St. Paul Fire & Marine Ins. Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa, Am. Home Assurance Co., New Hampshire Ins. Co.

• Decision Date: 29 May 2018
• Docket Number: No. 16-12015,16-12015
• Citation: 890 F.3d 1265
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Counter Defendant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, American Home Assurance Company, New Hampshire Insurance Company, Defendants-Cross Defendants-Cross Claimants-Counter Claimants-Appellees, American Guarantee & Liability Insurance Company, Defendant-Cross Claimant-Counter Defendant-Cross Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

890 F.3d 1265

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Counter Defendant,

v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, American Home Assurance Company, New Hampshire Insurance Company, Defendants-Cross Defendants-Cross Claimants-Counter Claimants-Appellees,American Guarantee & Liability Insurance Company, Defendant-Cross Claimant-Counter Defendant-Cross Defendant-Appellant.

No. 16-12015

United States Court of Appeals, Eleventh Circuit.

May 29, 2018

Michael J. Tricarico, Carroll McNulty & Kull, LLC, New York, NY, Christopher R. Carroll, Heather Elizabeth Simpson, Carroll McNulty & Kull, LLC, Basking Ridge, NJ, Henry E. Scrudder, Jr., Scrudder Bass Quillian Horlock Taylor & Lazarus, LLP, Atlanta, GA, for Defendants-Appellees.

John Stephen Berry, James Randolph Evans, Kathryn Maynard Guinn, Dentons US, LLP, Atlanta, GA, for Defendant-Appellant.

David M. Atkinson, Swift Currie McGhee & Hiers, LLP, Atlanta, GA, John Stephen Berry, Dentons US, LLP, Atlanta, GA, Ariel E. Shapiro, Swift Currie McGhee & Hiers, LLP, Atlanta, GA, for Plaintiff.

Before MARCUS and NEWSOM, Circuit Judges, and MOORE,^* District Judge.

MARCUS, Circuit Judge:

In this battle between primary and excess liability insurance companies, American Guarantee & Liability Insurance Co. (AGLIC) appeals the district court's grant of summary judgment to American International Group, Inc. subsidiaries National Union Fire Insurance Co., American Home Assurance Co., and New Hampshire Insurance Co. (collectively, "AIG"). AGLIC claims that AIG, acting as a primary insurer, improperly allocated settlement payments between two insurance policies on behalf of their mutual insured, Imperial Sugar Co. As a consequence, AGLIC contends that AIG breached its duty to Imperial by prematurely subjecting it to excess liability. As Imperial's excess insurer, AGLIC seeks to pursue Imperial's breach-of-duty claim against AIG utilizing the doctrine of equitable subrogation.

When the case reached this Court, we asked the parties for supplemental briefing on subject matter jurisdiction. In examining diversity jurisdiction, the district court is not bound by the formal alignment of the parties provided in the pleadings. Rather, the court must align the parties according to their true interests in the litigation. City of Indianapolis v. Chase Nat'l Bank , 314 U.S. 63, 69, 62 S.Ct. 15, 86 L.Ed. 47 (1941) ; City of Dawson v. Columbia Ave. Sav. Fund Safe Deposit, Title & Tr. Co. , 197 U.S. 178, 180, 25 S.Ct. 420, 49 L.Ed. 713 (1905). In this case, because the interests of St. Paul and AGLIC were coextensive, there was an absence of complete diversity of citizenship, and the district court lacked the power to entertain the matter in the first place. Accordingly, we vacate the court's judgment and remand with instructions to dismiss.

I.

This dispute arose out of several catastrophic explosions at an Imperial Sugar Co. refinery in Port Wentworth, Georgia, which killed 14 and wounded

36 workers. The workers and their families responded by filing tort and workers' compensation claims against Imperial. The claims were handled by AIG, which provided Imperial with a $26 million general liability insurance policy ("AIG GL") and an unlimited workers' compensation insurance policy ("AIG WC"). As its defense strategy, AIG sought to arrange global settlements of the tort and workers' compensation claims. Ultimately, AIG settled 41 of the 67 claims against Imperial for roughly $28.5 million—far less than Imperial's expected liability. However, AIG GL paid 90 percent of the global settlements (approximately $25.5 million), while AIG WC paid only 10 percent (approximately $3 million).

According to Imperial's excess insurers, St. Paul Fire & Marine Insurance Co. and AGLIC, because AIG GL was capped while AIG WC was unlimited, AIG WC should have enlarged its contributions to the settlements in order to maximize the protections afforded by AIG GL. St. Paul and AGLIC contended that AIG prematurely exhausted AIG's general liability insurance policy through its lopsided settlement allocations, thereby breaching its duty to Imperial by exposing it to undue excess liability. As Imperial's excess insurers, St. Paul and AGLIC bore the burden of AIG's alleged breach, and sought to assert Imperial's cause of action through equitable subrogation.

Thus, in January 2013, St. Paul sued AGLIC and AIG subsidiaries National Union Fire Insurance Co., American Home Assurance Co., and New Hampshire Insurance Co. in the United States District Court for the Northern District of Georgia. St. Paul sought a declaration that AIG improperly exhausted its general liability policy, entitling St. Paul to recoupment of settlement and defense expenditures incurred under its excess policy. In its complaint, St. Paul arranged the parties' citizenships this way:

                Plaintiff Defendant
                St. Paul (MN, CT)     National Union (PA, NY)
                                      American Home (NY)
                                      New Hampshire (PA, NY)
                                      AGLIC (NY, IL)
                

In February 2013, AGLIC filed an answer admitting essentially all of the allegations in St. Paul's complaint. AGLIC's answer included a cross-claim against AIG leveling the same allegations and requesting the same relief that St. Paul had sought. AGLIC claimed the district court had supplemental jurisdiction over its cross-claim under 28 U.S.C. § 1367(a), since St. Paul's complaint established diversity jurisdiction, and AGLIC's cross-claim arose out of a common nucleus of law and fact.

After more than two years of discovery, AIG moved for summary judgment, alleging an absence of evidence to support St. Paul and AGLIC's claims. The district court entered summary judgment for AIG, and St. Paul and AGLIC appealed. In June 2016, St. Paul moved to voluntarily dismiss its appeal with prejudice. The Court granted the motion, leaving AGLIC as the sole appellant against AIG. Order of Dismissal, July 16, 2016 (ECF No. 34).

In October 2017, we directed the parties to file supplemental briefs addressing this Court's power to entertain the appeal. According to the parties, we retained supplemental jurisdiction over the appeal pursuant to 28 U.S.C. § 1367(a), which reads this way: "[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." Although the exercise of supplemental power is discretionary, the district courts may exercise supplemental jurisdiction to consolidate closely related claims into a single proceeding in order to preserve judicial resources and avoid inconsistent judgments. Rosado v. Wyman , 397 U.S. 397, 405, 90 S.Ct. 1207, 25 L.Ed.2d 442 (1970) (describing the "commonsense policy" of supplemental jurisdiction as being grounded on "the conservation of judicial energy and the avoidance of multiplicity of litigation"). It is also true that if there is supplemental jurisdiction at the time the suit was commenced, the court may continue to exercise that power even if the original basis for jurisdiction is later eliminated. Id . ("We are not willing to defeat the commonsense policy of pendent jurisdiction ... by a conceptual approach that would require jurisdiction over the primary claim at all stages as a prerequisite to resolution of the pendent claim.").

The parties claim that, since their citizenships were completely diverse and the amount in controversy exceeded $75,000 at the time of filing, St. Paul's original complaint conferred diversity jurisdiction on the district court pursuant to 28 U.S.C. § 1332(a). They also say that the district court properly exercised supplemental jurisdiction over AGLIC's cross-claim because it was so interwoven with the complaint as to form "part of the same case or controversy." They add that St. Paul's voluntary dismissal did not divest this Court of jurisdiction, and that the exercise of supplemental jurisdiction continues to serve the interests of judicial economy and fairness. Thus, the parties reason, the district court appropriately wielded supplemental power over AGLIC's cross-claim, and this Court has supplemental jurisdiction over AGLIC's appeal as well.

II.

"We review questions of subject matter jurisdiction de novo ." Belleri v. United States , 712 F.3d 543, 547 (11th Cir. 2013). Whether we may exercise supplemental jurisdiction over this appeal depends on whether the district court had diversity jurisdiction over the case at the time that it was filed. See Grupo Dataflux v. Atlas Glob. Grp., LP , 541 U.S. 567, 570–71, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004). Although, nominally, the parties were completely diverse at the time of filing, the district court was obligated to realign AGLIC as St. Paul's co-plaintiff, since, from the outset, the interests of the excess insurers in this case were completely coextensive. And since AGLIC and AIG were both New York citizens at the time the lawsuit began, realignment would have destroyed diversity, stripping the district court of original jurisdiction and eviscerating the jurisdictional foundation for this appeal.

It is now fully accepted as a jurisdictional principle that, under the "realignment doctrine," "federal courts are required to realign the parties in an action to reflect their interests in the litigation. The parties themselves cannot confer diversity jurisdiction upon the federal courts by their own designation of plaintiffs and defendants." City of Vestavia Hills v. Gen. Fid. Ins. Co. , 676 F.3d 1310, 1313 (11th Cir. 2012). And it is the duty of the federal courts "to look beyond the pleadings, and arrange the parties according to their sides in the dispute." City of Indianapolis , 314 U.S. at 69, 62 S.Ct. 15 (quoting City of Dawson , 197 U.S. at 180, 25 S.Ct. 420 ). "Whether the necessary ...