Wednesday, August 15, 2007

5th Circuit Holds Defendant Construction Company Lacks Standing in Insurance Indemnification Suit

Per Scottsdale Ins. Co. v. Knox Park Const., Inc., 488 F.3d 680 (5th Cir.(Tex.) Jun 05, 2007) (NO. 05-10929):

Whether a party has standing to appeal involves the question of justiciability, namely, "whether the plaintiff has made out a 'case or controversy' between himself and the defendant within the meaning of Article III." Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, Inc., 32 F.3d 205, 208 (5th Cir.1994). "Merely because a party appears in the district court proceedings does not mean that the party automatically has standing to appeal the judgment rendered by that court." Id. There must be "some threatened or actual injury resulting from the putatively illegal action," Warth v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (internal quotation omitted), and a litigant may not merely "champion the rights of another," Ortiz Bros., 32 F.3d at 208. Regarding the injury required, "[a]n indirect financial stake in another party's claims is insufficient to create standing on appeal." Id. (alteration in original) (internal quotation omitted). "[T]he injury or threat of injury must be both real and immediate[,] not conjectural or hypothetical." Id. (internal quotation omitted).

We agree with Landmark that Knox Park has no standing to appeal. Knox Park has never filed a cross-claim against Landmark. Instead, Knox Park joined Scottsdale's motion for summary judgment on Scottsdale's claim that sought to establish that the Landmark policy covers breach of warranty damages and, consequently, that Landmark must indemnify Scottsdale for the amount Scottsdale paid to Knox Park for such damages. Knox Park, however, cannot champion a claim brought by Scottsdale. Id. at 208 & n. 9. Knox Park does not gain anything if Scottsdale prevails and wins indemnity from Landmark because Knox Park has released Scottsdale from liability.

Without a claim of its own in the federal litigation, Knox Park has only an "indirect financial stake" in the resolution of the coverage dispute through its ability to litigate its claims in the future. Id. at 208 (internal quotation omitted). The district court's judgment concerned whether the Landmark policy covered breach of warranty damages caused by the insured. Because Knox Park is neither the insured nor an insurer in this dispute, a determination that the Landmark policy covers breach of warranty damages does not automatically result in a recovery by Knox Park of the damages that it preserved in the state court settlement agreement and now seeks on appeal. Without a claim, Knox Park can only posit that a favorable coverage ruling here is likely to later result in its recovery of damages from Landmark after a settlement or further litigation.

Knox Park raises some arguments in support of standing, all of which are meritless. Knox Park contends that a holding that it has no standing could result in conflicting judgments, speculating that if it is dismissed and this court holds that the Landmark policy does not cover breach of warranty damages, a subsequent suit between Knox Park and Landmark could end with a contrary result. A potential for conflicting results, however, does not confer standing without a direct, real, and immediate injury. See id. The test for standing focuses on "whether the plaintiff has 'alleged such a personal stake in the outcome of the controversy' as to warrant his invocation of federal-court jurisdiction," Warth, 422 U.S. at 498, 95 S.Ct. 2197 (quoting Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962)), not on whether the result may possibly conflict with that in a hypothetical future lawsuit.

Knox Park also argues that its failure to file a claim against Landmark is not fatal because the Federal Rules render cross-claims permissive and because it does not need its own claim, since Scottsdale's complaint sought declarations regarding all parties' rights and duties. Knox Park is correct that cross-claims are permissive, but their permissiveness speaks not to whether relief can be granted when there is no claim filed but to whether those claims can be brought in subsequent litigation. See Dunn v. Sears, Roebuck & Co., 645 F.2d 511, 512 n. 1 (5th Cir.1981) ("[C]ross claims are permissive rather than compulsory[,] and a party to an action has the option to pursue [them] in an independent action.").

Knox Park's argument that it has standing based on Scottsdale's request for declarations of all parties' rights and duties is also flawed. Declaratory judgment does not exist to allow courts to decide rights between two co-defendants when they have not sought to have their rights declared. The Declaratory Judgment Act provides that "any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a) (emphasis added). Similarly, summary judgment is available only for parties who have filed a claim. See Fed.R.Civ.P. 56(a) ("A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory judgment may ... move with or without supporting affidavits for a summary judgment ...."). Knox Park and Landmark did not formally seek to have their rights vis-à-vis one another determined by the district court. Knox Park's appeal is dismissed.


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