Advani Enterprises, Inc. v. Underwriters at Lloyds

• Decision Date: 20 March 1998
• Docket Number: D,No. 726,726
• Citation: 140 F.3d 157
• Parties: ADVANI ENTERPRISES, INC., Plaintiff-Appellant, v. UNDERWRITERS AT LLOYDS and Syndicate 735 at Lloyds of London, Defendants-Appellees. ocket 97-7664.
• Court: U.S. Court of Appeals — Second Circuit

Page 157

140 F.3d 157

1998 A.M.C. 2045

ADVANI ENTERPRISES, INC., Plaintiff-Appellant, v. UNDERWRITERS AT LLOYDS and Syndicate 735 at Lloyds of

London, Defendants-Appellees.

No. 726, Docket 97-7664.

United States Court of Appeals,

Second Circuit.

Argued Oct. 28, 1997.

Decided March 20, 1998.

Steven L. Barkan, Armand Mele, (Lambos & Junge, New York City), for Plaintiff-Appellant.

James W. Carbin, (Donovan Parry Carbin McDermott & Radzik, New York City), for Defendants-Appellees.

Before FEINBERG and WALKER, Circuit Judges, and GOLDBERG, ^* Judge.

GOLDBERG, Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York, granting a motion for summary judgment in favor of defendants-appellees Underwriters at Lloyd's and Syndicate 735 at Lloyd's of London (collectively the "Underwriters"). Plaintiff-appellant Advani Enterprises, Inc. ("Advani") commenced this action in the district court, invoking diversity jurisdiction, to contest the Underwriters' denial of its claim for losses under a marine cargo insurance policy. The district court granted summary judgment in favor of the Underwriters after concluding that New York insurance law governed the policy and that, as a matter of law, Advani was barred from recovery because it breached an express warranty in the policy. This appeal ensued.

Although we find that the basis for federal jurisdiction asserted in the complaint is flawed, we nevertheless conclude that the complaint alleges facts sufficient to invoke the court's admiralty jurisdiction. Therefore, pursuant to 28 U.S.C. § 1653 (1994), we grant Advani's request for leave to amend its complaint to assert federal jurisdiction under 28 U.S.C. § 1333 (1994). We further conclude that the district court erred in its choice-of-law analysis, finding instead that English marine insurance law properly governs the policy. Thus, we vacate the judgment of the district court and remand the case for further proceedings not inconsistent with this opinion.

I.

The facts of this case are fairly straightforward. On September 13, 1994, Advani obtained a marine cargo insurance policy underwritten by the Underwriters to cover a shipment of porcelain dishware from the Far East to Port Said, Egypt, via a bonded warehouse in New York. It appears from the record that Advani purchased the policy through its insurance broker, Grifon Insurance Agency, Inc. ("Grifon"), and that Grifon placed the insurance risk at Lloyd's of London through a London broker, Houlder Insurance Services (Marine) Limited. The terms of the insurance policy are evidenced by Cover Note No. M3946215.000. ¹

Three provisions in the Cover Note are relevant here. First, the Cover Note indicates that the policy insures "Porcelain Dishware in cartons in three full container loads door to door." Second, the Cover Note specifies that the shipment is "warranted full container loads Door to Door." And third, the Cover Note incorporates certain Institute Cargo Clauses, which state, inter alia, that "[t]his insurance is subject to English law and practice."

On October 24, 1994, cartons of porcelain dishware were loaded into three containers and shipped to Port Said. Upon arrival in Port Said, pursuant to an Egyptian regulation, Egyptian Customs officials opened the containers. At that point, a Customs clearing agent noticed that some of the cartons were dented and that their contents were rattling. Thereafter, the cartons were removed from the containers, loaded onto trucks, and shipped one mile to a warehouse. Later, when Advani surveyed the cartons, it found that their contents had sustained damage in the amount of $150,000. Advani then presented a claim under the policy for that amount. The Underwriters denied coverage on the ground that the removal of the cartons from the containers at Port Said constituted a breach of an express warranty in the policy that required the cartons to be shipped in "full container loads Door to Door."

Advani responded by initiating the instant action in federal district court, asserting diversity jurisdiction. The Underwriters countered by moving for summary judgment, arguing that the policy is governed by New York insurance law, which bars recovery under a marine cargo insurance policy if the assured breaches an express warranty contained therein. Advani opposed the motion. It argued first that the wording of the warranty was ambiguous, and second, in the alternative, that if it breached the warranty, English law should govern the effect of the breach. In particular, Advani argued that under English law a breach only precludes recovery of those losses causally related to the breach. In order to establish a genuine issue of material fact on the extent to which the porcelain dishware was damaged before it reached Port Said, Advani submitted an affidavit from an Egyptian Customs agent who noticed that the contents of some of the cartons were rattling before the cartons were removed from their containers. Concluding that New York insurance law both governs the policy and precludes recovery, the district granted summary judgment in favor of the Underwriters, and entered judgment accordingly.

II.

A. Jurisdiction

Before we address whether the district court correctly decided the issues before it, we consider sua sponte whether the district court had subject-matter jurisdiction to decide the case, focusing on whether the facts contained in the pleadings establish diversity jurisdiction. ² Leveraged Leasing Admin. Corp. v. PacifiCorp Capital, Inc., 87 F.3d 44, 47 (2d Cir.1996); Baer v. United Servs. Auto. Ass'n, 503 F.2d 393, 397 (2d Cir.1974). Having done so, we find that the district court lacked subject-matter jurisdiction over this case under 28 U.S.C. § 1332 because Advani's pleadings do not demonstrate that the parties are completely diverse. We also find, however, that the pleadings clearly satisfy the requirements of admiralty jurisdiction under 28 U.S.C. § 1333; thus, we grant Advani's request for leave to amend its complaint accordingly.

Diversity jurisdiction exists in a civil action between citizens of different states, or between citizens of the United States and citizens or subjects of a foreign state when the matter in controversy exceeds $ 50,000. ³ 28 U.S.C. § 1332(a). The party seeking to invoke jurisdiction under 28 U.S.C. § 1332 bears the burden of demonstrating that the grounds for diversity exist and that diversity is complete. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). In other words, federal subject-matter jurisdiction based on diversity is unavailable unless Advani's pleadings demonstrate that it does not share citizenship with any of the defendants-appellees. John Birch Soc'y v. National Broad. Co., 377 F.2d 194, 197 (2d Cir.1967).

Advani attempted to satisfy the requirements of 28 U.S.C. § 1332 by alleging that this action is between a citizen of the United States and citizens or subjects of the United Kingdom. See Compl. at pp 1-3 (describing itself as a United States corporation, Underwriters at Lloyd's as a United Kingdom consortium, and Syndicate 735 as a syndicate at Lloyd's of London operating under the laws of the United Kingdom). In doing so, Advani overlooked the legal status of the defendants-appellees. Both Underwriters at Lloyd's and Syndicate 735 are unincorporated associations. Consequently, for jurisdictional purposes, they do not have legal identities separate from their members. Carden v. Arkoma Assocs., 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). Thus, courts faced with the task of determining the citizenship of a Lloyd's syndicate have done so in one of two ways. Under the first, and more popular, approach a Lloyd's syndicate is a citizen of every state in which its individual investors, known as "Names," are citizens. See, e.g., Humm v. Lombard World Trade, Inc., 916 F.Supp. 291 (S.D.N.Y.1996); Chase Manhattan Bank, N.A. v. Aldridge, 906 F.Supp. 870 (S.D.N.Y.1995); Lowsley-Williams v. North River Ins. Co., 884 F.Supp. 166 (D.N.J.1995); Transamerica Corp. v. Reliance Ins. Co., 884 F.Supp. 133 (D.Del.1995); Bath Iron Works Corp. v. Certain Member Cos. of Inst. of London Underwriters, 870 F.Supp. 3 (D.Me.1994). Under the second approach, a Lloyd's syndicate is only a citizen of the state in which its managing/lead underwriter is a citizen. See Certain Interested Underwriters at Lloyd's, London, Eng. v. Layne, 26 F.3d 39 (6th Cir.1994).

We do not decide today which approach best determines the citizenship of a Lloyd's syndicate because under either approach the pleadings are lacking; they identify neither the citizenship of the individual investors nor the citizenship of the managing/lead underwriter. Consequently, we cannot discern whether the Underwriters are, in fact, citizens or subjects of the United Kingdom, or any other foreign state for that matter. As a result, the complaint does not establish that this action is between a citizen of the United States and a citizen or subject of a foreign state.

Furthermore, the complaint fails to demonstrate that this action is between citizens of different states because it does not identify Advani's citizenship. For jurisdictional purposes, a corporation is deemed to be a citizen both of the state in which it has been incorporated and the state in which it has its principal place of business. 28 U.S.C. § 1332(c). In its complaint, however, Advani, although it describes itself as a corporation, has failed to include either. Instead, it merely pleads that it is a United States corporation with an office in New York. Compl. at p 1. Under 28 U.S.C. § 1332(c), this is clearly insufficient. Moreover, as discussed previously, whether we choose to evaluate the citizenship of Syndicate 735's individual investors or only its lead/managing underwriter, the complaint is...