American National Fire Ins. Co. v. Mirasco, Inc.

Full title: AMERICAN NATIONAL FIRE INSURANCE CO. and GREAT AMERICAN INSURANCE CO.…

Court: United States District Court, S.D. New York

Date published: Sep 20, 2000

99 Civ. 12405 (RWS) (S.D.N.Y. Sep. 20, 2000)

Opinion

99 Civ. 12405 (RWS)

September 20, 2000

Harold M. Kingsley, Esq., Kingsley Kingsley, Hicksville, NY, for Plaintiffs.

John M. Toriello, Esq., James V. Marks, Esq., Of Counsel, Haight, Gardner, Holland Knight, New York, NY, for Defendant.

ROBERT W. SWEET, District Judge.

Defendant Mirasco, Inc. ("Mirasco") seeks an order dismissing this action for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1).¹ The motion is opposed by plaintiffs American National Fire Insurance Co. ("American National") and Great American Insurance Co. ("Great American") (collectively, "the Insurers").

1 Mirasco initially sought an order in the alternative staying this action pending the outcome of an action filed in the state court of Georgia (the "Georgia Action"). However, the Georgia Action was removed to federal court and transferred to this district per the order of the Honorable Orinda D. Evans, Northern District of George. See Order, Mirasco, Inc. v. American Nat'l Fire Ins. Co. and Great Am. Ins. Co., No. 00 Civ. 947 (N.D.Ga. July 5, 2000) [hereinafter the "Order of Judge Evans"]. Therefore, this portion of Mirasco's motion is moot.

For the reasons set forth below, the motion is denied pending the possible amendment of the complaint.

Parties

American National is an Ohio corporation licensed to do business as a marine insurance company in New York.

Great American is an Ohio corporation licensed to do business as a marine insurance company in New York.

Mirasco is a Georgia corporation with its principal place of business in Georgia.

Prior Proceedings

On December 28, 1999, this declaratory judgment action was instituted by the filing of the complaint by the Insurers. On March 8, 2000, Mirasco filed a complaint for damages against the Insurers in the Superior Court of Fulton County, State of Georgia, i.e., the Georgia Action. On April 12, 2000, the Insurers filed a notice of removal in the federal district court for the Northern District of Georgia and a motion to transfer that action to the Southern District of New York. On May 8, 2000, Mirasco filed a motion to remand the Georgia Action to Georgia state court.

Mirasco argued before the Honorable Orinda D. Evans of the Northern District of Georgia that removal was improper because the notice of removal alleged only admiralty jurisdiction and the Georgia Action does not fall within federal admiralty jurisdiction. On May 15, 2000, the Insurers filed an amended notice of removal and a response in which they asserted, first, that there is federal admiralty jurisdiction over the Georgia Action, and two, that federal jurisdiction is also proper based on diversity of citizenship.

On March 15, 2000, Mirasco moved before this Court for an order dismissing the instant declaratory judgment action for lack of subject matter jurisdiction or, in the alternative, to stay the action pending resolution of the Georgia Action. Submissions were received, and oral argument was heard on May 17, 2000, at which time the matter was deemed fully submitted.

On July 5, 2000, Judge Evans issued an order permitting the Insurers to amend their notice of removal and holding that removal was proper on the ground that there is diversity jurisdiction over the Georgia Action. See Order of Judge Evans at 3-4. Having determined that diversity jurisdiction was proper, Judge Evans declined to determine whether there was admiralty jurisdiction over the Georgia Action. See id. at 6. Finally, Judge Evans ordered the Georgia Action to be transferred to this district in the interest of judicial economy and pursuant to the "first filed" rule. See id. at 11-12.

By letter dated July 14, 2000, the Insurers provided this Court with a copy of the order in the Georgia Action and requested that the instant motion be denied as moot. By letter of July 18, 2000, Mirasco responded that in its view the motion was not moot and that this Court should still determine whether or not there is admiralty jurisdiction over the instant suit.

Facts

The following facts are gleaned from the pleadings, declarations, and exhibits submitted by the parties.

On March 15, 1990, the Insurers issued an insurance policy to Mirasco entitled "Open Cargo Policy No. 7375220" (the "Policy"), which was originally effective March 15, 1990 and which was rewritten effective March 15, 1996. The Policy provides coverage for physical loss or damage to lawful goods in transit.

The Policy covers conveyances:

Per steamer and/or steamers and/or motor vehicles and/or barge and/or sailing vessel and/or land conveyance and/or aircraft and/or mail and/or parcel post and connecting conveyances by land or otherwise.

Policy, Clause 7, "Conveyances".

The Policy includes a "Rejection Coverage" clause (the "Rejection Clause." This clause provides in relevant part that the Policy covers "the risks of rejection or condemnation by the government of the country of import or their agencies or departments during the period of this insurance," see Policy, Rejection Clause, Part A.1., but excluding coverage for the "embargo or prohibition" of goods, see Policy, Rejection Clause, Part D.

The Policy's rate schedule, which applies to certain "steamers or motor vessels" and to "certificated airlines," lists separate premiums for marine, war, and rejection coverage risks, respectively. The rate for rejection coverage for shipments from the United States to Egypt is $2.20 to $4.50 per $100 of insured value, the rate for marine risks is 28.5 cents per $100 of insured value, and the rate for war risks is 1.5 cents per $100 of insured value. See Policy, Schedule of Rates.

On or about December 31, 1998, the vessel M/V Spero, which was chartered by Mirasco, departed Houston, Texas bound for Alexandria, Egypt bearing a cargo of frozen beef livers. The M/V Spero arrived in Alexandria on or about January 23, 1999. However, the Egyptian authorities would not permit the cargo to be landed.

Mirasco ordered the vessel to return to Houston where the cargo was sold as salvage. Mirasco then presented a claim to the Insurers in the amount of $2,946,290.23. The Insurers paid Mirasco $400,000 to cover the cost of the return ocean freight to Houston, but have refused to pay the full amount of the alleged loss on the ground that Mirasco's claim does not meet the requirements of the Rejection Clause. This action then ensued.

Discussion I. Diversity Jurisdiction

American National avers that even if there is no admiralty jurisdiction over this action there is still subject matter jurisdiction based on diversity of citizenship. If there were diversity jurisdiction then the motion to dismiss for lack of admiralty jurisdiction would be moot since there would be an alternative basis upon which to entertain this suit.²

2 In determining whether the Georgia Action was properly removed to federal court, Judge Evans concluded that the Insurers had established complete diversity of citizenship as among Mirasco, American National, and Great American. As explained below, this Court respectfully reaches a different conclusion, namely, that the Insurers have not met their burden in this regard.

A. The Rules Governing Diversity Jurisdiction

The rules governing diversity jurisdiction are familiar and seemingly straightforward in application: Diversity jurisdiction exists where there is complete diversity of citizenship among the parties and the amount in controversy is over $75,000. See 28 U.S.C. § 1332(a)(1), (b), (c)(1). As this case demonstrates, however, imprecision in pleading can easily result in insufficient jurisdictional allegations.

The burden is on the party seeking to invoke diversity jurisdiction to demonstrate that there is complete diversity among the litigants. See Advani Enters., Inc. v. Underwriters at Lloyds, 140 F.3d 157, 160 (2d Cir. 1998) (citations omitted). A corporation is deemed a citizen of any state in which it is incorporated and of the state where it has "its principal place of business." 28 U.S.C. § 1332(c)(1). Thus, the pleadings must contain allegations as to both the state of incorporation and the principal place of business of any corporation. The allegations of complete diversity must be apparent from the pleadings. See John Birch Soc'y v. Nat'l Broadcasting Co., 377 F.2d 194, 197-199 (2d Cir. 1967) (citations omitted). Where a motion to dismiss for lack of subject matter jurisdiction is made, however, the court is not limited to reviewing the complaint but may also examine extra-pleading materials to determine whether there is in fact jurisdiction or whether the nonmoving party may be able to amend the pleading to allege jurisdiction. See generally Charles Alan Wright Arthur R. Miller, 5A Federal Practice and Procedure 1350 (2d ed. 1990).

B. The Plaintiffs' Allegations Of Diversity Jurisdiction Are Defective

The Insurers concede that the only basis for federal jurisdiction explicitly asserted in the complaint is admiralty jurisdiction. They contend, however, that the Court should treat the complaint as amended to include an assertion of diversity jurisdiction since the requirements for such jurisdiction are met. See 28 U.S.C. § 1653 ("[D]efective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts.").

The exhibits and other supplemental materials submitted in connection with the instant motion have been reviewed to determine whether there is complete diversity or whether the Insurers may be able to amend the pleading to properly allege such jurisdiction. In addition, judicial notice is taken of the jurisdictional allegations contained in the amended notice of removal in the Georgia Action.

If the record established complete diversity then the Court could simply deem the complaint to have been amended and the jurisdictional problem would be cured. See Advani, 140 F.3d at 161-62; J R Ice Cream Corp. v. Calif. Smoothie Licensing Corp., 31 F.3d 1259, 1259 n. 3 (3d Cir. 1994). However, there is nowhere in the record a clear statement as to the principal place of businesses of American National and Great American, respectively.

The complaint contains factual allegations pertinent to the question of diversity jurisdiction. Specifically, the complaint states that Insurers "are incorporated under the laws of Ohio and licensed to do business . . . in the state of New York, doing business . . . [in] New York," that Mirasco is "a Georgia corporation with its principal place of business . . . [in] Georgia," and that damages are sought in the amount of $2,546,290.23.

The problem with the jurisdictional allegations in the complaint is that they do not specify the principal place of business for either American National or Great American. A corporation may have only one principal place of business for diversity purposes. See Egan v. Am. Airlines, Inc., 324 F.2d 565, 566 (2d Cir. 1963). Therefore, it is not sufficient to allege that a corporation is licensed to do business in a state, see American Inter-Fidelity Exch. v. Am. Re-Ins. Co., 17 F.3d 1018, 1020-21 (7th Cir. 1994) or that it does business in a state, see Nadler v. Am. Motors Sales Corp., 764 F.2d 409, 413 (5th Cir. 1985).

The closest the Insurers come to making a sufficient jurisdictional allegation is in the amended notice of removal in the Georgia Action, in which it is stated that American National "maintains a principal place of business . . . [in] New York," and that Great American "maintains a principal place of business . . . [in] Ohio."³ An allegation that a corporation has "a" principal place of business in a certain state, however, is not sufficient, because a corporation can have only one principal place of business for purposes of diversity jurisdiction. See J R Ice Cream, 31 F.3d at 1265 (allegation of "a" principal place of business is not proper pleading of diversity jurisdiction); Royal Ins. Co. of America v. Caleb v. Smith Sons, Inc., 929 F. Supp. 606, 608 (D. Conn. 1996) (same); cf. Advani, 140 F.3d at 160 (allegation that corporation has "an office" in New York is not sufficient as to principal place of business requirement).

3 The ambiguity is heightened by the fact that the amended notice of removal uses the proper language with respect to Mirasco, specifying that "its" principal place of business is in Georgia. It is also noted that, oddly enough, the amended notice of removal alleges that American National is incorporated under the laws of New York, while the complaint in this action alleges that it is incorporated under the laws of Ohio.

In all likelihood, the jurisdictional problem here is simply one of inartful pleading. Certainly, there is nothing to indicate that either of the Insurers is incorporated or has its principal place of business in Georgia and, therefore, that diversity would be destroyed on that basis. Nor has Mirasco argued that there is no diversity jurisdiction. However, subject matter jurisdiction cannot be conferred either by guesswork or by agreement of the parties. The Insurers have not established that there is diversity jurisdiction over this action. The record does show, however, that they may be able to amend their pleading to successfully allege such jurisdiction. Moreover, for the reasons explained below, the question of diversity citizenship must be resolved because there is no admiralty jurisdiction over this action. Therefore, the Plaintiffs will be granted leave to amend the complaint to properly allege diversity of citizenship, pursuant to 28 U.S.C. § 1653.

II. Admiralty Jurisdiction A. The Rules Governing Admiralty Jurisdiction Over Contract Disputes

Under 28 U.S.C. § 1333(1), a federal district court may entertain "[a]ny civil case of admiralty or maritime jurisdiction." Admiralty jurisdiction includes "`all contracts . . . which relate to the navigation, business, or commerce of the sea,'" including marine insurance policies. Atlantic Mutual Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 199 (2d Cir. 1992) (quoting DeLovio v. Boit, 7 F.Cas. 418, 444 (C.C.D. Mass. 1815)). However, "[t]he precise categorization of the contracts that warrant invocation of the federal court's admiralty jurisdiction has proven particularly elusive." CTI-Container Leasing Corp. v. Oceanic Operations Corp., 682 F.2d 377, 379 (2d Cir. 1982). However, the Second Circuit has delineated the inquiries required to make this determination.

The first inquiry which the court must make is "whether the subject matter of the dispute is so attenuated from the business of maritime commerce that it does not implicate the concerns underlying admiralty and maritime jurisdiction." Atlantic Mutual, 968 F.2d at 200. The fundamental concern underlying admiralty jurisdiction is "the protection of maritime commerce." See id. (internal citation and quotation marks omitted).

If the concerns underlying admiralty jurisdiction are implicated and the dispute is contractual in nature, the court must then determine whether the contract is maritime in nature. See Atlantic Mutual, 968 F.2d at 199. If the contract is "wholly maritime" in nature, it will sustain admiralty jurisdiction. See id. (emphasis in original) (citations omitted). This rule applies to marine insurance policies. See id.; Advani, 140 F.3d at 161 ("[C]ases involving marine cargo insurance policies fall within the federal court's admiralty jurisdiction, especially when, as here, the policy's provisions exclusively relate to maritime commerce.").

Where, however, the contract contains both maritime and non-maritime obligations, there is generally no admiralty jurisdiction. See Atlantic Mutual, 968 F.2d at 199 (citation omitted). The two exceptions to this rule are where: (1) the claim arises under a maritime portion of a contract and the maritime obligations "can be `separately enforced without prejudice to the rest,'" id. at 199 (citation omitted), or (2) the non-maritime elements are "incidental" to what is otherwise a maritime contract, in which case admiralty jurisdiction extends to the entire contract, see id. (citations omitted).

B. There Is No Admiralty Jurisdiction Over This Dispute

The first question is whether this dispute pertains to maritime commerce. The Insurers seek a declaration of rights under an insurance policy with respect to a clause that encompasses claims for rejection of goods transported by sea vessel. The goods in question were transported by ship to Egypt and remained aboard the vessel at all times, and the actions of the Egyptian authorities caused the vessel to execute a return voyage to Houston. Yet neither the actions taken by the Egyptian authorities nor the refusal of the Insurers to pay Mirasco's claim under the Rejection Clause appear to be based in anything peculiar to maritime commerce. In a case involving similar circumstances the district court found that there was no admiralty jurisdiction. See Certain Underwriters Subscribing to the Inst. of London Underwriters Policy v. Apwel, No. 90 C 4769, at *1-*2 (N.D.Ill. May 17, 1991) (shipper's claim under rejection insurance for cargo rejected by FDA did not implicate maritime commerce because neither insurer's refusal to pay nor FDA testing and decision were specific to fact that cargo was shipped by sea). Arguably, however, the subject matter of this dispute does implicate maritime commerce and, thus, the concerns of admiralty jurisdiction. See In re Balfour MacLaine Int'l, 85 F.3d 68, 75 (2d Cir. 1996) (maritime commerce implicated by dispute involving declaration of rights under insurance policy with respect to clause encompassing coverage of goods stored in warehouses during, inter alia, transhipment or reshipment from overseas). The inquiry, however, does not end there.

The second question is whether the contract at issue is "wholly maritime" in nature. Marine insurance is generally understood to be concerned specifically with hazards encountered in maritime insurance. See Acadia Ins. Co. v. McNeil, 116 F.3d 599, 601 (1st Cir. 1997) (citations omitted); Lee R. Russ, 9 Couch on Ins. § 137:1 (3d ed. 2000). The Policy contains both maritime and non-maritime obligations. For example, it covers conveyances not only by sea vessel but also by other means such as aircraft. The Rejection Clause itself is not limited to the transportation of cargo by sea. The premium rate schedule applies both to certain "steamers or motor vessels" and to "certificated airlines." Thus, the Insurers' reliance on Advani, 140 F.3d at 161, is misplaced, because in that case the Second Circuit held that there was admiralty jurisdiction over a marine cargo insurance policy with "provisions exclusively relat[ing] to maritime commerce." The provisions of the policy here do not relate exclusively to maritime commerce. Therefore, the Policy is not wholly maritime and admiralty jurisdiction does not lie unless one of the two exceptions delineated above is met.⁴

4 The Insurers also rely on Sirius Ins. Co. v. Paul Collins, 16 F.3d 34 (2d Cir. 1994), which is also unhelpful. In that case, the insured's boat had been stolen, albeit while on shore, and the insured sought coverage under a theft policy. See id. at 35. The court concluded that there was admiralty jurisdiction because "[t]here are few objects — perhaps none — more essentially related to maritime commerce than vessel. . . . [W]hether theft of a vessel occurs while it is afloat or ashore, the impact of the theft is on maritime commerce. Policies providing insurance covering such theft relate importantly to the protection of maritime commerce." See id. at 36-37. In this case, neither the cargo which Mirasco was unable to land — beef livers — nor the conduct of the Egyptian authorities is essentially related to maritime commerce.

The Rejection Clause is not a maritime portion of the contract because it is not limited to claims concerning cargo that was transported by sea. The fact that in this case the goods were in fact shipped by sea does not render the Rejection Clause a maritime component of the Policy. Therefore, the first exception does not apply. Nor do the Insurers contend otherwise. Rather, they aver that any "land-based elements" of the Policy are "incidental" to what is otherwise a maritime insurance contract. If this were correct then admiralty jurisdiction would encompass the entire contract. However, the fact that the Policy is not limited to shipments by sea but includes, for example, shipments by air weighs strongly against considering the non-maritime elements to be merely incidental. See Terra Nova Ins. Co., Ltd. v. Acer Latin America, Inc., 931 F. Supp. 852, 856 (where relevant provisions of "marine cargo" policy applied to shipments by sea, air, or land, the non-maritime elements were not merely incidental to the policy). Another consideration is that the rejection coverage is separately rated. See Balfour, 85 F.3d at 75 (non-maritime obligation that required separate premium and separate declaration, and accounted for considerable volume of insured cargo, was not "merely incidental"). Nor do the cases cited by the Insurers warrant a different conclusion, since those cases concern a theft policy for a vessel, see Sirius, 16 F.3d at 36-37, and a marine insurance policy that contained exclusively maritime-related provisions, see Advani, 140 F.3d at 161.

Admiralty jurisdiction does not obtain over this dispute. However, since it appears that the Insurers may be able to successfully allege diversity jurisdiction, the motion to dismiss will not be granted without giving them an opportunity to cure their defective allegations in that regard.

Conclusion

Therefore, for the reasons set forth above the motion to dismiss is denied pending resolution of the issue of diversity jurisdiction. The Insurers shall have thirty days (30) from the date of this opinion to amend their complaint or the case will be dismissed for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1).

It is so ordered.