Corfield v. Dallas Glen Hills Lp

• Decision Date: 29 December 2003
• Docket Number: No. 03-10185.,03-10185.
• Parties: Thomas Rokeby Conynghan CORFIELD, et al., Plaintiffs, 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, v. DALLAS GLEN HILLS LP, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

355 F.3d 853

Thomas Rokeby Conynghan CORFIELD, et al., Plaintiffs, 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, v. DALLAS GLEN HILLS LP, Defendant-Appellee.

No. 03-10185.

United States Court of Appeals, Fifth Circuit.

December 29, 2003.

COPYRIGHT MATERIAL OMITTED

Richard Hunt Gateley (argued), Theodore Mack, Carter Len Ferguson, Brackett & Ellis, Fort Worth, TX, for Plaintiff-Appellant.

John L. Hubble, Hubble & Pistorius, Harvey Goldwater Joseph (argued), Littler Mendelson, Dallas, TX, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GARWOOD and JONES, Circuit Judges, and ZAINEY, District Judge^*.

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 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.¹

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. § 1332.² However Corfield's complaint failed to allege DGH's citizenship. Corfield alleged only that DGH was a Texas limited partnership.

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.³ 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 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.

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 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) 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 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. Comm'r, 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 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 "citizens" upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy. Navarro Savings Assoc. v. Lee, 446 U.S. 458, 460, 100 S.Ct. 1779, 1781-82, 64 L.Ed.2d 425 (1980) (citing McNutt v. Bland, 43 U.S. (2 How.) 9, 15, 11 L.Ed. 159 (1844); Marshall v. Baltimore & Ohio R. Co., 57 U.S. (16 How.) 314, 328-29, 14 L.Ed. 953 (1853); Coal Co. v. Blatchford, 78 U.S. (11 Wall.) 172, 177, 20 L.Ed. 179 (1871)). Thus, a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy. Id. at 461, 100 S.Ct. at 1782.

The sole issue presented in this case is whether complete diversity requires that the court consider the citizenship of every underwriter subscribing 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 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 "Na...