Western District of Washington. Whether the case was properly before the court when filed requires an analysis of subject matter jurisdiction, personal jurisdiction and venue.
SUBJECT MATTER JURISDICITON – Diversity jurisdiction requires 1. complete diversity of citizenship (no plaintiff from the same state as any defendant) AND 2. an amount in controversy in excess of $75,000. Both Pacific and DK are corporations. Corporations have dual citizenship – the state of incorporation and the principal place of business. Pacific is incorporated in California and DK is incorporated in Washington. Since the facts do not indicate that either corporation has a principal place of business elsewhere, it appears that complete diversity exists. Although the facts do not recite a specific amount of damages, the facts do say the house was severely damaged. The requirement that the amount in controversy exceeds $75,000 is likely met. Defendant would have to prove that it is substantially certain that plaintiff cannot recover at least $75, 000 to contest this element.
PERSONAL JURISDICTION – For the court to make a binding order against defendant DK, the court must have personal jurisdiction over the corporation. On the facts, personal jurisdiction is not a major issue since DK is a Washington corporation being sued in its state of incorporation, where it is deemed to reside (a traditional basis for jurisdiction), on a cause of action that arose in that state. Clearly DK has minimum contacts with the state of Washington so that the exercise of jurisdiction will not offend traditional notions of fair play and substantial justice. Simply put, DK has continuous and systematic contacts with the state of Washington and the lawsuit is related to those contacts. There is nothing unfair about requiring DK to answer in Washington.
VENUE – Venue establishes the proper place for trial. While the general venue rules look to where the defendant resides or where the cause of action arose, venue for a corporate defendant is proper in any district where the corporation would be subject to personal jurisdiction if that district were a state. Here, the action is filed in the western district where Penny’s house was located. Since DK is subject to personal jurisdiction there, venue is appropriate.
DK v. Del is an impleader action where DK seeks comparative indemnity from Del for any damages DK may have to pay to plaintiff. Rule14 permits joinder of someone who is not a party for contribution or indemnity, provided that the court has jurisdiction over the subject matter AND that personal jurisdiction and venue are established.
SUBJECT MATTER JURISDICTION – When the federal court has original jurisdiction over a claim, the court may exercise supplemental jurisdiction over all other claims by defendants that form part of the same constitutional case and controversy. Since the court has original jurisdiction over the Pacific v. DK claim, the court is also empowered to hear DK’s third-party claim against Del that arose from the same nucleus of operative facts. The court has discretion not to exercise supplemental jurisdiction. NOTE: DK is a citizen of Washington. Although Del was working in Washington while going to school, he is referred to as a Californian. An individual’s citizenship is premised on domicile – his permanent place of abode. It appears that complete diversity exists between DK and Del. If DK’s claim for indemnity exceeds $75,000, the federal court will have original jurisdiction over this claim.
PERSONAL JURISDICTION – A state obtains personal jurisdiction over an out of state defendant by giving notice within the grasp of the state’s long arm statute. Del was served in California. Assuming that the long-arm statute is coextensive with the U.S. Constitution, Washington can exercise personal jurisdiction over him so long as he has certain minimum contacts with the state so that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. Even though Del has no continuous and systematic contacts with Washington, he clearly has an isolated contact that is related to the lawsuit. He purposefully directed his activities to Washington by contracting to do work there and, at the same time, took the benefits and protections of the state. The forum state’s interest in protecting its citizens is obvious and substantial. Considering the burden on the defendant, the benefit to the plaintiff AND the interests of the forum state, it is fair to require Del to defend in Washington.
VENUE – If the court exercises supplemental jurisdiction over this claim, venue is assumed to be correct.
If the court exercises original subject matter jurisdiction, venue is appropriate because the cause of action arose in the Western District of Washington.
DEL v. DK – Del asserts two counterclaims against DK. A counterclaim is a claim against a party who has sued the counterclaimant directly. The $18,000 claim, for payment on the Penny project, is transactionally related and is called a compulsory counterclaim. While the court has permission to hear this claim, subject matter jurisdiction must be established. While complete diversity exists since DK is from Washington and Del is from California, this claim is for less than $75,000 and fails to meet the amount in controversy requirement. The court can, however, exercise supplemental jurisdiction over this claim because it is related to the original claim by Pacific. The $10,000 claim is not transactionally related and is called a permissive counterclaim. This claim requires independent subject matter jurisdiction. While diversity exists, the amount in controversy is not met. This claim is not properly before the federal court. [Personal jurisdiction and venue would be o.k. if related to Western district.]
2. MOTION FOR SUMMARY JUDGMENT -- A motion for summary judgment is appropriate when there is no disputed issue of material fact so the case can be decided as a matter of law. DK seeks a summary judgment claiming there is no evidence against it BUT Pacific presented evidence (the statement from Del establishing the contract relationship and the fire marshal’s report) that, if true, would render DK liable. The motion for summary judgment should be denied.
3. MOTION TO DISMISS – Del filed a motion to dismiss Pacific’s claim against DK. Under the 5th sentence of Rule 14, a third-party defendant can assert any defense the original defendant could raise. Specifically, Del asserts that a recent Washington requires that this action be maintained in Penny’s name as a real party in interest. The real party in interest doctrine generally requires that the action be prosecuted in the name of a party who stands to benefit from the action. Because this is a state law claim file in federal court under diversity jurisdiction, the ERIE DOCTRINE applies. Federal courts generally apply state substantive law and federal procedural rules. Here’s the rub: State substantive law says Penny is the real party in interest BUT FRCP 17 simply requires the action be maintained in the name of a real party in interest. Since Pacific is seeking subrogation, it would meet the usual definition of a real party in interest. [While students are given great latitude in developing their arguments for this section, it is important to note that if Penny’s joinder would destroy diversity, since she and DK are both from Washington.] The court might conclude that, while Pacific is a real party in interest for purposes of R. 17, the state substantive law requiring Penny to be joined as a real party in interest is not a direct conflict with FRCP 17 — so both provisions could be applied. [See: Walker and Gasparini.]
4. WHAT IS LEFT? If Penny is joined, the original claim fails and all claims depending on supplemental jurisdiction also fail for want of subject matter jurisdiction. In this case, no claims are left before the court. Otherwise only the permissive counterclaim would be excluded. No claims were eliminated by the motion for summary judgment.