Cascades Development of Minnesota, LLC v. National Specialty Insurance, 675 F.3d 1095

Cascades Development operated a fitness facility in Inver Grove Heights, MN, and obtained workers' compensation insurance from National Specialty Insurance (West Bend) via Associated Insurance Agents; Newton was an Associated agent and brother to a Cascades principal.
Policy became effective September 20, 2006, after Newton promised to begin coverage on September 1; an employee was permanently disabled on September 18, before the policy's effective date, and West Bend refused coverage.
Associated Insurance Agents' E&O carrier Westport paid the claim and thereafter Cascades assigned its indemnity rights against West Bend to Newton, Associated, and Westport, without listing consideration.
In 2009 the parties settled the employee's claim with Cascades, and Newton claims he incurred no out-of-pocket loss personally.
In September 2009 the assignees sued West Bend in state court seeking reformation of the policy and indemnification under a re-formed contract; West Bend removed to federal court asserting diversity jurisdiction.
The district court found Westport the real party in interest and concluded Newton’s presence did not destroy diversity; it granted summary judgment for West Bend on the merits, and the court later questioned jurisdiction sua sponte.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the district court had subject matter jurisdiction	Newton is a proper real party in interest through assignment.	Westport is the real party in interest; Newton is nominal; removal preserved diversity.	No subject matter jurisdiction; diversity destroyed by assignment.
Whether Cascades’ gratuitous assignment to Newton was valid	Assignment valid under Minnesota law; delivered in writing and irrevocable.	Assignment may not confer rights because no consideration or incurrence of loss by assignor is shown.	Valid gratuitous assignment; irrevocable and enforceable.
Whether Newton may enforce indemnification against West Bend	Newton steps into Cascades’ shoes and can enforce indemnity.	Cannot enforce indemnity without loss; needs actual recoverable loss.	Newton entitled to enforce indemnification as assignee.
Whether Newton may seek reformation of the policy	Assignee in privity may seek reformation of the contract.	Only original parties may seek reformation; lack of privity bars Newton.	Newton in privity; may seek reformation.
Effect of assignee on diversity and remand	Assignee’s rights do not affect original jurisdiction analysis.	Assignee destroys complete diversity; federal jurisdiction not proper.	Assignee destroys diversity; district court should remand.

Geldert v. American Nat'l Bank, 506 N.W.2d 22 (Minn. Ct. App. 1993) (indemnity proceeds flow from assignor’s loss, not assignee’s)
Minnesota Mut. Life Ins. Co. v. Anderson, 504 N.W.2d 284 (Minn. Ct. App. 1993) (validity of gratuitous assignment requires intent and delivery)
Altermatt v. Arlan's Dep't Stores, 169 N.W.2d 231 (Minn. 1969) (right to indemnity arises when liable to claimant)
La Mourea v. Rhude, 295 N.W.304 (Minn. 1940) (privity via assignment allows remedy transfer)
Iowa Pub. Serv. Co. v. Medicine Bow Coal Co., 556 F.2d 400 (8th Cir. 1977) (nondiverse party’s status may be ignored if not real party in interest)