American Mut. Liability Ins. Co. v. Flintkote Co.

Decision Date09 June 1983
Docket NumberNo. 83 Civ. 3341 (WK).,83 Civ. 3341 (WK).
Citation565 F. Supp. 843
PartiesAMERICAN MUTUAL LIABILITY INSURANCE CO., Plaintiff, v. The FLINTKOTE CO., Liberty Mutual Insurance Co., et al., Defendants.
CourtU.S. District Court — Southern District of New York

Siff & Newman, P.C. by Louis G. Corsi, New York City, for plaintiff.

Shearman & Sterling by Joseph McLaughlin, New York City, for defendant Flintkote.

Olwine, Connelly, Chase, O'Donnell & Weyher by Michael Twomey, New York City, for defendant Liberty Mut.


WHITMAN KNAPP, District Judge.

Before us is plaintiff's motion to remand the case to state court. For reasons stated below, the motion is granted.


The material facts are not really in dispute, although their legal consequences are the subject of vigorous disagreement. Defendant Flintkote Co. ("Flintkote") is a Delaware corporation which manufactures and distributes construction material. Plaintiff American Mutual Liability Insurance Co. ("American") and defendant Liberty Mutual Insurance Co. ("Liberty") are both Massachusetts corporations who, at different times, were Flintkote's primary liability insurers. Until the end of June 1976, and for at least the previous decade, coverage had been provided by American; thereafter Liberty became Flintkote's primary insurer.

Since 1976 several thousand claims have been asserted against Flintkote for injuries alleged to have resulted from asbestos-containing products it had manufactured. These claims involve injuries occurring both before and after June 30, 1976. It is unnecessary to detail the history of the various disputes that have erupted between Flintkote and its two insurers and between the insurers. Suffice it to say that nobody seems to agree who is liable to whom or in what amount. However, during the course of the dispute that led to this litigation various arrangements — some formal and some informal — were concluded whereby one insurer or the other would deal with claims asserted against Flintkote, reserving for subsequent determination the liability as between one insurer and the other (or either and Flintkote).

In February 1982 American instituted a state court action to settle its dispute with Flintkote. This action did not involve defendant Liberty and was ultimately withdrawn pursuant to a tentative formula looking towards settlement. The arrangement (involving Flintkote, American, and Liberty) which was thereafter concluded proved, however, to be ineffective. In April 1983 American filed the instant state court action against Flintkote and Liberty (and 26 other insurance companies who, at one relevant time or another, had been Flintkote's excess carriers) in an attempt to seek judicial determination of the respective rights and obligations of all concerned. As between American and Flintkote the dispute is substantially similar to the one alleged in the previously withdrawn action. As between American and Liberty, the disputes which American seeks to resolve in this litigation include, at least, the following two: (a) is American entitled to recover from Liberty money it has paid on Flintkote's account and which might ultimately be determined to have been payable by Liberty?; and (b) is Liberty, on the other hand, entitled to assert similar claims against American?

Invoking diversity jurisdiction, 28 U.S.C. § 1332, defendant Flintkote removed the state court action to this Court pursuant to 28 U.S.C. § 1441(a). Plaintiff American now moves to remand on grounds that there is no complete diversity between plaintiff and defendants and, therefore, that this Court lacks subject matter jurisdiction.1


It is undisputed that the plaintiff American and defendant Liberty are both citizens of Massachusetts. Inasmuch as there exists, therefore, no complete diversity, this would ordinarily require that we remand the case to state court. See 1A Moore's Federal Practice ¶¶ 0.1575, 0.1513 (1983). Flintkote seeks to avoid this result by contending (a) that the non-diverse defendant Liberty was joined fraudulently to defeat removal and, accordingly, that its citizenship should be disregarded; (b) that Liberty should be realigned with American as an additional plaintiff; and (c) that, in any event, there exists at least one "separate and independent" controversy between American and Flintkote rendering the entire case removable under 28 U.S.C. § 1441(c). We find none of these contentions persuasive.

Fraudulent Joinder

It is axiomatic that in all removal cases the burden is with the removing party. "When a party removes a state court action to the federal court on the basis of diversity of citizenship, and the party seeking remand challenges the jurisdictional predicate for removal, the burden falls squarely upon the removing party to establish its right to a federal forum by `competent proof'." R.G. Barry Corp. v. Mushroom Makers, Inc. (2d Cir.1979) 612 F.2d 651, 655 (citing cases); Saxe, Bacon & Bolan, P.C. v. Martindale-Hubbell, Inc. (S.D.N. Y.1981) 521 F.Supp. 1046, 1048; Fed.Proc. L.Ed. § 69:128 (128). This is particularly so where the removing party seeks to oppose a motion to remand on a claim of fraudulent joinder. To be sure, "diversity jurisdiction is not destroyed by joinder of a non-diverse party if such joinder is fraudulent"i.e., effected to defeat federal jurisdiction. Fed.Proc.L.Ed, § 69:20 (1981). Proof of such joinder requires, however, a showing of bad faith, 1A Moore's Federal Practice ¶ 0.1612 n. 13 (citing cases), and "like any other allegation of fraud, must be pleaded with sufficient certainty to justify that joinder was a fraudulent device to prevent removal." Updike v. West (10th Cir.) 172 F.2d 663, 665 (mere allegations insufficient), cert. denied, (1949) 337 U.S. 908, 69 S.Ct. 1050, 93 L.Ed. 1720. Accord, B. Inc. v. Miller Brewing Co. (5th Cir.1981) 663 F.2d 545, 549 (citing cases); Macaluso v. Mondadori Publishing Co. (E.D.N.Y.1981) 527 F.Supp. 1017, 1019; Saylor v. General Motors Corp. (E.D.Ky.1976) 416 F.Supp. 1173, 1176; 1A Moore's Federal Practice ¶ 0.1612 at 282 (1983). Thus, apart from direct proof that there has been outright fraud in the plaintiff's pleading of jurisdictional facts, see 1A Moore's Federal Practice ¶ 0.1612 nn. 14-15 (citing cases), the stringent test for fraudulent joinder has uniformly been at least whether there is any reasonable basis for predicting that state law might impose liability on the non-diverse defendant. Fed.Proc.L.Ed. § 69:21 (1981). Judge Weinfeld has aptly stated that "a joinder is fraudulent if the allegations ... with respect to the fraudulently joined defendant are shown to be so clearly false and fictitious that no factual basis exists for an honest belief in ... liability." Quinn v. Post (S.D.N.Y.1967) 262 F.Supp. 598, 603 (emphasis added). Other courts have expressed the evidentiary test which the removing defendant must meet to establish fraudulent joinder in equally exacting terms. See, e.g., B. Inc. v. Miller Brewing Co., supra, 663 F.2d 545 (no possibility of liability); Tedder v. F.M.C. Corp. (5th Cir.1979) 590 F.2d 115 (no arguably reasonable basis for liability); Smoot v. Chicago, Rock Island & Pacific R.R. (10th Cir.1967) 378 F.2d 879 (complete certainty upon undisputed evidence); Lewis v. Time, Inc. (E.D.Cal.1979) 83 F.R.D. 455 (no colorable ground for liability). It is also well established that, in assessing the existence of fraudulent joinder, the Court "should resolve all disputed questions of fact in favor of the plaintiff," B. Inc. v. Miller Brewing Co., supra, 663 F.2d at 551, and, likewise, resolve in plaintiff's favor any doubt as to the state of controlling law. Id. at 549; Charest v. Olin Corp. (N.D.Ala.1982) 542 F.Supp. 771, 775.

As applied to the present motion to remand, the teachings of the foregoing cases lead us to inquire whether it could unhesitatingly be said that under New York law American could not maintain an action against Liberty on the basis of equitable subrogation with respect to claims it had honored which it claims to have been properly attributable to Liberty; and whether it could be said "with complete certainty" that American could not bring an action for declaratory judgment which would foreclose Liberty from making similar claims against it. Defendant Flintkote has not called to our attention any New York authority that disposes conclusively of either question. Our own research has likewise failed to find an answer that negates — with the requisite degree of certainty — the viability of either such action by American against Liberty. See, e.g., Federal Ins. Co. v. Atlantic National Ins. Co. (1969) 25 N.Y.2d 71, 302 N.Y.S.2d 769, 250 N.E.2d 193 (declaratory judgment); Atlantic Mutual Ins. Co. v. Atlantic National Ins. Co. (1st Dep't 1971) 38 A.D.2d 517, 326 N.Y.S.2d 438, aff'd mem., (1973) 33 N.Y.2d 817, 350 N.Y. S.2d 909, 305 N.E.2d 917 (same); King v. Pelkofski (2nd Dep't 1965) 24 A.D.2d 1003, 266 N.Y.S.2d 61 (subrogation, generally, is a favored remedy which courts are inclined to extend), aff'd, (1967) 20 N.Y.2d 326, 282 N.Y.S.2d 753, 229 N.E.2d 435; Medical Malpractice Ins. Assn. v. Medical Liability Mutual Ins. Co. (1st Dep't 1982) 86 A.D.2d 476, 450 N.Y.S.2d 191 (suggesting possibility of subrogation where one insurer paid liability on risk covered by another insurer).2

Flintkote seeks to buttress its plainly insufficient allegation of fraud by seizing primarily on the fact that in the 1982 litigation American had sued Flintkote only, without then deeming it necessary to add Liberty as a defendant. It is argued, therefore, that the present joinder of Liberty must have been intended solely to thwart federal jurisdiction. This argument is wholly without merit. American's purpose in making Liberty a defendant in this case is of no moment, see 1A Moore's Federal Practice ¶ 0.1612 nn. 9-11 (citing cases), nor is it — in and of itself — of any consequence that Liberty was not made a defendant in a previous...

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