Corfield v. Dallas Glen Hills LP ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JANUARY 6, 2004
IN THE UNITED STATES COURT OF APPEALS December 29, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-10185
THOMAS ROKEBY CONYNGHAN CORFIELD, ET AL.,
Plaintiff-Appellee,
versus
DALLAS GLEN HILLS LP,
Defendant-Appellant.
--------------------
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 02-CV-01781
--------------------
Before GARWOOD and JONES, Circuit Judges, and ZAINEY, District
Judge*
ZAINEY, District Judge:
In this declaratory judgment action, Plaintiff Liberty
Corporate Capital, Ltd. (“Liberty”) appeals from the district
court’s grant of Defendant Dallas Glen Hills LP’s (“DGH”) motion
to dismiss for lack of subject matter jurisdiction. The appeal
presents an issue of first impression in our circuit regarding
how the citizenship of a Lloyd’s of London underwriter suing on
its own behalf is to be determined for diversity purposes. The
district court concluded that the citizenship of every
underwriter subscribing to a Lloyd’s policy must be considered
*
District Judge of the Eastern District of Louisiana,
sitting by designation.
No. 03-10185
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when determining whether complete diversity exists. We disagree
and therefore conclude that the district court erred in
dismissing the action. Accordingly, we REVERSE and REMAND.
FACTUAL AND PROCEDURAL BACKGROUND
In August 2000, DGH claimed an insured commercial property
loss on Lloyd’s of London policy CRCTX99-1128 (“the Policy”).
Liberty, acting through its wholly-owned subsidiary Liberty
Syndicate 190 (“Syndicate 190") assigned an adjuster to inspect
the property. Liberty determined that the policy provided no
coverage for the claim. The Policy has a $500,000.00 limit of
which Liberty insured 32.79 percent of the risk.1
Thomas Rokeby Conynghan Corfield (“Corfield”), a British
subject and “active” underwriter for Syndicate 190, filed a
declaratory judgment action on his own behalf and as the
representative of Certain Underwriters at Lloyd’s, London
subscribing to the Policy seeking a declaration of the parties’
rights and obligations under the Policy. Corfield alleged that
jurisdiction was based upon diversity of citizenship pursuant to
28 U.S.C. § 1332.2 However, Corfield’s complaint failed to
1
Liberty subscribed to a percentage of risk greater than
that assumed by any other Name subscribing to the Policy. Thus,
Liberty controls all decisions with regard to claims made under
the Policy and the prosecution or defense of lawsuits.
2
28 U.S.C. § 1332 provides in pertinent part:
The district courts shall have original jurisdiction
of all civil actions where the matter in controversy
exceeds the sum of or value of $75,000, exclusive of
interest or costs, and is between--
No. 03-10185
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allege DGH’s citizenship. Corfield alleged only that DGH was a
Texas limited partnership.
The district court issued an order noting that Corfield had
failed to properly allege DGH’s citizenship because the complaint
did not allege the citizenship of each of DGH’s partners.3
Moreover, the district court questioned whether Corfield had
properly pleaded his own citizenship given that he had brought
suit both on his own behalf and as the representative of the
other underwriters on the Policy. Noting that the Seventh
Circuit considers the citizenship of every underwriter
subscribing to a Lloyd’s policy for diversity purposes, Indiana
Gas Co. v. Home Insurance Co., 141 F.3d 314, 319 (7th Cir. 1998),
the district court ordered Corfield to either plead his
citizenship in accordance with the Seventh Circuit’s approach or
submit a memorandum brief explaining why Corfield’s British
citizenship alone should control.
In response to the district court’s order, Liberty replaced
Corfield as the named plaintiff and filed an amended complaint.
. . .
(2) citizens of a State and citizens or subjects of
a foreign state;
(3) citizens of different States an in which
citizens or subjects of a foreign state are additional
parties . . . .
28 U.S.C. § 1332(a)(2), (3).
3
Because DGH is a limited partnership, it assumes the
citizenship of each of its partners. See Carden v. Arkoma
Assocs., 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990).
No. 03-10185
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Liberty, the lead underwriter on the Policy, is a British
corporation incorporated, domiciled, and with its principal place
of business in the United Kingdom. As with Corfield, Liberty
alleged British citizenship and sought relief on its own behalf
and as the representative of all other underwriters subscribing
to the Policy. Recognizing that the amended complaint did
nothing to allay the jurisdictional concerns raised by the
district court, Liberty amended its complaint a second time. In
the second amended complaint Liberty sought relief on its own
behalf and as the lead underwriter of those underwriters
subscribing to the Policy. Again, however, Liberty failed to
affirmatively allege DGH’s citizenship, instead alleging that
none of DGH’s partners were British citizens.
The district court entered a second order, this time
threatening to dismiss the action without prejudice unless
Liberty amended its complaint to properly allege DGH’s
citizenship. The district court agreed to defer consideration of
Liberty’s citizenship given the split in authority concerning how
the citizenship of a Lloyd’s underwriter is to be determined and
given that DGH had not yet moved to dismiss the case. Liberty
amended its complaint once more to allege that all of DGH’s
partners were believed to be citizens of Texas, and that no
partner was a citizen of the United Kingdom.
DGH moved to dismiss the case pursuant to Federal Rule of
Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.
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DGH argued that for diversity purposes the district court must
consider the citizenship of every underwriter subscribing to a
Lloyd’s policy when determining if complete diversity is
satisfied. DGH also asserted that at least one underwriter on
the Policy was a citizen of Texas as was at least one of DGH’s
partners. Thus, DGH argued that complete diversity was lacking.
Hoping to avoid dismissal, Liberty amended its complaint
once more. This time Liberty alleged claims only on its own
behalf as the lead underwriter on the Policy. Liberty deleted
all allegations that it was suing in any type of representative
capacity on behalf of the other underwriters. Liberty also
alleged that all of DGH’s partners were either citizens of Texas,
Delaware, and New York. The district court nevertheless
concluded that the citizenship of each underwriter subscribing to
the Policy must be considered for purposes of determining whether
complete diversity is satisfied. Because DGH contended that at
least one underwriter was a citizen of Texas, the district court
concluded that the parties were not completely diverse. The
district court therefore granted DGH’s motion to dismiss for lack
of subject matter jurisdiction. Liberty timely appealed.
DISCUSSION
A. Standard of Review
We review questions of law de novo. Wilkerson v. United
States of America, 67 F.3d 112, 115 (5th Cir. 1995) (citing
Estate of Moore v. Comm’r, 53 F.3d 712, 714 (5th cir. 1995)).
No. 03-10185
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The district court’s dismissal for lack of subject matter
jurisdiction turned solely on the legal question of how to
determine the citizenship for a Lloyd’s of London underwriter who
sues only on its own behalf. We therefore review the district
court’s dismissal for lack of subject matter jurisdiction de
novo. Beall v. United States of America, 336 F.3d 419, 421 (5th
Cir. 2003).
B. Principles of Jurisdiction
The federal diversity statute provides that the district
courts have original jurisdiction over all civil actions where
the matter in controversy exceeds $75,000 and is between citizens
of a state and citizens or subjects of a foreign state. 28
U.S.C. § 1332(a)(2). It is well-established that the diversity
statute requires "complete diversity" of citizenship: A district
court cannot exercise diversity jurisdiction if one of the
plaintiffs shares the same state citizenship as any one of the
defendants. Whalen v. Carter, 954 F.2d 1087, 1094 (5th Cir.
1992) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.
Ed. 435 (1806); Mas v. Perry, 489 F.2d 1396, 1398-99 (5th Cir.
1974).
The “citizens” upon whose diversity a plaintiff grounds
jurisdiction must be real and substantial parties to the
controversy. Navarro Savings Assoc. v. Lee, 446 U.S. 458, 460,
100 S. Ct. 1779, 1781-82, 64 L. Ed. 2d 425 (1980) (citing McNutt
v. Bland, 2 How. 9, 15, 11 L. Ed. 159 (1844); Marshall v.
No. 03-10185
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Baltimore & Ohio R. Co., 16 How. 314, 328-29, 14 L. Ed. 953
(1854); Coal Co. v. Blatchford, 11 Wall. 172, 177, 20 L. Ed. 179
(1871)). Thus, a federal court must disregard nominal or formal
parties and rest jurisdiction only upon the citizenship of real
parties to the controversy. Id. at 461, 100 S. Ct. at 1782.
The sole issue presented in this case is whether complete
diversity requires that the court consider the citizenship of
every underwriter subscribing to a Lloyd’s of London policy when
the lead underwriter sues only on its own behalf. The issue is
one of first impression in this circuit and several of our sister
circuits have reached different conclusions. However, before
addressing the complex jurisdictional issues raised in this case,
a basic understanding of the organizational structure of Lloyd’s
of London and the unique characteristics of a typical Lloyd’s
insurance policy is necessary.
C. Lloyd’s of London
Lloyds of London is not an insurance company but rather a
self-regulating entity which operates and controls an insurance
market. John M. Sylvester & Roberta D. Anderson, Is It Still
Possible To Litigate Against Lloyd’s in Federal Court?, 34 Tort &
Ins. L.J. 1065, 1068 (1999). The Lloyd’s entity provides a
market for the buying and selling of insurance risk among its
members who collectively make up Lloyd’s. Certain Interested
Underwriters at Lloyd’s, London v. Layne, 26 F.3d 39, 41 (6th
Cir. 1994) (citing Clifford Chance, Doing Business in the United
No. 03-10185
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Kingdom, §§ 46.02, 46-6 to 46-8 (Barbara Ford, A.D.M. Forte, &
Herbert Wallace eds. 1990); Eileen M. Dacey, The Structures of
the Lloyd’s Market, in Lloyd’s, the ILU, and the London Insurance
Market 1990, at 33, 49-0 (PLI Commercial Law & Practice Course
Handbook Series No. 555, 1990)). Thus, a policyholder insures at
Lloyd’s but not with Lloyd’s. Lee R. Russ & Thomas F. Segalla,
Couch on Insurance §39:47 (3d ed. 1995) (citing Bickelhaupt, D.,
General Insurance 775 (1983, 11th ed.)).
The members or investors who collectively make up Lloyd’s
are called “Names” and they are the individuals and corporations
who finance the insurance market and ultimately insure risks.
Sylvester & Anderson, supra, at 1068. Names are underwriters of
Lloyd’s insurance and they invest in a percentage of the policy
risk in the hope of making return on their investment. Squibb,
160 F.3d at 929. Lloyd’s requires Names to pay a membership fee,
keep certain deposits at Lloyd’s, and possess a certain degree of
financial wealth. Chemical Leaman Tank Liners, Inc. v. Aetna
Cas. & Surety Co., 177 F.3d 210, 221 (3d Cir. 1999). Each Name
is exposed to unlimited personal liability for his proportionate
share of the loss on a particular policy that the Name has
subscribed to as an underwriter. Squibb, 160 F.3d at 929.
Typically hundreds of Names will subscribe to a single policy,
and the liability among the Names is several, not joint. Id.
Most Names or investors do not actively participate in the
insurance market on a day to day basis. Layne, 29 F.3d at 42.
No. 03-10185
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Rather, the business of insuring risk at Lloyd’s is carried on by
groups of Names called “Syndicates.” Id. at 41-42. In order to
increase the efficiency of underwriting risks, a group of Names
will, for a given operating year, form a “Syndicate” which will
in turn subscribe to policies on behalf of all Names in the
Syndicate. Squibb, 160 F.3d at 929; Chemical Leaman, 177 F.3d at
221. A typical Lloyd’s policy has multiple Syndicates which
collectively are responsible for 100 percent of the coverage
provided by a policy. Sylvester & Anderson, supra, at 1068. The
Syndicates themselves have been said to have no independent legal
identity. Id. Thus, a Syndicate is a creature of administrative
convenience through which individual investors can subscribe to a
Lloyd’s policy. A Syndicate bears no liability for the risk on a
Lloyd’s policy. Rather, all liability is born by the individual
Names who belong to the various Syndicates that have subscribed
to a policy.
Each Syndicate appoints a managing agent who is responsible
for the underwriting and management of each Name’s investments.
Chemical Leaman, 177 F.3d at 221. The managing agent receives
this authority through contracts with each Name. Id. The
managing agent, which is typically a legal entity, appoints one
of its employees to serve as the “active” underwriter for the
Syndicate. Id. at 222. The active underwriter selects the risks
that the Names in the syndicate will underwrite and has the
authority to bind all Names in the Syndicate. Id. The active
 No. 03-10185
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underwriter has the authority to buy and sell insurance risks on
behalf of all Names in the syndicate, and to bind the Syndicate
members in these transactions. Layne, 26 F.3d at 42.
In practice, since many Names through their respective
Syndicates are liable on a Lloyd’s policy, the active underwriter
from one of the underwriting Syndicates is designated as the
representative of all the Names on the policy. Squibb, 160 F.3d
at 929. This single underwriter, called the “lead” underwriter
on the policy, is usually the only Name disclosed on the policy
with all other Names remaining anonymous. Id. The lead
underwriter is typically the first to subscribe to the policy and
typically assumes the greatest amount of risk. The Lloyd’s
corporate entity maintains records on the identity and last known
residence of Names insuring risk in the Lloyd’s market. That
information is kept strictly confidential.
In sum, while an insured receives a Lloyd’s “policy” of
insurance, what he has in fact received are numerous contractual
commitments from each Name who has agreed to subscribe to the
risk. The Names are jointly and severally obligated to the
insured for the percentage of the risk each has agreed to assume.
The insured does not have to sue each Name individually however
to collect on their individual promises because the typical
Lloyd’s policy contains a clause providing that “any [Name] can
appear as representative of all [Names].” Id. Thus, when
litigation ensues over a Lloyd’s policy, the only named Lloyd’s
No. 03-10185
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party appearing in the litigation is usually the lead underwriter
on the policy. Id. The standard Lloyd’s policy states “that in
any suit instituted against any one of [the Names] upon this
contract, [all the Names] will abide by the final decision of
such Court or of any Appellate Court in the event of an appeal.”4
Id. Thus, each Name is contractually bound on an individual
basis to the insured to adhere to any adverse judgment reached in
the suit notwithstanding that only one Name participates in the
litigation as a named party. Thus, a Syndicate, being only a
grouping of Names, has no contractual relationship with the
insured.
In the instant case, Syndicate 190 is a single-Name
Syndicate with Liberty as its sole Name and underwriting member.
Liberty is the lead underwriter on the Policy and insures 32.79
percent of the risk which is more than the risk insured by any
other Name on the Policy.5 Liberty is a British corporation with
its principal place of business in the United Kingdom. Thus, if
only Liberty’s citizenship is relevant for jurisdictional
purposes, then the parties are completely diverse because DGH is
a citizen of Texas, Delaware, and New York. If, however, the
4
The policy at issue in this litigation is not part of the
record. However, Liberty submitted an affidavit in response to
DGH’s motion to dismiss. In its affidavit, Liberty asserts that
DGH’s policy contains the standard Lloyd’s language and
provisions regarding the Names’ willingness to be bound by a
judgment against any other Name.
5
Liberty’s potential liability on the Policy is at least
$163,950.00.
No. 03-10185
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citizenship of every Name subscribing to the Policy is relevant
for jurisdictional purposes, then the district court’s dismissal
was proper as Liberty has not alleged the citizenship of all
Names subscribing to the policy, and at least one Name is
believed to be a citizen of Texas.
D. Law and Analysis
Several of our sister circuit courts have addressed the
Lloyd’s citizenship conundrum and have reached differing results
based upon differing reasoning. In Certain Interested
Underwriters at Lloyd's, London v. Layne, 26 F.3d 39 (6th Cir.
1994), Lloyd's had brought a declaratory judgment action seeking
to deny coverage under a policy. Defendants were Tennessee
citizens and the plaintiff Lloyd’s underwriters were citizens of
Great Britain. Defendants, who sought to vacate an adverse
judgment, argued that the plaintiff-underwriters were really
agents or representatives of the subscribing Syndicates. Thus,
Defendants argued that the court should have looked to the
citizenship of the subscribing Syndicates in order to determine
whether the parties were completely diverse. Analogizing a
Lloyd's Syndicate to an unincorporated association, defendants
argued that a Lloyd's Syndicate has the citizenship of every Name
in the Syndicate.
The Sixth Circuit began its analysis with the "real party to
the controversy test." Id. at 42 (citing Carden, 494 U.S. at 187
n.1; Wright, Federal Practice & Proc. § 1556 (2d ed. 1990)).
No. 03-10185
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Under this test, if one of the "nondiverse" parties is not a real
party in interest, and is purely a formal or nominal party, his
presence may be ignored when determining jurisdiction. Id.
(citing Salem Trust Co. v. Manuf. Fin. Co., 264 U.S. 182 (1924)).
Noting that Federal Rule of Civil Procedure 17(a) requires that
every action be prosecuted in the name of the "real party in
interest," the court stated that the "real party in interest
analysis turns upon whether the substantive law creating the
right being sued upon affords the party bringing the suit a
substantive right to relief. Id. at 43 (citing Swanson v.
Bixler, 750 F.2d 810, 813 (10th Cir. 1984); American Nat'l Bank &
Trust Co. v. Weyerhaeuser Co., 692 F.2d 455, 459-60 (7th Cir.
1982); Wright, supra, § 1544 at 340). The Sixth Circuit, citing
Erie Railroad v. Tompkins, 304 U.S. 64 (1938), concluded that
Tennessee law should apply to determine whether the plaintiff-
underwriters had a substantive right to relief. Id.
Applying Tennessee law, the Sixth Circuit concluded that the
plaintiff-underwriters were liable on the contract because they
had functioned as agents for undisclosed principals (the
Syndicates). Because under Tennessee law an agent for an
undisclosed principal is personally liable on a contract, the
underwriters were found to be real parties in interest. Id. at
43. Further, under Tennessee law, once the agent is sued, the
principal is no longer liable. Thus, once the agent
(underwriter) became the party sued, the principal (Syndicates)
No. 03-10185
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had no further interest in the case. Id. Given that the
Syndicates had no interest in the case after the underwriter was
sued, they were not real parties to the controversy and their
citizenship could be ignored. Id. Accordingly, the court looked
only to the citizenship of the plaintiff-underwriters when
determining whether complete diversity existed.
Four years later, the Seventh Circuit decided Indiana Gas
Co. v. Home Insurance Co., 141 F.3d 314 (7th Cir. 1998). Indiana
Gas sued its insurers for indemnity on environmental cleanup
costs. While the case was on appeal, the parties informed the
court that at least one subscribing Name on the Lloyd’s policy
was a citizen of Indiana--the same state of citizenship as the
plaintiff Indiana Gas. The Seventh Circuit focused its analysis
on the Syndicates as the appropriate entities to either sue or be
sued on a Lloyd’s policy. Concluding that a Syndicate had all
the characteristics of a limited partnership, the court concluded
that a Syndicate has the citizenship of every Name belonging to
the Syndicate just as a partnership has the citizenship of every
partner. Id. at 317. The court noted that this rule applied to
partnerships regardless of whether partners were named in the
lawsuit. Id. at 317. The Seventh Circuit interpreted Carden v.
Arkoma Associates, 494 U.S. 185 (1990), as articulating a general
rule that every association other than a corporation must be
treated like a partnership for citizenship purposes. Id. Thus,
according to the Seventh Circuit, the Syndicates must be treated
No. 03-10185
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as entities and the citizenship of every subscribing Name must be
considered when determining a Syndicate’s citizenship. Just as a
plaintiff cannot ignore non-diverse partners to save
jurisdiction, a plaintiff cannot ignore or dismiss non-diverse
Names in a Syndicate. Id. at 317.
In reaching its conclusion, the Seventh Circuit rejected
every aspect of Layne, concluding that the Sixth Circuit had
failed to factor in that liability vel non on a contract does not
control the citizenship inquiry. Id. at 319. For instance,
limited partners cannot be sued and are not liable for a
partnership’s acts yet their citizenship cannot be ignored. Id.
According to Indiana Gas, the underwriting Syndicates must be
treated like partnerships when determining citizenship. Id.
Thus, pursuant to Carden, the citizenship of every Name on the
policy must be considered when determining whether diversity is
complete.
Later that same year, the Second Circuit decided E.R. Squibb
& Sons, Inc. v. Accident & Casualty Insurance Co., 160 F.3d 925
(2d Cir. 1998) ("Squibb I"). In Squibb I, a coverage dispute
against Lloyd's had been pending in the district court for nearly
sixteen years and had culminated in a jury verdict favorable to
Squibb. When the case finally hit the appellate court, the
Second Circuit sua sponte questioned whether diversity was
complete because the lead underwriter had been sued as a
representative of all underwriters who had subscribed to the
No. 03-10185
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policy. Id. at 928. The Second Circuit rejected the Layne
court's analysis and agreed with Indiana Gas in so far as the
Seventh Circuit had concluded that a lead underwriter sued in a
representative capacity must reflect the citizenship of every
Name subscribing to the policy. Id. at 939-40. After all,
“federal courts must look to the individuals being represented
rather than their collective representative to determine whether
diversity of citizenship exists.” Squibb I, 160 F.3d at 931
(citing Northern Trust Co. v. Bunge Corp., 899 F.2d 591, 594 (7th
Cir. 1990)). Because the underwriter was sued as representative,
and because the record failed to reflect the citizenship of all
Names, subject matter jurisdiction was questionable.
However, the Second Circuit went beyond Indiana Gas and
surmised that the jurisdictional problems surrounding Lloyd’s
grew only out of the lead underwriter’s decision to sue in a
representative capacity. In other words, the Squibb I court
postulated that where the lead underwriter sues or is sued only
in his individual capacity, the existence of jurisdiction depends
solely on the lead underwriter’s citizenship. Id. at 936. It
would not depend on the status of the other Names who, though
members of the Syndicates at risk, would not be direct parties to
the litigation. Id. The Second Circuit rejected the notion that
the non-party Names’ citizenship would have to be considered
simply because they too would be bound by whatever judgment is
rendered against the only Name sued. Id. The Second Circuit
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reasoned that a federal court does not lose jurisdiction simply
because a non-diverse non-party is contractually bound to
indemnify the diverse parties. Id. As long as the party being
sued is a real party to the controversy, the fact that the case
will determine the rights of non-diverse litigants through
collateral estoppel or preclusion does not affect jurisdiction.
Id. Because the lead underwriter is severally liable on the
policy, he is a real party to the controversy. Id. at 937.
Thus, where he appears in the litigation solely on an individual
basis, only his citizenship need be considered. Id.
The Squibb I court also found that the Supreme Court’s
Carden decision was not an impediment. Because Carden applies
only to formal entities created under state law, it does not
apply in a Lloyd’s context where no formal entity is a party to
the suit. Id. at 937. The Squibb I court was unconvinced that
Syndicates are formal entities because “[t]he contractual
provision that obligates a Name to abide by the judgment rendered
against any other Name runs vertically between the insured and
each Name, not horizontally from Name to Name.” Thus, a Lloyds
policy taken as a whole is really “a series of independent
bilateral contracts from insurer to insured.” Id. The Names are
bound in contract to the insured and not to each other and a
Syndicate bears no liability. See id. Therefore, taken as a
whole, a Syndicate does not constitute an entity. Id. Rather
than render its decision, the Second Circuit concluded that the
No. 03-10185
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case should be remanded to the district court for a determination
in the first instance of whether British law and the policy in
dispute would allow a suit to proceed against a Name individually
and whether the non-party names could be dismissed as dispensable
parties. Id. at 936-37, 940.
On remand, the district court concluded that British law and
the contracts at issue would permit the suit to proceed against a
Name in his individual capacity. E.R. Squibb & Sons, Inc. v.
Accident & Cas. Ins. Co., No. 82 Civ. 7327JSM, 1999 WL 350857, at
*5 (S.D.N.Y. June 2, 1999), aff’d, 241 F.3d 154 (2d Cir. 2001).
The court went on to conclude that the other Names were
dispensable parties under Rule 19(b) because all Names were
contractually bound by the policies and by the rules of Lloyd’s
to abide by any judgment rendered against the lead underwriter.
Id. at *13. Thus, dismissing the representative claims against
the lead underwriter would have no practical effect on any other
Name. Id. Because the citizenship of the lone underwriter was
diverse from every other opposing party, diversity jurisdiction
was met.6 The Second Circuit ultimately affirmed. E.R. Squibb &
Sons, Inc. v. Lloyd’s & Cos., 241 F.3d 154 (2d Cir. 2001)
(“Squibb II”).
Between Squibb I and Squibb II, the Third Circuit decided
6
The court also noted that the claim against the individual
Name met the amount in controversy requirement. See Squibb, 1999
WL 350857, at *5.
No. 03-10185
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Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co.,
and held that the citizenship of the underwriter sued on the
policy is the only citizenship relevant for diversity purposes.
177 F.3d at 223. The insured had sued “Certain Underwriters at
Lloyd’s, London subscribing to Insurance Policies [specifically
enumerated].” Id. at 216. The parties later stipulated to an
amended complaint in which one of the individual underwriters “on
behalf of himself and all other Underwriters at Lloyd’s, London,
subscribing to [specifically enumerated policies]” substituted
for “Certain Underwriters.” The parties also stipulated that any
final judgment for or against the sole party underwriter would be
binding on those underwriters subscribing to the enumerated
policies.7 Prior to the entry of final judgment, the parties
brought to the court’s attention a decision rendered by another
court in the same district in which the district court held that
the citizenship of all underwriters on a Lloyd’s policy had to be
taken into account in determining diversity jurisdiction,
Lowsley-Williams v. North River Ins. Co., 884 F. Supp. 166
(D.N.J. 1995). No party, however, challenged jurisdiction and
the court proceeded to enter final judgment.
On appeal, the Third Circuit, without reference to any other
circuit court decision, held that the citizenship of the
7
The Third Circuit did not mention the contractual
provision typically contained in a Lloyd’s policy in which each
Name agrees to abide by a judgment rendered against any other
Name.
No. 03-10185
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underwriter sued on the policy was the only citizenship relevant
for diversity purposes. 177 F.3d at 223. Although the amended
complaint alleged that the underwriter was there individually as
well as in a representative capacity, the Third Circuit concluded
that the claim was really only one against the named underwriter
individually. Id. at 222. The court reasoned that the plaintiff
had not brought suit against the underwriter as an agent of the
other underwriters or against the Syndicates of which they were
members or against the underwriter as agent for his Syndicate.
Id. at 222 & n.14. The court also noted that the Names shared no
common liability, each being liable only for the share of the
risk each had assumed. Id. at 222. Moreover, the district court
had not certified a defendant class of underwriters, which
according to the Third Circuit, would have been the only way that
the underwriter could have truly been sued in a representative
capacity. See id. Thus, the claim against the underwriter was
one against him individually. And because each Name was liable
only for his share of the risk, and because joint and several
obligors are not necessary defendants under Rule 19(a), plaintiff
was entitled to sue less than all of the Names. Id. at 223 n.16.
Further, the Third Circuit concluded that the parties’
stipulation that the judgment against the named underwriter would
bind all others did nothing to affect jurisdiction because the
stipulation did not place any of those other underwriters before
the court. Id. at 223. Moreover, the named underwriter was not
No. 03-10185
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a party sued only to manufacture jurisdiction because the named
underwriter was a Name who had subscribed to the policy thereby
giving the plaintiff a valid claim against him. See id. n.16.
Because the named underwriter was the only underwriter named in
the complaint, only his citizenship was relevant to the exercise
of diversity jurisdiction. Id. at 223.
In the current posture of the instant case, Liberty is suing
only in its individual capacity as lead underwriter on the
Policy. Thus, Liberty’s case is presented to us in the exact
procedural posture suggested by the Second Circuit in Squibb I
and ultimately approved by the Second Circuit in Squibb II. We
find the Second Circuit’s approach to be based upon sound
reasoning.
At the outset, Liberty is without question a real and
substantial party to the controversy. Aetna Cas. & Surety Co. v.
Iso-Tex, Inc., 75 F.3d 216, 218 (5th Cir. 1996) (citing Navarro
Savings Ass’n, 446 U.S. at 460, 100 S. Ct. at 1781). Liberty is a
subscribing Name on the Policy and is therefore directly bound
via contract to DGH, the insured. Liberty’s personal stake in
the outcome is approximately $163,950.00. Therefore, this is not
the situation where an agent with no personal stake in the
controversy attempts to sue on behalf of his non-diverse
principal in order to create diversity. Chemical Leaman, 177
F.3d at 223 n.16; see Navarro Savings, 446 U.S. at 465, 100 S.
No. 03-10185
-22-
Ct. at 1784. Liberty faces actual liability for the risk it
assumed and therefore is a real party to the controversy.8
Moreover, pretermitting the Lloyd’s issue, the district
court would have diversity jurisdiction over Liberty’s individual
claim against DGH. Liberty is a British citizen and DGH is a
citizen of Texas, Delaware, and New York. Thus, Liberty and DGH
are completely diverse in citizenship. Further, Liberty’s
potential liability on the Policy is $163,950.00, a sum well in
excess of the jurisdictional amount.
Given that Liberty is a real party to the controversy and
that the district court would have jurisdiction over Liberty’s
individual claim, the next logical question is whether a Name on
a Lloyd’s policy can be sued individually by an insured.9 In
Indiana Gas, the Seventh Circuit answered that question in the
negative but we find no legal support for such a conclusion--a
conclusion reached without discussion, analysis, or citation to
8
It is unclear from the record whether Corfield, the
original plaintiff, was a real party to the controversy.
Although Corfield is referred to as the active underwriter for
Syndicate 190, Liberty is the sole Name in Syndicate 190. Thus,
Corfield might very well have had no personal stake in the
litigation.
Given that this matter is before us solely on the diversity
jurisdiction issue, this Court expresses no opinion as to whether
Liberty’s declaratory judgment action presents a justiciable
controversy between the parties.
9
Neither party briefed whether an insured can sue a Name
individually. As previously noted, this is a declaratory
judgment action brought by Liberty against the insured. Thus
although the Court’s analysis is often structured in terms of an
insured suing on a Lloyd’s policy, all principles should apply
equally to a declaratory judgment action brought by the insurer
against the insured. Neither party has suggested otherwise.
No. 03-10185
-23-
legal authority. As the district court in Squibb observed, “[i]t
would be a strange law indeed that would hold that an individual,
who had so clearly bound himself individually by contract, could
not be sued individually to enforce that contractual obligation.”
Squibb, 1999 WL 350857, at *5. Indeed, the very essence of a
Lloyd’s policy is that it is a collection of individual contracts
running between the insured and each Name. Moreover, the
estoppel provision contained in every Lloyd’s policy, i.e., that
each Name will abide by a judgment rendered against any other
Name, would not be necessary if litigation were always required
to proceed against an underwriter in a representative capacity.
The severability of each Name’s liability to the insured
lends further support to the conclusion that a Name can be sued
individually. As discussed above, a Lloyd’s policy is actually a
collection of many bilateral contracts running between the
insured and each Name. The Names contract directly with the
insured and each Name contracts independently of any other Name.
Because each Name’s liability is several, Liberty’s obligation to
DGH is independent of any other Name’s obligation to the insured.
Simple logic allows for no other conclusion but that an insured
can sue a Name individually.
Having determined that an insured can sue a Name
individually, it does not follow that the citizenship of the
remaining Names on the Policy who are not parties to the case and
are not before the court is relevant to determining whether the
No. 03-10185
-24-
parties are completely diverse. The fact that the Names’
contracts with the insured and the rules of Lloyd’s are
structured such that the other Names are affected by the judgment
against a single Name does not bring those other parties before
the court or make them relevant for the citizenship
determination. Squibb I, 160 F.3d at 936-37; Plains Growers,
Inc. v. Ickes-Braun Glasshouses, Inc., 474 F.2d 250, 252 (5th
Cir. 1973) (“The citizenship of one who has an interest in the
lawsuit but who has not been made a party to the lawsuit . . .
cannot be used . . . to defeat diversity jurisdiction.”);
Chemical Leaman, 177 F.3d at 223. The fact that other parties
are bound by a judgment against one obligor or forced to
indemnify an obligor is insufficient to bring their citizenship
into consideration when they are not parties to the suit. Squibb
I, 160 F.3d at 936 (citing Wheeler v. City of Denver, 229 U.S.
342, 33 S. Ct. 842, 57 L. Ed. 1219 (1913)).10
We reached a similar result in Aetna Casualty & Surety Co.
v. Iso-Tex, Inc., 75 F.3d 216 (5th Cir. 1996). In Aetna
Casualty, Aetna was one of many members of an unincorporated
10
The “real party to the controversy” test does not require
a federal court to consider the citizenship of non-parties who
have an interest in the litigation or might be affected by the
judgment. The “real party to the controversy” test requires
consideration of the citizenship of non-parties when a party
already before the court is found to be a non-stake holder/agent
suing only on behalf of another. See Navarro Savings, 446 U.S.
458, 100 S. Ct. 1779.; see also Carden, 494 U.S. at 188 n.1, 110
S. Ct. 1018 n.1 (rejecting application of the real party to the
controversy test for determining the citizenship of a limited
partnership).
No. 03-10185
-25-
insurance association that insured the risk st issue. Aetna
brought a declaratory judgment action against the insured “as a
member of [the association] . . . for itself and all other
members of such association.” Id. at 218. While Aetna was
diverse from the all defendants, other members of the association
were not of diverse citizenship. We held that complete diversity
was satisfied because neither the association nor the other
members were parties to the suit. Id. We found Aetna’s status
as a representative to be no impediment to jurisdiction because
Aetna’s position was analogous to that of a class representative
under Federal Rule of Civil Procedure 23.2. Under Rule 23.2 the
citizenship of unnamed class members is disregarded. Id. (citing
Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356, 364-66, 41 S.
Ct. 338, 341-42, 65 L. Ed. 673 (1921); Calagaz v. Calhoon, 309
F.2d 248 (5th Cir. 1962)).11 Because Aetna was potentially
liable for its share of the risk, it was a “real and substantial”
party to the controversy. Because Aetna was diverse from all
defendants, the Court had jurisdiction over Aetna’s claim without
regard to the citizenship of any non-parties.
The Supreme Court’s decision in Carden v. Arkoma Associates
does not require a contrary result. In Carden, the Supreme Court
held that the citizenship of every partner in a limited
partnership must be considered for diversity purposes. 494 U.S.
11
Of course in the instant case, Liberty is suing only on
behalf of itself having dropped all allegations that it intends
to sue as a representative of the other subscribing Names.
No. 03-10185
-26-
at 195-96, 110 S. Ct. at 1021. In so holding, the Supreme Court
clarified that every artificial entity, other than a corporation,
takes its citizenship from all of the members comprising the
entity. Id. DGH argues that Carden compels the conclusion that
every Name in a Syndicate must be considered because a Syndicate
is an artificial entity. Assuming arguendo that a Syndicate is
an artificial entity, a conclusion in and of itself open to
debate, see Squibb I, 160 F.3d at 929; Chemical Leaman, 177 F.3d
at 221, the citizenship of the Syndicates is of no relevance
because they play no role in litigation over a Lloyd’s policy.
It is well-settled that Syndicates are not liable on Lloyd’s
policies--only individual Names are liable even though they
subscribe to risks via Syndicates. The insured has no
contractual relationship with a Syndicate because Syndicates do
not insure risks. Thus, an insured has no claim against a
Syndicate for coverage under a Lloyd’s policy. While Carden
might apply if the citizenship of the Syndicates were relevant,
it does not apply to make the citizenship of the other non-party
Names, who are not members of an entity currently before the
court, relevant to diversity jurisdiction.
DGH’s reliance on Royal Insurance Co. v. Quinn-L Capital
Corp., 3 F.3d 877 (5th Cir 1993), is likewise misplaced. In
Royal we held that the citizenship of an attorney in fact through
whom a group of underwriters acts to issue insurance is
irrelevant for jurisdictional purposes. Id. at 882-83. The
No. 03-10185
-27-
plaintiff was a Lloyd’s-type plan organized under Texas law.
Under Texas law such plans are unincorporated associations.
Because the association itself was a party to the suit, we
naturally concluded that the citizenship of each underwriter had
to be considered for diversity purposes. Id. at 883. The
citizenship of the association’s attorney-in-fact was irrelevant
because he was not a member of the association. Given that Royal
dealt with the citizenship of an association as a party, Royal
has no bearing on whether the citizenship of all Names on a
Lloyd’s of London policy must be considered when an underwriter
is sued individually.
In sum, the district court had subject matter jurisdiction
over this claim because DGH is alleged to be a citizen of Texas,
Delaware, and New York, and Liberty is alleged to be a citizen of
the United Kingdom. Liberty’s 32.79 percent of risk is
approximately $163,950.00, an amount well in excess of the
jurisdictional amount. The other subscribing Names are not
parties before the Court and their citizenship need not be
considered when determining whether the parties are completely
diverse. Thus, the district court erred in dismissing the action
for lack of subject matter jurisdiction.
REVERSED AND REMANDED.