Fed. Ins. Co. v. Speedboat Racing Ltd.

• Decision Date: 09 August 2016
• Docket Number: Civil Action No. 3:12-cv-1480 (CSH)
• Citation: 200 F.Supp.3d 312
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff, v. SPEEDBOAT RACING LTD., Defendant/Third Party, Plaintiff, v. Rambler 100 LLC, Third Party, Defendant.
• Court: U.S. District Court — District of Connecticut

200 F.Supp.3d 312

FEDERAL INSURANCE COMPANY, Plaintiff,

v.SPEEDBOAT RACING LTD., Defendant/Third Party, Plaintiff,

v.Rambler 100 LLC, Third Party, Defendant.

Civil Action No. 3:12-cv-1480 (CSH)

United States District Court, D. Connecticut.

Signed August 9, 2016

Gregory John Ligelis, Robinson & Cole, Stamford, CT, for Plaintiff.

Eli R. Shindelman, Stephen J. Nelson, The Nelson Law Firm, LLC, White Plains, NY, George A. Davidson, William R. Maguire, Hughes, Hubbard & Reed, New York, NY, for Defendant/Third Party Plaintiff.

David M. Bohonnon, Bohonnon Law Firm, Dean W. Baker, Law Offices of Dean Baker, New Haven, CT, Fred H. Bartlit, Jr., Bartlit, Beck, Herman, Palenchar & Scott, Denver, CO, John D. Byars, Sean W. Gallagher, Bartlit Beck Herman Palenchar & Scott LLP, Chicago, IL, for Third Party Defendant.

OMNIBUS RULING ON PENDING MOTIONS

HAIGHT, Senior District Judge

"If the highest aim of a captain were to preserve his ship, he would keep it in port forever." This aphorism is attributed to St. Thomas Aquinas,¹ whose resume did not include ocean yacht racing.

The ship involved in this action, an ocean racing yacht, did not remain in port. Rather, in August 2011, while participating in a race off the coast of Ireland, the yacht capsized in heavy seas and suffered severe damage. This litigation is about who should pay for that damage. The parties are yacht's insurer, her owner, and her operator at the time of the casualty. The suit began as an action on a policy of marine insurance, within the admiralty and maritime jurisdiction of this Court. A number of motions are pending. This Ruling resolves them all.

I. BACKGROUND

A. Factual History

The former plaintiff, Federal Insurance Company ("Federal" or "Plaintiff"), commenced the action against its insured, Speedboat Racing Ltd. ("Speedboat"), by filing a "Complaint in Admiralty" [Doc. 1], alleging that Federal has no duty to pay Speedboat for damages that occurred to the mast, sails and spars of Speedboat's racing yacht known as Rambler 100 ( the "Yacht") on August 15, 2011.² In its Complaint, Federal asserted that the Court possessed both "diversity of citizenship" subject matter jurisdiction under 28 U.S.C. § 1332 and admiralty jurisdiction pursuant to 28 U.S.C. § 1333.³ See Doc. 1, at 2 (¶¶ 4-5).

"Rambler 100," the Yacht referred to in Federal's complaint, was formerly named "Speedboat," and was owned by the corporate party also called Speedboat. The Yacht was insured under a "Masterpiece Yacht insurance policy" issued by Federal (Policy No. 0037009323) (the "Policy") to the corporate Speedboat, as assured, for up to $5,000,000 in damages to the Yacht. Id. , at 2 (¶ 7).⁴ The policy term was October 14, 2010 through October 14, 2011. Id. The Yacht was leased by Speedboat to a different entity, Rambler 100 LLC ("Rambler"), pursuant to a "Share Issuance and Shareholder Agreement" (the "Agreement") (dated October 14, 2010), which provided, inter alia , that Rambler would have exclusive use of the Yacht in the 2011 Atlantic Ocean Racing Series and would be responsible to pay "all operating expenses, repair and maintenance costs for the Yacht and its Equipment, including minor maintenance or major equipment failure, incurred during the Term and after redelivery."⁵ See Doc. 10-3 (Exhibit C, "Lease Agreement, dated October 14, 2010"), at 5 (§ 4.1(a)).⁶

Pursuant to its terms, the Agreement was to be "governed by and construed in accordance with the laws of the State of Connecticut." Id. , at 10 (§ 5.4). The Agreement provided Rambler with an ownership interest in Speedboat ("one (1) redeemable share of a nominal par value of U.S. $1.00"), id. , at 2 (Preamble), and exclusive use of the Yacht from October 14, 2010 to March 15, 2012, for the purpose of racing the Yacht in a series of sailing races, id. , at 4 (§ 4.1(a)).⁷ Under the Agreement, Speedboat's captain, Chris Higgins, and a member of its former crew, Bill Erkelens, were to be retained as members of Rambler's crew. Id., at 5 (§ 4.1(b)). In addition, Jackson and "one guest from a list provided by [Jackson] to Rambler" were to be allowed to accompany the vessel on all races and included as "uncompensated members of [Rambler's] crew at their request." Id. , at 8 (§ 4.1(n)(1)).

On August 15, 2011, Rambler raced the Yacht in the 2011 Rolex FastNet Race off the coast of Ireland. Doc. 20 (Speedboat's "Amended Third-Party Complaint"), at 5 (¶ 21). But, as all sailors know, "[t]he sea hath no king but God alone."⁸ So it was that during the course of that race, "[f]acing 23-25 knot headwinds in heavy seas, the Yacht's canting keel snapped off just below the hull exit, whereupon the Yacht capsized, resulting in millions of dollars of damage to the Yacht."⁹ Id. As a result, Speedboat claimed payment from Federal for damages to the Yacht's "sails, mast, spars and rigging in the amount of $3,130,000.00."¹⁰ Doc. 1, at 3 (¶ 15).

B. Procedural History

In its Complaint, Federal requested declaratory judgment pursuant to 28 U.S.C. § 2201 that it has no duty to pay Speedboat for the damages at issue to the "spars and sails" of the Yacht which occurred on the occasion of the 2011 Rolex Fastnet Race.¹¹ Federal asserted that those damages were explicitly excluded from coverage under the terms of the Policy. In particular, Federal quoted the exclusion provision in the Policy, as follows:

"Spars and Sails." We do not cover any loss to spars running or standing rigging, sail, spinnakers or gennakers that occurs while your yacht is being raced.

Doc. 1, at 1 (¶ 1).

With respect to the damages claimed by Speedboat, Federal asserted that they occurred "[d]uring a race" when "the keel failed and the Yacht immediately heeled over," causing the mast and sails to break off and suffer damage. Id. Consequently, Federal sought "a declaratory judgment claiming that it has no duty to pay the damages for the mast and sails because they were damaged while the Yacht was being raced[,] which loss is excluded under the [P]olicy." Id.

Speedboat answered the Complaint [Doc. 8] and filed a Third-Party Complaint [Doc. 10] against Rambler, alleging that Rambler had breached the Agreement. In its third-party complaint, Speedboat specified that "[t]his Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332 because Speedboat and Rambler are citizens of different States and the amount in controversy exceeds $75,000, exclusive of interest and costs." Doc. 10, at 2 (¶ 6). Speedboat also asserted that the Court "has jurisdiction of this action pursuant to 28 U.S.C. § 1367 because the claims asserted in this Third-Party Complaint are within the Court's supplemental jurisdiction, as the claims in this Third-Party Complaint are so related to the claims in the Complaint previously filed by the Plaintiff [Federal] that they form part of the same case of controversy."¹² Id. at 3 (¶ 7).

Speedboat thereafter filed an "Amended Third-Party Complaint" [Doc. 20] pursuant to Federal Civil Rule 15(a)(1)(B), as a "matter of course."¹³ In that pleading, Speedboat asserted that if "Plaintiff [was] held to be not responsible to pay Speedboat on its claim for damages to said ‘spars and sails,’ this Court should enter a judgment that Rambler is liable to and must pay Speedboat for such damages pursuant to the terms of the Share Issuance and Shareholder Agreement." Doc. 20, at 2 (¶ 2). Also, in this amended pleading, Speedboat based the Court's jurisdiction solely upon supplemental jurisdiction, no longer citing diversity of citizenship between Speedboat and Rambler. Id. , at 2–3 (¶ 6). Speedboat simply alleged that "the claims in this Third-Party Complaint are so related to the claims in the Complaint previously filed by the Plaintiff [Federal] that they form part of the same case or controversy." Id.

Rambler filed counterclaims against Speedboat for breaches of the Agreement and for failing to disclose to Rambler that the keel fin was dangerously defective. In its pleading, Rambler, like Speedboat, pled that the Court has supplemental jurisdiction over its claims under 28 U.S.C. § 1367. See Doc. 29 (Rambler's Answer to Amended Third Party Complaint), at 15 (¶ 3). As pled by Speedboat and Rambler, all claims between them ultimately became "based only on the Court's section 1367 supplemental jurisdiction" without citing an underlying jurisdictional basis.¹⁴ See Doc. 45 (Speedboat's brief), at 5.

Thereafter, the Court referred the action to Magistrate Judge Joan G. Margolis for a settlement conference in January of 2013. That conference occurred in March of 2013 and was followed by a second conference in May of 2013. The entire case did not settle. However, on June 7, 2013, Federal and Speedboat filed a "Stipulation of Discontinuance," which stated that "plaintiff's action against the defendant Speedboat Racing Ltd[.] is hereby discontinued with prejudice and without cost to either party." Doc. 43, at 1. Federal was terminated as Plaintiff in this action and, as Speedboat asserts, "the only remaining, unsettled claims in this suit are the claims between Speedboat and Rambler."¹⁵ Doc. 45, at 5.

The first motion the Court will resolve is Speedboat's motion to dismiss for lack of subject matter jurisdiction. Speedboat argues that due to changed circumstances—the termination of Federal as Plaintiff in this action—the Court lacks subject matter jurisdiction. Id. Specifically, "the remaining parties in this case lack diversity of citizenship."¹⁶ Doc. 45, at 4. Speedboat thus urges the Court to dismiss the remaining claims, focusing on the balance of the "traditional values of judicial economy, convenience, fairness, and comity." Doc. 45, at 7 (citing Kolari v. New York – Presbyterian Hosp. , 455 F.3d 118, 122 (2d Cir.2006) ). Because the Court "has not expended significant resources on the case or addressed any substantive dispositive motions, Speedboat respectfully requests that the Court exercise its discretion, pursuant to 28 U.S.C. § 1367(c)(3), to dismiss Speedboat's claims without...