Opinion
Civil Action No. 04-867 SECTION "K"(5).
June 29, 2004
Before the Court are defendant Ace Fire Underwriters Insurance Company's Motion to Dismiss for Lack of Subject Matter Jurisdiction and Motion to Dismiss for Failure to Join Necessary/Indispensable Parties (Rec. Doc. 3). Having reviewed the pleadings, memoranda and relevant law, the Court DENIES defendant's motions, for reasons assigned below.
I. BACKGROUND
On February 19, 2004, plaintiff Buck Kreihs Company, Incorporated, (Kreihs) filed the instant action in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana, for damages arising from defendant's alleged breach of fiduciary duty. Rec. Doc. No. 1, Exhibit A. Defendant Ace Fire Underwriters Insurance Company (Ace) provided plaintiff with workers' compensation and employer's liability insurance from August 1, 2000 to August 1, 2003, and established reserves for claims made against those policies. The calculation of those reserves was based upon anticipated future exposure, which, in turn, was based in part upon the calculation of an injured worker's average weekly wage. For claims arising under the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. § 901, et seq., (LHWCA), benefits paid by the employer are statutorily excluded from the calculation of the average weekly wage. See 33 U.S.C. § 902(13).
In its original Petition for Damages, plaintiff alleges that defendant erroneously included certain employer-paid benefits in its average weekly wage calculations, which in turn resulted in artificially inflated reserves and increased premiums. Although Kreihs has subsequently provided Ace with information that allegedly demonstrates that these benefits should be excluded, Ace has refused to recalculate the average weekly wage for claims that arose during the time it provided Kreihs with workers' compensation coverage, which plaintiff avers is a breach of the insurer's fiduciary duty. As a result of the inflated value of these claims, plaintiff further alleges that it will have to pay higher premiums in the future. Accordingly, plaintiff seeks damages for the refund of premiums and reserves resulting from defendant's failure to recalculate the average weekly wage, as well as applicable penalties and attorneys' fees.
On March 26, 2004, Ace removed this action from the Twenty-Second Judicial District Court for the Parish of St. Tammany to this Court, claiming both federal question jurisdiction under 28 U.S.C. § 1331, and diversity jurisdiction under 28 U.S.C. § 1332. See Rec. Doc. No. 1. On April 20, 2004, defendant filed the instant motions to dismiss for lack of subject matter jurisdiction and failure to join necessary/indispensable parties, pursuant to Rules 12(b)(1) and 12(b)(7) of the Federal Rules of Civil Procedure. Rec. Doc. No. 3.
Defendant avers, first, that because "plaintiff's Petition for Damages seeks a reduction in the average weekly wage calculation and corresponding compensation rate for ongoing Longshore Harbor Workers' Compensation Act (LHWCA) claims being paid by ACE," this action arises under the exclusive jurisdiction of the United States Department of Labor and its administrative law judges, which statutorily precludes subject matter jurisdiction by this Court. Defendant also contends that, because "these issues strike at the heart of interpretations regarding LHWCA statutory wage and compensation rate provisions," both the Director of the Office of Workers' Compensation Programs and the individual claimants currently receiving ongoing benefits have an interest in this controversy and could be adversely affected by its outcome. Accordingly, Ace asserts that this action should be dismissed for plaintiff's failure to join these "indispensable and/or necessary parties."
Plaintiff responds in opposition to these motions that Ace has mischaracterized the relief it seeks in its Petition for Damages. Rec. Doc. No. 4. Kreihs insists that it is not seeking damages for the inflated value of ongoing claims being paid by Ace. Rather, it is seeking damages based upon the increased premiums it has had to pay as a result of those inflated values. Plaintiff contends that this is a claim based upon a breach of fiduciary duty of the insurer to the insured, and thus falls outside the statutory jurisdiction of the LHWCA. Plaintiff further avers that because this is a breach of contract claim between an insurer and an insured, neither the Director of the Office of Workers' Compensation Programs nor any individual claimants have a material interest in this action, and joinder would thus be inappropriate. Accordingly, Kreihs argues that defendant's motions should be denied.
II. LEGAL STANDARD ANALYSIS
A. Lack of Subject Matter Jurisdiction
Defendant moves this Court to dismiss plaintiff's claims pursuant to Rules 12(b)(1) and 12(b)(7) of the Federal Rules of Civil Procedure. "When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any other attack on the merits." Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) ( citing Hitt v. city of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977) (per curiam)). Considering Rule 12(b)(1) motions first "prevents a court without jurisdiction from prematurely dismissing a case with prejudice." Id.
A Rule 12(b)(1) motion to dismiss challenges the subject matter jurisdiction of a federal district court. A claim is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the claim. See Home Builders Assoc., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998). A 12(b)(1) motion may be appropriate when a plaintiff's claim is barred by sovereign immunity, as well as in the typical situation where a defendant alleges that there is no diversity of citizenship between the parties, jurisdictional amount, and/or the plaintiff's claim does not involve a federal question. See 5A Charles A. Wright Arthur R. Miller, Federal Practice and Procedure, § 1350 (2d ed. 2003).
Because federal courts are courts of limited jurisdiction, absent jurisdiction conferred by statute, they lack the power to adjudicate claims. See e.g., Stockman v. Federal Election Comm'n, 138 F.3d 144, 151 (5th Cir. 1998). Thus, a federal court must dismiss an action whenever it appears that subject matter jurisdiction is lacking. Stockman, 138 F.3d at 151.
In considering a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, "a court may evaluate (1) the complaint alone, (2) the complaint supplemented by undisputed facts evidenced in the record, or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 424 (5th Cir. 2001). Thus, unlike a Rule 12(b)(6) motion to dismiss for failure to state a claim, the district court is entitled to consider disputed facts as well as undisputed facts in the record. See Clark v. Tarrant County, 798 F.2d 736, 741 (5th Cir. 1986). Uncontroverted allegations of the complaint, however, must be accepted as true. Den Norske Stats Oljeselskap As, 241 F.3d at 424.
In the instant motion, defendant attacks the subject matter jurisdiction of this Court based upon the assertion that "plaintiff's demands are integral to LHWCA benefit claims arising under the exclusive jurisdiction of the United States Department of Labor." Rec. Doc. No. 3, at 6. Defendant cites Section 919(a) of the LHWCA, which provides that the Department of Labor's deputy commissioner and administrative law judges "shall have full power and authority to hear and determine all questions in respect of" a claim for compensation. 33 U.S.C. § 919(a), 919(d). Defendant notes further that a decision by an ALJ regarding a benefits claim "is subject to review by the Benefits Review Board, and thereafter by the appropriate Court of Appeals." Rec. Doc. No. 3, at 7 ( citing 33 U.S.C. § 921(b), 921(c)).
In Temporary Employment Services v. Trinity Marine Group, Inc., the Fifth Circuit recognized that "[u]nder the LHWCA, an ALJ has jurisdiction over a "claim for compensation" and has "full power and authority to hear and determine all questions in respect of such claim." 261 F.3d 456, 459 (5th Cir. 2001) (emphasis in original) ( quoting 33 U.S.C. § 919(a); see also id. § 919(d)). The Court further explained that "questions in respect of" such claims involved either questions of the claimant's entitlement to benefits, or questions of the employer's or insurer's underlying liability. Id., at 462-463 ( citing BethEnergy Mines, Inc. v. Director, Office of Workers' Compensation Programs, U.S. Department of Labor, 32 F.3d 843, 845-48 (3rd Cir. 1994)). See also Sea "B" Mining Co. v. Dir., Office of Workers' Comp. Programs, U.S. Dep't of Labor, 45 F.3d 851, 854-56 (4th Cir. 1995) (noting that because "underlying liability" was not at issue, "`all questions in respect of such claim' have been resolved"); Indian Mountain Coal Co. v. Dir., Office of Workers' Comp. Programs, U.S. Dep't of Labor, No. 96-2262, 1998 WL 382630, at *5 (4th Cir.June, 11, 1998) (stating that questions "collateral to" an underlying claim for benefits are those that do not involve the claimant's eligibility for some or all of the compensation sought or granted"); Peabody Coal Co. v. Dir., Office of Workers' Comp. Programs, U.S. Dep't of Labor, 40 F.3d 906, 908-09 (7th Cir. 1994) (stating that "all questions in respect of such claim" had been resolved because underlying liability was not at issue). Emphasizing that "the ALJ's authority extends only to questions that are in respect of the LHWCA claim of an injured or deceased worker," the Trinity Marine Court concluded that the contractual disputes at issue in that case were beyond the jurisdictional authority granted to the LHWCA adjudicative administrative tribunals. 261 F.3d at 461-61, 465 (emphasis in originial).
In Equitable Equipment Company v. Director, Office of Workers' Compensation Programs, U.S. Department of Labor, the Fifth Circuit similarly held that where the sole issue "is a state law breach of contract claim between and insurer and an insured," "[s]uch a claim is beyond the jurisdictional reach of § 919(a), particularly when the underlying compensation claim has been resolved and no factual dispute regarding the compensation claim itself must be decided." 191 F.3d 630, 632 (5th Cir. 1990). The Court specifically refused to follow Gray Co. v. Highlands Ins. Co., because, in that case, "[t]he ALJ was not called upon to address an employee's right to compensation, to determine the carrier responsible for the payment of benefits, or to resolve a coverage dispute related to the payment of compensation." Id. ( quoting Gray Co. v. Highlands Ins. Co., 9 BRBS 424, 427-28 (1978). Accordingly, the Equitable Court affirmed the decision and order of the Benefits Review Board dismissing Equitable's claim for lack of jurisdiction under the LHWCA, because its claim involved "neither a determination of which carrier must pay compensation benefits nor a dispute over potential coverage of a benefits claim." Id., at 633.
In the case at bar, plaintiff's claim is based upon a contractual dispute with its former insurer. Kreihs seeks damages for increased premiums it has to pay as the result of Ace's alleged breach of fiduciary, and this issue involves neither a claimant's entitlement to benefits, nor the employer's or insurer's underlying liability. Accordingly, because this contractual dispute is not integral to deciding any underlying compensation claims, defendant's motion to dismiss for lack of subject matter jurisdiction must fail.
B. Failure to Join an Indispensable Party
Defendant also moves this Court to dismiss plaintiff's claims pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure, for failure to join both the Director of the Office of Workers' Compensation Programs and the individual claimants currently receiving ongoing benefits paid by Ace on behalf of Kreihs. Rule 12(b)(7) of the Federal Rules of Civil Procedure permits a party to bring a motion to dismiss a complaint for failure to join a party under Rule 19. See Fed.R.Civ.P.12(b)(7). Proper joinder under Rule 19 is a two-step process. First, the court must decide if the absent party is a necessary party to the action. See Fed.R.Civ.P. 19(a). Second, if the absent party is a necessary party, but its joinder is not feasible, the court must decide whether the absent party is an "indispensable" party to the action under Rule 19(b). See Fed.R.Civ.P. 19(b). Under Rule 19(a), a party is "necessary" if:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
If a party is "necessary," but cannot be joined in the action because its joinder would defeat the court's diversity jurisdiction, the court must determine "whether in equity and good conscience the action should proceed among the parties before it. . . ." Fed.R.Civ.P. 19(b). The Rule provides a list of four factors for a court to consider when making its determination:
First, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
The sole issue in the case at bar, as the Court has stated supra, "is a state law breach of contract claim between and insurer and an insured." Equitable Equipment, 191 F.3d at 632. Neither the Director of the Office of Workers' Compensation Programs nor the individual claimants receiving benefits paid on behalf of Kreihs are parties to this contract. Further, the disposition of plaintiff's action requires neither a determination of an "employee's right to compensation, [nor] the carrier responsible for the payment of benefits, [nor the resolution of] a coverage dispute related to the payment of compensation," id. ( quoting Gray Co. v. Highlands Ins. Co., 9 BRBS at 427-28), and thus affects neither the interests of those parties not joined in this dispute, nor the ability of the present parties to be accorded complete relief. Accordingly, the Court concludes that neither the Director of the Office of Workers' Compensation Programs nor any individual claimants are "necessary" parties as defined by Rule 19(a). Based upon this finding, the Court need not proceed to step two of the process to determine whether the absent parties are "indispensable" to this action.
For the foregoing reasons,
IT IS ORDERED that defendant's Rule 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction (Rec. Doc. No. 3) is hereby DENIED. IT IS FURTHER ORDERED that defendant's Rule 12(b)(7) Motion to Dismiss for Failure to Join Necessary/Indispensable Parties (Rec. Doc. No. 3) is hereby DENIED.