United States District Court, D. Kansas
MEMORANDUM & ORDER DENYING DEFENDANT'S MOTION
TO AMEND COUNTERCLAIM AND ADD PARTIES
Kenneth G. Gale, United States Magistrate Judge.
the Court is Defendant Universal Insurance Company's
Motion for Leave to Amend its Counterclaim (Doc. 480).
Because Defendant is seeking to add additional parties solely
to provide additional sources to execute its potential
judgement, the motion is DENIED.
history of this now-epic litigation has been recounted
numerous times. Now almost five-years old, this action was
filed in 2013 as a declaratory judgment by the
Plaintiff-insured requesting a finding that it does not owe
its Defendant-insurer a reimbursement of approximately $5
million paid in a litigation settlement in California.
Defendant's counter-claim requests judgment against
Plaintiff and has, through the course of discovery,
development a number of contract and tort theories for
amount of money at stake in the case is substantial. The case
has been unusually contentions, even for a dispute of this
financial magnitude. Discovery has been marked by scarce
cooperation between the parties and the awarding of sanctions
against Plaintiff on more than one occasion.
the last several months, the deadlines and schedule which
would move this case finally to a Pretrial Conference, and
then to trial, have been suspended while Defendant attempts
to complete discovery into Plaintiff's financial assets
for the purpose of supporting its claim for punitive damages.
(Doc. 472.) Discovery on the substantive claims is complete.
alleges in the proposed amended pleading that it discovered
that Plaintiff “essentially ceased its operation . . .,
instead transferring or selling all of its assets to other
corporate entities owned by [Plaintiff's] owners . . .
.” (Doc. 481-1, at 75.) Defendant alleges that assets
were transferred to the owners of the Plaintiff personally.
(Id.) Defendant alleges that Plaintiff has been
rendered essentially judgment-proof by these transfers.
of this development, Defendant has moved to amend its counter
claim to add related corporate entities and the individual
owners as parties to this litigation for the purpose of
adding claims of fraudulent transfer and claims of alter ego
against the proposed new parties. Plaintiff opposes the
motion, claiming the amendment would be futile because the
Court would have no jurisdiction against the proposed new
parties, and because adding new parties at this juncture
would unreasonably complicate and delay the litigation.
(See generally Doc. 487.)
Defendant moves to amend pursuant to Fed.R.Civ.P. 15(a),
which governs motions to amend before trial, this motion also
must be evaluated as a motion add parties under either
Fed.R.Civ.P. 19 or 20. Unfortunately, neither party has
undertaken this needed analysis. Consequently, Defendant does
not argue, and the Court does not find, that adding the new
parties is required under Rule 19. This case can proceed to
judgment against the existing parties, and adding the
additional parties for the purpose of providing a source for
execution of the judgment does not make the proposed parties
indispensable to that end.
issue is, therefore, governed by Rule 20, which permits, but
does not require, the joinder of new third-party defendants
if (A) any right is asserted against them jointly or
severally, or in the alternative with respect to or arising
out of the same transaction or occurrence; and (B) any
question of law or fact common to all defendants will arise
in the action. Rules covering joinder are to be construed
broadly, and joinder is strongly encouraged. DIRECTV,
Inc. v. Barrett, 220 F.R.D. 630, (D. Kan. 2004). Adding
a party under the permissive joinder provisions of Rule 20,
and which meet those requirements, is within the Court's
discretion. Green Const. Co. V. Kansas Power and
Light, 1989 WL 117440, No. 87-2070-S (D. Kan. September
11, 1989) citing Horton Co. v. International Telephone
and Telegraph Corp., 85 F.R.D. 369, 371 (W.D. Pa. 1980).
The present motion must be evaluated within the parameters of
predicate to decision, the Court examines the claims alleged
against the third parties in the proposed amended pleading.
(Doc. 481-1.) There are two claims propounded.
first is a claim that assets of Plaintiff were fraudulently
transferred to the third parties for the purpose of
protecting them from Defendant's claims. (Count XXVI,
Doc. 481-1, at 121.) The relief requested (id., at
128) includes the avoidance of the asset transfers and other
relief. The avoidance of fraudulent transfers is the classic
remedy for this sort of claim, thus making the receiving
entity liable for a judgment (if any) obtained against the
Plaintiff, at least up to the amount of the fraudulent
transfer. Notably, this sort of claim does not make the
fraudulent transferee liable for the contract or tort claims
per se, but allows the equitable attachment of
fraudulently transferred assets for the satisfaction of a
judgment against the Plaintiff. See generally Fidelity
National Title Ins. Co. v. Schroeder, 179 Cal.App.4th
834, 101 Cal.Rptr.3d 854 (Ct. App. 5th Dist.
second claim is a claim under the alter ego doctrine that the
third parties and Plaintiff are not separate entitles, thus
permitting the Defendant to “pierce the corporate
veil.” Under California law, the alter ego doctrine is
applied when the corporate form is used to perpetuate a
fraud, circumvent a statute, or accomplish some other
wrongful act or inequitable purpose. Tatung Company, Ltd.
v. She Tze Hse, 217 F.Supp. 1138 (C.D. Cal. 2016). The
doctrine operates to dissolve the wall shielding a corporate
owner from liability for actions of the corporation. See
generally Minton v. Cavaney, 56 Cal.2d 576, 579, 15
Cal.Rptr. 641, 364 P.2d 473 (1961). However, the claims plead
in the proffered amendment are based on alleged inequitable
conduct after the present claim arose. The Court
does not read the proposed pleading as claiming the corporate
forms were being improperly utilized during the facts which
lead to the claims in this case. Therefore, like the
fraudulent conveyance claims, the alter ego doctrine would be
used here to reach the assets of the proposed third parties
to execute a judgment, not to hold them liable for the
Defendant's actions comprising the basis of the
Defendant's substantive claims.
question, then, is whether a fraudulent conveyance or
alter-ego claim against a third party asserted for the
purpose of reaching assets of the third party to enforce
judgment Defendant has not yet obtained, is as to Plaintiff
and the third parties, “any right is asserted against
them jointly or severally, or in the alternative with respect
to or arising out of the same transaction or
occurrence” within the meaning of Rule 20. It is not.
The Defendant's substantive claims in this case arising
out of the insurance transaction are solely against
Plaintiff. The third parties are, at least technically,
strangers to those claims and will not share primary
liability with Plaintiff, even if the third party assets
become vulnerable to the execution of that judgment. The
fraudulent conveyance and alter ego claims are separate, and
involve separate allegations and factual issues and, like a
garnishment or other judgment enforcement action, may be
brought as a separate action if and when Defendant obtains
judgment against Plaintiff.
the proposed third-party claims could now be brought under
Rule 20, the Court would not exercise its discretion to add
those parties at this time. Those claims may be brought after
judgment in this case. They are contingent on the outcome of
the existing claims. Adding the new parties would essentially
create a wholly new claim with new issues, with discovery and
litigation in a case which has already lasted almost five
years and is not yet ready for trial. The new parties would
be strangers to the very-substantial litigation and discovery