I. FACTUAL BACKGROUND
A. The State Action
The dispute between United and Waterfront originated when Lourdes Ortiz commenced an action in Supreme Court, New York County (the "Ortiz action"), against Waterfront and The Tunnel, alleging that she had been raped while in the discotheque.
See Affidavit of Richard Imbrogno ("Imbrogno Aff."), counsel for Waterfront, dated May 18, 1995. Waterfront was initially defended in the Ortiz action by counsel appointed by its insurer, Commerce and Industry Insurance Company ("Commerce"). Id., see also Exhibit D to the Affidavit of Warren Herland ("Herland Aff."), counsel for Waterfront, dated June 22, 1994. The Tunnel was defended in the Ortiz action by counsel appointed by its insurer, United. See Imbrogno Aff. at P 3. The Tunnel's defense was provided subject to United's reservation of its right to deny coverage of the Ortiz claim based on an "assault and battery" exclusion in the United policy. Id. After filing an answer and cross-claim against The Tunnel in the Ortiz action, Waterfront requested that United provide a legal defense and indemnify it with respect to the Ortiz claim (i) on the grounds that Waterfront was an additional insured on the United policy issued to The Tunnel and (ii) pursuant to an indemnification agreement in the Waterfront/Tunnel Lease. Id. at P 4, see Exhibit 6 to Imbrogno Aff. In July 1989, United assumed the defense of Waterfront with a "reservation of rights" and appointed the same firm defending The Tunnel.
See Imbrogno Aff. at P 5; see also Exhibit 6 to Imbrogno Aff.
On November 21, 1991, the Supreme Court, New York County struck the answers of Waterfront and The Tunnel due to their failure to comply with seven (7) discovery Orders. See Exhibit 1 to Imbrogno Aff. On December 1, 1992, the Appellate Division, First Department affirmed the Supreme Court's Order striking both The Tunnel and Waterfront's answers. See Exhibit 2 to Imbrogno Aff. The next day, December 2, 1992, the underlying action was settled for $ 1,050,000. See Exhibit 3 to Imbrogno Aff. United, whose policy was subject to a $ 500,000 limitation of liability, paid $ 500,000 of that amount but reserved its right to seek reimbursement of the $ 500,000 it paid "from the other carriers affording coverage to the defendants," i.e. Commerce. Id. The remaining $ 550,000 of the settlement amount was paid by Commerce on behalf of Waterfront. Id.
B. The 1989 Declaratory Judgment Action
In June 1989, United commenced an action in this Court seeking a declaration that United was not required to defend or indemnify either Waterfront or The Tunnel because of the "assault and battery" exclusion of the United policy (the "Declaratory Judgment action"). See Exhibit B to Herland Aff. One of the named defendants in the Declaratory Judgment action was John C. West ("West"), a limited partner in Waterfront and a citizen of Pennsylvania.
Id. At the time the action was commenced, United was a Pennsylvania corporation with its principal place of business in Pennsylvania. Id. On December 4, 1991, subsequent to the commencement of the Declaratory Judgment action, West died. See Exhibit 9 to Imbrogno Aff.
On October 25, 1991, this Court granted summary judgment to Waterfront and declared that United was obligated to defend and indemnify Waterfront and The Tunnel with respect to the Ortiz action. See Exhibit 4 to Imbrogno Aff. By Opinion dated June 2, 1993, the Second Circuit reversed this Order and held that "the policy contains no obligation to defend or indemnify Waterfront or The Tunnel, Inc. with respect to Ms. Ortiz's claim." United Nat. Ins. v. Waterfront NY Realty Corp., 994 F.2d 105, 110 (2d Cir. 1993). Subsequently, Waterfront moved for leave to file an Amended Answer and United moved for a judgment in its favor.
By Order dated June 8, 1994, this Court denied Waterfront's motion to file an Amended Answer and granted United's motion for a judgment in its favor.
On June 24, 1994, Waterfront moved pursuant to Fed.R.Civ.P. 59(e) and 12(h)(3), to dismiss the complaint for lack of subject matter jurisdiction and vacate the June 8 Order. Waterfront asserts that because both Waterfront's limited partner West and United were citizens of Pennsylvania there was no diversity of citizenship.
In response, United moved, pursuant to Fed.R.Civ.P. 15(a), for leave to file an Amended Complaint deleting defendant John C. West from the complaint and for an Order deeming the Amended Complaint to be served nunc pro tunc. Waterfront then moved for an order permitting it to supplement the record with respect to its pending motions to dismiss and vacate the June 8 Order. Because the Court has sufficient information before it to decide the pending motions in the Declaratory Judgement action, Waterfront's motion to supplement the record is denied.
C. The 1993 Recovery Action
On December 1, 1993, United commenced another action in this Court seeking recovery of the money it expended to defend and settle the Ortiz action (the "Recovery action"). See Exhibit 7 to Imbrogno Aff. West, who had died before the commencement of the action, was named as a defendant in the Recovery action.
On June 20, 1995, pursuant to Fed.R.Civ.P. 12(b)(1), Waterfront moved to dismiss the Recovery action for lack of subject matter jurisdiction asserting that although West had died prior to the filing of the complaint, his estate was a limited partner in Waterfront and was deemed to be a citizen of Pennsylvania under 28 U.S.C. 1332(c)(2). See Imbrogno Aff., at PP 17-19. Therefore, Waterfront argues, complete diversity, as required by 28 U.S.C. 1332, is lacking. Id.
It is well established that in order for diversity jurisdiction to exist under 28 U.S.C. § 1332, the citizenship of each plaintiff must be different from the citizenship of each defendant. See Carden v. Arkoma Assocs., 494 U.S. 185, 187, 108 L. Ed. 2d 157, 110 S. Ct. 1015 (1990); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806); KMB Warehouse Distr., Inc. v. Walker Mfg. Co., 61 F.3d 123, 1995 U.S. App. LEXIS 19698, slip op. 5827, 5840 (2d Cir. 1995); Airlines Reporting Corp. v. S and N Travel, Inc., 58 F.3d 857, 861 (2d Cir. 1995). In determining whether complete diversity exists, the court must look to the citizenship of the parties at the time the action was commenced. See Freeport-McMoran Inc. v. K N Energy, Inc., 498 U.S. 426, 428, 112 L. Ed. 2d 951, 111 S. Ct. 858 (1991); Maryland Casualty Co. v. W.R. Grace and Co., 23 F.3d 617, 622 (2d Cir. 1993). An action is commenced when the complaint is filed. Fed.R.Civ.P. 3; see Envirotech Corp. v. Bethlehem Steel Corp., 729 F.2d 70, 73 (2d Cir. 1984); National Union Fire Ins. Co. v. Barney Assocs., 130 F.R.D. 291, 294 (S.D.N.Y. 1990). If diversity jurisdiction exists at the time the action is commenced, a subsequent change in the citizenship of the parties does not divest the court of jurisdiction. Freeport-McMoran, 498 U.S. at 428; Smith v. Sperling, 354 U.S. 91, 93 n. 1, 1 L. Ed. 2d 1205, 77 S. Ct. 1112 (1957); Wichita Railroad & Light Co. v. Public Util. Comm'n of Kansas, 260 U.S. 48, 54, 67 L. Ed. 124, 43 S. Ct. 51 (1922); In re Agent Orange, 818 F.2d 145, 163 (2d Cir. 1987).
When a partnership is a party, the court looks to the citizenship of each individual partner at the time the action is commenced. See Great Southern Fireproof Hotel Co. v. Jones, 177 U.S. 449, 456, 44 L. Ed. 842, 20 S. Ct. 690 (1900); Woodward v. D.H. Overmyer Co., 428 F.2d 880, 883 (2d Cir. 1970), cert. denied, 400 U.S. 993, 27 L. Ed. 2d 441, 91 S. Ct. 460 (1971). In suits involving limited partnerships, the court must look to the citizenship of all general and limited partners. See Carden, 494 U.S. at 192.
A. The Motions in the Declaratory Judgment Action
There are three (3) pending motions in the Declaratory Judgment action: (i) by Waterfront to dismiss for lack of subject matter jurisdiction; (ii) by United to amend the complaint to remove West as a defendant; and (iii) by Waterfront to vacate Judge Lowe's Order dated June 8, 1994.
1. The Motion to Dismiss for Lack of Subject Matter Jurisdiction
At the time the Declaratory Judgment action was commenced in June 1989, West was a limited partner in Waterfront and was named as a defendant. United does not dispute the fact that West was a citizen of Pennsylvania but rather contends that Waterfront not be allowed to interpose a jurisdictional defense at this point because all the dispositive issues between the parties have been resolved and all that is left to be done is the "ministerial task" of entering judgment. United further argues that if this Court does entertain Waterfront's jurisdictional objection, that United be allowed to amend its complaint so they may "delete" West as a defendant.
A court must dismiss an action "whenever it appears ... that the court lacks jurisdiction of the subject matter.." Fed.R.Civ.P. 12(h)(3). Challenge to a court's subject matter jurisdiction may be raised at any time during the litigation. See Maryland Casualty Co., 23 F.3d at 621 (holding that a renewed challenge to subject matter jurisdiction ten years after the litigation began was valid because "jurisdiction may be raised at any time during the course of litigation").
Because subject matter jurisdiction can be raised at any point in time, even after final judgment, Waterfront's jurisdictional objection is timely. As noted earlier, the Court must look to the citizenship of the parties at the time the action was commenced to determine if diversity exists. As both West and United were citizens of Pennsylvania at the time the Declaratory Judgment action was filed, complete diversity was lacking. The fact that West died during the course of the litigation has no affect on this Court's lack of subject matter jurisdiction.
2. The Motion to Amend the Complaint to Remove West as a Defendant
United argues that under Samaha v. Presbyterian Hospital, 757 F.2d 529 (2d Cir. 1985), the Court must grant United leave to file an amended complaint under Fed.R.Civ.P. 15(a). Samaha held that where leave is sought to eliminate a defendant in order to preserve diversity jurisdiction, the court's refusal to grant such leave is an abuse of discretion "unless it appears that a non-diverse defendant cannot be dropped from an action without prejudice to the remaining defendants." Id. at 531 (quoting Kerr v. Compagnie de Ultramar, 250 F.2d 860, 864 (2d Cir. 1958)) (emphasis added). The prejudice is the same as that which results where nondispensable parties are not joined. Id. United argues that West is a dispensable party and it would therefore be an abuse of discretion to deny its motion to amend the complaint to remove West.
An in-depth analysis is unnecessary, however, because the Supreme Court has held that when a plaintiff sues a partnership, the citizenship of all partners, both limited and general, must be considered in determining whether diversity jurisdiction exists. See Carden, 494 U.S. at 192. The plaintiff cannot invoke the diversity jurisdiction of the federal courts based on the citizenship of some but not all partners. Id.
In sum, we reject the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity's members. We adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of "all the members"...
Id. at 195 (quoting Chapman v. Barney, 129 U.S. 677, 682, 32 L. Ed. 800, 9 S. Ct. 426 (1889)). Accordingly, United cannot simply remove West as a named defendant because West was a partner in Waterfront at the time the Declaratory Judgement action was commenced.
Because I find that complete diversity was absent at the commencement of the Declaratory Judgment action and that plaintiff may not amend the complaint to remove West as a named defendant, the Declaratory Judgment action is dismissed for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1).
3. The Motion to Vacate the June 8 Order
A judgment rendered by a court that lacks subject matter jurisdiction is void. See Fed.R.Civ.P. 60(b)(4); see also Berardi v. Dah Yang Ind. Co., Ltd., 1994 U.S. Dist. LEXIS 18776, 1995 WL 5862, *1 (S.D.N.Y. Jan. 6, 1995); Asher v. Van Brunt, 158 F.R.D. 278, 279 (S.D.N.Y. 1994). Once a judgment is found void the Court must vacate it, there is no discretion. See Berardi, 1994 U.S. Dist. LEXIS 18776, 1995 WL 5862, at *1. In addition, a motion to vacate a judgment for lack of jurisdiction may be brought at any time after final judgment. See McLearn v. Cowen & Co., 660 F.2d 845, 848 (2d Cir. 1981). Because this Court lacks subject matter jurisdiction over the Declaratory Judgment action, the June 8 Order is vacated pursuant to Fed.R.Civ.P. 60(b)(4).
B. The Motion in the 1993 Recovery Action
Waterfront has moved to dismiss the Recovery action for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). The issues raised by this motion, however, differ from those discussed above because the Recovery action was commenced after West's death.
Waterfront contends that on the date of West's death, December 4, 1991, he was a citizen of Pennsylvania and, therefore, under 28 U.S.C. § 1332(c)(2), West's estate is deemed to be a citizen of Pennsylvania. Waterfront further contends that upon West's death his estate became and continues to be a limited partner of Waterfront, including on December 1, 1993, when the Recovery action was commenced. Waterfront argues, therefore, that because West's estate was a limited partner in Waterfront when the Recovery action was commenced and because the estate is deemed to be a citizen of Pennsylvania, complete diversity of jurisdiction did not exist when the Recovery action was commenced and this Court lacks subject matter jurisdiction.
United does not dispute that West was a citizen of Pennsylvania on the date of his death nor does it dispute that West's estate is deemed to be a citizen of Pennsylvania under 28 U.S.C. § 1332(c)(2). United argues, however, that West's estate never became a limited partner in Waterfront and that the estate merely holds a partnership interest.
As a result, United contends that this Court should not consider the citizenship of the estate in determining whether complete diversity between the parties existed at the time the Recovery action was commenced.
1. The Partnership Agreement
Paragraph 7.4(a) of the Amended and Restated Agreement of Limited Partnership of Waterfront N.Y., dated January 31, 1983 (the "Agreement"), states that
... a transferee of an Interest shall not be recognized as a Limited Partner or have any of the rights conferred upon a Limited Partner with respect to such Interest until such time as he shall have complied with all the provisions of Section 7.4(b) hereof; provided, however, that the personal representative, guardian or other successor in interest of a deceased ... Limited Partner ... shall be entitled to receive the share of income, gain, distributions and, upon dissolution of the Partnership, the share of the assets of the Partnership to which such deceased ... Limited Partner ... would have been entitled under the terms of this Agreement.