Opinion ID: 662435
Heading Depth: 2
Heading Rank: 2

Heading: The AEGIS Case

Text: 24 The second of the actions that was before the district court, Associated Electric & Gas Insurance Services, Ltd. v. Texas Eastern Transmission Corp., No. 88-2126, was filed by two of Texas Eastern's excess carriers on March 11, 1988 in the United States District Court for the Eastern District of Pennsylvania, in which were joined as defendants with Texas Eastern all other insurers, including ICI. Based on the presence of the foreign state, ICI, as a party against which a nonjury civil trial was brought, jurisdiction in federal court was pursuant to 28 U.S.C. Secs. 1330(a) and 1603. 8 Texas Eastern argued that the defendant insurers in the AEGIS action, most notably ICI, should be realigned with AEGIS as plaintiffs to reflect their alleged substantive party designations, making the suit no longer against a foreign state, and thus depriving the district court of FSIA subject matter jurisdiction. The district court concluded that the principle of realignment is inapplicable in matters in which subject matter jurisdiction is predicated on something other than diversity of citizenship. The district court found that the AEGIS case was against a foreign state within the meaning of the FSIA and exercised its jurisdiction over the matter. 25 In support of its argument for realignment, Texas Eastern argues that the primary purpose of the AEGIS action was to obtain a declaratory judgment that Texas Eastern was not entitled to coverage under any of the policies issued to it by the two excess carrier plaintiffs, and that ICI had a common interest with the excess carriers on that primary issue against Texas Eastern. Texas Eastern reasons analogously that, under principles of realignment developed in the context of the federal diversity jurisdiction statute, the court was obliged to realign the nominal parties to reflect their actual adversity of interest on the primary dispute as a prerequisite to deciding whether a basis for jurisdiction remained under the FSIA. Texas Eastern argues that because ICI as well as the remaining insurers nominally designated as defendants should have been realigned with the two excess carriers who brought suit, the action was not against a foreign state, and the jurisdictional authority of the FSIA was improperly invoked to obtain jurisdiction. 9 We disagree.
26 It is beyond cavil that federal law determines whether the elements of federal jurisdiction, original or removal, have been satisfied. Here, of course, we must decide whether the AEGIS action is against ICI, as required under Sec. 1330. Given this explicit jurisdictional requisite, it is self-evident that Congress conditioned its conferral of jurisdiction on the substantive party alignment of any purported FSIA action. Thus we are obliged to ascertain the real adversity of interest between AEGIS and ICI in the AEGIS case and to realign them according to their substantive interests before recognizing Sec. 1330 jurisdiction. 27 It is also widely recognized that in enacting the FSIA and related statutory amendments, Congress sought to create a new division in addition to federal question and diversity jurisdiction for federal subject matter jurisdiction. See, e.g., Ruggiero v. Compania Peruana de Vapores, 639 F.2d 872 (2d Cir.1981). It is further evident that enactment of the FSIA was in response to unique policy considerations touching on the international relations of the United States, considerations not apropos to the federal diversity statute. Indeed, the Supreme Court has acknowledged Congress' deliberate intent to circumvent much of the potential for interference with the federal government's foreign relations caused by lack of uniformity and local bias in civil caselaw involving foreign states as defendants by channelling private actions against foreign sovereigns away from the state forums and into federal courts to be adjudicated in nonjury trials. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 497, 103 S.Ct. 1962, 1973, 76 L.Ed.2d 81 (1983); see also H.R.Rep. No. 94-1487, 94th Cong., 2d Sess. 13 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6611-12. Thus, the FSIA establishes the federal district courts as the forum preferred by Congress for bringing suit against a foreign state, and the policy of jealous restriction which has characterized application of the diversity statute is not operative in the FSIA context. City of Indianapolis v. Chase National Bank, 314 U.S. 63, 76, 62 S.Ct. 15, 20, 86 L.Ed. 47 (1941) (Congress created diversity jurisdiction with jealous restriction). It is with this in mind that we apply the principle of realignment to the AEGIS case.
28 The landmark Supreme Court precedent applying the principle of realignment states,Diversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who are defendants. It is our duty, as it is that of the lower federal courts, to look beyond the pleadings and arrange the parties according to their sides in the dispute. Dawson v. Columbia Trust Co., 197 U.S. 178, 180 [25 S.Ct. 420, 421, 49 L.Ed. 713 (1905) ]. ... Whether the necessary collision of interests, Dawson v. Columbia Trust Co., supra, at 181 [25 S.Ct. at 421], exists, is therefore not to be determined by mechanical rules. It must be ascertained from the principal purpose of the suit, East Tennessee, V. & G.R. v. Grayson, 119 U.S. 240, 244 [7 S.Ct. 190, 192, 30 L.Ed. 382 (1886) ] and the primary and controlling matter in dispute, Merchants' Cotton Press Co. v. Insurance Co., 151 U.S. 368, 385 [14 S.Ct. 367, 373, 38 L.Ed. 195 (1894) ]. 29 City of Indianapolis v. Chase National Bank, 314 U.S. 63, 69-70, 62 S.Ct. 15, 16-17, 86 L.Ed. 47 (1941). 30 This landmark explication presents a two-tiered methodology for judicial implementation of the federal diversity statute. The first step obliges the federal court to isolate the primary purpose or primary and controlling matter in a multiple claim suit. The court then directs its attention exclusively to this primary or substantively most significant claim in order to facilitate ascertainment of whether the statutory requisites of diversity jurisdiction have been met. This primary purpose test, which ranks issues according to their substantive importance in the lawsuit, reflects the approach appropriate to a restrictive and limited jurisdictional mandate, as in the case of the diversity statute. It appears, in fact, to be uniquely well suited to the express language and broad policy objectives of Sec. 1332. We have indeed adopted this test when determining that jurisdiction is properly based on diversity of citizenship. See, e.g., Employers Insurance of Wausau v. Crown Cork and Seal Co., Inc., 905 F.2d 42, 46 (3d Cir.1990) (requiring a real dispute on a primary issue in the controversy for purposes of the diversity jurisdiction statute). The primary purpose test, however, appears much less well suited to the purposes of Sec. 1330, which embodies an effort on the part of Congress to encourage rather than merely permit litigation in the federal courts. 31 The second step involved in implementing the jurisdictional mandate at issue in the Court's landmark diversity realignment case obliges the federal courts to look beyond the pleadings and arrange the parties according to their sides in the dispute. This step, though sometimes conflated with the first step in a diversity analysis and hence commonly identified with diversity jurisprudence, in fact represents a broader principle of judicial interpretation of statutes conferring jurisdiction in federal courts, where the statutory conferral of jurisdiction is predicated upon the adversarial relationship of the parties. 10 In other words, where party designations have jurisdictional consequences under the relevant federal jurisdiction statute, be it Sec. 1332 diversity, Sec. 1330 FSIA or their related removal provisions, the principle of realignment obliges the court to penetrate the nominal party alignment and to consider the parties' actual adversity of interest for purposes of determining whether there is a statutory basis for jurisdiction. Thus, despite some confusion in nomenclature caused perhaps by the commonplace application of realignment in the diversity context, the principle embodied by the term realignment is one of broader application and is not reducible to the primary purpose test utilized in the diversity context. It is incumbent upon us in the present appeal to consider whether a complex FSIA case warrants departure from the primary issue analysis which we have adopted in the context of diversity jurisdiction, and application of a more inclusive realignment analysis. 32 With this in mind, we note that other circuits have rejected the primary purpose test in favor of the more lenient substantial controversy test to determine Sec. 1330 jurisdiction where multiple claims are pleaded. See, e.g., American Motorists Insurance Company v. Trane Company, 657 F.2d 146, 149 (7th Cir.1981) (substantial controversy applied to diversity action). Under the substantial controversy ranking of issues standard, the court determines, as precursor to potential realignment, which of the conflicts asserted in the litigation are merely substantial, and then whether the parties in question are really opposed according to their true interests in any of their substantial conflicts. Under this standard, it would not defeat jurisdiction if there were no statutory basis for jurisdiction on the primary issue in the litigation, as long as the statutory elements of jurisdiction were present on any other substantial issue. 33 In an even more lenient approach than the substantial controversy test, a federal court might recognize a plaintiff/defendant relationship of adversity if real adversity exists between the parties on any issue asserted in the plaintiff's complaint, regardless of the relative significance of that issue. Such a liberal approach has not been applied to diversity cases in any circuit, as well it ought not given the restrictive language and policy of Sec. 1332. The present complex FSIA case, however, being one of first impression in our circuit, leads us to examine whether it is warranted here. We are guided in this determination by consideration of the structure and purpose of the FSIA and related statutes.
34 In letter and spirit, a liberal approach in implementing the FSIA's comprehensive jurisdictional scheme is most conducive to the FSIA's paramount objectives of keeping federal courts open to foreign states, and indeed of affirmatively encouraging private actions against foreign states to be adjudicated in federal court. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488-89, 103 S.Ct. 1962, 1968-69, 76 L.Ed.2d 81 (1983); H.R.Rep. No. 94-1487, 94th Cong., 2d Sess. 6 (1976), reprinted in 1976 U.S.C.C.A.N. 6604. Unlike the diversity statute, Sec. 1330 grants original jurisdiction in the district court without regard to the amount in controversy in order to facilitate this policy. Similarly, Sec. 1441(d) confers an absolute right of removal on the defendant foreign state. Thus, the judicial trend to constrict federal diversity jurisdiction does not inform our application of the principle of realignment here. We hold that the restrictive primary issue test does not comport with the statutory language or legislative intent of the FSIA. Because the substantial controversy test is more than adequately satisfied in the AEGIS action, we need not decide whether only minimal adversity need exist between the party bringing the action and the foreign state in order to trigger Sec. 1330 original jurisdiction and Sec. 1441(d) removal jurisdiction. 35 Applying the substantial controversy standard, we note preliminarily that Texas Eastern itself raises substantial claims against ICI in all three actions, contravening its assertion that ICI is an insignificant party. Moreover, in the AEGIS action, AEGIS has sought the adjudication of its rights and obligations inter se with respect to the other insurers, including ICI. AEGIS sought a declaration of entitlement to relief by way of contribution or indemnification from ICI and the other insurers; hence, ICI was subject to potential liability, which the district court found to be more than seven million dollars. 11 ICI was indeed haled into court by AEGIS against its will and must be afforded the special protection of the FSIA. Texas Eastern cross-claimed and counterclaimed in the AEGIS action asserting joint and several liability among the insurers, including ICI, and not limited to the excess insurers as between themselves. 12 Thus, while on the primary issue in AEGIS there is not a collision of interests between AEGIS and ICI, there is certainly an element of adversity between AEGIS and ICI sufficient to satisfy Sec. 1330's requisite that an action be brought against a foreign sovereign. Although the district court erroneously reasoned that realignment was a principle associated exclusively with diversity jurisdiction, we will affirm the conclusion of the district court that Sec. 1330 subject matter jurisdiction over the AEGIS case was proper.