Fire Insurance Exchange v. Watts Regulator Co.
2:17-cv-02132
C.D. Cal.May 2, 2017Background
- Plaintiff Fire Insurance Exchange (an unincorporated reciprocal insurance exchange) indicated it may move to remand, asserting its citizenship is the citizenship of each of its members.
- Defendant Watts Regulator Co. challenged the consistency of Fire Insurance’s positions about its citizenship and urged the Court to examine jurisdiction.
- The case was removed to federal court; the Court must determine whether it has diversity jurisdiction under 28 U.S.C. § 1332 (complete diversity and $75,000 amount-in-controversy requirement).
- The parties filed a Rule 26(f) Joint Report in which Fire Insurance announced intent to seek remand; Watts raised concerns prompting the Court to review subject-matter jurisdiction sua sponte.
- The Court summarized governing principles: individual domicile rules, corporate citizenship rules, and that unincorporated entities (including LLCs and partnerships) assume the citizenship of their members.
- Because numerous courts have held reciprocal insurance exchanges are unincorporated associations whose citizenship is that of their subscribers/members, the Court ordered the parties to show cause why the action should not be remanded for lack of subject-matter jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Court has diversity jurisdiction | Fire Ins.: As an unincorporated exchange, its citizenship is the citizenship of each member; diversity is lacking | Watts: Questions inconsistencies in Fire Ins.’s positions; urges court to scrutinize citizenship | Court ordered briefing and show-cause on whether remand is required for lack of diversity jurisdiction |
| Proper method to determine citizenship of an unincorporated insurance exchange | Fire Ins.: Citizenship determined by members/subscribers | Watts: Implicitly challenges or requests clarity on Fire Ins.’s claimed citizenship | Court treated exchange as an unincorporated association for analysis and cited authority that members’ citizenship controls |
| Court’s duty to address subject-matter jurisdiction | Fire Ins.: sought remand based on member citizenship | Watts: requested scrutiny; may oppose remand | Court reaffirmed independent, sua sponte obligation to determine subject-matter jurisdiction |
| Precedential rule for reciprocal insurance exchanges | Fire Ins.: aligned with cases treating exchanges as unincorporated associations | Watts: disputed factual/positional consistency | Court noted a majority of courts conclude exchanges have citizenship of their subscribers and thus can defeat federal diversity jurisdiction |
Key Cases Cited
- Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365 (U.S. 1978) (complete diversity requirement explained)
- Kantor v. Wellesley Galleries, Ltd., 704 F.2d 1088 (9th Cir. 1983) (domicile and citizenship principles for individuals)
- Kanter v. Warner-Lambert Co., 265 F.3d 853 (9th Cir. 2001) (residence vs. domicile for diversity purposes)
- Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894 (9th Cir. 2006) (LLC/partnership citizenship is citizenship of members)
- United Investors Life Ins. Co. v. Waddell & Reed Inc., 360 F.3d 960 (9th Cir. 2004) (parties cannot waive lack of subject-matter jurisdiction; court must ensure jurisdiction)
- Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (U.S. 2004) (district courts have independent obligation to address subject-matter jurisdiction)