Weinhold et al v. The Travelers Indemnity Company, et al.

Filing 36

///MEMORANDUM AND ORDER- For the foregoing reasons, there is no federal subject-matter jurisdiction over this case. The case is remanded to New Hampshire Superior Court. So Ordered by Judge Paul J. Barbadoro.(js)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

Karen M. Weinhold, et al.
v.

Case No. 18-cv-383-PB
Opinion No. 2018 DNH 246

The Phoenix Insurance Company, et al.

MEMORANDUM AND ORDER
The Weinholds and the State of New Hampshire (“State”)
jointly filed this insurance declaratory judgment case in New
Hampshire Superior Court pursuant to Section 491:22 of the New
Hampshire Revised Statutes.

The defendants removed the action

to federal court, invoking this court’s jurisdiction pursuant to
28 U.S.C. § 1332 and § 1441(a) on the basis that there is
complete diversity of citizenship between the parties and the
amount of controversy exceeds $75,000.

The issue before me is

whether there is diversity jurisdiction over the case given that
the State is a party to the action.
I.

BACKGROUND 1

The Weinholds obtained a jury verdict against the State and
two other defendants in the underlying state tort action.

The

State’s share of the verdict totaled $3.6 million, exclusive of

1

A more detailed summary of facts of this case appears in my
order denying the defendants’ motion to dismiss the action on
ripeness grounds. See 2018 DNH 206.

interest.

Its liability, however, is subject to a statutory cap

that limits the State’s tort liability to the greater of
$475,000 or the amount of available insurance coverage.
N.H. Rev. Stat. Ann. § 541-B:14, I.

See

The State maintains that

its share of the verdict is covered in full under three policies
that its contractor, Audley Construction, Inc., obtained from
Travelers for the benefit of the State.
The State’s contract with Audley required Audley to secure
owner’s protective liability coverage for the benefit of the
State, a commercial general liability policy that names the
State as an additional insured, and a commercial umbrella
policy.

Audley procured three different policies from

Travelers: an owner’s protective liability policy with $2
million in coverage per occurrence and $3 million in aggregate
(“Owner’s Policy”), a commercial general liability policy with
$1 million in coverage per occurrence and $2 million in
aggregate (“CGL Policy”), and a commercial excess liability
policy with $10 million in coverage (“Umbrella Policy”).
After the jury verdict in the underlying action, Travelers
agreed that the State is covered under the Owner’s Policy, which
has $1.85 million in coverage remaining. 2

2

Travelers, however,

Travelers previously paid $150,000 from that policy to
settle claims against the State brought by another individual.
2

took the position that the CGL Policy and the Umbrella Policy do
not cover the State’s liability.
The Weinholds and the State jointly sued Travelers in New
Hampshire Superior Court, seeking a declaratory judgment that
the State is covered as an additional insured under the CGL
Policy and the Umbrella Policy.

Travelers removed the case to

federal court based on diversity of citizenship, alleging that
the State and the Weinholds are citizens of New Hampshire and
that the Travelers entities sued are citizens of Connecticut.
See Doc. No. 2.
I subsequently raised the question whether removal was
improper because it appeared that the State’s presence as a real
party in interest destroyed complete diversity of citizenship.
See Doc. No. 26.

During a telephone conference held on October

9, 2018, the Weinholds and Travelers argued that the State is a
nominal party whose presence can be disregarded for the purpose
of diversity jurisdiction.

The State disagreed and argued that

it is a real party to the action.

I directed the parties to

file briefs presenting their respective positions on this issue.
II.

STANDARD OF REVIEW

As courts of limited jurisdiction, federal courts have a
duty to inquire sua sponte into the existence of their own
subject-matter jurisdiction.
(1st Cir. 2004).

McCulloch v. Velez, 364 F.3d 1, 5

When jurisdiction is questioned, “the party

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invoking the jurisdiction of a federal court carries the burden
of proving its existence.”

Murphy v. United States, 45 F.3d

520, 522 (1st Cir. 1995) (internal quotation marks omitted).
Thus, if a plaintiff sues in federal court, the burden to
establish jurisdiction is on the plaintiff.

See id.

When the

plaintiff instead files suit in state court and the defendant
removes the action to federal court, the onus shifts to the
defendant to demonstrate that federal jurisdiction exists.
Danca v. Private Health Care Sys., Inc., 185 F.3d 1, 4 (1st Cir.
1999).

If federal jurisdiction is challenged after removal is

accomplished, however, the burden is assigned to the party
asserting jurisdiction at that time.

See DaimlerChrysler Corp.

v. Cuno, 547 U.S. 332, 342 n.3 (2006); Culhane v. Aurora Loan
Servs. of Neb., 708 F.3d 282, 289 (1st Cir. 2013).
When Travelers removed this case to federal court, neither
the State nor the Weinholds challenged the propriety of removal.
Once I inquired into the existence of complete diversity of
citizenship, the State challenged subject-matter jurisdiction,
and the Weinholds and Travelers asserted that it exists.
Accordingly, it is incumbent on the Weinholds and Travelers to
demonstrate that the court has jurisdiction over the case.
Because the relevant facts are undisputed, the existence of
subject-matter jurisdiction is a question of law.
United States, 344 F.3d 64, 72 (1st Cir. 2003)

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See Skwira v.

III. ANALYSIS
Diversity jurisdiction requires complete diversity of
citizenship between all plaintiffs on one side and all
defendants on the other side.
U.S. 61, 68 (1996).

Caterpillar Inc. v. Lewis, 519

A state is not a citizen of a state for

jurisdictional purposes; it is instead considered a stateless
entity.

Moor v. Alameda Cty., 411 U.S. 693, 717 (1973);

Petroleum Expl. v. Pub. Serv. Comm’n of Ky., 304 U.S. 209, 217
(1938); U.S.I. Props. Corp. v. M.D. Constr. Co., 230 F.3d 489,
499 (1st Cir. 2000).

As a result, when it is a real party in

interest, a “[s]tate’s presence as a party will destroy complete
diversity.”

Miss. ex rel. Hood v. AU Optronics Corp., 571 U.S.

161, 174 (2014).

A state’s presence as a real party to the

controversy spoils diversity jurisdiction even if there are
otherwise diverse parties on the same side of the lawsuit as the
State.

See Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826,

829 (1989) (presence of “stateless” party destroyed complete
diversity even though remaining parties were completely
diverse); D.B. Zwirn Special Opportunities Fund, L.P. v.
Mehrotra, 661 F.3d 124, 126 (1st Cir. 2011) (no diversity
jurisdiction if any member of plaintiff LLC was “a stateless
person, or an entity treated like a stateless person”; noting by
analogy that “states are not ‘citizens’ for purposes of the
diversity statute”); Ninigret Dev. Corp. v. Narragansett Indian

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Wetuomuck Hous. Auth., 207 F.3d 21, 26-27 (1st Cir. 2000)
(“notwithstanding the joinder of other diverse parties, the
presence of an Indian tribe destroys complete diversity” given
that “a tribe is analogous to a stateless person”).
If a state is a nominal party with no real interest in the
litigation, its presence must be disregarded for jurisdictional
purposes.

See Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461

(1980) (“[A] federal court must disregard nominal or formal
parties and rest jurisdiction only upon the citizenship of real
parties to the controversy.”).

“In contrast to a real party in

interest, a formal or nominal party is one who, in a genuine
legal sense, has neither an interest in the result of the suit,
nor an actual interest in or control over the subject matter of
the litigation.”

15 Moore’s Federal Practice § 102.15 at 102-36

(3d. ed. 2018).
I conclude that the State is a real party to this
controversy, and thus its presence defeats diversity
jurisdiction.

Two factors, taken together, compel this

conclusion.
First, the State is an insured suing its insurer to
determine the extent of coverage for the State’s tort liability
in the underlying action.

An insured ordinarily is not

considered a nominal party in an action against its insurer
regarding its own coverage.

See, e.g., Geismann v. Am. Econ.

6

Ins. Co., No. 4:11-CV-1185-CDP, 2011 WL 4501161, at *2 (E.D. Mo.
Sept. 28, 2011) (“An insured party has more than a nominal
interest in the outcome of a declaratory judgment action
regarding the terms of its policy.”).
Second, in requiring Audley to purchase significant
insurance coverage for the State’s benefit, the State sought to
ensure that victims of its negligence, such as the Weinholds,
would be made whole.

The State has a substantial and real

interest in litigation that will determine whether this
important policy goal will be achieved.

This interest is “one

in the state as an artificial person,” as distinguished from
general governmental interests such as the welfare of its
citizens or enforcement of its laws that have been deemed
insufficient.

See Mo., Kan., & Tex. Ry. Co. v. Hickman, 183

U.S. 53, 60 (1901); see also Am. Lung Ass’n of N.H. v. Am. Lung
Ass’n, No. CIV. 02-108-B, 2002 WL 1728255, at *2 (D.N.H. July
25, 2002) (citing Hickman for the proposition that the state was
a nominal party where it had no “interest in the action apart
from its general interest in protecting its citizens”).
Travelers and the Weinholds maintain that the State is
nonetheless a nominal party because it has no financial stake in
the outcome of the dispute.

Section 541-B:14 caps the State’s

liability at the greater of $475,000 or the amount of available
insurance coverage.

Because the State has $1.85 million in

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available coverage under the Owner’s Policy, win or lose, it
will not be liable to pay the Weinholds any monies from the
public treasury.
But the State is not necessarily a nominal party simply
because it lacks a pecuniary interest in the outcome of the
litigation.

The Fifth Circuit’s decision in Louisiana v. Union

Oil Company of California, 458 F.3d 364 (5th Cir. 2006) is
instructive on this point.

There, the State of Louisiana and a

local school board filed suit in state court against out-ofstate oil companies for harm to “Section 16” public lands.
at 366.

Id.

The federal government had dedicated Section 16 lands

for the use of public education before Louisiana was admitted
into the Union.

Id. at 367.

As a result, although Louisiana

held the legal title to the lands, local school boards were
entitled to use them for educational purposes.
n.1.

Id. at 366 &

After the oil companies removed the case to federal court

on diversity grounds, the plaintiffs sought remand on the basis
that Louisiana’s presence destroyed complete diversity.
366.

Id. at

Despite the fact that Louisiana’s public coffers could not

benefit from the action, the Fifth Circuit concluded that the
state was a real party to the controversy.

See id. at 367.

The

court reasoned that Louisiana owned the lands and had a “moral
obligation” to ensure that any revenues derived from them were

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used for school purposes.

Id.

Accordingly, Louisiana had “more

than a ‘nominal’ interest” in the case.

Id.

Here, the State’s status as an insured whose coverage is in
dispute and the fact that it sought this coverage in the
interest of protecting victims of its negligence are likewise
sufficient, in tandem, to make the State a real party in
interest.

The State’s presence in this action therefore

destroys complete diversity of citizenship.
IV.

CONCLUSION

For the foregoing reasons, there is no federal subjectmatter jurisdiction over this case.

The case is remanded to New

Hampshire Superior Court.
SO ORDERED.
/s/ Paul Barbadoro
Paul Barbadoro
United States District Judge
December 13, 2018
cc:

John P. Graceffa, Esq.
Brian A. Suslak, Esq.
Scott H. Harris, Esq.
Ashley B. Campbell, Esq.
Mary Elizabeth Tenn, Esq.
Vincent A. Wenners, Jr., Esq.
Dianne H. Martin, Esq.
Lawrence M. Slotnick, Esq.

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