1.	Pharmacy is a Delaware corporation that has its principal place of
business in Pennsylvania. Pharmacy negotiated with Insurance National,
also a Pennsylvania citizen, to obtain insurance coverage for itself
and its subsidiary, Pharmacy of South Carolina (PSC).  As a result of
these negotiations, Insurance National issued an insurance policy to
Pharmacy (the policy), with effective dates of January 1, 1995 to
January 1, 1996. The policy was delivered to Pharmacy in Pennsylvania
and Pharmacy made all premium payments on the policy from
Pennsylvania.
  
Insurance National is a Pennsylvania corporation with its principal
place of business in Pennsylvania. PSC is a South Carolina corporation
with its principal place of business in South Carolina.

In 1995, during the policy period, PSC allegedly filled a prescription
incorrectly, and a customer suffered serious injuries as a result. The
customer, who was a minor, and her parents sued PSC for her injuries
in South Carolina state court. These actions were referred to
Pharmacy's in house counsel and to its Department of Risk Management,
which in turn referred the actions to local South Carolina counsel.

According to Insurance National, it was notified of the claim by
telephone on October 1, 1996, less than a week before the case was
scheduled for trial. In letters addressed to Pharmacy's Director of
Claims dated October 8, 1996 and October 9, 1996, Insurance National
reserved its right to deny coverage. While the jury was deliberating,
Insurance National denied coverage by letter addressed to Pharmacy's
Director of Claims dated October 10, 1996. The jury subsequently
returned verdicts for the customer and her parents totaling $
5,020,000 in actual damages and $ 11,000,000 in punitive damages. PSC
appealed the judgment, but the judgment was affirmed by the Court of
Appeals of South Carolina.


The insurance policy in question provided insurance coverage for
Pharmacy and its subsidiaries with a limit of $ 4,750,000.   Under the
policy, Pharmacy has a deductible of $ 250,000 per occurrence, and
Insurance National's insurance applies in excess of that amount. In
other words, if a Pharmacy subsidiary suffers a loss covered by the
policy, Pharmacy is required to cover the first $ 250,000 of the loss
and Insurance National is responsible for the subsidiary's loss in
excess of $ 250,000, up to the $ 4,750,000 policy limits.

On July 9, 1997, Insurance National commenced this action in the
United States District Court for the District of South Carolina
seeking a declaration that PSC failed to comply with the notice
provisions of the policy and other established reporting procedures,
that this failure substantially prejudiced Insurance National, and,
therefore, that Insurance National had no obligation to provide
coverage in the underlying lawsuits.

(a)	Does the federal court in South Carolina have jurisdiction over
this case? (15 pts)

On January 16, 1998, Pharmacy and PSC filed an action in Pennsylvania
state court against Insurance National for breach of contract, and for
a declaratory judgment that Insurance National was obligated to defend
and indemnify Pharmacy and PSC with respect to the underlying lawsuit.

(b)	Assume for purposes of this part only that PSC moved to dismiss
the South Carolina complaint filed by Insurance National on the
grounds that Pharmacy was not named as a defendant and that Pharmacy
is a necessary and indispensable party to the action pursuant to
Federal Rules of Civil Procedure 12 and 19.  Moreover, adding Pharmacy
to the case would destroy complete diversity of citizenship.  Should
the case in South Carolina Federal Court be dismissed?  The relevant
case law and statutes are provided below. (25 pts.)

Federal Rule of Civil Procedure 19 sets forth a two-step inquiry for a
district court to determine whether a party should be joined in an
action. First, the district court must determine whether the party is
"necessary" to the action under Rule 19(a).   If the court determines
that the party is "necessary," it must then determine whether the
party is "indispensable" to the action under Rule 19(b). See Teamsters
Local Union No. 171 v. Keal Driveaway Co., 173 F.3d 915, 917-18 (4th
Cir. 1999).


Rule 19(a) provides in pertinent part as follows: 
  
A person who is subject to service of process and whose joinder will
not deprive the court of jurisdiction over the subject matter of the
action shall be joined as a party in the action if (1) in the person's
absence complete relief cannot be accorded among those already
parties, or (2) the person claims an interest relating to the subject
of the action and is so situated that the disposition of the action in
the person's absence may (i) as a practical matter impair or impede
the person's ability to protect that interest or (ii) leave any of the
persons already parties subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations by reason of
the claimed interest.
  
Fed. R. Civ. P. 19(a).  [**10]  

Rule 19(b) provides as follows: 
  
If a person as described in subdivision (a)(1)-(2) hereof cannot be
made a party, the court shall determine whether in equity and good
conscience the action should proceed among the parties before it, or
should be dismissed, the absent person being thus regarded as
indispensable. The factors to be considered by the court include:
first, to what extent a judgment rendered in the person's absence
might be prejudicial to the person or those already parties; second,
the extent to which, by protective provisions in the judgment, by the
shaping of relief, or other measures, the prejudice can be lessened or
avoided; third, whether a judgment rendered in the person's absence
will be adequate; fourth, whether the plaintiff will have an adequate
remedy if the action is dismissed for nonjoinder.
  
Fed. R. Civ. P. 19(b).

If Pharmacy is a necessary and indispensable party, the court must
dismiss the case because adding Pharmacy to the case would destroy
complete diversity of citizenship.


Do you believe Pharmacy is a necessary and indispensable party?  Why
or why not?