J. Aron & Co. v. Chown, 94 Civ. 3610 (MP).

• Decision Date: 03 August 1995
• Docket Number: No. 94 Civ. 3610 (MP).,94 Civ. 3610 (MP).
• Citation: 894 F. Supp. 697
• Court: U.S. District Court — Southern District of New York
• Parties: J. ARON & COMPANY, Plaintiff, v. Richard CHOWN, et al., Defendants.

894 F. Supp. 697

J. ARON & COMPANY, Plaintiff, v. Richard CHOWN, et al., Defendants.

No. 94 Civ. 3610 (MP).

United States District Court, S.D. New York.

August 3, 1995.

Strook & Strook & Lavan, New York City (Melvin A. Brosterman, of counsel), for plaintiff.

Chalos & Brown, P.C., New York City (Martin F. Marvet, of counsel), for defendants.

OPINION

MILTON POLLACK, Senior District Judge:

This is a removed action purportedly sounding in admiralty but which the plaintiff elected to commence as a common law action in state court. Defendants have moved pursuant to Fed.R.Civ.P. 12(h)(3) for dismissal of this action on the ground that the Court lacks subject matter jurisdiction. The plaintiff's election to commence this action as a common law action cannot be undone. Consequently, it appears that this Court lacks subject matter jurisdiction and that the removal was a nullity. The case will be remanded to the New York Supreme Court, New York County, from whence it was removed.

Background

Plaintiff J. Aron & Co. ("Aron") commenced the instant action ("Chown") in New York Supreme Court on April 27, 1994, seeking a judgment of at least $45 million for breach of an insurance policy underwritten by the defendants in this action ("the Chown Policy") that allegedly provided coverage for the misappropriation of crude oil and refined products belonging to Aron while they were in storage or undergoing processing at a refinery in Newfoundland. Under the terms of a processing agreement between Aron and two entities not a party to this action, Cumberland Crude Processing ("CCP") and Gulf Oil, Aron shipped crude oil to the refinery for processing, and CCP and Gulf Oil would purchase the resulting products from Aron. The Chown Policy contains four sections that cover a variety of marine and non-marine risks associated with the refinery. The sections and their titles are: Section I (Marine cargo, stock & transit), Section II (Conditions applicable to charterers and/or cargo owners legal liability), Section III (Physical damage/business interruption), and Section IV (Hull and machinery). The Chown Policy was originally issued in 1989 to Newfoundland Processing Limited, the owner of the refinery. Aron was subsequently added as an additional insured.

The Chown Defendants removed Chown to this Court on May 17, 1994. Aron did not move to remand Chown. The instant action was eventually consolidated for trial with Americas Insurance Company v. J. Aron & Co. et al., 93 Civ. 2503, 1994 WL 172407, a declaratory judgment action commenced in this district by a different insurer whose policy allegedly also covers Aron's losses at the refinery. Although the underlying losses on which the insurance claims are predicated are the same in both actions, Chown and Americas involve claims under distinct insurance policies employing different insuring language, and each insurer has asserted defenses to coverage unique to itself. By the time Chown had been removed, Judge Mukasey, who formerly presided over both actions, had ruled that Americas was within the court's admiralty jurisdiction, but Judge Mukasey had no occasion to determine whether he had subject matter jurisdiction over Chown.¹

The Chown Defendants have reconsidered their decision to remove Chown and now contend that the Court lacks subject matter jurisdiction over the action. In opposition to the motion, Aron has proposed only two bases of subject matter jurisdiction: admiralty jurisdiction pursuant to 28 U.S.C. § 1333(1) and supplemental jurisdiction pursuant to 28 U.S.C. § 1367. The Chown Defendants claim that diversity jurisdiction is unavailable, and Aron has not alleged diversity.

Discussion

I. Aron's election to commence Chown under the Saving to Suitors Clause deprives the Court of original jurisdiction over the action.

Assuming arguendo that Aron could have brought an admiralty action against the Chown Defendants, Aron has made an irrevocable election to proceed at common law rather than in admiralty by filing Chown in state court pursuant to the Saving to Suitors Clause of 28 U.S.C. § 1333(1). The effect of this election was to deprive this Court of admiralty jurisdiction over Chown, even though Chown could have been pleaded as an action in admiralty rather than a common law action. Consequently, unless some other basis for federal subject matter jurisdiction exists, Chown must be remanded to the New York Supreme Court, from which it was improperly removed.

The Saving to Suitors Clause is part of the statutory grant of admiralty jurisdiction:

The district courts shall have original jurisdiction, exclusive of the courts of the States, of:

(1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled.

28 U.S.C. § 1333(1) (emphasis added). Under the Saving to Suitors Clause, "plaintiffs with a common law claim arising from a transaction over which a federal court would have admiralty jurisdiction may either avail themselves of federal admiralty jurisdiction or sue at law in state court." McAllister Brothers, Inc., v. Ocean Marine Indemnity Co., 742 F.Supp. 70, 75 (S.D.N.Y.1989). The effect of this election is to characterize the plaintiff's claim either as a claim at common law or a claim in admiralty. If the plaintiff elects to characterize his claim as one at common law by commencing an action in state court under the Saving to Suitors Clause, this characterization of the claim will not be affected by subsequent removal of the action. The consequences of the plaintiff's election were extensively analyzed by Judge Mishler in a recent decision, Kurkomelis v. Goldenbaum, 1990 WL 156145 (E.D.N.Y. August 21, 1990), in which an action commenced in state court as a tort action, which had been removed on the sole basis of admiralty jurisdiction, was remanded one year after removal, despite the plaintiffs' failure to timely object to removal:

It is beyond question that a federal district court cannot maintain jurisdiction over an action commenced as a state law tort claim absent diversity between the parties or some other basis of federal jurisdiction. Therefore, even though the plaintiffs could have been pleaded sic their case as a maritime tort falling within the admiralty jurisdiction of the federal courts, their choosing to plead their case as one governed by state tort law determined the character of their claims....

In the case before us, plaintiffs commenced their action as a tort action governed by New York State law; they did not commence an action in admiralty. Defendants' removal of the case to this court has not transformed the proceeding into an admiralty action. Removal does not transform a case; it merely, as the term suggests, "removes" it. When we receive an action from the state court, we take it in the form in which it was commenced. Removal is not some magical potion that can transform a proceeding into something other than the case the state court received upon commencement.

Id. at *4-*5 (citation omitted). Thus, Aron's election to commence Chown as a common law action in state court forever prevents the federal district courts from obtaining admiralty jurisdiction over Chown.

The Court brought Kurkomelis to the attention of the attorneys on this motion prior to oral argument. Aron has responded by asserting that 28 U.S.C. §§ 1441(a) and (b) allow removal of a common law action commenced under the Saving to Suitors Clause. These subsections of the removal statute provide:

(a) Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant ... to the district court of the United States....

(b) Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

Aron's response misconstrues the problem that the Saving to Suitors Clause and Kurkomelis creates for the maintenance of Chown in this Court. Fundamentally, the problem is that, once Aron elected to commence Chown as a common law action and not an admiralty action, there was no basis for a federal court to assert admiralty jurisdiction over Chown. Federal courts have no original jurisdiction over a non-diverse common law action, and after Aron elected to treat its claims against the Chown Defendants as common law rather than admiralty claims, Chown came into existence as a non-diverse common law action. Section 1441(a) does not cure this problem, because it only permits the removal of civil actions over which the federal district courts have original jurisdiction. Thus, removal of Chown was improper because Chown was never a civil action over which the federal district courts have original jurisdiction.

Other district courts besides Kurkomelis have adopted the forgoing analysis. In Queen Victoria Corp. v. Insurance Specialists of Hawaii, 694 F.Supp. 1480 (D.Hawaii 1988), in which the court determined sua sponte, several months after removal, that an action between non-diverse parties to enforce a hull insurance policy filed in state court under the Saving to Suitors Clause must be remanded, the court stated:

Neither may removal be effected independently under 28 U.S.C. § 1441(a), which generally provides for removal of any civil action brought in a state court over which the federal courts have original jurisdiction.... Even if the identical facts would have supported a federal admiralty action in the first instance, the fact is that plaintiff brought this in state court as a civil action. That civil action,

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