Rosa v. Allstate Ins. Co.

• Decision Date: 23 December 1992
• Docket Number: D,No. 173,173
• Citation: 981 F.2d 669
• Parties: Gregoria ROSA, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee. ocket 92-7535.
• Court: U.S. Court of Appeals — Second Circuit

Page 669

981 F.2d 669

61 USLW 2412

Gregoria ROSA, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.

No. 173, Docket 92-7535.

United States Court of Appeals Second Circuit.

Argued Oct. 19, 1992.

Decided Dec. 23, 1992.

Gregoria Rosa, pro se.

Robyn G. Nir, Uniondale, NY (Evan H. Krinick, Rivkin, Radler & Kremer, on the brief), for defendant-appellee.

Before KEARSE, MINER, Circuit Judges, and POLLAK ^*, District Judge.

LOUIS H. POLLAK, District Judge:

Section 1332(c) of Title 28, which for the purposes of federal court diversity jurisdiction treats a corporation as a citizen "of any State by which it has been incorporated and of the State where it has its principal place of business," contains the following proviso:

[I]n 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 ...

28 U.S.C. § 1332(c)(1) (1988). This case tests the applicability of the § 1332(c) "direct action" proviso to a suit brought in a federal district court by an automobile passenger hurt in an accident who seeks to recover from the automobile owner's insurance carrier certain benefits allegedly owed under the owner's no-fault insurance policy. The principal question presented is whether such a suit is a "direct action" within the meaning of the proviso. An affirmative answer would bar subject matter jurisdiction in this case, since, notwithstanding that the named parties--the plaintiff injured passenger and the defendant insurance carrier--are of diverse citizenship, the passenger and the insured are not. We conclude that the suit is not a "direct action" and hence that the district court has subject matter jurisdiction of plaintiff's suit.

I

On March 20, 1991, plaintiff, a New York citizen, was injured in an automobile accident while a passenger in an automobile driven and owned by defendant Allstate Insurance Co.'s insured, also a New York citizen. Under New York's no-fault insurance law, the insurer of a motor vehicle pays benefits to any person, other than occupants of another motor vehicle, for loss arising out of operation of the insured vehicle, regardless of who was at fault. N.Y.Ins.Law § 5103 (McKinney 1985). Six days after the accident, plaintiff applied for no-fault benefits from Allstate, and, soon thereafter, began to receive payments from Allstate for medical treatments. Pursuant to the terms of the no-fault insurance policy, Allstate arranged for plaintiff to be examined by three physicians; ¹ those examinations took place on June 14, 1991. The three doctors provided reports indicating that plaintiff had been obstructive during the evaluations; therefore, Allstate discontinued plaintiff's no-fault benefits as of June 14, 1991, claiming that plaintiff's failure to cooperate breached the insurance policy.

On July 25, 1991, plaintiff, proceeding pro se, filed a diversity action against Allstate in the United States District Court for the Eastern District of New York. The complaint did not name Allstate's insured as a party-defendant. Arguing that Allstate had arbitrarily and maliciously denied her medical benefits and thereby exacerbated the injuries she sustained in the accident, plaintiff asserted several claims, including breach of contract, intentional infliction of emotional distress, fraud, and injurious falsehood. Plaintiff sought "real and punitive" damages in the amount of $7,500,000.

On or about July 25, 1991, a summons and a complaint were sent by certified mail to Allstate in Illinois, its place of incorporation and principal place of business. Service of process was not acknowledged by Allstate. Plaintiff again attempted service on August 30, 1991, this time pursuant to § 253 of the New York State Vehicle and Traffic Law, which authorizes mail service of a complaint and summons upon nonresident motorists by or on behalf of a plaintiff who has first delivered such summons to the New York Secretary of State. Again, service of process was not acknowledged by Allstate. In light of Allstate's failure to file an answer, plaintiff filed notice of a motion for default judgment on October 3, 1991. Thereafter, on October 22, 1991, plaintiff apparently made personal service on a New York representative of Allstate. Eight days later, on October 30, 1991, Allstate served an answer.

On November 13, 1991, the United States Marshal effected personal service of a supplemental summons and complaint on Allstate in Illinois. Approximately one week later, plaintiff filed a second motion for default judgment, and, on December 2, 1991, defendant served an answer to the supplemental complaint. On December 13, 1991, Allstate responded to the motions for default judgment, arguing that the initial attempts at mail service were legally insufficient to effectuate service on it. In Allstate's view, Vehicle and Traffic Law § 253 applied only to tort actions against the owner and operator of a motor vehicle and not to contract actions against the insurer.

On February 5, 1992 Magistrate Judge Caden--to whom the case had been referred--issued a Report and Recommendation, agreeing that mail service was improper under both § 253 and the Federal Rules of Civil Procedure (since Rule 4(c)(2)(C)(ii) requires, after unacknowledged mail service, that the complaint and summons be re-served personally on defendant). Deciding that service of the complaint was not suitably effected until November 13, 1991, ² and that Allstate's amended answer was, therefore, filed within the time period required by the Federal Rules of Civil Procedure, Magistrate Judge Caden recommended that the motions for default judgment be denied.

Five days after the Report and Recommendation suggesting denial of the motions for default judgment, Magistrate Judge Caden, in response to a motion to dismiss filed by Allstate, issued a second Report and Recommendation advising that the complaint be dismissed for lack of subject matter jurisdiction. Magistrate Judge Caden reasoned that the lawsuit was, within the meaning of the "direct action" proviso of § 1332(c), a "direct action" against the insurer in which the insured had not been named as a party-defendant, and therefore 28 U.S.C. § 1332(c) required that Allstate be deemed a citizen not only of Illinois, its place of incorporation, but also of New York, the insured's place of citizenship. Because plaintiff was also a New York citizen, there was no diversity of citizenship.

The district court adopted both Reports and Recommendations on April 14, 1992. Seven days later, plaintiff filed a notice of appeal to this Court. She raises two points: (1) the principal contention is that the district court erred in dismissing her complaint for lack of subject matter jurisdiction; (2) the second contention is that the district court erroneously denied her motions for default judgment. ³

II

The diversity provisions of the First Judiciary Act did not address the issue of corporate citizenship. When the Supreme Court first addressed the issue it determined that a corporation was, as an entity, not a citizen for diversity purposes and hence could sue or be sued in diversity only if the citizenship of each of its stockholders was diverse from that of adverse parties. See Bank of the United States v. Deveaux, 9 U.S. (5 Cranch) 61, 3 L.Ed. 38 (1809). Later, the Court reexamined the corporate citizenship question, holding that each stockholder--and therefore the corporation--would be treated as a citizen of the state in which the corporation was incorporated. See Marshall v. Baltimore & Ohio R.R., 57 U.S. (16 How.) 314, 14 L.Ed. 953 (1854); Louisville Cincinnati & Charleston R.R. v. Letson, 43 U.S. (2 How.) 497, 11 L.Ed. 353 (1844). This determination created the opportunity to invoke diversity jurisdiction in a large number of actions involving corporations, including those brought by or against corporations that--although they had local headquarters--were incorporated out-of-state. Concerned about this development, ⁴ Congress, in 1958, added § 1332(c) to the diversity statute, providing that a corporation is a citizen both "of any State by which it has been incorporated and of the State where it has its principal place of business."

Shortly after the addition of § 1332(c), Congress addressed another asserted abuse of diversity jurisdiction. In the early 1950s, Louisiana had passed a so-called "direct action" statute permitting an injured party to bring a tort action directly against an insurer without having to join the alleged tortfeasor insured as a party-defendant. ⁵ See La.Rev.Stat.Ann. § 22:655(B)(1) (West 1992). The statute was designed to eliminate the necessity of two lawsuits: the first in which the victim sued the insured, and the second in which--if the victim prevailed on the merits--the insured would seek indemnity from his insurer. Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1188 (5th Cir.1988).

The Supreme Court was soon presented with the question whether diversity jurisdiction existed when a Louisiana citizen sued a foreign insurance company under the Louisiana Direct Action Statute without joining the insured, a fellow Louisiana citizen. See Lumbermen's Mut. Casualty Co. v. Elbert, 348 U.S. 48, 75 S.Ct. 151, 99 L.Ed. 59 (1954). The Court allowed that it did; however, in a concurring opinion, Justice Frankfurter described the preferential treatment that a "direct action" plaintiff would receive once brought under the umbrella of federal procedure on matters of local concern:

Here we have a Louisiana citizen resorting to the federal court in Louisiana in order to avoid consequences of the Louisiana law by which every Louisiana citizen is bound...