DEBTOR CASE NO. 86-00989







VS. ADV. NO. 89-0042






This matter is before the Court on the Motion of Adrian Freeman, Frederick Shear, Betty Powell, Harold Kabus and Kenneth Eyl, individually and as a yet-to-be certified class, to Intervene in the above-captioned adversary proceeding.

The underlying adversary proceeding was commenced on March 2, 1989, by the filing of a Complaint for Declaratory Relief and to Recover Property by the plaintiff herein, North River Retirement Center, Inc. Therein the plaintiff asked the Court to construe a policy of insurance issued to the plaintiff by the defendant and determine their respective rights and liabilities pursuant to it. The plaintiff also asked the Court to direct the defendant to defend the plaintiff's directors in a separate action brought by several bondholders of the municipal bond issue used to finance the plaintiff's business activity. The defendant herein, Tudor Insurance Company, filed its Answer on March 28, 1989.

The bondholders' action referred to hereinabove, Adrian Freeman, et al. v. Laventhal & Horwath, et al., No. 87-217, was filed in the United States District Court for the Eastern District of Kentucky, at Covington, on December 30, 1987, and seeks damages for losses suffered. The plaintiffs in that action are the parties who seek to intervene herein ("the movants"). Their Motion to Intervene was filed in this Court on February 13, 1991, and states that they seek "to intervene in [the] declaratory judgment action so that their rights and the rights of the prospective class members in and to the policy issued by the Tudor Insurance Company (the Tudor policy) may be protected." The plaintiff opposed the Motion to Intervene on February 25, 1991, and the defendant filed its Motion in Opposition to Intervention on February 26, 1991. The movants filed a Reply on February 28, 1991.

The issue of whether intervention should be allowed herein is a question of federal civil procedure determined pursuant to FRCP 24, made applicable in bankruptcy by Bankruptcy Rule 7024. Rule 24(a) provides for intervention as of right and Rule 24(b) for permissive intervention. The movants cite cases dealing with declaratory judgments and allege that they have "standing" to intervene because there is an "actual controversy" between them and the Tudor Insurance Company. FRCP 24 requires consideration of other elements.

Intervention as of right pursuant to Rule 24(a) is established by showing that: "1) the application is timely; 2) 'the applicant claims an interest relating to the property or transaction which is the subject matter of the action...'; 3) the protection of the interest may as a practical matter be impaired by the disposition of the action; and 4) the interest is not adequately protected by an existing party." Restor-A-Dent Dental Laboratories, Inc. v. Certified Alloy Products, Inc., 725 F.2d. 871, 874 (2nd Cir. 1984). Although they allude to some of these elements in their arguments, the movants have not established them so as to be entitled to intervene as of right pursuant to Rule 24(a). The movants state in their Reply, for instance, that New Hampshire Insurance Company v. Greaves, 110 F.R.D. 549 (D.R.I. 1986), articulates "all the important reasons why intervention should be permitted under Rule 24(a)". However, the movants do not demonstrate whether and how the holding in that case applies to their attempt to intervene here.

Rule 24(b) allowing permissive intervention may be applied when "an applicant's claim or defense and the main action have a question of law or fact in common." Rule 24(b) goes on to provide, "In exercising its discretion the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties." The "question of law or fact in common" goes beyond a general interest in the subject matter or outcome of the main action, or the coincidence of financial interests. See Liberty Mutual Insurance Company v. Pacific Indemnity Company, 76 F.R.D. 656 (W.D.Pa. 1977)

The exercise of the court's discretion was also considered in Venegas v. Skaggs, 867 F.2d 527 (9th Cir. 1989), wherein the court stated, "The existence of a common question of law or fact does not automatically entitle an applicant to intervene. Rather, Rule 24(b) necessarily vests 'discretion in the ... court to determine the fairest and most efficient method of handling a case...'", citing SEC v. Everest Management Corp., 475 F.2d 1236, 1240 (2nd Cir. 1972). At 530. Along with the delay caused by the addition of parties to the original action, the court addressed the questions of judicial economy and the adequacy of representation of the movants' interests by existing parties. At 530-531.

In the case at bar, as in Liberty Mutual, supra, this underlying declaratory judgment action involves the obligations, if any, of Tudor Insurance Company to defend or indemnify North River Retirement Center, Inc. and its directors in the bondholders' action. At issue is the interpretation of insurance policies. The movants' interest, however, is solely in the outcome. As the Liberty Mutual court pointed out, "Plaintiff...and petitioner...are bound only in the sense that it would be financially fortuitous for them both if the declaratory judgment action were resolved against the defendants...The mutual self-interest of the plaintiff and the prospective intervenor is not enough for intervention by permission." At 660. This Court agrees. On the other hand, the "mutual self interest" of the plaintiff and the movants herein assures the movants that their interest will be adequately protected by an existing party. The plaintiff has demonstrated that it intends to pursue this action vigorously and that it has the resources to do so. The presence of the movants is not required for the prosecution of this action.

In consideration of all of the above, it is the opinion of this Court that the movants have not met the requirements of FRCP 24(a) for intervention as of right or of FRCP 24(b) for permissive intervention, and that therefore their Motion to Intervene should be OVERRULED.


By the Court -






Copies to:

Ron Parry, Esq.

Paul J. Vesper, Esq.

Stephen Bailey, Esq.