Mave Hotel Investors LLC v. Certain Underwriters at Lloyds London

Background

Mave Hotel Investors LLC, doing business as The Mave Hotel, brought this insurance-coverage action against Certain Underwriters at Lloyd’s, London, and HDI Global Specialty. Mave sought coverage for damage to a hotel under a commercial property insurance policy. U.S. Bank Trust Company, National Association, as trustee for the benefit of the holders of the identified mortgage trust certificates and through its special servicer, LNR Partners, LLC, had intervened as a plaintiff.

The action was based on diversity jurisdiction, which generally requires the relevant parties to be citizens of different states, with additional rules when foreign citizens are involved. Near the scheduled trial, Mave discovered that complete diversity might be lacking. Mave reported that its ownership included New York citizens and citizens or entities connected to Texas, Mexico, Venezuela, and Australia. Underwriters consisted of syndicates, some of which included United States citizens who were not diverse from Mave and others whose citizenship had not been determined.

The Proposed Amendments

Mave proposed amending its complaint to remove the nondiverse syndicates from Underwriters and add U.S. Bank Trust Company as a party on a claim seeking a declaratory judgment. Alternatively, U.S. Bank Trust Company proposed amending its complaint in intervention to become the sole plaintiff, remove the nondiverse syndicates from Underwriters, and name Mave as a defendant, with Mave filing a cross-claim against the other defendants. The parties agreed that the court had authority to cure the jurisdictional defect and that both proposals would preserve federal jurisdiction. No party objected.

Court’s Analysis

Federal Rule of Civil Procedure 21 permits a court to remove a nondiverse party at any time to preserve diversity jurisdiction if that party is not indispensable under Rule 19(b). The court considered whether a judgment without the nondiverse syndicates could prejudice them or the other parties, whether any prejudice could be reduced, whether the judgment would be adequate, and whether Mave would have an adequate remedy if the case were dismissed.

The court found little or no prejudice because the insurance policy’s service-of-suit clause required each syndicate to abide by a final decision against any of the syndicates. The court also concluded that continuing the case in federal court would be more efficient than requiring the parties to start over in state court. The case had been pending for more than two and a half years, discovery had been completed, summary judgment had been decided, and motions in limine had been filed. Although Mave could pursue the defendants in state court if this case were dismissed, the court found that consideration outweighed by the harm to judicial efficiency.

Ruling

Judge Jessica G. L. Clarke found that the nondiverse syndicates were not indispensable and therefore could be removed under Rule 19(b). The court granted Mave leave to amend its complaint by dropping the nondiverse syndicates and adding a declaratory-judgment claim against U.S. Bank Trust Company. The court also granted U.S. Bank Trust Company leave to amend its complaint in intervention by dropping the nondiverse syndicates and adding Mave as a defendant.

The court stated that jurisdiction would be preserved under both proposals. The amended complaint and amended complaint in intervention were due June 14, 2024. The parties were also ordered to submit a joint letter by that date listing available trial dates in August and September 2024.