Lank v. Federal Insurance Company

• Decision Date: 29 January 1970
• Docket Number: Civ. A. No. 3743.
• Citation: 309 F. Supp. 349
• Parties: Aubrey B. LANK, Receiver of Pickard and Company, Incorporated, Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

309 F. Supp. 349

Aubrey B. LANK, Receiver of Pickard and Company, Incorporated, Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant.

Civ. A. No. 3743.

United States District Court D. Delaware.

January 29, 1970.

Aubrey B. Lank and William H. Uffelman, Jr., of Theisen, Lank & Kelleher, Wilmington, Del., for plaintiff.

William Prickett, of Prickett, Ward, Burt & Sanders, Wilmington, Del., and William P. Sullivan, Jr., of Bigham, Englar, Jones & Houston, New York City, for defendant.

OPINION

LATCHUM, District Judge.

This case is before the Court (1) on plaintiff's motion to remand the action to the state court on the ground that this Court lacks diversity jurisdiction under the "provided further" clause of 28 U.S.C. § 1332(c) and (2) on defendant's motion to transfer the action pursuant to 28 U.S.C. § 1404(a) to the United States District Court for the Southern District of New York.

I Plaintiff's Motion To Remand

On April 22, 1969, the Court of Chancery of the State of Delaware in and for New Castle County, pursuant to 8 Del.C. § 291, appointed the plaintiff, Aubrey B. Lank, a Delaware attorney and citizen, Domiciliary Receiver of Pickard and Company, Inc. ("Pickard") upon a finding that Pickard was insolvent.¹ Pickard is a Delaware corporation and was formerly a member of the New York Stock Exchange doing business at its principal office in New York City as a stock brokerage firm. The defendant, Federal Insurance Company ("Federal"), is a New Jersey corporation having its principal place of business in New York City. According to the terms of Brokers' Blanket Bond and Policy No. 96 07474, issued by Federal to Pickard on December 23, 1963 and amended from time to time thereafter, Federal bound itself in the sum of $2,000,000 "to pay and make good" to Pickard, the assured, "all such losses as the assured may * * * sustain or discover that it has sustained," among other things, "by reason of any dishonest, fraudulent or criminal act of the Assured's officers or employees * * *."

By order of the Chancellor entered May 23, 1969, the Receiver was authorized to institute suit in Delaware against Federal to recover claims in the amount of $1,221,151.41 for losses allegedly covered by the Blanket Bond. This action was then commenced in the Superior Court of the State of Delaware in and for New Castle County on June 18, 1969 but removed on Federal's petition to this Court on July 1, 1969 because there was diversity of citizenship between the parties and the amount in controversy exceeded the sum of $10,000 exclusive of interest and costs. 28 U.S.C. §§ 1441, 1332.

28 U.S.C. § 1332(c) provides:

"(c) For the purposes of this section and section 1441 of this title, a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business: 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." (Emphasis supplied.)

The Receiver has moved to remand this action to the state court on the ground that it is a "direct action against the insurer Federal of a policy or contract of liability insurance, * * * to which action the insured the Receiver is not joined as a party defendant * * *." On this literal reading of the statute the Receiver asserts that Federal should be "deemed a citizen of the State" of Delaware "of which the Receiver is a citizen" within the meaning of 28 U.S.C. § 1332(c) and concludes that diversity of citizenship is lacking between the plaintiff and the defendant.

The Court disagrees. The legislative history of 28 U.S.C. § 1332(c) indicates that Congress was concerned with the large volume of diversity litigation in those states² which permitted direct actions by injured persons against liability insurance carriers of tortfeasors without joining the insured as a party defendant. U. S. Congressional & Administrative News, 1964, pp. 2778 et seq. Courts which have construed § 1332(c) have uniformly held that Congress intended the word "direct" to limit the word "action" so that its impact is narrowed to those situations in which an injured party is permitted to sue, directly and without joinder of the tortfeasor, the tortfeasor's liability insurer without first obtaining a judgment against the tortfeasor himself. It was not intended to encompass "any action" against an insurer. White v. United States Fidelity and Guaranty Co., 356 F.2d 746 (C.A. 1, 1966); Inman v. MFA Mutual Insurance Co., 264 F.Supp. 727 (E.D.Ark. 1967); Walker v. Firemans Fund Insurance Co., 260 F.Supp. 95 (D.Mont.1966); Carvin v. Standard Accident Insurance Co., 253 F.Supp. 232 (E.D.Tenn.1966).

Unless the suit against the insurance company is of such a nature that liability sought to be imposed could be imposed against the insured, this action is not a "direct action" in the sense used in the proviso of § 1332(c). It is clear that the present action is not one in which liability could be imposed against the insured. Furthermore, in this case the Receiver, standing in the place of Pickard, seeks to impose upon Federal, its insurance company, an obligation to pay for losses which Federal contractually assumed under the terms of its Blanket Bond. Thus, the Court holds the proviso inapplicable to this case because this suit is not a "direct action" within the meaning of § 1332(c). The motion to remand, therefore, should be denied.

II Defendant's Motion To Transfer

An action may be transferred under 28 U.S.C. § 1404(a) to another district "where it might have been brought" if the Court in its sound discretion finds the transfer to be "for the convenience of parties, witnesses and in the interest of justice." The case could have been brought in the United States District Court for the Southern District of New York. For purposes of diversity, the Receiver's citizenship rather than that of Pickard is the determining factor. Porter v. F. M. Davies & Co., 223 F. 465 (C.A. 8, 1915), rehearing den. 224 F. 451. Since the Receiver is a Delaware citizen and Federal is a New Jersey and New York citizen, suit could have been brought in the proposed transferee district. I turn now to the circumstances of the case to determine whether the criteria are met to cause this Court to exercise its discretionary power to transfer.

In regard to the convenience of witnesses, it appears that most of the witnesses who may be called at trial, or examined at pretrial deposition, presently reside in the New York metropolitan area. These witnesses may include as many as sixty employees of the New York Stock Exchange who have worked for over a year in examining and reconstructing the financial affairs of the Pickard firm. By plaintiff's admission, these sixty employees "have firsthand knowledge of the facts necessary to the plaintiff's and defendant's case." Employees of the New York accounting firm of Haskens & Sells, who presumably reside in the New York area, also are expected to testify at trial. In addition, approximately ten former directors and employees of the Pickard firm who reside in New York are expected to be called as witnesses by the defendant.³

The material issues in the present case relate to the nature and effect of conduct which occurred exclusively in New York. These issues concern not only the alleged misconduct of the defalcating employees of Pickard, and the extent of the loss resulting therefrom, but also concern the compliance of the Pickard firm with the terms of the Blanket Bond issued by Federal. Defendant indicates that it will be necessary to determine whether written notice of loss was given as soon as practicable after discovery of the loss, whether suit was commenced within 24 months after discovery of such loss, whether the bond terminated as to any employee as soon as the assured learned of the dishonest or fraudulent act of such employee, and whether knowledge of the alleged dishonest or fraudulent acts or transactions could be imputed to Pickard at such times as the alleged...