United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 10-2754
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Wanda H. Slater, as assignee and *
real party in interest; LCI Equipment, *
Inc., as assignor and nominal plaintiff, *
*
Plaintiffs - Appellants, * Appeal from the United States
* District Court for the
v. * Eastern District of Arkansas.
*
Republic-Vanguard Insurance *
Company, *
*
Defendant - Appellee. *
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Submitted: April 12, 2011
Filed: August 17, 2011
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Before LOKEN, BALDOCK,* and MURPHY, Circuit Judges.
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LOKEN, Circuit Judge.
LCI Equipments, Inc. (“LCI”), a Texas corporation, imported and sold a
Yanmar tractor that had been manufactured and used in Japan and then rebuilt in
Vietnam. Rudy Slater subsequently purchased the tractor at auction and was killed
in a roll-over accident while driving it. His wife, Arkansas resident Wanda Slater,
*
The Honorable Bobby R. Baldock, United States Circuit Judge for the Tenth
Circuit, sitting by designation.
commenced a wrongful death action in state court, asserting negligence and strict
product liability claims against LCI and others, focused primarily on the tractor’s lack
of a roll-over protection system (“ROPS”). LCI’s insurer, Republic-Vanguard
Insurance Company (“Republic”), also a Texas corporation, denied coverage and
refused to defend LCI under its Commercial General Liability policy (the “Policy”).
With the wrongful death suit pending, LCI assigned its rights in the Policy to
Slater who then commenced this action against Republic in Arkansas state court,
joining LCI as a nominal plaintiff and seeking a declaratory judgment that the Policy
covered her claims against LCI. See Ark. Code Ann. § 16-111-103a, -104. Republic
removed the action to federal court, alleging diversity jurisdiction because LCI is a
nominal plaintiff. Slater neither moved to remand nor questioned federal jurisdiction.
The district court1 granted Republic’s motion for summary judgment, concluding it
had no duty to defend or indemnify LCI because coverage was excluded by the
“Products/Completed-Operations” endorsement in the Policy. Slater v. Republic-
Vanguard Ins. Co., No. 09-269, 2010 WL 2710463, at *5-6 (E.D. Ark. July 7, 2010).
Slater appeals, asserting for the first time the absence of diversity jurisdiction and
further arguing that the district court erred in construing the Policy exclusion. We
affirm.
I. Diversity Jurisdiction
Slater argues on appeal that the district court lacked subject matter jurisdiction
because plaintiff LCI, a Texas citizen like Republic, destroyed complete diversity
between the parties, see 28 U.S.C. § 1332(a)(1); therefore, the lawsuit was improperly
removed because the district court lacked “original jurisdiction,” 28 U.S.C. § 1441(a).
We must examine an issue of subject matter jurisdiction de novo even when it was not
1
The Honorable James A. Moody, United States District Judge for the Eastern
District of Arkansas.
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raised in the district court. Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382
(1884). If the district court did not have original jurisdiction when the case was
removed, remand to state court is required, even after final judgment, unless the
district court would have had jurisdiction “if the suit had been filed . . . in the posture
it had at the time of the entry of final judgment.” Barbara v. N.Y. Stock Exch., Inc.,
99 F.3d 49, 56 (2d Cir. 1996); compare Grubbs v. Gen. Elec. Credit Corp., 405 U.S.
699, 702-05 (1972), with Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 18 (1951). Here,
for diversity jurisdiction purposes, the case was in the same posture when judgment
was entered as when the case was filed.
On the face of the pleadings, the district court had original jurisdiction when
this case was removed, and when judgment was entered. Slater’s state court
complaint listed plaintiffs Wanda and Barton Slater “as assignees and real parties in
interest,” and joined LCI as “assignor and nominal plaintiff.” The presence of a
nondiverse party who is “nominal” may be ignored in determining whether diversity
jurisdiction exists. Salem Trust Co. v. Mfrs’ Fin. Co., 264 U.S. 182, 190 (1924);
Bradley v. Md. Cas. Co., 382 F.2d 415, 419 (8th Cir. 1967). Republic’s removal
petition alleged complete diversity because LCI, a nondiverse plaintiff, is a nominal
party. Slater did not move to remand or otherwise challenge jurisdiction. The
“Statement of Undisputed Facts” in the memorandum in support of Slater’s motion
for summary judgment on the merits stated, “LCI assigned its rights and interests
under the Policy for the underlying claim.” In ruling on the cross motions, the district
court stated, “LCI assigned its rights and interests under the Policy for the claim and
judgment to Mrs. Slater.” Slater, 2010 WL 2710463, at *1. An absolute, non-
collusive assignment to a diverse assignee creates diversity jurisdiction. See Kramer
v. Caribbean Mills, Inc., 394 U.S. 823, 828 n.9 (1969); 28 U.S.C. § 1359.
Slater argues that LCI was not in fact a nominal plaintiff because LCI assigned
its rights under the Policy for the claim resulting from Slater’s lawsuit “reserving and
setting aside $100.00.” But this is not conclusive. The written assignment went on
to grant Slater (i) the “sole right to collect from the Insurer the net proceeds of the
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Policy,” (ii) the “sole right to exercise all other rights permitted by the terms of the
Policy . . . and to receive all benefits and advantages derived therefrom,” and (iii) the
right to control the exercise of those rights “without notice to, or assent by [LCI].”
Compare Navarro Savs. Ass’n v. Lee, 446 U.S. 458, 464-65 (1980). This was not an
assignment of the limited right to sue on behalf of a nondiverse party, like the
assignment at issue in Associated Ins. Mgmt. Corp. v. Ark. Gen. Agency, Inc., 149
F.3d 794, 797 (8th Cir. 1998). It was a complete assignment of the right to commence
and control this lawsuit, and to receive whatever may be recovered on the claims
asserted.
In many cases considering whether a partial assignment created or destroyed
diversity jurisdiction, federal courts have disregarded assigned or retained interests
that were more substantial than the $100 interest retained by LCI. See Attorneys Trust
v. Videotape Computer Prods., Inc., 93 F.3d 593, 599 (9th Cir. 1996) (nondiverse
assignee with a 12% contingent fee interest); Grassi v. Ciba-Geigy, Ltd., 894 F.2d
181, 182, 186 (5th Cir. 1990) (2% interest assigned to nondiverse assignee; diverse
assignor retained 98% interest and control of the litigation); Bailey v. Prudence Mut.
Cas. Co., 429 F.2d 1388, 1389-90 (7th Cir. 1970) (diverse claimants were assigned
right to control litigation and to recover their judgment; nondiverse assignor retained
only the right to any excess recovery).
Slater contends that LCI’s interest is real and there is no evidence of an
improper motive to destroy diversity jurisdiction. But motive is not the dispositive
issue. Slater pleaded that LCI is a nominal party. This created diversity jurisdiction,
and Republic removed the case in reliance on that status. The district court then had
original jurisdiction over the action. Slater could have moved to remand or otherwise
denied federal jurisdiction, presenting evidence that LCI was in fact not a nominal
party. She did not do so. Instead, she litigated her claim to judgment in the district
court and then raised this issue for the first time on appeal, attempting to nullify the
district court’s expenditure of scarce judicial resources because she lost on the merits
of her claim in federal court. While a party may not consent to subject matter
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jurisdiction that does not exist, “a court will not interfere with the consequences of a
plaintiff’s selection in naming parties, unless the plaintiff has impermissibly
manufactured diversity or used an unacceptable device to defeat diversity.” Lincoln
Prop. Co. v. Roche, 546 U.S. 81, 93 (2005) (quotation & citation omitted). Here, as
Slater structured the case, the district court had, and properly exercised, diversity
jurisdiction.2
II. The Merits
The Policy provided LCI coverage for “bodily injury,” including death, “to
which this insurance applies.” Republic denied coverage based on the
“Products/Completed-Operations” endorsement, which provided that “no coverage is
provided, nor is there any duty to defend, claims, suits, actions or proceedings against
the insured arising out of ‘products’ or ‘completed operations’ . . . .” The relevant
Policy definitions were:
11.a. “Products-completed operations hazard” includes all “bodily
injury” . . . occurring away from premises you own or rent and arising
out of “your product” or “your work.”
c. This hazard does not include “bodily injury” . . . arising out of:
(2) The existence of tools, uninstalled equipment or abandoned or
unused materials . . . .
14. “Your product” means . . . a. Any goods or products . . .
manufactured, sold, handled, distributed or disposed of by [you] . . . .
“Your product” includes:
2
Alternatively, if LCI’s $100 interest made it more than a nominal party, we
would exercise our discretionary authority “to dismiss a dispensable nondiverse
party.” Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 837 (1989).
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a. Warranties or representations made at any time with respect to
the fitness, quality, durability, performance or use of “your
product;” and
b. The providing of or failure to provide warnings or instructions.
15. “Your work” means . . . a. Work or operations performed by you or
on your behalf . . . .
“Your work” includes:
a. Warranties or representations made at any time with respect to
the fitness, quality, durability, performance or use of “your work;”
and
b. The providing of or failure to provide warnings or instructions.
In the wrongful death lawsuit, Slater alleged that LCI “designed, manufactured,
sold, marketed and/or distributed [an unreasonably dangerous] tractor which caused
the death of Rudolph Slater.” She further alleged that LCI negligently failed to
“design, manufacture, and install [safety features],” to “adequately test and inspect the
subject tractor,” and to “adequately warn . . . [of] hazards in the use of the subject
tractor.” The district court concluded that Republic had no duty to defend or
indemnify LCI because these claims were all excluded by the “Products/Completed-
Operations” exclusion. The tractor was a product “manufactured, sold, handled, or
distributed” by LCI. It had left LCI’s premises at the time of Rudy Slater’s accident.
It was “completed” when it left LCI’s possession, despite lacking a ROPS, because
it was put to its intended use by Rudy Slater. The exclusion applied to LCI’s alleged
negligent failure to install an ROPS and to provide safety warnings, as well as to the
strict product liability claims, because these claims are “grounded on a defect in [a]
product sold not to a negligent omission unrelated to any product defect.” Slater,
2010 WL 2710463, at *4, quoting LaBatt Co. v. Hartford Lloyd’s Ins. Co., 776
S.W.2d 795, 799 (Tex. App. 1989).
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On appeal, Slater does not contest the district court’s decision that Texas law
governs this dispute. Under Texas law, a liability insurer owes its insured two distinct
duties, to defend third-party claims and to indemnify covered losses. D.R. Horton-
Tex., Ltd. v. Markel Int’l Ins. Co., Ltd., 300 S.W.3d 740, 743 (Tex. 2009). For
purposes of this appeal, the parties appear to agree that the two duties are coterminous.
To determine whether Republic had a duty to defend, we review the insurance policy
and Slater’s underlying complaint for a potentially covered claim. Nat’l Union Fire
Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). We
review the district court’s interpretation of the Policy under Texas law de novo.
Columbia Cas. Co. v. Ga. & Fla. Railnet, Inc., 542 F.3d 106, 110 (5th Cir. 2008).
Under Texas law, we must “adopt the construction of an exclusionary clause urged by
the insured as long as that construction is not unreasonable, even if the construction
urged by the insurer appears to be more reasonable or a more accurate reflection of the
parties’ intent.” Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 202
(Tex. 2004).
1. Slater first argues that Republic had a duty to defend LCI in the underlying
lawsuit and a duty to indemnify LCI for the judgment in Slater’s favor because LCI’s
failure to install ROPS safety equipment on the tractor falls within the exception to the
“Products/Completed-Operations” exclusion for bodily injury “arising out of . . . [t]he
existence of . . . uninstalled equipment . . . .” Though not raised in the district court,
Slater urges us to consider this issue because it is “purely legal and requires no
additional factual development.” Rittenhouse v. UnitedHealth Grp. Long Term
Disability Ins. Plan, 476 F.3d 626, 630 (8th Cir. 2007) (quotation omitted).
Slater relies on two cases from other jurisdictions concluding that “injury
resulting from improperly installed equipment is legally equivalent to an injury
resulting from uninstalled equipment.” Chancler v. Am. Hardware Mut. Ins. Co., 712
P.2d 542, 549 (Idaho 1985), citing U.S. Fid. & Guar. Co. v. Nat’l Tank & Mach.
Works, Inc., 402 So.2d 925, 928 (Ala. 1981). Other courts have rejected this reading,
concluding that “this exception to ‘completed operations’ refers only to tools,
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equipment and materials which on completion of an operation should have been
removed by the assured from the premises.” U.S. Sanitary Specialties Corp. v. Globe
Indem. Co., 204 F.2d 774, 777 (7th Cir. 1953); accord Shelter Mut. Ins. Co. v.
DeShazo, 955 S.W.2d 234, 237-38 (Mo. App. 1997); Travelers Ins. Co. v. Ty Co.
Servs., Inc., 399 S.E.2d 562, 564 (Ga. App. 1990). We adopted the Seventh Circuit’s
interpretation in construing a completed-operations coverage provision under
Minnesota law in Tonicstar Ltd. v. Lovegreen Turbine Servs., Inc., 535 F.3d 790, 794
(8th Cir. 2008), and we summarily affirmed a ruling that the “uninstalled equipment”
exception to a completed-operations exclusion “only applied to equipment present at
the site when the accident occurred” in Cincinnati Ins. Co. v. Sawmill Hydraulics,
Inc., 217 F. App’x 572, 573 (8th Cir. 2007) (unpublished) (applying Illinois law). The
Fifth Circuit concluded that the alternative holding in Chancler is contrary to Texas
law in U.S. Fire Ins. Co. v. Massey Irrigation & Liquidation, Inc., 40 F.3d 385 (table),
1994 WL 652520, at *2-3 (5th Cir. 1994) (unpublished). The parties cite no decisions
interpreting the exception under Texas law.
Slater’s reply brief argues that her interpretation of the uninstalled equipment
exception is not unreasonable, and she distinguishes Sawmill Hydraulics on the
ground that the safety features that could have been installed on the Yanmar existed
but were not installed. If credited, Slater’s fact-intensive contention could have a
potentially wide-ranging impact, excepting from the “Products/Completed-
Operations” exclusion all claims alleging that a completed product caused injury away
from the insured’s premises because the insured failed to install a particular feature.
Such a sweeping interpretation contrasts starkly with the exception’s narrow focus on
the “existence of tools, uninstalled equipment or abandoned or unused materials.”
Texas law cautions courts not to “ascribe to one word a meaning so broad that it is
inconsistent with its accompanying words.” U.S. Fid. & Guar. Co. v. Goudeau, 272
S.W.3d 603, 606 (Tex. 2008) (quotation omitted). Moreover, the issue as argued by
Slater is not purely legal; it may well require additional factual development in a
particular case. In these circumstances, we conclude the issue was not properly
preserved in the district court, and we decline to consider it further.
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2. Slater next argues that her claims for bodily injury caused by LCI’s
negligent failure to inspect and test the tractor, and to provide adequate safety
warnings, are not excluded because those injuries arose out of services LCI was
required to perform, not its “product.” The Texas Court of Appeals rejected a similar
argument in LaBatt:
In the instant case, we have allegations of a defective product.
The fact that . . . plaintiffs have alleged negligence in their petition does
not mean that a claim based in products liability becomes one based in
negligence. “Products liability” is a generic phrase used to describe the
liability of a manufacturer or supplier to a person injured by a product.
One of the appropriate methods to use, in Texas, when asserting a claim
based upon an injury suffered from a defective product is negligence.
Furthermore, one type of product defect complained of in an allegation
of negligence is a design defect which may have its inception in poor
packaging or inadequate warnings.
776 S.W.2d at 799-800l.3 The Court held that the underlying plaintiffs’ claims for
negligent failure to provide safety warnings “clearly fall within the ‘products hazard’
exclusion.” Id. at 799. Though the Supreme Court of Texas has not addressed the
issue, we agree with the district court’s conclusion that LaBatt reflects Texas law.
Moreover, the definition of “Your product” in Republic’s Policy expressly excluded
the “providing of or failure to provide warnings or instructions,” unlike the exclusion
at issue in LaBatt, 776 S.W.2d at 798. Accord U.S. Fire Ins. Co., 1994 WL 652520
at *3.
3
See also Tex. Civ. Prac. & Rem. Code § 82.001(2) (“‘Products liability action’
means any action against a manufacturer or seller for recovery of damages arising out
of personal injury [or] death . . . allegedly caused by a defective product whether the
action is based in . . . strict products liability, negligence, . . . or any other theory or
combination of theories.”).
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Slater argues that the Court in LaBatt did not consider claims of negligent
failure to inspect and test, claims that arise out of services LCI negligently performed
before the tractor left its premises. Slater did not make this argument in attempting
to distinguish LaBatt in the district court, and the court did not address the issue. On
appeal, Republic argues that these are excluded defective-product claims.
Alternatively, Republic argues that the claims for negligent inspection and testing are
excluded because they fall within the definition of the “Your work” portion of the
Products/Completed-Operations exclusion, which excludes “[w]ork or operations
performed by you or on your behalf” and “[t]he providing of or failure to provide
warnings or instructions.” Slater argues, without citation to Texas authority, that the
“Your work” exclusion “encompasses only affirmative work or operations performed
by the insured, not omissions.” Republic’s contention is more consistent with the
plain language of the Policy. Slater has failed to show plain error.
The judgment of the district court is affirmed.
______________________________
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