Opinion
No. 99-CV-591C(SR).
November 6, 2000.
APPEARANCES:
HODGSON, RUSS, ANDREWS, WOODS GOODYEAR, LLP (PATRICK M. TOMOVIC, ESQ., and KEVIN D. SZCZEPANSKI, ESQ., of Counsel), Buffalo, New York for Plaintiff.
ROBERT M. RESTAINO, ESQ., Niagara Fails, New York, for Defendant
PAUL WILLIAM BELTZ, P.C. (TERRENCE P. HIGGINS, ESQ., of Counsel), Buffalo, New York, for Proposed Intervenor Tony DeCarlo.
INTRODUCTION
Non-party Tony DeCarlo ("DeCarlo") seeks to intervene in a declaratory judgment action that plaintiff Nationwide Mutual Fire Insurance Company ("Nationwide") has instituted against defendant, Hudson S. Rankin, Jr. ("Rankin"). In this action, Nationwide seeks a judicial declaration that it owes no duty to defend or indemnify Rankin in an underlying personal injury action against Rankin commenced by DeCarlo in the New York State Supreme Court, Niagara County, for injuries DeCarlo suffered after Rankin pushed him on May 16, 1998.
On January 12, 2000, this court entered a default judgment in Nationwide's declaratory judgment action against Rankin. Item 8. On March 31, 2000, Rankin moved to vacate the default judgment entered against him. Item 10. In addition, he sought permission to file a late answer and a counterclaim, and sought summary judgment in his favor. On April 5, 2000, DeCarlo moved to vacate Nationwide's default judgment against Rankin and, in the alternative, sought permission to intervene. Item 18. Nationwide opposed the motions to vacate. Items 13 and 14. At the oral argument on August 21, 2000, the court notified counsel for DeCarlo that he had to make proper application in order to intervene. DeCarlo, by his attorney, Terrence Higgins, filed a motion to intervene on August 22, 2000. Item 20. Nationwide submitted a memorandum opposing DeCarlo's motion to intervene. Item 22. Mr. Higgins filed an affidavit in further support of DeCarlo's motion to intervene, Item 24, and Nationwide answered with a letter response. Item 26.
BACKGROUND
I. The Underlying Action
Rankin owned a tenant insurance policy with Nationwide which was in effect on May 16, 1998, the date of the altercation between Rankin and DeCarlo. Item 10, ¶ 8. While attending "Las Vegas Night" in Niagara Falls, New York, Rankin asserts that DeCarlo, to whom he was introduced for the first time that evening, made a "gesture" in his direction. Item 10, ¶ 2, 4. As DeCarlo was standing with his back to Rankin, Rankin approached him from behind and pushed him on the shoulder, ostensibly to gain his attention. id. ¶ 4. However, the force of Rankin's push caused DeCarlo to quickly spin around. His feet became entangled, and he fell to the ground, breaking his ankle. Id. On December 10, 1998, DeCarlo filed a personal injury action against Rankin in New York State Supreme Court, Niagara County.
II. Nationwide's Disclaimers of Coverage
Rankin's policy with Nationwide, in effect at the time of the incident, covered damages resulting from negligent acts. The policy did not cover injuries caused by an intentional act, or acts that were criminal in nature. Item 13, p. 13.
Nationwide sent letters to Rankin disclaiming coverage for Rankin's involvement in the incident. Items 14 and 15.
III. Nationwide's Declaratory Judgment Action
On September 7, 1999, Nationwide filed a complaint in federal district court seeking a judicial declaration pursuant to 28 U.S.C. § 2201 that it did not owe coverage to Rankin in relation to the underlying incident. Item 1. Although Rankin was served with a summons in the declaratory judgment action, Item 2, his attorneys were not provided with a copy of the complaint. After receiving no response from Rankin regarding the declaratory judgment action, Nationwide applied for a default against Rankin on November 30, 1999, pursuant to Fed.R.Civ.P. 12 and 55(a). Item 4.
Following the entry of default by the district court clerk, Nationwide moved for a default judgment against Rankin, Item 6, which was granted on January 12, 2000. Item 8. Subsequently, Nationwide sent a fourth letter to Rankin which stated that, as of February 4, 2000, Nationwide discontinued its obligation to provide him defense and indemnification under his policy. Item 14, Exh. U.
On March 31, 2000, Rankin moved to vacate the default judgment and sought to interpose a late answer to Nationwide's declaratory judgment action. Item 10. He also sought summary judgment against Nationwide. Rankin maintained that his failure to respond to Nationwide's letters and legal action was due to his failure to understand the legal proceedings against him and his mistaken impression that his attorneys were prepared to handle all matters relevant to the incident. Id., ¶ 28, 29.
On April 5, 2000, DeCarlo, through his attorney, Terrence Higgins, Esq., submitted papers seeking vacatur of the default judgment against Rankin and summary judgment against Nationwide on the declaratory judgment issue. Item 11. In the alternative, DeCarlo sought permission to bring an action directly against Nationwide and consolidate it with the present action. Item 11, ¶ 22.
DeCarlo submitted a "Further Affidavit in Support of Tony DeCarlo's Motion to Vacate Default" on June 16, 2000. Item 18. At oral argument on August 21, 2000, the court reserved decision concerning vacatur of the default judgment. At that time, the court instructed Higgins to submit a formal motion to intervene, and did not allow Higgins to argue on DeCarlo's behalf in favor of vacatur of the default judgment. On August 22, 2000, Higgins made a motion to intervene pursuant to Fed.R.Civ. p. 24. Item 20. Nationwide opposed the motion. Item 22. Mr. Higgins submitted an Affidavit in further support of the motion to intervene on October 3, 2000, Item 24, which contained, as Exhibit A, an order from the New York State Supreme Court, Niagara County, granting DeCarlo partial summary judgment in the underlying action. Nationwide submitted a letter response to the reply affidavit on October 6, 2000. Item 26. Oral argument took place on October 6, 2000.
DISCUSSION
Federal Rule of Civil Procedure 24 enumerates the elements required for intervention, allowing intervention as of right, and permissive intervention. Since DeCarlo's moving papers do not indicate which form of intervention he seeks, the court will examine each one in turn.
A. Intervention as of Right
Intervention as of right may be granted under Fed.R.Civ.P. 24(a):
(1) when a statute of the United States confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
DeCarlo does not claim entitlement to any statutory intervention under Fed.R.Civ.P. 24(a)(1). In order to intervene as of right under Fed.R.Civ.P. 24(a)(2), an applicant bears the burden on each of the four elements: "(1) timely file an application, (2) show an interest in the action, (3) demonstrate that the interest may be impaired by the disposition of the action, and (4) show that the interest is not protected adequately by the parties to the action." United States v. City of New York, 198 F.3d 360, 364 (2d Cir. 1999), quoting New York News, Inc. v. Kheel, 972 F.2d 482, 485 (2d Cir. 1992). The court will assume, without deciding, that DeCarlo timely filed an application, since his motion to intervene founders on the remaining elements required for intervention.
It remains an open question in the Second Circuit "whether a party seeking to intervene . . . must satisfy not only the requirements of Rule 24(a)(2), but also the [standing] requirements of Art[icle] III."Diamond v. Charles, 476 U.S. 54, 69 (1986). United States Postal Serv. v. Brennan, 579 F.2d 188, 190 (2d Cir. 1978), held there was "no need to impose the standing requirement upon the proposed intervenor" where the original parties had standing. However, "since Article III standing is similar to the standards for intervention in that it requires a showing of a personal and direct injury . . ., cases deciding the Article III question are relevant to help define the type of interest that the intervenor must assert." Benten v. Kessler, 1992 WL 266926 at *3 (E.D.N.Y. Sept. 30, 1992) (quotation and citations omitted). DeCarlo's quest for intervention is at the same time a quest for standing.
It is uncontested that DeCarlo is not a party to the Nationwide insurance contract with Rankin, he is not in contractual privity with Nationwide, and he is not a third-party beneficiary under that contract. Lacking contractual or common law rights in Rankin's insurance policy, DeCarlo would have no standing to (a) assert any claim for coverage under the contract; (b) assert Rankin's entitlement to coverage under the contract, or (c) participate in any action against Nationwide seeking a defense or indemnification for Rankin. However, interested persons do have standing to sue on a contract to which they are not parties under New York Insurance Law § 3420, which permits a judgment creditor to sue an insurer directly on an unpaid judgment.
Because this is a diversity action, New York substantive law applies. Although the Second Circuit has not spoken on the issue, numerous federal cases in this Circuit have determined that Insurance Law § 3420, as a direct action statute, is "substantive in character because [it] create[s] a right of action against the insurer." Richards v. Select Insurance Co., 40 F. Supp.2d 163, 167 (S.D.N.Y. 1999). See also NAP. Inc. v. Shuttletex, Inc., 112 F. Supp.2d 369 (S.D.N.Y. 2000); Federal Insurance Co. v. Kingsbury Properties, Ltd., 1992 WL 316163 (S.D.N.Y. Oct. 21, 1992).
Section 3420 provides, in relevant part:
(a) No policy or contract insuring against liability for injury to person . . . shall be issued in this state, unless it contains . . . the following provision . . .: (2) A provision that in case judgment against the insured . . . in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured . . . then an action may . . . be maintained against the insurer under the terms of the policy or contract for the amount of such judgment . . .
(Emphasis added).
In the underlying action, DeCarlo was awarded summary judgment on liability on March 6, 2000. However, DeCarlo's summary judgment order still has not been reduced to a final money judgment. Without a money judgment, let alone an unsatisfied judgment, against Rankin in the underlying action, DeCarlo has no interest in the Nationwide-Rankin litigation because, undersection 3420, his interest is premature. "The requirements of entry of judgment and notice are conditions precedent to a right of action under New York law." Kingsbury, 1992 WL 316163 at *3 (citing cases). Kingsbury holds that such an interest is "contingent on both their ultimate success in the state tort action and their failure to satisfy this judgment against the insureds." Id.
Further, the Second Circuit has held that a contingent interest of an underlying tort plaintiff is not a sufficient "interest" to justify intervention under Fed.R.Civ.P. 24(a)(2). Restor-A-Dent Dental Laboratories v. Certified Alloy Products, Inc., 725 F.2d 871, 875 (2d Cir. 1984). DeCarlo, under New York law, is a "stranger" to the contract and may not seek enforcement of any alleged obligations under the contract or maintain any action against Nationwide. See Clarendon Place Corp. v. Landmark Ins. Co., 182 A.D.2d 6, 587 N.Y.S.2d 311, 312-13 (1st Dept. 1992).
A federal declaratory judgment action would also be "premature if standing to maintain such an action depends on a future event [state court tort claimants receiving judgment in their favor] that is beyond the control of the parties and that may never occur." NAP, Inc., 112 F. Supp.2d at 376, citing Richards, 40 F. Supp.2d at 169.
However, a split exists in New York case law, and federal cases applying state law, concerning whether the elements of a direct action claim need be established before declaratory relief is sought. Second Department cases have held that Insurance Law § 3420 is procedural, and neither governs nor operates to bar declaratory judgment actions.Abate v. All-City Insurance Co., 214 A.D.2d 627 (2d Dept. 1995). This line of cases has found that the injured party had standing to bring a (state) declaratory judgment action, even though the party had not complied with section 3420.
On the other hand, the First and Fourth Departments have found that Insurance Law § 3420 is a substantive provision of law; and if the injured party failed to satisfy the conditions precedents it could not maintain a direct action against the insurer, regardless of whether the remedy sought was declaratory or for damages. Clarendon Place Corp. v. Landmark Ins. Co., 182 A.D.2d 6, 587 N.Y.S.2d 311 (1st Dept. 1992);Hershberger v. Schwartz, 198 A.D.2d 859, 604 N.Y.S.2d 428 (4th Dept. 1993).
Given that the New York State Court of Appeals has not resolved the split among Departments on the issue of whether an injured non-party has standing to bring a declaratory judgment action, federal courts predicting how the State's highest court would decide the issue have also split deBruyne v. Clay, 1997 WL 471039 (S.D.N.Y. 1997), cited Second Department cases as a basis for its analysis that the injured party could maintain a declaratory judgment in state court without satisfying the section 3420 conditions precedent, or could initiate a separate declaratory judgment action in the ongoing federal litigation.
Gasperini v. Center for Humanities, Inc., 66 F.3d 427, 430 (2d Cir. 1995) (stating that when a state's highest court has not spoken on a particular issue, it is the role of the federal court sitting in diversity to predict how that court would decide the issue).
Nationwide has persuasively argued that not only do the First and Fourth Department cases represent a more cogent interpretation of Insurance Law § 3420, but it has pointed to federal cases analyzing the Appellate Division split. It cites Richards as holding that § 3420 is a substantive provision, requiring that conditions precedent to a direct action claim had to be established by the injured non-party before declaratory relief could be granted. "To permit an injured plaintiff to bring a declaratory judgment action before the conditions of the statute are fulfilled would bestow upon him a `further privilege' not provided for in § 3420." Id. at 169 (citations omitted). See also Kingsbury, 1992 WL 316163 (S.D.N.Y. 1992).
Based on the compelling analysis in NAP, Inc., Richards, andKingsbury, the court finds that DeCarlo has no interest in the Nationwide v. Rankin declaratory judgment action that would warrant intervention.
Neither can DeCarlo show that his interest may be impaired by the disposition of the action or that his interest is not protected adequately by the party to the action [Rankin]. More than DeCarlo's conclusory averments are needed to substantiate his contentions. In addition, DeCarlo's interests in Nationwide's insurance coverage action against Rankin are adequately protected by Rankin himself, who is the only insured under the Nationwide contract and who has submitted and argued the motion seeking vacatur of Nationwide's default judgment against him. Both Rankin and DeCarlo have a similar interest in vacating the default judgment, and there is no indication that Rankin has not and will not pursue it diligently. Therefore, the court denies DeCarlo intervention as of right.
B. Permissive Intervention
Permissive intervention may be granted under Fed.R.Civ.P. 24 (b) to anyone "(1) when a statute of the United States confers a conditional right to intervene; or (2) when an applicant's claim or defense and the main action have a question of law or fact in common."
Once again, DeCarlo has invoked no statutory right to intervene. Neither does he allege, and the court does not find, that there are common issues of fact or law under Fed.R.Civ.P. 24(b)(2) between the coverage dispute involving the Nationwide-Rankin contract, to which he is not a party, and his underlying personal injury action against Rankin. DeCarlo thus has no grounds for permissive intervention.
CONCLUSION
For the reasons stated above, this court denies DeCarlo's motion to intervene in the Nationwide v. Rankin declaratory judgment action, and rejects his proposed declaratory judgment complaint.
DeCarlo has also asked for summary judgment in his favor dismissing Nationwide's suit. Since the court denies his motion to intervene, the summary judgment issue is moot.
The court will now proceed to review and pass upon the defendant's motion to vacate the default judgment in this case.
So ordered.