2004 WL 2466054 (10th Cir.)

For opinion see 402 F.3d 982

Briefs and Other Related Documents

United States Court of Appeals,

Tenth Circuit.

THE SOCIETY OF LLOYD'S, Plaintiff/Appellee,

v.

Wallace R. BENNETT, Grant R. Caldwell, Calvin P. Gaddis, David L. Gillette,

Stephen M. Harmsen, Kelly C. Harmsen, James R. Kruse, Edward W. Muir, and Kent

B. Petersen, Defendants/Appellants.

Nos. 03-4094, 03-4183, 04-4142.

2004.

On Appeal from the United States District Court for the District of Utah, Central Division

The Honorable Tena Campbell, District Judge District Court No. 2:02CV0204TC

Oral Argument not Requested

Appellee's Brief

Michael N. Zundel, James A. Boevers, Thomas R. Barton, Prince, Yeates & Geldzahler, City Centre I, Suite 900, 175 East 400 South, Salt Lake City, UT 84111, (801)524-1000, Facsimile: (801)524-1098, Attorneys for Plaintiff/Appellee, The Society of Lloyd's.

CORPORATE DISCLOSURE STATEMENT

Plaintiff/Appellee The Society of Lloyd's ("Lloyd's") has no parent corporation and there are no publicly held corporations that own 10% or more of its stock.

TABLE OF CONTENTS

CORPORATE DISCLOSURE STATEMENT ... i

TABLE OF AUTHORITIES ... iv

STATEMENT OF RELATED APPEALS ... vi

STATEMENT OF JURISDICTION ... 1

STATEMENT OF ISSUES ... 1

STATEMENT OF THE CASE ... 2

STATEMENT OF FACTS ... 3

SUMMARY OF ARGUMENT ... 6

ARGUMENT ... 7

I. BECAUSE LLOYD'S IS AN ENGLISH CORPORATION, ITS CITIZENSHIP IS DIVERSE FROM THAT OF EACH OF THE UTAH NAMES ... 7

Standard of Review ... 7

A. Background ... 7

B. As an English Corporation, Lloyd's Is a Citizen of England ... 8

II. EQUITAS' ASSIGNMENT OF ITS CLAIM TO LLOYD'S DOES NOT DESTROY DIVERSITY ... 12

Standard of Review ... 12

A. The Assignment At Issue Is Equitas' Assignment to Lloyd's of Equitas' Claim Against Bennett Based on Bennett's Failure to Pay the Equitas Premium ... 12

B. Because Equitas Is Also an English Corporation, Its Assignment to Lloyd's Was Not Collusive ... 13

III. THE PROVISIONS OF 28 U.S.C. § 1332(c)(1) THAT RELATE TO A DIRECT ACTION AGAINST AND INSURER DO NOT APPLY HERE ... 15

Standard of Review ... 15

CONCLUSION ... 16

CERTIFICATE OF SERVICE ... 18

ADDENDUM A District Court Order entered June 10, 2004 ...

ADDENDUM B The Society of Lloyd's v. Bila, U.S. District Court for the Western District of Texas, Austin Division, Civil No. A-03-CA-9 JN (May 21, 2003) ...

Note: Table of Contents page numbers missing in original document

TABLE OF AUTHORITIES

CASES

Amoco Rocmount Co. v. Anschutz Corp., F.3d 909 (10th Cir. 1993) ... 12

Bank of the United States v. Deveaux, 5 Cranch (9 U.S.) 61, 3 L.Ed.38 (1809) ... 9, 10

Booth v. Churner, 532 U.S. 731, 735 (2001) ... 7

Carden v. Arkoma Associates, 494 U.S. 185 (1990) ... 8, 9

Fortson v. St. Paul Fire and Marine Ins. Co., 751 F.2d 1157 (11th Cir. 1985) ... 15

Garrett v. Hawk, 127 F.3d 1263, 1264 (10th Cir. 1997) ... 7, 12, 15

Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314 (7th Cir. 1998) ... 11

Marshall v. Baltimore & Ohio Railroad Co., 2 How. (43 U.S.) 497, 11 L.Ed. 353 (1844) ... 10

National S.S. Co. v. Tugman, 106 U.S. 118 (1882) ... 8

Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469 (2nd Cir. 1976) ... 13

The Servants of the Paraclete v. John Does I-XVI, 204 F.3d 1005 (10th Cir. 2000) ... 1

Society of Lloyd's v. Bila, Civil No. A-03-CA-9 (W.D.Tex. May 21, 2003) ... 11

Steele v. Hartford Fire Ins. Co., 788, F.2d 441 (7th Cir. 1986) ... 13

Torres v. Southern Peru Copper Corp., 113 F.3d 540 (5th Cir. 1997) ... 8, 10

Tuck v. United Service Auto. Ass'n, 859 F.2d 842 (10th Cir. 1988) ... 15, 16

Western Farm Credit Bank v. Hamukua Sugar Co., Inc., 841 F. Supp. 976 (D. Hawaii 1994) ... 13

STATUTES AND RULES

28 U.S.C. § 1291 ... 1

28 U.S.C. § 1332 ... 1

28 U.S.C. § 1332(a)(2) ... 6, 10

28 U.S.C. § 1332(c)(1) ... 1, 2, 3, 6, 7, 8, 10, 15, 16

28 U.S. C. § 1359 ... 2, 3, 6, 12, 13

Lloyd's Act of 1871 ... 3, 4, 7, 10

Lloyd's Act of 1982 ... 4, 7, 10

Fed. R. Civ. P. 60(b) ... 1

Fed. R. App. P. 4(a)(1)(A) ... 1

10th Cir. R. 30 ... 1

D.U.R.P. 56-1(c) ... 4

OTHER AUTHORITIES

O'Connor's Federal Rules, Civil Trials 2003 ... 11

Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d, Vol. 13B, § 3623(West 1984) ... 8, 9, 10

Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d, Vol. 13B, § 3629(West 1984) ... 15

STATEMENT OF RELATED APPEALS

The appeals by the Caldwell Defendants (i.e., defendants Caldwell, Gaddis, [FN1] Gillette, Kruse, Muir and Petersen), by defendant Bennett ("Bennett") and by defendants Stephen M. and Kelly C. Harmsen ("the Harmsens") from Lloyd's Judgments against them in the District of Utah action have all been consolidated for procedural purposes (Case Nos. 03-4065, 4082, 4094, and 4183). These appeals have also been consolidated for procedural purposes with an appeal from similar Lloyd's Judgments in a District of New Mexico action (The Society of Lloyd's v. Richard A. Reinhart, et al., Case No. 02- 2301). In addition, Bennett's most recent appeal in Case No. 04-4142 (the subject of this brief) has been consolidated with his prior appeals in Case Nos. 03-4094 and 03-4183. This Court previously dismissed another Bennett appeal in this action (Case No. 04-4004), because the orders Bennett appealed from there were non-final orders of the Magistrate Judge.

FN1. Defendant Gaddis has dismissed his appeal.

STATEMENT OF JURISDICTION

The district court had diversity of citizenship subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Plaintiff Lloyd's is an English corporation and citizen. All of the defendants are individuals, who are residents and citizens of the State of Utah. The matter in controversy exceeds $75,000, exclusive of interest and costs.

This Court appears to have subject matter jurisdiction pursuant to 28 U.S.C. § 1291. The district court's Order entered June 10, 2004 ("Order") [Doc. 271, Addendum ("Add") A hereto] [FN2] was a final decision to the extent that it denied Bennett's Motion to Set Aside the Final Judgment pursuant to Fed. R. Civ, P. 60 (b). See, The Servants of the Paraclete v. John Does I-X VI, 204 F.3d 1005, 1008 (10th Cir. 2000). Pursuant to Fed. R. App. P. 4 (a)(1)(A), Bennett timely filed his Notice of Appeal from the Order on June 23, 2004. (Doc, 276)

FN2. Because this is a pro se appeal, no appendices are being filed pursuant to 10th Cir. R 10.

STATEMENT OF ISSUES

1. Whether the district court was correct in ruling, based upon the undisputed facts, that there is complete diversity of citizenship between Lloyd's, an English corporation, and the defendants, all of whom are individual residents of the State of Utah,

2. Whether the district court was correct in ruling, based upon the undisputed facts, that an assignment of the claims against defendants from one English corporation, Equitas Reinsurance Limited ("Equitas"), to another English corporation, Lloyd's, was not a collusive assignment under 28 U.S. C. § 1359, for purposes of creating diversity of citizenship subject matter jurisdiction in the district court.

3. Whether the district court was correct in ruling, based upon the undisputed facts, that this is not a direct action against an insurer, within the meaning of28 U.S.C. § 1332(c)(1).

Bennett raised the foregoing issues in the district court (Doc. 243, 244, 252, 253), which ruled upon them in the Order (Doc. 271, Add. A hereto).

STATEMENT OF THE CASE [FN3]

FN3. This Statement of the Case is limited to the issues raised by Bennett's present appeal of the Order denying various post-judgment motions Bennett filed. A more complete Statement of the Case as it relates to the merits of the district court's judgments against Bennett and his co-defendants is contained in Lloyd's Appellee's Brief in Case Nos. 03- 4065, 4082, 4094 and 4183.

This is a diversity action by Lloyd's to enforce English judgments against the defendants ("Utah Names"), based on common law principles of comity under Utah law (Complaint, Doc. 1). The district court's November 12, 2002 Order ("Summary Judgment Order") granted Lloyd's motion for summary judgment against Bennett and the other Utah Names (Doc. 98).

Based on the Summary Judgment Order, Judgments were entered against Bennett (Doc. 156) and the other Utah Names on March 19, 2003. Thereafter, Bennett filed various post-judgment motions, including those denied by the Order that is the subject of Bennett's present appeal (Doc. 271, Add. A hereto).

Bennett's Opening Brief on his present appeal attacks only the district court's denial of his motions disputing the district court's subject matter jurisdiction founded on diversity of citizenship. In that regard the district court ruled that diversity of citizenship existed because Lloyd's is an English corporation, and none of the Utah Names are citizens of England. The court further ruled that under 28 U.S.C. § 1359 there could not be a collusive assignment for purposes of creating diversity jurisdiction, where both the assignor, Equitas, and the assignee, Lloyd's, are citizens of England. The court also ruled that this is not a direct action against an insurer, for purposes of invalidating diversity jurisdiction under 28 U.S.C. § 1332(c)(1) (Doc. 271, Add. A hereto).

STATEMENT OF FACTS

The following facts are undisputed based upon the evidence in the record before the district court: [FN4]

FN4. This Statement of Facts is limited to the diversity of citizenship jurisdiction issues raised by Bennett's present appeal. Accordingly, Lloyd's does not intend to respond to factual allegations in Bennett's Opening Brief that do not relate to those issues, and instead relate to the merits of Lloyd's U.S. Judgment against Bennett. A more complete Statement of Facts relating to Lloyd's U.S. Judgments against Bennett and the other Utah Names is contained in Lloyd's Appellee's Brief in Case Nos. 03-4065, 4082, 4094 and 4183.

Lloyd's is an English corporation, created by the U.K. Parliament through the Lloyd's Act of 1871:

The Right Honourable George Joachim Goschen..., and all persons admitted as members of Lloyd's before or after the passing of this Act, are hereby united into a Society and Corporation for the purposes of this Act, and for those purposes are hereby incorporated by the name of Lloyd's, and by that name shall be one body corporate, with perpetual succession and a common seal, and with power to purchase, take, hold, and dispose, of lands and other property (which incorporated body is hereafter in this Act referred to as the Society.)

[Lloyd's Act of 1871, § 3, entitled "Incorporation of Lloyd's" (emphasis added) (Relevant excerpts of the Lloyd's Act of 1871 are attached as Exhibit D to Doc. 247). See also the Lloyd's Act of 1982, Paragraph (1), attached as Exhibit 1 to Doc. 244; See also. Doc. 97] Lloyd's "regulate[s] the English insurance market. Lloyd's promulgates and enforces regulations under the Lloyd's Acts, and exercises disciplinary authority over persons in the Lloyd's markets." (Summary Judgment Order, Doc. 98, pp. 1-2 [FN5])

FN5. Facts set forth in the Summary Judgment Order are also undisputed based upon the evidence before the district court.

Lloyd's is not an insurer and does not insure risks [Declaration of Nicholas P. Demery dated June 7, 2002 ("Demery Declaration"), Doc. 30 ¶ 2 [FN6]]. The only insurers in the Lloyd's market are underwriting members of Lloyd's, who are known as Names. (Id. at ¶ 4) Names underwrite insurance by forming groups known as "syndicates," and each Name incurs personal liability with respect to insurance commitments that he or she undertakes by assuming a portion of a syndicate's risk in the Lloyd's market. (Id. at ¶ 7; Summary Judgment Order, Doc. 98, p.2)

FN6. A11 of the facts in the Demery Declaration were asserted by Lloyd's as undisputed facts in its Memorandum in Support of its Motion for Summary Judgment (Doc. 21), and Bennett did not dispute these facts in his opposing memorandum (Doc. 41). Therefore, they are deemed admitted by him pursuant to D. U.R.P. 56-1(c).

In order to address the substantial losses incurred by Names in the late 1980s and early 1990s, Lloyd's devised the reconstruction and renewal ("R&R") plan. (Summary Judgment Order, Doc. 98, p. 3) The R&R plan provided otherwise unavailable reinsurance to each Name with respect to his or her pre-1993 underwriting obligations through a newly formed company, Equitas. (Id.) The cost of reinsuring these liabilities (the "Equitas Premium") for each name was individually calculated and charged to that name. (Id.) The R&R plan also provided a settlement offer to each Name, which required the Name to pay his or her Equitas Premium, (Id.\} Those Names that did not settle were still required to pay the full amount of their underwriting obligations, including the Equitas Premium. (Id.)

After the R&R plan became effective and the Equitas Premium became due and payable, Equitas assigned to Lloyd's its right to recover payment of the Equitas Premium from the non-settling Names. (Id. at p. 4) The assignment from Equitas to Lloyd's is memorialized in a Deed of Assignment, dated October 2, 1996. (Exhibit C to Doc. 247; Ex. 11 to Doc. 244) Beginning in late 1996, Lloyd's sued the non-settling names in England. Lloyd's obtained English Judgments against the Utah Names on March 11, 1998, and thereafter pursued this action to enforce those English Judgments. (Summary Judgment Order, Doc. 98, pp. 4-5)

Equitas is part of the Equitas Group of business entities that was created as part of the R&R plan. (Ex. B to Doc. 247, pp. 81-82; Ex. 8 to Doc. 244, pp. 81-82) All of the companies in the Equitas Group-including Equitas - are private limited companies incorporated in England and resident in the United Kingdom for tax purposes. (Ex. B to Doc. 247, p. 83; Ex. 8 to Doc. 244, p. 83)

SUMMARY OF ARGUMENT

It is indisputable that Lloyd's is an English corporation. Therefore, Lloyd's is a citizen of England and is diverse from all of the Utah Names, who are all Utah citizens. Diversity jurisdiction is proper pursuant to 28 U.S.C. § 1332(a)(2).

Contrary to Bennett's argument, diversity jurisdiction is not destroyed by virtue of the fact that Lloyd's underlying claim against Bennett (and the other Utah Names) was assigned to Lloyd's by Equitas. The underlying claim is Equitas1 right to collect reinsurance premiums from certain Names, including the Utah Names. The assignment is only invalid, pursuant to 28 U.S.C. § 1359, if it collusively creates diversity jurisdiction that would not otherwise exist. However, Equitas, like Lloyd's, is also an English corporation. Thus, Equitas is also diverse from the Utah Names, and there could be no collusive assignment.

Bennett's status as an insurer in the Lloyd's market also does not divest the Court of jurisdiction pursuant to the provisions of 28 U.S.C. § 1332(c)(1) relating solely to "direct actions" against insurers. Lloyd's is not suing Bennett as an insurer. Lloyd's action against Bennett is based on his failure to pay reinsurance premiums to Equitas. Pursuant to clear precedent from this Court, there is no divestiture of jurisdiction under § 1332(c)(1).

Thus, this Court should affirm the Order from which Bennett appeals, determining that the district court had diversity of citizenship subject matter jurisdiction over this action.

ARGUMENT

I. BECAUSE LLOYD'S IS AN ENGLISH CORPORATION, ITS CITIZENSHIP IS DIVERSE FROM THAT OF EACH OF THE UTAH NAMES.

Standard of Review: The district court's statutory interpretations based upon undisputed facts are reviewed denovo. See, Garrett v. Hawk, 127 F. 3d 1263, 1264 (10th Cir. 1997), overruled on other grounds, Booth v. Churner, 532 U.S. 731, 735 (2001).

A. Background

As the district court recognized, the U.K. Parliament gave powers to Lloyd's to regulate the English insurance market. Early in its existence, Lloyd's may have been considered a kind of unincorporated association. However, this status changed over one hundred years ago, when Parliament explicitly incorporated Lloyd's (Ex. D to Doc. 247, Lloyd's Act of 1871, § 3, entitled "Incorporation of Lloyd's"). Since 1871 Lloyd's has been recognized as a corporation organized and existing by Acts of Parliament. (Seealso, Doc. 97, Lloyd's Act of 1982, ¶ 1)

Also, as established above, Lloyd's is not an insurer and does not insure risks. The only insurers in the Lloyd's market are underwriting members ofwho are known as Names. Names underwrite insurance by forming groups known as "syndicates," and each Name incurs personal liability with respect to insurance commitments that he or she undertakes by assuming a portion of a syndicate's risk in the Lloyd's market. (Demery Declaration, Doc. 30, ¶¶ 2, 4, 7; Summary Judgment Order, Doc. 98, pp-1-2) Thus, Lloyd's is a legal entity separate and distinct from the entities operating in the market it regulates, and from the members of the syndicates who underwrite insurance in that market.

B. As an English Corporation, Lloyd's is a Citizen of England.

Bennett's assertion that all the members of Lloyd's have the same citizenship as Lloyd's is wrong because Lloyd's is an English corporation. A U.S. corporation is a citizen of the State where it has been incorporated and of the State where it has its principal place of business. 28 U.S.C. § 1332(c)(1). As to foreign corporations, "[I]t has long been the rule that a corporation incorporated in a foreign nation is a citizen of that nation for purposes of diversity jurisdiction." Torres v. Southern Peru Copper Corp., 113 F.3d 540, 543 n.12 (5th Cir. 1997); see also, National S.S. Co. v. Tugman, 106 U.S. 118 (1882).

Bennett's argument that Lloyd's takes the citizenship of its members is incorrect on a number of fronts. Because Lloyd's is a corporation, it has a citizenship independent of the citizenship of its members. [FN7] The quotation from Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d("Wright & MUIef"), Vol. 13B, § 3623, p. 592 (West 1984) at p. 8 of Bennett's Opening Brief, to the effect that the stockholders of a foreign country corporation are presumed to be citizens of that country, is taken out of context. The full quotation reads:

FN7. Although in the district court Bennett relied on Garden v. Arkoma Associates, 494 U.S. 185 (1990), that case actually supports Lloyd's position. In the excerpt quoted by Bennett on page 16 of Doc. 244, the Supreme Court was not referring to corporations; it was referring to other types of "artificial entities." Garden, 494 U.S. at 195. In the opinion, Justice Scalia goes to great lengths to explain that a special rule exists for corporations, which, unlike other entities, have their own citizenship, not the citizenship of their members or shareholders. Id. at 187-191, 197.

Thus, a presumption exists that all the stockholders of a corporation chartered by a foreign country are citizens of that country, and the corporation may sue or be sued in the federal courts as an alien.

(Emphasis added to indicate the portion omitted by Bennett.)

Moreover, as the surrounding pages in Wright & Miller explain, the presumption that stockholders have the same citizenship as their corporation arose from the outmoded concern that a corporation, an artificial being, could not be a citizen within the meaning of the Constitution, and therefore could not sue in federal court. Wright & Miller, § 3623, pp. 587-597. At one point the Supreme Court held that because a corporation was not a citizen it could only act as an association of its stockholders, and therefore the citizenship of its stockholders controlled for purposes of federal diversity jurisdiction. Id. at pp. 589-90, citing Bank of the United States v. Deveaux, 5 Cranch (9 U.S.) 61, 3 L.Ed.38 (1809). Later, the Supreme Court changed this reasoning - in part because plaintiffs were often unable to bring suit in federal court against corporations with shareholders from various states-and established the presumption that all of the stockholders of a corporation were citizens of the state of incorporation. Id., at pp. 590-91, citing Marshall v. Baltimore & Ohio Railroad Co., 2 How. (43 U.S.) 497, 11 L.Ed. 353 (1844).

As Wright & Miller makes clear, this presumption has been modified by 28 U.S.C. § 1332(c)(1), which states that for purposes of diversity of citizenship, a U.S. corporation is a citizen of 1) the state in which it has been incorporated and 2) the state where it has its principal place of business. Id. at p. 592. Section 1332(c)(1) does not state that a stockholder of a corporation has the same citizenship as that corporation; and it does not state that U.S. stockholders of a foreign corporation have the same citizenship as that corporation. The settled law is that "diversity jurisdiction is present in suits between citizens of a State and citizens or subjects of a foreign state." Torres, supra, 113 F.3d at 543. [FN8] As Wright & Miller goes on to explain,"... [TJhe presumption that all the stockholders of a corporation are citizens of the state of incorporation was of doubtful accuracy in 1854 and... is totally unwarranted today." Wright & Miller § 3623 at p. 602 (emphasis added).

FN8. 28 U.S.C. § 1332 (a)(2) provides that diversity of citizenship exists between "(2) citizens of a State and citizens or subjects of a foreign state;"

Nicholas Demery's statement in his declaration that Lloyd's is 'a Society and Corporation incorporated under the Lloyd's Acts 1871 to 1982 comprising all persons admitted as members of Lloyd's,' (as quoted in Bennett's Opening Brief at p. 11, n.9) does not contradict Lloyd's position in the least. The fact that Lloyd's is comprised of its members is irrelevant for purposes of U.S. diversity jurisdiction. As Demery's statement correctly points out, Lloyd's is a corporation. Therefore, it takes the citizenship of the nation of its incorporation: England, not that of its members.

Also, Bennett is deliberately confusing Lloyd's with the underwriting syndicates. Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314 (7th Cir, 1998), cited by Bennett, involves syndicates and their insureds, not Lloyd's. [FN9] As the district court recognized in the Summary Judgment Order, the syndicates are not Lloyd's. This case does not involve any syndicates. It is a dispute between a corporation (Lloyd's) and an individual (Bennett) by which Lloyd's seeks to enforce an English judgment against the individual. The syndicates are irrelevant to this case, and any analysis of their citizenship is inapposite.

FN9. On page 13 of his Opening Brief, Bennett also cites O'Connor's Federal Rules, Civil Trials 2003, for the proposition that "[f]or Lloyd's of London, diversity is determined by the residence of each name." Lloyd's counsel is not familiar with O'Connor's Federal Rules, and - despite inquiries at local law libraries - has been unable to locate a copy of this source. However, O'Connor was referring to the syndicates, not Lloyd's itself. Bennett acknowledged as much in the district court on p. 15 of Doc. 244, in which he added a bracketed reference to the syndicates in the above quote: "for Lloyd's of London [syndicates], diversity is determined by the residence of each name." (Emphasis added)

As an English corporation, Lloyd's is a citizen of England. Because each of the Utah Names is a citizen of the State of Utah, diversity jurisdiction is proper. See, Society of Lloyd's v. Bila, Civil No. A-03-CA-9 (W.D.Tex. May 21, 2003) (Add. B hereto), in which the court held that there was diversity jurisdiction in a case-just like this one-where Lloyd's filed suit to enforce an English judgment against an American Name.

II. EQUITAS' ASSIGNMENT OF ITS CLAIM TO LLOYD'S DOES NOT DESTROY DIVERSITY.

Standard of Review: The district court's statutory interpretations based upon undisputed facts are reviewed de novo. See, Garrett, supra.

A. The Assignment At Issue Is Equitas' Assignment to Lloyd's of Equitas' Claim Against Bennett Based on Bennett's Failure to Pay the Equitas Premium.

Bennett's argument that the assignment from Equitas to Lloyd's voids diversity jurisdiction is based on a misunderstanding of the facts and the law. 28 U.S.C. § 1359 states that "a district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." The purpose of this statute is to prevent parties from manufacturing diversity jurisdiction through the assignment of a claim from a non-diverse party to a diverse party. See, Amoco Rocmount Co. v. Anschutz Corp., 1 F.3d 909, 916 (10th Cir. 1993). Here, the undisputed facts in the record demonstrate that the assignment in question, from one English corporation, Equitas, to another English corporation, Lloyd's, was not collusive.

Equitas was created as part of Lloyd's R&R plan, and it provided otherwise unavailable reinsurance to each Name. The cost of this reinsurance was called the Equitas Premium. The R&R plan also provided a settlement offer to each Name, which would have provided financial assistance to the Name in paying the Equitas premium, in return for a release of litigation claims. Those Names that did not settle were still required to pay the full amount of their underwriting obligations, including the Equitas Premium. After the R&R plan had become effective, in September 1996 Equitas assigned to Lloyd's the Equitas right to recover payment of the Equitas Premium from the non-settling Names. Lloyd's then sued the non-settling names, obtained English Judgments, and, with respect to those judgments against American Names, sought enforcement in America. (Summary Judgment Order, Doc. 98)

Thus, the underlying claim is Equitas' claim for the Equitas Premium; it is not a claim that was ever held by the name's agents or the syndicates. Also, the underlying claim represents the cost to each name of reinsurance provided by Equitas; it does not represent direct liability for claims made against insurance policies. Thus, Bennett's arguments at pp. 12 and 15 of his Opening Brief that the syndicates are the real parties in interest is incorrect and has no evidentiary basis in the record.

B. Because Equitas Is Also an English Corporation, Its Assignment to Lloyd's Was Not Collusive.

The assignment from Equitas to Lloyd's cannot be collusive because Equitas, like Lloyd's, is an English corporation and diverse from the Utah Names. The law only prohibits improper or collusive assignments that create diversity jurisdiction. Western Farm Credit Bank v. Hamukua Sugar Co., Inc., 841 F. Supp. 976, 981 (D. Hawaii 1994). [FN10] As Judge Posner has observed with respect to 28 U.S.C. § 1359, "the statute can have no application where the assignor could have sued in federal court as well as the assignee." Steele v. Hartford Fire fns. Co., 788, F.2d 441, 445 (7th Cir. 1986). Thus, if the assignor is already diverse from the parry in question, then the assignment cannot create diversity jurisdiction; diversity jurisdiction already existed.

FN10. Thus, in Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469 (2nd Cir. 1976), cited at p. 7 of Bennett's Opening Brief, an assignment from a Delaware corporation to its New York corporate subsidiary, for purposes of bringing a diversity action against another Delaware corporation, was held to be collusive.

The record demonstrates that Equitas is a citizen of England. Equitas is part of the Equitas Group, and "[a]ll the companies in the Equitas group are all private limited companies incorporated in England and resident in the United Kingdom for Tax purposes." [Ex. B to Doc. 247, pp. 81-83 (emphasis added)] [FN11] There is no evidence in the record to suggest that Equitas is a citizen of any other nation or state, much less the State of Utah.

FN11. Contrary to Bennett's arguments, the record does not reflect that Lloyd's owns Equitas and the Equitas Group. After the implementation of the R&R plan, it was intended that ownership of these entities be vested in a trust. (Ex. B to Doc. 244, p. 81) Nevertheless, the ownership of Equitas is irrelevant. Because Equitas is an English citizen and diverse from the defendants, its assignment to Lloyd's cannot be a collusive one designed to create diversity jurisdiction.

Equitas is diverse from the Utah Names and therefore, as a matter of law, the assignment of its claim to Lloyd's is not collusive. [FN12] Lloyd's has established that there was no collusive assignment and diversity jurisdiction is proper.

FN12. In any event, Lloyd's and Equitas did not collude to create federal court jurisdiction in America. The assignment evidenced by the Deed of Assignment dated October 2, 1996, took place in England. (Ex. C to Doc. 244) It occurred over five years before Lloyd's brought action in America, and before Lloyd's even brought the English actions. Moreover, as discussed in Lloyd's Appellee's Brief in Cases Nos. 03-4065, 4082, 4094 and 4183, the Utah Names all agreed in their General Undertakings with Lloyd's that the underlying liability was required to be litigated in

England, pursuant to English law. The jurisdiction of the American courts simply played no role in Equitas' assignment of its claims to Lloyd's.

III. THE PROVISIONS OF 28 U.S.C. § 1332(c)(1) THAT RELATE TO A DIRECT ACTION AGAINST AN INSURER DO NOT APPLY HERE.

Standard of Review: The district court's statutory interpretations based upon undisputed facts are reviewed de novo. See, Garrett, supra.

Bennett is incorrect in arguing that the provisions of Section 1332(c)(1) relating to a "direct action" against an insurer, destroy diversity jurisdiction. See, Bennett's Opening Brief, p. 10. Section 1332(c)(1) reads, in pertinent part:

[I]n any direct action against the insurer of a policy or contract of liability insurance whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business[.]

This provision was enacted for a very specific purpose: "to eliminate the basis for diversity jurisdiction in states that allow an injured third-party claimant to sue an insurance company for payment of a claim without joining the company's insured as a party, where the insured would be a nondiverse party, even though the party insurance company would otherwise be diverse." Fortson v. St. Paul Fire and Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir. 1985); see also, Wright & Miller, § 3629, pp. 670-73.

This Court recognized the limited application of Section 1332(c)(1) in Tuck v. United Services Auto. Ass'n, 859 F.2d 842 (10th Cir. 1988), where the parents of a deceased insured sued the insurance company for benefits under the insurance company's policy. The Court observed that "unless the cause of action urged against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured, the action is not a direct action." 859 F.2d at 847 (citations omitted) In Tuck, the Court held that diversity jurisdiction was proper because the plaintiffs were not seeking to impose liability on the insurance company for the negligence of an insured. Id.

Similarly, this case does not involve a "direct action" against an insurer. Although Bennett, as a Name, may be considered an underwriter in the Lloyd's insurance market, Lloyd's is not suing him based on the negligence of any party that he (or any syndicate of which he was a member) insured. On the contrary, Lloyd's is suing Bennett to enforce the English judgment entered against him. Moreover, the English judgment is the result of Bennett's failure to pay reinsurance premiums - not the liability of an insured. Those provisions of Section 1332(c)(1) that relate to direct actions against insurers do not apply, and this Court has diversity jurisdiction.

CONCLUSION

For the reasons stated above, this Court should hold that Lloyd's has established diversity jurisdiction in this case. Therefore, the district court's Order should be affirmed.

THE SOCIETY OF LLOYD'S, Plaintiff/Appellee, v. Wallace R. BENNETT, Grant R. Caldwell, Calvin P. Gaddis, David L. Gillette, Stephen M. Harmsen, Kelly C. Harmsen, James R. Kruse, Edward W. Muir, and Kent B. Petersen, Defendants/Appellants.

2004 WL 2466054