UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
July 17, 2012
ZURICH AMERICAN INSURANCE COMPANY, PLAINTIFF,
NATIONAL FIRE & MARINE INSURANCE COMPANY, DEFENDANT.
The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge
MEMORANDUM AND ORDER
Plaintiff Zurich American Insurance Company ("Zurich") initiated this action against Defendant National Fire & Marine Insurance Company ("National") on January 31, 2012. Upon preparing initial disclosures, counsel for Zurich discovered that the policies underlying the parties' dispute were not issued by Zurich but by another Zurich entity, Maryland Casualty Company ("Maryland Casualty"). Zurich thereafter filed a Motion to Amend its Complaint to Substitute Maryland Casualty as Plaintiff. National opposed Zurich's Motion on the basis that since Zurich did not issue the relevant policies, it lacks standing to have filed this action in the first place.
National thus contends that this Court lacks jurisdiction over this case in its entirety and is without the power to permit amendment. The Court has reviewed the papers germane to the instant Motion, the file in this case and the relevant case law, and now finds it unclear on the current record whether this Court has jurisdiction over the action before it. Accordingly, for the following reasons, ruling on Zurich's Motion is deferred, and the parties are ordered to submit further briefing.*fn1
The Court lacks subject matter jurisdiction over an action brought by a plaintiff who does not have standing, and such action should be dismissed. Catacean Comty. v. Bush, 386 F.3d 1169, 1174 (9th Cir. 2004). Standing consists of two parts:
1) Article III standing, enforcing the case-or-controversy requirement; and 2) prudential standing. Elk Grove Unified School Dist. v. Newdow, 542 U.S. 1, 11 (2004). Article III standing requires that Plaintiff prove it has suffered an "injury in fact" that this Court has the power to redress. Id. at 12. Prudential standing prohibits an individual from litigating another person's rights. Id.
National's theory in Opposition is that since Zurich did not issue the subject insurance policies, it has no standing. According to National, since Zurich lacks standing to have filed this action, the Court consequently lacks jurisdiction to issue any substantive orders, even an order permitting amendment of the Complaint. National's argument is based primarily on a sixth circuit case, also involving a Zurich entity as plaintiff, in which that court determined the existing plaintiff, who had admittedly not suffered an injury in fact, "had no standing to bring [the] action and no standing to make a motion to substitute the real party in interest." Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir. 2002) ("Logitrans"). The appellate court ultimately determined "the district court's denial of [the plaintiff's]...motion to substitute and the subsequent dismissal of the action must be affirmed." Id.
In response, Zurich points out that, contrary to the facts in the case before this Court, the Logitrans action involved an improper plaintiff's attempted substitution of a sister entity, not the substitution of a subsidiary by a parent. According to Plaintiff, then, because Zurich owns Maryland Casualty, Zurich automatically has standing to substitute a proper party. Reply, 2:8-12 (citing Franchise Tax Board of California v. Alcan Aluminium Ltd., 493 U.S. 331, 336 (1990)); id., 3:28-4:2 (citing Logitrans,297 F.3d at 533 ("In my opinion, any or all of American Guarantee's direct or indirect owners...would have had constitutional standing to bring suit against [the defendant], even though none of these parent entities is the real party in interest.") (Gilman, J., concurring)).
Given the fact Zurich believes its requisite standing is a foregone conclusion, Zurich argues that National's Opposition to Zurich's Motion must be intended to "take advantage of...technical pleading errors in order to avoid adjudicating this action on the merits." Opposition, 3:7-8. Zurich contends that "[s]uch technical challenges are not only without merit, they should not be allowed where Plaintiff seeks nothing more than to change the name of the Plaintiff." Id., 8-10.
The Court disagrees. First and foremost, questions going to this Court's jurisdiction are no more "technical" than any other constitutional or prudential inquiry this Court is asked to make. Moreover, the authorities cited by Zurich do not convince the Court that Zurich's position is infallible. To the contrary, the "shareholder standing rule" provides "a longstanding equitable restriction that generally prohibits shareholders from initiating actions to enforce the rights of the corporation unless the corporation's management has refused to pursue the same action for reasons other than good-faith business judgment." Alcan Aluminium, 493 U.S. 331, 336; see also Shell Petroleum, N.V. v. Graves, 709 F.2d 593, 595 ("To have standing to maintain an action, a shareholder must assert more than personal economic injury resulting from a wrong to the corporation. A shareholder must be injured directly and independently of the corporation.") (internal citations omitted). Ultimately, given Zurich's failure to address this issue at all in its moving papers, it is unclear to the Court whether Zurich need show only Article III standing or also prudential standing to substitute plaintiffs, and if Zurich must show both, whether it can here.
Zurich has thus failed on this record to convince the Court it has standing either to have filed this action or to substitute its subsidiary as the proper Plaintiff.
For the reasons just stated, the Court defers ruling on Zurich's Motion to Amend (ECF No. 15). Not later than twenty
(20) days after the date this Memorandum and Order is electronically filed, the parties are ordered to simultaneously brief, in twenty (20) pages or less, and in more thorough fashion than they have, the questions of whether this Court has jurisdiction over Zurich's current Complaint and whether Zurich should be permitted to amend to substitute Maryland Casualty as Plaintiff.*fn2 In their papers, the parties should address the relevance, if any, that the distinction between Article III and prudential standing has on the Court's decision here. Should Zurich decide of its own accord to dismiss this action so Maryland Casualty can initiate its own suit, as Zurich admits it could, Zurich is to notify the Court immediately.
IT IS SO ORDERED.