Opinion
RELATED No. C-00-0361 PJH, No. C-99-5179 PJH, No. C-00-1013 PHJ
December 22, 2000
ORDER RE MOTION TO DISMISS
Now before the court is defendants' motion for an order dismissing the case for lack of jurisdiction, without prejudice to refiling in state court (Docket No. 47). Having read the parties' papers and carefully considered their arguments and good cause appearing, the court hereby GRANTS the motion for the following reasons.
Plaintiff Genstar Container Corporation ("Genstar") is an equipment leasing company based in San Francisco, California. Genstar claims losses in connection with the leasing of intermodal transportation equipment to a Venezuelan steamship company that went out of business and defaulted on its leases.
Genstar purchased two insurance policies in the London Marine Insurance Market. The policies were placed with insurance companies who are members of the Institute of London Underwriters ("ILU Market") as well as with underwriters in the Lloyd's Market. There was also one participation in the German Market and one in the Italian Market.
See Thomas J. Gallagher, "The Institute of London Underwriters and the London Insurance Market," 555 PLI/Comm 119 (1990) (discussing structure of ILU Market); Eileen M. Dacey, "What is Lloyd's? Individually we are underwriters, collectively we are Lloyd's," 555 PLI/Comm 33 (1990) (discussing structure of Lloyd's Market).
Underwriting in the ILU Market is done by insurance companies. Underwriting in the Lloyd's Market is done by individuals known as "Names." Names transact business at Lloyd's through an agency agreement with an Active Underwriter, who is also a Name, but one that is employed by a company that manages such business. When several Names have an active relationship with an Active Underwriter at Lloyd's, that group of contracts is referred to as a Syndicate.
A Syndicate is made up of hundreds of Names, mostly residents of England, but in recent years many residents of the United States have become Names as well. The Syndicate is not a legal entity, but an accounting convention to track the Names for whom an Active Underwriter acts in a given year of account. Each Name in a Syndicate is liable only for his or her own share of the respective Syndicate's proportion of the loss damage liability or expense insured against by the policy holder.
Defendants in this case are the insurers subscribing to the two Genstar policies. Defendants contend that the court lacks subject matter jurisdiction because there are both ILU companies and Lloyd's names with less than $75,000 at stake in the action, and because complete diversity is lacking.
DISCUSSION
A. Legal Standard
Federal courts are courts of limited jurisdiction, and as such, are empowered to hear only those cases defined by the Constitution as being within the judicial power of the United States See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). It is presumed that a cause lies outside this limited jurisdiction, and the party asserting jurisdiction bears the burden of establishing the contrary. See id.
B. Defendants' Motion to Dismiss
This is an insurance coverage case, alleging breach of contract and tort causes of action. Since the United States is not a party, and plaintiffs have raised no federal question, 28 U.S.C. § 1332 provides the only basis for this court's jurisdiction. That is, all the parties must be diverse, and there must be more than $75,000 at stake. Defendants argue that because plaintiffs principal place of business is in California, and at least some of the Lloyd's Names are residents of California, complete diversity is lacking. In addition, they claim that a number of the names, as well as some of the insurance companies, have less than $75,000 at stake in the action.
With regard to the question of the diversity of the parties, plaintiff responds that it is the citizenship of the London underwriters, acting as agents for the Names, that should be considered in determining whether all defendants are diverse from the plaintiff. Plaintiff urges the court to adopt this position, which was followed by the Sixth Circuit in certain Interested Underwriters at Lloyd's v. Layne, 26 F.3d 39 (6th Cir. 1994). The Layne court reasoned that the London underwriters were agents for undisclosed principals, rendering them liable on the contract of insurance, and rendering the citizenship of the Names irrelevant. See id. at 43-44.
As defendants point out, however, Genstar did not sue the active underwriters as agents for undisclosed principals, but rather sued all individuals who are underwriters subscribing to the policies in question. Defendants maintain, therefore, that the action should be dismissed because the complaint fails to allege grounds for subject matter jurisdiction, in that plaintiff alleges claims against (among others) individuals who are members of Lloyd's, but does not allege the citizenship of such defendants.
In addition, with the exception of the Sixth Circuit, federal courts generally characterize the relationship of the active underwriters to the Names in a Syndicate as an unincorporated association. See, e.g., E.R. Squibb Sons, Inc. v. Accident Cas. Ins. Co., 160 F.3d 925, (2nd Cir. 1998); Indiana Gas Co., Inc. v. Home Ins. Co., 141 F.3d 314 (7th Cir. 1998). The court is persuaded by the reasoning of the Second and the Seventh Circuits on this issue.
The parties cited none and the court is unaware of any Ninth Circuit opinion on this issue.
In Indiana Gas, the court noted that "[e]very name in a syndicate faces unlimited personal liability, like a partner in a general partnership. Syndicates are run, however, much like limited partnerships, with a lead member (the "active underwriter" or "managing agent") able to transact business without consulting the investors." Indiana Gas, 141 F.3d at 316. The court concluded that just as general partnerships, limited partnerships, joint stock companies, and unincorporated membership associations are all treated as citizens of every state of which every partner or member is a citizen, "[i]t follows that the underwriting syndicates have the citizenships of every name." Id. at 317. (By contrast, a corporation is a citizen of the state of incorporation, plus the jurisdiction in which it has its principal place of business. See 28 U.S.C. § 1332(c)(1).)
In Squibb, the Second Circuit first stated the general rule that "federal courts must look to the individuals being represented rather than their collective representative to determine whether diversity of citizenship exists." squibb, 160 F.3d at 931 (citation and quotation omitted). The court then determined that none of the three principal exceptions to this rule — characterization of the representatives as corporations, trustees, or representative parties in class actions — applied in the case of the Lloyd's Market, and concluded, as had the Seventh Circuit, that each and every Name must meet the complete diversity rule. See id. at 931-32.
Plaintiff argues that the Declaration of Barry Holland in support of the motion to dismiss, in which Mr. Holland states that he reviewed Lloyd's membership records and determined that at least three residents of Delaware and at least sixty-five residents of California were Names on the policies at issue in this case, does not provide evidence of lack of diversity because none of the Names are specifically identified. Plaintiff contends that it is not possible to ascertain whether the adverse parties are diverse without such information. It is, however, the burden of the party seeking jurisdiction to establish that the prerequisites — in this case, complete diversity and more than $75,000 in controversy — are met. See Kokkonen, 511 U.S. at 377. Plaintiff having failed to meet that burden, the court finds that the case must be dismissed for lack of subject matter jurisdiction.
Because the court finds in favor of defendants on the question of complete diversity, it is unnecessary to address the amount in controversy requirement.
CONCLUSION
In accordance with the foregoing, the court GRANTS defendants' motion. The action is dismissed without prejudice to filing in state court.
Because the court has considered defendants' offer concerning the statute of limitations in deciding this matter, if plaintiff refiles this action in state court within thirty days of the date of this order, any challenge by defendants' under the statute of limitations shall be based upon the filing date of this case in the district court.
IT IS SO ORDERED.