It typically is a rather straightforward matter when aninsurance company pleads diversity jurisdiction under 28 U.S.C. §1332. In some instances, however, the question of a defendant'scitizenship can be complicated – or even unknown. A recent decisionby the U.S. Court of Appeals for the Ninth Circuit suggests how aninsurer can plead diversity when it cannot reasonably ascertain thefacts supporting jurisdiction.

The case

Carolina Casualty Insurance Company, an insurance companyincorporated in Iowa and with its principal place of business inFlorida, issued a corporate liability and directors and officers'liability insurance policy to U.S. Dry Cleaning Corporation. WhenDry Cleaning purchased dry cleaning stores from Team Equipment,Inc., and two affiliated entities, it issued notes to TeamEquipment for partial payment. Thereafter, Team Equipment sued DryCleaning and certain of its officers, directors, and affiliatedentities to enforce the notes.

Carolina filed a complaint against Team Equipment, Dry Cleaning,and the other underlying defendants for a declaratory judgment thatCarolina was not liable under Dry Cleaning's insurance policy. Itsasserted basis of jurisdiction was diversity of citizenship under28 U.S.C. § 1332.

The district court dismissed the complaint, without prior noticeto Carolina, 17 days after it was filed, ruling that the insurerhad “not adequately alleged the facts essential for … subjectmatter jurisdiction.” First, the district court observed that twoof the entity defendants were limited liability companies, but thatCarolina had not alleged the citizenship of the LLCs by allegingthe citizenship of their members. As to the individual defendants,the district court noted that Carolina had alleged their states ofresidency and not their states of citizenship, as required fordiversity jurisdiction. Finally, the district court observed thatCarolina had made its allegations “on information and belief,” noton knowledge, and held that this was insufficient to allegejurisdiction.

Carolina moved to alter or amend the judgment under Federal Ruleof Civil Procedure 59(e). As part of the motion, Carolina submitteda proposed amended complaint. Carolina advised the district courtin its moving papers that it was unable to determine thecitizenship of the LLCs because their organizational filings didnot list their members. As a result, Carolina alleged simply thatthe members of the LLCs were “citizens of neither Iowa norFlorida.” As to the eight individual defendants, Carolina allegedthat four of them were citizens of California and that four of themwere citizens of neither Iowa nor Florida. Carolina continued tomake its allegations on information and belief but made clear thatthe basis for its allegations was the four complaints or proposedcomplaints filed in the underlying action.

The district court denied the motion for reconsideration andheld that the proposed amended complaint also suffered fromjurisdictional defects. Carolina appealed.

The circuit court's Decision

The circuit court reversed.

The circuit court decided that because the information necessaryto establish the diversity of the citizenship of some of thedefendants was not reasonably available to Carolina, the districtcourt should have permitted Carolina to plead its jurisdictionalallegations as to those defendants on information and belief andwithout affirmatively asserting those defendants' citizenship. Inthe circuit court's opinion, Carolina had made a showing that atleast some of the information necessary to establish the diversityof the parties' citizenship was within the defendants' control, andthe circuit court decided that these amounted to “unusualcircumstances” in which a party need not affirmatively allege thecitizenship of an opposing party. In this situation, the circuitcourt held, “it was sufficient for Carolina to allege simply thatthe defendants were diverse to it.”

The case is Carolina Casualty Ins. Co. v. Team Equipment, Inc., Nos.12–56203, 12–56235 (9th Cir. Feb. 4, 2014). Attorneys involvedinclude: James K. Thurston, Melissa A. Murphy–Petros (argued),Wilson Elser Moskowitz Edelman & Dicker LLP, Chicago, IL, forPlaintiff–Appellant; Jonathan B. Sokol, Los Angeles, CA, forDefendant–Appellee Team Equipment, Inc.

FC&S legal comment

Other circuit courts also have adopted the principle that, at anearly stage in the proceedings, a party should not be required toplead jurisdiction affirmatively based on actual knowledge. Forexample, in Medical Assurance Co. v. Hellman, 610 F.3d 371(7th Cir.2010), the Seventh Circuit held that a plaintiff waspermitted to plead on information and belief that the defendantswere citizens of different states. The defendants could not objectthat the plaintiff had not proven their citizenship because theyhad not proffered any evidence rebutting the factual premise of thejurisdictional allegations, the circuit court reasoned. Instead,the Seventh Circuit held that the complaint could stand and thedistrict court should reevaluate its jurisdiction if contraryinformation emerged later.

In Lewis v. Rego Co., 757 F.2d 66 (3d Cir.1985), theThird Circuit held that three of the four defendants were permittedto allege in a removal petition “on information and belief” thatthe fourth defendant, who had not joined the removal petition, was“not a citizen of Pennsylvania,” and that this was “sufficient toestablish diversity jurisdiction.”

In these situations, when defendants respond to a complaint, thedistrict court can revisit the jurisdictional allegations. If thedefendants deny that the court has jurisdiction, the district courtcan evaluate the record created by the parties to determine itsjurisdiction, perhaps finding that jurisdictional discovery isappropriate. See Harris Rutsky & Co. Ins. Servs., Inc. v.Bell & Clements Ltd., 328 F.3d 1122 (9th Cir.2003). Ofcourse, even if the defendants concede jurisdiction, the districtcourt still may conclude that some further showing of citizenshipmay be required to confirm its jurisdiction.

Finally, it should be acknowledged that if an insurer is unableto determine the residence of individual defendants, serving acomplaint and summons on them also might pose a problem.

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