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In Re: Chinese Manufactured Drywall v. American International Specialty Lines

February 8, 2011

IN RE: CHINESE MANUFACTURED DRYWALL PRODUCTS LIABILITY LITIGATION THIS DOCUMENT RELATES TO: PATE
v.
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., ; CENTERLINE HOMES CONSTRUCTION, INC.
v.
MID-CONTINENT CASUALTY CO., ; AND NORTHSTAR HOLDINGS, INC.
v.
GENERAL FIDELITY INSURANCE CO., .



JUDGE FALLON MAG. WILKINSON

SECTION: L

ORDER & REASONS

Before the Court are the following motions to dismiss filed by defendant commercial general liability ("CGL") insurers (collectively referred to as the "Insurers"):

1. American Guarantee & Liability Insurance Co.'s ("American") Motion to Dismiss for Failure to Join Necessary and Indispensable Parties in Pate v. American International Specialty Lines Insurance Co., No. 09-7791(E.D. La. filed Dec. 23, 2009), consolidated with, No. 09-md-2047 (E.D. La. filed June 15, 2009)(R. Doc. 2641);

2. Amerisure Mutual Insurance Co. and Amerisure Insurance Co.'s ("Amerisure") Motion to Dismiss First Amended Complaint for Failure to Join Requested Parties in Pate, Case No. 09-7791 (R. Doc. 2174);

3. Chartis Specialty Insurance Co.'s ("Chartis")*fn1 Motion to Dismiss Complaint for Failure to Join a Requested Party in Centerline Homes Construction, Inc. v. Mid-Continent Casualty Co., No. 10-178 (E.D. La. filed Jan. 26, 2010), consolidated with, No. 09-md-2047(R. Doc. 2567);

4. FCCI Commercial Insurance Co. and FCCI Insurance Co.'s (collectively referred to as "FCCI") Motion to Dismiss Plaintiff's First Amended Complaint for Failure to Join Indispensable Parties in Pate, Case No. 09-7791 (R. Doc. 2148);

5. Landmark American Insurance Co.'s "("Landmark") Motion to Dismiss in Pate, Case No. 09-7791 (R. Doc. 2150);

6. Mid-Continent Casualty Company's ("MCC") Motion to Dismiss in Pate, No. 09-779(R. Doc. 2156);

7. MCC's Motion to Dismiss in Centerline, No. 10-178(R. Doc. 2282);

8. MCC's Motion to Dismiss in Northstar Holdings, Inc. v. General Fidelity Insurance Co., No. 10-384 (E.D. La. filed Feb. 12, 2010), consolidated with, No. 09-md-2047 (R. Doc. 2843);

9. National Union Insurance Co. of Pittsburgh's ("National Union") Motion to Dismiss Plaintiff's First Amended Complaint Pursuant to Fed.R.Civ.P. 12(b)(7) for Failure to Join a Party Under Rule 19 in Pate, Case No. 09-7791 (R. Doc. 2155); and

10. NGM Insurance Co.'s ("NGM") Motion to Dismiss in Pate, No. 09-7791 (R. Doc. Doc. 3174)*fn2 .

Each of these motions seeks dismissal, in whole or part, pursuant to Federal Rule of Civil Procedure 12(b)(7) for failure to join indispensable parties. A briefing and hearing schedule on the Rule 12(b)(7) challenges was established by the Court, which culminated in a hearing on November 3, 2010. The Court has reviewed the briefs, as well as the applicable law and relevant facts, has heard from the parties on oral argument, and is now ready to rule. For the following reasons, IT IS ORDERED that the motions are DENIED insofar as the Rule 12(b)(7) challenges raised therein.

I. BACKGROUND

The present litigation arises from the manufacture, distribution, sale, and installation of Chinese drywall which is contained in homes where it allegedly emits foul odors and damages metal and electronic elements and devices, as well as causes various personal injuries to occupants of the homes. On June 15, 2009, the Judicial Panel on Multi-District Litigation transferred all federal actions alleging damages from Chinese-manufactured drywall to this Court, the U.S. District Court for the Eastern District of Louisiana, for coordinated or consolidated pretrial proceedings pursuant to 28 U.S.C. § 1407. See In re Chinese-Manufactured Drywall Prods. Liab. Litig., 626 F.Supp.2d 1346 (J.P.M.L. 2009)(R. Doc. 1). Since the inception of the MDL, a number of parties have entered the litigation, including the Insurers who are sought after for indemnity and/or defense by their insureds. Many of the cases involving the Insurers, among numerous others, have been consolidated with the MDL proceedings.

On August 5, 2010, the Court, determining it was an appropriate time in the MDL litigation, issued an Order establishing a briefing and hearing schedule for personal jurisdiction, venue, and indispensable joinder motions filed by the CGL Insurers.*fn3 (R. Doc. 4873).

As mentioned above, three cases are implicated in the present motions, (1) Pate v. American International Specialty Lines, et al., No. 09-7791; (2) Centerline Homes Construction, Inc., et al. v. Mid-Continent Casualty Co., et al., No. 10-178; and (3) Northstar Holdings, Inc., et al. v. General Fidelity Insurance Co., No. 10-384, the facts of which are summarized as follows.

A. Pate

The Pate case was filed directly in the Eastern District of Louisiana on December 23,2009, by Robert C. Pate, as Trustee for the WCI Chinese Drywall Trust (the "Trust"), seeking a declaratory judgment that WCI's CGL insurers, as well as its subcontractors' CGL insurers, are obligated to indemnify the Trust for losses arising from claims against WCI Communities, Inc. and certain of its subsidiaries (collectively referred to as "WCI") for the development and sale of homes allegedly containing defective Chinese drywall. See No. 09-7791(R. Doc. 1). Thereafter, on March 15, 2010, the Trustee filed a First Amended Complaint. See No. 09-md-2047(R. Doc. 1732).

WCI is a contractor for single-family homes, villas, condominiums, and luxury high rise towers. See id. In 2006, WCI began to receive complaints of property damage and/or personal injuries as a result of Chinese drywall installed in the residences WCI sold in Florida from 2005 to 2008, particularly in the Fort Lauderdale, Fort Meyers, and Bradenton areas. Id. On August 4, 2008, and July 1, 2009, WCI filed for bankruptcy. Id. Thereafter, on July 16, 2009, WCI filed a Second Amended Joint Chapter 11 Plan of Reorganization. Id. This Plan created the Chinese Drywall Trust to assume WCI's liability or losses for Chinese drywall-related claims asserted against WCI. Id. The Trust was transferred the right, title, and interest in pursuing and receiving any and all insurance recoveries arising from these claims. Id. The United States Bankruptcy Court for the District of Delaware confirmed the Plan on August 26, 2009. Id.

At issue in the present motions is whether WCI's subcontractors who procured CGL insurance policies naming WCI as a named or additional insured are indispensable parties. These subcontractors (collectively referred to as the "Subcontractors") and their insurers include the following: Hinkle Drywall, LLC insured by Owners Insurance Co. ("Owners") and Landmark; SD & Associates insured by FCCI; Finest Drywall, Inc. insured by MCC and National Union; Beta Drywall, LLC insured by Amerisure, National Union, and Chartis; Distinctive Finishes, LLC insured by MCC and American; Steven Sweet Drywall, LLC insured by MCC; Residential Drywall, Inc. insured by FCCI; Florida Drywall insured by MCC and FCCI; ...


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