Faysound Ltd. v. United Coconut Chemicals, Inc., 88-15107

Decision Date23 August 1989
Docket NumberNo. 88-15107,88-15107
Citation878 F.2d 290
PartiesFAYSOUND LIMITED, a corporation, Plaintiff-Appellant, v. UNITED COCONUT CHEMICALS, INC., et al., Defendant, United States Aviation Underwriters Incorporated, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Graydon S. Staring, Matthew Vafidis, and Lillick, McHose & Charles, San Francisco, Cal., for plaintiff-appellant.

Alfred C. Pfeiffer, Jr. and McCutchen, Doyle, Brown & Enerson, San Francisco, California, for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before WALLACE and NOONAN, Circuit Judges, and DWYER *, District Judge.

NOONAN, Circuit Judge:

Faysound Limited (Faysound) appeals the dismissal by the district court of its suit against United States Aviation Underwriters, Inc., et al. (the Insurers). We affirm.


In 1982 Faysound, a Hong Kong corporation, leased for five years a Falcon 50 landplane to lessees who ultimately were United Coconut Chemicals, Inc.; United Coconut Life Assurance Corp.; United Cocoa Plantations, Inc.; San Pablo Manufacturing Corporation; Legaspi Oil Company, Inc.; Granex Manufacturing Corporation; Iligan Coconut Industries, Inc.; Metroplex Commodities, Inc.; and Lucena Oil Factory, Inc. The nine lessees were all Philippine corporations.

By the terms of the lease the lessees agreed to insure the plane "against loss or damage by accident, fire and theft, to the full replacement value." In the event "of loss or damage of the aircraft beyond repair" the lessees agreed to pay Faysound "the then prevailing market value of the The insurance policy obtained by the lessees from the Insurers issued with the names of the insured as of October 28, 1985 being Faysound and eight of the Philippine corporations listed above. Faysound and the eight Phillippine Corporations were also listed as the loss payees of the policy. Faysound and the light Philippine Corporations were also listed as the loss payees of the policy. The Hull Coverage, in the amount of$10.6 million covered "all risk of physical loss of or damage to the aircraft." The policy was renewed October 28, 1986, omitting Faysound as a loss payee.

aircraft" less any insurance proceeds Faysound had received; the lessees "irrevocably" authorized Faysound to receive any insurance paid pursuant to the policy the lessees agreed to obtain.

Meanwhile, on June 19, 1986, the Presidential Commission on Good Government, an agency of the Republic of the Philippines, had sequestered the Falcon as property unlawfully acquired by Eduardo Cojuangco, Jr., "the Coconut King" associated with Ferdinand and Imelda Marcos, and had brought suit for conveyance to the Republic of the title of the plane and all other property of Cojuangco and associates. Faysound advised the Insurers that they were liable to indemnify Faysound for loss of the plane. Receiving no satisfactory response, Faysound brought suit in the federal district court for Northern California.

In its initial complaint, filed May 14, 1987, Faysound asserted:

The Court's jurisdiction lies under 28 U.S.C. Sec. 1332 since this matter exceeds the sum or value of $10,000 exclusive of interest and costs and is between a citizen of a foreign state and citizens of foreign states and a citizen of a state of the United States.

The plaintiff was identified as Faysound, a Hong Kong corporation. The nine Philippine lessees, plus the United Coconut Planters Bank, were identified as Philippine corporations and defendants. The Insurers were identified as a defendant and as "a corporation incorporated and existing under a state of the United States."

Faysound's complaint alleged that the lessees had defaulted on the lease by "causing and permitting" the sequestration; had failed to make rental payments; and had failed to insure the plane as required. Faysound alleged that the defendant United Coconut Planters Bank had controlled and directed defendant United Coconut Chemical in its use of the Falcon and sought from the bank and the lessees "the full prevailing market value" of the Falcon, or its return. Faysound also sought the full insured value of the Falcon from the Insurers. Faysound added that if the Insurers should agree that the policy covered Faysound's loss, then the Insurer "should be realigned as plaintiffs herein."

On July 24, 1987, seeking a declaratory judgment that they had no liability, the Insurers brought suit in the Supreme Court of the State of New York against Faysound; the Philippine lessees; Eduardo Cojuangco, Jr., identified as "the beneficial owner" of the lessees and "upon information and belief" as the beneficial owner of Faysound; and the Republic of the Philippines, alleged to have "sequestered both the Aircraft and the stock of the Philippine Defendants."

On July 27, 1987, our court issued its decision in Rockwell International Credit Corp. v. United States Aircraft Insurance Group, 823 F.2d 302 (9th Cir.1987). We there held that the defendants in that case, who were the same as the Insurers here, were "a group of independent insurance companies," operating as "an unincorporated association." Id. at 304. As all members of the group were not diverse from the plaintiff, diversity jurisdiction did not exist, and we remanded that case to the Arizona state court from which it had been wrongly removed. Id. at 305.

On August 4, 1987, in response to the Rockwell decision and specifically referring to it, Faysound filed an amended complaint in the federal district court for Northern California. The amended complaint now based jurisdiction on the case being "between a citizen of a foreign state and citizens of states of the United States." "Defendants," Faysound added, "maintain an office and do business in the Northern District of California." The defendants were named as United States Aviation Underwriters, Incorporated, a New York corporation The amended complaint dropped the Philippine corporations as defendants. It still asserted that the lessees had been required to insure the Falcon to the full replacement value and that no insurance could be paid until Faysound's interest was discharged. The amended complaint added that "Faysound has brought legal action against the Lessees of the Falcon to recover the aircraft or its value."

                that acted on behalf of the Insurers, and eleven individual insurance companies which make up the United States Aircraft Insurance Group, the unincorporated association that was a party in Rockwell.    The eleventh of these companies was Zurich Insurance Company, with the address "Schaumburg [sic], Illinois."    Faysound asserted that all of the insurance companies were "citizens of states of the United States."

The last statement apparently referred to suit filed the same day by Faysound in the Superior Court of the County of San Francisco, naming as defendants all of the defendants in its amended federal complaint plus the Philippine corporations that had been defendants in its initial complaint. This state action restated the causes of action against all the defendants that had been presented in Faysound's initial federal complaint. A summons and complaint in this suit were, however, not filed by Faysound until December 10, 1987. On August 5, 1987 Faysound removed the Insurers' case from the Supreme Court of New York to the federal district court for the Southern District of New York.

Meanwhile, on August 14, 1987, Alfred C. Pfeiffer, Jr., an attorney for the Insurers, filed a declaration in the federal district court for Northern California, declaring that Zurich Insurance Company was a Swiss corporation, not incorporated in the United States, with only a branch office in Schaumberg, Illinois. Pfeiffer declared he had consulted with the California Department of Insurance, whose records reflected these facts, and he also attached a report on Zurich Insurance Company appearing in Best's Insurance Records-Property-Casualty (1986) that indicated these facts. The Insurers, therefore, moved to dismiss for lack of diversity because a foreign corporation was both a plaintiff and a defendant. Three weeks later, on September 14, 1987, Faysound "without conceding the grounds" for the Insurers' argument moved to amend its complaint again, to omit Zurich Insurance Company as a defendant.

On December 7, 1987, the district court for Northern California dismissed Faysound's action. The court found it unnecessary to rule on the effect of Zurich Insurance Company's presence on diversity jurisdiction or on Faysound's motion to amend to omit Zurich. The district court focused on the question whether the Philippine lessees were indispensable parties. The court noted that if they were not parties, the Insurers faced the threat of suits by the lessees in addition to the suit by Faysound and further that the lessees themselves would be prejudiced if the right to the insurance was adjudicated in their absence. Invoking Fed.R.Civ.P. 19, the court held the lessees to be indispensable. Their presence in the suit as defendants destroyed diversity, as foreign corporations were then both plaintiff and defendants.

Faysound argued that the lessees could be realigned as plaintiffs, since both Faysound and the lessees were interested in the object of the suit, the recovery of the insurance. The court found the argument "disingenuous in light of plaintiff's first complaint which named all the lessees as defendants and stated interests adverse to the lessees." The amended complaint and the proposed second complaint also, in the court's view, stated "claims and interests adverse to the lessees'." The court refused to realign.

Faysound, as noted above, then proceeded with service in its California state court suit. It also on December 17, 1987 filed a motion for reconsideration of the district court's order of December...

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