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Norfolk & Western R. Co. v. Wasserstrom

argued: January 24, 1990.


On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil No. 88-9461.

Author: Sloviter



Facts and Procedural History

Plaintiff, Employers Insurance of Wausau (Wausau), alleges that it is one of seven insurance companies which issued comprehensive general liability and/or excess umbrella policies to Crown Cork & Seal Company, Inc. (Crown) spanning a period of approximately 25 years. Crown has been named as a defendant or a potentially responsible party in claims arising out of alleged environmental hazards at more than twenty waste disposal sites located throughout the country. On February 19, 1988 Crown filed a complaint in the New Jersey Superior Court, Law Division, against Wausau, Aetna Casualty & Surety Company (Aetna), Insurance Company of North America (INA), Continental Insurance Company (Continental), Lumbermen's Mutual Casualty Company (Lumbermen's), Firemen's [sic] Fund Insurance Company (Fireman's), and Allianz Underwriters, Inc. (Allianz), seeking, inter alia, a declaration of the obligations of the insurers to indemnify and defend Crown in the underlying actions. On December 12, 1988, approximately ten months after Crown filed its New Jersey action,*fn1 Wausau filed this suit in district court, naming as defendants Crown and the other insurers who are Wausau's co-defendants in Crown's New Jersey state action. Wausau seeks a declaration, pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, "of the scope and nature of its obligations and those of the defendant [insurers], if any, as the issuers of certain comprehensive general liability ("CGL") insurance policies and excess umbrella liability insurance policies providing coverage to the defendant [Crown]." App. at 6-7. Wausau alleged that the district court had subject matter jurisdiction under 28 U.S.C. § 1332, as the amount in controversy is in excess of $10,000 and the matter "is between citizens of different states." App. at 7.

Crown moved in the federal action to realign the defendant insurers as plaintiffs with Wausau on the ground that all of the insurance carriers have a "consonant interest" in avoiding liability for either defense or indemnification of Crown. App. at 19. Crown argued that if the parties were realigned, complete diversity would be destroyed, as Crown, the defendant, and INA, a realigned plaintiff, are both citizens of Pennsylvania. Crown argued, in the alternative, that even if the parties were not realigned, the court should dismiss or stay the action "in favor of the first-filed state court action" pending in the New Jersey Superior Court. App. at 21-22.

In a Memorandum and Order dated June 28, 1989, the district court, without deciding the jurisdiction issue, granted Crown's motion for a stay, noting that if "the scope of the New Jersey action is not limited by a decision of the New Jersey Courts, the parties can anticipate that [the district] court will decline to entertain Wausau's declaratory judgment action and will dismiss the suit." App. at 127-28.*fn2 The court reasoned that it had the discretion to stay the action under the Declaratory Judgment Act or, in the alternative, on abstention grounds, as enunciated in Colorado River Water Conservation District v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976), and its progeny. The court declined to make findings on Crown's motion for realignment, although it did note that "the jurisdictional difficulties threaten to delay, if not terminate, the progress of [the] action" in federal court, therefore further justifying a stay in favor of the pending New Jersey action. Wausau filed this timely appeal.*fn3



On appeal, the parties have briefed primarily the question whether the district court properly stayed this action in light of the pending New Jersey action, and have given only secondary consideration to whether the defendant insurers should be realigned as plaintiffs with Wausau. We turn first to Crown's motion for realignment because it impacts upon the district court's jurisdiction.

It is an elementary principle that federal courts are courts of limited jurisdiction, empowered to hear cases only as provided for under Article III of the Constitution and congressional enactments pursuant thereto. Bender v. Williamsport Area School District, 475 U.S. 534, 541, 89 L. Ed. 2d 501, 106 S. Ct. 1326 (1986). Consequently, "[a] federal court is bound to consider its own jurisdiction preliminary to consideration of the merits." Trent Realty Assocs. v. First Fed. Sav. & Loan Ass'n of Philadelphia, 657 F.2d 29, 36 (3d Cir. 1981). Moreover, "every federal appellate court has a special obligation to 'satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review.'" Bender, 475 U.S. at 541 (quoting Mitchell v. Maurer, 293 U.S. 237, 244, 79 L. Ed. 338, 55 S. Ct. 162 (1934)); see Lewis v. International Brotherhood of Teamsters, Local Union No. 771, 826 F.2d 1310, 1312 (3d Cir. 1987).

The district court's grant of the stay amounts to the exercise of its dominion over this matter, clearly presupposing that it had subject matter jurisdiction in the first instance. It was therefore bound to first consider Crown's challenge to the diversity between the parties raised in Crown's motion for realignment before it granted the stay. We, in turn, must satisfy ourselves that the district court had subject matter jurisdiction before considering whether it properly stayed the action. See Colorado River Water Conservation District v. United States, 424 U.S. 800, 806, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). Indeed, we would be obliged to consider, sua sponte, whether the district court had subject matter jurisdiction over this action even if Crown had not continued to press the realignment issue on appeal. See Trent, 657 F.2d at 31.

In order to sustain jurisdiction based on the diversity of the parties, there must exist an "'actual,' 'substantial' controversy between citizens of different states, all of whom on one side of the controversy are citizens of different states from all parties on the other side." Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69, 86 L. Ed. 47, 62 S. Ct. 15 (1941) (citations omitted). In determining whether there is the necessary "collision of interests," the court must look at the "'principal purpose of the suit' and the 'primary and controlling matter in the dispute.'" Id. (citations omitted). The parties' determination of their alignment cannot confer jurisdiction upon the court. Although the pleadings are relevant, it is the court's duty to "'look beyond the pleadings and arrange the parties according to their sides in the dispute.'" Id. (quoting Dawson v. Columbia Trust Co., 197 U.S. 178, 180, 49 L. Ed. 713, 25 S. Ct. 420 (1905)). The Court has since explained that in ruling on realignment, the courts are "to determine the issue of antagonism on the face of the pleading and by the nature of the controversy." Smith v. Sperling, 354 U.S. 91, 96, 1 L. Ed. 2d 1205, 77 S. Ct. 1112 (1957).

A determination of whether there is a collision of interests must be based on the facts as they existed at the time the action was commenced. 3A Moore's Federal Practice P19.03, at 56 (1989). A court may, however, look at subsequent pleadings and proceedings in a case to determine the position of the parties, but only to the extent that they "shed light on the facts as they existed at the outset of the litigation and on the ...

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