02/26/2020

Divided Tenth Circuit Tackles Intervention as of Right

In ‘Barnes v. Security Life of Denver Insurance Co.', a divided Tenth Circuit panel examined the interests protectable under Federal Rule of Civil Procedure 24(a)(2).

Law.com

Under Federal Rule of Civil Procedure 24(a)(2), when individuals or entities have interests in an ongoing litigation that are not adequately represented by an existing party, they may intervene as of right. But what interests does the rule protect? A divided panel of the Tenth Circuit recently confronted that issue in Barnes v. Security Life of Denver Insurance Co., 945 F.3d 1112 (10th Cir. 2019), in which an indemnitor sought to intervene as of right in litigation between its indemnitee (an insurer) and the indemnitee’s insureds.

The Barnes Litigation

Barnes concerned a group of life insurance policies issued by the predecessor-in-interest of defendant Security Life of Denver Insurance Company (Denver). Significantly, the policies authorized the insurer to set certain administrative costs, using criteria set forth in the policies.

Some of the insurance policies were subsequently transferred and reinsured by the predecessor-in-interest of Jackson National Life Insurance Company (Jackson). Also, through a separate agreement, Jackson’s predecessor-in-interest assumed administrative duties for the transferred policies, including setting the administrative costs.

In 2018, plaintiff Robert Barnes initiated a putative class action suit against Denver, alleging that it had imposed administrative costs not authorized under his or other similarly situated individuals’ insurance policies. When Barnes filed suit, Denver was the insurer of his and all other putative class members’ policies. But Jackson reinsured and administered both Barnes’s policy and some (but not all) of the other policies listed within the putative class.

Jackson moved to intervene. It argued that, as the entity administering Barnes’s and other policies in the putative class, including setting the administrative costs at issue, it had an interest in the litigation. Moreover, according to Jackson, its interests would not be adequately represented by Denver: Because Jackson administered only some of the policies at issue, and the other policies could have been administered differently, there was a chance that the litigation strategies for the respective groups of policies could diverge.

The district court denied the motion. Siding with Barnes, who opposed the motion, the court held that Jackson never established that Denver would inadequately represent its interests. As the court explained, Jackson and Denver had identical interests—defending how they administered the insurance policies, including how they set administrative costs. Thus, Denver would adequately represent its interests.

Jackson’s appeal followed.

Intervention as of Right

A divided panel of the Tenth Circuit reversed. Judges Mary Beck Briscoe and David Ebel, in an opinion authored by Judge Briscoe, held that Jackson had satisfied the requirements for invention as of right, including satisfying its burden to show protectable interests that Denver would inadequately represent. Judge Harris Hartz dissented—vigorously—insisting that the majority misapplied the intervention test and reached the wrong result.

The judges’ competing analyses exposed a fundamental disagreement about the types of interests Rule 24(a)(2) protects. They also demonstrated that how the court frames the relevant interests informs the ultimate issue whether intervention as of right should be permitted.

Intervention as of right is governed by Federal Rule of Civil Procedure 24(a)(2). The rule provides as follows:

On timely motion, the court must permit anyone to intervene who … claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its interest, unless existing parties adequately represent that interest.

The Tenth Circuit has construed Rule 24(a)(2) as requiring a movant for intervention to satisfy four elements: “(1) timeliness, (2) an interest relating to the property or transaction that is the subject of the action, (3) the potential impairment of that interest, and (4) inadequate representation by existing parties.” Kane Cty. v. United States, 928 F.3d 877, 889 (10th Cir. 2019); see also W. Energy All. v. Zinke, 877 F.3d 1157, 1164 (10th Cir. 2017).

In applying this test to Jackson, the majority and dissent defined the interests protectable under Rule 24(a)(2) in different terms. In the majority’s view, an interest sufficient to intervene is “one that would be impeded by the disposition of the action,” i.e., a property or equitable interest in the litigation. Id. at 1122 (quoting W. Energy All., 877 F.3d at 1165). The majority concluded that Jackson had two such interests. First, as the entity administering Barnes’s and other putative class members’ policies, Jackson had an interest related to its duty to set the policies’ administrative costs—the principal activity Barnes challenged. Second, as the indemnitor of some of the putative class policies, Jackson had a financial interest in the litigation, because it would be responsible for any covered liabilities relating to those policies.

The dissent described Rule 24(a)(2) interests differently. According to it, the only interests relevant under Rule 24(a)(2) are “interest[s] in proving or disproving something in the litigation,” i.e., “litigation objectives.” Id. at 1127. The dissent concluded that Jackson had only one such litigation objective—preventing a judgment against Denver, which would compel it, as Denver’s indemnitor, to assume the duty to credit and pay the plaintiffs.

How the judges framed Jackson’s interests influenced their analysis of whether Denver could adequately protect those interests, and thus whether Jackson should be permitted to intervene.

To the majority, Denver could not represent Jackson’s interest with respect to its administration of the policies. As Judge Briscoe explained, Jackson could not expect Denver to defend how it had administered the policies under its control, because Denver would try to absolve itself of liability by asserting that Jackson alone had administered the policies, including setting the administrative costs at issue. Thus, the majority held, Jackson could intervene as of right.

The dissent, by contrast, contended that Denver shared Jackson’s interest in the litigation—preventing a judgment against Denver, for which Jackson would become liable as Denver’s indemnitor. This was so, according to the dissent, because under the law of judgments, in a subsequent indemnification action between Denver and Jackson, a judgment against Denver in the Barnes action would have preclusive effect and require Jackson to indemnify Denver only if Denver adequately represented Jackson’s interests. Thus, Denver had strong incentives to adequately represent Jackson’s interests.

Given this identity of interests, the dissent asserted, the law presumed that Denver would adequately represent Jackson’s interests. And Jackson could overcome that presumption only by offering evidence that the entities had a true conflict of interest. But, because Jackson had never presented such evidence, the dissent would have held that Denver would adequately represent Jackson’s interests, and thus would have denied Jackson’s motion for intervention.

What’s Next

Barnes is not over. In January, Barnes filed a petition for panel rehearing and for rehearing en banc, in which he urged the court to adopt the dissent’s view on intervention. It remains to be seen whether the Tenth Circuit, sitting en banc, might agree.

Peter Kurtz, associate with Holland & Hart, assists clients in trial and appellate litigation and has experience in a wide range of complex commercial litigation matters.

Reprinted with permission from the February 26, 2020 online edition of Law.com © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

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