Where a title insurer was sued because of a dispute over who holds title to certain real estate, the homeowners’ association who currently owns the property was not a necessary party. The dispute could be resolved based on the various insurance documents and title binders before the court.
This is a breach of contract action arising from a title insurance policy held by Landfall Trust LLC and issued by Fidelity National Title Insurance Company. Plaintiff alleges that defendant, via the insurance policy, insured that plaintiff would have title to certain drainfield areas; that during a potential sale of plaintiff’s land, defendant issued a new insurance binder that stated plaintiff did not have title to the drainfield areas and that defendant’s refusal to remedy the title issue is a breach of the insurance policy.
Defendant has filed a motion to dismiss. Defendant argues that the court should find that the Henry’s Island Homeowner’s Association, or HOA, is a necessary party to this suit under Rule 19(a) and, further, that because the HOA is an indispensable party and joinder would ruin complete diversity of citizenship, and in turn divest the court of subject matter jurisdiction, the court should dismiss this action under Rule 19(b).
Plaintiff asserts that defendant’s motion should be denied because it is an untimely motion designed to delay the progress of the case. Federal Rule of Civil Procedure 12(g)(2) provides that, except as denoted in Rule 12(h)(2), a party that has previously made a motion under Rule 12 is precluded from raising another Rule 12 defense that was available to the party when it made its previous Rule 12 motion.
However, Rule 12(h)(2) states, in pertinent part, that the Rule 12(b)(7) defense of failure to join a person required by Rule 19(b) is not waived under Rule 12(g)(2), even if it not included in the previous Rule 12 motion. Given that a permissive reading of Rule 12(h)(2) allows litigants to raise a defense based on Rule 19(b) through the culmination of trial, and given defense counsel’s sworn statement that he did not glean that the HOA was a necessary party until Feb. 3, 2023, the court will hear the merits of the motion.
Furthermore, given that the resolution of this motion implicates whether or not this court can exercise subject matter jurisdiction over the dispute, the court refuses to deny the motion on untimeliness grounds.
Federal Rule of Civil Procedure 19 sets out a two-step inquiry for courts to determine whether a party is “necessary” and “indispensable” to the litigation. The first question is “whether a party is necessary to a proceeding because of its relationship to the matter under consideration.” Second, “[i]f the court determines that the party is ‘necessary,’ it must then determine whether the party is ‘indispensable’ to the action under Rule 19(b).”
Defendant claims that the HOA is a necessary party under Rule 19(a)(1)(B) because plaintiff’s breach of contract claim turns on plaintiff persuading the court that plaintiff “is the owner of a real piece of property for which the HOA is currently the record owner.” However, defendant fails to demonstrate that the HOA “claims an interest relating to the subject” of this action. Many courts in the Fourth Circuit have held that where the absent party has not affirmatively claimed an interest, Rule 19(a)(1)(B) does not apply.
Even assuming, for argument’s sake, that defendant could demonstrate that the HOA has “claimed” an interest in the action, defendant cannot demonstrate that the HOA is not a necessary party to this suit under Rule 19(a). The court finds that plaintiff is potentially capable of succeeding on the merits of its breach of contract suit based on the various insurance documents and title binders before the court, without delving into the actual ownership of the drainfield areas. However, having determined that the HOA is not a necessary party under Rule 19(a), the court need not address the issue of whether the HOA is an indispensable party under Rule 19(b).
Defendant’s motion to dismiss denied.
Landfall Trust LLC v. Fidelity National Title Insurance Company, Case No. 3:22-cv-194, May 11, 2023. EDVA at Richmond (Young). VLW 023-3-256. 8 pp.