Opinion
Civil Action No. 02-2742, Section "T" (4).
March 13, 2003
ORDER AND REASONS
I. BACKGROUND:
Plaintiff Orleans Limousines and Transportation, Inc. ("Orleans Limos") sought an insurance policy to cover its fleet of limousines. The Hurd Insurance Agency, Inc. and Tom Hurd (hereinafter "Hurd" collectively) were allegedly contacted by Orleans Limo to broker the policy. Hurd then contacted United Risk Management Services ("URM") who placed the policy. The policy was issued by Prime Insurance Syndicate, Inc. ("Prime Ins.").
In order to pay the $115,000.00 premium for the policy, Hurd, as agent for Orleans Limo, executed a Premium Finance Agreement ("Finance Agreement") and submitted it to A.I. Credit ("A.I.") to obtain financing. The Finance Agreement obligated Orleans Limos to make a downpayment of $28,750.00 to Hurd. Orleans Limo then borrowed the balance of the premium, $86,250.00 from A.I. Credit. Orleans Limo was to repay A.I. the $86,250.00 with 11.21% interest, totaling $89,916.16, in eight monthly installments of $11,239.52. Orleans Limo defaulted under the Finance Agreement by failing to pay its first installment on October 27, 2001.
On November 2, 2001, A.I. Credit sent a notice of intent to cancel the policy to Orleans Limos and Hurd based on Orleans Limos' breach of the Finance Agreement. On November 16, 2001, A.I. issued individual notices of cancellation of the policy to Orleans Limos and to Hurd, effective November 17, 2001. At the time of the cancellation, Orleans Limos had not paid anything under the finance agreement and the entire balance of $89,916.16 remained due and owing. On December 18, 2001, A.I. received a wire payment of $10,000.00 from Orleans Limo thereby reducing the outstanding balance to $79,916.16
Procedural History
The Plaintiff, Orleans Limo, filed the present suit on September 6, 2002 claiming breach of contract and breach of implied contract against Prime Insurance and Hurd. Orleans Limo also alleged breach of fiduciary duty and negligence against Hurd. According to the Plaintiff's Complaint, Hurd /or Prime Ins. made representations that the policy remained in effect after the November 17, 2001 cancellation date.
Hurd answered Orleans Limos' Complaint, denying liability, and asserted claims of liability against Prime Ins. (as Cross-claim Defendant) and against URM Services and A.I. (as Third-party Defendants). Hurd also asserted a claim for unfair trade practices against A.I. (as Third-party Defendants).
A.I. answered Hurd's Third-party Complaint and asserted counterclaims against Hurd for unfair trade practices, breach of statutory and fiduciary duties, conversion, and breach of contract as to the finance agreement relating to Orleans Limos and as to similar finance agreements relating to various other insureds ("the Counterclaims").
A.I.'s Reasoning for Counterclaims
On information and belief, Hurd has engaged in an ongoing practice of procuring financing agreements for insureds, like Orleans Limo, and either converting the funds paid by the insureds for the premium for its own use or misusing the disbursements, while representing to the insureds that the premiums for the policies have been paid and the policies are in effect.
II. ARGUMENTS ON BEHALF OF THE PARTIES:
A. ARGUMENTS OF HURD:
1. 12(b)(3) Motion to Dismiss:
Burden of Proof for 12(b)(3)
The burden of showing that the venue is proper in the forum falls on the plaintiff. It is well established that, in a case involving multiple defendants and multiple claims, the plaintiff bears the burden of showing the venue is proper as to each claim and as to each defendant. A.I. bears the burden of showing the counter-claims are within the jurisdiction of the Court and that the claims have been filed in the proper venue.
The counterclaims filed by A.I. have been filed in a court of improper venue under 28 U.S.C. § 1391. In this case, assuming the subject counterclaims are permissive pursuant to FRCP 13(b), the court will have jurisdiction over these counterclaims based on diversity of citizenship. Hence, § 1391(a) is applicable.
§ 1391. Venue generally
(a) A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.
Neither § 1391(a)(1) nor § 1391(a)(3) are applicable so venue must be founded on § 1391(a)(2) which finds proper venue in a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of the property that is the subject of the action is situated. The counterclaims filed by A.I. deal with breach of contract claims that bear no relation to Louisiana parties or property. A.I. has not alleged that any of the contracts between A.I. and Hurd were negotiated in LA or that any of the parties referenced in the claims have their principal place of business or are domiciled in LA. A.I. alleges no connection between the activities giving rise to these claims and the Eastern District of Louisiana.
District Judge's Discretion
The decision whether to transfer or dismiss claims in the interest of justice rests in the. sound discretion of the District Court. The Court is given the option of dismissal and/or transfer for improper venue. The decision whether or not to dismiss or transfer is in the sound discretion of the District Court. The claims between A.I., a New Hampshire Corp., and Hurd, a Pennsylvania Corp., with no relation to the Eastern District of Louisiana, nor to any matter in this litigation nor to the original Plaintiff nor to any of the other parties before the Court.
2. 14(a) Motion to Strike:
Any party may move to strike the third-party claim, or for its severance or separate trial. . . . FRCP 14(a). 14(a) provides for claims against third-party defendants that must relate to claims pending against the third-party plaintiff and must depend to some degree on the outcome of the original action but does not authorize the third-party plaintiff to assert claims against a third-party defendant that are unrelated to claims already pending. The alleged breach of contract claims between Hurd and A.I. deal with policies and financing agreements not at issue in the original claim filed on behalf of Orleans Limos. Under Rule 14, the Court should dismiss the third-party complaint.
Allowing A.I.'s counterclaims to remain would bring about unnecessary controversy and will unduly complicate the case to Hurd's obvious prejudice. The counterclaims filed by A.I., other than the one dealing specifically with the Financing Agreement with Orleans Limos, involve unrelated issues and should not be tried in the instant matter. The discovery associated with these claims involves witnesses, contract negotiations, and exhibits which have no relation to ED, LA and are distant from this jurisdiction, which is distant from Hurd's domicile.
B. ARGUMENTS OF A.I. CREDIT IN OPPOSITION:
A.I. argues that, even if the counterclaims are permissive, the Motion should be denied because the counterclaims are not subject to venue requirements. Hurd's assumption that § 1391(a) is applicable is wrong. § 1391(a) applies only where an original action may be brought, not to claims asserted within an original action. The counterclaims, therefore, do not fall under § 1391(a). Furthermore, the US S.Ct and several other lower courts have held that venue requirements do not have to be met for counterclaims against a plaintiff. The counterclaims, therefore, do not have to meet venue requirements and A.I.'s position as Third-party Defendant does not alter that result. *If a claim against a third-party defendant does not have to meet venue requirements and if counterclaims against plaintiff do not have to meet venue requirements then, by extension, a third-party defendant's counterclaims do not have to meet venue requirements.
A.I. also argues that there is no basis for striking the counterclaims. Once a third-party plaintiff has brought in a third-party defendant, the third-party defendant assumes the role of defendant in an original proceeding and, under FRCP 13 and 14(a), may assert any counterclaim, whether compulsory or permissive. In sum, there is no authority to support Hurd's position that the counterclaims must be stricken. FRCP 14(a) provides that a third-party defendant may bring " any counterclaims . . . as provided in Rule 13." Furthermore, judicial economy and efficiency warrant hearing these counterclaims in this proceeding. Hurd, though not required to, filed its third-party demand in this Court and A.I. responded with counterclaims against Hurd. Dismissing the counterclaims would result in unnecessary costs and fees for both parties.
A.I. also argues that the counterclaims arise out of the same transaction and occurrence as the principal demand or the third-party demand. Orleans Limos' suit involves Hurd's ongoing practice that underlies each of A.I. credit's counterclaims. Orleans Limos' principal demand complains about Hurd's misapplication of premium payments, alleged cancellation of its insurance policy, and the alleged misrepresentations that the policy was not cancelled; that is the same conduct at issue in each of A.I.'s counterclaims. The principal demand and counterclaims are therefore wholly related in that they involve the same course of conduct by Hurd toward several victims and involve the same legal questions.
III. LAW AND ANALYSIS:
The decision whether a transferral or a dismissal is in the interest of justice rests in the sound discretion of the district court. Nation v. U.S. Government, 512 F. Supp. 121, 126 (D.C. Ohio 1981), NAARTEX Consulting Corp. v. Watt, 722 F.2d 779, 789, 232 U.S.App.D.C. 293, 303 (D.C. Cir. 1983). Selection between the options of dismissal and transfer, for improper venue, is a matter within the sound discretion of the district court. 512 F. Supp at 126.
The counterclaims asserted against Hurd by A.I. deal with breach of contract claims that bear no relation to Louisiana parties or property. It is within the sound discretion of the Court to determine whether or not the counterclaims should be dismissed or transferred. The Court hereby dismisses all counterclaims, other than the one dealing specifically with the Financing Agreement with Orleans Limos, filed on behalf of A.I.
Accordingly,
IT IS ORDERED that the Third-party Defendant's, Hurd Insurance Agency, Inc., Motion to Dismiss is hereby GRANTED.