Royal Ins. Co. of America v. Quinn-L Capital Corp.

• Decision Date: 27 September 1993
• Docket Number: QUINN-L,No. 92-1808,92-1808
• Citation: 3 F.3d 877
• Parties: ROYAL INSURANCE COMPANY OF AMERICA and Royal Lloyds of Texas, Plaintiffs-Appellees, v.CAPITAL CORPORATION, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 877

3 F.3d 877

ROYAL INSURANCE COMPANY OF AMERICA and Royal Lloyds of Texas, Plaintiffs-Appellees, v. QUINN-L CAPITAL CORPORATION, et al., Defendants-Appellants.

No. 92-1808.

United States Court of Appeals Fifth Circuit.

Sept. 27, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Nov. 5, 1993.

Arthur R. Miller, Cambridge, MA, Wayne Swift, Samuel L. Boyd, Priscilla E. Perry, Mark W. Romney, Boyd & Assoc., Dallas, TX, for defendants-appellants.

Chester J. Hinshaw, Patricia J. Villareal, Jones, Day Reavis & Pogue, Dallas, TX, for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before WISDOM, DAVIS, and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

The facts of this case are set forth in Royal Ins. Co. of Am. v. Quinn-L Capital Corp., 960 F.2d 1286 (5th Cir.1992) ("Royal I "). Following remand in Royal I, the district court entered final judgment against defendant Quinn-L Capital Corp. ("Quinn-L"), granting summary judgment in favor of plaintiffs Royal Insurance Company of America and Royal Lloyds of Texas (collectively, "Royal") and entering a permanent injunction that barred Quinn-L and the defendant investors from relitigating any of the claims or issues decided in either this declaratory judgment action or the first declaratory judgment action.

I.

Quinn-L argues that the federal courts do not have jurisdiction for three reasons. First, Quinn-L contends that the district court did not have ancillary jurisdiction over the affirmative defenses of waiver, estoppel, and negligence. Second, Quinn-L contends that no diversity jurisdiction exists. Third, Quinn-L asserts that the district court had no jurisdiction to grant summary judgment while an appeal was pending before this court.

A.

In Royal I, we recognized that the district court had ancillary jurisdiction to issue an anti-suit injunction to protect or effectuate its prior judgments. 960 F.2d at 1292. Quinn-L argues that the district court lacked jurisdiction to grant summary judgment on the waiver, estoppel, and negligence claims because those claims are outside the scope of the first declaratory judgment action. Royal contends that we held in the first action that the district court had ancillary jurisdiction over the entire controversy and that this holding is law of the case.

Before addressing the merits of the jurisdictional argument, we must decide whether law of the case principles apply to appeals of preliminary injunctions. We decide that issue here because Royal relies upon the law of the case doctrine in addressing numerous points of error raised by Quinn-L. Quinn-L argues that the doctrine has no application in preliminary injunction proceedings.

The law of the case doctrine was developed to "maintain consistency and avoid [needless] reconsideration of matters once decided during the course of a single continuing lawsuit." 18 CHARLES A. WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE Sec. 4478, at 788 (1981). "These rules do not involve preclusion by final judgment; instead, they regulate judicial affairs before final judgment." Id. Under this doctrine, we will follow a prior decision of this court without reexamination in a subsequent appeal unless "(i) the evidence on a subsequent trial was substantially different, (ii) controlling authority has since made a contrary decision of the law applicable to such issues, or (iii) the decision was clearly erroneous and would work manifest injustice." North Miss. Communications v. Jones, 951 F.2d 652, 656 (5th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 184, 121 L.Ed.2d 129 (1992). The doctrine extends to those issues "decided by necessary implication as well as those decided explicitly." Dickinson v. Auto Ctr. Mfg. Co., 733 F.2d 1092, 1098 (5th Cir.1983) (citation, quotation marks, and emphasis omitted).

We disagree with Quinn-L's suggestion that law of the case principles have no application to an interlocutory appeal of the granting of a preliminary injunction. As in any other interlocutory appeal, our decision constitutes law of the case. 1B JAMES W. MOORE ET AL., MOORE'S FEDERAL PRACTICE p 0.404[4.--7], at II-37 (2d ed. 1993). Obviously, the doctrine extends only to matters actually decided. Id. at II-37 to II-38. As to decisions of law, the interlocutory appeal will establish law of the case.

As to factual determinations, however, an interlocutory appeal of a preliminary injunction often will not establish law of the case. To obtain a preliminary injunction, the movant need only show a substantial likelihood of success on the merits. We review a district court's findings of fact supporting the grant of a preliminary injunction for clear error. Royal I, 960 F.2d at 1297. Because the standard of review for factual determinations on direct appeal is higher than the standard applied during an interlocutory appeal of a preliminary injunction, the interlocutory appeal normally will not establish law of the case on factual matters.

Contrary to Quinn-L's suggestion, however, the reason this result does not obtain is not because law of the case principles are inapplicable. Rather, the lesser standard of review applied during an appeal of a preliminary injunction necessarily means that the factual issues differ from those on direct appeal. Such a difference often will result only from the higher standard of review applied during the direct appeal.

With this background in mind, we now address Royal's contentions that we previously held that the district court had ancillary jurisdiction over the entire controversy and that this alleged holding is law of the case. In Royal I, we held that the district court has "ancillary jurisdiction over the present controversy." 960 F.2d at 1292. Read in context, this means that we held only that the district court had ancillary jurisdiction to issue an anti-suit injunction under the "protect or effectuate its judgments" exception to the Anti-Injunction Act (the "Act"), 28 U.S.C. Sec. 2283 (1988). 960 F.2d at 1299. We also held that the district court should have limited the scope of that injunction to exclude the claims that arose after the first declaratory judgment action. Id.

In other words, we held that the district court had ancillary jurisdiction to issue an injunction but that the Act bars a portion of the injunction. We did not have to decide, and did not decide, the jurisdictional issue as to the claims of waiver, estoppel, and negligence, as Quinn-L obtained a reversal on the merits as to those claims. ¹ Here, the jurisdictional issue is squarely presented, and we must decide it.

We conclude that the district court did not have ancillary jurisdiction to address the waiver, estoppel, and negligence claims. As noted above, the district court has ancillary jurisdiction ² to protect or effectuate its judgments. This jurisdiction extends no further than necessary to achieve that purpose. But "[w]hile ... the ... Act is not a grant of jurisdiction, no independent basis of jurisdiction is required for a federal court to entertain an application to enjoin relitigation in state court. The jurisdiction that the federal court had when it entered its original judgment is enough to support its issuance of an injunction." Mooney Aircraft Corp. v. Foster (In re Mooney Aircraft), 730 F.2d 367, 374 (5th Cir.1984) (citing 17 WRIGHT ET AL., supra, Sec. 4276, at 345 (1978)).

In Mooney, we noted that where a bankruptcy court seeks to enjoin claims that were not encompassed in a prior judgment, no ancillary jurisdiction exists. 730 F.2d at 374. Under Mooney, the district court must have an independent basis for jurisdiction over Quinn-L's waiver, estoppel, and negligence claims, as those claims were not raised in the prior declaratory judgment proceeding and are not barred by that proceeding under res judicata principles.

Thus, we agree with Quinn-L that ancillary jurisdiction extends no further than the scope of the first judgment. The basis for allowing the federal courts to exercise ancillary jurisdiction in issuing anti-suit injunctions is to allow them to protect their prior judgments; where new claims are involved, the policy basis for ancillary jurisdiction disappears. We therefore conclude that ancillary jurisdiction to issue anti-suit injunctions normally will not allow a federal court to exercise jurisdiction over new claims not addressed in the judgment the court is seeking to protect. ³

B.

Next, we must decide whether diversity jurisdiction exists in this case. Royal is an unincorporated association that sells insurance under a so-called "Lloyd's plan." For purposes of ascertaining whether the federal courts have diversity jurisdiction, an unincorporated association is considered to have the citizenship of its members. Carden v. Arkoma Assocs., 494 U.S. 185, 195-96, 110 S.Ct. 1015, 1021, 108 L.Ed.2d 157 (1990). This case turns on the question of who constitutes a "member" of a Lloyd's plan insurance association. None of the underwriters is a citizen of Texas, while at least one attorney in fact is a resident.

A Lloyd's plan insurer consists of a group of underwriters who join together to issue insurance through an attorney in fact or other representative. TEX.INS.CODE ANN. arts. 18.01-.02 (West 1981). Ordinarily, such insurers provide insurance for risks for which American insurance companies otherwise would not issue policies. ROBERT E. KEETON & ALAN I. WIDISS, INSURANCE LAW Sec. 2.1(a)(1) (West 1988) (practitioner's ed.). Under the Lloyd's plan, the insured typically obtains insurance from one or more members of the Lloyd's group; each member accepts responsibility for a portion of the risk, and liability among the members is several but not joint. Jones v. Hollywood Style Shop, 62 S.W.2d 167, 167 (Tex.Civ.App.--San Antonio 1933, no writ); KEETON & WIDISS, supra, Sec. 2.1(a)(1). In other words, the individual member is responsible only for the portion of the risk that...