NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. MEAD JOHNSON & COMPANY et al

Filing 261

ORDER denying 209 Motion to Realign Lexington and Dismiss for Lack of Jurisdiction. Signed by Judge Richard L. Young on 7/17/2012. (TMD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
EVANSVILLE DIVISION

)
)
)
)
)
)
vs.
)
)
MEAD JOHNSON & COMPANY and
)
MEAD JOHNSON NUTRITION
)
COMPANY,
)
Defendants and
)
Counterclaim-Plaintiffs
)
LEXINGTON INSURANCE COMPANY, )
Additional Counterclaim-Defendant. )
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA,
Plaintiff and
Counterclaim-Defendant,

3:11-cv-00015-RLY-WGH

ENTRY ON NATIONAL UNION’S AND LEXINGTON’S MOTION TO
REALIGN LEXINGTON AND DISMISS THIS LAWSUIT FOR LACK OF
SUBJECT MATTER JURISDICTION
For the policy period February 10, 2009, to February 10, 2010, Defendants/
Counterclaim-Plaintiffs, Mead Johnson & Company and Mead Johnson Nutrition
Company (collectively “Mead Johnson”), had in place a Commercial General Liability
Policy issued by Plaintiff/Counterclaim-Defendant National Union Fire Insurance
Company of Pittsburgh, PA (“National Union”), and an Umbrella Liability Policy issued
by Additional Counterclaim-Defendant Lexington Insurance Company (“Lexington”)
(collectively “Insurers”), that provided for an integrated tower of insurance coverage for
advertising liability. In early 2009, Mead Johnson engaged in an advertising campaign to
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boost the sales of its infant formula, Enfamil LIPIL, prompting its competitor, PBM
Products, LLC (“PBM”), to file a lawsuit against it for, inter alia, false advertising. PBM
ultimately prevailed by winning a $13,500,000 jury verdict against Mead Johnson in
November 2009. See PBM Products, LLC v. Mead Johnson Nutrition Co., et al., Case
No. 3:09-cv-00269 (W.D. Va.) (“Underlying PBM Lawsuit”).
Following the jury verdict, Mead Johnson sought insurance coverage from
National Union and Lexington for the Underlying PBM Claim. This prompted National
Union to file the present declaratory judgment action on January 6, 2011, in this court,
seeking a determination of its rights and obligations under its Commercial General
Liability Policy, and a declaration that it is not obligated to defend or indemnify Mead
Johnson with respect to the Underlying PBM Claim. The court’s subject matter
jurisdiction was based strictly on the complete diversity of citizenship between National
Union and Mead Johnson pursuant to 28 U.S.C. § 1332.
On April 6, 2011, Mead Johnson filed an Answer, Amended Counterclaims and
Additional Claims adding Lexington to this lawsuit. On January 26, 2012, the court ruled
that Mead Johnson properly added Lexington to this lawsuit by Amended Counterclaim
and pursuant to supplemental jurisdiction, 28 U.S.C. § 1367. The question presented by
Insurers’ Motion is whether Lexington should remain in this case as a counterclaim
defendant or instead, be realigned as a plaintiff. Such a realignment would deprive the
court of subject matter jurisdiction, because Lexington and Mead Johnson are both
citizens of Delaware. Consequently, Insurers also move to dismiss this diversity case for
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lack of subject matter jurisdiction.
Where jurisdiction is based on the diversity of citizenship, the court may realign
the parties’ designation of plaintiff and defendant to conform with their true interests in
the litigation. Am. Motorists Ins. Co. v. Trane Co., 657 F.2d 146, 149 (7th Cir. 1981)
(citing City of Indianapolis v. Chase Nat’l Bank, 314 U.S. 63, 69 (1941)). (“Diversity
jurisdiction cannot be conferred upon the federal courts by the parties’ own determination
of who are plaintiffs and who are defendants.”). “Realignment is proper where no actual,
substantial controversy exists between parties on one side of the dispute and their named
opponents.” Id.; see also Olin Corp. v. Insurance Co. of N. Am., 807 F.Supp. 1143, 1147
(S.D.N.Y. 1992) (realignment is appropriate where “a plaintiff, in the complaint, aligns
the parties in a way which is not in accord with the actual controversy between the
parties”). In conducting this inquiry, the court must “look beyond the pleadings and
arrange the parties according to their sides in the dispute.” Trane, 657 F.2d at 149. The
facts which form the basis for realignment must be present at the time the action is
commenced. Id.
A leading case in this Circuit on realignment is Trane, supra. In that case, Trane, a
manufacturer of heat transfer units and air conditioning devices, was insured through a
tower of insurance coverage by “Employers” for claims up to $300,000, by “American
Motorists” for claims from $300,000 to $5,000,000, by “St. Paul” for claims from
$5,000,000 to $10,000,000, and by “American Home” for claims from $10,000,000 to
$20,000,000. Id. at 148. Trane was sued in connection with the sale of certain heating
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units by “Pritchard,” and an insurance dispute arose. Id. American Motorists filed a
declaratory judgment action against Trane, Pritchard, and three other insurance
companies with respect to the insurers’ duty to defend. Id. at 148-49. Trane subsequently
amended its answer to assert counterclaims against American Motorists and cross-claims
against the other insurance companies. Id. at 149. American Motorists then brought a
motion to realign Employers as a plaintiff and to dismiss the action for lack of subject
matter jurisdiction. Id. The district court granted the motion, reasoning that because
American Motorists argued in its motion for summary judgment (also pending) that the
Pritchard claims did not constitute an “occurrence” under either the American Motorists
or Employer’s policies, and that, therefore, neither American Motorists nor Employer’s
had a duty to defend under their respective policies, the parties were not in sufficient
conflict to justify them being on opposite sides of the lawsuit. Id. at 149-50.
On appeal, the Seventh Circuit reversed, finding that the issue of realignment
turned on “the points of substantial antagonism, not agreement.” Id. at 151. Based upon
pleadings and the terms of the insurers’ policies, the Court concluded that “a substantial
conflict” between American Motorists and Employers existed on the duty to defend,
“notwithstanding their common interest in avoiding liability.” Id. at 150. The Court
reasoned:
Because Employers is the underlying insurer, American Motorists would
benefit from a holding that Employers had a duty to defend Trane.
Conversely, if Employers were found not to be liable, American Motorists
would then have the burden of proving that it had no duty to defend Trane.
That American Motorists would benefit from a holding adverse to
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Employers is a fact which has been in existence since the beginning of this
lawsuit, and is not diminished by the former’s urgings that neither it nor
Employers has a duty to defend.
Id.
Insurers argue that, unlike the insurers in Trane, “no controversy whatsoever exists
between National Union and Lexington” because: (1) National Union did not file a
complaint against Lexington; (2) the policies provide for an “integrated tower of
coverage” under a single policy period; (3) National Union and Lexington retained the
same law firms to represent their interests; and (4) National Union’s and Lexington’s
policies have similar coverage provisions. Therefore, according to Insurers, Lexington
should be realigned as a plaintiff to reflect its true interest in this litigation. Insurers
misconstrue the holding of Trane; indeed, Trane actually supports Mead Johnson’s
position.
Count I of Mead Johnson’s Amended Counterclaim alleges that the National
Union and Lexington policies provide for both defense and indemnity coverage, and that
both Insurers breached the insurance contract by refusing to pay for the same. The fact
that the policies are “integrated,” have similar coverage provisions, and cover the same
policy period, is not determinative, because the focus of the realignment inquiry is not on
the points of agreement, but on the points of substantial antagonism. In fact, these same
factors existed in Trane. Thus, although National Union and Lexington have a common
interest in avoiding liability, the dispute over defense costs is a real and substantial
controversy that justifies them being on opposites side of this case. For example,
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Lexington, as the second tier carrier, would benefit from a finding that National Union
had a duty to reimburse Mead Johnson for their defense costs, while a finding that
National Union had no such duty to Mead Johnson could put the burden squarely on
Lexington. Finally, the fact that National Union and Lexington share common counsel
does not necessarily suggest that their interests are fully aligned such that realignment is
appropriate. If anything, it suggests that if defense costs become an issue – which is a
very real possibility – Insurers’ counsel will have to address the obvious conflict of
interest that will arise out of representing one client with an interest adverse to another
client. See PROF. COND. R. 1.7(a).
There is a more fundamental reason to deny realignment – National Union and
Lexington are not opposing parties. As noted by Insurers, National Union did not file a
complaint against Lexington, and the two have not asserted claims of any kind against
each other. National Union filed a claim against Mead Johnson, and Mead Johnson filed
counterclaims against National Union and Lexington. Significantly, Lexington answered
Mead Johnson’s Amended Counterclaim, but did not assert a claim against Mead
Johnson. Were Lexington realigned as a party plaintiff, Lexington would be in the
bizarre position of being a plaintiff with no claims against the defendant, Mead Johnson.
In this procedural circumstance, Lexington should not be realigned. See Olin, 807
F.Supp. at 1148 (holding that realignment applies to the parties of the original complaint,
and not to the parties of a subsequent counterclaim filed by a defendant). National
Union’s and Lexington’s Motion to Realign Lexington and Dismiss This Lawsuit for
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Lack of Subject Matter Jurisdiction (Docket # 209) is therefore DENIED.

SO ORDERED this 17th day of July 2012.
__________________________________
RICHARD L. YOUNG, CHIEF JUDGE
United States District Court
RICHARD L. YOUNG, CHIEF JUDGE
Southern District of Indiana
United States District Court
Southern District of Indiana

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