Smith v. Abbate

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Writing for the Court: Hyman H. Bernstein, New York City, for defendant Ballas Egg Products Corp
• Citation: 201 F. Supp. 105
• Parties: Francis R. SMITH, Insurance Commissioner of the Commonwealth of Pennsylvania, and as such, Statutory Liquidator of General Mutual Fire Insurance and Reinsurance Company (Dissolved), Plaintiff, v. Anthony S. ABBATE et al., Defendants.
• Decision Date: 13 December 1961

201 F. Supp. 105

Francis R. SMITH, Insurance Commissioner of the Commonwealth of Pennsylvania, and as such, Statutory Liquidator of General Mutual Fire Insurance and Reinsurance Company (Dissolved), Plaintiff,
v.
Anthony S. ABBATE et al., Defendants.

United States District Court S. D. New York.

December 13, 1961.

201 F. Supp. 106

Rodwin & Rodwin, New York City, for plaintiff; Harry Rodwin, Richard Rodwin, New York City, of counsel.

Hyman H. Bernstein, New York City, for defendant Ballas Egg Products Corp.

Taylor & Taylor, Penn Yan, N. Y., for defendant Charles H. Beaney; Paul R. Taylor, Penn Yan, N. Y., of counsel.

Milton I. Newman, Baar, Bennett & Fullen and Corcoran, Kostelanetz, Gladstone & Lowell, New York City, for defendant "Jacob" Horn, first name fictitious, true first name unknown to plaintiff, doing business under the firm name and style of J. Horn Furniture Co., Jewelry Dept.; Stanley H. Lowell, Thomas F. Ryan, New York City, of counsel.

Albert J. Rubin, Penn Yan, N. Y., for defendants Robert Hinson, Penn Yan Express, Inc. and Pierce Freight Lines.

Sidney Feldshuh, New York City, for defendants Pearl Desk Company Inc., Ruth Pearl, Tillie Pearl and Mary Pearl, co-partners doing business under the firm name and style of Pearl Desk Co., and Irving Dworman.

Culley, Corbett, Tanenbaum & Reifsteck, Rochester, N. Y., for defendant Wilson W. Johncox, who, with the consent of court, filed a brief in support of motion to dismiss.

LEVET, District Judge.

This action is brought by Francis R. Smith, Insurance Commissioner of the Commonwealth of Pennsylvania, and as such, Statutory Liquidator of General Mutual Fire Insurance and Reinsurance Company (Dissolved) against more than 1,500 defendants, of whom approximately 50 to 60 have heretofore been served.

Motions have been made by various defendants to dismiss the complaint for lack of the requisite jurisdictional amount in that the "matter in controversy" does not exceed $10,000.

The action is based on diversity and the individual claims for deficiency assessments run from $6.00 to $6,572; none separately amount to $10,000; many are under $100; most are under $500. It is only by aggregating that the monetary jurisdictional requirements of Section 1332 of Title 28 U.S.C. are reached.

THE COMPLAINT

The complaint, after alleging facts to sustain diversity, states the background of this action as follows:

1. The General Mutual Fire Insurance and Reinsurance Company (hereinafter called "Company") was organized in 1910 under Pennsylvania laws to transact the business of insurance. (par. 3)

2. The Company became insolvent and by order of a Pennsylvania court, dated November 2, 1951, was dissolved; plaintiff was appointed the Statutory Liquidator with the usual functions of such office. (par. 3; see Liquidation Order)

3. The Liquidator proceeded to perform the duties of his office, took possession of assets, gave notices to file claims and received and totaled claims (which exceeded available assets). (par. 4; see copy of notice of claims submitted)

4. The defendants were members and policy holders of the Company. By virtue of membership, and under the By-Laws of the Company and the provisions of the policies of insurance, defendants agreed to pay premiums on each such policy and, if needed, to pay certain assessments to indemnify the Company against claims of policy holders and creditors. (par. 5)

5. On May 10, 1958, upon petition of plaintiff and upon due notice to defendants, the court in Pennsylvania directed

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defendants as such policy holders to pay certain assessments, all pursuant to a formula deemed to reflect the proportionate share of losses necessary to pay all unpaid claims. (See par. 6 and assessment order)

6. Under this assessment order the total assessed against the 4,557 members was $435,751.25 and that of the 1,946 members who are citizens of New York is $238,911.99. (par. 7) The amount said to be due against each defendant is set forth in the assessment order. (par. 7; assessment order)

7. After due notice, each of the defendants, it is asserted, has failed and refused to pay. (pars. 8 and 9)

8. The plaintiff seeks enforcement of this assessment against the various defendant New York citizens "to the extent and in the proportions set forth in the Schedule referred to in Paragraph `7' of this complaint." (par. 10)

The prayer for relief is as follows:

"1. Adjudging and decreeing that the assessment against members and policyholders of General Mutual Fire Insurance and Reinsurance Company, including the defendants above named, citizens of the State of New York, is valid, just and enforceable;

"2. Against each of the defendants herein named for his, its, or their proportionate or pro rata share of said assessment liability being the sum specified opposite his or its respective name as shown on the assessment bill hereto annexed and on the Schedule referred to in Paragraph `7' hereof, together with interest from May 10, 1958;

"3. For such other and further relief as to the Court may seem just and proper; and

"4. For the costs and disbursements of this action."

THE "MATTER IN CONTROVERSY"

By Section 1332 of Title 28 of the United States Code, this court has jurisdiction of civil actions where the "matter in controversy" exceeds the sum of $10,000 and there is diversity of citizenship.

The relevant parts of Section 1332 are as follows:

"§ 1332. Diversity of citizenship; amount in controversy; costs

"(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and is between —

"(1) citizens of different States; * * *"

The statute thus conferring diversity jurisdiction is strictly construed. Thomson v. Gaskill, 315 U.S. 442, 446, 62 S.Ct. 673, 675, 86 L.Ed. 951, where the court held:

"The policy of the statute conferring diversity jurisdiction upon the district court calls for its strict construction. Healy v. Ratta, 292 U.S. 263, 270 54 S.Ct. 700, 703, 78 L.Ed. 1248; and see Town of Elgin v. Marshall, 106 U.S. 578, 580 1 S.Ct. 484, 486, 27 L.Ed. 249. Accordingly, if a plaintiff's allegations of jurisdictional facts are challenged by the defendant, the plaintiff bears the burden of supporting the allegations by competent proof. McNutt v. General Motors Acceptance Corp., 298 U. S. 178, 188-189 56 S.Ct. 780, 784, 785, 80 L.Ed. 1135; KVOS, Inc. v. Associated Press, 299 U.S. 269, 278 57 S.Ct. 197, 200, 81 L.Ed. 183; Gibbs v. Buck, 307 U.S. 66, 72, 59 S.Ct. 725, 729, 83 L.Ed. 1111."

None of the claims against the individual defendants equal $10,000. It is conceded by the plaintiff that the amount of the liability of each defendant is limited "to an amount not to exceed one time the premium written on this policy." (Excerpt from policy, Plaintiff's Memorandum, p. 8)

Section 2, Article IX of the By-Laws of the Company was as follows:

"It is hereby provided, as to the prepaid policies, that any maximum

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additional liability, over and above the premium stated in the policy, that the holders thereof, shall be limited to an equal amount to one annual premium shown in the policy, and these provisions shall be shown in such policies." (Plaintiff's Memorandum, p. 7; see also par. 13 of Petition for Order of Assessment)

The Assessment Order of May 10, 1958, accordingly, after prescribing an assessment "factor," provides:

"* * * The total of the assessment factors for each month that a policy was in existence multiplied by the cash premium in the policy should then give each member and policyholder's additional premium or assessment, subject to the limitation that the additional premium or assessment shall not exceed an amount equal to the said cash premium."

The order then directs each member or policyholder during the period from December 22, 1947 to November 1, 1951 to pay as an assessment the amount derived by the assessment factors specified, limited as heretofore set forth.

Whatever may have been the nature of the liability before that point in the dissolution proceedings, as a result of the assessment decree there was nothing except a number of individual assessments. Joint liability may have entered into the background, but it no longer existed in the assessment or its collection. In spite of the protestations of the plaintiff, this action is to collect a multitude of individual assessment obligations. Each by itself is less than the jurisdictional requirement.

The allegations of paragraph 5 of the complaint, to the effect that the defendants as members and policyholders "became and were together obligated as insurers and entered into mutual covenants with each other to indemnify each other and to indemnify the company * * *" is not now the basis of the present action.

Neither does the prayer for relief, asking in part for a decree "that the assessment against members and policyholders of General Mutual Fire Insurance and Reinsurance Company, including the defendants above named, citizens of New York, is valid, just and enforceable" fuse several hundred individual claims into a joint, common and undivided claim.

The validity of the assessment has been determined by the Pennsylvania court. Presumably, New York, under ordinary circumstances, under Article IV, Section 1 of the United States Constitution, will give full faith and credit to this determination. It is obvious that the liquidation of this insolvent insurance company is governed by the laws of the Commonwealth of Pennsylvania, where the corporation had its domicile. Modern Woodmen of America v. Mixer, 267 U.S. 544, 45 S.Ct. 389, 69 L.Ed. 783; Selig v. Hamilton, 234 U.S. 652, 34 S.Ct. 926, 58 L.Ed. 1518; Pope v. Heckscher, 266 N.Y. 114, 194 N.E. 53, 97 A.L.R. 687; Pink v. A. A. A. Highway Express, 314 U.S. 201; In re Auto Mutual Indemnity Co., Sup., 14 N.Y.S.2d 601.

The matter of the assessment has been determined, the...