Court Opinion

ID: 4279229
Source: CourtListenerOpinion
Date Created: 2018-05-29 21:00:27.409231+00
Date Added: 2024-06-11T07:49:25.401209
License: Public Domain

Case: 16-12015   Date Filed: 05/29/2018   Page: 1 of 15

                                                             [PUBLISH]

          IN THE UNITED STATES COURT OF APPEALS

                   FOR THE ELEVENTH CIRCUIT
                     ________________________

                           No. 16-12015
                     ________________________

                 D.C. Docket No. 1:13-cv-00086-TCB

ST. PAUL FIRE AND MARINE INSURANCE COMPANY,

                                  Plaintiff - Counter Defendant,
versus

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
AMERICAN HOME ASSURANCE COMPANY,
NEW HAMPSHIRE INSURANCE COMPANY,

                                 Defendants - Cross Defendants - Cross
                                 Claimants - Counter Claimants - Appellees,

AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY,

                               Defendant - Cross Claimant - Counter
                               Defendant - Cross Defendant - Appellant.
                     ________________________

              Appeal from the United States District Court
                 for the Northern District of Georgia
                    ________________________

                            (May 29, 2018)
               Case: 16-12015       Date Filed: 05/29/2018      Page: 2 of 15

Before MARCUS and NEWSOM, Circuit Judges, and MOORE,∗ District Judge.

MARCUS, Circuit Judge:

       In this battle between primary and excess liability insurance companies,

American Guarantee & Liability Insurance Co. (AGLIC) appeals the district

court’s grant of summary judgment to American International Group, Inc.

subsidiaries National Union Fire Insurance Co., American Home Assurance Co.,

and New Hampshire Insurance Co. (collectively, “AIG”). AGLIC claims that AIG,

acting as a primary insurer, improperly allocated settlement payments between two

insurance policies on behalf of their mutual insured, Imperial Sugar Co. As a

consequence, AGLIC contends that AIG breached its duty to Imperial by

prematurely subjecting it to excess liability. As Imperial’s excess insurer, AGLIC

seeks to pursue Imperial’s breach-of-duty claim against AIG utilizing the doctrine

of equitable subrogation.

       When the case reached this Court, we asked the parties for supplemental

briefing on subject matter jurisdiction. In examining diversity jurisdiction, the

district court is not bound by the formal alignment of the parties provided in the

pleadings. Rather, the court must align the parties according to their true interests

in the litigation. City of Indianapolis v. Chase Nat’l Bank, 314 U.S. 63, 69 (1941);

City of Dawson v. Columbia Ave. Sav. Fund Safe Deposit, Title & Tr. Co., 197

       ∗
         Honorable William T. Moore, Jr., United States District Judge for the Southern District
of Georgia, sitting by designation.
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U.S. 178, 180 (1905). In this case, because the interests of St. Paul and AGLIC

were coextensive, there was an absence of complete diversity of citizenship, and

the district court lacked the power to entertain the matter in the first place.

Accordingly, we vacate the court’s judgment and remand with instructions to

dismiss.

                                           I.

      This dispute arose out of several catastrophic explosions at an Imperial

Sugar Co. refinery in Port Wentworth, Georgia, which killed 14 and wounded 36

workers. The workers and their families responded by filing tort and workers’

compensation claims against Imperial. The claims were handled by AIG, which

provided Imperial with a $26 million general liability insurance policy (“AIG GL”)

and an unlimited workers’ compensation insurance policy (“AIG WC”). As its

defense strategy, AIG sought to arrange global settlements of the tort and workers’

compensation claims. Ultimately, AIG settled 41 of the 67 claims against Imperial

for roughly $28.5 million -- far less than Imperial’s expected liability. However,

AIG GL paid 90 percent of the global settlements (approximately $25.5 million),

while AIG WC paid only 10 percent (approximately $3 million).

      According to Imperial’s excess insurers, St. Paul Fire & Marine Insurance

Co. and AGLIC, because AIG GL was capped while AIG WC was unlimited, AIG

WC should have enlarged its contributions to the settlements in order to maximize

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the protections afforded by AIG GL. St. Paul and AGLIC contended that AIG

prematurely exhausted AIG’s general liability insurance policy through its lopsided

settlement allocations, thereby breaching its duty to Imperial by exposing it to

undue excess liability. As Imperial’s excess insurers, St. Paul and AGLIC bore the

burden of AIG’s alleged breach, and sought to assert Imperial’s cause of action

through equitable subrogation.

      Thus, in January 2013, St. Paul sued AGLIC and AIG subsidiaries National

Union Fire Insurance Co., American Home Assurance Co., and New Hampshire

Insurance Co. in the United States District Court for the Northern District of

Georgia. St. Paul sought a declaration that AIG improperly exhausted its general

liability policy, entitling St. Paul to recoupment of settlement and defense

expenditures incurred under its excess policy. In its complaint, St. Paul arranged

the parties’ citizenships this way:

                Plaintiff                                Defendant
           St. Paul (MN, CT)                       National Union (PA, NY)
                                                    American Home (NY)
                                                   New Hampshire (PA, NY)
                                                       AGLIC (NY, IL)

In February 2013, AGLIC filed an answer admitting essentially all of the

allegations in St. Paul’s complaint. AGLIC’s answer included a cross-claim against

AIG leveling the same allegations and requesting the same relief that St. Paul had

sought. AGLIC claimed the district court had supplemental jurisdiction over its

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cross-claim under 28 U.S.C. § 1367(a), since St. Paul’s complaint established

diversity jurisdiction, and AGLIC’s cross-claim arose out of a common nucleus of

law and fact.

      After more than two years of discovery, AIG moved for summary judgment,

alleging an absence of evidence to support St. Paul and AGLIC’s claims. The

district court entered summary judgment for AIG, and St. Paul and AGLIC

appealed. In June 2016, St. Paul moved to voluntarily dismiss its appeal with

prejudice. The Court granted the motion, leaving AGLIC as the sole appellant

against AIG. Order of Dismissal, July 16, 2016 (ECF No. 34).

      In October 2017, we directed the parties to file supplemental briefs

addressing this Court’s power to entertain the appeal. According to the parties, we

retained supplemental jurisdiction over the appeal pursuant to 28 U.S.C. § 1367(a),

which reads this way: “[I]n any civil action of which the district courts have

original jurisdiction, the district courts shall have supplemental jurisdiction over all

other claims that are so related to claims in the action within such original

jurisdiction that they form part of the same case or controversy under Article III of

the United States Constitution.” Although the exercise of supplemental power is

discretionary, the district courts may exercise supplemental jurisdiction to

consolidate closely related claims into a single proceeding in order to preserve

judicial resources and avoid inconsistent judgments. Rosado v. Wyman, 397 U.S.
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397, 405 (1970) (describing the “commonsense policy” of supplemental

jurisdiction as being grounded on “the conservation of judicial energy and the

avoidance of multiplicity of litigation”). It is also true that if there is supplemental

jurisdiction at the time the suit was commenced, the court may continue to exercise

that power even if the original basis for jurisdiction is later eliminated. Id. (“We

are not willing to defeat the commonsense policy of pendent jurisdiction . . . by a

conceptual approach that would require jurisdiction over the primary claim at all

stages as a prerequisite to resolution of the pendent claim.”).

      The parties claim that, since their citizenships were completely diverse and

the amount in controversy exceeded $75,000 at the time of filing, St. Paul’s

original complaint conferred diversity jurisdiction on the district court pursuant to

28 U.S.C. § 1332(a). They also say that the district court properly exercised

supplemental jurisdiction over AGLIC’s cross-claim because it was so interwoven

with the complaint as to form “part of the same case or controversy.” They add that

St. Paul’s voluntary dismissal did not divest this Court of jurisdiction, and that the

exercise of supplemental jurisdiction continues to serve the interests of judicial

economy and fairness. Thus, the parties reason, the district court appropriately

wielded supplemental power over AGLIC’s cross-claim, and this Court has

supplemental jurisdiction over AGLIC’s appeal as well.

                                           II.

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      “We review questions of subject matter jurisdiction de novo.” Belleri v.

United States, 712 F.3d 543, 547 (11th Cir. 2013). Whether we may exercise

supplemental jurisdiction over this appeal depends on whether the district court

had diversity jurisdiction over the case at the time that it was filed. See Grupo

Dataflux v. Atlas Glob. Grp., LP, 541 U.S. 567, 570–71 (2004). Although,

nominally, the parties were completely diverse at the time of filing, the district

court was obligated to realign AGLIC as St. Paul’s co-plaintiff, since, from the

outset, the interests of the excess insurers in this case were completely coextensive.

And since AGLIC and AIG were both New York citizens at the time the lawsuit

began, realignment would have destroyed diversity, stripping the district court of

original jurisdiction and eviscerating the jurisdictional foundation for this appeal.

      It is now fully accepted as a jurisdictional principle that, under the

“realignment doctrine,” “federal courts are required to realign the parties in an

action to reflect their interests in the litigation. The parties themselves cannot

confer diversity jurisdiction upon the federal courts by their own designation of

plaintiffs and defendants.” City of Vestavia Hills v. Gen. Fid. Ins. Co., 676 F.3d
1310, 1313 (11th Cir. 2012). And it is the duty of the federal courts “to look

beyond the pleadings, and arrange the parties according to their sides in the

dispute.” City of Indianapolis, 314 U.S. at 69 (quoting City of Dawson, 197 U.S. at

180). “Whether the necessary ‘collision of interest’ exists is [ ] not to be

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determined by mechanical rules. It must be ascertained from the principal purpose

of the suit and the primary and controlling matter in dispute.” Id. (quotations and

citations omitted).

       In City of Indianapolis v. Chase National Bank, 314 U.S. 63 (1941), the

Supreme Court explicated the realignment doctrine at some length. There, Chase

National Bank served as trustee under a mortgage deed to secure bonds issued by

Indianapolis Gas Co. Id. at 70. Following the issuance, Indianapolis Gas leased its

gas plant property to Citizens Gas Co. in exchange for interest on its bond

indebtedness and a six percent annual return on its common stock. Id. Citizens Gas

then conveyed all of its property, including the leased premises, to the City of

Indianapolis, but the City refused to be bound by the lease. Id. Chase, a New York

corporation, sued Indiana corporations Indianapolis Gas and Citizens Gas as well

as the City of Indianapolis in federal district court seeking a declaration that the

lease was valid and binding on the defendants. Id. at 71. While Indianapolis Gas

agreed that the lease bound the City, Citizens Gas and the City denied the lease’s

validity. Id.

       When the case reached the Supreme Court, it framed the “primary and

controlling matter in dispute” as being whether the lease initially conveyed by

Indianapolis Gas to Citizens Gas was valid and binding on the City. Id. at 72. The

Court noted that Chase and Indianapolis Gas had always agreed the lease bound

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the City. Id. at 73. The Court reasoned that Chase and Indianapolis Gas were

“partners in litigation,” and, “if regard be had to the requirements of jurisdictional

integrity, Indianapolis Gas and Chase are on the same side of the controversy not

only for their own purposes but also for purposes of diversity jurisdiction. But such

realignment places Indiana ‘citizens’ on both sides of the litigation and precludes

assumption of jurisdiction based upon diversity of citizenship.” Id. at 74. Thus, the

Court concluded, “the District Court was without jurisdiction.” Id. at 74–75; see

also id. at 82–83 (citing Helm v. Zarecor, 222 U.S. 32 (1911)).

       The former Fifth Circuit, in binding precedent, applied City of

Indianapolis’s realignment doctrine in Indemnity Insurance Co. of North America

v. First National Bank at Winter Park, 351 F.2d 519 (5th Cir. 1965).1 There, a

Pennsylvania corporation, Indemnity Insurance Co., brought a diversity action

against Florida corporations First National Bank and Sanford Atlantic Bank. Id. at

521. Indemnity Insurance sought a declaration that it was not obliged to pay its

insured First National under its forgery policy for losses First National incurred in

honoring cashier’s checks that had been fraudulently obtained from Sanford

Atlantic. Id. at 521–22. Rather, Indemnity Insurance claimed, since Sanford

Atlantic issued the checks, Sanford Atlantic was required to suffer the resulting

       1
         In Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981), the Court adopted as
binding the precedent of the United States Court of Appeals for the Fifth Circuit, as it existed on
September 30, 1981. Id. at 1209.
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losses. Id. at 522. First National filed a cross-claim against Sanford Atlantic,

likewise claiming that Sanford Atlantic bore responsibility for the forged checks.

Id. at 522–23. Sanford Atlantic responded that First National should be realigned

as Indemnity Insurance’s co-plaintiff due to their parallel interests in the suit. Id. at

522. Moreover, Sanford Atlantic continued, if First National were realigned as a

plaintiff, then the district court lacked diversity jurisdiction over the case, since

First National and Sanford Atlantic were both Florida citizens. Id.

       The former Fifth Circuit observed, “Since the question is one of jurisdiction

it is our duty, as well as the duty of the district court, to notice the jurisdictional

question and determine whether there is an actual, substantial controversy between

citizens of different states, all of whom on one side are citizens of different states

from all parties on the other side.” Id. “Whether there is such a controversy is to be

ascertained from the principal purpose of the suit and the primary and controlling

matter in dispute.” Id. (citing City of Indianapolis, 314 U.S. 63). The principal

purpose of the suit was to address whether the losses arising from the fraudulent

checks fell on Sanford Atlantic or First National. Id. at 522. As for that dispute, the

panel was “unable to find any substantial difference between the positions of [First

National] and Indemnity.” Id. Thus, it concluded, “We see no bona fide

controversy between Indemnity and [First National],” since both Indemnity

Insurance and First National sought a declaration that Sanford Atlantic bore

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responsibility for the forged checks. Id. at 523. Consequently, the court realigned

First National as a party plaintiff, destroyed diversity, and dismissed the case for

want of jurisdiction. Id.

       A panel of this Court revisited the realignment doctrine in City of Vestavia

Hills v. General Fidelity Insurance Co., 676 F.3d 1310 (11th Cir. 2012). In that

case, judgment creditor Vestavia Hills, an Alabama citizen, sued judgment debtor

Cameron Development Corp., a fellow Alabama citizen, and its insurer General

Fidelity for payment on the judgment. Id. at 1312. General Fidelity removed the

case to the United States District Court for the Northern District of Alabama. Id. at

1312. Vestavia Hills moved to remand the cause to state court, arguing that, since

both the defendant Cameron Development and Vestavia Hills were Alabama

citizens, the district court lacked diversity jurisdiction. Id. The district court

realigned Cameron Development as Vestavia Hills’s co-plaintiff and denied

Vestavia Hills’s motion to remand, since both parties sought to compel General

Fidelity to cover Cameron Development’s liability to Vestavia Hills. Id.

       On appeal, we affirmed the district court’s realignment, noting, “[I]t is clear

that Vestavia Hills did not seek any relief from Cameron [Development],” and that,

because “the only thing that Cameron [Development] could want out of this case is

for Vestavia Hills to win . . . the two parties’ interests are identical or at least

materially so.” Id. at 1314. As a result, the district court properly exercised

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diversity jurisdiction over the case because the operation of the realignment

doctrine rendered the parties completely diverse. Id. at 1314 (“Where the parties’

interests are the same, we have held that those parties must be aligned together and

have reversed a district court’s failure to do so, even where the parties’ interests

were in opposition outside of the issues raised in the subject action.”); see also

Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 3607 (3d

ed.) (“The generally accepted test for the proper alignment of parties employed by

the federal courts is whether the parties with the same ultimate interests in the

outcome of the action are on the same side of the litigation.”) (quotations omitted).

      Application of the realignment doctrine deprives this Court and the district

court as well of diversity jurisdiction over the case. It is indisputable that the

primary and controlling matter at issue here was whether AIG unlawfully exposed

Imperial to excess liability by prematurely depleting its primary and umbrella

policies. Although St. Paul had named AGLIC as a party defendant in its original

complaint, St. Paul and AGLIC had no “collision of interest” in this case. See City

of Indianapolis, 314 U.S. at 69. As Imperial’s excess insurers, both St. Paul and

AGLIC sought a declaration that AIG had improperly exhausted Imperial’s

primary and umbrella policies. They asserted the same facts, pursued the same

legal theories, sought the same relief, and, notably, they raised no claims against

each other.

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      In its answer, AGLIC admitted virtually all of the allegations advanced by

St. Paul. Moreover, throughout the proceedings, beginning with AGLIC’s cross-

claim, St. Paul and AGLIC asserted identical claims against AIG and requested the

same relief. Indeed, St. Paul’s complaint and AGLIC’s cross-claim contained

identical language as to the claims presented and the relief sought. Both parties

contended that their excess policies “provide[ ] that [they do] not respond until

proper exhaustion of the ‘Immediate Underlying Insurance’ and ‘other insurance,’

which includes, but is not necessarily limited to, the limits of the [AIG] Primary

and Umbrella Policies.” Likewise, both parties “respectfully request[ed] that [the

district court] . . . issue a judgment which . . . declares whether the [AIG] Primary

CGL and Umbrella Policies have been properly impaired and/or exhausted; . . .

and, if not, directs [AIG] to pay [St. Paul and AGLIC] [ ] all amounts paid by [St.

Paul and AGLIC] in settlements and defense costs in excess of [their] obligations

under [their] Excess Polic[ies], with applicable interest.” St. Paul and AGLIC thus

employed identical language to press the same claims against AIG and seek the

same relief.

      Moreover, “it is clear [St. Paul] did not seek any relief from [AGLIC],” and

“the only thing that [AGLIC] could [have] want[ed] out of this case [wa]s for [St.

Paul] to win.” City of Vestavia Hills, 676 F.3d at 1314. By every true measure, St.

Paul and AGLIC were “partners in litigation,” and “if regard be had to the

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requirements of jurisdictional integrity, [St. Paul] and [AGLIC] are on the same

side of the controversy not only for their own purposes but also for purposes of

diversity jurisdiction.” City of Indianapolis, 314 U.S. at 74. Since St. Paul and

AGLIC’s interests in this litigation were entirely entwined, as we see it the district

court was required to realign AGLIC as a plaintiff, resulting in the following

accurate arrangement of the parties:

                Plaintiff                                 Defendant
           St. Paul (MN, CT)                        National Union (PA, NY)
           AGLIC (NY, IL)                            American Home (NY)
                                                    New Hampshire (PA, NY)

      Realignment of AGLIC as a party plaintiff would have destroyed diversity,

since AGLIC, National Union, American Home, and New Hampshire were all

New York citizens at the time of filing. Because the district court could not

exercise diversity jurisdiction over St. Paul’s complaint, it follows that it lacked

supplemental jurisdiction over AGLIC’s cross-claim. Exxon Mobil Corp. v.

Allapattah Servs., Inc., 545 U.S. 546, 554 (2005) (“In order for a federal court to

invoke supplemental jurisdiction under [United Mine Workers of Am. v.] Gibbs[,

383 U.S. 715, 725 (1966)], it must first have original jurisdiction over at least one

claim in the action. Incomplete diversity destroys original jurisdiction with respect

to all claims, so there is nothing to which supplemental jurisdiction can adhere.”).

Thus, contrary to the parties’ arguments, supplemental jurisdiction cannot provide

the foundation for exercising jurisdiction over this appeal. Indeed, from the outset,
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the district court lacked diversity jurisdiction over the case, and we cannot exercise

supplemental jurisdiction over this appeal.

      Accordingly, the judgment of the district court must be vacated, and the case

remanded with instructions to dismiss for lack of subject matter jurisdiction.

  VACATED AND REMANDED WITH INSTRUCTIONS TO DISMISS

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