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UNITED NATL. INS. CO. v. WATERFRONT N.Y. REALTY CO

August 24, 1995

UNITED NATIONAL INSURANCE CO., Plaintiff, against WATERFRONT N.Y. REALTY CORP., WILLIAM M. WEAVER, WILLIAM M. WEAVER TRUST, COLEMAN P. BURKE, ADREAS M. RICKENBACH, ANTONE E. SCHRAFL, LORING D. BOLGER, BULGROUP PROPERTIES, CHALET SUISS INTERNATIONAL, INC., C.A. KALMAN, JAMES A. NEWMAN, JOHN C. WEST, KARL-ADAM BONNIER, FRANCIS P. LANG, MAAG FINANCE LTD., TUCKERMAN LTD. and U.S. FRIENDS INVESTMENT CORP. (PANAMA), d/b/a WATERFRONT N.Y., Defendants.


The opinion of the court was delivered by: SHIRA A. SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.:

 In these lengthy and complex cases United National Insurance Company ("United") seeks to have this Court determine its obligations and enforce its rights with respect to an insurance policy issued by United to The Tunnel, a discotheque owned by defendant Waterfront N.Y. Realty Corp. ("Waterfront").

 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. *fn1" 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. *fn2" 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. *fn3" 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. *fn4" 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. *fn5" 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. *fn6"

 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. *fn7" Id.

 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.

 III. DISCUSSION

 It is well established that in order for diversity jurisdiction to exist under 28 U.S.C. ยง 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, ...


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