course is more prudent. In addition, any efficiencies that might
be gained by continuing this litigation in federal court would be
squandered if the parties are forced to begin again in state
court after appellate review of the jurisdictional issue.
A. Procedural History
Plaintiff Allendale Mutual Insurance Company ("Allendale")
filed a Complaint on December 28, 1995 alleging that defendants
Excess Insurance Company, et al. ("Reinsurers")*fn1 breached the
parties' insurance agreement (the "contract"), in three ways: (1)
by wrongfully refusing to pay a $7 million claim; (2) by failing
to investigate that claim in good faith; and (3) by initiating
suit on the contract in England in spite of the contract's
forum-selection clause which requires that litigation arising
from the contract be brought in New York. Defendant Reinsurers
are sixteen London Market Companies and thirty-six Lloyd's of
London syndicates comprised of thousands of individual
underwriters.*fn2 After a seven-day bench trial held in December
1997, this Court ruled that defendants were entitled to a
recission of the contract. As a result, defendants could not have
breached and did not breach that contract when they refused to
pay plaintiff's claim. I further found that defendants did not
breach the contract's implied covenant of good faith and fair
dealing. I did find, however, that the Reinsurers had breached
the contract's forum selection clause by bringing suit in
England. Consequently, Allendale was entitled to recover
$62,273.15 in costs related to the English action.*fn3 See
Allendale Mut. Ins. Co. v. Excess Ins. Co., Ltd., 992 F. Supp. 278,
286 (S.D.N.Y. 1998).
Allendale appealed, and Reinsurers cross-appealed. On March 2,
1999, the Second Circuit vacated and remanded, directing this
Court "to determine if subject matter jurisdiction over this case
may be preserved in light of" E.R. Squibb & Sons, Inc. v.
Accident & Cas. Ins. Co., 160 F.3d 925 (2d Cir. 1998) ("Squibb
I"). Allendale Mut. Ins. Co. v. Excess Ins. Co., Summary
Order, No. 98-7521, No. 98-7599 (2d Cir. March 2, 1999). Needless
to say, the appellate court did not reach the merits of the
B. The Squibb Case
In Squibb I, a case involving Lloyd's Underwriters at Lloyd's
of London, the Court of Appeals examined whether subject matter
jurisdiction was appropriate given the citizenship of the parties
and remanded the case to the district court for further inquiry.
In addressing the unique issue of the citizenship of the London
insurance market defendants, the Second Circuit followed the
Seventh Circuit by holding that each and every Name underwriter
must meet the complete diversity rule.*fn4 See Indiana Gas Co.
v. Home Ins. Co., 141 F.3d 314 (7th Cir. 1998); but see Certain
Interested Underwriters at Lloyd's, London v. Layne, 26 F.3d 39
(6th Cir. 1994) (holding that lead underwriter is only real party
in interest to controversy
and hence it is only Lloyd's Name that must be completely
diverse). The Second Circuit concluded:
We hold that when a Lloyd's lead underwriter is
sued in a representative capacity (but not in a
class action) each and every Name whom the lead
underwriter represents must be completely diverse.
But we also hold that when a Lloyd's Name
(including a lead underwriter) is properly sued only
in an individual capacity, it is that Name's
characteristics, both as to citizenship and
jurisdictional amount, that are determinative for
jurisdictional purposes. And the fact that other
Lloyd's underwriters who are not diverse parties in
the suit may be bound by the result of the suit
(whether by contract or by preclusion) is of no
Squibb I, 160 F.3d at 939-40 (emphasis added).
On remand, the district court conducted a hearing to resolve
the factual questions raised by the appellate court regarding the
citizenship of the parties and the amount in controversy. After
hearing from experts in the London insurance market and plaintiff
and defense counsel who both, after sixteen years of litigation,
vehemently supported the exercise of jurisdiction, Judge John
Martin found that the parties satisfied the requirements of
diversity jurisdiction. See E.R. Squibb & Sons, Inc. v. Accident
& Cas. Ins. Co., 82 Civ. 7327, 1999 WL 350857, at *17 (S.D.N Y
June 2, 1999) ("Squibb II").
Squibb, a citizen of Delaware and New Jersey, sued defendant
Allen Haycock, a British subject, in his individual capacity and
as a representative underwriter. The parties stipulated a decade
before trial that Haycock would act as a representative for all
the underwriters. After finding the citizenship of Squibb and
Haycock to be diverse, Judge Martin found no reason to inquire
whether the amount in controversy requirement had been met "since
there has never been any suggestion in this case that the
plaintiff did not act in good faith when it made the factual
allegations that the amount in controversy exceeded $10,000 and
there is no evidence of any collusion between the parties when
the allegation was made." Squibb II, 1999 WL 350857, at *7.
Judge Martin acknowledged the absurdity of dismissing a case that
had consumed sixteen years of federal judicial effort based on
the jurisdictional amount rule which serves to ensure that the
federal court's time is not spent on trivial matters. See id.
at *10 (citing Hatridge v. Aetna Cas. & Sur. Co., 415 F.2d 809,
815 (8th Cir. 1969) (citing C. Wright, Federal Courts §
Judge Martin found subject matter jurisdiction even if the
amount in controversy was not satisfied because the claim against
a foreign party need not satisfy the jurisdictional requirement
if that claim is joined to a controversy between citizens of
different states that satisfies the "amount in controversy"
requirement. Id. at *9-10.*fn5 Finally, the court determined
that the claim against Merrett, another Name underwriter sued in
his individual capacity,
met the diversity jurisdiction requirements including the amount
After determining that jurisdiction existed over Haycock and
Merrett in their individual capacities, Judge Martin addressed
the suit against them in their representative capacities. Id.
at *11. Judge Martin ruled that the Lloyd's member underwriters,
other than Haycock and Merrett, were not "indispensable parties"
because they had agreed to be bound by a judgment against named
defendant Haycock or Merrett in their representative capacities.
The court noted that "it is hard to imagine a case in which
`equity and good conscience' so strongly indicate that the case
should be allowed to proceed in the absence of other potential
defendants." Id. at *11 (quoting Fed.R.Civ.P. 19(b)). He
therefore permitted the suit to continue against Haycock and
Merrett in their representative capacities.
Judge Martin provided an alternative ground for federal
jurisdiction by recasting the action as a Rule 23 class action.
In such actions, the citizenship of the class representative
alone is considered in determining diversity. Accordingly, it
would not defeat diversity if any of the Names were citizens of
plaintiff's state. In addition, Judge Martin reasoned that
despite the Supreme Court's ruling in Zahn v. International
Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973),
that a class action may not proceed on behalf of or against a
party whose claim does not satisfy the jurisdictional amount, the
thousands of Names who may be liable to Squibb are citizens of
foreign states who need not satisfy the jurisdictional amount.
Id. at *14-15; see supra note ___. In addition, Judge Martin
found that the class of Names met the specific requirements for
certification under Rule 23(b)(2), i.e., numerosity,
commonality, typicality, fairness and adequacy of the class
representative, superiority of the class action device,
manageability, and notice; but that the class did not meet the
requirements for a Rule 23(b)(3) action. Id. at *15-17.
C. Remand of the Instant Action
On remand here, plaintiff Allendale, evidently disappointed
with the trial verdict, moves to dismiss for want of
jurisdiction. Defendant Reinsurers object to dismissal and
suggest several ways to reconfigure the case to achieve
A. Legal Principles Governing Federal Subject Matter
Article III, § 2 of the Constitution provides: "The judicial
Power shall extend . . . to Controversies . . . between Citizens
of different States. . . ." Congress implemented this grant in
28 U.S.C. § 1332 conferring diversity jurisdiction in the district
courts when a citizen of one state sues both aliens and citizens
of a different state. Diversity jurisdiction rests not only upon
diversity of citizenship, but also upon plaintiff's ability to
meet the required amount in controversy — $50,000.*fn6 "Subject
matter jurisdiction is an unwaivable sine qua non for the
exercise of federal judicial power." Squibb I, 160 F.3d at 929
(quoting Curley v. Brignoli, 915 F.2d 81, 83 (2d Cir. 1990)).
Its absence may be raised at any time, by the court or by any
party, even a party who previously argued in favor of the
exercise of jurisdiction. See Insurance Corp. of Ireland, Ltd.
v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102
S.Ct. 2099, 72 L.Ed.2d 492 (1982); American Fire & Cas. Co. v.
Finn, 341 U.S. 6, 10, 71 S.Ct. 534, 95 L.Ed. 702 (1951). Where
jurisdiction is absent, the parties cannot confer it by agreement
among themselves. See Republic of Philippines v. Marcos,
806 F.2d 344 (2d Cir. 1986).
Nevertheless, the Supreme Court has encouraged courts to
preserve diversity jurisdiction, if possible. "Once a diversity
case has been tried in federal court, with rules of decision
supplied by state law under the regime of [Erie],
considerations of finality, efficiency, and economy become
overwhelming." Caterpillar Inc. v. Lewis, 519 U.S. 61, 75, 117
S.Ct. 467, 136 L.Ed.2d 437 (1996) (district court's error in
failing to remand a case improperly removed is not fatal to
ensuing adjudication if federal jurisdictional requirements are
met at time judgment entered). "[R]equiring dismissal after years
of litigation would impose unnecessary and wasteful burdens on
the parties, judges, and other litigants waiting for judicial
attention." Newman-Green, Inc. v. Alfonzo-Larrain,
490 U.S. 826, 836, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989) (holding that
courts of appeals had power to dismiss dispensable non-diverse
parties to preserve jurisdiction); see also Penteco Corp. Ltd.
v. Union Gas Sys., 929 F.2d 1519, 1523 (10th Cir. 1991) (after
final judgment in district court despite unnoticed jurisdictional
defect "the interests of justice, fairness and judicial economy
require some additional opportunity to `cure'" pleading defects).
B. The Court Lacks Subject Matter Jurisdiction Over the Case
As It Is Currently Configured
Allendale, proceeding on the erroneous assumption that the
Lloyd's syndicates were legal entities with the capacity to be
sued, named thirty-six Lloyd's syndicates as defendants, rather
than naming the individual underwriters. Nineteen of the
thirty-six syndicates include individual underwriters who
currently reside in plaintiff's state of Rhode Island, thereby
destroying diversity of citizenship.*fn7
In addition, it is unlikely that any of the underwriters in
the thirty-six syndicates can satisfy the $50,000 amount in
controversy. The non-Lloyd's defendants, the London Market
Companies, the vast majority of whom are British subjects,
together account for slightly over 50% of the $12 million claim
($7 million of reinsurance liability plus defendants' `proportion
of any expenses incurred' claim of $5 million). The thirty-six
syndicate defendants are potentially liable for 49.26% of the $12
The smallest syndicate defendant, No. 936, assumed only .25% of
the $12 million liability — a total of approximately $30,000.
Accordingly, even if syndicate No. 936 has only a single
underwriter, that individual could not satisfy the $50,000 amount
in controversy requirement. The second smallest syndicate, No.
79, assumed only .49% of the $12 million liability — a total of
approximately $58,800. Thus, assuming that syndicate 79 has more
than one underwriter, no individuals within that syndicate could
meet the $50,000 test.*fn8 Seventeen other syndicates each
assumed less than 1% of the aggregate exposure, or a total of
less than $120,000 each. All of these syndicates would fail the
$50,000 test if they are comprised of more than two underwriters.
Although syndicates typically include hundreds or thousands of
underwriters, defendants have not provided any information
regarding the number of individual underwriters per syndicate.
Nevertheless, defendants have not asserted that any one of the
thousands of underwriters in the thirty-six Lloyd's syndicates
is potentially liable for more than $50,000. From the information
presented to date, I conclude that this Court lacks subject
matter jurisdiction over this case as it now stands.
C. Defendants' Proposed Devices to Create Subject Matter
The party seeking to invoke jurisdiction under § 1332 bears the
burden of proving complete diversity and the jurisdictional
amount in controversy. See James Wm. Moore, 15 Moore's Federal
Practice (M. Bender 1999) §§ 102.14, 102.107. Defendant
Reinsurers argue that the Court should attempt to salvage
jurisdiction over this case in the interests of judicial
finality, efficiency and economy. At the very least, defendants
recommend that this Court retain jurisdiction over the London
Market Companies which are diverse (with one exception) and meet
the requisite amount in controversy. Defendants make three
distinct proposals, all of which would result in diversity of
citizenship between plaintiff and defendants. Plaintiff
vehemently objects to all three proposals. Rule 82 of the Federal
Rules of Civil Procedure cautions that the rules of procedure
"shall not be construed to extend or limit the jurisdiction of
the United States district courts." Defendants' proposals appear
to extend, if not contort, the jurisdictional guidelines laid
down by the Supreme Court and the Court of Appeals. Accordingly,
creating diversity jurisdiction in this action would not provide
any advantage in terms of finality or efficiency either to the
parties or to the Court.
Policy considerations militate against a finding of diversity
jurisdiction. Our Court of Appeals has reminded us that
"jurisdiction is not a game." Squibb I, 160 F.3d at 929. As the
Supreme Court has made abundantly clear, "it is one of the
fundamental tenets of our Constitution that only some cases may
be brought in federal court." Id. (citing Healy v. Ratta,
292 U.S. 263, 270, 54 S.Ct. 700 (1934) ("Due regard for the rightful
independence of state governments, which should actuate federal
courts, requires that [federal courts] scrupulously confine their
own jurisdiction to the precise limits which the [diversity]
statute has defined.")). In addition, good judgment counsels
against making "law on jurisdiction that would be undesirable in
the mass of cases. . . . Nobody's interest would be served if . .
. by stretching the law [I] found jurisdiction to exist, only to
have that position ultimately rejected by [the Second Circuit or]
the High Court." Squibb I, 160 F.3d at 930. Dismissal for lack
of jurisdiction is more likely to ensure that the parties do not
bounce back and forth from the District Court to the Circuit
Court and back again on both procedural and substantive issues. I
do not dismiss this case casually, however, given the amount of
time and effort already expended by the Court and the parties. I
will therefore explain my reasons for rejecting each of
1. Option One: Dismissal, Realignment and Supplemental
Defendants suggest restructuring the action by dismissing
dispensable named underwriters, realigning Allendale as a
defendant and exercising supplemental jurisdiction over claims
which cannot meet the amount in controversy.