Lavan Petroleum Company v. Underwriters at Lloyds

• Decision Date: 05 August 1971
• Docket Number: No. 71 Civ. 244.,71 Civ. 244.
• Citation: 334 F. Supp. 1069
• Parties: LAVAN PETROLEUM COMPANY et al., Plaintiffs, v. UNDERWRITERS AT LLOYDS et al., Defendants.
• Court: U.S. District Court — Southern District of New York

334 F. Supp. 1069

LAVAN PETROLEUM COMPANY et al., Plaintiffs, v. UNDERWRITERS AT LLOYDS et al., Defendants.

No. 71 Civ. 244.

United States District Court, S. D. New York.

August 5, 1971.

Kirlin, Campbell & Keating, New York City, for plaintiffs; Louis J. Gusmano, Charles N. Fiddler, John R. Geraghty, New York City, of counsel.

Mendes & Mount, New York City, for defendant Underwriters at Lloyds; Alfred A. Lohne, William J. Russonello, New York City, of counsel.

OPINION

COOPER, District Judge.

Plaintiffs, pursuant to 28 U.S.C. § 1447(c), seek to remand this litigation to the New York State Supreme Court. Four plaintiffs are American oil companies: ARCO Exploration, Inc., Murphy Middle East Oil Co., Iranian Sun Oil Co., (Delaware corporations), and Union Oil Company of Iran (a California corporation) —the "citizen corporations." The remaining two plaintiffs, Lavan Petroleum Co. and National Iranian Oil Co., are incorporated under the laws of Iran—the "alien corporations."

The four citizen corporations apparently formed a joint venture with National Iranian, embodied in the creation of the Lavan corporation (each citizen corporation owning 12½% of Lavan's outstanding stock; National Iranian controlling a counter balancing ½ interest) to undertake the construction and operation of a submarine oil pipeline system in the Persian Gulf area. In furtherance of this enterprise, Lavan entered into a construction and installation contract with Oceanic Contractors Inc. (a Panamanian corporation).

A term of the construction contract required Oceanic to secure an insurance policy underwriting Oceanic's guarantee that the pipeline would be free of defective materials and workmanship and an "all risks clause" insuring against any physical loss or damage to the trunkline. In accordance with this provision, an insurance contract was entered into on July 27, 1967 between a group of English insurance underwriters (the "alien underwriters") and Oceanic, Lavan, and Lavan's associated companies.

During the operative term of the insurance policy, three separate leaks were discovered in the ninety mile trunkline. Plaintiffs, as assureds under the terms of the insurance contract,¹ now seek recovery of expenses incurred in making the necessary repairs to the trunkline. Their action was originally commenced in State Supreme Court by the filing of a complaint on December 30, 1970. Defendants' petition for removal to this Court was filed January 19, 1971.

28 U.S.C. § 1332

Subdivision (a) (2) of § 1332 empowers the federal court to entertain original jurisdiction over civil controversies involving a sum in excess of $10,000 between "citizens of a State, and foreign states or citizens or subjects thereof." To sustain jurisdiction under this section, it is an essential prerequisite that there be complete diversity of citizenship—that each and every party plaintiff be of different citizenship from all parties defendant. Strawbridge v. Curtiss, 3 Cranch 267, 2 L.Ed. 435 (1806). Accordingly, if this suit were brought by the citizen corporations against the alien underwriters, the case would be a proper matter of federal court attention. Complete diversity is negated however by the presence as plaintiffs of the two alien corporations.

Subdivision (a) (3) of this section vests original jurisdiction in controversies between "citizens of different States and in which foreign states or citizens or subjects thereof are additional parties." Accordingly, if the citizen corporations were involved in litigation with citizens of different states, the presence of the two alien plaintiff corporations would be jurisdictionally immaterial. However, the named defendants are not citizens of different states; they are citizens of a foreign country. Therefore this section is likewise inapplicable.

Defendants' novel proposition to transform (a) (2) jurisdiction by engrafting to it section (3)'s clause concerning foreign parties, effectuating thereby a consideration of the alien corporations as merely "additional parties" in an action brought by citizens against aliens, must be rejected. There is no legislative or judicial support for so expanding (a) (2)'s basis of jurisdiction, Cf. 1 Moore's, Federal Practice, ¶ 0.60 3, 8 (2d ed.). Further, such a reading would do violence to the clear wording of that statute. The concept of complete diversity in such litigation would be vitiated, for the presence of a single citizen in an action against defendant aliens would serve as a basis for sustaining jurisdiction.

28 U.S.C. § 1441(c)

Although this Court is without original jurisdiction, defendants may successfully remove an action commenced in state court involving such mixed party alignment, in certain circumstances pursuant to 28 U.S.C. § 1441. Subdivision (c) authorizes the removal of an entire case to the federal courts if included within the action is a separate and independent claim which if sued upon alone would have been removable.

It is undeniable that that portion of the controversy involving the four citizen corporations and the alien underwriters "if sued upon alone" would properly be removable as an adversary matter between citizens of various states and foreign subjects. If defendants are to succeed in sustaining removal, it is incumbent upon them to establish, as well, that this isolated "removable" segment of the litigation comprises separate and independent causes of action, within the meaning of § 1441(c), from those asserted by the two alien plaintiff corporations.

Prior to the enactment in 1948 of § 1441(c) (it superseded 28 U.S.C. § 71), the presence of a "separable controversy" constituted an adequate basis for removal of complex litigation. In American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951), the leading Supreme Court opinion construing this statutory provision, the court emphasized that a primary factor underlying Congressional adoption of the "separate and independent" standard in 1948 "was to limit removal from state courts." 341 U.S. at 11, 71 S.Ct. at 538. In Finn, a Texas citizen sought recovery for damages to property upon an insurance policy against two non-Texas insurance companies and their local agent, a Texas resident. In remanding the litigation, the Court concluded that:

"where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c).

* * * * * *

The allegations in which Reiss the non-diversity defendant is a defendant involve substantially the same facts and transactions as do the allegations * * * against the foreign insurance companies. It cannot be said that there are separate and independent claims for relief as § 1441(c) requires."

In seeking to escape Finn's stringent² definition of a separate and independent cause of action, defendants rely heavily upon this court's determination in Herrmann v. Braniff Airways, Inc., 308 F. Supp. 1094 (S.D.N.Y.1969), that multiple claims, although arising out of a common transaction or occurrence, may satisfy § 1441(c) requisites if asserted by multiple plaintiffs.

Although the court in Herrmann declined to remand the action and found that the application of

"Finn's language * * * is not appropriate because Finn and almost all reported diversity cases involve a single plaintiff who has made related claims against multiple defendants in a single case, whereas here we are concerned with multiple plaintiffs who have joined their individual claims in a single suit against a single defendant" (308 F.Supp. at 1098),

it did not imply that the mere presence of multiple plaintiffs would necessarily involve separate and independent claims. The accompanying essential element underlying Herrmann's holding was that the right asserted by each plaintiff was of "separate wrongful acts, namely the wrongful invasion of each decedent's right of bodily safety." 308 F.Supp. at 1099. Likewise in Scheideler v. Jones, 105 F.Supp. 726 (S.D.N.Y.1952), the court viewed the "claim of one plaintiff for damages to his reputation is so peculiarly personal as to be clearly `separate and independent' from the similar claims of each of the other plaintiffs."³ 105 F.Supp. at 727. Accordingly, while we fully concur with the cogent reasoning expressed in Herrmann and Scheideler, both are distinguishable, for plaintiffs in the instant matter do not assert separate wrongful acts violative of their individual rights. "Realistically * * there is a single claim." Schwartz v. Employers Mutual Liability Ins. Co., 170 F.Supp. 194 (S.D.N.Y.1959).

Unlike the fortuity linking Herrmann's ill fated passengers or the reviled objects in Scheideler's remarks, the plaintiffs through Lavan, a corporation in the control of which each participated, entered into a single insurance policy to protect their joint interest in the trunkline. The three causes of action alleged in the complaint arise out of a single series of "interlocking transactions" Charles Dowd Box Co. v. Fireman's Fund Ins. Co., 303 F.2d 57 (1st Cir. 1962) and are aimed at remedying a single wrong suffered by plaintiffs, "depriving them of the proceeds of insurance coverage." Ramapo Rockland Corp. v. Merchants & Business Men's Mutual Insurance Co., 156 F.Supp. 311 (S.D.N.Y. 1957); Rosen v. Rozan, 179 F.Supp. 829 (D.Mont.1960).

Additionally, Finn instructs that when determining this issue the court must "look to the plaintiff's pleading, which controls." 341 U.S. at 14, 71 S.Ct. at 540; Pullman Co. v. Jenkins, 305 U.S. 534, 538, 59 S.Ct. 347, 83 L.Ed. 334 (1939). Whereas in Herrmann the complaint sets forth eight separate causes of action, the first four relating exclusively to the recovery of damages arising from Herrmann's wrongful death and the balance solely concerning the demise of another passenger joined in the suit, here the six plaintiffs join in seeking recovery under each of the...