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Unitrin Auto and Home Insurance Co. v. Karp

United States District Court, D. Maryland

September 26, 2018



          Catherine C. Blake United States District Judge

         On November 9, 2017, the plaintiff, Unitrin Auto and Home Insurance Company ("Unitrin"), sued defendants Robert Karp and Chaya Karp ("the Karps") and PennyMac Loan Services, LLC ("PennyMac"), seeking a declaratory judgment of Unitrin's obligations pursuant to an insurance policy. On December 27, 2017, Unitrin voluntarily dismissed PennyMac from this case. This matter is before the court on PennyMac's Motion to Vacate Stipulation of Voluntary Dismissal and PennyMac's Motion to Dismiss Complaint Pursuant to Fed.R.Civ.P. 12(b)(1). For the reasons stated below, the court will grant the motion to vacate, and will deny without prejudice the motion to dismiss.

         Factual and Procedural Background

          Unitrin maintains a home insurance policy for the Karps' residence at 3911 Glengyle Avenue, Baltimore, Maryland. In its complaint, Unitrin claimed that, on or about June 2, 2017, a leak of home heating oil that had been discharged into the Karps' basement was discovered. On or about June 6, 2017, the leak and discharge was reported to Unitrin, whose representative at the time concluded the resulting damage was covered under the Karps' policy.

         Unitrin now alleges this initial conclusion was incorrect, and the damage incurred due to the oil leak was not covered by the insurance policy. As a result, Unitrin seeks a declaratory judgment stating it owes no present or future obligation under the insurance policy for any damage to real or personal property resulting from the oil leak.[1]

         As the Karps' mortgagee, PennyMac maintains a financial interest in their real property. The Karps' policy names PennyMac as the Karps' mortgagee, and, in the policy's mortgage clause, requires any loss payable pursuant to the policy be paid to PennyMac and the Karps. To date, the Karps have not been served with the complaint, nor have they responded to the complaint or otherwise participated in these proceedings.

         Unitrin asserted the parties have complete diversity of citizenship based upon the Karps' Maryland residence, Unitrin's New York residence, and PennyMac's Delaware residence. Coupled with the amount in controversy, which exceeds $75, 000, Unitrin claimed the court has subject matter jurisdiction under 28 U.S.C. § 1332.

         On December 13, 2017, PennyMac filed a Motion to Dismiss Complaint Pursuant to Fed.R.Civ.P. 12(b)(1) ("motion to dismiss"), alleging the court lacked subject matter jurisdiction due to a lack of complete diversity among the parties. PennyMac attached to its motion to dismiss an affidavit' signed by Johnny Morton, who identified himself as PennyMac's foreclosure operations supervisor.

         In his affidavit, Mr. Morton claimed he had reviewed PennyMac's corporate records and determined that PennyMac is incorporated in Delaware and maintains its principal office in California. Furthermore, Mr. Morton represented that PennyMac is a wholly owned subsidiary of Private National Mortgage Acceptance Company, LLC ("PNMAC"), also an LLC, which is owned by PennyMac Financial Services, Inc. ("PFSI") as well as private investors and management. PFSI, Mr. Morton claimed, is a publicly-traded company incorporated in Delaware and maintains its principal office in California. Mr. Morton claimed PNMAC's remaining members are individuals residing in California, New York, and Massachusetts. Based upon one of PNMAC's member's New York residency and Unitrin's New York citizenship, PennyMac claimed the parties do not have complete diversity, and therefore, the court lacks subject matter jurisdiction.

         On December 27, 2017, Unitrin filed a Stipulation of Dismissal of Defendant PennyMac Loan Services, LLC. In its stipulation, Unitrin voluntarily dismissed PennyMac because "no matters of coverage pertaining to repair of the physical structure of the subject residence are known to remain unresolved." ECF 9 ¶ 1. Unitrin asserted that only issues of personal property remain unresolved, and that PennyMac, as the real property's mortgagee, has no "known or identifiable interest, financial or legal" in the Karps' personal property, and is not a named, party in the insurance policy. Id. ¶3.

         That same day, Unitrin also filed an opposition to PennyMac's motion to dismiss, claiming its dismissal of PennyMac rendered the motion to dismiss moot. Additionally, Unitrin claimed Mr. Morton's affidavit was deficient and lacking in facts or evidence on which the court could reasonably rely to determine subject matter jurisdiction.

         On January 10, 2018, PennyMac filed its Motion to Vacate Stipulation of Dismissal ("motion to vacate"), asserting that it maintains a separate and distinct contract with Unitrin stemming from the mortgage clause in the Karps' policy. PennyMac contends that it is a necessary and indispensable party under Fed.R.Civ.P. 19, and that Unitrin's dismissal was an improper attempt to maintain complete diversity.

         Furthermore, PennyMac claimed it is an indispensable party due to the high probability of prejudice PennyMac would incur if excluded, the limited protective measures that could be implemented to lessen this prejudice, the inadequacy of any judgment rendered in PennyMac's absence, and the availability of state court as an adequate remedy should the court dismiss this case. ECF 15-1 at pp. 9-10. Accordingly, PennyMac requests the court vacate Unitrin's stipulation of dismissal.

         In its opposition, Unitrin asserted that PennyMac's interests are identical to the Karps' interests, and therefore PennyMac is not necessary or indispensable to this case.

         Standard of Review

          Rule 19 of-the Federal Rules of Civil Procedure sets forth a two-step inquiry to determine whether a party is necessary and indispensable. First, a court must determine "whether a party is necessary to a proceeding because of its relationship to the matter under consideration." Home Buyers Warranty Corp. v. Hamia,750 F.3d 427, 433 (4th Cir. 2014) (citing Teamsters Local Union No. 171 v. Keal Driveaway Co.,173 F.3d 915, 917 (4th Cir. 1999)). Second, if a party is necessary but joinder would ...

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