In re In re Texas E. Transmission Corp. PCB Contamination Ins. Coverage Litig.

The court affirms a district court's exercise of jurisdiction over three actions arising from disputes over insurance coverage for the costs of cleaning up polychlorinated biphenyl contamination caused by the insured's operation of a natural gas pipeline. The insured's primary excess liability insurer filed the first action against the insured seeking a declaratory judgment that the insurer is not liable. The insured counterclaimed against this insurer and joined all other insurance carriers as co-defendants in the counterclaims. Two of the insured's excess insurers then filed the second action, a comprehensive declaratory judgment action against the insured and its other primary and excess insurance carriers, including one foreign carrier. The insured filed the third action seeking declaratory judgment and damages against all of its insurers.

Regarding the first action, the court first rejects the insured's claim that the district court lacked jurisdiction over the insured's counterclaims insofar as the insured failed to state a basis in the Federal Rules of Civil Procedure for adding the excess insurers to seek leave of court to join them, and to execute service of process on them. The court holds that the counterclaim defendants effectively waived the defense of lack of personal jurisdiction by acquiescing to personal jurisdiction through actively litigating the action, failing to move to dismiss the counterclaim for lack of service before litigating motions for summary judgment, and moving for summary judgment on other grounds. The court also holds that under the doctrine of ancillary jurisdiction, the additional, nondiverse counterclaim defendants do not destroy subject matter jurisdiction, because there is complete diversity of citizenship between the originally named parties.

Turning to the second action, the court rejects the insured's contention that the district court improperly invoked the jurisdictional authority of the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §1330, which provides for federal jurisdiction in civil commercial actions against a foreign state. The court notes that in deciding whether this action is "against" the foreign insurer, the court must ascertain the real adversity of interest between the insurers and realign them according to their substantive interests. The court notes that other circuits have rejected the "primary purpose" test employed in the context of diversity jurisdiction in favor of the more lenient "substantial controversy" test to determine §1330 jurisdiction where multiple claims are pleaded. The court also notes that a liberal approach to implementing the FSIA's comprehensive jurisdictional scheme is most conducive to the FSIA's paramount objectives of keeping federal courts open to foreign states and affirmatively encouraging private actions against foreign states to be adjudicated in federal court. The court thus holds that the restrictive "primary issue" test does not comport with the SIA's statutory language or legislative history. Applying the "substantial controversy" standard, the court notes that the insured itself raises substantial claims against the foreign insurer in all three actions, contravening its assertion that this insurer is an insignificant party. Moreover, the plaintiff insurer has sought the adjudication of its rights and obligations inter se with respect to the other insurers, including the foreign insurer. Thus, while there is not a collision of interest between the plaintiff insurer and foreign insurer on the primary issue in the second action, there is an element of adversity between the parties sufficient to satisfay §1330's requirement that an action be brought "against" a foreign sovereign. The court thus affirms the district court's conclusion that §1330 subject matter jurisdiction over the second action was proper.

Turning to the third action, the court rejects the insured's contention that a service-of-suit clause appearing in policies that the foreign insurer subscribed constitutes a waiver of that insurer's right of removal under FSIA §1441(d). The clause provides that the insured will submit to the jurisdiction of any court of competent jurisdiction in the United States. The court concurs with other circuits that interpret expansively the nature of the right to remove under §1441(d). Given Congress' strong preference for adjudication of claims against foreign states in federal courts, the court holds that it would contravene public policy to permit a less than absolutely unequivocal contractual provision to divest a federal district court of FSIA subject matter jurisdiction. Moreover, inasmuch as ordinary principles of contract interpretation apply here, the fact that the forum selection clause was not the subject of negotiations between the insured and the foreign insurer militates against a finding of waiver. Thus, the court holds that the service-of-suit clause does not abrogate the foreign insurer's absolute right to remove under §1441(d).

[A related decision in this litigation is published at 25 ELR 21111.]

Counsel for Appellant
Peter J. Nickles
Covington & Burling
1201 Pennsylvania Ave. NW, Washington DC 20044
(202) 662-6000

Counsel for Appellees
John C. Sullivan
Manta & Welge
One Commerce Sq.
2005 Market St., 37th Fl., Philadelphia, PA 19103
(215) 851-6600

Before: MANSMANN, ALITO, and ALDISERT, Circuit Judges.