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CHASE MANHATTAN BANK, N.A. v. ALDRIDGE

November 2, 1995

THE CHASE MANHATTAN BANK, N.A., Plaintiff, against TOM RUPERT ALDRIDGE, AN UNDERWRITER AT LLOYD'S, LONDON, ON BEHALF OF HIMSELF AND ALL THOSE OTHER LLOYD'S UNDERWRITERS SUBSCRIBING TO INSURANCE POLICY NO. 790/004A89005, Defendant. TOM RUPERT ALDRIDGE, AN UNDERWRITER AT LLOYD'S, LONDON, ON BEHALF OF HIMSELF AND ALL THOSE OTHER LLOYD'S UNDERWRITERS SUBSCRIBING TO INSURANCE POLICY NO. 790/004A89005, Defendant and Plaintiff on Counterclaim, -against- ARCHER SERVICES INC., and THE CHASE MANHATTAN BANK, N.A., Defendants on Counterclaim,


The opinion of the court was delivered by: KOELTL

 JOHN G. KOELTL, District Judge:

 The defendant and plaintiff on the counterclaim, Tom Rupert Aldridge, an Underwriter at Lloyd's London, on behalf of himself and all those other Lloyd's Underwriters subscribing to Insurance Policy No. 790/004A89005 ("Lloyd's), has moved for a determination of this Court's subject matter jurisdiction in this matter. For the reasons given below, the Court dismisses this action for lack of subject matter jurisdiction.

 The plaintiff, Chase Manhattan Bank ("Chase"), commenced this action on April 17, 1991 against "Certain Underwriters at Lloyd's, London," alleging that this Court had subject matter jurisdiction over the action based on diversity of citizenship pursuant to 28 U.S.C. § 1332(a). Section 1332(a) limits federal diversity jurisdiction to those actions "where the matter in controversy exceeds the sum or value of $ 50,000 . . . and is between (1) citizens of a State and citizens or subjects of a foreign state . . . ." There must be "complete diversity" among all parties such that no plaintiff and no defendant may be citizens of the same state. Strawbridge v. Curtiss, 7 U.S. 267, 2 L. Ed. 435 (1806); Doctor's Assocs., Inc. v. Distajo, 66 F.3d 438, 1995 WL 540584, at *5 (2d Cir. 1995).

 Chase, a national banking association with its principal place of business in New York, stated in the Complaint that "upon information and belief, defendants were at all relevant times and still are residents of England, with their principal places of business in and around London, England." (Complaint at P 2.) On May 31, 1991, Chase stipulated to amend the caption of the action to substitute "Tom Rupert Aldridge, an Underwriter at Lloyd's, London, on behalf of himself and all those other Lloyd's Underwriters subscribing to Insurance Policy No. 790/004A89005" as the named defendant in place of "Certain Underwriters at Lloyd's, London." The Stipulation simplified the claims against the various individual underwriters, sometimes referred to as "Names," who were severally liable for their respective shares of any losses pursuant to the Policy at issue in this case. The Stipulation binds the Names in their several capacities to any liability against Aldridge. (Powers Aff. at PP 4-8, Exh. C; Foulger Decl. P 17.)

 In its Answer and Counterclaim dated June 4, 1991, the underwriter-defendants admitted the allegation in paragraph 2 of the Complaint. (Answer and Counterclaim at P 2.) The defendants alleged that diversity of citizenship provided jurisdiction over their counterclaims. (Answer and Counterclaim at P 30.) In the Complaint Chase also pleaded damages of $ 1,227,839.17, well above the amount in controversy requirement for jurisdiction based on diversity of citizenship. (Complaint P 14.) The factual background of this case is set out more fully in the Court's prior decision dismissing Chase's third-party indemnification action for lack of subject matter jurisdiction. See Chase v. Aldridge, 906 F. Supp. 866, 1995 U.S. Dist. LEXIS 14081, *2, 1995 WL 574666, *1 (S.D.N.Y. 1995).

 Although this action began in 1991, Chase only recently learned that complete diversity of citizenship might be lacking in this action. During a pretrial conference held on September 5, 1995, the defendants indicated for the first time that at times relevant to this action some of the underwriter-defendants may have been citizens of New York and other States of which, for the purposes of diversity of citizenship, Chase was also a citizen. Subject matter jurisdiction cannot be waived and the issue may be raised at any point during the litigation. See Tongkook America, Inc. v. Shipton Sportswear Co., 14 F.3d 781, 786 (2d Cir. 1994). As the party asserting that this Court has subject matter jurisdiction over this case, Chase bears the burden of proving that the matter is properly in federal court. See McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189, 80 L. Ed. 1135, 56 S. Ct. 780 (1936); Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 273 (2d Cir. 1994); Travelers Ins. Co. v. Broadway West Street Assocs., Nos. 92 Civ. 5650, 92 Civ. 5651, 1994 U.S. Dist. LEXIS 5828, *14, 1994 WL 174242, at *5 (S.D.N.Y. May 5, 1994).

 As a threshold matter, it is useful to review briefly the nature and structure of a Lloyd's syndicate. "Lloyd's of London" functions not as an insurance company but as a marketplace where investors buy and sell insurance risks. (Foulger Decl. P 3.) These individual investors are referred to as "underwriters" or "Names," and operate as members of syndicates, which are simply groups of Names that underwrite insurance coverage for an insured. (Foulger Decl. P 4-5.) There is no contractual relationship among members of a syndicate, between syndicates, or between the policyholder and a syndicate. (Foulger Decl. P 6.) Rather, the Policy is an insurance contract entered by the insured and the respective Names. (Foulger Decl. P 14.) For each syndicate there is an "active underwriter" who controls the risks for each Name in the syndicate which the active underwriter represents. (Foulger Decl. P 8.) When the active underwriter accepts a percentage of risk, the Names are personally liable for any of the syndicate's losses. (Foulger Decl. P 11.) Significantly, however, each Name is liable only for the fraction of the risk subscribed to by that Name. (Foulger Decl. P 14.) As the Policy in this case provides, the individual underwriters are bound "each for his own part and not one for another . . . and in respect to his due proportion only, to insure against any loss . . . which shall be substantiated under this Policy. . . ." (Powers Aff., Exh. A.)

 At a conference held on September 22, 1995, Chase conceded that in this action the Court must consider the citizenship of all the underwriters in determining whether there is diversity of citizenship for jurisdictional purposes. (Tr. at 16.) While counsel for Lloyd's has urged this Court to accept a "trust" theory, under which the citizenship of "Lloyd's" would be measured only by the citizenship of the representative or active underwriter, every recent case addressing this issue has rejected the defendant's suggestion of a trust theory and has concluded that the citizenship of a Lloyd's syndicate is measured by the citizenship of the individual Names who are responsible for their proportional share of the specific insurance in question. See Transamerica Corp. v. Reliance Ins. Co. of Illinois, 884 F. Supp. 133 (D. Del. 1995); Lowsley-Williams v. North River Ins. Co., 884 F. Supp. 166 (D.N.J. 1995); Bath Iron Works Corp. v. Certain Member Cos. of the Inst. of London Underwriters, 870 F. Supp. 3 (D. Me. 1994); International Ins. Co. v. Certain Underwriters at Lloyd's London, No. 88 Civ. 9838, 1991 U.S. Dist. LEXIS 12937, 1991 WL 693319 (N.D. Ill. Sept. 16, 1991); Queen Victoria Corp. v. Insurance Specialists of Hawaii, Inc., 711 F. Supp. 553 (D. Haw. 1989). The Court agrees with the reasoning of these cases. Diversity can only exist if there is complete diversity between the plaintiff and each of the Names who are severally liable for their share of any losses under the Policy at issue. This result follows from the Supreme Court's decision in Carden v. Arkoma Assocs., 494 U.S. 185, 108 L. Ed. 2d 157, 110 S. Ct. 1015 (1990), which found that an unincorporated association has no separate legal identity, and that for the purposes of diversity jurisdiction, its citizenship is the citizenship of each of its members.

 It is now clear that complete diversity between the underwriter-defendants and the plaintiff Chase is lacking. Lloyd's submitted a sworn declaration of Nicholas Harris demonstrating that a total of 64 Names subscribing to the Policy currently reside in New York, 23 Names subscribing to the Policy currently reside in New Jersey, and 10 Names currently reside in Connecticut. This would be powerful evidence that some Names at the time of this action was commenced resided in those States. *fn1" Nevertheless, to remove any doubt, the Court directed Lloyd's to make further inquiry into the citizenship of the Names as of April 1991, even though Lloyd's only has records of underwriters' current addresses. Lloyd's thereupon produced additional evidence that some underwriter-defendants actually were citizens of New York at the time this action was brought. (Powers Aff.) At a conference held on October 26, 1995, Chase conceded that at the time it brought this action, there was at least one underwriter who was a citizen of a state of which Chase was also a citizen. Therefore, by its own admission Chase has failed to bear its burden to demonstrate that this Court possesses jurisdiction based on diversity of citizenship. This Court concludes that there is not complete diversity between the plaintiff and the underwriter-defendants.

 In an effort to salvage jurisdiction, Chase now seeks to sever any nondiverse underwriters and to proceed only against the remaining defendant-underwriters individually. Accordingly, the Court next considers Chase's alternative motion pursuant to Fed. R. Civ. Pro. 15 *fn2" and 21 *fn3" to dismiss its claims against the nondiverse defendant-underwriters.

 Even if it were possible for Chase to dismiss the nondiverse underwriter-defendants, this Court would still lack subject matter jurisdiction over this action. No claim against any one individual underwriter satisfies the jurisdictional amount requirement of 28 U.S.C. § 1332(a).

 The parties disagree whether all of the Names are actually parties to this action. Chase maintains that all of the Names who were responsible for the Policy are parties represented by Aldridge, and seeks to dismiss the nondiverse Names. Lloyd's maintains that Aldridge, pursuant to the Stipulation, is the sole defendant, but a judgment against him will be binding on the remaining Names "in accordance with their due obligations under the Policy. . . ." (Powers Aff., Exh. D.) Lloyd's maintains that the issue of diversity would have to be addressed by limiting the scope of the Names Aldridge is representing in this action. The distinction is not determinative on this motion because, as explained below, the evidence is clear that there is no Name as to which there is a sufficient jurisdictional amount to allow this action to proceed.

 Pursuant to this Court's September 22, 1995 order, Lloyd's has reviewed the shares of the individual Names subscribing to the Policy at issue in this case to determine whether the amount in controversy against any one Name exceeds $ 50,000. Chase previously questioned how large the individual share of any individual Name was, and also raised the possibility that individual Names might ...


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