United States Court of Appeals,
Fifth Circuit.
No. 95-20153.
UNDERWRITERS AT INTEREST ON COVER NOTE JHB92M10582079, Plaintiff-
Appellee,
v.
NAUTRONIX, LTD., and Nautronix Inc., Defendants-Appellants.
April 10, 1996.
Appeal from the United States District Court for the Southern
District of Texas.
Before JONES, STEWART and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
FACTS
Schahin Cury, a Brazilian company, owned the drill ship S.C.
Lancer, which was chartered by another Brazilian company to conduct
off-shore oil and gas well drilling. As part of the charter
agreement, Schahin Cury was required to update the S.C. Lancer with
a new dual computer dynamic positioning system ("DPS"). DPS is a
complex device that holds the vessel in one place while the vessel
does its drilling. Schahin Cury selected Nautronix, Ltd., an
Australian corporation, to supply and install the DPS. Nautronix,
Ltd. was to install the DPS, calibrate it, and train the officers
and crew of the S.C. Lancer in the operation of the new system
before starting drilling operations. Nautronix, Ltd. subcontracted
portions of the DPS upgrade work to its wholly owned California
1
subsidiary, Nautronix Inc.1, which in turn operated a sales office
in Houston.
The chartering contract required Schahin Cury to have the S.C.
Lancer fully operational at a specific date, but because of several
delays, Schahin Cury ran up against the time-limit required by its
chartering contract. Nautronix contends that Schahin Cury cut
short necessary tests and sea trials of the new DPS, did not allow
complete calibration of the system, and did not make its officers
or crew available for training prior to commencing the
contracted-for drilling operations. As a result, Nautronix
contends that it was required to maintain its technicians on board
to complete installation and adjustments to the DPS during the
initial weeks of those drilling operations. Exactly what happened
next on a dark and stormy night in June, 1993, is in contention.
During a drilling operation, Nautronix contends that the
ship's captain panicked when the DPS indicators falsely showed that
the vessel was drifting. It is Nautronix's contention that the
ship's captain disregarded warnings by the Nautronix technician and
warnings from his own DPS operator and chose to disengage the DPS
and place the vessel in manual control. Schahin Cury argues that
the DPS was not working properly, and that the captain pulled the
ship about because a gale was causing it to roll dangerously, and
that had he not done so, lives would have been in peril. In any
case, as a result of the ship's movement, some 1,100 meters of well
1
Nautronix, Ltd. and Nautronix, Inc. will be referred to
collectively as "Nautronix".
2
casing that had been suspended beneath the ship sheared off, fell
to the ocean floor, and had to be salvaged.
Schahin Cury and Rudgil, a wholly owned Panamanian subsidiary
of Schahin Cury, made a claim of loss against its insurance policy,
underwritten by Underwriters. According to Nautronix, Schahin Cury
showed its loss to total $10,815,161.17. After the $100,000
deductible, Schahin Cury allegedly settled its claim for a total
payment of $9,300,000, leaving it about $1,500,000 unreimbursed.
Schahin Cury and Rudgil then brought suit against Nautronix for
"the amount of its actual damages", alleging negligence, breach of
various warranties, and negligent misrepresentation in connection
with the manufacture, sale, and installation of the S.C. Lancer's
DPS. The complaint was submitted by "attorneys for plaintiffs
Schahin Cury Engenharia E Comércio, Ltda. and Rudgil, Inc."
Nautronix answered, denying Schahin Cury's claims and
asserting defenses and counterclaims against Schahin Cury and
Rudgil. In its counterclaims, Nautronix claimed that Schahin Cury
had made various statements to the chartering company and to others
in the offshore drilling industry, including both competitors of
Nautronix and customers or potential customers of Nautronix.
Nautronix contends that Schahin Cury's alleged statements defamed
and disparaged Nautronix and the quality and reliability of its DPS
system. Nautronix alleged that Schahin Cury made statements
attributing the loss of the drillstring and attendant delay in
drilling operations solely to defects in the Nautronix DPS and not
the result of either Schahin Cury's or its captain's errors.
3
Specifically, Nautronix claimed commercial disparagement, damage to
prospective economic advantage, slander, malicious prosecution, and
abuse of process.
PROCEEDINGS BELOW
Schahin Cury filed a Rule 12(b) motion to dismiss Nautronix's
counterclaims, stating that this lawsuit was "filed in the name of
Schahin Cury without its authorization or consent and at the
instance of attorneys acting solely on behalf of certain insurance
underwriters." Schahin Cury claimed that it was not the real party
in interest, that the District Court had no jurisdiction over it,
and that service of Nautronix's counterclaims was insufficient.
After a first amended complaint adding an additional defendant, a
second motion to amend was filed by Underwriters on Friday,
September 12, 1994. In their motion to amend, Underwriters stated
that this is a subrogation suit, and that while Underwriters had
the right to bring the suit in the name of Schahin Cury and Rudgil,
the "continued exercise of that right would only serve to confuse
the Court ... [s]ince Underwriters are the true parties in
interest, Underwriters now seek to substitute their name for that
of Schahin Cury and Rudgil." On the following Monday, September
19, 1994, the District Court approved and signed the order
requested by Underwriters allowing the substitution of the name of
Underwriters for Schahin Cury and Rudgil.
Nautronix filed a motion for reconsideration pointing out that
by allowing the opposed second amendment to the complaint, the
District Court had disregarded local rules allowing 20 days for a
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party to respond to a motion, and that the amendment had de facto
dismissed Nautronix's counterclaims without allowing Nautronix to
be heard on the issue. That motion was denied and Nautronix then
filed a motion to allow those claims as a third-party complaint.
The court denied, in part, Nautronix's motion, noting that the
still pending 12(b) motion by Schahin Cury to dismiss Nautronix's
counterclaims was "moot" by reason of the earlier substitution of
parties. The court sua sponte transferred this case to the Houston
Division, where Nautronix's emergency motion for reconsideration of
the ruling against its third-party motion was denied. Nautronix
then filed this interlocutory appeal.
JURISDICTION
This court has jurisdiction over appeals from
"[i]nterlocutory decrees of such District Courts or the judges
thereof determining the rights and liabilities of the parties to
admiralty cases in which appeals from final decrees are allowed."
28 U.S.C. § 1292(a)(3). In an admiralty case, it is not necessary
for the order appealed from to have determined all the rights and
liabilities of all the parties before such an order is appealable
under § 1292(a)(3). O'Donnell v. Latham, 525 F.2d 650, 652 (5th
Cir.1976). However, Underwriters argues that we are without
jurisdiction because the interlocutory order appealed from does not
effectively determine any "rights or liabilities" of Nautronix. We
disagree.
After having claims asserted against it by Schahin Cury and
Rudgil, Nautronix was required to assert its claims, in the form of
5
counterclaims, against the opposing parties.2 Nautronix complied
with this requirement when they filed their counterclaims.
Fed.R.Civ.P. 41(a)(2) provides, in part:
If a counterclaim has been pleaded by a defendant prior to the
service upon the defendant of the plaintiff's motion to
dismiss, the action shall not be dismissed against the
defendant's objection unless the counterclaim can remain
pending for independent adjudication by the court.
When the district court issued its order granting Underwriters
motion to amend the original complaint by substituting its name in
place of Schahin Cury and Rudgil as the party plaintiff, it made no
provision for Nautronix's counterclaims to remain pending for
2
A counterclaim is compulsory "if it arises out of the
transaction or occurrence that is the subject matter of the
opposing party's claim and does not require for its adjudication
the presence of third parties of whom the court cannot acquire
jurisdiction." Fed.R.Civ.P. 13(a). The test for whether a claim
is compulsory is:
(1) whether the issues of fact and law raised by the
claim and counterclaim largely are the same; (2)
whether res judicata would bar a subsequent suit on
defendant's claim absent the compulsory counterclaim
rule; (3) whether substantially the same evidence will
support or refute plaintiff's claim as well as the
defendant's counterclaim; and (4) whether there is any
logical relationship between the claim and the
counterclaim. An affirmative answer to any of the four
questions indicates the claim is compulsory.
Park Club, Inc. v. Resolution Trust Corp., 967 F.2d 1053,
1058 (5th Cir.1992) (citing Plant v. Blazer Fin. Servs., 598
F.2d 1357, 1360 (5th Cir.1979)). We have no difficulty
concluding that Nautronix's counterclaims, including slander
and commercial disparagement, satisfy the third and fourth
tests cited above. Therefore, these claims were compulsory
and Nautronix was required to bring them once they had been
sued by Schahin Cury and Rudgil. See McDaniel v. Anheuser-
Busch, Inc., 987 F.2d 298, 304 (5th Cir.1993) ("A
counterclaim which is compulsory but is not brought is
thereafter barred.") (quoting Baker v. Gold Seal Liquors,
Inc., 417 U.S. 467, 469 n. 1, 94 S.Ct. 2504, 2506 n. 1, 41
L.Ed.2d 243 (1974)).
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independent adjudication by the court.
"[F]inality and appealability are not perfectly congruent.
Some interlocutory orders are appealable under 28 U.S.C. § 1292."
O'Donnell, 525 F.2d at 652. Although the court in O'Donnell was
addressing the appealability of the district court's order
dismissing the plaintiff's action against one co-defendant, that
case and the instant case are analogous. In the instant case, the
district court's decision to permit Underwriters' to replace
Schahin Cury and Rudgil as the party plaintiff, without making a
provision for Nautronix's counterclaims to remain pending for
independent adjudication by the court, as discussed infra,
effectively dismissed Nautronix's counterclaims against Schahin
Cury and Rudgil. Therefore, we hold that an order that effectively
dismisses a party from suit, without making provision for pending
compulsory counterclaims, is appealable under § 1292(a)(3).
ANALYSIS
Having determined that we have jurisdiction over this appeal
we next must determine whether the trial court erred when it
granted Underwriters' motion to substitute its name in place of
Schahin Cury and Rudgil as the party plaintiff. A party may amend
its pleadings only "by leave of court or by written consent of the
adverse party; and leave shall be freely given when justice so
requires." Fed.R.Civ.P. 15(a). This court's review is limited to
determining whether the trial court abused its discretion when it
permitted Underwriters' amendment. Chitimacha Tribe of La. v.
Harry L. Laws Co., Inc., 690 F.2d 1157, 1163 (5th Cir.1982)
7
(internal citations omitted), cert. denied, 464 U.S. 814, 104 S.Ct.
69, 78 L.Ed.2d 83 (1983). Justice requires that "[e]very action
shall be prosecuted in the name of the real party in interest."
Fed.R.Civ.P. 17. Therefore, central to a determination of whether
the trial court abused its discretion when it permitted
Underwriters' amendment is the question of whether Schahin Cury and
Rudgill, at the time the original suit was filed in their name,
were in fact real parties in interest. If they were not, then the
trial court's decision to permit the amendment would not only be
correct but it would have been required by Rule 17.
If the insurer has paid the entire loss suffered by the
insured, it is the only real party in interest and must sue in its
own name. United States v. Aetna Casualty & Sur. Co., 338 U.S.
366, 379-81, 70 S.Ct. 207, 215, 94 L.Ed. 171 (1949) (citing 3
Moore, Federal Practice (2d Ed.) p. 1339). However, if the insurer
"has paid only part of the loss, both the insured[s] and the
insurer ... have substantive rights against the tortfeasor which
qualify them as real parties in interest." Id. In its brief,
Schahin Cury acknowledged that "Underwriters and Schahin Cury are
separate entities, with independent interests because the full loss
was not paid by Underwriters " (emphasis added). Thus, this is a
case of partial subrogation, which means that Schahin Cury, Rudgil,
and Underwriters are all real parties in interest. Consequently,
we must determine whether the trial court's decision to allow
Underwriters to replace Schahin Cury and Rudgil, which effectively
dismissed Nautronix' counterclaims, constituted an abuse of
8
discretion.
The decision to grant or deny a motion for leave to amend
lies within the sound discretion of the trial court. Addington v.
Farmer's Elevator Mut. Ins. Co., 650 F.2d 663, 666 (5th Cir. Unit
A) (citing Layfield v. Bill Heard Chevrolet Co., 607 F.2d 1097,
1099 (5th Cir.1979), cert. denied, 446 U.S. 939, 100 S.Ct. 2161, 64
L.Ed.2d 793 (1980)), cert. denied, 454 U.S. 1098, 102 S.Ct. 672, 70
L.Ed.2d 640 (1981). However, approval of a motion to amend is not
automatic. Addington, 650 F.2d at 666. Denial of leave to amend
may be required when allowing an amendment would cause undue
prejudice to the opposing party. See Foman v. Davis, 371 U.S. 178,
83 S.Ct. 227, 9 L.Ed.2d 222 (1962). We have previously recognized
that it is an abuse of discretion for a trial court to deny a
plaintiff's motion to amend when the denial of that motion could
unduly prejudice the plaintiff's action as a result of res judicata
implications. See Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594,
600 n. 3 (5th Cir.1981) (noting that where res judicata might bar
a subsequent action by the plaintiff, then the denial of a motion
to amend in order to add that cause results in undue prejudice).
The converse situation is also true. Where the trial court's
decision to grant a motion to amend could potentially bar the
claims being asserted, then the granting of the amendment would
result in undue prejudice to the party whose claims are potentially
barred. See Foman, supra. When the trial court permitted the
amendment in the instant case, it effectively dismissed Nautronix's
compulsory counterclaims. Those counterclaims are potentially
9
barred by the statute of limitations.3 Therefore, the trial
court's decision to permit the amendment in the instant case not
only violated the express provisions of Fed.R.Civ.P. 41(a)(2), but
it also unduly prejudiced Nautronix by potentially barring it from
bringing its claims in a subsequent suit. Consequently, we find
that the trial court's decision to permit the amendment constituted
an abuse of discretion. Having determined that the trial court
erred when it permitted the amendment, we need not reach
Nautronix's other points of error.
CONCLUSION
For the foregoing reasons the district court's order of
September 20, 1994, is VACATED. The district court is ordered to
reinstate Schahin Cury and Rudgil as parties-plaintiff, Nautronix's
counterclaims are reinstated, and Schahin Cury's and Rudgil's First
Amended Complaint is reinstated. This ruling does not prohibit the
district court from realigning the parties or from permitting
Underwriters to prosecute its subrogation claims in its own name,
so long as the substantive rights of the other parties are not
affected by such orders.
3
We express no opinion as to whether Nautronix's claims
would actually be barred if brought in a separate action. We
simply recognize that there is a potential bar, which is
sufficient to support our finding of undue prejudice. See
Dussouy, supra.
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