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Court adopts definition of “nominal defendant” for purposes of Rule of Unanimity for removal
Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co.
G.R. Hammonds, Inc. (“Hammonds”) a roofing company, was involved in a lawsuit. Three of Hammonds’ insurers settled for one million dollars provided that the proper allocation would be determined through subsequent arbitration or litigation. One insurer, Harleysville Mutual Insurance Company (“Harleysville”) filed a declaratory judgment action in the Eastern District of North Carolina against Hammonds and its other four (4) insurers, seeking allocation of the settlement amount, as well as for damages from two (2) other projects involving the insurers. Thereafter, another insurer, Hartford Fire Insurance Company (“Hartford”), filed a declaratory judgment action in South Carolina state court, involving the exact same parties, and seeking allocation of the one million dollar settlement. Harleysville removed the state court action to the district court for the District of South Carolina. The other insurers consented to removal, but Hammonds did not participate, and neither consented, nor objected, nor claimed an interest in the outcome of the proceeding. Upon removal, Harleysville filed a motion to dismiss on the basis that the litigation was duplicative of the previously filed North Carolina litigation. Hartford moved to remand the matter to state court on the basis that Hammonds’ failure to join in or consent to the removal violated the Rule of Unanimity. Months later, Hammonds filed an Answer to the Complaint and asserted an interest in the outcome of the litigation. The District Court found that Hammonds was a nominal party, as there was no way that Hammonds could be found liable, and removal was proper. The case was subsequently dismissed and the appeal followed.
The Fourth Circuit Court of Appeals first acknowledged that the Supreme Court had established the “Rule of Unanimity” for removal under 28 U.S.C.A. § 1441, which required that all Defendants to join in or consent to removal. The rule, however, had an exception for those parties that were deemed nominal, thus ensuring that only those parties with a real interest in the litigation determined whether federal jurisdiction would be exercised. The Court then observed that despite other jurisdictions having addressed the definition of a “nominal party,” this was a matter of first impression for the Fourth Circuit. The Court reviewed and rejected other jurisdictions’ definitions and held:
After acknowledging the dangers of "incorrectly calibrating the scope of the nominal party exception in either direction” to be either too broad or too narrow, the Court adopted the definition of nominal as defined in Black’s Law Dictionary, “a party who has some immaterial interest in the subject matter of a lawsuit and who will not be affected by any judgment.” Black’s, 1148, 1232 (9th ed. 2009).
Having established the definition of a nominal party, the Court reviewed the arguments made by Hartford and Hammonds claiming Hammonds’ interest in the litigation. Both claimed that the allocation determination could affect Hammonds’ future coverage limits, and that under a specific scenario, if Hammonds was not a party to the suit, Hartford may be left with paying more than its policy limits. The court rejected these arguments as speculative, and held that Hammonds was a nominal party and its consent was not required for removal. The Court affirmed the lower Court’s denial of the motion for remand and dismissal.
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