Opinion
Civil Action No. 00-3256, Section "K"(3)
May 21, 2001
Before the Court are two motions: (1) plaintiff Elvin Steirwald's and intevenor Terrence Tunstall's Motion to Substitute Party Plaintiff, and (2) defendant Phoenix Insurance Co. and Travelers Insurance Co.'s Motion for Summary Judgment. The motions were taken on the papers without oral argument. The Court, having considered the pleadings, memoranda and relevant law finds that the motion to substitute shall be granted and the motion for summary judgment shall be denied for the reasons that follow.
Background
On February 11, 1996, Elvin Steirwald and Terrance Tunstall were involved in an automobile accident at the corner of Toulouse Street and North Rampart Street in New Orleans, with Steirwald admitting to fault. Tunstall filed suit against Steirwald and his insurer, Phoenix Insurance Company, and its parent company, Travelers Insurance Company in the Civil District Court for the Parish of Orleans, Docket No. 96-14286. The insurer refused to settle the claim for an amount equal to Steirwald's policy limit of $50,000 and instead insisted upon litigating the matter. Apparently unhappy with his insurer's strategy, on July 12, 1999 Steirwald and Tunstall compromised their dispute prior to trial. Tunstall agreed not to pursue any future excess judgment that may be rendered in the civil suit against Steirwald personally in exchange for Steirwald's assignment of rights, such as the right to pursue a bad faith failure to settle claim against his own insurer. Trial of the personal injury suit commenced on August 19, 1999 and judgment was rendered against Steirwald and his insurers in the amount of $1,006,674.00 plus interest and costs on November 5, 1999.
The assignment states in relevant part, "assignors [Steirwald] have assigned and transferred . . . unto Terrance Tunstall . . . any and all sums now due or owing said assignors, and all claims, demands and causes of action . . . which assigner have or now have or may have against Traveler's . . . arising out of the failure of Traveler's . . . to settle in good faith the personal injury claim of Terrance Tunstall . . ." Motion to Substitute, exhibit D.
On October 5, 2000 Elvin Steirwald filed suit in the Civil District Court for the Parish of Orleans against Phoenix and Travelers alleging that they arbitrarily and in bad faith refused to settle the personal injury suit filed by Tunstall against Steirwald. The matter was removed to this court on November 2, 2000 based upon diversity of citizenship. On February 8, 2001 the defendants filed a motion for summary judgment arguing that Steirwald suffered no damages as a result of the insurer's failure to settle because by virtue of the compromise reached with Tunstall, Steirwald could not be held liable for any excess judgment. The insurers stated that "[as a result of the assignment] Steirwald has been released from liability . . . can suffer no damages . . . and accordingly has no claim in the matter." Defendants' Motion for Summary Judgment at p. 3. Steirwald filed a timely opposition, and on the same day filed a Motion to Substitute Party Plaintiff, requesting that Tunstall replace Steirwald as the plaintiff. Steirwald argues that Tunstall is now the proper party plaintiff based on the assignment of Steirwald's rights to Tunstall. In opposition to that motion, defendants now contend that the assignment was ineffective to transfer rights and that the motion to substitute should accordingly be denied. At least for purposes of the motion to substitute, their position appears to be that "the assignment from Steirwald to Tunstall . . . is null . . . under Louisiana law." Defendants' Opposition to Motion to Substitute Party Plaintiff at p. 3.
Motion to Substitute Party Plaintiff
Rule 17(a) of the Federal Rules of Civil Procedure provides in pertinent part, "[e]very action shall be prosecuted in the name of the real party in interest." Fed.R.Civ.P. 17(a). "The effect of this passage is that the action must be brought by the person who, according to the governing substantive law, is entitled to enforce the right." Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 1543, p. 334. "A federal court sitting in diversity must look to state law to determine which party holds the substantive right." Farrell Construction Co. v. Jefferson Parish, Louisiana, 896 F.2d 136, 140 (5th Cir. 1990) (citing United States v. 936.71 Acres of Land, 418 F.2d 551, 556 (5th Cir. 1969) and New Orleans Public Service. Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 466 (5th Cir.), cert. denied, 469 U.S. 1019, 105 S.Ct. 434, 83 L.Ed.2d 360 (1984)). Therefore, to determine the real party in interest in the action sub judice, it is necessary to determine what person "holds the substantive right sought to be enforced" under Louisiana law. See Farrell Construction Co., 896 F.2d at 140 (5th Cir. 1990) (citations omitted). In a matter, such as the one before this Court, where a party claims to be the real party in interest through an assignment of rights, the substantive law of recovery must recognize the prospective plaintiff as the real party in interest, and "the court must assure itself that a valid assignment has been made." Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 1545 pp. 349-50.
According to the allegations in the petition, it is clear that Steirwald would be the proper party to bring a bad faith claim under Louisiana law. Thus, for Tunstall to be substituted as a party plaintiff, the Court must be satisfied that Tunstall does indeed possess valid rights against the insurers. Upon a thorough review of the relevant code articles and jurisprudence, the Court is satisfied that a valid assignment took place between Steirwald and Tunstall and that accordingly, Tunstall is a proper party plaintiff in this action.
Defendant relies upon Parich v. State Farm Mutual Automobile Insurance Co., 919 F.2d 906 (5th Cir. 1990) for the proposition that the assignment from Steirwald to Tunstall was invalid. However, this federal court sitting in diversity is Erie bound act as the Louisiana Supreme Court would in the identical situation. The Court is not convinced that the Louisiana Supreme Court would reach the same result as the Parich court, and therefore declines to follow that decision.
As stated above, the Court notes that defendants' argument in this respect is the antithesis of the argument made in a prior filed motion for summary judgment. In the motion for summary judgment, defendants argue that Steirwald must be dismissed because the effect of the assignment of rights was that Steirwald had no exposure for an excess judgment, and therefore no damages upon which to base a failure to settle claim.
The Court also notes that the equitable doctrine of judicial estoppel acts to prevent a party from assuming positions inconsistent with those asserted in prior pleadings. In re Coastal Plains. Inc., 179 F.3d 197 (5th Cir. 1999). "The purpose of the doctrine is `to protect the integrity of the judicial process' by `preventing parties from playing fast and loose with the courts to suit the exigencies of self interest.'"Id. (quoting Brandon v. Interfist Corp., 858 F.2d 266, 268 (5th Cir. 1988). However, the courts recognize two limitations to the doctrine, (1) the positions asserted must be clearly inconsistent, and (2) the court must have accepted the previous position. Id.. at 206. Because the Court deemed it proper to analyze the motion to substitute first, defendants' theory with respect to their motion for summary judgment was not successful and therefore the doctrine would not apply in this instance.
The pertinent reasoning of Parich relied on by the defendants is found in a footnote, where the court stated that "a nascent cause of action for a tort that is nothing more than a dispute between two parties is not transferable." Id. at 917, n. 3. As support for that proposition the Court of Appeals cites article 2652 of the Louisiana Civil Code, which provides that:
When a litigious right is assigned, the debtor may extinguish his obligation by paying to the assignee the price the assignee paid for the assignment, with interest from the time of the assignment.
A right is litigious, for that purpose, when it is contested in a suit already filed.
Nevertheless, the debtor may not thus extinguish his obligation when the assignment has been made to a co-owner of the assigned right, or to a possessor of the thing subject to the litigious right.
La. Civ. Code art. 2652 (emphasis added). As a matter of statutory application, reliance upon article 2652 is inappropriate because that article does not address the fundamental question of whether the right to a cause of action can be assigned. The thrust of article 2652 and its definition of litigious rights, for purposes of that article only, focuses upon the temporal rules regarding redemption or extinguishment of a litigious right. It does not purport to articulate what rights may be assigned in the first place or the method by which they may be assigned. The relevant article with respect to whether a right may or may not be assigned is article 2642, which provides in relevant part that " [a]ll rights may be assigned, with the exception of those pertaining to obligations that are strictly personal . . ." La. Civ. Code art. 2642 (emphasis added). The article "gives legislative recognition to the fact that incorporeal rights, except for strictly personal obligations, are generally assignable." La. Civ. Code art. 2642, cmt. (a); See also La. Civ. Code art. 2448 ("All things corporeal or incorporeal, susceptible of ownership may be the object of a contract of sale . . ."). Given such a broad spectrum, the assignment in this case must be valid unless it is strictly personal or otherwise proscribed by law. A strictly personal obligation is one that "can be enforced only by the obligee, or only against the obligor." La. Civ. Code art. 1766; Saul Litvinoff, The Law of Obligations, 5 Louisiana Civil Law Treatise at § 4.13. Features indicative of a personal obligation are the requirements of special skill or qualification on behalf of the obligor or when the performance is intended for the exclusive benefit of the obligee. La. Civ. Code art. 1766 and cmt. (b). And although it is clear that "duties with respect to excess exposure are owed only to the insured . . . claims for beach of [those] duties [may] be asserted by . . . someone who derives his right from the insured." William Shelby McKenzie and H. Alston Johnson, Insurance Law and Practice, 15 Louisiana Civil Law Treatise at § 222. The right to pursue damages for an insurer's bad faith failure to settle, a cause of action in the nature of contract, is not a strictly personal obligation and therefore is assignable; that suit has not been filed is irrelevant.
See e.g. La. Civ. Code art. 2447 "Officers of the . . . cannot purchase litigious rights under contestation in the jurisdiction of that court . . ."
Additionally, the jurisprudential underpinnings of Parich were factually distinguishable from the scenario before the Court of Appeals. As Judge Sear pointed out in Sanderson v. H.I.G. P-XI Holding Co., Inc., 2001 WL 245788 (E.D. La. 3/9/2001) "none of the three cases referred to in dicta by the Fifth Circuit in the Parich decision were essential to the holding in that case, and they do not support . . . the claim that a nascent dispute is not assignable." Id. at *2 (emphasis in original). Indeed, several Louisiana appellate courts have permitted an assignment of a cause of action prior to assignor's filing suit on that cause of action. See e.g. Maryland Casualty Co. v. Dixie Insurance Co., 622 So.2d 698 (La.App. 1 Cir. 1993) (personal injury defendant assigned bad faith rights against his insurer to plaintiff's u/m insurer after judgment rendered); Keith v. Comco Insurance Co., 574 So.2d 1270 (La.App. 2 Cir. 1991) (insured who had not yet filed suit had a right of action against insurer for failure to settle and could assign that right); Younger v. Lumbermens Mutual Casualty Co., 174 So.2d 672 (La.App. 3 Cir. 1965) (plaintiff obtained post judgment assignment of bad faith claim from insured who had not yet filed claim); Wood v. Zor. Inc., 154 So.2d 632 (La.App. 4 Cir. 1963) (right that is not yet in litigation may be validly assigned). Those cases that arise in the insurance context, at least impliedly, recognize that although the duties with respect to excess exposure flow from the insurer to the insured, claims for breaches of those duties may be asserted by assignees of the insured, regardless of whether the bad faith suit is filed by the insured or the assignee.
Thus, upon close consdieration of the applicable Civil Code articles and the practices of the Louisiana appellate courts, this Court finds that the assignment from Steirwald to Tunstall is free of impediment. Accordingly, the Court shall allow the Tunstall to be substitute for Steirwald as the proper party plaintiff.