BIW v. Institute of London Underwriters, Civ. No. 94-247-P-C.

• Decision Date: 13 December 1994
• Docket Number: Civ. No. 94-247-P-C.
• Citation: 870 F. Supp. 3
• Parties: BATH IRON WORKS CORPORATION, Plaintiff, v. CERTAIN MEMBER COMPANIES OF The INSTITUTE OF LONDON UNDERWRITERS, et al., Defendant.
• Court: U.S. District Court — District of Maine

870 F. Supp. 3

BATH IRON WORKS CORPORATION, Plaintiff, v. CERTAIN MEMBER COMPANIES OF The INSTITUTE OF LONDON UNDERWRITERS, et al., Defendant.

Civ. No. 94-247-P-C.

United States District Court, D. Maine.

December 13, 1994.

Mark L. Haley, Constance P. O'Neil, Arlyn H. Weeks, Conley, Haley, O'Neil & Kaplan, Bath, ME, for plaintiff.

John D. Gleason, Sidney St. F. Thaxter, David P. Silk, Curtis, Thaxter, Stevens, Broder & Micoleau, Portland, ME, Robin L. Main, Gregory L. Benik, Charles J. McGovern, Philip W. Noel, McGovern, Noel & Benik, Providence, RI, for defendants.

MEMORANDUM AND ORDER GRANTING PLAINTIFF'S MOTION FOR REMAND

GENE CARTER, Chief Judge.

Plaintiff Bath Iron Works Corporation ("BIW"), a Maine corporation with a principal place of business in Maine, originally brought this action for declaratory and monetary relief in the Maine Superior Court. Defendants, member companies of the Institute of London Underwriters and certain underwriters of Lloyd's of London (collectively, "Lloyd's"), filed a Notice of Removal of this matter to this Court (Docket No. 1-1). Now before the Court is BIW's Objection and Motion to Remand pursuant to 28 United States Code section 1447(c) (Docket No. 26). Upon review of the record and memoranda presented in this matter, the Court determines that it lacks jurisdiction over the dispute herein and remands the matter to the Maine Superior Court.

The issue presented on this motion is, for the purposes of determining the presence of diversity jurisdiction, whose citizenship should be considered? Although normally this is a rather straightforward determination, this case requires the Court to delve into the structure of Lloyd's of London, an institution, that is, without a doubt, sui generis. Accordingly, the traditional analysis for determining the citizenship of, for instance, a corporation or partnership is of limited assistance to the Court here. A brief description of the organization of Lloyd's assists in understanding the precise question presented by BIW's Motion to Remand.

Lloyd's of London is not an insurance company but, rather, a marketplace for investor-underwriters and those seeking insurance. Individual investors, known as "underwriters" or "Names," operate through "members' agents" who invest the Names' money in various "syndicates." Affidavit of Richard David Huson (Docket No. 30, Exhibit A) at ¶ 3-5.3 (hereafter "Aff."). It is these syndicates, which are simply groups of Names operating through a managing agent or active underwriter,¹ that underwrite all or, more commonly, a share of coverage for an insured. An active underwriter under the Lloyd's Agency Agreements Byelaw, must also be a member of the syndicate which he or she manages. Aff. at ¶ 15.2. The remaining Names in the syndicate delegate essentially full authority to the active underwriter to perform all underwriting functions, pay claims, and bring or defend lawsuits, and with the Names retaining no right or power to participate in underwriting. Aff. at ¶ 18.²

It is not disputed that, under British law, the syndicates themselves are not legally recognized persons having their own citizenship, as are corporations. Rather, the dispute is whether the citizenship of every Name within each syndicate implicated herein should be considered for the purposes of diversity jurisdiction or whether the Court should restrict its consideration to only the active underwriters. The two approaches produce different results here since, while there are no active underwriters who are residents of Maine, there are four Names who are residents (Defendants' Response to Request for Admission, Docket No. 26, Attachment A).

I. ANALYSIS

Under the United States Constitution and federal law, federal courts have jurisdiction to hear and decide controversies between "citizens of different States" and between "citizens of a State and citizens or subjects of a foreign state." 28 U.S.C. § 1332(a). That jurisdiction, however, can be exercised only when there is "complete diversity" among all parties; that is, no plaintiff and no defendant may be citizens of the same state. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). When reviewing the citizenship of the parties, courts will disregard the citizenship of "formal or nominal" parties. Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S.Ct. 1779, 1782, 64 L.Ed.2d 425 (1980). Generally, therefore, courts look to the "real parties in interest"³ to determine whose citizenship will be considered for the purposes of diversity. Id. at 460, 100 S.Ct. at 1781; 6A Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 1556.

Complications are presented when one of the parties is an unincorporated association. Generally, a court will disregard the "entity's" citizenship (since noncorporations are not persons and therefore not citizens) and, instead, look to the citizenship of all of the members of the association. Carden v. Arkoma Assoc., 494 U.S. 185, 195, 110 S.Ct. 1015, 1021, 108 L.Ed.2d 157 (1990) (holding that to determine the presence of diversity where a limited partnership is a party, a court should look to the citizenship of limited, as well as general, partners); see also, Nelson & Small, Inc. v. Polaris Indus. Partners, L.P., 768 F.Supp. 382 (D.Me.1989). Here, BIW has sued, not only "Certain Member Companies of the Institute of London Underwriters," but also the underwriters, active and nonactive, themselves.

Lloyd's argument is essentially that the only real parties-in-interest here are the active underwriters, who have complete control over the litigation and who act as representatives or agents for all of the Names. To support this approach, Lloyd's refers to case law that holds, that in some instances, a representative, and not the represented party, is the only real party-in-interest. In Navarro, the Supreme Court determined that the individual trustees of a business trust, rather than the trust's beneficial shareholders, were the real parties-in-interest for purposes of determining diversity jurisdiction. Navarro, 446 U.S. at 465, 100 S.Ct. at 1784. This Court, in Maine v. Data General Corp., 697 F.Supp. 23 (D.Me.1988), held in an employment discrimination case brought by the State of Maine, that the state could properly be considered the real party-in-interest for purposes of determining diversity. The Court concluded that it did not need to consider the citizenship of the victim because, in that case, the state had power to control the litigation and it was protecting a quasi-sovereign interest, making the state the real party-in-interest. Id. at 25 n. 1.⁴

Lloyd's claims that Navarro and Data General support its argument that the active underwriters, as "representatives" of all Names in each syndicate, are the only real parties-in-interest here. In both Navarro and Data General, the courts analyzed whether the named plaintiffs were also real parties-in-interest and, therefore, the appropriate parties to consider to determine jurisdiction. Here, the proper focus of the Court is upon defendants, not plaintiffs, and it appears that both active and nonactive Names face potentially unlimited liability under their agreements with Lloyd's syndicates and insureds. In fact, it is the Names' investments and personal assets that may ultimately fund any settlement or judgment against Lloyd's. Furthermore, the Defendants have filed a counterclaim and a third-party complaint against BIW seeking declaratory and monetary relief. Accordingly, it would be absurd to conclude that the Names are merely "nominal or formal" parties in this litigation.

There is no question that the active underwriters are real parties-in-interest, but this Court can find no reason why, given that fact alone, they must be the real parties to the exclusion of all other Names. The Supreme Court in Carden noted with reference to unincorporated associations, "we reject the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity's members." Carden, 494 U.S. at 195, 110 S.Ct. at 1021. In other words, if BIW had sued the syndicates (i.e., artificial unincorporated entities) that provided the reinsurance policies, Carden requires this Court to look to every member of the syndicate for diversity purposes. Here, BIW has sued the Names directly, thus eliminated the need to do to analysis called for in Carden. Accordingly, it would be nonsensical to allow a different result for a plaintiff who sues the members of an entity rather than the entity as such.

Contrary to Lloyd's assertions, "control" is not a dispositive issue in determining who, among parties, is the real party-in-interest.⁵ The Supreme Court in Carden specifically rejected a real party-in-interest approach which "looks to `control over the conduct of the business and the ability to initiate or control the course of litigation.'" Carden, 494 U.S. at 193, 110 S.Ct. at 1020. This Court examined "control" in Data General only to determine that the named plaintiff was not merely a nominal party. Data General, 697 F.Supp. at 25 n. 1.

Lloyd's places great reliance on the recent decision of the United States Court of Appeals for the Sixth Circuit in Certain Interested Underwriters v. Layne, 26 F.3d 39 (6th Cir.1994), which held that, for purposes of diversity determinations, courts should look to the citizenship of the active underwriters only. However, this Court does not find the Layne opinion to be persuasive authority here.

In addition to a few somewhat minor distinctions,⁶ this Court finds the approach and conclusion in Layne to be unnecessarily artificial. To resolve the issue on appeal, the Sixth Circuit panel used an agency analysis and concluded that the "underwriters" (referring to active underwriters only) function as agents for an undisclosed principal, the syndicate. Id. at 43. The court...