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CONSTITUTION REINSURANCE CORP. v. STONEWALL INS. C

January 3, 1995

CONSTITUTION REINSURANCE CORPORATION, Plaintiff, against STONEWALL INSURANCE COMPANY, Defendant.


The opinion of the court was delivered by: PETER K. LEISURE

 LEISURE, District Judge,

 This is an action for a declaratory judgment. Plaintiff is Constitution Reinsurance Corporation ("Constitution"), a New York corporation with its principal place of business in New York, New York. Defendant is Stonewall Insurance Corporation ("Stonewall"), an Alabama corporation with its principal place of business in Birmingham, Alabama. Constitution seeks a declaration that it is not obligated to pay a claim that Stonewall has filed with Constitution pursuant to two reinsurance agreements between the parties. The amount in controversy exceeds $ 50,000 exclusive of interest and costs. This Court has subject matter jurisdiction based on diversity of citizenship pursuant to 28 U.S.C. § 1332.

 Stonewall has moved to dismiss the action for improper venue or, alternatively, to transfer the action to the Northern District of Texas pursuant to 28 U.S.C. § 1404(a). For the reasons stated below, Stonewall's motion is denied in its entirety.

 BACKGROUND

 A drunk driver killed the parents of a young child in Hidalgo County, Texas, in 1983 (the "Accident"). In 1987, the child's legal guardian brought an action in Texas state court against Economy Oil Company ("Economy"), alleging that Economy had sold beer to the drunk driver shortly before the Accident, but that Economy should have recognized that driver was already drunk and therefore refused to make the sale (the "Child's Action"). In 1989, Economy filed for Chapter 11 bankruptcy in the Northern District of Texas, and the Child's Action was removed to the Bankruptcy Court. In December 1991, the Bankruptcy Court lifted the stay and allowed the Child's Action against Economy to proceed. Economy defaulted, and in 1992, the Bankruptcy Court entered judgment in favor of the child against Economy in the amount of $ 14,234,257.80 (the "Default Judgment").

 On February 28, 1994, Stonewall filed a claim with Constitution for the amount of the Settlement, pursuant to two facultative reinsurance certificates that Constitution had issued to Stonewall reinsuring the Underlying Policy (the "Reinsurance Contracts"). Constitution denied liability on Stonewall's claim on March 18, 1994, and instituted this action for a declaratory judgment. Constitution here alleges that the Reinsurance Contracts do not obligate Constitution to pay a claim by Stonewall that arises out of a settlement of claims against Stonewall that were not made pursuant to the Underlying Policy. Constitution further alleges that Stonewall entered into the Settlement, not out of concern that Stonewall would be held liable in the Texas Action pursuant to the Underlying Policy, but out of concern that Stonewall would be held liable on Economy's other claims against Stonewall. Constitution therefore concludes that the Reinsurance Contracts do not obligate Constitution to pay Stonewall's claim against it. Stonewall responds that it entered into the Settlement, in part, out of concern that it would be held liable in the Texas Action pursuant to the Underlying Policy -- either because the district court would reconsider its grant of summary judgment for Stonewall on the Liquor Liability point, or because the district court's grant of summary judgment on this point would be reversed on appeal. Stonewall, of course, concludes that the Reinsurance Contracts do obligate Constitution to pay Stonewall's claim against Constitution.

 DISCUSSION

 Stonewall has moved to dismiss for this action improper venue pursuant to Fed. R. Civ. Pro. 12(b)(3) or, alternatively, to transfer this action to the Northern District of Texas pursuant to 28 U.S.C. § 1404(a). The Court takes these matters up in turn.

 I. Venue.

 Stonewall argues that venue is not proper in this District pursuant § 1391(a)(2) because the Underlying Policy was entered into in Texas, and the Accident and Settlement occurred in Texas. Constitution responds that venue is proper here under § 1391(a)(2) because the Reinsurance Contracts were negotiated by means of telephone calls and facsimile transmissions between New York and Texas; Constitution executed the Reinsurance Contracts in New York; and the Reinsurance Contracts were to be performed by Constitution in New York.

 Section 1391(a)(2) provides that venue is proper in a diversity action, if the action is filed in a "judicial district where a substantial part of the events or omissions giving rise to the claim occurred. . . ." 28 U.S.C. § 1391(a)(2) (1991). The current formulation of § 1391(a)(2) is the result of an amendment effected by the Judicial Improvements Act of 1990, Pub. L. No. 101-650, Title III, § 311, 104 Stat. 5114 (1990), and supersedes a requirement that a diversity action be brought in the district where "the claim arose." 28 U.S.C.S. § 1391(a) (Supp. 1994). The amendment evinces Congress' intent that venue may be proper in more than one federal district in a given case. See Bates v. C & S Adjusters, Inc., 980 F.2d 865, 868 (2d Cir. 1992) (citing H.R. Rep. No. 734, 101st Cong., 2d Sess. 23, reprinted in 1990 U.S.C.C.A.N. 6860, 6869).

 The standard set forth in § 1391(a)(2) "may be satisfied by a communication transmitted to or from the district in which the cause of action was filed, given a sufficient relationship between the communication and the cause of action." Sacody Technologies, Inc. v. Avant, Incorporated, 862 F. Supp. 1152, 1157 (S.D.N.Y. 1994) (Leisure, J.) (citing Bates, 980 F.2d at 867-68 (interpreting identical language of § 1391(b)(2), applicable in federal question cases: "We conclude that receipt [within the district] of a collection notice is a substantial part of the events giving rise to a claim under the Fair Debt Collection Practices Act."); Gruntal & Co., Inc. v. Kauachi, 1993 U.S. Dist. LEXIS 1216, No. 92 Civ. 2840, 1993 WL 33345, at *2 (S.D.N.Y. Feb. 5, 1993) (venue proper in diversity common-law fraud action based on telephone calls during which allegedly fraudulent representations were made, where one party to calls was within district during calls)); compare Friedman v. Revenue Management of New York, Inc., 38 F.3d ...


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