Government Employees Insurance Company v. LeBleu, Civ. A. No. 66-456.

• Citation: 272 F. Supp. 421
• Decision Date: 27 July 1967
• Docket Number: Civ. A. No. 66-456.
• Parties: GOVERNMENT EMPLOYEES INSURANCE COMPANY v. Mrs. Ruby P. A. LeBLEU, Mitchell James LeBleu, Louis Molier, Horace Boquet, Mrs. Horace Boquet, Calvin Deroche, Mrs. Calvin Deroche, Glenda June Goodman, William Edgar Goodman, and General Finance Corporation, Jeanne and Evence Verdin.
• Court: U.S. District Court — Eastern District of Louisiana

272 F. Supp. 421

GOVERNMENT EMPLOYEES INSURANCE COMPANY v. Mrs. Ruby P. A. LeBLEU, Mitchell James LeBleu, Louis Molier, Horace Boquet, Mrs. Horace Boquet, Calvin Deroche, Mrs. Calvin Deroche, Glenda June Goodman, William Edgar Goodman, and General Finance Corporation, Jeanne and Evence Verdin.

Civ. A. No. 66-456.

United States District Court E. D. Louisiana, New Orleans Division.

July 27, 1967.

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COPYRIGHT MATERIAL OMITTED

Gordon F. Wilson, Jr., Hammett, Leake & Hammett, New Orleans, La., for plaintiff.

Keith M. Whipple, Houma, La., for defendants.

HEEBE, District Judge:

On February 17, 1966, a two-car collision occurred within this district. The first car was driven by one Mitchell James LeBleu, and carried four passengers; the second was occupied by two persons. Of the seven persons in the two cars involved, four died and two were seriously injured. The car driven by Mitchell LeBleu was owned by his mother, Mrs. Ruby LeBleu.

The present action was brought under the Declaratory Judgment Act, 28 U.S. C.A. §§ 2201 and 2202, against Ruby LeBleu and the various injured parties and their representatives by Government Employees Insurance Company (hereafter "GEICO" or "insurer"), the liability insurer of the LeBleu automobile. The insurer seeks a declaratory judgment in its favor against its insured, Ruby and Mitchell LeBleu, as well as all other "parties of interest" including "all persons who have, or might have, claims under the policy at issue herein." (Count 19 of the complaint). Declaratory judgment is sought on the sole issue presented by GEICO's allegation that the policy issued to Ruby LeBleu is invalid due to material misrepresentations made in her original application for the policy. The defendants Ruby and Mitchell LeBleu moved to dismiss the complaint for lack of jurisdiction over the subject matter.

The precise issue involved here is simple, but unique, and a proper resolution of it seems to involve some difficulty. Jurisdiction was alleged by the insurer to lie in diversity,¹ under 28 U.S. C.A. § 1332(a), GEICO properly alleging itself a "citizen" of the District of Columbia,² and each of the defendants citizens of Louisiana. The LeBleus' contention is that under the amendment to § 1332(c), (effective as to causes of action arising after August 14, 1964), the plaintiff insurer must be considered to be a "citizen" of Louisiana as well as the District of Columbia, and that there is therefore no diversity between plaintiff and any of the defendants.

Section 1332(c) basically serves to establish, for purposes of federal diversity jurisdiction, the concept of citizenship of corporations.³ Having made corporations "citizens," the statute proceeds with the necessary step of fixing the method of determining the state of citizenship of a particular corporation.

The state of incorporation had been originally fixed by the courts as the state of citizenship of corporations.⁴ The fiction was first extended by § 1332(c) to make a corporation also a citizen of the state in which it has its principal place of business. The latest amendment to § 1332(c) further stretches the concept of corporate citizenship with the following language:

"Provided further, That in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business."

The constitutionality of this provision has not been called into question here. Certainly we would not be disposed to rehash here questions of the validity of the fiction of corporate citizenship, especially in this case of its use by Congress in limiting rather than expanding federal jurisdiction. The avowed and obvious purpose of the Congressional amendment was and is to deny resort to the federal judicial system by plaintiffs in two states in which the peculiar device of "direct action" statutes had resulted in an ever-increasing flood of litigation against insurance companies against which injured parties traditionally had no recourse directly. The sole net effect of the fiction erected by the amendment is not an enlargement but a restriction of the availability of federal jurisdiction⁵ for such cases. And surely nothing is more firmly "settled" than the principle that Congress has the power to limit the jurisdiction of the federal courts in whatever extent it deems fit, Ex Parte McCardle, 7 Wall. 506, 19 L.Ed. 264 (1868); Cary v. Curtis, 3 How. 236, 245, 11 L.Ed. 576 (1845), with the sole possible limitation on that power which may be imposed by the requirements of due process, see Battaglia v. General Motors Corp., 169 F.2d 254, 257 (2nd Cir. 1948); Wright, Federal Courts § 11, p. 24 (1963). Moreover, the mere fact that Louisiana and Wisconsin have created the fiction of "direct action" against insurers, thus allowing the exercise of diversity jurisdiction in cases not previously cognizable therein, seems justification enough for the corresponding fiction erected by the 1964 amendment to § 1332 (c) denying access to federal courts for such cases.

Be that as it may, the constitutional issue of the validity of § 1332(c) has not been argued by the parties here. The insurer certainly did not wish to raise the issue, and in fact has waived in this case whatever protection the provision may have afforded it in bringing this declaratory suit. The insured parties actively rely on the validity of § 1332(c), their only contention being that since under that section the insurer must be considered to be of the same citizenship as the insured in diversity suits brought under the Louisiana direct action statute, the provision ought not to cease to operate merely because the insurer has chosen to bring the same matter up by way of the declaratory judgment procedure. Movers contend that § 1332(c) ought to apply in this situation to make GEICO a citizen of the same state as its insured, and therefore that no diversity exists between the parties, all of whom would then be considered citizens of Louisiana.

The thrust of the movers' argument, as we view it, is an attempt at an interpretation and a formulation of the true nature of the Declaratory Judgment Act.⁶ We agree fundamentally with the interpretation proffered, but deny the motion for reasons which will appear below.

The Federal Declaratory Judgment Act, 28 U.S.C.A. §§ 2201 and 2202, was enacted in 1934, the aim of its supporters being to provide a means of settling actual controversies before they ripen into violations of law or a breach of contractual duty. 3 Barron & Holtzhoff Federal Practice and Procedure § 1262, p. 273, n. 13.1. The judgment rendered in a declaratory suit comprises "an authoritative judicial statement of the jural relationships between parties to a controversy." 62 Harvard L.Rev. 787 (1949). The declaratory judgment procedure is well put into its proper context by Professor Wright:

"The traditional and conventional concept of the judicial process has been that the courts may act only in case a litigant is entitled to a coercive remedy, such as a judgment for damages or an injunction. Until a controversy had matured to a point at which such relief was appropriate and the person entitled thereto sought to invoke it, the courts were powerless to act. At times, however, there may be an actual dispute as to the rights and obligations of the parties, and yet the controversy may not have ripened to a point at which an affirmative remedy is needed. Or this stage may have been reached but the party entitled to seek the remedy may fail to take the necessary steps.

* * * * * *

"In all of these situations the declaratory judgment procedure provides a useful solution. It provides a means by which rights and obligations may be adjudicated in cases involving an actual controversy that has not reached the stage at which either party may seek a coercive remedy, or in which the party entitled to such a remedy fails to sue for it." Wright, Federal Courts § 100, pages 390 and 391 (1963).

Much of the discussion of the Act in cases and articles has been concerned with a reevaluation, in terms of the Act, of the constitutional requirements of "case or controversy." Thus, much debate has been devoted to the question of determining the point in an "actual controversy" at which a prospective claimant may be allowed to sue under the Act and still meet the constitutional requirement. To allow such prospective plaintiffs to bring to court actual controversies "before they ripen into violations of law" is certainly a major reason for the Act. But an equally necessary and desirable function of the Declaratory Judgment Act has been to allow a prospective defendant to expedite the hearing of his defense to an impending or threatened action by another. Often in this situation "ripeness" is not an issue, the only thing standing between the parties and an adjudication of their controversy being delay on the part of the one asserting the claim in bringing it before a court. The Act serves "to afford one threatened with liability an early adjudication without waiting until his adversary should see fit to begin an action after the damage had accrued." 3 Barron & Holtzoff, Federal Practice and Procedure (Wright Edition) § 1262, p. 273, n. 13.

The reversal of the nominal status of the parties occasioned where a prospective defendant initiates what is really the opposing party's action has created difficulties in situations where the status of a party as a plaintiff or a defendant is important. For example, the question arises as to which party the nominal plaintiff or the traditional (real) plaintiff, should bear the burden of proof of his case.⁷ Cf. 6A Moore's Federal Practice ¶ 57.312....