The opinion of the court was delivered by: Kram, District Judge.
This case concerns a dispute over an insurance claim for lost
or missing coffee. Presently before the court is defendant
Balfour Maclaine International's and Van Ekris & Stoett, Inc.'s
motion to dismiss pursuant to Rule 12(b)(1) of the Federal
Rules of Civil Procedure. Plaintiff and the moving defendant
have also cross-moved against each other for sanctions.
According to the Complaint in this case, Atlantic Mutual
Insurance Co. ("Atlantic") issued a Marine Open Cargo Policy
("the Policy") to defendant Balfour Maclaine International,
Ltd. ("Balfour") providing insurance
coverage for coffee, among other goods, and including a "Shore
Risks Coverage" clause extending coverage to goods or
merchandise that were physically stored at insured locations.
In October 1990, defendant Balfour and its subsidiary,
defendant Van Ekris & Stoett, Inc. ("Van Ekris") made a claim
for $22,096,055.43 under the Policy for the physical loss of
approximately 165,564 bags of coffee weighing over 25,000,000
pounds which were allegedly stored in certain Mexican
warehouses. Atlantic then brought this declaratory judgment
action against Balfour, Van Ekris, and numerous banks to obtain
a determination that it is not liable under the Policy.
Atlantic asserts that the question of insurance coverage
under the Policy creates an actual case or controversy under
the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, and
that the maritime nature of the contract brings the controversy
within the federal district courts' admiralty and maritime
jurisdiction, 28 U.S.C. § 1333. Atlantic maintains that
defendants have not brought forward sufficient evidence to
substantiate their claim that the coffee was ever physically
stored in insured Mexican warehouses, and therefore are not
entitled to recover under the policy. Complaint, ¶¶ 38-40. Even
assuming that coffee was stored at insured locations in Mexico
and that coverage does exist, Atlantic alleges that defendants
have failed to produce sufficient proof of loss and/or amount
of loss. Complaint, ¶¶ 42-44. Atlantic seeks a judgment
declaring that there is no coverage for defendants' claim under
the Policy; that if there is coverage, defendants' evidence is
insufficient to prove a claim in the amount of $23,096,055.43;
and that plaintiff is entitled to an inspection of defendants'
records, accounts and books pertaining to goods insured under
the policy, in accordance with the "Inspection of Records"
clause of the Policy.
Defendants Balfour and Van Ekris have moved for dismissal for
lack of subject matter jurisdiction in accordance with Rule
12(b)(1) of the Federal Rules of Civil Procedure. They argue
that there is no maritime jurisdiction. They reason that since
Atlantic admits that the alleged losses occurred while in
storage in Mexico, the subject of the claim in question has
nothing to do with the sea and therefore precludes an assertion
of admiralty jurisdiction. Affidavit of Keith F. Dalen, Esq.,
dated December 7, 1990 (hereinafter "Dalen Aff. I") ¶ 5.
Additionally, defendants have submitted affidavits stating that
the lost coffee was intended to be transported by truck and not
by maritime transportation to Laredo, Texas. Affidavit of
Jeffrey Mayer, dated November 15, 1990 (hereinafter "Mayer
Aff.") ¶ 3; Affidavit of Carl F. Kimling, dated November 15,
1990 (hereinafter "Kimling Aff.") ¶ 3.
Defendants have also moved for sanctions under Rule 11 of the
Federal Rules of Civil Procedure, claiming that Atlantic's
Complaint is neither well-grounded in fact nor interposed for
a proper purpose. Defendants allege that Atlantic continued to
investigate the insurance claim after this action was
commenced; consequently, Atlantic's allegation in the Complaint
that they had denied the claim was false. Dalen Aff. I ¶¶ 6, 7,
16, 17. Additionally, defendants argue that Atlantic brought
this action solely to insure federal jurisdiction for any
future litigation in order to gain a tactical advantage over
the defendants. Mayer and Kimling Affidavits, ¶¶ 7; Defendants'
Memorandum of Law in Support of Motion, at 10. Plaintiffs have
responded with their own request for costs against defendants
for opposing the motions. Affidavit of John A.V. Nicoletti,
dated January 9, 1991 (hereinafter "Nicoletti Aff.") ¶ 27.
I. Subject Matter Jurisdiction
In considering a motion to dismiss for lack of subject matter
jurisdiction, the complaint is to be construed broadly and
liberally, Becker v. Beame, 454 F. Supp. 867, 868 (S.D.N Y
1978), and all material factual allegations in the complaint
are to be accepted as true. Scheuer v. Rhodes, 416 U.S. 232,
236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Niederhoffer,
Cross & Zeckhauser, Inc. v. Telstat Systems, Inc.,
436 F. Supp. 180, 181 n. 1 (S.D.N.Y. 1977). However, federal
courts are courts of limited jurisdiction, and the burden of
establishing subject matter jurisdiction remains with the party
asserting jurisdiction. Thomson v. Gaskill, 315 U.S. 442, 446,
62 S.Ct. 673, 675, 86 L.Ed. 951 (1942); Freeman v. Gordon and
Breach, Science Publishers, Inc., 398 F. Supp. 519, 520
(S.D.N.Y. 1975). Additionally, argumentative inferences
favorable to the pleader should not be drawn. Norton v. Larney,
266 U.S. 511, 515, 45 S.Ct. 145, 147, 69 L.Ed. 413 (1925). Both
the movant and the pleader may use affidavits and other
extra-pleading material to support or contest the existence of
subject matter jurisdiction. Land v. Dollar, 330 U.S. 731, 735
n. 4, 67 S.Ct. 1009, 1011 n. 4, 91 L.Ed. 1209 (1947); Exchange
Nat. Bank v. Touche Ross & Co., 544 F.2d 1126, 1131 (2d Cir.
B. Admiralty Subject Matter Jurisdiction
The issue of subject matter jurisdiction in admiralty over
contracts is often contentious. "The boundaries of admiralty
jurisdiction over contracts — as opposed to torts or crimes —
being conceptual rather than spatial, have always been
difficult to draw." Kossick v. United Fruit Co., 365 U.S. 731,
735, 81 S.Ct. 886, 890, 6 L.Ed.2d 56 (1961). Contracts have
been held to be within admiralty jurisdiction if its subject
matter is maritime, Insurance Co. v. Dunham, 78 U.S. (11 Wall.)
1, 20 L.Ed. 90 (1871), and include contracts for maritime
insurance. Id.; see Big Lift Shipping Co. (N.A.), Inc. v.
Bellefonte Ins. Co., 594 F. Supp. 701, 704 (S.D.N.Y. 1984).
Ordinarily, a contract must be wholly maritime in nature to
fall under federal admiralty jurisdiction. See, e.g., Simon v.
Intercontinental Transport (ICT) B.V., 882 F.2d 1435, 1442 (9th
Cir. 1989); Cary Marine, Inc. v. Motorvessel Papillon,
872 F.2d 751, 754 (6th Cir. 1989).
Despite the apparent absolute nature of the "purely maritime"
rule for contracts under admiralty jurisdiction, the federal
courts have developed a few exceptions to the rule. Relevant to
this case are those situations where admiralty jurisdiction is
found to govern "mixed" contracts, i.e. contracts combining
maritime and nonmaritime subject matter or obligations. The
lead case in this circuit on the topic of contracts of a mixed
nature is Compagnie Francaise de Navigation a Vapeur v.
Bonnasse, 19 F.2d 777 (2d Cir. 1927), cert. denied,
275 U.S. 551, 48 S.Ct. 114, 72 L.Ed. 421 (1927). There, Judge Hand
[T]he rule that a contract to be within the
jurisdiction of the admiralty must be wholly
maritime. . . . is usually not misleading.
(Citations omitted) The reason for it is plain
enough. A contract both maritime and nonmaritime
is ordinarily indivisible, so that the rights of
the parties cannot be adjusted separately, those
maritime in the admiralty, and the rest elsewhere.
Admiralty must refuse to assume any jurisdiction
over it at all, because it must either ignore the
principles of the law of contract, or extend its
powers beyond their constitutional scope. But in
so far as the maritime obligations may,
consistently with those principles, be separately
adjudicated, there is no objection to the
jurisdiction of the admiralty pro tanto. . . . The
mere fact that the contract covers a
subject-matter of both kinds is not therefore
decisive; that would make the mere form control.
The substantial question is whether the maritime
obligations can be separately enforced without
prejudice to the rest.
19 F.2d at 779 (emphasis added). Courts following Judge Hand's
analysis consider that mixed contracts fall under admiralty
jurisdiction if the maritime portions of the contract are
"separable" from the nonmaritime portions or if the nonmaritime
elements are only "incidental" or "not substantial" relative to
the maritime elements. See, e.g., Kuehne & Nagel v. Geosource,
Inc., 874 F.2d 283, 290 (5th Cir. 1989); Puerto Rico Maritime
Shipping Auth. v. Luallipam, Inc., 631 F. Supp. 1472, 1474
(D.P.R. 1986); Outbound Maritime Corp. v. P.T. Indonesian
Consortium of Constr. Industries, 582 F. Supp. 1136, 1142 (D.Md.
1. Separately Enforceable Maritime Obligations
Compagnie Francaise states that admiralty jurisdiction exists
over claims involving maritime obligations in contracts
containing both maritime and nonmaritime obligations as long as
the maritime obligations can be separately adjudicated and
enforced without prejudice to the rest. 19 F.2d at 779. The
Second Circuit in Berwind-White Coal Mining Co. v. New York
similarly decided that federal courts retain jurisdiction over
cases involving "mixed contracts whose maritime subject matter
is capable of being divided form the rest so that the rights of
the parties which flow from the non-maritime part of the
contract may be, if necessary, litigated separately and only
that part which is maritime be put in issue in the admiralty
suit." 135 F.2d 443, 447 (1943). That case involved a contract
allowing a railroad to extend its tracks by means of a trestle
to its leased pier, but obligating the railroad to restore the
bed if ...