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C.D.S. DIVERSIFIED v. FRANCHISE FINANCE

March 4, 1991

C.D.S. DIVERSIFIED, INC., A CORPORATION OF THE STATE OF NEW YORK, CLAUDE SHIPMAN AND ROLAND DAVIS, PLAINTIFFS,
v.
FRANCHISE FINANCE CORPORATION OF AMERICA, TICOR TITLE INSURANCE COMPANY, UNITED GUARANTY INSURANCE COMPANY AND FFCA/IIP 1985 PROPERTY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

OPINION AND ORDER

May the Court assert pendent-party jurisdiction over a defendant in a diversity action when the amount in controversy on the claim asserted against that defendant is concededly below the requisite jurisdictional amount?

For the reasons that follow, this Court is of the view that it may not.

I. FACTUAL BACKGROUND

The following facts are derived from the plaintiffs' amended complaint:

Plaintiff C.D.S. Diversified, Inc. ("CDS"), is a New York corporation having its principal place of business in the State of New York. The defendant Ticor Title Insurance Company ("Ticor"), is organized under the laws of California, and maintains its principal place of business in Arizona. Concededly, there is complete diversity of citizenship among all of the parties.

On February 9, 1987, CDS entered into a sale/leaseback agreement with the defendant FFCA/IIP 1985 Property Company ("FFCA")*fn1 in connection with property located at 957 Marcy Avenue, Brooklyn, New York, operated as a Burger King restaurant. The agreement provided that FFCA was to purchase all real property and equipment and, in turn, lease it back to CDS for a period of eight to twenty years.

As a condition of entering into this sale/leaseback arrangement, CDS was required to obtain a rent insurance policy with the defendant United Guaranty Insurance Company ("United Guaranty"), to insure rental payments to FFCA for a period of ten years. In addition, CDS was required to post an $80,000 letter of credit as a further guaranty of rent. Finally, CDS was required to deposit approximately $36,000*fn2 in escrow with Ticor for renovation and/or repair expenses.

Ticor acted as the title insurer as well as escrow agent for the sale/leaseback transaction.

CDS satisfied these conditions, except admittedly failed to pay the September 1988 rental payment of $12,135.42 owed to FFCA. As a result, FFCA terminated the lease for non-payment. Although FFCA did not collect the rent under the insurance policy with United Guaranty, it did collect on the letter of credit from Guardian Bank. In addition, Ticor released the $36,000 that was held in escrow to FFCA.

II. PROCEDURAL SETTING

The plaintiffs commenced this action in August 1989 against FFCA, Ticor and United Guaranty,*fn3 alleging seven causes of action, including wrongful termination of the lease, conversion, fraud and breach of contract. Federal jurisdiction is predicated on diversity of citizenship (see Amended Complaint at p. 1; see also 28 U.S.C. § 1332).

The plaintiffs' seventh cause of action is against Ticor for allegedly converting the plaintiffs' $36,000 which was held in escrow (see Amended Complaint ¶¶ 77-85). The plaintiffs also allege that Ticor conspired with FFCA in converting this amount. This is the only cause of action alleged against Ticor.

Defendant Ticor now moves pursuant to Fed.R.Civ.P. 12(b)(1) to dismiss for lack of subject matter jurisdiction, since the amount in controversy does not exceed the ...


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