| THOMAS ROKEBY CONYNGHAN CORFIELD, ET AL., Plaintiff-Appellee, versus DALLAS GLEN HILLS LP, Defendant-Appellant. No. 03-10185 UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT 355 F.3d 853; 2003 U.S.
App. LEXIS 26321
SUBSEQUENT HISTORY:
As Revised January 6, 2004.
US
Supreme Court certiorari denied by Dallas
Glen Hills v. Corfield, 2004 U.S. LEXIS 3862 (U.S.,
June 1, 2004) PRIOR HISTORY:
[*1]
Appeal from the United States District Court for the Northern District
of Texas. 3:02-CV-1781-D. Sidney A Fitzwater, US District
Judge.
Corfield
v. Dallas Glen Hills, L.P., 2003 U.S. Dist. LEXIS 10858 (N.D. Tex., Jan. 24,
2003) DISPOSITION:
Reversed and remanded. COUNSEL: For LIBERTY CORPORATE
CAPITAL LTD, on its own behalf and as the representative of all other members
of those Underwriters at Lloyds, London subscribing to Policy No, CRCTX99-1128,
Plaintiff - Appellant: Theodore Mack, Richard Hunt Gateley,
Carter Len Ferguson, Brackett & Ellis, Fort Worth, TX.
For DALLAS
GLEN HILLS LP, Defendant - Appellee: Harvey Goldwater
Joseph, Littler Mendelson, Dallas, TX. John L Hubble, Hubble & Pistorius,
Dallas, TX. JUDGES: Before GARWOOD and JONES,
Circuit Judges, and ZAINEY, District Judge. *
*
District Judge of the
Eastern District of Louisiana, sitting by designation. OPINION BY: ZAINEY OPINION
ZAINEY,
District Judge:
In
this declaratory judgment action, Plaintiff Liberty Corporate Capital, Ltd. (“Liberty”)
appeals from the district court’s grant of Defendant Dallas Glen Hills
LP’s (“DGH”) motion to dismiss for lack of subject
matter jurisdiction. The appeal presents an issue of first impression in our
circuit regarding how the citizenship of a Lloyd’s of London
underwriter suing on its own behalf is to be determined for diversity purposes.
The district court concluded that the citizenship of every underwriter
subscribing to a Lloyd’s policy must be considered when determining
whether complete diversity exists. We disagree and therefore conclude that the
district court erred in dismissing the action. Accordingly, we REVERSE and
REMAND.
FACTUAL AND PROCEDURAL BACKGROUND
In
August 2000, DGH claimed an insured commercial property loss on Lloyd’s of London policy CRCTX99-1128 (“the Policy”).
Liberty, acting [*2] through its
wholly-owned subsidiary Liberty Syndicate 190 (“Syndicate 190”)
assigned an adjuster to inspect the property. Liberty determined that the
policy provided no coverage for the claim. The Policy has a $ 500,000.00 limit of
which Liberty insured 32.79 percent of the risk. n1
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - -
FN1
Liberty subscribed to a percentage of risk greater than that assumed by any
other Name subscribing to the Policy. Thus, Liberty controls all decisions with
regard to claims made under the Policy and the prosecution or defense of
lawsuits. - - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
Thomas
Rokeby Conynghan Corfield (“Corfield”), a British subject
and “active” underwriter for Syndicate 190, filed a
declaratory judgment action on his own behalf and as the representative of
Certain Underwriters at Lloyd’s, London subscribing to the Policy
seeking a declaration of the parties’ rights and obligations under the
Policy. Corfield alleged that jurisdiction was based
upon diversity of citizenship pursuant to 28 U.S.C. § 1332. n2 However, Corfield’s
complaint [*3] failed to allege DGH’s citizenship. Corfield alleged only that DGH was a Texas limited
partnership.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN2 28
U.S.C. § 1332
provides in pertinent part:
The
district courts shall have original jurisdiction of all civil actions where the
matter in controversy exceeds the sum of or value of $ 75,000, exclusive of
interest or costs, and is between—;
. . .
(2)
citizens of a State and citizens or subjects of a
foreign state;
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
The
district court issued an order noting that Corfield
had failed to properly allege DGH’s citizenship because the complaint
did not allege the citizenship of each of DGH’s partners. n3 Moreover, the district court questioned whether Corfield had properly pleaded his own citizenship given
that he had brought suit both on his own behalf and as the representative of
the other underwriters on the [*4]
Policy. Noting that the Seventh Circuit considers the citizenship of
every underwriter subscribing to a Lloyd’s policy for diversity
purposes, Indiana Gas Co. v. Home Insurance Co., 141 F.3d 314, 319 (7th Cir. 1998), the district court ordered Corfield to either plead his citizenship in accordance with
the Seventh Circuit’s approach or submit a memorandum brief explaining
why Corfield’s British citizenship alone should control.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN3
Because DGH is a limited partnership, it assumes the citizenship of each of its
partners. See Carden v. Arkoma Assoc., 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed.
2d 157 (1990).
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
In
response to the district court’s order,
Liberty replaced Corfield as the named plaintiff and
filed an amended complaint. Liberty, the lead underwriter on the Policy, is a
British corporation incorporated, domiciled, and with its principal place of
business in the United Kingdom. As with Corfield,
Liberty alleged British citizenship and sought relief on its own behalf
[*5] and as the representative
of all other underwriters subscribing to the Policy. Recognizing that the
amended complaint did nothing to allay the jurisdictional concerns raised by
the district court, Liberty amended its complaint a second time. In the second amended
complaint Liberty sought relief on its own behalf and as the lead
underwriter of those underwriters subscribing to the Policy. Again,
however, Liberty failed to affirmatively allege DGH’s citizenship,
instead alleging that none of DGH’s partners were British citizens.
The
district court entered a second order, this time threatening to dismiss the
action without prejudice unless Liberty amended its complaint to properly
allege DGH’s citizenship. The district court agreed to defer
consideration of Liberty’s citizenship given the split in authority
concerning how the citizenship of a Lloyd’s underwriter is to be
determined and given that DGH had not yet moved to dismiss the case. Liberty
amended its complaint once more to allege that all of DGH’s partners
were believed to be citizens of Texas, and that no partner was a citizen of the
United Kingdom.
DGH
moved to dismiss the case pursuant to Federal
Rule of Civil Procedure 12(b)(1) [*6] for lack of subject matter jurisdiction. DGH argued that for diversity purposes the
district court must consider the citizenship of every underwriter subscribing
to a Lloyd’s policy when determining if
complete diversity is satisfied. DGH also asserted that at least one
underwriter on the Policy was a citizen of Texas as was at least one of DGH’;s partners. Thus, DGH argued that complete diversity was
lacking.
Hoping
to avoid dismissal, Liberty amended its complaint once more. This time Liberty
alleged claims only on its own behalf as the lead underwriter on the Policy.
Liberty deleted all allegations that it was suing in any type of representative
capacity on behalf of the other underwriters. Liberty also alleged that all of
DGH’s partners were either citizens of Texas, Delaware, and New York.
The district court nevertheless concluded that the citizenship of each
underwriter subscribing to the Policy must be considered for purposes of
determining whether complete diversity is satisfied. Because DGH contended that
at least one underwriter was a citizen of Texas, the district court concluded
that the parties were not completely diverse. The district court therefore
granted DGH’s [*7] motion to
dismiss for lack of subject matter jurisdiction. Liberty timely appealed.
DISCUSSION
A. Standard of Review
We
review questions of law de novo. Wilkerson v. United States of America, 67
F.3d 112, 115 (5th Cir. 1995) (citing
Estate of Moore v.
Commissioner, 53 F.3d 712, 714 (5th Cir. 1995)). The district
court’s dismissal for lack of subject matter jurisdiction turned
solely on the legal question of how to determine the citizenship for a Lloyd’s
of London underwriter who sues only on its own behalf. We therefore review the
district court’s dismissal for lack of
subject matter jurisdiction de novo. Beall v.
United States of America,
336 F.3d 419, 421 (5th Cir. 2003).
B. Principles of Jurisdiction
The
federal diversity statute provides that the district courts have original
jurisdiction over all civil actions where the matter in controversy exceeds $
75,000 and is between citizens of a state and citizens or subjects of a foreign
state. 28 U.S.C. §
1332(a)(2). It is well-established that the diversity statute
requires “complete diversity” of citizenship: A district
court cannot exercise diversity [*8] jurisdiction
if one of the plaintiffs shares the same state citizenship as any one of the
defendants. Whalen v. Carter, 954 F.2d
1087, 1094 (5th Cir. 1992) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267,
2 L. Ed. 435 (1806); Mas v. Perry, 489
F.2d 1396, 1398-99 (5th Cir. 1974).
The
sole issue presented in this case is whether complete diversity requires that
the court consider the citizenship of every underwriter subscribing [*9] to a Lloyd’s of London policy when the lead
underwriter sues only on its own behalf. The issue is one of first impression
in this circuit and several of our sister circuits have reached different
conclusions. However, before addressing the complex jurisdictional issues
raised in this case, a basic understanding of the organizational structure of
Lloyd’s of London and the unique characteristics of a typical Lloyd’s
insurance policy is necessary.
C. Lloyd’s of London
Lloyds
of London is not an insurance company but rather a self-regulating entity which operates and controls an insurance market. John
M. Sylvester & Roberta D. Anderson, Is It Still Possible To Litigate
Against Lloyd’s in Federal Court?, 34 Tort & Ins. L.J. 1065, 1068 (1999).
The Lloyd’s entity provides a market for the buying and selling of
insurance risk among its members who collectively make up Lloyd’s. Certain Interested Underwriters at Lloyd’s,
London v. Layne, 26 F.3d 39, 41 (6th
Cir. 1994) (citing Clifford Chance, Doing Business in the United
Kingdom, §§ 46.02, 46-6 to 46-8 (Barbara Ford, A.D.M. Forte, & Herbert
Wallace eds. 1990); Eileen M. Dacey, The Structures
of [*10] the Lloyd’s Market, in
Lloyd’s, the ILU, and the London Insurance Market 1990, at 33, 49-0
(PLI Commercial Law & Practice Course Handbook Series No. 555, 1990)).
Thus, a policyholder insures at Lloyd’s but not with Lloyd’s.
Lee R. Russ & Thomas F. Segalla, Couch on
Insurance § 39:47 (3d ed. 1995) (citing Bickelhaupt,
D., General Insurance 775 (1983, 11th ed.)).
The
members or investors who collectively make up Lloyd’s are called
“Names” and they are the individuals and corporations who
finance the insurance market and ultimately insure risks. Sylvester & Anderson, supra, at 1068.
Names are underwriters of Lloyd’s insurance and they invest in a
percentage of the policy risk in the hope of making return on their investment.
E.R.
Squibb & Sons, Inc. v. Accident & Cas.
Ins. Co., 160 F.3d 925, 929.
Lloyd’s requires Names to pay a membership fee, keep certain deposits
at Lloyd’s, and possess a certain degree of financial wealth. Chemical
Leaman Tank Lines, Inc. v. Aetna Cas.
& Surety Co., 177 F.3d
210, 221 (3d Cir. 1999). Each Name is exposed to unlimited
personal liability for his proportionate share of the loss on a particular
policy that the Name has subscribed to as an underwriter. [*11] Squibb, 160 F.3d at
929. Typically hundreds of Names will subscribe to a single
policy, and the liability among the Names is several, not joint. Id.
Most
Names or investors do not actively participate in the insurance market on a day to day basis. Layne, 26 F.3d at 42. Rather, the
business of insuring risk at Lloyd’s is carried on by groups of Names
called “Syndicates.”
Id. at 41-42. In order to increase the
efficiency of underwriting risks, a group of Names will, for a given operating
year, form a “Syndicate” which will in turn subscribe to
policies on behalf of all Names in the Syndicate. Squibb,
160 F.3d at 929; Chemical Leaman, 177 F.3d at 221. A typical Lloyd’s
policy has multiple Syndicates which collectively are responsible for 100
percent of the coverage provided by a policy. Sylvester & Anderson, supra, at 1068.
The Syndicates themselves have been said to have no independent legal identity.
Id. Thus, a Syndicate is a
creature of administrative convenience through which individual investors can
subscribe to a Lloyd’s policy. A Syndicate
bears no liability for the risk on a Lloyd’s policy.
Rather, [*12] all liability is born by the
individual Names who belong to the various Syndicates that have subscribed to a
policy.
Each
Syndicate appoints a managing agent who is responsible for the underwriting and
management of each Name’s investments. Chemical Leaman, 177 F.3d at 221. The managing
agent receives this authority through contracts with each Name. Id. The managing agent, which is
typically a legal entity, appoints one of its employees to serve as
the “active” underwriter for the
Syndicate. Id. at 222.
The active underwriter selects the risks that the Names in the syndicate will
underwrite and has the authority to bind all Names in the Syndicate. Id. The
active underwriter has the authority to buy and sell insurance risks on behalf
of all Names in the syndicate, and to bind the Syndicate members in these
transactions. Layne, 26 F.3d at 42.
In
practice, since many Names through their respective Syndicates are liable on a
Lloyd’s policy, the active underwriter from one
of the underwriting Syndicates is designated as the representative of all
the Names on the policy. Squibb, 160 F.3d at 929. This single [*13]
underwriter, called the “lead” underwriter on the
policy, is usually the only Name disclosed on the policy with all other Names
remaining anonymous. Id. The lead underwriter is typically the first to
subscribe to the policy and typically assumes the greatest amount of risk. The
Lloyd’s corporate entity maintains records on the identity and last
known residence of Names insuring risk in the Lloyd’s market. That
information is kept strictly confidential.
In
sum, while an insured receives a Lloyd’s “policy” of
insurance, what he has in fact received are numerous contractual commitments
from each Name who has agreed to subscribe to the risk. The Names are jointly
and severally obligated to the insured for the percentage of the risk each has
agreed to assume. The insured does not have to sue each Name individually
however to collect on their individual promises because the typical Lloyd’s
policy contains a clause providing that “any [Name] can appear as
representative of all [Names].” Id. Thus,
when litigation ensues over a Lloyd’s policy, the only named Lloyd’s
party appearing in the litigation is usually the lead underwriter on the
policy. Id. The standard Lloyd’s policy [*14]
states “that in any suit instituted against any one of [the
Names] upon this contract, [all the Names] will abide by the final decision of
such Court or of any Appellate Court in the event of an appeal.” n4
Id. Thus, each Name is contractually bound on an individual basis to the
insured to adhere to any adverse judgment reached in the suit notwithstanding
that only one Name participates in the litigation as a named party. Thus, a
Syndicate, being only a grouping of Names, has no contractual relationship with
the insured.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN4
The policy at issue in this
litigation is not part of the record. However, Liberty submitted an affidavit
in response to DGH’s motion to dismiss. In
its affidavit, Liberty asserts that DGH’s policy contains the standard
Lloyd’s language and provisions regarding the Names’
willingness to be bound by a judgment against any other Name.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
In
the instant case, Syndicate 190 is a single-Name Syndicate with Liberty as its
sole Name and underwriting member. Liberty is the lead underwriter on
[*15] the Policy and insures 32.79 percent
of the risk which is more than the risk insured by any other Name on the Policy.
n5 Liberty is a British corporation with its principal
place of business in the United Kingdom. Thus, if only Liberty’s citizenship
is relevant for jurisdictional purposes, then the parties are completely
diverse because DGH is a citizen of Texas, Delaware, and New York. If, however,
the citizenship of every Name subscribing to the Policy is relevant for
jurisdictional purposes, then the district court’s dismissal was
proper as Liberty has not alleged the citizenship of all Names subscribing to
the policy, and at least one Name is believed to be a citizen of Texas.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN5
Liberty’s potential
liability on the Policy is at least $ 163,950.00.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
D. Law and Analysis
Several
of our sister circuit courts have addressed the Lloyd’s citizenship
conundrum and have reached differing results based upon differing reasoning. In
Certain Interested Underwriters at
Lloyd’s, London v. Layne, 26
F.3d 39 (6th Cir. 1994), [*16] Lloyd’s
had brought a declaratory judgment action seeking to deny coverage under a
policy. Defendants were Tennessee citizens and the plaintiff Lloyd’s underwriters
were citizens of Great Britain. Defendants, who sought to vacate an adverse
judgment, argued that the plaintiff-underwriters were really agents or
representatives of the subscribing Syndicates. Thus, Defendants argued that the
court should have looked to the citizenship of the subscribing Syndicates in order
to determine whether the parties were completely diverse. Analogizing a Lloyd’s
Syndicate to an unincorporated association, defendants argued that a Lloyd’s
Syndicate has the citizenship of every Name in the Syndicate.
The
Sixth Circuit began its analysis with the “real party to the
controversy test.” Id. at 42 (citing Carden, 494 U.S. at 187 n.1; Wright, Federal
Practice & Proc. § 1556 (2d ed. 1990)). Under this test, if one of the
“nondiverse” parties is not a real party in interest, and is
purely a formal or nominal party, his presence may be ignored when determining
jurisdiction. Id. (citing Salem
Trust Co. v. Manuf. Fin. Co.,
264 U.S. 182, 68 L. Ed. 628, 44 S. Ct. 266 (1924)).
[*17] Noting that Federal
Rule of Civil Procedure 17(a) requires that every action be prosecuted
in the name of the “real party in interest,”
the court stated that the “real party in interest analysis turns upon
whether the substantive law creating the right being sued upon affords the
party bringing the suit a substantive right to relief. Id. at 43 (citing Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984); American Nat’l Bank &
Trust Co. v. Weyerhaeuser Co.
, 692 F.2d 455, 459-60 (7th Cir.
1982); Wright, supra, §
1544 at 340). The Sixth Circuit, citing Erie Railroad v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817
(1938), concluded that Tennessee law should apply to determine whether
the plaintiff-underwriters had a substantive right to relief. Id.
Applying
Tennessee law, the Sixth Circuit concluded that the plaintiff-underwriters were
liable on the contract because they had functioned as agents for undisclosed
principals (the Syndicates). Because under Tennessee law an agent for an
undisclosed principal is personally liable on a contract, the underwriters were
found to be real parties in [*18] interest.
Id. at 43.
Further, under Tennessee law, once the agent is sued, the principal is no
longer liable. Thus, once the agent (underwriter) became the party sued, the
principal (Syndicates) had no further interest in the case. Id. Given that the Syndicates had no
interest in the case after the underwriter was sued, they were not real parties
to the controversy and their citizenship could be ignored. Id. Accordingly, the
court looked only to the citizenship of the plaintiff-underwriters when
determining whether complete diversity existed.
Four
years later, the Seventh Circuit decided Indiana Gas Co. v. Home Insurance Co., 141 F.3d 314 (7th Cir. 1998). Indiana
Gas sued its insurers for indemnity on environmental cleanup costs. While the
case was on appeal, the parties informed the court that at least one
subscribing Name on the Lloyd’s policy was a citizen of Indiana—the
same state of citizenship as the plaintiff Indiana Gas. The Seventh Circuit
focused its analysis on the Syndicates as the appropriate entities to either sue
or be sued on a Lloyd’s policy. Concluding
that a Syndicate had all the characteristics of a limited partnership, the
court concluded [*19] that a Syndicate has
the citizenship of every Name belonging to the Syndicate just as a partnership
has the citizenship of every partner. Id. at 317. The court noted that this rule applied to
partnerships regardless of whether partners were named in the lawsuit. Id. at 317.
The Seventh Circuit interpreted Carden v.
Arkoma Associates, 494 U.S.
185, 108 L. Ed. 2d 157, 110 S. Ct. 1015 (1990), as articulating a
general rule that every association other than a corporation must be treated
like a partnership for citizenship purposes. Id. Thus, according to the Seventh Circuit, the Syndicates must
be treated as entities and the citizenship of every subscribing Name must be
considered when determining a Syndicate’s citizenship.
Just as a plaintiff cannot ignore non-diverse partners to save jurisdiction, a
plaintiff cannot ignore or dismiss non-diverse Names in a Syndicate. Id. at 317.
In
reaching its conclusion, the Seventh Circuit rejected every aspect of Layne,
concluding that the Sixth Circuit had failed to factor in that liability vel non on a contract does not control the citizenship
inquiry. Id. at 319.
For instance, limited partners [*20] cannot
be sued and are not liable for a partnership’s acts yet their
citizenship cannot be ignored. Id.
According to Indiana Gas, the underwriting Syndicates must be treated like
partnerships when determining citizenship. Id. Thus, pursuant to Carden, the citizenship of every Name on the policy must be
considered when determining whether diversity is complete.
Later that
same year, the Second Circuit decided E.R. Squibb & Sons, Inc. v. Accident
& Casualty Insurance Co.,
160 F.3d 925 (2d Cir. 1998) (“Squibb I”). In Squibb I, a coverage dispute against Lloyd’ s had been pending in the district court for nearly sixteen
years and had culminated in a jury verdict favorable to Squibb. When the case
finally hit the appellate court, the Second Circuit sua sponte questioned whether diversity was complete
because the lead underwriter had been sued as a representative of all
underwriters who had subscribed to the policy.
Id. at 928. The Second Circuit
rejected the Layne court’s analysis and agreed with Indiana Gas in so
far as the Seventh Circuit had concluded that a lead underwriter sued in a representative
capacity must [*21] reflect the
citizenship of every Name subscribing to the policy. Id. at 939-40. After all,
“federal courts must look to the individuals being represented rather
than their collective representative to determine whether diversity of
citizenship exists.” Squibb I, 160 F.3d at 931 (citing Northern
Trust Co. v. Bunge Corp.,
899 F.2d 591, 594 (7th Cir. 1990)). Because the underwriter was sued as
representative, and because the record failed to reflect the citizenship of all
Names, subject matter jurisdiction was questionable.
However,
the Second Circuit went beyond Indiana Gas and surmised that the jurisdictional
problems surrounding Lloyd’s grew only out of the lead underwriter’s
decision to sue in a representative capacity. In other words, the Squibb I court postulated that where the lead underwriter sues or is sued only in his
individual capacity, the existence of jurisdiction depends solely on the lead
underwriter’s citizenship.
Id. at 936. It would not depend on the status of the other
Names who, though members of the Syndicates at risk, would not be direct
parties to the litigation. Id.
The Second Circuit rejected [*22] the
notion that the non-party Names’ citizenship would have to be
considered simply because they too would be bound by whatever judgment is
rendered against the only Name sued. Id. The Second Circuit reasoned that a
federal court does not lose jurisdiction simply because a non-diverse non-party
is contractually bound to indemnify the diverse parties. Id. As long as the
party being sued is a real party to the controversy, the fact that the case
will determine the rights of non-diverse litigants through collateral estoppel or preclusion does not affect jurisdiction. Id.
Because the lead underwriter is severally liable on the policy, he is a real
party to the controversy. Id. at 937. Thus, where he appears in the litigation solely
on an individual basis, only his citizenship need be considered. Id.
The
Squibb I court also found that the Supreme Court’s Carden
decision was not an impediment. Because Carden
applies only to formal entities created under state law, it does not apply in a
Lloyd’s context where no formal entity is a
party to the suit. Id.
at 937. The Squibb I court was unconvinced that Syndicates are
formal entities because “the contractual [*23]
provision that obligates a Name to abide by the judgment rendered
against any other Name runs vertically between the insured and each Name, not
horizontally from Name to Name.” Thus, a Lloyds policy taken as a
whole is really “a series of independent bilateral contracts from insurer
to insured.” Id. The
Names are bound in contract to the insured and not to each other and a
Syndicate bears no liability. See id. Therefore, taken as a whole, a Syndicate
does not constitute an entity. Id. Rather than render its decision, the Second
Circuit concluded that the case should be remanded to the district court for a
determination in the first instance of whether British law and the policy in
dispute would allow a suit to proceed against a Name individually and whether
the non-party names could be dismissed as dispensable parties. Id. at 936-37, 940.
On
remand, the district court concluded that British law and the contracts at
issue would permit the suit to proceed against a Name in his individual
capacity. E.R. Squibb & Sons, Inc. v. Accident &
Cas. Ins. Co., 1999 U.S. Dist. LEXIS 8333, No. 82
Civ. 7327JSM, 1999 WL 350857, at *5 (S.D.N.Y. June 2, 1999), aff’d, 241 F.3d 154 (2d
Cir. 2001). [*24] The court went on to conclude that the
other Names were dispensable parties under Rule 19(b) because all Names were contractually bound by the
policies and by the rules of Lloyd’s to abide by any judgment rendered
against the lead underwriter. 1999 U.S.
Dist. LEXIS 8333, [WL] at *13. Thus, dismissing the representative
claims against the lead underwriter would have no practical effect on any other
Name. Id. Because the
citizenship of the lone underwriter was diverse from every other opposing
party, diversity jurisdiction was met. n6 The Second
Circuit ultimately affirmed. E.R.
Squibb & Sons, Inc. v. Lloyd’s & Cos., 241 F.3d 154 (2d Cir.
2001) (“Squibb II”).
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN6
The court also noted that
the claim against the individual Name met the amount in controversy
requirement. See Squibb, 1999 U.S.
Dist. LEXIS 8333, 1999 WL 350857, at *5.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
Between
Squibb I and Squibb II, the Third Circuit decided Chemical Leaman Tank Lines, Inc. v. Aetna
Casualty & Surety Co., and held that the citizenship of the underwriter
sued on [*25] the policy is the only
citizenship relevant for diversity purposes. 177 F.3d at 223. The insured
had sued “Certain Underwriters at Lloyd’s, London subscribing
to Insurance Policies [specifically enumerated].”
Id. at 216. The parties later
stipulated to an amended complaint in which one of the individual underwriters
“on behalf of himself and all other Underwriters at Lloyd’s,
London, subscribing to [specifically enumerated policies]” substituted
for “Certain Underwriters.” The
parties also stipulated that any final judgment for or against the sole party
underwriter would be binding on those underwriters subscribing to the
enumerated policies. n7 Prior to the entry of final
judgment, the parties brought to the court’s attention a decision
rendered by another court in the same district in which the district court held
that the citizenship of all underwriters on a Lloyd’s policy had to be
taken into account in determining diversity jurisdiction, Lowsley-Williams
v. North River Ins. Co., 884
F. Supp. 166 (D.N.J. 1995). No party, however, challenged jurisdiction
and the court proceeded to enter final judgment.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN7
The Third Circuit did not
mention the contractual provision typically contained in a Lloyd’s policy
in which each Name agrees to abide by a judgment rendered against any other
Name.
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Footnotes- - - - - - - - - - - - - -
[*26]
On appeal, the Third Circuit, without reference to any other circuit court
decision, held that the citizenship of the underwriter sued on the policy was
the only citizenship relevant for diversity purposes. 177 F.3d at 223. Although the
amended complaint alleged that the underwriter was there individually as well
as in a representative capacity, the Third Circuit concluded that the claim was
really only one against the named underwriter individually. Id. at 222. The court reasoned
that the plaintiff had not brought suit against the underwriter as an agent of
the other underwriters or against the Syndicates of which they were members or
against the underwriter as agent for his Syndicate. Id. at 222 & n.14. The court also noted that the Names shared no
common liability, each being liable only for the share of the risk each had
assumed. Id. at 222.
Moreover, the district court had not certified a defendant class of
underwriters, which according to the Third Circuit, would have been the only
way that the underwriter could have truly been sued in
a representative capacity. See id.
Thus, the claim against the underwriter [*27] was
one against him individually. And because each Name was liable only for his
share of the risk, and because joint and several obligors are not necessary
defendants under Rule 19(a),
plaintiff was entitled to sue less than all of the Names. Id. at 223 n.16.
Further,
the Third Circuit concluded that the parties’ stipulation that the
judgment against the named underwriter would bind all others did nothing to
affect jurisdiction because the stipulation did not place any of those other
underwriters before the court. Id. at 223. Moreover, the named underwriter was not a party
sued only to manufacture jurisdiction because the named underwriter was a Name
who had subscribed to the policy thereby giving the plaintiff a valid claim
against him. See id. n.16. Because the named underwriter was the only underwriter named
in the complaint, only his citizenship was relevant to the exercise of
diversity jurisdiction. Id. at 223.
In
the current posture of the instant case, Liberty is suing only in its individual
capacity as lead underwriter on the Policy. Thus, Liberty’s case is
presented to us in the exact procedural posture suggested by the Second Circuit
[*28] in Squibb I and
ultimately approved by the Second Circuit in Squibb II. We find the Second Circuit’s approach to be
based upon sound reasoning.
At
the outset, Liberty is without question a real and substantial party to the
controversy. Aetna Cas. & Surety Co.
v. Iso-Tex, Inc., 75
F.3d 216, 218 (5th Cir. 1996) (citing Navarro Savings Ass’n, 446 U.S. at 460, 100 S. Ct. at 1781).
Liberty is a subscribing Name on the Policy and is therefore directly bound via
contract to DGH, the insured. Liberty’s personal stake in the outcome
is approximately $ 163,950.00. Therefore, this is not the situation where an
agent with no personal stake in the controversy attempts to sue on behalf of
his non-diverse principal in order to create diversity. Chemical Leaman, 177 F.3d at 223 n.16; see Navarro Savings, 446 U.S. at 465, 100 S. Ct.
at 1784. Liberty faces actual liability for the risk it assumed and
therefore is a real party to the controversy. n8
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN8
It is unclear from the
record whether Corfield, the original plaintiff, was
a real party to the controversy. Although Corfield is
referred to as the active underwriter for Syndicate 190, Liberty is the sole
Name in Syndicate 190. Thus, Corfield might very well
have had no personal stake in the litigation.
Given
that this matter is before us solely on the diversity jurisdiction issue, this
Court expresses no opinion as to whether Liberty’s declaratory
judgment action presents a justiciable controversy
between the parties.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
[*29]
Moreover, pretermitting the Lloyd’s issue,
the district court would have diversity jurisdiction over Liberty’s individual
claim against DGH. Liberty is a British citizen and DGH is a citizen of Texas,
Delaware, and New York. Thus, Liberty and DGH are completely diverse in
citizenship. Further, Liberty’s potential liability on the Policy is $
163,950.00, a sum well in excess of the jurisdictional amount.
Given that
Liberty is a real party to the controversy and that the district court would
have jurisdiction over Liberty’s individual claim, the next logical
question is whether a Name on a Lloyd’s policy can be sued
individually by an insured. n9 In Indiana Gas, the Seventh Circuit answered that question in the
negative but we find no legal support for such a conclusion—a
conclusion reached without discussion, analysis, or citation to legal
authority. As the district court in Squibb
observed, “it would be a strange law indeed that would hold that an
individual, who had so clearly bound himself individually by contract, could
not be sued individually to enforce that contractual obligation
.” Squibb, 1999 U.S. Dist. LEXIS 8333, 1999 WL 350857, at *5. Indeed, the
very essence of a Lloyd’s [*30] policy
is that it is a collection of individual contracts running between the insured
and each Name. Moreover, the estoppel provision
contained in every Lloyd’s policy, i.e., that each Name will abide by
a judgment rendered against any other Name, would not be necessary if
litigation were always required to proceed against an underwriter in a
representative capacity.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN9
Neither party briefed
whether an insured can sue a Name individually. As previously noted, this is a
declaratory judgment action brought by Liberty against the insured. Thus
although the Court’s analysis is often structured in terms of an
insured suing on a Lloyd’s policy, all principles should apply equally
to a declaratory judgment action brought by the insurer against the insured.
Neither party has suggested otherwise.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
The severability of each
Name’s liability to the insured lends further support to the
conclusion that a Name can be sued individually. As discussed above, a Lloyd’s
policy is actually a collection of many bilateral contracts [*31] running between the insured and each Name. The Names
contract directly with the insured and each Name contracts independently of any
other Name. Because each Name’s liability is several, Liberty’s
obligation to DGH is independent of any other Name’s obligation to the
insured. Simple logic allows for no other conclusion but that an insured can
sue a Name individually.
Having determined that an
insured can sue a Name individually, it does not follow that the citizenship of
the remaining Names on the Policy who are not parties to the case and are not
before the court is relevant to determining whether the parties are completely
diverse. The fact that the Names’ contracts with the insured and the
rules of Lloyd’s are structured such that the other Names are affected
by the judgment against a single Name does not bring those other parties before
the court or make them relevant for the citizenship determination. Squibb
I, 160 F.3d at 936-37;
Plains
Growers, Inc. v. Ickes—Braun Glasshouses, Inc., 474 F.2d 250, 252 (5th Cir. 1973) (“The
citizenship of one who has an interest in the lawsuit but who has not been made
a party to the lawsuit . . . cannot be [*32] used
. . . to defeat diversity jurisdiction. ”); Chemical Leaman, 177 F.3d at 223. The fact that other
parties are bound by a judgment against one obligor or forced to indemnify an
obligor is insufficient to bring their citizenship into consideration when they
are not parties to the suit. Squibb I, 160 F.3d at 936 (citing Wheeler v. City of Denver, 229 U.S. 342, 33 S. Ct. 842, 57 L. Ed. 1219
(1913)). n10
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN10
The “real party to
the controversy” test does not require a
federal court to consider the citizenship of non-parties who have an interest
in the litigation or might be affected by the judgment. The
“real party to the controversy” test requires
consideration of the citizenship of non-parties when a party already before the
court is found to be a non-stake holder/agent suing only on behalf of another.
See Navarro Savings, 446
U.S. 458, 100 S. Ct. 1779, 64 L. Ed. 2d 425.;
see also Carden, 494 U.S. at 188 n.1, 110 S. Ct. at 1018 n.1
(rejecting application of the real party to the controversy test for
determining the citizenship of a limited partnership).
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
[*33] We reached a
similar result in Aetna Casualty & Surety Co. v. Iso-Tex,
Inc., 75 F.3d 216 (5th Cir.
1996). In Aetna Casualty, Aetna was one of many members of an
unincorporated insurance association that insured the risk at issue. Aetna
brought a declaratory judgment action against the insured “as a member
of [the association] . . . for itself and all other members of such association
.” Id. at
218. While Aetna was diverse from the all defendants, other members of
the association were not of diverse citizenship. We held that complete
diversity was satisfied because neither the association nor the other members
were parties to the suit. Id. We
found Aetna’s status as a representative to be no impediment to
jurisdiction because Aetna’s position was
analogous to that of a class representative under Federal Rule of Civil Procedure 23.2. Under Rule 23.2 the citizenship of unnamed
class members is disregarded. Id. (citing Supreme Tribe of Ben-Hur
v. Cauble, 255 U.S. 356, 364-66, 41 S. Ct. 338, 341-42, 65 L. Ed. 673 (1921);
Calagaz v. Calhoon, 309 F.2d 248 (5th Cir. 1962)).
[*34] n11 Because Aetna was potentially liable for its share of the
risk, it was a “real and substantial”
party to the controversy. Because Aetna was diverse from all defendants, the
Court had jurisdiction over Aetna’s claim without regard to the
citizenship of any non-parties.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - - FN11
Of course in the instant
case, Liberty is suing only on behalf of itself having dropped all allegations
that it intends to sue as a representative of the other subscribing Names.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
The Supreme Court’s
decision in Carden v. Arkoma Associates does not require a
contrary result. In Carden,
the Supreme Court held that the citizenship of every partner in a limited
partnership must be considered for diversity purposes. 494 U.S. at 195-96, 110 S. Ct. at 1021.
In so holding, the Supreme Court clarified that every artificial entity, other
than a corporation, takes its citizenship from all of the members comprising
the entity. Id. DGH argues that Carden compels the conclusion that every Name in a
Syndicate must be considered [*35] because
a Syndicate is an artificial entity. Assuming arguendo
that a Syndicate is an artificial entity, a conclusion in and of itself open to
debate, see Squibb I, 160 F.3d at
929; Chemical Leaman, 177 F.3d at 221, the citizenship of
the Syndicates is of no relevance because they play no role in litigation over
a Lloyd’s policy. It is well-settled that
Syndicates are not liable on Lloyd’s policies—only
individual Names are liable even though they subscribe to risks via Syndicates.
The insured has no contractual relationship with a Syndicate because Syndicates
do not insure risks. Thus, an insured has no claim against a Syndicate for
coverage under a Lloyd’s policy. While Carden might apply if the citizenship of the
Syndicates were relevant, it does not apply to make the citizenship of the
other non-party Names, who are not members of an entity currently before the
court, relevant to diversity jurisdiction.
DGH’s reliance on Royal
Insurance Co. v. Quinn-L Capital Corp., 3 F.3d 877 (5th Cir 1993), is likewise misplaced. In Royal we
held that the citizenship of an attorney in fact through whom a group of
underwriters acts [*36] to issue insurance
is irrelevant for jurisdictional purposes. Id. at 882-83. The plaintiff
was a Lloyd’s-type plan organized under Texas law. Under Texas law
such plans are unincorporated associations. Because the association itself was
a party to the suit, we naturally concluded that the citizenship of each
underwriter had to be considered for diversity purposes. Id. at 883. The citizenship of
the association’s attorney-in-fact was irrelevant because he was not a
member of the association. Given that Royal dealt with the citizenship of an
association as a party, Royal has no bearing on whether the citizenship of all
Names on a Lloyd’s of London policy must be considered when an
underwriter is sued individually.
In sum, the
district court had subject matter jurisdiction over this claim because DGH is
alleged to be a citizen of Texas, Delaware, and New York, and Liberty is
alleged to be a citizen of the United Kingdom. Liberty’s 32.79 percent
of risk is approximately $ 163,950.00, an amount well in excess of the
jurisdictional amount. The other subscribing Names are not parties before the
Court and their citizenship need not be considered when [*37] determining whether the parties are completely
diverse. Thus, the district court erred in dismissing the action for lack of
subject matter jurisdiction.
REVERSED AND REMANDED. |