IHP Industrial, Inc. v. PermAlert, ESP

Citations: 178 F.R.D. 483; 1997 U.S. Dist. LEXIS 22234Docket: Civil Action No. 4:96CV77LN

Court: District Court, S.D. Mississippi; December 8, 1997; Federal District Court

SummaryOriginalCytator Case TreatmentAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Two motions are under consideration: one from defendant/counter-plaintiff PermAlert, seeking summary judgment based on IHP Industrial, Inc. (IHP)'s status as a plaintiff, and another from third-party defendant RC Construction Co. Inc. to dismiss the third-party complaint against it by PermAlert. PermAlert argues that IHP is not a real party in interest, as it assigned its claims to its insurer, Liberty Mutual, and thus should have its complaint dismissed under Federal Rule of Civil Procedure 17(a). IHP counters that it remains a real party in interest and, if Liberty Mutual is deemed the real party, the court should allow time for ratification or substitution per Rule 17(a).

The case involves RC Construction's contract with the U.S. Property and Fiscal Office to upgrade aircraft pavements, where IHP was subcontracted to install a fueling system, procuring materials from PermAlert. After installation, water infiltration was discovered, leading to substantial costs for IHP to repair the failed pipe joints. IHP notified Liberty Mutual of these costs, which exceeded $250,000, and entered a "Release and Subrogation of Claims" agreement with Liberty, receiving $250,000 in exchange for releasing Liberty from further liability. IHP reserved its rights against PermAlert while subrogating Liberty to pursue claims against subcontractors or suppliers, granting Liberty authority to manage claims in IHP's name.

Liberty has sole control over the prosecution of claims, including selection of counsel on a one-third contingency fee basis, discovery, and trial conduct. IHP remains responsible for attorney fees and expenses related to proving consequential damages beyond $250,000, which Liberty has paid under the agreement. If Liberty recovers any amount from its subrogated interest, it must remit half of the recovered sums up to $500,000 to IHP, deducting half of attorney fees, and all amounts above $500,000 to IHP as well. 

PermAlert argues that this agreement effectively assigns IHP's rights to Liberty Mutual, granting Liberty sole authority to pursue damages from PermAlert. In contrast, IHP contends it retains a pecuniary interest, as it is entitled to a share of recoveries, thus qualifying as a real party in interest. The court referenced Aetna Casualty & Surety Co. v. Pendleton Detectives, where the insured's assignment of claims to Aetna eliminated its substantive rights, ruling Aetna as the sole party in interest. Although the Liberty/IHP agreement is somewhat less explicit, it similarly grants Liberty Mutual the right to pursue claims against subcontractors like PermAlert, while IHP's retained interest does not confer it real party status. Ultimately, Liberty Mutual holds the exclusive right to proceed against PermAlert for any recovery.

The real party in interest is defined as the individual who holds the substantive right that is being enforced, not necessarily the one who will benefit from any recovery. The court has determined that Liberty Mutual is the sole valid claimant as the real party in interest, yet it is not a plaintiff in the current case. Consequently, the court must decide whether to dismiss the case, as PermAlert requests, or to allow Liberty Mutual to be substituted as the plaintiff. IHP argues against dismissal, citing Rule 17(a), which states that an action cannot be dismissed for not being prosecuted in the name of the real party in interest without allowing reasonable time for ratification or substitution. PermAlert acknowledges this but refers to legal commentary indicating that the rule aims to prevent forfeiture due to misunderstandings regarding the proper party to sue. The district court has discretion to dismiss if there is no reasonable basis for naming an incorrect party. While the court has rejected IHP’s claim that it is a real party in interest due to its financial interest, it finds that IHP had some reasonable basis for its position. Therefore, the court permits Liberty Mutual to substitute as the plaintiff should it choose to continue the litigation against PermAlert.

Additionally, the document addresses a motion from third-party defendant RC Construction to dismiss PermAlert’s third-party complaint. PermAlert contends that if found liable to IHP (or Liberty Mutual) for costs related to excavation and repair of failed pipes, RC should be liable to PermAlert for those damages. This claim arises because RC allegedly installed pavement prematurely over the pipes, increasing the excavation costs, despite knowing that field testing was required before backfilling and paving. PermAlert seeks equitable indemnity/subrogation from RC in the event of liability to IHP.

RC's argument that its liability to PermAlert is independent of IHP’s claim against PermAlert is rejected by the court. The court clarifies that RC can only be liable for damages PermAlert must pay to IHP if PermAlert is indeed required to pay those damages. Furthermore, RC's claim that the third-party complaint is premature is also dismissed; Rule 14(a) permits third-party actions even if the main claim has not been resolved. Although RC contends that PermAlert cannot claim equitable subrogation or indemnity due to allegations of fraud—citing that PermAlert is an "active" wrongdoer—the court notes that IHP's claims also include breaches of express and implied warranties, which could involve negligent conduct. Under Mississippi law, if liability stems from negligence rather than intentional wrongdoing, equitable subrogation may still apply. Thus, the court finds no basis to bar PermAlert from pursuing its third-party claims against RC. RC's motion to dismiss is denied. Additionally, RC requests amendments to the case management order for discovery and trial continuance, which the court deems reasonable and will address through an amended plan after consulting the parties. As a result, both PermAlert's motion for summary judgment and RC's motion to dismiss are denied.

RC's request for an amended case management plan, supported by PermAlert, has been granted, and a new case management plan will be issued. The plaintiff must serve Liberty Mutual or its counsel with a copy of the memorandum opinion and order immediately. Liberty Mutual is required to inform the court by December 19, 1997, whether it wishes to continue as the plaintiff in the case. IHP argues that the determination of a real party in interest under Rule 17(a) is governed by the substantive law of Mississippi, citing that under Mississippi Rule of Civil Procedure 17(b), a subrogor with a financial interest in the claim may sue if the insured’s loss exceeds the policy coverage. However, the court notes that the Mississippi law referenced by IHP is procedural rather than substantive and does not clarify situations where the insured has contractually waived its right to pursue claims. RC contends that the dismissal of IHP's tort claim of negligence eliminates any remaining negligence claim, but the court finds this argument insufficient, as warranty and contract claims may still arise from negligent conduct.