Court: Court of Appeals for the Third Circuit; January 26, 1994; Federal Appellate Court
Randy and Theresa Shetter appeal a dismissal by the District Court for the Middle District of Pennsylvania, which ruled the court lacked federal subject matter jurisdiction over their complaint against Amerada Hess Corporation and Hess Oil Virgin Islands Corporation (HOVIC) for Mr. Shetter’s injuries from a modular home installation accident. The district court concluded that adding a non-diverse party plaintiff eliminated federal jurisdiction, a decision the appellate court disagrees with and intends to reverse.
The incident occurred on April 24, 1991, during the installation of modular homes provided by Penn Lyon Homes, Inc., under a purchase agreement with HOVIC, following Hurricane Hugo's destruction in St. Croix. Mr. Shetter was hired by Penn Lyon and sustained serious injuries when a modular home fell on him. Penn Lyon had workers' compensation insurance from the Government Insurance Fund of the Virgin Islands, which compensated Mr. Shetter over $49,000 for medical expenses and disability.
The Shetters filed their personal injury complaint on August 2, 1991, claiming damages due to Mr. Shetter’s injuries and loss of consortium for Mrs. Shetter. The Shetters, citizens of Pennsylvania, brought their case against Amerada Hess, a Delaware corporation with a principal place of business in New York, and HOVIC, a Virgin Islands corporation. The case qualified for federal jurisdiction under 28 U.S.C. § 1332 due to the parties' diversity and the amount in controversy exceeding $50,000.
Subsequently, on January 15, 1992, Amerada Hess and HOVIC initiated a third-party complaint against Penn Lyon for contribution or indemnity. On November 4, 1992, Penn Lyon moved to dismiss the Shetters’ complaint, arguing that they failed to join the Commissioner of the Virgin Islands Department of Labor as required under Virgin Islands law (24 V.I.C. § 263).
On December 11, 1992, the district court dismissed the Shetters' case, ruling that the Commissioner was an indispensable party under Virgin Islands law, specifically 24 V.I.C. 263, which mandates the Commissioner's involvement in actions initiated by injured employees against third parties. The court found that had the Shetters properly joined the Commissioner from the outset, complete diversity jurisdiction would have been destroyed, leading to a lack of proper jurisdiction. The Shetters' argument that Federal Rule of Civil Procedure 19 should apply was rejected by the court, which instead adhered to the Virgin Islands statute. Consequently, the Shetters filed a timely appeal, asserting that the dismissal was erroneous due to the court's failure to consider Rule 19.
The appellate review centers on whether the district court erred in dismissing the complaint for not joining the Commissioner and whether Rule 19 was applicable. The court's decision regarding the necessity of an indispensable party is generally reviewed for abuse of discretion, while the legal determination that Rule 19 does not apply is subject to plenary review. The excerpt references the Supreme Court's guidance in Provident Tradesmens Bank, Trust Co. v. Patterson, emphasizing that the question of joinder in diversity cases is fundamentally a matter of federal law, despite any state law considerations regarding the interests of absent parties. The Supreme Court previously vacated a lower decision requiring joinder based on substantive rights, asserting that adherence to the criteria established in Rule 19 is essential for deciding whether a party must be joined for appropriate dispute resolution.
Federal courts have established that, in diversity cases, the question of party joinder under Rule 19 of the Federal Rules of Civil Procedure is determined by federal law, as affirmed in Sheldon v. West Bend Equipment Corp. While state law may assist in understanding a party's interests, the ultimate decision on whether to join a party rests with federal law. In this context, the Virgin Islands statute 24 V.I.C. 263 outlines the Commissioner's interests regarding subrogation rights to protect the Fund, which will be considered in the Rule 19 joinder analysis.
Penn Lyon argues that the precedent set by Provident Bank is distinguishable because it did not involve a statutory requirement for party joinder, but rather an equitable determination. However, the court rejects this assertion, reaffirming that the Supreme Court's ruling in Provident Bank asserts that joinder questions in diversity cases are governed by federal law, regardless of state statutes. The district court must assess whether the Commissioner qualifies as an indispensable party in the current case, guided by the factors in Rule 19(a). This rule mandates that a party must be joined if their absence prevents complete relief among existing parties or if they have an interest that could be compromised by the case's outcome, potentially leading to inconsistent obligations for the existing parties.
If a necessary party has not been joined in a legal action, the court will order that they be added. Under Rule 19, if the Commissioner is deemed necessary for the case, joinder must occur if possible. However, if joining the Commissioner would destroy subject matter jurisdiction, the court must evaluate whether the case can proceed without the Commissioner or if their absence would necessitate dismissal based on 'equity and good conscience.'
In assessing joinder, the interests of the Commissioner, as outlined in 24 V.I.C. 263, must be considered. The first factor is whether the existing parties can obtain complete relief without the Commissioner. In the case of Shetters against Amerada Hess and HOVIC, the defendants sought to join Penn Lyon as a third-party defendant due to claims of negligence related to Mr. Shetter's injuries. The court determined that the Commissioner’s absence does not impede the Shetters' ability to prove negligence against the defendants or the validity of their third-party claim against Penn Lyon.
Penn Lyon contended that complete relief would be unattainable without the Commissioner, but the court disagreed. The Virgin Islands' workers’ compensation program aims to provide prompt benefits without considering fault and limits employers' civil liability for work-related injuries under 24 V.I.C. 284. However, this program does not eliminate an employee's right to sue third-party tort-feasors. The program allows for legal action against third parties if initiated alongside a claim for compensation from the Fund, with the Commissioner holding subrogation rights to recover any awarded damages.
The purpose of 24 V.I.C. 263 is to define the relationship between employees and the Commissioner, particularly in negligence claims against third-party tort-feasors. The statute does not impede an injured employee's right to sue such parties, despite language suggesting that the Commissioner must be involved in the action. This language primarily serves to protect the Commissioner’s subrogation rights. The Shetters retain the right to pursue their claims independently of the Commissioner. Under Rule 19(a), courts must evaluate how the absence of the Commissioner affects his ability to protect his interests. The Commissioner’s interests are inherently linked to the Shetters’ recovery, as he can seek reimbursement for benefits provided to Mr. Shetter if they win damages. Allowing the Shetters’ suit to proceed would not harm the Commissioner’s rights; rather, it would safeguard them by preserving the potential for recovery. Dismissing the case would prevent the Shetters from bringing any future claims due to the expiration of the statute of limitations. The defendants argue that the Commissioner should be a party to all related suits for awareness of subrogation opportunities; however, pragmatic examination reveals that the Commissioner’s interests are better served by allowing the suit to continue without him being a party. The Department of Labor is already informed of the suit, ensuring that the Commissioner is aware of potential claims, thereby avoiding prejudice from a judgment rendered in his absence.
Rule 19(a)(2)(ii) mandates the Court to evaluate whether the absence of the Commissioner exposes existing parties to a significant risk of facing double, multiple, or inconsistent obligations related to the claimed interest. Under the Virgin Islands workmen’s compensation statute, the Commissioner has two years post-injury to initiate actions against third parties in the name of the injured worker (24 V.I.C. 263). Since Mr. Shetter’s accident occurred over two years ago and no party has indicated that the Commissioner filed suit within that timeframe, the statute of limitations has expired, eliminating the possibility for the Commissioner to initiate a lawsuit against third-party defendants. Consequently, Amerada Hess, HOVIC, and Penn Lyon are not at risk of incurring conflicting obligations due to the Commissioner’s interest.
Based on the analysis under Rule 19(a), the Court concludes that the Commissioner’s involvement is not essential for a fair resolution of the case. Therefore, it is unnecessary to determine if the Commissioner is an indispensable party under Rule 19(b), which could lead to the suit's dismissal. The district court's failure to adhere to Rule 19's procedural requirements is deemed improper. As a result, the order dismissing the complaint will be reversed, and the case will be remanded for further proceedings. The district court also dismissed as moot Penn Lyon’s summary judgment motion and the cross-motion for summary judgment from defendants Amerada Hess and HOVIC. The statute further stipulates that any action or compromise involving the injured worker and a third party is invalid unless the Commissioner is a party or consents, and the Government Insurance Fund's rights to reimbursement must be explicitly reserved in any judgment or compromise.
The court's memorandum references dicta from Galvan v. Hess Oil Virgin Islands Corp., which states that the Commissioner must be joined in a third-party suit under the workmen's compensation statute. In Galvan, an 18-year-old plaintiff injured at work was found to have his claim tolled due to infancy under 24 V.I.C. 263, leading the court to deny the defendants' statute of limitations defense. The court acknowledged that the plaintiff had joined the Commissioner, granting the Commissioner similar protections. However, the current court does not view this dicta as binding.
Rule 19(b) outlines that if an indispensable party cannot be joined, the court must decide if the case should proceed or be dismissed, considering factors such as potential prejudice to the absent party, the adequacy of judgment, and the plaintiff's remedies if the case is dismissed. In a related case, Ayala, the court affirmed that employees could pursue common law remedies against third-party tortfeasors, irrespective of workmen’s compensation claims, emphasizing a common law right to action.
The court concluded that it found no statutory basis allowing the Shetters to sue in the Virgin Islands if the current action is dismissed. The argument for the Commissioner's involvement is weak as he was neither a plaintiff nor joined by the Shetters, and the statute of limitations has expired for him. Nonetheless, the Commissioner retains the right to seek reimbursement from the Fund if Mr. Shetter recovers damages. The court also determined that since the Commissioner is aware of the suit, there is no need to address whether notice to the Commissioner is necessary for the suit's continuation or to reevaluate joinder under Rule 19(b).
