In re San Juan Dupont Plaza Hotel Fire Litigation

• Decision Date: 11 September 1992
• Citation: 802 F. Supp. 624
• Parties: In re SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.
• Court: U.S. District Court — District of Puerto Rico

802 F. Supp. 624

In re SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.

MDL 721 (RLA).

United States District Court, D. Puerto Rico.

September 11, 1992.

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Monita Sterling, Metairie, La., for plaintiffs' Steering Committee.

Ralph W. Dau, Peter B. Ackerman, Sandra E. Smith, O'Melveny & Myers, Los Angeles, Cal., Andrew K. Epting, Jr., G. Trenholm Walker, Wise & Cole, Charleston, S.C., Frederick B. Lacey, Paul K. Connolly, Jr., Leboeuf, Lamb, Leiby & Macrae, Boston, Mass., Lon Harris, Harris & Green, Torrance, Cal., Deborah A. Pitts, Hancock, Rothert & Bunshoft, Los Angeles, Cal., Marcos Pérez Cruz, Virgilio Méndez Cuesta, Río Piedras, P.R., Ernesto Rodríguez Suris, Hato Rey, P.R., Raúl E. González-Díaz, A.J. Bennazar-Zequeira, Gonzalez, Bennazar & Colorado, Hato Rey, Puerto Rico, Homer L. Marlow, Marlow, Shofi, Connell, Valerius, Abrams, Lowe & Adler, Miami, Fla., Bethany Culp, B. Todd Jones, Oppenheimer, Wolff & Donnelly, St. Paul, Minn., Larry I. Gramovot, Marlow, Shofi, Smith, Hennen, Smith & Jenkins, Tampa, Fla., Adrián Mercado, Mercado & Soto, Hato Rey, P.R., Francisco J. Colón-Pagán, Old San Juan, P.R., for defendants.

ORDER NO. 467

DISMISSAL OF CLAIMS AGAINST THE PRE-FIRE INSURERS

ACOSTA, District Judge.

Before the Court are numerous motions¹ filed by several Dupont Entities,² the Plaintiffs' Steering Committee (PSC) and the Dupont Entities' Pre-fire Insurers.³ After review and careful consideration of the matters contained therein, the Court finds that the claims against the pre-fire insurers warrant dismissal as a matter of law.

I. BACKGROUND/INTRODUCTION

This is the third subphase of the Phase III Insurance Trials and involves the cross-claims by and between several Dupont Entities (insureds) and their respective insurers (pre-fire insurers) seeking recovery for the funds paid in settlement by the Dupont Entities as a result of the Phase I Trial. Coverage is alleged to be available for the acts of named insureds which resulted in advertising injury, property damage and personal injury to various Dupont Entities.

The various pre-fire insurers issued comprehensive general liability policies, naming one or more Dupont Entity as insureds, which expired prior to the December 31, 1986 fire at the San Juan Dupont Plaza Hotel (Hotel). The twenty-four (24) policies at issue in this subphase include both primary and excess coverage.

During the Phase I Trial, plaintiffs⁴ sought to establish the derivative liability of the Dupont Entities, including Holders Capital Corp. (HCC) and its shareholders, Hotel Systems International (HSI), and HSI Reservations, for the acts and omissions of the San Juan Dupont Plaza Corporation. Utilizing the "Alter Ego Instrumentality Theory," "Enterprise Theory" and "Joint Venture/Partnership Theory," plaintiffs presented evidence to show that the Dupont Entities were the alter-ego, instrumentality and/or business conduit of the Hotel and therefore, not entitled to the protection offered by their corporate and partnership status.⁵

Evidence presented to support these theories included promotional materials such as brochures, pamphlets and business cards depicting the Hotel and/or employees of various Dupont Entities as part of the "HSI Family" or "HSI Hotel Chain," loan applications and business records alleging ownership and control of the Hotel by other Dupont Entities and evidence that the Dupont Entities were responsible for the design and/or alterations of the Hotel as well as the purchase and installation of various products. After approximately eight weeks, the Phase I Trial concluded with a settlement between the plaintiffs and the Dupont Entities in the amount of $78,000,000.00.

This particular subphase consists of claims against the pre-fire insurers by the PSC on behalf of all the plaintiffs pursuant to the direct action statute, Laws of Puerto Rico Annotated sections 2001 and 2003, and by virtue of the claims assigned by the Dupont Entities.⁶ In addition, various Dupont Entities are seeking a declaration from the Court that the insurers of other Dupont Entities are obligated to indemnify them under these policies for any liability arising from the acts, omissions and/or occurrences alleged by plaintiffs and for all sums paid in settlement during the Phase I Trial as well as attorneys' fees and the "cost of suit."⁷

It is undisputed that the claims pursued during this subphase are not identical to those asserted by plaintiffs against the Dupont Entities in the Phase I Trial. The Dupont Entities contend that coverage exists because their claims derive from and are a result of the plaintiffs' action in the Phase I Trial. On the other hand, the insurers assert that recovery under the provisions of comprehensive general liability/indemnity policies include only claims for indemnity and contribution for the damages incurred as a result of the underlying liability action. Therefore, they argue, since the insureds' coverage claims in the subphase are based entirely on provisions not pursued by the plaintiffs; i.e., advertising injury, property damage and personal injury, coverage is not available under these particular policies for these alleged cross-claims.⁸

Relying on similar reasoning, the insurers further allege that the plaintiffs' direct action claims must be dismissed because these claims are not identical to those pursued against the Hotel for injuries sustained as a result of the fire. In addition, they assert that the plaintiffs lack standing to pursue the claims of the insureds because there has been no assignment of claims.

Assuming, arguendo, that coverage does extend to include the types of claims pursued in this subphase and viewing the evidence submitted by the insureds and the plaintiffs as true and drawing all inferences therefrom to their benefit, it is clear from the analysis below that the action must be dismissed pursuant to Rule 56(c) of the Fed.R.Civ.P.

II. SUBJECT MATTER JURISDICTION

The insurers contend that because complete diversity does not exist in this insurance dispute as several insureds and insurers are citizens of California,⁹ and because the Phase I Trial resulted in settlement between the insureds and the PSC, the Court should order realignment of the parties and the non-federal, non-diversity insurance coverage claims should be dismissed for lack of subject matter jurisdiction.¹⁰ The Dupont Entities allege that subject matter jurisdiction was decided when the initial pleadings were filed by plaintiffs and subsequent resolution of the Phase I Trial did not alter this Court's ancillary jurisdiction over pending third-party claims arising from the original action.¹¹

The first issue is whether realignment is appropriate at this time in the litigation. Realignment should occur when no actual or substantial controversy exists between a party and its named opponents even though to do so may destroy diversity and federal jurisdiction. American Motorists Insurance Co. v. Trane Co., 657 F.2d 146, 149 (7th Cir.1981) (citing City of Indianapolis v. Chase National Bank of City of New York, 314 U.S. 63, 62 S.Ct. 15, 86 L.Ed. 47 (1941)). The facts which form the basis for realignment must have been in existence at the time the action was commenced and subsequent events will not affect jurisdiction over the parties properly aligned. Id.

Although it is a well recognized axiom that the Court has a duty to look beyond the pleadings and determine the primary and controlling matter in the dispute and align the parties according to their genuine interests, id., it need not take into consideration the counterclaims and cross-claims filed by defendants but only the plaintiffs' principal purpose in filing the suit. Zurn Industries, Inc. v. Acton Construction Co., Inc., 847 F.2d 234, 237 (5th Cir.1988). Alignment is proper at the commencement of a suit, whereas, it is not appropriate at the final stage of a multi-phase litigation. The "sorting out" of disputes that takes place in order to organize complex cases should not constitute realignment for diversity purposes. 13B C. Wright, A. Miller & Cooper, Federal Practice and Procedure, § 3607 (Supp.1992).

The insurers rely upon Lowe v. Ingalls Shipbuilding, a Div. of Litton Systems, Inc., 723 F.2d 1173 (5th Cir.1984) to support the argument that the Court should realign the parties in this dispute. In Lowe, the Fifth Circuit reviewed subject matter jurisdiction, sua sponte, and found that realignment was appropriate where the plaintiffs, initially seeking redress against Owen-Corning and Litton, settled with Owen-Corning prior to the commencement of the action. As a result, plaintiffs and Owen-Corning were on one side of the dispute pursuing identical claims against the single remaining defendant, Litton, asserting the same position in opposition to each. The Circuit Court determined that is was appropriate to realign Owen-Corning as a party plaintiff, thereby, destroying complete diversity as Owens-Corning and Litton were both Delaware corporations.

The Court finds that the facts in Lowe are distinguishable and, in effect, support the finding that realignment is not proper in the dispute currently before this Court. Clearly, the dispute of the fourth subphase of the final trial phase of this litigation does not represent the commencement of a suit. Furthermore, although the Phase I Trial eventually resulted in settlement, the settlement did not occur until well after the master complaint and subsequent amendments adding these insurers were filed, massive discovery completed and several weeks of trial.

The Court finds, however, that the parties are properly before the Court pursuant to the principles of ancillary jurisdiction. Generally, the determination of diversity jurisdiction is made at the initiation of the lawsuit. Zurn Industries, Inc., 847 F.2d at 236. Once subject matter jurisdiction is determined, the Court may...