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CHESAPEAKE & OHIO RY. CO. v. CERTAIN UNDERWRITERS

May 25, 1989

THE CHESAPEAKE & OHIO RAILWAY COMPANY, et al., Plaintiffs,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON and LONDON MARKET INSURANCE COMPANIES, et al., Defendants



The opinion of the court was delivered by: HARRIS

 STANLEY S. HARRIS, UNITED STATES DISTRICT JUDGE

 This matter, as well as what is perhaps best characterized as a companion case, Western Maryland Railway Company v. Harbor Insurance Company, Civil Action No. 85-3163, are before the Court on a variety of motions. Because decisions reached in this action necessarily affect the companion case, a separate Memorandum Order also is being issued today in Western Maryland.

 Background

 The three plaintiffs in this action are Chesapeake & Ohio Railway Company (C & O), Baltimore & Ohio Railway Company (B & O), and Seaboard System Railroad Incorporated (Seaboard). The defendants are a large number of insurance companies and underwriters. *fn1" Plaintiffs seek declaratory and other relief and invoke diversity jurisdiction, the availability of which is one of the key issues in dispute.

 Plaintiffs allege that over a number of years (from approximately 1947 to 1984) they purchased liability or indemnity insurance policies from defendants that extend coverage to plaintiffs directly or by operation of law. C & O, B & O, and Seaboard have all been subject to asbestos-related bodily injury lawsuits in the past and expect to defend against additional such suits in the future. They contend that each of the policies at issue provides the insured plaintiff with coverage against liability arising from bodily injury, including asbestos-related bodily injury. They further allege that each of the defendants has failed to fulfill its obligation to pay plaintiffs' legal liability in asbestos-related suits.

 Without addressing the merits of plaintiffs' claims, defendants move to dismiss on several grounds. Defendants contend that plaintiffs -- who, under defendants' theory, should include Western Maryland -- purposefully divided their claims in order to bring suit in federal, rather than state, court. *fn4" Defendants argue that plaintiffs should have joined an indispensable party -- Western Maryland, the plaintiff in the companion case. Defendants do not appear to allege that plaintiffs have manufactured diversity in contravention of Fed. R. Civ. P. 17(a), despite their contentions regarding Western Maryland's status as a "shell corporation." *fn5" Their argument is directed to Western Maryland's role as an indispensable party. "[A] party cannot manufacture diversity that otherwise would not exist . . . . Nor can the party avoid the requirement of complete diversity by failing to join a nondiverse party if that person is 'indispensable' to the litigation." 14 C. Wright, A. Miller & E. Cooper, supra, at § 3637 (footnotes omitted). Joinder of Western Maryland would destroy diversity jurisdiction because Western Maryland is non-diverse to defendants in the instant action.

 Defendants further argue that diversity is absent in the present action even without joinder of Western Maryland. Plaintiffs alleged diversity among those already parties to this action by claiming that C & O's principal place of business is Baltimore, Maryland. Defendants dispute this assertion, and counter that C & O's principal place of business at the time this action was filed was Cleveland, Ohio. Because certain defendants are also citizens of Ohio, such a finding would be fatal to diversity jurisdiction in this case.

 Defendants further argue that, even if the Court decides that it does have jurisdiction, it should decline to exercise that jurisdiction. Defendants urge dismissal based on the permissive language of 28 U.S.C. § 2201, which provides that courts "may declare the rights and other legal relations of any interested party, whether or not further relief is or could be sought." Finally, certain defendants have moved to dismiss for lack of personal jurisdiction.

 Discussion

 I. Corporate Structure of Plaintiffs

 In arguing that Western Maryland is a necessary party to the instant action (a predicate to finding that Western Maryland is an indispensable party), defendants rely in part on the corporate structure of the CSX plaintiffs. This corporate structure is an underlying element of each of defendants' dismissal theories; accordingly, it is examined in detail.

 C & O and Seaboard are wholly owned subsidiaries of CSX Corporation. (Plaintiffs' Opposition at 2, *fn1" ) That is, CSX comprises the so-called "Chessie System" of C & O, B & O, and Western Maryland, and the "Seaboard System." "C & O owns 98% of B & O's stock and 100% of Western Maryland's stock." Id. All of Western Maryland's operations are conducted by and for B & O, and have been since May 1983. Id. at 3. Western Maryland does not conduct any rail operations and has no employees. (Defendants' Motion ...


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