Montrose Chemical Corp. of California v. American Motorists Ins. Co.
| Decision Date | 30 June 1997 |
| Docket Number | Nos. 96-55091,s. 96-55091 |
| Citation | 117 F.3d 1128 |
| Parties | , 97 Cal. Daily Op. Serv. 5185, 97 Daily Journal D.A.R. 8432 MONTROSE CHEMICAL CORPORATION OF CALIFORNIA, Plaintiff, and Latham & Watkins, Appellant, v. AMERICAN MOTORISTS INSURANCE COMPANY, a corporation; Travelers Indemnity Company, a corporation; Insurance Company of North America, a corporation, Defendants-Appellees. to 96-55097. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Harvey R. Levine, Levine, Steinberg, & Miller, San Diego, CA; Sarah Kikla Freeman, Latham & Watkins, San Diego, CA, for appellant.
Seth A. Ribner, Coudert Brothers, Los Angeles, CA, for defendants-appellees.
Appeals from the United States District Court for the Central District of California; David V. Kenyon, District Judge, Presiding. D.C. Nos. CV-94-05652-KN, CV-94-05851-KN, CV-94-05853-KN to CV-94-05857-KN.
Before: MAGILL, * RYMER, and THOMAS, Circuit Judges.
The law firm of Latham & Watkins (Latham & Watkins), on behalf of its client, Montrose Chemical Corporation of California (Montrose), brought seven causes of action against The Travelers Indemnity Company (Travelers), American Motorists Insurance Company (AMICO), and Insurance Company of North America (INA). In its complaints, Montrose alleged that Travelers, AMICO, and INA had in bad faith failed to defend Montrose against seven underlying environmental damages claims. The district court dismissed Montrose's claims for lack of subject matter jurisdiction. Travelers then brought a motion, pursuant to Federal Rule of Civil Procedure 11(c)(1)(A), seeking sanctions against Montrose. The district court granted Travelers's motion and sanctioned Latham & Watkins. Montrose Chem. Corp. v. American Motorists Ins. Co., 926 F.Supp. 944, 947 (C.D.Cal.1995). Latham & Watkins appeals the district court's imposition of sanctions. We reverse.
Montrose is a Delaware corporation that used to manufacture, among other chemicals, the pesticide DDT. Montrose's manufacturing operations were conducted primarily in California and Nevada. Although Montrose still owns a chemical facility in Nevada that it leases to another corporation, Montrose's main activity for the past decade has been defending itself against environmental damages claims. Because of the liabilities flowing from this litigation, Montrose has become an almost entirely inactive corporation.
The rental income that Montrose receives from its Nevada facility is its only source of operating income. Montrose's only other stream of income comes from financial investments. Both of these activities are managed by Montrose's only officer and only full-time employee, Frank C. Bachman, who works out of Montrose's sole office in Trumbull, Connecticut. The office in Trumbull is also Montrose's sole mailing address.
Travelers, AMICO, and INA are three of Montrose's comprehensive general liability insurance carriers, and the dispute in the present action revolves around the obligation of these insurance companies to provide coverage to Montrose. On August 12, 1994, Montrose filed an action in the United States District Court for the Central District of California, alleging that Travelers, AMICO, and INA had in bad faith failed to defend Montrose in Brown & Bryant, Inc. v. Great Lakes Chem. Corp., Case No. CV-F-92-5068-OWW, an underlying environmental lawsuit. Montrose's action for bad faith failure to defend was assigned to the Honorable William D. Keller, United States District Judge. The very same day that the action was filed, Montrose voluntarily dismissed its suit against Travelers.
Less than one week later, on August 18, 1994, Montrose filed another action against Travelers, AMICO, and INA, again in the United States District Court for the Central District of California. In this second complaint, Montrose alleged that Travelers, AMICO, and INA had in bad faith failed to defend Montrose in Alderman v. Cadillac Fairview/California, Inc., Case No. BC062039, another underlying environmental action. This second action was randomly assigned to the Honorable David V. Kenyon, United States District Judge. Although the second action, like the previously-dismissed Brown & Bryant action, alleged a bad faith failure to defend, the second action's civil cover sheet did not state that the second action was related to the Brown & Bryant action.
On Friday, August 26, 1994, one week after filing its second complaint, Montrose filed six additional complaints in the Central District of California, alleging that Travelers, AMICO, and INA had in bad faith failed to defend Montrose in six separate environmental actions. These six bad faith failure to defend claims were randomly assigned to six different judges. Five of these complaints were new, but the sixth was essentially the same Brown & Bryant bad faith failure to defend complaint that Montrose had filed and voluntarily dismissed on August 12, 1994. The civil cover sheets for each of these six actions stated that they were related to the August 18 Alderman action. Only the civil cover sheet of the refiled Brown & Bryant action mentioned the initial August 12 Brown & Bryant filing.
In each of the seven complaints filed by Montrose, Montrose alleged federal subject matter jurisdiction based solely upon diversity of citizenship. Montrose pled each defendant's state of incorporation and each defendant's principal place of business. Specifically, Montrose pled that: (1) Travelers is incorporated in Connecticut and that Travelers's principal place of business is Connecticut; (2) AMICO is incorporated in Illinois and that AMICO's principal place of business is Illinois; and (3) INA is incorporated in Pennsylvania and that INA's principal place of business is Pennsylvania. Montrose, however, did not identify its own principal place of business in any of the complaints that it filed with the court. Montrose merely pled that it is incorporated in Delaware.
After the six additional complaints were filed on August 26, 1994, the Clerk of Court, on the Clerk's own initiative, started transferring all six of these actions to Judge Kenyon, who had been assigned the August 18 Alderman action. On September 15, 1994, Montrose filed notices of related cases that, like the civil cover sheets for each of its six later-filed complaints, indicated that the six later-filed actions were related to the August 18 filing of the Alderman action and should therefore be transferred to Judge Kenyon. In a footnote in each of these notices, Montrose mentioned that the August 12 Brown & Bryant action had been previously filed and dismissed.
On October 21, 1994, Travelers and AMICO filed notices of related cases, asserting that all seven of Montrose's complaints should be transferred to Judge Keller who had originally been assigned the August 12 Brown & Bryant action. In response to the notices of related cases filed by Travelers and AMICO, Judge Keller, on November 8, 1994, issued an order to the parties to show cause "why these cases should not be transferred to Judge Keller pursuant to Local Rule 4.2.1 and 4.2.2." Civil Mins.-General (Nov. 8, 1994) at 1, reprinted in 5 E.R. 36 at 939. 1 Judge Keller, apparently concerned that Montrose had attempted to engage in some form of "judge shopping" by filing and refiling actions, also ordered "plaintiff's counsel ... to show cause why Rule 11 sanctions should not be imposed for such violations." Id.
After holding a hearing in which Latham & Watkins argued on Montrose's behalf that the seven actions were sufficiently distinct that they could be tried separately, Judge Keller found that Rule 11 sanctions were not warranted. Nevertheless, Judge Keller determined that the seven actions should be consolidated and transferred to him. Montrose subsequently moved to recuse Judge Keller on the ground that his daughter worked for the law firm that represented INA. Judge Keller recused himself, and all seven actions were transferred to Judge Kenyon.
On October 21, 1994, Travelers, AMICO, and INA also filed a motion to dismiss each of Montrose's seven actions for lack of subject matter jurisdiction, arguing that there was not complete diversity of citizenship between the opposing parties. Travelers, AMICO, and INA argued that, because both Travelers and Montrose are citizens of Connecticut, the district court lacked diversity jurisdiction. In response to the motion to dismiss, Montrose filed, on November 7, 1994, an opposition brief in which Montrose claimed that it is a citizen of both Delaware and Nevada, but not Connecticut. Montrose claimed that, because it is incorporated in Delaware, Montrose is a citizen of Delaware and that, because its principal place of business is Nevada, Montrose is also a citizen of Nevada.
On June 20, 1995, the district court dismissed Montrose's actions for lack of subject matter jurisdiction. Order Dismissing Actions (June 20, 1995) at 5, reprinted in 7 E.R. 50 at 1554. The district court determined that "Montrose's business activities are threefold: (1) managing investment accounts, (2) supervising lawyers handling their pollution liability and insurance lawsuits, and (3) leasing the Nevada facility." Id. at 4, reprinted in 7 E.R. 50 at 1553. The district court further determined that "[a]ll of these activities are conducted by Mr. Frank C. Bachman and his small staff, from Montrose's headquarters and sole office in Connecticut." Id. at 4-5, reprinted in 7 E.R. 50 at 1553-54. The district court concluded that "it is clear that Montrose's principal place of business is Connecticut." Id. at 4, reprinted in 7 E.R. 50 at 1553. Thus, because Travelers's principal place of business is also Connecticut, the district court held that "the requisite diversity jurisdiction is lacking" and dismissed Montrose's actions. Id. at 5, reprinted in 7 E.R. 50 at 1554.
On July 27, 1995, in accordance with Federal Rule of Civil...
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