Young Spring & Wire Corp. v. American Guarantee & L. Ins. Co.

• Decision Date: 24 July 1963
• Docket Number: Civ. No. 13897-4,13898-4.
• Citation: 220 F. Supp. 222
• Parties: YOUNG SPRING & WIRE CORPORATION, a corporation, Plaintiff, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, a corporation, and W. B. Brandt & Co., Inc., a corporation, et al., Defendants.
• Court: U.S. District Court — Western District of Missouri

220 F. Supp. 222

YOUNG SPRING & WIRE CORPORATION, a corporation, Plaintiff, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, a corporation, and W. B. Brandt & Co., Inc., a corporation, et al., Defendants.

Civ. Nos. 13897-4, 13898-4.

United States District Court W. D. Missouri, W. D.

July 24, 1963.

COPYRIGHT MATERIAL OMITTED

Watson, Ess, Marshall & Enggas, by James C. Logan, Kansas City, Mo., Alfred D. Edgerton, Beverly Hills, Cal., for plaintiff.

Smith, Schwegler & Swartzman, by George M. Winger, Kansas City, Mo., for W. B. Brandt & Co., Inc.

Stinson, Mag, Thomson, McEvers & Fizzell, by John C. Noonan, Kansas City, Mo., Fiedler & Amberg, Chicago, Ill., for American Guarantee & Liability Ins. Co. and Underwriters at Lloyds, London.

BECKER, District Judge.

This action was originally filed in the Circuit Court of Jackson County, Missouri. Separate petitions for removal were filed by the defendants American Guarantee & Liability Insurance Company (hereinafter referred to as American), and by W. B. Brandt & Company, Inc. (hereinafter referred to as Brandt). Each petition for removal stated that a separate and independent claim against the movant was joined with other claims and removal of the entire case was requested under Section 1441(c) of Title 28 U.S.C.A. The plaintiff has moved to remand the cause on the ground that there is no diversity of citizenship between the plaintiff and all the defendants and that the claims are not separate and independent as provided in Section 1441 (c) of Title 28 U.S.C.A.

There has been extensive discovery by way of interrogatories and the deposition of the president of the plaintiff corporation, principally addressed to the discovery and preservation of evidence bearing upon the location of the principal place of business of the plaintiff corporation. The question of jurisdiction is now ripe for decision upon the plaintiff's motion to remand and the submission of the answers to interrogatories and the deposition of the president of the plaintiff corporation.

The removability of a case on the ground of diversity of citizenship and the question of whether separate and independent claims exist should be determined on the basis of the pleadings at the time of removal. Pullman Co. v. Jenkins, 305 U.S. 534, 59 S.Ct. 347, 83 L.Ed. 334; Gray v. New Mexico Military Institute, (C.A.10) 249 F.2d 28. The case was pending in the state court at the time of removal upon plaintiff's "First Amended Petition" in which it was stated that plaintiff was incorporated under the laws of Michigan and had its principal place of business in Illinois. (However, on the motion to remand defendants have offered substantial proof that the plaintiff's principal place of business is in California.) The amended petition states, and it is conceded, that the defendant American is incorporated under the laws of New York and has its principal place of business in Illinois. The amended petition states, and it is conceded, that Brandt is incorporated under the laws of California and has its principal office in California. The Underwriters at Lloyd's London named in the amended petition are conceded not to be citizens of the United States.

In Count I of the amended petition the plaintiff seeks to recover from the defendant American upon a comprehensive dishonesty, disappearance and destruction policy, insuring the plaintiff against loss through fraudulent or dishonest acts committed by its employees, in a sum not to exceed $100,000. In Count II of the amended petition, plaintiff seeks to recover from Brandt and Underwriters at Lloyd's London a sum of $200,000 in excess of the primary coverage of $100,000 referred to in Count I. In this count it is charged that Brandt executed on behalf of the Underwriters at Lloyd's a certificate of excess fidelity and depositors forgery insurance with maximum limits of $200,000 in excess of the first $100,000 of loss covered by American's contract. In this count it is stated that Brandt executed the contract on behalf of Lloyd's and caused it to be delivered to the plaintiff warranting to the plaintiff that Lloyd's would indemnify plaintiff against loss sustained by reason of the dishonesty of any or all of its employees in excess of $100,000 and up to the limit of the contract. It is further stated in this count that Lloyd's are contending that, under the terms of their contract with Brandt, no indemnity need be paid the plaintiff because (1) plaintiff's dishonest employees failed to realize pecuniary gain from their acts of dishonesty, and (2) that the primary insurer American has refused to recognize its liability as primary carrier. In this count it is further charged that if there are express exemptions from liability upon which Lloyd's could justify its refusal to pay the plaintiff, and that if Lloyd's did so limit their liability in their undertaking with Brandt, then Brandt has misrepresented the nature of the Lloyd's contract, has warranted the nature of the Lloyd's contract, and is liable for breach of representation in warranty in respect thereto. This claim against Brandt is an alternative claim under Rule 8(e) (2) of the Federal Rules of Civil Procedure.

In Count III of the amended petition plaintiff seeks recovery against Lloyd's, or in the alternative against Brandt, for the amount of $200,000 in excess of $300,000 for all loss the plaintiff sustained as a result of the alleged dishonesty of any or all of its employees. In Count III as in Count II, it is charged that Lloyd's are claiming that under the terms of their undertaking with Brandt no indemnity need be paid upon this second excess certificate for the same reasons. As in Count II, it is averred that if the position of Lloyd's is correct, Brandt has incorrectly warranted and misrepresented the true nature of Lloyd's contract of insurance to plaintiff, and is liable for breach of its representations and warranty in the sum of $200,000 if Lloyd's is not liable.

In each of the counts it is averred as a predicate of liability that the contract sued upon was in full force and effect. It was further alleged as follows:

"3. This defendant issued to plaintiff, who paid the premium charged therefor, a Comprehensive Dishonesty, Disappearance and Destruction Policy, No. 1308117, a copy of which is attached hereto, marked Exhibit `A' and incorporated herein by reference. At all times hereinafter mentioned said policy was in full force and effect and insured plaintiff in the amount of $100,000 for loss sustained `through any fraudulent or dishonest act or acts' committed by any of plaintiff's employees, acting alone or in collusion with others, including losses arising from acts of plaintiff's employees occurring in the states of Kansas and Missouri.

"4. During the years 1959 and 1960, plaintiff's Equipment Division employees wrongfully shipped, or caused to be shipped, numerous items of equipment aggregating approximately One Million ($1,000,000) Dollars invoice price to purported buyers, contrary to plaintiff's policy and method of doing business, and caused the books and records of plaintiff falsely to reflect bona fide sales when, in fact, no such sales had been made. This was done by causing documents to be issued falsely reflecting consignments as actual sales. Such employees created fictitious accounts receivable, concealed secret irregular terms of certain transactions with customers, and distorted and falsified inventory and other accounting records of plaintiff. Plaintiff's employees wrongfully ordered, or caused to be ordered, parts and materials in order to replace inventory which they had falsely reported as having been sold. All such acts were intentionally committed by plaintiff's employees, principally in the states of Kansas and Missouri, in violation of plaintiff's policies, in breach of their fiduciary and other obligations owing plaintiff as their employer, were concealed from plaintiff by such employees, and were `fraudulent or dishonest' within the terms and coverage of said policy.

"5. By reason of said `fraudulent or dishonest' acts of plaintiff's employees, plaintiff was required to retake possession of such unsold equipment, repair, rehabilitate and dispose of it in order to minimize its loss. The foregoing `fraudulent or dishonest' acts of plaintiff's employees purporting to reflect bona fide sales to plaintiff's customers resulted in apparent inventory requirements and consequent buildup of said inventory which otherwise would not have been the case, and plaintiff was thereby caused to become committed to purchase considerable items of material and parts for the manufacture of additional inventory and in fact did increase its said inventory to a point far in excess of the actual needs, which increased inventory has had to be warehoused at additional expense to plaintiff. Plaintiff was unable to dispose of such excessive inventory in an orderly fashion, much of which became obsolete and deteriorated. Some of the commitments and orders which plaintiff was caused to make for the purchase of parts and other materials were thereafter canceled, resulting in claims and charges made against plaintiff.

"6. Plaintiff sustained damages in excess of $500,000.00 resulting from said `fraudulent or dishonest' acts of its employees. Damages sustained and ascertained to date in retaking of equipment and disposition thereof include freight expense of $19,719.44, reword and repairs to place equipment in salable condition $78,816.22, loss attributable to worthless parts on repossessed machines $8,879.84, and salesmen's commissions and other selling expenses $84,904.88. Damages sustained by plaintiff to date resulting from decline in value of excessive inventory is $270,258.56. Damage sustained by plaintiff to date from loss due to cancellation charges on purchases of materials and parts to which it was committed in connection with the buildup of excessive inventory is $102,987.18. Damages

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