In essence, plaintiffs argue that so long as Lowsley-Williams is not considered to be a citizen of the same State as any of the three defendants, diversity is complete.
Defendants, advocating a method of diversity determination diametrically opposed to that proposed by plaintiffs, claim that all Lloyd's Names must be included in determining citizenship. Therefore, if any Name is a citizen of any State of which one of the defendants is a citizen, diversity is not complete and plaintiffs' claim of diversity jurisdiction under section 1332 must fail.
A. Determination of Diversity Jurisdiction
Relying on Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 64 L. Ed. 2d 425, 100 S. Ct. 1779 (1980), the plaintiffs argue that the relationship between the Underwriters and the Names is analogous to that of a trust. In evaluating the citizenship of the parties to a suit concerning a trust -- because the trustee takes legal title to the trust assets, invests the assets for the benefit of the shareholders, and can sue and be sued in the capacity of trustee -- the trustee is the only necessary and material party to the suit. Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 464-65, 64 L. Ed. 2d 425, 100 S. Ct. 1779 (1980). Similarly, plaintiffs insist that the Underwriters are the only necessary and material parties to this suit, as the Underwriters control the reinsurance process and therefore are responsible for investing the Names' funds.
In maintaining that only the Underwriters' citizenship carries any weight, plaintiffs argue that the Underwriters occupy the role of trustees with respect to the Names in a syndicate. Plaintiffs contend that the Names have delegated complete control over their money to the Underwriters. In addition, plaintiffs argue that Names can neither initiate nor control any litigation brought by the Underwriter. Thus, although the Underwriter does in fact bring suit both individually and as a representative of the Names in the syndicate -- as Lowsley-Williams himself does in this very case -- plaintiffs want this Court to consider only the citizenship of the Underwriters for diversity purposes.
The underwriting arrangement, however, is clearly distinguishable from a trust. Unlike a trust, the Underwriter of a Lloyd's syndicate does not hold legal title to any Name's assets, nor does the Underwriter sue or get sued in only an individual capacity. See George T. Bogert, Trusts §§ 30 at 92, 101 at 364, 125 at 450 (6th ed. 1987). Rather, the Underwriter sues or gets sued as a representative of all the Names in the syndicate as well as in an individual capacity. International Ins. Co. v. Certain Underwriters at Lloyd's London, 1991 U.S. Dist. LEXIS 12937 at *11 (N.D. Ill 1991). Though they may not be individually-named parties to the suit, all Names in a syndicate are in fact parties to the suit because they are represented by the Underwriter who is a named party to the suit. Since the contracts being sued upon are between the individual Names and the policyholder (Stipulation, PP 21, 80) -- and not between the Underwriter and the policyholder -- the Names are necessary and material parties to the suit.
In addition, several other factors distinguish syndicates from trusts, the most notable of which is the level of control that a Name has vis-a-vis the syndicate as compared to the level of control that a beneficiary exercises vis-a-vis a trust. Although a Name lacks all control over the actions of the Underwriter, the Name does maintain a certain level of control over its money. Whereas a beneficiary often has no control in becoming a beneficiary of a particular trust, the Name selects which syndicate(s) to join. After joining a syndicate, the extent to which a Name will be liable within the syndicate is determined before the Underwriter signs a contract. Lastly, the Name presumably can withdraw membership in a syndicate whenever the Name so chooses, so long as no contracts are outstanding. Thus, the Name exercises control in the process of joining and remaining with or withdrawing from the syndicate, and determines the extent of liability. A beneficiary of a trust exercises much less control in the context of a trust. Additionally, in the context of the Lloyd's syndicates, there is no trustee, no trust corpus, and no trust beneficiary. Cf. George T. Bogert, Trusts § 1 at 1-5 (6th Ed. 1987).
Furthermore, since the plaintiffs' analysis rests on an analogy to trust concepts, the Court must recognize the limits placed on federal jurisdiction and the general reluctance of the courts to extend jurisdictional exceptions, especially narrow exceptions such as that articulated in Navarro. "The presumption in every stage of a cause [is] . . . that it is without the jurisdiction of a [federal] court." McSparran v. Weist, 402 F.2d 867, 876 (3d Cir. 1968), cert. denied, 395 U.S. 903, 89 S. Ct. 1739, 23 L. Ed. 2d 217 (1969) (quoting Lehigh Mining & Mfg. Co. v. Kelly, 160 U.S. 327, 336-37, 40 L. Ed. 444, 16 S. Ct. 307 (1895)). This case presents no compelling reason to undermine the general presumption against jurisdiction by extending the Navarro exception to apply to Lloyd's syndicates, which neither party alleges to be trusts and which are in fact not trusts. The Court will therefore not treat Lloyd's syndicates as trusts for determining diversity jurisdiction.
Plaintiffs alternatively argue that the Court should treat the Lloyd's syndicates as corporations, relying on Carden v. Arkoma Assocs., 494 U.S. 185, 108 L. Ed. 2d 157, 110 S. Ct. 1015 (1990). According to Carden, however, only incorporated groups may be treated as legal persons for jurisdictional purposes; all other unincorporated entities must be likened to partnerships. Carden, 494 U.S. at 190 (quoting Puerto Rico v. Russell & Co., 288 U.S. 476, 480, 77 L. Ed. 903, 53 S. Ct. 447 (1933)).
The Lloyd's syndicates are not in fact corporations or partnerships. In drawing analogies to corporations and partnerships, a Lloyd's syndicate most resembles, though is not equivalent to, a limited liability partnership. "[A] Lloyd's syndicate is analogous to a limited partnership; however, unlike limited partners, syndicate members have unlimited partnership liability for their share of the syndicate's losses." Certain Interested Underwriters v. Layne, 26 F.3d 39, 42 (6th Cir. 1994) (quoting Daly v. Lime Street Underwriting Agencies, Ltd., 2 FTLR 277, 279 (Q.B. 1987)). Nevertheless, the Court will explore the similarities and differences among a Lloyd's syndicate, a corporation, and a partnership.
If Lloyd's syndicates are treated as corporations, the citizenship of each individual syndicate is determined by the locus of incorporation and the principal place of business. See 28 U.S.C. § 1332(c)(1) (1994). While each individual syndicate is not incorporated, Lloyd's London was incorporated under United Kingdom law and its principal place of business -- the facility at which underwriting occurs -- is in London. Hence, under the corporation analogy, the citizenship of a Lloyd's syndicate is in England and the syndicate is consequently considered a foreign subject by American law for diversity purposes.
If, on the other hand, the syndicates are treated as partnerships, as defendants argue, citizenship is determined by the citizenship of all of the members, since the citizenship of an unincorporated entity or partnership is determined by the citizenship of every member. As a rule, "the Court will . . . count every member of an unincorporated association for purposes of diversity jurisdiction." Carden, 494 U.S. at 199 (O'Connor, J., dissenting). See also Northern Trust Co. v. Bunge Corp., 899 F.2d 591, 594 (7th Cir. 1990) ("In cases involving such unincorporated business associations the relevant citizenship is that of the individual partners.") Thus, if a syndicate is treated as a partnership, then the syndicate is a citizen of every state in which a participating Name is a citizen.
Carden, a five-four decision, leaves a gap in diversity jurisdiction determinations of non-trust entities -- either an entity is incorporated and will be treated as a legal person, or the unincorporated entity will be treated as a partnership. Carden may not come to terms with the wide array of non-traditional legal entities which currently exist and which are continuously being created, however. Furthermore, Justice O'Connor's dissent calls attention to the proper role which Congress should be filling (but has failed to fill) in providing the proper guidelines for jurisdictional determinations in the unincorporated, non-trust entity context. See Carden, 494 U.S. at 198-199 (O'Connor, J., dissenting). It is obvious that clearer, more appropriate guidelines must be dictated for diversity jurisdiction determinations in contexts such as this, either by Congress or by the Supreme Court.
The issue of how to categorize Lloyd's syndicates for jurisdictional purposes has not yet been addressed by the Third Circuit. The Sixth Circuit, on the other hand, has addressed the issue of citizenship of a Lloyd's syndicate. See Certain Interested Underwriters v. Layne, 26 F.3d 39 (6th Cir. 1994) (holding that by applying the "real party in interest" test, in conjunction with Tennessee's law concerning suits involving principal and agent, only the Underwriters should be included for the purposes of diversity jurisdiction). While the decision of the Sixth Circuit is not binding on this Court, it does demand deference. See Richards v. Local 134, Int'l. Bhd. of Elec. Workers, 790 F.2d 633, 636 (7th Cir. 1986).
But the decision in Layne is factually and legally distinguishable from this litigation. The Layne Court found that the Lloyd's Underwriters were agents for undisclosed principals and applied Tennessee and common law "that an agent for an undisclosed principal is personally liable on a contract." Id. at 43. Because Layne elected, in the counterclaim, to sue the Underwriters -- not the Names -- and because Tennessee law dictated that "[a] party who deals with such an agent may sue either the principal or the agent, but not both," the Underwriters, and not the Names, were found to be the real parties in interest to the suit. Id. (quoting Holt v. American Progressive Life Ins. Co., 731 S.W.2d 923, 925 (Tenn.Ct. App. 1987)). Since the parties here have stipulated that it is not the Underwriter but the Names who are personally liable on the contracts, it is therefore the Names who are the real parties in interest in this lawsuit. See Stipulation, PP 16-21, 39.
In other district courts, the question of jurisdiction of a Lloyd's London syndicate has been probed and resolved. While the decisions of the other districts do not bind this Court, the Court finds the reasoning and analysis of the other courts to be persuasive on this issue. The District Courts for the District of Maine, the Northern District of Illinois, and the District of Hawaii have thoroughly examined and analyzed the proper way to categorize a Lloyd's syndicate for diversity jurisdiction purposes. See Bath Iron Works Corp. v. Certain Member Cos. of the Inst. of London Underwriters, 870 F. Supp. 3 (D. Me. 1994) (holding that citizenship of active underwriters and Names with Lloyd's London had to be considered for purposes of diversity jurisdiction); International Ins. Co. v. Certain Underwriters at Lloyd's London, 1991 U.S. Dist. LEXIS 12937 (N.D. Ill. 1991) (examining the proper manner of determining Lloyd's syndicates and holding that citizenship of a Lloyd's syndicate is that of all of the participating Names); Queen Victoria Corp. v. Insurance Specialists of Hawaii, 711 F. Supp. 553 (D. Haw. 1989) (holding that the citizenship of Lloyd's is determined by that of all Names).
While, as the parties stipulate, Lloyd's of London is incorporated under the law of the United Kingdom, the Lloyd's corporation is not an insurer and is not a litigant in this action. See Layne, 26 F.3d at 41. The individual syndicates at Lloyd's are not incorporated, and "it is not disputed that, under British law, the syndicates themselves are not legally recognized persons having their own citizenship, as are corporations." BIW v. Institute of London Underwriters, 870 F. Supp. at 4-5. Nor are they in any way similar to corporations: Whereas corporations are internally singular units, syndicates are simply an agglomeration of individuals (the Names).
That Lloyd's syndicates are not corporations does not make them partnerships. Nevertheless, syndicates are similar to partnerships in a few particular aspects, as described by the International Insurance Court:
Like membership in a partnership, membership in a Lloyd's syndicate is personal and not transferable and terminates upon the death of the member. Members have unlimited personal liability, although only for each individual's share of the loss. Syndicates are like limited partnerships in that members have no management authority and cannot bind their fellow members or the syndicate.
International Ins., 1991 U.S. Dist. LEXIS 12937 at *7-8.
Although "the traditional analysis for determining the citizenship of, for instance, a corporation or partnership is of limited assistance to the Court here," BIW v. Institute of London Underwriters, 870 F. Supp. at 4, current Supreme Court jurisprudence leads this Court to conclude that citizenship should be based upon all members of the syndicate, i.e., all Names. Additionally, the manner in which this suit is brought further supports this conclusion.
When Underwriters bring suits, they do so both as an individual and as a representative of the Names within the syndicate(s). See International Ins., 1991 U.S. Dist. LEXIS 12937 at *11. The Underwriters do not bring suit on behalf of the syndicate. Id. at *10. The complaint refers to one plaintiff as "Peter George Hoole Lowsley-Williams, individually and as a representative . . . " Clearly, then, Lowsley-Williams represents both himself and the other Names in the syndicate. "It has generally been held that federal courts must look to the individuals being represented rather than their collective representative to determine whether diversity of citizenship exists." Northern Trust Co., 899 F.2d at 594. The Carden Court noted that the courts "have never held that an artificial entity [such as a Lloyd's syndicate], suing or being sued in its own name, can invoke the diversity jurisdiction of the federal courts based on the citizenship of some but not all of its members." Carden v. Arkoma, 494 U.S. at 192. The Carden Court flatly rejected the "contention that to determine [jurisdiction], for diversity purposes . . . the court may consult the citizenship of less than all of the entity's members." Carden v. Arkoma, 494 U.S. at 195.
Plaintiffs rely on several cases in support of their position that diversity jurisdiction can be based on the Underwriters and not the Names. In the Eastern District of Louisiana, there are two unpublished decisions which briefly address the presence of diversity jurisdiction in a case involving a Lloyd's syndicate. See Collins v. Coastline Constr., Inc., 1992 U.S. Dist. LEXIS 10880, 1992 WL 111203 (E.D. La. 1992) (stating that diversity jurisdiction existed where all defendants were citizens of the State of Louisiana); see also Collins v. Rodco Worldwide, 1989 U.S. Dist. LEXIS 11757, 1989 WL 117333 (E.D. La. 1989). The Collins Courts, however, do not explain which Names and/or Underwriters they included in a calculation for diversity jurisdiction, other than to imply that no Name or Underwriter was a citizen of the State of Louisiana, while all defendants were. The parties in this case, in contrast, have stipulated that defendants are citizens of the State of New Jersey and some Names are also citizens of the State of New Jersey. Consequently, the Louisiana cases are not helpful.
Another case plaintiffs rely on is Smith v. Lloyd's of London, 568 F.2d 1115 (5th Cir. 1978). The Smith Court, however, while accepting that there was diversity jurisdiction, did not address how jurisdiction was determined and, in fact, dismissed the case for lack of personal jurisdiction. Id.
Plaintiffs also cite Town Crier, Inc. v. Hume, Authorized Representative of Each and Every Member of Syndicate 553 of Lloyd's of London, 907 F.2d 1140 (4th Cir. 1990), in support of their contention that diversity jurisdiction exists here. Because Town Crier is a case with no published opinion, however, this Court draws no conclusions or inferences from the circuit court's affirmance of the district court's decision.
The other three cases that plaintiffs argue in support of diversity jurisdiction all found that jurisdiction existed but fail to explain how it was determined. See Rauch v. Underwriters at Lloyd's of London, 320 F.2d 525 (9th Cir. 1963) (finding that plaintiff was a citizen of Idaho and defendant Underwriters were aliens); Informix Corp. v. Lloyd's of London, 1992 U.S. Dist. LEXIS 16836, 1992 WL 469802 (N.D. Cal. 1992); Caicos Petroleum Servs. Ltd. v. C.A. Parr Ltd., 1985 WL 2084 (N.D. Ill. 1985) (finding that, where jurisdiction was uncontested, diversity jurisdiction existed).
None of the cases cited by the plaintiffs, Collins v. Coastline, Collins v. Rodco, Smith, Town Crier, Rauch, Informix, or Caicos, persuade the Court that diversity jurisdiction should be based on the Underwriters rather than the Names.
B. Burden of Pleading Complete Diversity
The plaintiffs must plead complete diversity in the complaint. Because citizenship is determined for a Lloyd's syndicate by the sum of the citizenship of all participating Names, the plaintiffs must have pled the citizenship of each Name participating in the North River reinsurance contracts in order for this Court to have diversity jurisdiction. The Original Complaint, the Proposed Second Amended Complaint, and the Second Proposed Second Amended Complaint all fail to state the citizenship of every Name in the syndicates that are parties to the seven contracts. Thus, plaintiffs fail to meet the burden of pleading complete diversity. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 179, 80 L. Ed. 1135, 56 S. Ct. 780 (1936). Furthermore, the Supplemental Stipulation of Facts states that some of the Names who subscribed to the disputed contracts were and are citizens of New Jersey. As both North River Insurance Company and Talegen Holdings, Inc. are citizens of New Jersey, complete diversity is destroyed by the admissions in the Supplemental Stipulation of Facts. Plaintiff could not successfully plead complete diversity in any complaint.
The defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction is granted. London Market Reinsurers' Motion for Leave to File a Second Amended Complaint is denied.
Dated: May 3, 1995
WILLIAM G. BASSLER, U.S.D.J.
This matter having come before the Court on defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction, and upon plaintiffs' Motion for Leave to File a Second Amended Complaint; and
The Court having considered the submissions of counsel for the parties, as well as the oral arguments of counsel on behalf of the parties; and
For good cause shown;
It is on this 3rd day of May, 1995 ORDERED as follows:
1. Defendants' motion to dismiss plaintiff's complaint is GRANTED;
2. Plaintiffs' motion to amend the complaint is DENIED;
3. Plaintiffs' complaint is hereby DISMISSED.