KMS Interests, Inc. v. Starr Surplus Lines Insurance Company

Background

KMS Interests, Inc. brought claims against Starr Surplus Lines Insurance Company for breach of contract and violations of the Texas Insurance Code. KMS alleged that it was incorporated in Texas and had its principal place of business in Texas. It alleged that Starr was incorporated in Illinois and had its principal place of business in New York. Based on those allegations, KMS claimed federal jurisdiction under the diversity-jurisdiction statute, which allows federal courts to hear certain disputes between citizens of different states when the amount in controversy exceeds $75,000.

Starr’s answer disputed the allegation that it was an Illinois corporation and stated that it had been organized under Texas law as of January 1, 2018. Starr then moved to dismiss for lack of subject-matter jurisdiction, meaning that it argued the court lacked legal authority to decide the case. Starr submitted its amended and restated articles of incorporation, a Texas Department of Insurance certificate of authority, approval of its change to a Texas entity, and the original certificate of authority identifying it as a Texas domestic insurer effective January 1, 2018.

Legal Standard

The court treated Starr’s motion as a fact-based challenge under Federal Rule of Civil Procedure 12(b)(1). In that type of challenge, the court may consider evidence outside the complaint. For diversity jurisdiction, corporations are citizens of every state where they are incorporated and of the state where they have their principal place of business. Complete diversity requires that no plaintiff share citizenship with any defendant. The relevant date for determining citizenship is the date the complaint was filed.

Analysis

The court found that Starr’s documents established that Starr was incorporated in Texas. Because KMS also alleged that it was incorporated in Texas, the court concluded that the parties shared Texas citizenship and that complete diversity did not exist.

KMS argued that Starr should not be allowed to claim Texas citizenship because Starr had identified itself as an Illinois or Delaware corporation in filings in other lawsuits. The court rejected that argument. It explained that prior statements generally cannot create or defeat federal jurisdiction, and KMS had not identified a basis for disregarding Starr’s redomestication documents. The court also noted that Starr’s earlier statements had not produced a litigation advantage in those other cases.

KMS also argued that Starr had not become a Texas corporation because it allegedly failed to file its articles of incorporation with the Texas Secretary of State. The court rejected this argument, finding that Texas law required the articles to be filed with the Texas Department of Insurance and that Starr had complied with the statutory procedure for changing its legal home to Texas. Finally, the court held that language in Starr’s 2018 insurance policy stating that Starr was not licensed to transact insurance in Texas did not determine Starr’s state of incorporation when KMS filed this case. The court also found that the policy language concerned a different insurance-association issue.

Disposition

The court concluded that KMS had not disproved Starr’s evidence and had failed to establish diversity jurisdiction. The court therefore found that it lacked subject-matter jurisdiction and granted Starr’s motion to dismiss the case without prejudice under Rule 12(b)(1). The Clerk was directed to terminate pending motions, adjourn remaining dates, and close the case.