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September 13, 1991


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.


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

A. Standards

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. 1976).

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 stated that

  [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. 1984).

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 ...

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