Intervention — May a Magistrate Judge, Who Is Conducting All Proceedings Through Trial and Judgment by Consent of the Parties, Rule on a Motion to Intervene Filed by a Person Who Has Not Consented? — Circuit Split

Davis v. Union Pac. RR, 2015 U.S. Dist. LEXIS 182824 (S.D. Tex. Aug. 6, 2015):

REPORT AND RECOMMENDATION OF THE MAGISTRATE JUDGE

On June 19, 2015, Hallmark County Mutual Insurance Company - as the subrogee of Plaintiffs Daniel Davis and Davis Heavy Haul Transportation - filed a motion to intervene in this case. Dkt. No. 34. That motion is opposed by Plaintiffs/Counter-Defendants Daniel Davis and Davis Heavy Haul Transportation, Inc. Dkt. No. 35. On August 3, 2015, the Court held a hearing on the motion with all parties present.

After reviewing the record and the relevant caselaw, it is recommended that the motion to intervene be denied without prejudice to refiling.

I. Background

On October 22, 2012, Davis filed a complaint against Union Pacific regarding a collision that occurred on November 12, 2011, involving his heavy haul truck and a Union Pacific train. Dkt. No. 1. In his complaint, Davis seeks $200,000 in property damages. Id, p. 8. Hallmark insured Davis and the vehicle that was involved in the collision. Dkt. No. 34.

On June 21, 2013, Union Pacific countersued Davis for the damage that was sustained by the locomotive that was involved in the accident. Dkt. No. 12. Pursuant to the insurance policy, Hallmark has hired counsel to defend Davis in his role as counter-defendant; Davis's original counsel [*3]  continues to represent him in his role as plaintiff.1

1   Davis disputes whether Hallmark has actually lived up to the insurance policy in defending him from the counter-suit. Dkt. No. 35. Davis has sued Hallmark in state court for essentially abandoning the defense of the counter-suit. Davis v. Hallmark County Mutual Insurance Co., Case No. 2015-DCL-04195 (445th District Court). That case remains pending.

On June 19, 2015, Hallmark filed a motion to intervene in this case as a matter of right - or alternatively as a permissive intervention - pursuant to Fed. R. Civ. P. 24. Dkt. No. 34. Hallmark asserts that it issued checks to Davis "in the amount of $168,804.09 in connection with the[] claims for property damages" relating to the collision. Id, p. 3. Hallmark asserts that as the subrogee of Davis's rights, it is entitled to recover from Union Pacific the amount that Hallmark paid Davis. Hallmark further asserts that Davis has "no interest in ensuring that [Hallmark's] subrogation rights are protected." Dkt. No. 34, p. 4.

On July 9, 2015, Davis filed a response, opposing the motion to intervene. Dkt. No. 35. In that motion, Davis states that Hallmark has not lived up to its contractual obligation to defend him in [*4]  the counter-suit. Id. Davis further asserts that Hallmark has not provided either the Court or Davis with a copy of the insurance policy that allegedly gives Hallmark any subrogation rights. Id. Davis also objects to Hallmark's intervention on the grounds that Hallmark should not be entitled to "participate in the trial." Id.

On July 21, 2015, Hallmark filed a reply brief. Dkt. No. 40. Hallmark asserts that "if intervention is not granted, Hallmark will suffer prejudice because Plaintiff's counsel or Plaintiffs may dispose of funds recovered from a judgment without satisfying [Hallmark's] subrogation rights." Id, p. 2.

On August 3, 2015, the Court held a hearing on the motion. At the hearing, Hallmark's counsel admitted that Hallmark and Davis have the same overarching interest in the case - maximum possible recovery for property damages from Union Pacific. Further, Hallmark's counsel indicated that Hallmark did not wish to participate in the trial, but that it was only seeking to protect it's possible interests under the subrogation provision of its insurance contract with Davis. Finally, Hallmark conceded that, at this point, Hallmark's interest and Davis's interests are not divergent and [*5]  that the litigation, as currently postured, preserves Hallmarks's interest.2

2   Hallmark's counsel had no explanation as to why Hallmark waited almost three years, after suit was filed, before seeking to intervene. This delay, however, does not prevent the intervention from being timely. Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994).

II. Applicable Law

A. Intervention As a Matter of Right

Fed. R. Civ. P. 24 permits a party to intervene as a matter of right if certain conditions are met. The Court is mindful that it "should allow intervention where no one would be hurt and the greater justice could be attained." Espy, 18 F.3d at 1205.

A party seeking intervention as a matter of right must establish that "(1) the motion to intervene is timely; (2) the potential intervener asserts an interest that is related to the property or transaction that forms the basis of the controversy in the case into which she seeks to intervene; (3) the disposition of that case may impair or impede the potential intervener's ability to protect her interest; and (4) the existing parties do not adequately represent the potential intervener's interest." John Doe No. 1 v. Glickman, 256 F.3d 371, 375 (5th Cir. 2001).

As to the fourth element - whether existing parties adequately represent the potential intervener's interest - "potential intervener has the burden [*6]  of proving" that there is a divergence of interests. Glickman, 256 F.3d at 380 (citing Espy, 18 F.3d at 1207). This requirement "is satisfied if the applicant shows that representation of his interest 'may be' inadequate; and the burden of making that showing should be treated as minimal." Trbovich v. United Mine Workers of America, 404 U.S. 528, 538 n. 10 (1972). "However 'minimal' this burden may be, it cannot be treated as so minimal as to write the requirement completely out of the rule." Bush v. Viterna, 740 F.2d 350, 355 (5th Cir. 1984).

"Where the party seeking to intervene has the same ultimate objective as a party to the suit, the existing party is presumed to adequately represent the party seeking to intervene unless that party demonstrates adversity of interest, collusion, or nonfeasance." M2 Technology, Inc. v. M2 Software, Inc., 589 Fed. App'x. 671, 675 (5th Cir. 2014) (unpubl.) (quoting Kneeland v. Nat'l Collegiate Athletic Ass'n, 806 F.2d 1285, 1288 (5th Cir.1987)) (internal quotations omitted).

B. Permissive Intervention

Fed. R. Civ. P. 24 also allows for "permissive" intervention. "Permissive intervention is left to the discretion of the district court, and is appropriate when the intervention request is timely, the intervenor's 'claim or defense and the main action have a question of law or fact in common,' and granting intervention will not unduly delay or prejudice the original parties in the case." U.S. v. City of New Orleans, 540 Fed. App'x. 380, 381 (5th Cir. 2013) (unpubl.) (citing Edwards v. City of Houston, 78 F.3d 983, 999 (5th Cir.1996) (en banc)). "Permissive intervention is wholly discretionary with [*7]  the [district] court ... even [when] there is a common question of law or fact, or the requirements of Rule 24(b) are otherwise satisfied." New Orleans Public Service, Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 470-471 (5th Cir. 1984) (internal quotations omitted).

"When acting on a request for permissive intervention, a district court should consider, among other factors, whether the intervenors are adequately represented by other parties and whether they are likely to contribute significantly to the development of the underlying factual issues." League of United Latin American Citizens, Council No. 4434 v. Clements, 884 F.2d 185, 189 (5th Cir. 1989).

III. Analysis

The Court begins by noting that this case was transferred to the undersigned to conduct all proceedings, including the entry of judgment, pursuant to 28 U.S.C. § 636(c). Dkt. No. 28. This action was taken with the consent of all of the parties present in the case at that time. Dkt. No. 27. Hallmark had not yet filed its motion to intervene and has not expressly consented to having the case decided by the undersigned. See Donaldson v. Ducote, 373 F.3d 622, 624 (5th Cir. 2006) (noting that a party's consent to have a magistrate judge hear and decide the case must be "clear and unambiguous").

The Fifth Circuit has not addressed the issue of whether a magistrate judge - who is assigned to the case by the consent of the parties under § 636(c) - has the authority to rule on a motion to intervene filed by a putative [*8]  party that has not consented to the magistrate judge's jurisdiction. There is a circuit split on the issue. The Second Circuit has held that absent the intervenor's consent, the magistrate judge lacks the jurisdiction to decide the intervention question. Stackhouse v. McKnight, 168 Fed. App'x. 464, 466 (2d Cir. 2006) (citing New York Chinese TV Programs, Inc. v. U.E. Enters., Inc., 996 F.2d 21, 25 (2d Cir. 1993)). On the other hand, the Seventh Circuit has concluded that the magistrate judge does have the jurisdiction to rule on a motion to intervene under those circumstances. People Who Care v. Rockford Bd. of Educ., School Dist. No. 205, 171 F.3d 1083, 1089 (7th Cir. 1999); see also Altier v. Worley Catastrophe Response, LLC, 2012 WL 161824, *5 (E.D.La. 2012) (unpubl.) (collecting cases). Without deciding the issue - given the absence of controlling precedent - the Court errs on the side of caution and issues this report and recommendation.

Having set the parameters for the recommendation in this case, the Court turns to the substance of its analysis. Hallmark has moved to intervene both as a matter of right and permissively. Analysis of both types of interventions, however, turns on the same issue: whether Davis adequately represents Hallmark's interest in this case. Under the facts, as they currently exist, Davis and Hallmark have the same "ultimate objective" in this suit. Further, Davis adequately represents Hallmark's interests, which precludes the need for Hallmark's intervention.

 

A. Intervention [*9]  as a Matter of Right

As previously noted, to be allowed to intervene as a matter of right, four things must be shown: (1) timely filing of the motion; (2) the potential intervener has an interest that is related to the property or transaction that forms the basis of the controversy; (3) the disposition of the case may impair or impede the potential intervener's ability to protect her interest; and (4) the existing parties do not adequately represent the potential intervener's interest. Glickman, 256 F.3d at 375. "Failure to satisfy any one requirement precludes intervention of right." Haspel & Davis Milling & Planting Co. Ltd. v. Board Of Levee Commissioners of The Orleans Levee Dist. and State Of Louisiana, 493 F.3d 570, 578 (5th Cir. 2007).

Because the failure to satisfy a single element precludes intervention as a matter of right, the Court turns to the dispositive element in this case: whether Davis adequately represents Hallmark's interests.3

 

3   Because this element is dispositive, the Court will assume, without deciding, that Hallmark has met the other three elements.

During the hearing on intervention, Davis and Hallmark agreed that they each share the same ultimate interest: maximizing the recovery of property damages from Union Pacific. This makes sense. As the plaintiff, Davis has an obvious interest in maximizing his recovery. Furthermore, Hallmark is only able [*10]  to recover, via subrogation, from what Davis recovers. See Texas Health Ins. Risk Pool v. Sigmundik, 315 S.W.3d 12, 14 (Tex. 2010) (noting that the subrogation right is worthless "if there is no recovery by the insured"). If Davis recovers nothing in this litigation, Hallmark recovers nothing. Neither Davis nor Hallmark has any interest in reducing the amount recovered; their interests are perfectly aligned.

When the intervenor and the party to the suit have the "same ultimate objective," the party to the suit is presumed to adequately represent the intervenor. Kneeland, 806 F.2d at 1288. The intervenor can overcome this presumption by demonstrating that the party to the suit "demonstrates adversity of interest, collusion, or nonfeasance." Id. There has been no so such demonstration in this case.

During the hearing on intervention, Hallmark offered several examples of adverse interests or collusion that might arise and which could make Davis's and Hallmark's interest not aligned. For example, Hallmark identified the possibility that Davis could refuse to reimburse Hallmark under the subrogation clause; requiring additional litigation. Hallmark's counsel also proffered the possibility that Davis could non-suit Union Pacific on the issue of property damages, which might leave Hallmark [*11]  with no recourse. The possibility was raised that Davis could collude with Union Pacific to structure a potential settlement to undervalue property damage (while presumably colluding to overvalue some other damages category). Indeed, these would be textbook examples of adversity of interest, collusion, and nonfeasance - if they actually occurred. To date, they have not occurred and Hallmark accurately concedes that fact.

Indeed, there is no evidence in the record that Davis currently has or plans to commit any of the proffered acts or any similar acts. At best, these argued examples are hypothetical - and hypothetical acts are not sufficient to demonstrate that Davis will not adequately represent Hallmark's interests. See Clorox Co. v. S.C. Johnson & Son, Inc., 627 F.Supp.2d 954, 962 (E.D. Wis. 2009) (unpubl.) (denying a motion to intervene because "any potential conflict between" the intervenor and the party to the suit was "hypothetical").

If at some later date, the interests of Davis and Hallmark diverge, Hallmark is not precluded from seeking to intervene at that time. Indeed, a party may move to intervene even after the conclusion of a jury trial and verdict. See McDonald v. E.J. Lavino Co., 430 F.2d 1065, 1072-1073 (5th Cir. 1970) (holding that the Court should have permitted the subrogee to intervene after a jury verdict [*12]  had been entered). But until there is some evidence that Davis and Hallmark's interests have diverged - or evidence exists showing, beyond a mere possibility, that those interests may diverge - Hallmark has failed to carry its burden to show intervention as a matter of right.

B. Permissive Intervention

Permissive intervention is appropriate when the intervention request is timely; the intervenor's claim and the main action have a question of law or fact in common; and intervention will not unduly delay or prejudice the original parties. Edwards, 78 F.3d at 999. The Court, however, must also consider "whether the intervenors are adequately represented by other parties" when making its determination. Clements, 884 F.2d at 189.

Even if the Court assumes that Hallmark has met all of the requirements for permissive intervention - timely request, common question of law or fact, and the lack of prejudice - the motion still fails. As with intervention of right - because Davis and Hallmark share a common interest - it appears, currently, that Davis will adequately represent Hallmark's interest in maximizing property damage recovery. Given this fact, Hallmark's presence in this lawsuit is presently unnecessary.

Having said that, if the facts [*13]  change - so that Davis and Hallmark do not have the same ultimate interest - the Court's recommendation does not foreclose a renewed motion to intervene.

IV. Recommendation

It is recommended that putative Intervenor Hallmark County Mutual Insurance Company's motion to intervene, Dkt. No. 34, be denied.

A. Notice to Parties

The parties have fourteen (14) days from the date of being served with a copy of this Report and Recommendation within which to file written objections, if any, with the Honorable Andrew S. Hanen, United States District Judge. 28 U.S.C. § 636(b)(1). Failure to timely file objections shall bar the parties from a de novo determination by the District Judge of an issue covered in the report and shall bar the parties from attacking on appeal factual findings accepted or adopted by the district court except upon grounds of plain error or manifest injustice. See § 636(b)(1); Thomas v. Arn, 474 U.S. 140, 149 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).

 

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