Rosenthal & Rosenthal, Inc. v. Aetna Casualty & Surety Co.
| Decision Date | 20 September 1966 |
| Docket Number | No. 66 Civil 267.,66 Civil 267. |
| Citation | 259 F. Supp. 624 |
| Parties | ROSENTHAL & ROSENTHAL, INC., Plaintiff, v. AETNA CASUALTY AND SURETY COMPANY, the Foreign Credit Insurance Association, John C. Paige Company, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Ballon, Stoll & Shyman, New York City, for plaintiff; Ronald S. Itzler, New York City, of counsel.
Watters & Donovan, New York City, for defendant Foreign Credit Ins. Ass'n; James B. Donovan, Thomas D. Wellington, Elizabeth A. Palewski and James G. Simms, New York City, of counsel.
Jacobs, Persinger & Parker, New York City, for defendants John C. Paige Co., John C. Paige & Co., Inc., Anthony Faunce and Thomas P. Carrigan; Irving Parker and Jay N. Feldman, New York City, of counsel.
This is an action by a commercial factor, in its capacity as assignee of an insured, to recover for a loss allegedly sustained within the terms of a contract of insurance made with The Foreign Credit Insurance Association (F.C.I.A.) and the Export-Import Bank of Washington (Exim Bank). F.C.I.A., allegedly an association of and representative for a number of insurance companies named as defendants and denominated "insurers", is alleged to be Exim Bank's agent for the issuance of the contract of insurance sued on. Exim Bank concededly is a wholly-owned Government corporation.
Alternatively, recovery is sought against John C. Paige & Company, Inc., John C. Paige Company, Anthony Faunce, Edward Wendell and Thomas P. Carrigan (the insurance brokers), on the basis, allegedly, that the failure to compensate for the loss was due to the fraud, negligence or breach of contract of these defendants or some of them.
The defendant insurance brokers have moved for an order dismissing the amended complaint as against them on the ground that the Court lacks jurisdiction over the subject matter with respect to such claims, Rule 12(b) (1), Fed.R.Civ.P. For the reasons hereinafter set forth, it is the conclusion of this Court that jurisdiction does not exist and that the motion must be granted.
Concededly, there is no diversity jurisdiction inasmuch as the plaintiff and the defendant John C. Paige & Company, Inc., are both New York corporations engaged in business in the State of New York. Concededly, also, the Court has subject matter jurisdiction over the defendant Exim Bank, a corporation incorporated under an Act of Congress and wholly owned by the United States Government.1
The amended complaint contains four counts. The first count is directed against F.C.I.A., Exim Bank and the defendant insurance companies, 30 in number, constituting the association of insurers for which F.C.I.A. is the representative. The second, third and fourth counts are directed against the insurance broker defendants and contain no allegations involving F.C.I.A., Exim Bank or the 30 insurance companies except by way of pro forma reiteration.
The first count alleges, in substance, that the plaintiff, as assignee of South Leather Co., Inc., the insured, is entitled to the proceeds of the insurance policy purporting to indemnify the insured or its assignees against the nonpayment for goods sold to foreign buyers; that during the effective period of the policy, and within its terms, a foreign buyer failed to make payment for goods sold and delivered by the insured, thereby causing a loss within the coverage of the policy in the amount of $15,000. This amount, with interest, is sought against the defendant insurance companies, Exim Bank, and F.C.I.A., as its agent.
The second count alleges that after the loss in question was sustained, plaintiff retained John C. Paige & Company, Inc. (Paige) and John C. Paige Company (the Company) as its brokers to collect all the sums due plaintiff under the policy; and that Paige, the Company, and the individual defendants were negligent in representing the plaintiff in their dealings with the defendant F.C.I.A. by failing to pay premiums due on the policy, by failing to file certain reports required by the policy, and by failing to file a proof of loss as required by the policy. It is further alleged that, as a result of the negligence of Paige, the Company, and the individual defendants in representing the plaintiff, F.C.I.A. and Exim Bank have refused payment resulting in plaintiff's damage in the sum of $15,000.
The third count is directed against Paige, the Company, and the individual defendants, and alleges the same derelictions with respect to their improper representation of the plaintiff in their dealings with F.C.I.A. but formulates a claim of redress on the basis of actionable misrepresentations to the plaintiff, as a result of which plaintiff was allegedly induced to refrain from inquiring as to whether the premiums had been paid and as to whether the overdue reports and proofs of claim were or had to be filed, all to the plaintiff's damage in the sum of $15,000.
The fourth count is directed against the defendants Paige and the Company and is based upon the same alleged derelictions already referred to — the failure to pay premiums and the failure to file reports and a proof of loss, but, is couched in terms of a violation of their contractual obligations as brokers. It alleges that Paige and the Company failed to perform certain acts incumbent upon them and failed to exercise due care and diligence with respect to such performance and that, as a result of such failure, the plaintiff has been unable to obtain payment on its insurance claim, all to the plaintiff's damage in the sum of $15,000. There are pro forma repetitions of the prior allegations of each count by way of introduction to the express allegations of each of counts 2, 3 and 4.
In summary, therefore, the causes of action against the insurance broker defendants are based upon allegations of negligence, fraud and breach of contract.
It may be noted in passing that the defendant F.C.I.A. has filed an answer containing what amounts to a general denial in addition to eight affirmative defenses. Fn. 2 In essence, F.C.I.A. alleges that the plaintiff, its assignor, and the persons purportedly acting in behalf of either of them, including, presumably, the insurance broker defendants, have failed to fulfill conditions of the insurance policy precedent to the obligation of payment by the insurers. The defendant Exim Bank has adopted the answer of defendant F.C.I.A. in toto.
The precise contract of insurance entered into by plaintiff's assignor does not appear to be before the Court. A specimen contract is attached to the amended complaint and marked Exhibit A. Defendant F.C.I.A. has denied in its answer that it is the complete contract and has requested leave in its answer to refer to the original for all the terms and conditions thereof.
The type of insurance involved is denominated export credit insurance and is so labelled at the top of the specimen policy. Just beneath, and in letters of almost equal size, appear the full names of F.C.I.A. and Exim Bank. It was a new and unique type of insurance made available by federal statute which permitted Exim Bank to insure against this type of loss. 12 U.S.C. § 635 et seq. A special rider attached to the specimen contract apparently covers the transaction with the foreign buyer whose default precipitated the claim for indemnity. Apart from the type of risks referred to (export credit and political risks), the policy has all the usual earmarks of an insurance contract, i. e., clauses with respect to limitations of liability, exclusions, proof and payment of claims, notices of claims, etc.
The motion of the insurance broker defendants to dismiss the amended complaint as against them thus squarely presents the question whether this Court has jurisdiction over the subject matter of the action as it relates to these defendants either because (1) the claims asserted against the brokers arise substantially under federal law or, if they do not, (2) under the pendent jurisdiction doctrine.
In asserting that its cause of action arises under an act of Congress, the plaintiff has invoked the general original jurisdiction of federal question cases first extended to the lower court of the federal system by the Act of March 3, 1875, Section 1, 18 Stat. 470, and which has served substantially unchanged as Section 13312 of the 1948 Judicial Code. Modern commentators seem agreed that today, with the expanding scope of federal legislation, the exercise of power over cases of this sort constitutes one of the major purposes, if not, indeed, the most important function of the federal court system.3
The impressive and voluminous briefs submitted by the parties demonstrate that it is not always easy to determine the precise circumstances under which civil actions qualify for district court adjudication as "federal question" cases, those arising under the Constitution, laws, or treaties of the United States.
One rule not questioned to this day is that the federal question must appear from the plaintiff's statement of his claim. Gold-Washing & Water Co. v. Keyes, 96 U.S. 199, 24 L.Ed. 656 (1878); State of Tennessee v. Union & Planters' Bank, 152 U.S. 454, 14 S.Ct. 654, 38 L.Ed. 511 (1894); Louisville & Nashville R. R. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908); ALI, Study of the Division of Jurisdiction between State and Federal Courts, Commentary § 1311 at 45 (Tent. Draft No. 4, 1966). An examination of the plaintiff's allegations in the second, third and fourth counts of the complaint directed against the insurance broker defendants indicates that they were retained, after the alleged loss was sustained, to collect, as plaintiff's brokers, the sum allegedly due plaintiff on the policy. The allegations of the alleged derelictions in failing to obtain these sums for plaintiff rest essentially upon a contractual relationship between...
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