Ace American Insurance Company et al v. Sandberg Phoenix & Von Gotard, P.C. et al

Filing 17

ORDER ON THRESHOLD JURISDICTIONAL REVIEW: For the reasons described in the attached Order, the Court finds that the complaint does not establish federal subject matter jurisdiction. The Court DIRECTS Plaintiffs to file a First Amended Complaint by June 7, 2012. The Court DENIES as moot the dismissal motion (Doc. 12) directed at the original complaint. See Order for details. (Amended Pleadings due by 6/7/2012.)Signed by Judge Michael J. Reagan on 5/11/12. (soh )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
ACE AMERICAN INSURANCE CO.,
and FEDERAL INSURANCE CO.,
Plaintiffs,
vs.
SANDBERG PHOENIX & VON
GONTARD, G. KEITH PHOENIX,
and W. WYLIE BLAIR,
Defendants.

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Case No. 12-cv-0242-MJR-DGW

ORDER ON THRESHOLD JURISDICTIONAL REVIEW
REAGAN, District Judge:
On March 16, 2012, Ace American Insurance Company and Federal
Insurance Company filed in this District Court a legal malpractice suit against a law firm
(Sandberg Phoenix & Von Gontard) and two lawyers from the firm. Ace and Federal,
both of whom had issued liability insurance policies to Safariland, LLC, assert that the
named lawyers badly botched the defense of a state court products liability and
negligence suit (Brough v. Safariland, et al.), resulting in Ace and Federal having to pay
substantial sums to settle the Brough lawsuit.

Now suing in federal court, Ace and

Federal proceed on theories of legal and equitable subrogation, seeking to recover from
the law firm and lawyers the full amount of the settlement the insurers paid on
Safariland’s behalf, as well as all legal expenses for which they footed the bill, and other
damages.
The complaint in this Court invokes subject matter jurisdiction under the
federal diversity statute, 28 U.S.C. 1332.

The case was randomly assigned to the

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undersigned District Judge, whose first task it is to verify that subject matter jurisdiction
lies. See Avila v. Pappas, 591 F.3d 552, 553 (7th Cir. 2010)(“The first question in
every case is whether the court has jurisdiction”); Johnson v. Wattenbarger, 361
F.3d 991, 992 (7th Cir. 2004)(“All too often both litigants and judges disregard their
first

duty in every suit:

to determine the existence of

subject-matter

jurisdiction.”).
28 U.S.C. 1332 requires complete diversity of citizenship among the
parties plus an amount in controversy exceeding $75,000, exclusive of interest and
costs.

The amount-in-controversy requirement appears easily satisfied here, but the

complaint falls short as to the allegations of citizenship.
The complaint properly sets forth the citizenship of both Plaintiffs plus the
law firm Defendant, each of which is a corporation (and none of which is alleged to be a
limited liability corporation). However, the complaint alleges that Defendants Phoenix
and Blair both reside in Missouri and are “residents of Missouri” (Doc. 2, p. 2). Therein
lies the problem.
There is a distinction between residing in and being a citizen of a
particular state.

Seventh Circuit law plainly holds that residence does not equate to

citizenship, and the latter controls for jurisdictional purposes. Pleading residence is
inadequate to invoke diversity jurisdiction, the Seventh Circuit has emphatically and
"repeatedly reminded litigants and district judges" alike. Craig v. Ontario Corp., 543
F.3d 872, 876 (7th Cir. 2008), citing Camico Mut. Ins. Co. v. Citizens Bank, 474 F.3d
989, 992, and Meyerson v. Harrah's East Chicago Casino, 299 F.3d 616, 617 (7th
Cir. 2002).

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The complaint on file does not establish that the undersigned Judge
enjoys subject matter jurisdiction. Accordingly, the Court DIRECTS Plaintiffs’ counsel to
file a First Amended Complaint by June 7, 2012, plainly alleging all requirements of
diversity jurisdiction for every party.

The Court denies as moot Defendants’ motion

(Doc. 12) to dismiss the original complaint. Defendants may refile their motion or other
responsive pleading once the Amended Complaint has been filed by Plaintiffs.
IT IS SO ORDERED.
DATED May 11, 2012.
s/ Michael J. Reagan
Michael J. Reagan
United States District Judge

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