Leroux v. Lomas & Nettleton Co.

• Decision Date: 14 January 1986
• Docket Number: Civ. A. No. 85-0012-Y.
• Citation: 626 F. Supp. 962
• Parties: David M. LEROUX and Theresa M. Leroux, Plaintiffs, v. The LOMAS & NETTLETON CO., American Bankers Insurance Company of Florida, and Stark, Johnson & Stinson, Inc., Defendants.
• Court: U.S. District Court — District of Massachusetts

626 F. Supp. 962

David M. LEROUX and Theresa M. Leroux, Plaintiffs, v. The LOMAS & NETTLETON CO., American Bankers Insurance Company of Florida, and Stark, Johnson & Stinson, Inc., Defendants.

Civ. A. No. 85-0012-Y.

United States District Court, D. Massachusetts.

January 14, 1986.

Norman F. Lazarus, Bernstein & Lazarus, Boston, Mass., for plaintiffs.

Thomas J. Daugherty, Skadden, Arps, Slate, Meager & Flom, Boston, Mass., John C. Fricano, Skadden, Arps, Slate, Meagher & Flom, Washington, D.C., for defendants.

MEMORANDUM AND ORDER

YOUNG, District Judge.

The plaintiffs, David and Theresa Leroux ("the Lerouxs") bring this action against defendants The Lomas & Nettleton Co. ("Lomas"), American Bankers Insurance ("American Bankers"), and Stark, Johnson & Stinson, Inc. ("Stark") in a complaint filed January 2, 1985.

The Lerouxs allege that, without their knowledge or consent, the three defendants made various transfers of their home owners insurance policy. These transfers left the Leroux dwelling, appurtenant structures, and personal property inadequately insured against loss by fire. The Lerouxs also allege a loss of coverage for additional living expenses. As a result, the Lerouxs charge each defendant with breach of Mass.Gen.Laws ch. 93A, breach of contract, negligence, and deceit. The Lerouxs assert subject matter jurisdiction based on diversity of citizenship with an amount in controversy for each Count in excess of $10,000.

Beyond the merits of the matter, the procedural conflicts are significant. On February 28, 1985, defendants Lomas, American Bankers, and Stark moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(1), lack of subject matter jurisdiction; 12(b)(6), failure to state a claim upon which relief may be granted; and 9(b), failure to plead fraud with particularity. The defendants also moved for an award of costs and expenses pursuant to Fed.R.Civ.P. 11.

Approximately a week later, on March 7, 1985, the Lerouxs voluntarily dismissed party defendant Stark pursuant to Fed.R. Civ.P. 41(a)(1)(i).¹ On the same date, Leroux served a copy of the Notice of Dismissal on defendants' counsel. Voluntarily and as a matter of right, the Lerouxs purport to dismiss only those counts against defendant Stark: Counts III, VI, IX and XII. By this method, the Lerouxs seek to cure a defect in diversity while preserving the core of their complaint against the other two defendants.

I. Factual Background

Based on the averments in the Complaint and accepted as true for purposes of this motion only, the Lerouxs assert the following facts. Until October 24, 1982 the Lerouxs owned and occupied a residence at 30 Topcliff Street, Billerica, Massachusetts. This home was mortgaged to the Veterans Administration and insured with the Hanover Insurance Company, 1400 Mechanics National Tower, Worcester, Massachusetts. The Lerouxs made monthly payments for principal, interest, real estate taxes and home insurance on this residence to the mortgagee, Lomas, apparently through Marshall Q. Trubey Insurance Co. in Lowell, Massachusetts.

At some time during the first six months of 1978, Lomas purchased or assigned the Lerouxs' mortgage without notifying them. On or about December 5, 1978, the Lerouxs received a "Notice of Cancellation" from Hanover Insurance Co., alleging non-payment of premium. Despite the Lerouxs' regular monthly payments for mortgage, interest, taxes and insurance, Lomas unilaterally and without the Lerouxs' consent placed the Lerouxs' homeowners insurance with American Bankers through Stark. From 1978 to 1982, American Bankers and Lomas had a continuing business relationship in which a substantial number of homes mortgaged to or serviced by Lomas were insured with American Bankers.

On or about May 4, 1981, Lomas substituted a fire and extended coverage policy (Form DP-1) for the Lerouxs' existing and standard HO3 homeowners policy. The standard policy covered the dwelling, appurtenant structures, personal property, and additional living expenses.

The Lerouxs had no knowledge of this policy change because neither Lomas nor American Bankers sent notice of the change by certified mail, allegedly required by law. Apparently, notice sent by regular mail on or about April 9, 1982 failed to reach them. The Lerouxs assert that Lomas knew or should have known that the new plan was not a homeowners policy as defined by the Commonwealth of Massachusetts Insurance Commission.

On October 24, 1982, the Lerouxs' home at 30 Topcliff Street in Billerica was totally destroyed by fire. In addition to the residence, the Lerouxs lost all family possessions and an in-ground swimming pool. When the Topcliff home was destroyed, the Lerouxs suffered financial and emotional distress because of their inadequate insurance coverage. According to the Lerouxs' complaint, the actions of Lomas, American Bankers, and Stark constitute breach of contract, negligence, deceit, and breach of Mass.Gen.Laws ch. 93A.

As a result of the October 24th fire, the Lerouxs moved to a new home at 34 Manomet Avenue, Hull, Massachusetts, where they currently reside.

II. Jurisdiction

The Court will treat paragraph six of the Lerouxs' complaint as invoking the subject matter jurisdiction of this Court based on diversity of citizenship. On the facts alleged above, the Court accepts as true for purposes of this motion that the Lerouxs are citizens of Massachusetts, despite the use of the word "reside" and "resident" in the complaint.

Also accepted as true for purposes of this motion, Lomas is a duly organized Connecticut corporation with its principal place of business at 230 George St., New Haven, Connecticut. Beyond this, Lomas is a wholly owned subsidiary of Lomas & Nettleton Finance Corporation, a duly organized Delaware corporation with its principal place of business at 2001 Bryan Tower, Dallas, Texas. American Bankers is part of the American Bankers Insurance Corporation with its principal place of business at 600 Brickell Avenue, Miami, Florida. Finally, Stark is a duly organized Massachusetts corporation with its business offices at 32 Franklin Street, Worcester, Massachusetts.

For purposes of this motion only and based on these facts, the Court concludes that Lomas and American Bankers are not citizens of Massachusetts and, as such, are properly diverse in citizenship to the Lerouxs.²

If the Lerouxs are to assert subject matter jurisdiction based on diversity of citizenship, however,³ the diversity must be complete as to all parties. Strawbridge v. Curtiss, 3 Cranch 267, 7 U.S. 267, 2 L.Ed. 435 (1806). Yet, on the very face of the complaint the Lerouxs assert facts which establish that Stark, one of the party defendants, is not diverse. Therefore, as of the filing of the complaint on January 2, 1985, as well as on the date which the defendants filed their several motions to dismiss, February 28, 1985, a jurisdictional defect blemished the Lerouxs' complaint because both party defendant Stark and party plaintiffs Lerouxs were citizens of Massachusetts.⁴

Absent the Lerouxs' March 8, 1985 Notice of Dismissal or other corrective amendment, this Court would have been required to allow the Lomas' motion to dismiss pursuant to 12(b)(1). However, the Court rules that the Notice of Dismissal appropriately rectified the jurisdictional defect by dropping the non-diverse party in a timely manner. In so holding, the Court has considered and answered the following questions:

1. Can a Notice to Dismiss be utilized to drop the one nondiverse party and thus cure a jurisdictional defect?

2. Is a Notice to Dismiss dated after the filing of the motions to dismiss on February 28, 1985 proper?

3. Will a proper Notice to Dismiss cure a jurisdictional defect retroactive to the date of the filing of the complaint?

The Court answers all of these questions affirmatively.

III. Fed.R.Civ.P. 41(a)(1)(i)

First, can a Notice of Dismissal be utilized to drop the one nondiverse party and thus cure a jurisdictional defect?

Lomas alleges that, where Rule 41 speaks of an "action,"⁵ the Rule means the entire controversy. In this, Lomas relies primarily on Harvey Aluminum, Inc. v. American Cyanamid Co., 203 F.2d 105, 107-08 (2d Cir.), cert. denied, 345 U.S. 964, 73 S.Ct. 949, 97 L.Ed. 1383 (1953) which states: "Rule 41(a)(1) provides for the voluntary dismissal of an `action' not a `claim'; the word `action' refers to what has traditionally been termed `cause of action'." Id. at 108. Lomas' reliance is misplaced.⁶

The Second Circuit itself has, however, limited Harvey Aluminum to its facts. Thorp v. Scarne, 599 F.2d 1169, 1172-77 (2nd Cir.1979). In limiting Harvey Aluminum, the Second Circuit in Thorp pointed to an extensive, several day evidentiary hearing as an "extreme" which explained why the court prohibited the plaintiffs' dismissal of one among several defendants. Id. at 1172-1176. Significantly, another judge of this court has squarely rejected Harvey Aluminum. Terry v. Pearlman, 42 F.R.D. 335, 337 (D.Mass.1967) (Where a temporary restraining order enjoined a bank and trust company and plaintiff filed notice of dismissal of the action against all defendants who had not filed an answer, the court denied a motion to vacate the notice of dismissal).⁷

Relying upon Terry v. Pearlman, this Court holds that, where Rule 41 speaks of an "action," this means all of the claims against any one defendant, and not necessarily all of the claims against all defendants. Terry v. Pearlman, 42 F.R.D. 335, 337 (D.Mass.1967). See also Plains Growers, Inc. v. Ickes-Brown Glasshouses, Inc., 474 F.2d 250, 254-55 (5th Cir.1973) (Where the court compared dismissal by notice and dismissal by motion under the two prongs of Rule 41, it concluded that "it was intended by the rule makers to permit dismissal against such defendants as have not served an answer or motion for summary judgment, despite the fact that the case might remain pending against the other defendants.") Id. at 225. In holding...