Employers Ins. of Wausau v. Crown Cork & Seal Co., Inc.

Decision Date12 June 1990
Docket NumberNo. 89-1648,89-1648
Citation905 F.2d 42
PartiesEMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Appellant, v. CROWN CORK & SEAL COMPANY, INC., Aetna Casualty & Surety Company, Continental Insurance Company, Insurance Company of North America, Lumbermen's Mutual Casualty Company, Firemen's Fund Insurance Company, and Allianz Underwriters, Inc. Appeal of CROWN CORK & SEAL COMPANY, INC.
CourtU.S. Court of Appeals — Third Circuit

Wm. Gerald McElroy, Jr., Martin E. Levin (argued), Zelle & Larson, Waltham, Mass., Steven Kudatzky, Tomar, Simonoff, Adourian & O'Brien, Haddonfield, N.J., for appellant.

Michael J. Stack, Jr., Stack & Gallagher, Philadelphia, Pa., Gregory J. Castano (argued), Kenneth D. McPherson, Jr., Salvatore A. Giampiccolo, Waters, McPherson, McNeill, Secaucus, N.J., for appellee, Crown Cork & Seal Co., Inc.

Before SLOVITER, HUTCHINSON and COWEN, Circuit Judges.


SLOVITER, Circuit Judge.

I. Facts and Procedural History

Plaintiff, Employers Insurance of Wausau (Wausau), alleges that it is one of seven insurance companies which issued comprehensive general liability and/or excess umbrella policies to Crown Cork & Seal Company, Inc. (Crown) spanning a period of approximately 25 years. Crown has been named as a defendant or a potentially responsible party in claims arising out of alleged environmental hazards at more than twenty waste disposal sites located throughout the country. On February 19, 1988 Crown filed a complaint in the New Jersey Superior Court, Law Division, against Wausau, Aetna Casualty & Surety Company (Aetna), Insurance Company of North America (INA), Continental Insurance Company (Continental), Lumbermen's Mutual Casualty Company (Lumbermen's), Firemen's [sic] Fund Insurance Company (Fireman's), and Allianz Underwriters, Inc. (Allianz), seeking, inter alia, a declaration of the obligations of the insurers to indemnify and defend Crown in the underlying actions. On December 12, 1988, approximately ten months after Crown filed its New Jersey action, 1 Wausau filed this suit in district court, naming as defendants Crown and the other insurers who are Wausau's co-defendants in Crown's New Jersey state action. Wausau seeks a declaration, pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. Sec. 2201, "of the scope and nature of its obligations and those of the defendant [insurers], if any, as the issuers of certain comprehensive general liability ("CGL") insurance policies and excess umbrella liability insurance policies providing coverage to the defendant [Crown]." App. at 6-7. Wausau alleged that the district court had subject matter jurisdiction under 28 U.S.C. Sec. 1332, as the amount in controversy is in excess of $10,000 and the matter "is between citizens of different states." App. at 7.

Crown moved in the federal action to realign the defendant insurers as plaintiffs with Wausau on the ground that all of the insurance carriers have a "consonant interest" in avoiding liability for either defense or indemnification of Crown. App. at 19. Crown argued that if the parties were realigned, complete diversity would be destroyed, as Crown, the defendant, and INA, a realigned plaintiff, are both citizens of Pennsylvania. Crown argued, in the alternative, that even if the parties were not realigned, the court should dismiss or stay the action "in favor of the first-filed state court action" pending in the New Jersey Superior Court. App. at 21-22.

In a Memorandum and Order dated June 28, 1989, the district court, without deciding the jurisdiction issue, granted Crown's motion for a stay, noting that if "the scope of the New Jersey action is not limited by a decision of the New Jersey Courts, the parties can anticipate that [the district] court will decline to entertain Wausau's declaratory judgment action and will dismiss the suit." App. at 127-28. 2 The court reasoned that it had the discretion to stay the action under the Declaratory Judgment Act or, in the alternative, on abstention grounds, as enunciated in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and its progeny. The court declined to make findings on Crown's motion for realignment, although it did note that "the jurisdictional difficulties threaten to delay, if not terminate, the progress of th[e] action" in federal court, therefore further justifying a stay in favor of the pending New Jersey action. Wausau filed this timely appeal. 3

II. Jurisdiction

On appeal, the parties have briefed primarily the question whether the district court properly stayed this action in light of the pending New Jersey action, and have given only secondary consideration to whether the defendant insurers should be realigned as plaintiffs with Wausau. We turn first to Crown's motion for realignment because it impacts upon the district court's jurisdiction.

It is an elementary principle that federal courts are courts of limited jurisdiction, empowered to hear cases only as provided for under Article III of the Constitution and congressional enactments pursuant thereto. Bender v. Williamsport Area School District, 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986). Consequently, "[a] federal court is bound to consider its own jurisdiction preliminary to consideration of the merits." Trent Realty Assocs. v. First Fed. Sav. & Loan Ass'n of Philadelphia, 657 F.2d 29, 36 (3d Cir.1981). Moreover, "every federal appellate court has a special obligation to 'satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review.' " Bender, 475 U.S. at 541, 106 S.Ct. at 1331 (quoting Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934)); see Lewis v. International Brotherhood of Teamsters, Local Union No. 771, 826 F.2d 1310, 1312 (3d Cir.1987).

The district court's grant of the stay amounts to the exercise of its dominion over this matter, clearly presupposing that it had subject matter jurisdiction in the first instance. It was therefore bound to first consider Crown's challenge to the diversity between the parties raised in Crown's motion for realignment before it granted the stay. We, in turn, must satisfy ourselves that the district court had subject matter jurisdiction before considering whether it properly stayed the action. See Colorado River Water Conservation District v. United States, 424 U.S. 800, 806, 96 S.Ct. 1236, 1240, 47 L.Ed.2d 483 (1976). Indeed, we would be obliged to consider, sua sponte, whether the district court had subject matter jurisdiction over this action even if Crown had not continued to press the realignment issue on appeal. See Trent, 657 F.2d at 31.

In order to sustain jurisdiction based on the diversity of the parties, there must exist an " 'actual,' 'substantial' controversy between citizens of different states, all of whom on one side of the controversy are citizens of different states from all parties on the other side." Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69, 62 S.Ct. 15, 17, 86 L.Ed. 47 (1941) (citations omitted). In determining whether there is the necessary "collision of interests," the court must look at the " 'principal purpose of the suit' and the 'primary and controlling matter in the dispute.' " Id. (citations omitted). The parties' determination of their alignment cannot confer jurisdiction upon the court. Although the pleadings are relevant, it is the court's duty to " 'look beyond the pleadings and arrange the parties according to their sides in the dispute.' " Id. (quoting Dawson v. Columbia Trust Co., 197 U.S. 178, 180, 25 S.Ct. 420, 421, 49 L.Ed. 713 (1905)). The Court has since explained that in ruling on realignment, the courts are "to determine the issue of antagonism on the face of the pleading and by the nature of the controversy." Smith v. Sperling, 354 U.S. 91, 96, 77 S.Ct. 1112, 1115, 1 L.Ed.2d 1205 (1957).

A determination of whether there is a collision of interests must be based on the facts as they existed at the time the action was commenced. 3A Moore's Federal Practice p 19.03, at 56 (1989). A court may, however, look at subsequent pleadings and proceedings in a case to determine the position of the parties, but only to the extent that they "shed light on the facts as they existed at the outset of the litigation and on the actual interests of the parties." American Motorists Ins. Co. v. Trane Co., 657 F.2d 146, 151 n. 3 (7th Cir.1981).

This court has adhered to the "principal purpose" test enunciated by the Supreme Court in Indianapolis. See Ackerman v. Hook, 183 F.2d 11, 14-15 (3d Cir.1950). Although other courts have apparently deviated from this test in favor of a determination as to whether there is any "substantial conflict," regardless of whether it concerns primary or non-primary issues, see Fidelity and Deposit Co. v. Sheboygan Falls, 713 F.2d 1261, 1267 (7th Cir.1983), we agree with the Ninth Circuit that Indianapolis requires a real dispute on a primary issue in the controversy, see Continental Airlines Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1523 n. 2 (9th Cir.1987).

Crown contends that the primary dispute is not between Wausau and the other insurers but between it, as the insured, and all of the insurers, who seek to avoid any liability under the relevant policies. Wausau acknowledges that each insurer will seek to avoid liability to Crown under its respective policy. 4 Several courts have held that the mere fact that every insurer seeks to avoid liability does not necessarily require a finding in every such case that all of the insurers must be aligned against the insured. See Trane, 657 F.2d at 150, 151 (7th Cir.1981); Universal Underwriters Ins. Co. v. Wagner, 367 F.2d 866, 870-71 (8th Cir.1966); United States Fidelity & Guaranty Co. v. Korman Corp., 693 F.Supp. 253, 257 (E.D.Pa.1988); Liberty Mut. Ins. Co. v. Insurance Corp. of Ireland, 693...

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