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            Title Texas Eastern Transmission Corp.

 

            Date 1994

            By

            Subject Other\Dissenting

                

 Contents

 

 

Page 1

45 of 64 DOCUMENTS

IN RE: TEXAS EASTERN TRANSMISSION CORP. PCB CONTAMINATION INSURANCE COVERAGE LITIGATION (MDL No. 764) ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES, LTD.; NATIONAL SURETY CORPORATION v. TEXAS EASTERN TRANSMISSION CORPORATION; FIDELITY & CASUALTY INSURANCE COMPANY OF NEW YORK; CERTAIN UNDERWRITERS AT LLOYDS OF LONDON, INCLUDING THE INSURANCE COMPANY OF IRELAND; AETNA CASUALTY AND SURETY COMPANY; AMERICAN HOME ASSURANCE COMPANY; BOSTON OLD COLONY INSURANCE COMPANY; CONTINENTAL CASUALTY INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA; INTERNATIONAL INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; MIDLAND INSURANCE COMPANY MUTUAL MARINE INSURANCE COMPANY; PRUDENTIAL REINSURANCE COMPANY; RANGER INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; STONEWALL INSURANCE COMPANY; PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION; UNITED STATES OF AMERICA; UNITED STATES

ENVIRONMENTAL PROTECTION AGENCY; THE FIDELITY & CASUALTY CO. OF NEW YORK v. THE TEXAS EASTERN TRANSMISSION CORP.; TEXAS EASTERN TRANSMISSION CORPORATION v. FIDELITY AND CASUALTY COMPANY OF NEW YORK; ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES, LTD.; AETNA CASUALTY AND SURETY COMPANY; AMERICAN HOME ASSURANCE COMPANY, a/k/a AMERICAN HOME INSURANCE COMPANY; BOSTON OLD COLONY INSURANCE COMPANY; CIGNA INSURANCE COMPANY; CONTINENTAL CASUALTY COMPANY; EMPLOYERS MUTUAL CASUALTY COMPANY; FIRST STATE INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY; THE INSURANCE COMPANY OF NORTH AMERICA; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA; INTERNATIONAL INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; MIDLAND INSURANCE COMPANY NATIONAL SURETY CORPORATION; PRUDENTIAL REINSURANCE COMPANY; RANGER INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; STONEWALL INSURANCE COMPANY; UNITED STATES FIRE INSURANCE COMPANY; CERTAIN UNDERWRITERS AT LLOYD'S, LONDON and CERTAIN LONDON MARKET INSURANCE COMPANIES; Texas Eastern Transmission Corporation, Appellant

No. 92-1638

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

15 F.3d 1230; 1994 U.S. App. LEXIS 362; 25 ELR 21102

April 7, 1993, Argued

January 10, 1994, Filed

SUBSEQUENT HISTORY: **1  Reargued September

30, 1993. As Corrected January 26, 1994.

PRIOR  HISTORY:  Appeal  from  the  United  States District  Court  for  the  Eastern  District  of  Pennsylvania. D.C. Civil No. 88-02126. D.C. Civil No. 88-05039. D.C.

Civil No. 88-05707

CASE SUMMARY:

PROCEDURAL POSTURE: The court granted rehear- ing  en  banc  of  its  previous  decision  that  affirmed  the

15 F.3d 1230, *; 1994 U.S. App. LEXIS 362, **1;

25 ELR 21102

Page 2

United  States  District  Court  for  the  Eastern  District  of Pennsylvania's  summary  judgment  in  favor  of  appellee insurers and confirmed that the district court had subject matter jurisdiction in the three cases consolidated for the appeal.

OVERVIEW:  Appellant  insured  filed  claims  with  ap- pellee  insurers  after  its  release  of  contaminated  sub- stances.  The  district  court  granted  summary  judgment in favor of appellees and the court affirmed, finding that the district court had jurisdiction in all three cases. On rehearing,  the court affirmed the judgments as to juris- diction in all respects. It found that personal jurisdiction based on absence of service of process was waived be- cause the appellees actively litigated the first action, and that additional non-diverse counterclaim defendants did not destroy diversity jurisdiction as there was complete diversity between the originally named parties. Subject matter jurisdiction over the second case existed based on the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C.

§ 1330, as one party defendant was a foreign state and there was an element of adversity sufficient to satisfy the requirement that the action be brought against a foreign sovereign. The court held that the structure and purpose of the FSIA and ordinary principles of contract interpre- tation  supported  subject  matter  jurisdiction  in  the  third action.

OUTCOME: The court affirmed the district court's ju- risdiction over the three consolidated actions. The district court had personal jurisdiction when absence of service of process was waived as parties actively litigated action. Subject matter jurisdiction existed when one party was a foreign state and element of adversity existed against the foreign state.

LexisNexis(R) Headnotes

Civil Procedure > Jurisdiction > Personal Jurisdiction

& In Rem Actions > Personal Jurisdiction

HN1  A party is deemed to have consented to personal jurisdiction if the party actually litigates the underlying merits or demonstrates a willingness to engage in exten- sive litigation in the forum.

Civil   Procedure   >   Jurisdiction   >   Subject   Matter

Jurisdiction > Supplemental Jurisdiction

HN2  Ancillary subject matter jurisdiction may be ex- ercised over additional party defendants to a compulsory counterclaim,  or  over  third  party  defendants.  Ancillary jurisdiction  extends  to  subject  matter  of  counterclaim arising  out  of  transaction  or  occurrence  which  is  sub- ject matter of opposing party's claim of which court has jurisdiction, and such counterclaim is compulsory. No in-

dependent jurisdictional basis is required for third party claim when diversity jurisdiction obtained over original claim.

Civil   Procedure   >   Jurisdiction   >   Subject   Matter

Jurisdiction > Supplemental Jurisdiction

HN3  See 28 U.S.C.S. § 1367(a)-(b).

International  Law  >  Immunity  >  Foreign  Sovereign

Immunities Act

HN4  The Foreign Sovereign Immunities Act,  Pub. L. No. 94-583, 90 Stat. 2892 (1976), establishes the juris- diction  of  the  federal  courts  in  cases  involving  foreign sovereigns and the rights of foreign sovereigns with re- gard to their non-immune commercial or private acts to have actions brought against them adjudicated in a federal bench trial.

International  Law  >  Immunity  >  Foreign  Sovereign

Immunities Act

Civil Procedure > Jurisdiction > Jurisdictional Sources

HN5  See 28 U.S.C.S. § 1603.

International  Law  >  Immunity  >  Foreign  Sovereign

Immunities Act

Civil Procedure > Jurisdiction > Jurisdictional Sources

HN6  See 28 U.S.C.S. § 1330.

International  Law  >  Immunity  >  Foreign  Sovereign

Immunities Act

Civil Procedure > Jurisdiction > Jurisdictional Sources

HN7   The  Foreign  Sovereign  Immunities  Act  (FSIA), Pub. L. No. 94-583, 90 Stat. 2892 (1976), establishes the federal district courts as the forum preferred by Congress for bringing suit against a foreign state, and the policy of jealous restriction which has characterized application of the diversity statute is not operative in the FSIA context. Civil Procedure > Jurisdiction > Diversity Jurisdiction

HN8   Diversity  jurisdiction  cannot  be  conferred  upon the  federal  courts  by  the  parties'  own  determination  of who are plaintiffs and who defendants. It is the court's duty look beyond the pleadings and arrange the parties according to their sides in the dispute. Whether the nec- essary collision of interests exists is therefore not to be determined by mechanical rules. It must be ascertained from the principal purpose of the suit and the primary and controlling matter in dispute.

Civil Procedure > Jurisdiction > Diversity Jurisdiction

> Citizenship

HN9  Under the substantial controversy ranking of issues standard, the court determines, as precursor to potential realignment, which of the conflicts asserted in the litiga- tion are merely substantial, and then whether the parties in question are really opposed according to their true in- terests  in  any  of  their  substantial  conflicts.  Under  this

15 F.3d 1230, *; 1994 U.S. App. LEXIS 362, **1;

25 ELR 21102

Page 3

standard, it would not defeat jurisdiction if there were no statutory basis for jurisdiction on the primary issue in the litigation, as long as the statutory elements of jurisdiction were present on any other substantial issue.

Civil Procedure > Removal > Basis for Removal

HN10  See 28 U.S.C.S. § 1441(d).

COUNSEL:   Peter   J.   Nickles,   Esquire   (ARGUED), Coleman S. Hicks, Esquire, Covington & Burling, 1201

Pennsylvania Avenue, N.W., P.O. Box 7566, Washington, DC  20044.  Charles  Alan  Wright,  Esquire,  727  East

26th  Street,   Austin,   Texas  78705,   COUNSEL  FOR APPELLANT,  TEXAS  EASTERN  TRANSMISSION CORPORATION.

Leonard  L.  Rivkin,  Esquire,  John  L.  Rivkin,  Esquire, Erica B. Garay, Esquire, Rivkin, Radler & Kremer, EAB Plaza, West Tower, Uniondale, NY 11556-0111. John C. Sullivan, Esquire, Manta & Welge, 2005 Market Street, One  Commerce  Square,  37th  Floor,  Philadelphia,  PA

19103,  COUNSEL  FOR  APPELLEES,  ASSOCIATED ELECTRIC  &  GAS  INSURANCE  SERVICES  LTD. AND NATIONAL SURETY CORPORATION.

John Mattioni,  Esquire,  Mattioni,  Mattioni & Mattioni,

399 Market Street,  2nd Floor,  Philadelphia,  PA 19106. Margaret  H.  Warner,  Esquire,  Lawrence  E.  Carr,  Jr., Esquire,  Peter  K.  Tompa,  Esquire,  William  J.  Carter, Esquire, Carr, Goodson & Lee, Suite 400 East, 1301 K Street, N.W., Washington, DC 20005-3300, COUNSEL FOR APPELLEES, FIDELITY &   **2    CASUALTY COMPANY  OF  NEW  YORK  AND  BOSTON  OLD COLONY INSURANCE COMPANY.

Richard  M.  Shusterman,   Esquire,   Regina  B.  Mapes, Esquire,  White  &  Williams,  One  Liberty  Place,  Suite

1800,   1650  Market  Street,   Philadelphia,   PA  19103-

7301,   COUNSEL   FOR   APPELLEE,   INSURANCE COMPANY OF NORTH AMERICA.

Edward  Zampino,   Esquire,   Victor  C.  Harwood,   III, Esquire,  Brian  J.  Coyle,  Esquire,  Harwood Lloyd,  130

Main Street, Hackensack, NJ 07016. Edward M. Dunham, Jr., Esquire, Miller, Dunham, Doering & Munson, 1515

Market  Street,   13th  Floor,   Philadelphia,   PA  19102, COUNSEL FOR APPELLEE, AETNA CASUALTY & SURETY COMPANY.

Marjorie   H.   Mintzer,   Esquire,   Robin   S.   Einbinder, Esquire,  Sheft  &  Sheft,  11  Broadway,  New  York,  NY

10004. Mitchell S. Pinsly, Esquire, Margolis, Edelstein, Scherlis,  Sarowitz  &  Kraemer,  Curtis  Center,  Fourth Floor,   Independence   Squire   West,   Philadelphia,   PA

19106,   COUNSEL  FOR  APPELLEES,  AMERICAN HOME       ASSURANCE        COMPANY;          HIGHLAND INSURANCE GROUP; INSURANCE COMPANY OF THE   STATE   OF   PENNSYLVANIA;   LEXINGTON INSURANCE   COMPANY;   RANGER   INSURANCE COMPANY;   REPUBLIC   INSURANCE   COMPANY; AND STONEWALL UNDERWRITERS, INC.

Stephen Sonderby, Esquire, Jody Pucel, Esquire, Haskell

&   Perrin,   200   West   Adams   Street,            **3        Suite

2600, Chicago, IL 60606, COUNSEL FOR APPELLEE, CONTINENTAL CASUALTY COMPANY.

Ignatius   J.   Melito,   Esquire,   Barry   S.   Bendetowies, Esquire, Siff, Rosen, & Parker, P.C., Woolworth Building,

233 Broadway, New York, NY 10279, COUNSEL FOR APPELLEE, FIRST STATE INSURANCE COMPANY.

David  Richman,  Esquire,  Colleen  Connelly,  Esquire, Pepper,  Hamilton   &   Scheetz,         3000   Two   Logan Square, Philadelphia, PA 19109-2799, COUNSEL FOR APPELLEE, HOME INSURANCE COMPANY.

Kevin E. Wolff, Esquire, McElroy, Deutsch & Mulvaney,

1300 Mount Kemble Avenue, P.O. Box 2075, Morristown, NJ  07962-2075.  Christopher  L.  Musmanno,  Esquire, Lorraine  M.  Armenti,  Esquire,  McElroy,  Deutsch  & Mulvaney,  1300  Mt.  Kemble  Avenue,  P.O.  Box  2075, Morristown,  NJ  07962-2075.  Thomas  C.  DeLorenzo, Esquire,   Marshall,   Dennehey,   Warner,   Coleman   & Goggin,  1845  Walnut  Street,  Philadelphia,  PA  19103, COUNSEL   FOR   APPELLEES,   INTERNATIONAL INSURANCE   COMPANY   AND   UNITED   STATES FIRE INSURANCE COMPANY.

Michael J. Merlo,  Esquire,  Karen L. Douglas,  Esquire, Michael R. Gregg, Esquire, Merlo, Chapello & Douglas, Ltd.,  208 South LaSalle Street,  Suite 950,  Chicago,  IL

60604,  COUNSEL  FOR  APPELLEE,  PRUDENTIAL REINSURANCE COMPANY.

Lise  Luborsky,      **4                         Esquire,  Joseph  M.  Hankins, Esquire,   Britt,   Hankins,   Schaible  &  Moughan,   Two Penn   Center   Plaza,        Suite   515,              Philadelphia,          PA

19102, COUNSEL FOR APPELLEE, PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION.

Wayne  Partenheimer,  Esquire,  Law  Offices  of  David L. Rohde,  Curtis Center,  Suite 620,  Seventh & Walnut Streets,  Philadelphia,  PA  19106.  K.  Thomas  Shahriari, Esquire, Mitchell A. Stearn, Esquire, Gilberg & Kurent,

1250 Eye Street, N.W., Suite 600, Washington, DC 20005, COUNSEL  FOR  APPELLEE,  NATIONAL  SURETY CORPORATION.

15 F.3d 1230, *; 1994 U.S. App. LEXIS 362, **4;

25 ELR 21102

Page 4

Mary  Ann  D'Amato,  Esquire  (ARGUED),  Robert  M. Flannery,   Esquire,   Mendes   &   Mount,   750   Seventh Avenue,   New   York,   NY   10019,   COUNSEL   FOR APPELLEE,          CERTAIN               LONDON                                MARKET INSURANCE       COMPANIES        AND       INSURANCE COMPANY OF IRELAND.

Dan Morales,  Attorney General,  Ms. Esther L. Hajdar, Deputy  Appellate  Coordinator,  Office  of  the  Attorney General   of   Texas,   Post   Office   Box   12548,   Capitol Station,  Austin,  TX 78711,  COUNSEL FOR AMICUS APPELLANT, STATE OF TEXAS.

Thomas  W.  Brunner,  Esquire,  Robert  B.  Bell,  Esquire, Nancy  J.  Lemay,   Esquire,   Wiley,   Rein  &  Fielding,

1776        K              Street,     N.W.,      Washington,         DC           20006, COUNSEL FOR AMICUS APPELLEE, INSURANCE ENVIRONMENTAL LITIGATION ASSOCIATION.

JUDGES: Before:  **5    MANSMANN, ALITO and

ALDISERT, Circuit Judges. OPINIONBY: MANSMANN OPINION:

*1233   OPINION 1 OF 2

OPINION OF THE COURT

MANSMANN, Circuit Judge.

This  a  companion  opinion  to  Fidelity  &  Casualty Co.  of  New  York  v.  The  Texas  Eastern  Transmission Corp.,  15 F.3d 1249 (3d Cir. 19  ),  an opinion filed to- day  which  affirms  the  district  court's  determination  of liability in three cases consolidated for appeal before us. The three cases are Fidelity & Casualty Co. of New York v. The Texas Eastern Transmission Corp., (hereinafter the

"F&C"  action)  originally  filed  in  the  Northern  District of Texas,  Texas Eastern Transmission Corp. v. Fidelity and  Casualty  Co.  of  New  York  et  al.,  (hereinafter  the

"Texas Eastern" action) originally filed in a Texas state court and later removed to the Southern District of Texas, and Associated Electric & Gas Insurance Services Ltd. et  al.  v.  Texas  Eastern  Transmission  Corp  et  al.  (here- inafter the "AEGIS" action) filed in the Eastern District

of Pennsylvania. All three cases were later assigned by the  Multi-District  Litigation  Panel  to  the  district  court below.

This opinion discusses the question of subject matter jurisdiction  in  the  Texas  Eastern   **6    action  and  the AEGIS action. We also address the question of jurisdic- tion  in  the  F&C  case  to  the  extent  that  its  jurisdiction based on diversity is impacted by our discussion of sub- ject matter jurisdiction in the other two cases. That our discussion has to be bifurcated in two separate opinions results from a procedural anomoly: Texas Eastern sought rehearing in only two of the three cases -- Texas Eastern and AEGIS -- and only on the question of subject matter jurisdiction.

At issue in this panel rehearing is the district court's exercise of subject matter jurisdiction in Texas Eastern and AEGIS arising from insurance coverage for the cost of toxic PCB clean-up. The claims were filed after Texas Eastern  Transmission  Corporation's  release,  discharge and disposal into the environment of PCB-contaminated substances in the course of operating a natural gas pipeline extending from Texas and Louisiana to New Jersey.

Texas Eastern, the insured, appealed the decision of the  district  court,  which  granted  summary  judgment  to Texas Eastern's insurance carriers, primarily on the basis that Texas Eastern breached its duty to provide the carri- ers timely notice of matters **7   for which it would seek coverage, and in this way prejudiced the carriers. In Re Texas  Eastern  Transmission  Corp.  PCB  Contamination Insurance Coverage Litigation, No. MDL-764 (E.D. Pa. July 9, 1992). We affirmed in an unreported opinion filed May  28,  1993,  after  confirming  that  the  district  court had  subject  matter  jurisdiction  over  all  three  cases.  In the first of the three actions,  the "F&C" action,  subject matter jurisdiction was based on diversity of citizenship,

28  U.S.C.  §  1332,  and  was  not  and  is  not  now  being contested  by  Texas  Eastern.  Subject  matter  jurisdiction in  the  remaining  two  actions,  the  "AEGIS"  action  and the "Texas Eastern" action, was derived from the Foreign Sovereign Immunities Act,  28 U.S.C. § 1330 (original) and § 1441(d) (removal).

Thereafter, Texas Eastern filed a petition for rehearing challenging subject matter jurisdiction in the two cases. On August 18,

15 F.3d 1230, *1234; 1994 U.S. App. LEXIS 362, **7;

25 ELR 21102

Page 5

*1234   1993, we ordered panel rehearing and stayed the mandate in all three cases consolidated in this appeal. On January 6, 1994, we vacated our unreported opinion.

This opinion addresses the jurisdictional issues raised

**8    in the petition for rehearing, which was directed only  to  the  question  of  subject  matter  jurisdiction  in AEGIS  and  Texas  Eastern.  In  addition,  because  Texas Eastern contended on appeal and reasserted on rehearing that the district court lacked jurisdiction over the counter- claim defendants in the F&C case, and hence should have stayed F&C in favor of an allegedly more comprehensive action which Texas Eastern had commenced in a Texas state court, we address this challenge to the district court's jurisdiction in F&C. In a separate opinion filed simulta- neously with this, we in effect reinstate the portion of our earlier opinion addressing the substantive merits of the issues on appeal from the order of the district court, as these issues were not challenged in the petition and were not  the  subject  of  the  rehearing.  See  Dunn  v.  Hovic,  1

F.3d 1362, 1993 U.S. App. LEXIS 20182 (July 27, 1993)

(reinstating earlier opinion as to matters not subject of re- hearing in banc); Dunn v. Hovic, 1 F.3d 1371, 1993 U.S. App. LEXIS 19482 (July 27, 1993) (addressing only those issues which   **9   were subject of rehearing in banc).

I.

A brief statement of the facts appears in the related opinion filed simultaneously with this one. A more de- tailed statement of the facts appears in the district court's opinion. Here we outline the nature of the three cases in question  and  the  jurisdictional  challenges  raised  in  the petition for rehearing.

After Texas Eastern's August, 1987, notice to its in- surers that it was negotiating with federal and state agen- cies over the PCB contamination of several of its proper- ties, Fidelity & Casualty Company of New York, Texas Eastern's primary excess liability insurer, filed the first of the three actions, the "F&C: action, in the United States District Court for the Northern District of Texas,  seek- ing a declaratory judgment disclaiming liability. Subject matter jurisdiction was premised on diversity and is not challenged. Texas Eastern unsuccessfully moved to dis- miss or stay the F&C action in favor of a New Jersey state

court action which Texas Eastern had already commenced against all of its insurers. n1

n1 The action in the New Jersey state court was titled, Texas Eastern Transmission Corporation v. Fidelity & Casualty Company, and was docketed as No. WO-30685--87 (N.J. Sup. Ct., filed December

19, 1987). It was dismissed on March 17, 1988, on the ground of forum non conveniens. Texas Eastern did not appeal the dismissal.

**10

In  the  second  action,  the  "AEGIS"  action,  two  of Texas Eastern's excess insurers, Associated Electric and Base Service, Ltd. and National Surety Corporation, filed a  comprehensive  declaratory  judgment  action  against Texas Eastern and its other insurance carriers, primary or excess, in the United States District Court for the Eastern District of Pennsylvania. The district court premised orig- inal subject matter jurisdiction over the AEGIS case on the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C.

§  1330,  based  on  the  presence  as  a  party  defendant  of the  Insurance  Company  of  Ireland,  Ltd.,  (ICI).  ICI  is a "foreign state" under 28 U.S.C. § 1603(a) of the FSIA having no immunity with regard to the commercial claims brought against it in the AEGIS action. The Immunities Act provides for federal jurisdiction in civil commercial actions brought "against" a foreign state.

The  third  and  final  action,  the  "Texas  Eastern:   ac- tion, was commenced by Texas Eastern in a Texas state court against all of its insurers, seeking declaratory judg- ment and damages. This action was, in effect, a refiling of

**11   the earlier dismissed action which Texas Eastern had initiated in the New Jersey state court. Pursuant to 28

U.S.C. § 1441(d) of the FSIA, ICI removed Texas Eastern to  the  United  States  District  Court  for  the  Southern District  of  Texas.  Section  1441(d)  permits  removal  of a civil action "against a foreign state" as the term "foreign state" is defined in 28 U.S.C. § 1603.

The  F&C  action  was transferred  to  the  federal  dis- trict court in eastern Pennsylvania and consolidated with AEGIS for pretrial proceedings. The Texas Eastern action was also consolidated for pretrial purposes with

15 F.3d 1230, *1235; 1994 U.S. App. LEXIS 362, **11;

25 ELR 21102

Page 6

*1235   AEGIS after it was removed to the federal court. In seeking vacatur of the district court's judgment in all three cases and to adjudicate its coverage claims in state  court,  Texas  Eastern  argues  that  the  district  court erroneously assumed FSIA jurisdiction; hence, it argues that the Texas Eastern case should have been remanded to the Texas state court, the AEGIS case should have been dismissed for lack of subject matter jurisdiction, and the F&C case should have been sent back to the Texas federal court **12   where it likely would have been dismissed or stayed in deference to the state court proceeding. Texas Eastern does not challenge diversity jurisdiction between the original parties in the F&C case, yet in our view we deem it significant that in the F&C case, Texas Eastern committed itself to two important actions:  (1) it asserted counterclaims against F&C and (2) it joined all other par- ties in these combined cases as co-defendants in the coun- terclaims. What started out as an action between only The Fidelity & Casualty Co. of New York and Texas Eastern then became, through Texas Eatern's actions, a case in-

volving all the carriers in this litigation.

On appeal from the district court's grant of summary judgment in favor of the insurers, however, Texas Eastern asserts a contention that it did not raise below:  now, for the first time, it argues that jurisdiction over the counter- claim  was improper.  Texas  Eastern  further  asserts  that, assuming  ICI  is  a  foreign  state  within  the  meaning  of

§  1603,  FSIA  jurisdiction  over  AEGIS  was  precluded by  mandatory  realignment  of  the  parties,  which  would have adjusted ICI's nominal status as defendant to plain- tiff. Furthermore, Texas **13    Eastern asserts that ICI contractually waived any right it had under the FSIA to remove in the Texas Eastern case.

We have jurisdiction over a final decision of the dis- trict court pursuant to 28 U.S.C. § 1291. We rehear matters which were the subject of our opinion of May 28, 1993, pursuant to Federal Rules of Appellate Procedure 35 and

40.

dressed in an opinion filed simultaneously with this one. Fidelity & Casualty Co. of New York v. The Texas Eastern Transmission Corp., 15 F.3d 1249 (3d Cir. 1994).

A. The F&C Case

On December 11, 1987, the F&C declaratory judgment action against Texas Eastern was commenced in federal district court in Texas. Texas Eastern filed an answer with counterclaims against virtually all of its excess insurers on December 15, 1988, after the F&C case had been trans- ferred to the Eastern District of Pennsylvania and con- solidated with the remaining two related cases. Although diversity jurisdiction between the two original **14  par- ties, F&C and Texas Eastern, is undisputed, Texas Eastern now claims that the district court lacked jurisdiction over its counterclaims because Texas Eastern failed to state a basis in the Federal Rules of Civil Procedure for adding the excess insurers, failed to seek leave of court to join them, and did not execute service of process upon them; hence they were not made parties to the suit and the F&C action  involved  only  the  policies  issued  by  its  primary liability carrier. n2 Fidelity and Casualty Co. of N.Y. v. Texas Eastern Transmission Corp., No. 88-5039.

n2 The district court's decision at p. 7 granted summary judgment "on all claims against the car- riers ," and the order and judgment of the district court was entered in favor of "all the carriers and against Texas Eastern." Docket No. 88-5039, sec- ond entry of July 10, 1992 (emphasis added). Texas Eastern's failure to appeal that entry of judgment in the F&C action may be construed as a waiver of its present contention that the excess carriers were not proper parties in the F&C action. Because we find  ample  other  reason  to  reject  Texas  Eastern's jurisdictional challenge to the F&C case, the issue of Texas Eastern's waiver need not dispose of this matter.

II.

We address the question of jurisdiction in each of the three cases seriatim. The substantive merits of the district court's holding in favor of the insurance carriers is ad-

**15

Texas  Eastern  mounts  the  following  argument.  The complaint  by  F&C  tracked a  very  narrow  compass  be- cause it involved

15 F.3d 1230, *1236; 1994 U.S. App. LEXIS 362, **15;

25 ELR 21102

Page 7

*1236   only primary carrier liability. Outstanding at the same time in two other lawsuits was the question of liabil- ity of both primary and excess carriers. Therefore, had not the district court erroneously assumed it had jurisdiction over Texas Eastern's excess liability carriers in F&C, the district court would have dismissed the F&C law suit in favor of the more comprehensive state court action.  n3

n3 The panel is in unanimous agreement that at this very late juncture in the prosecution of the F&C action it would be extremely imprudent to remand this case on the basis of what amounts to conjec- ture on the part of Texas Eastern, which cannot call into question the competence of a federal court to resolve matters of substantive state law. Although Judge Alito disagrees with the majority opinion on other grounds, he joins the majority in this regard.

1.

In deciding whether the excess insurers were **16

parties  to  the  F&C  action,  we  note  preliminarily  that

HN1  a party is deemed to have consented to personal jurisdiction if the party actually litigates the underlying merits or demonstrates a willingness to engage in exten- sive litigation in the forum.  In Re Real Estate Title and Settlement  Services  Antitrust  Litigation,  869  F.2d  760,

771 (3d Cir.), cert. denied, 493 U.S. 821, 107 L. Ed. 2d

44, 110 S. Ct. 77 (1989). The F&C counterclaim defen- dants actively litigated the F&C action, failed to move to dismiss Texas Eastern's counterclaim for lack of service before litigating the motions for summary judgment, and, in fact, moved for summary judgment on other grounds. n4 Thus, we may infer that the counterclaim defendants effectively waived the defense of lack of personal jurisdic- tion based on the absence of service of process by acqui- escing in personal jurisdiction. See Zelson v. Thomforde,

412 F.2d 56, 58-59 (3d Cir. 1969); United States v. Article of Drug, etc., 362 F.2d 923, 926-27 (3d Cir. 1966). Since service  of  process   **17    is  to  provide  notice  of  the pendency of the action, which the excess carriers clearly had,  and  goes  to  the  question  of  in  personam  jurisdic- tion, in which the excess carriers have clearly acquiesced, the district court's exercise of personal jurisdiction over the  excess  carriers  in  the  F&C  action  cannot  be  nulli- fied by Texas Eastern's failure to cause summonses to be served on them. The district court implicitly adopted such a holding when it entered judgment in the F&C action "in favor of all carriers," and we affirm this resolution of the question of personal jurisdiction in F&C.

n4  In  a  supplemental  stipulation  regarding cross-claims  and  counterclaims  entered  into  by F&C  and  the  excess  insurers,  and  approved  and ordered by the district court on January 17, 1989, F&C and the excess insurers preserved the excess insurers' cross-claims in the F&C action. With the exception of the initial pleadings, the excess insur- ers failed to object to lack of service or in personam jurisdiction  in  the  F&C  case.  In  its  answer  and counterclaim,  Texas Eastern asserted that "All of Texas Eastern's insurers must bear, jointly and sev- erally, all indemnity, damages, defense costs, costs, and reasonable attorney's fees resulting from any of the foregoing claims," belying Texas Eastern's own  belief  that  its  excess  insurers  were  party  to the F&C action, and undermining Texas Eastern's attempt  to  separate  its  claims  against  F&C  from its claims against the excess insurers. Furthermore, Texas Eastern's motion for leave to amend plead- ings included the excess insurers in the caption. Not only did the excess insurers respond on the merits, but the district court ruled, in an order of July 25,

1991, to dismiss all or specific claims against cer- tain of the excess insurers, evidencing its assump- tion that the excess insurers were indeed parties to the F&C action. Finally,  the district court's order and final judgment of July 9, 1992, granted "final judgment  on  all  claims  in  favor  of  all  insurance carriers." (Emphasis added.)  This order was indi- vidually entered on the docket in all three cases, including  the  F&C  action.  Docket  No.  88-5039, second entry of July 10, 1992.

**18

2.

Having  disposed  of  contentions  regarding  personal jurisdiction, we must now consider the claim that the dis- trict court lacked subject matter jurisdiction over the non- diverse counterclaim defendants in the F&C action. In its counterclaim, Texas Eastern alleged ancillary jurisdiction over the excess insurers. HN2  Ancillary subject matter jurisdiction may be exercised over additional party defen- dants to a compulsory counterclaim, or over third party defendants.  See  Great  Lakes  Rubber  Corp.  v.  Herbert Cooper Co., 286 F.2d 631, 633-34 (3d Cir. 1961) (ancil- lary jurisdiction extends to subject matter of counterclaim arising out of transaction or occurrence which is subject matter of opposing

15 F.3d 1230, *1237; 1994 U.S. App. LEXIS 362, **18;

25 ELR 21102

Page 8

*1237   party's  claim  of  which  court  has  jurisdic- tion,  and  such  counterclaim  is  "compulsory");  Field  v. Volkswagenwerk AG, 626 F.2d 293, 299 (3d Cir. 1980) (no independent jurisdictional basis required for third party claim when diversity jurisdiction obtained over original claim). Nevertheless, Texas Eastern now claims that the district court's exercise of subject matter jurisdiction over the counterclaims against the non-diverse excess insurers

**19  was a form of pendent party jurisdiction precluded by the Supreme Court in Finley v. United States, 490 U.S.

545, 104 L. Ed. 2d 593, 109 S. Ct. 2003 (1989) (declining to exercise pendent party jurisdiction under Federal Tort Claims Act unless statute conferring jurisdiction over pri- mary  claim  explicitly  confers  jurisdiction  over  pendent party claim). Texas Eastern argues that neither the diver- sity  statute,  28 U.S.C.  § 1332,  upon  which jurisdiction over the original claim lies, nor any other arguably appli- cable federal statute, authorizes such jurisdiction over the excess insurers. n5

n5 Texas Eastern further claims that the dis- trict  court  could  have  assumed  personal  jurisdic- tion  over  the  excess  insurers  only  by  virtue  of the discretionary authority represented in Federal Rule of Civil Procedure 13(h). Rule 13(h) provides that:  "persons other than those made parties to the original action may be made parties to a counter- claim or cross-claim in accordance with the pro- visions  of  Rules  19  and  20."  Because,  inter  alia, the court made no explicit reference to its discre- tionary power to join the counterclaim defendants, Texas Eastern argues that the court did not properly exercise its discretionary authority.

Moreover, Texas Eastern asserts that Rule 13(h) prohibits Texas Eastern's counterclaim inasmuch as under the Rule a "'counterclaim . . . may not be di- rected solely against persons who are not already parties to the original action . . .'". Texas Eastern's letter  brief,  September  8,  1993,  at  p.  19  (citing Baltimore & Ohio R. Co. v. Central Ry. Services,

Inc., 636 F. Supp. 782, 786 (E.D. Pa. 1986)).

We find Texas Eastern's argument to be with- out merit because, as we indicate in our opinion, we  hold  that  the  district  court  implicitly  found in  personam  jurisdiction  over  the  excess  insur- ers. Furthermore, Texas Eastern's counterclaim was not directed solely against the counterclaim defen- dants, but requested the court adjudge that "all of Texas Eastern's insurers must bear, jointly and sev- erally,  all  indemnity,  damages,  defense  costs  .  .

. ". Answer and counterclaim of defendant Texas Eastern,  December  15,  1988,  at  p.  40  (emphasis added).

**20

In this regard, we note initially that the Supreme Court has carefully distinguished a non-federal claim asserted by a plaintiff which can be joined with a federal cause of  action  arising  from  the  same  transaction  despite  its destruction  of  complete  diversity,  from  ancillary  juris- diction, which typically involves "claims by a defending party haled into court against his will, or by another person whose rights might be irretrievably lost unless he could assert them in an ongoing action in federal court." Owen Equipment  and  Erection  Co.  v.  Kroger,  437  U.S.  365,

376, 57 L. Ed. 2d 274, 98 S. Ct. 2396 (1978). See also

Ambromovage v. United Mine Workers of America, 726

F.2d 972, 989 n.48 (3d Cir. 1984) ("ancillary" jurisdiction pertains to claims other than those of plaintiff,  such as compulsory counterclaims, while "pendent" jurisdiction pertains to plaintiff's non-federal claims where there is a federal claim which gives the court jurisdiction). This subtle distinction places in doubt Texas Eastern's broad reading of Finley.

We  note  secondly  that  Congress  has  confirmed  the principle  of     **21     ancillary  jurisdiction  over  coun- terclaim  defendants  in  the  enactment  of  the  Judicial Improvements Act of 1990, 28 U.S.C. § 1367 (using new statutory term, "supplemental jurisdiction").  n6 Section

15 F.3d 1230, *1238; 1994 U.S. App. LEXIS 362, **21;

25 ELR 21102

Page 9

*1238    1367(b)  of  the  Act  restricts  the  extension  of jurisdiction in diversity cases over "claims by plaintiffs against persons made parties under Rule 14,  19,  20,  or

24," (emphasis added),  and by its terms would not ex- tend  to  Texas  Eastern's  counterclaims  as  party  defen- dant.  "Supplemental"  jurisdiction  under  the  statute  ex- tends to any related claim of the defendant that arises out of  the  same  case  or  controversy  as  the  original  claim. See  C.  Wright,  A.  Miller,  M.  Kane,  Federal  Practice and Procedure Civil 2d, § 1436 at 11 (Supp. 1993); see,

**23

of such rules, or seeking to intervene as  plaintiffs  under  Rule  24  of  such rules,  when  exercising  supplemental jurisdiction over such claims would be inconsistent with the jurisdictional re- quirements of section 1332.

n7 The Judicial Improvement Act of 1990 be-

also,  C.  Wright,  Federal  Courts,  §  79  at  527  n.6  (4th ed.  1983)  ("the  bringing  in  of  additional  parties  to  re- spond  to  a  compulsory  counterclaim  does  not  destroy diversity  jurisdiction").  Thus,  it  would  appear  that  the Judicial  Improvements  Act  would  preserve  jurisdiction in the F&C action.  n7 We hold that the additional non- diverse counterclaim defendants do not destroy diversity jurisdiction   **22    in the F&C action because there is complete diversity of citizenship between the originally named parties.

n6 For the present purposes, § 1367(a) and (b)

are of interest and read as follows:

HN3

(a) . . . In any civil action of which the district  courts  have  original  jurisdic- tion, the district courts shall have sup- plemental  jurisdiction  over  all  other claims that are so related to claims in the  action  within  such  original  juris- diction that they form part of the same case  or  controversy  under  Article  III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or inter- vention of additional parties.

(b)  In  any  civil  action  of  which  the district  courts  have  original  jurisdic- tion founded solely on section 1332 of this  title,  the  district  courts  shall  not have  supplemental  jurisdiction  under subsection  (a)  over  claims  by  plain- tiffs against persons made parties un- der  Rule  14,   19,   20  or  24  of  the Federal  Rules  of  Civil  Procedure,  or over  claims  by  persons  proposed  to be joined as plaintiffs under Rule 19

came operative on December 1, 1990, well after the F&C action was filed. We make reference to the Act merely to evidence the viability of the principles which have generated the doctrine of ancillary ju- risdiction in light of the doubt cast upon such juris- diction by Finley. We are satisfied however that the Judicial Improvement Act codifies the implications of the Court's distinctions in Owen Equipment.

3.

Having found that federal jurisdiction was correctly found  in  the  F&C  case  and  that  all  of  the  insurers  are parties to that action, we note the possibility that the prin- ciple of ancillary jurisdiction might again be invoked to ground subject matter jurisdiction in the remaining two cases, AEGIS and Texas Eastern. We need not rely here on the principle of ancillary jurisdiction, however, because we find an independent source of federal subject matter jurisdiction in both cases.

B. The AEGIS Case

The second of the actions that was before the district court, Associated  Electric  &  Gas  Insurance  Services,  Ltd.  v. Texas Eastern **24   Transmission Corp., No. 88-2126, was  filed  by  two  of  Texas  Eastern's  excess  carriers  on March 11, 1988 in the United States District Court for the Eastern District of Pennsylvania, in which were joined as defendants with Texas Eastern all other insurers, includ- ing ICI. Based on the presence of the foreign state, ICI, as a party "against" which a nonjury civil trial was brought, jurisdiction in federal court was pursuant to 28 U.S.C. §§

1330(a) and 1603.  n8 Texas Eastern argued that the de- fendant insurers in the AEGIS action, most notably ICI, should be realigned with AEGIS as plaintiffs to reflect their alleged substantive party designations, making the suit no longer

15 F.3d 1230, *1239; 1994 U.S. App. LEXIS 362, **24;

25 ELR 21102

Page 10

*1239   "against" a foreign state, and thus depriving the district court of FSIA subject matter jurisdiction. The dis- trict court concluded that the principle of realignment is inapplicable in matters in which subject matter jurisdic- tion  is  predicated  on  something  other  than  diversity  of citizenship. The district court found that the AEGIS case was "against a foreign state" within the meaning of the FSIA and exercised its jurisdiction over the matter.

n8 HN4  The Foreign Sovereign Immunities

Act, Pub. L. No. 94-583, 90 Stat. 2892 (Oct. 21,

1976)  (FSIA),  establishes  the  jurisdiction  of  the federal courts in cases involving foreign sovereigns and the rights of foreign sovereigns with regard to their  non-immune  commercial  or  private  acts  to have actions brought against them adjudicated in a federal bench trial.  28 U.S.C. § 1603 of the FSIA and its jurisdictional provision, 28 U.S.C. § 1330, provide respectively that,

28 U.S.C. § 1603:

HN5

(a) A "Foreign state," . . . includes a political subdivision of a foreign state or  an  agency  or  instrumentality  of  a foreign state . . .

(b) An "agency or instrumentality of a foreign state" means any entity --

(1)  which  is  a  separate  legal  person, corporate or otherwise, and

(2) which is an organ of a foreign state or  political  subdivision  thereof,  or  a majority of whose shares or other own- ership interest is owned by a foreign state  or  political  subdivision  thereof, and

(3) which is neither a citizen of a State of  the  United  States  .  .  .  nor  created under the laws of any third country.

28 U.S.C. § 1330:

HN6

The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil ac- tion against a foreign state as defined in  section  1603(a)  of  this  title  as  to any claim for relief in personam with respect  to  which  the  foreign  state  is not entitled to immunity either under

sections 1605-1607 of this title or un- der any applicable international agree- ment.

We uphold the district court's finding that ICI is a

"foreign state" within the meaning of 28 U.S.C. §

1603(a). The district court has determined that ICI is "an agency or instrumentality of a foreign state" in that it is a separate legal person, a majority of its shares are owned by a foreign state, the Republic of Ireland, and it is neither a citizen of a state of the United States, nor created under the laws of a third country. These findings are not clearly erroneous.

**25

In  support  of  its  argument  for  realignment,  Texas Eastern  argues  that  the  primary  purpose  of  the  AEGIS action was to obtain a declaratory judgment that Texas Eastern was not entitled to coverage under any of the poli- cies issued to it by the two excess carrier plaintiffs, and that ICI had a common interest with the excess carriers on that primary issue against Texas Eastern. Texas Eastern reasons analogously that, under principles of realignment developed in the context of the federal diversity jurisdic- tion statute, the court was obliged to realign the nominal parties to reflect their actual adversity of interest on the primary dispute as a prerequisite to deciding whether a basis  for  jurisdiction  remained  under  the  FSIA.  Texas Eastern argues that because ICI as well as the remaining insurers nominally designated as defendants should have been realigned with the two excess carriers who brought suit, the action was not "against a foreign state," and the jurisdictional authority of the FSIA was improperly in- voked to obtain jurisdiction.  n9 We disagree.

n9  Because  a  number  of  the  excess  carriers share common citizenship with Texas Eastern, di- versity jurisdiction was precluded. Thus, if the prin- ciple  of  realignment  had  been  applied  as  Texas Eastern advocated, there would not remain any ba- sis for federal jurisdiction over the AEGIS action.

**26

1.

It is beyond cavil that federal law determines whether the elements of federal jurisdiction, original or removal, have  been  satisfied.  Here,  of  course,  we  must  decide whether the AEGIS action is "against" ICI, as required under § 1330. Given this explicit jurisdictional requisite, it is self-evident that Congress conditioned its conferral of jurisdiction on the substantive party alignment of any purported FSIA action. Thus we are obliged to ascertain

15 F.3d 1230, *1239; 1994 U.S. App. LEXIS 362, **26;

25 ELR 21102

Page 11

the real adversity of interest between AEGIS and ICI in the AEGIS case and to realign them according to their substantive interests before recognizing § 1330 jurisdic- tion.

It is also widely recognized that in enacting the FSIA and  related  statutory  amendments,  Congress  sought  to create a new division in addition to federal question and diversity jurisdiction for federal subject matter jurisdic- tion. See, e.g., Ruggiero v. Compania Peruana de Vapores,

639 F.2d 872 (2d Cir. 1981). It is further evident that en- actment of the FSIA was in response to unique policy con- siderations touching on the international relations of the United States, considerations not apropos to the federal diversity   **27   statute. Indeed, the Supreme Court has acknowledged Congress' deliberate intent to circumvent much of the potential for interference with the federal gov- ernment's foreign relations caused by lack of uniformity and local bias in civil caselaw involving foreign states as defendants by channelling private actions against foreign sovereigns away from the state forums and into federal

courts to be adjudicated in nonjury trials.  Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 497, 76 L. Ed.

2d 81, 103 S. Ct. 1962 (1983); see also H. R. Rep. No.

94-1487,  94th  Cong.,  2d  Sess.  13  (1976),  reprinted  in

1973 U.S.C.C.A.N. 6611-12. Thus, HN7  the FSIA es- tablishes the federal district courts as the forum preferred by Congress for bringing suit against a foreign state, and the policy of "jealous restriction" which has characterized application of the diversity statute is not operative in the FSIA  context.   City  of  Indianapolis  v.  Chase  National Bank, 314 U.S. 63, 76, 86 L. Ed. 47, 62 S. Ct. 15 (1941)

(Congress created diversity jurisdiction with "jealous re- striction").   **28   It is with this in mind that we apply the principle of realignment to the AEGIS case.

2.

The landmark Supreme Court precedent applying the principle of realignment states,

HN8

15 F.3d 1230, *1240; 1994 U.S. App. LEXIS 362, **28;

25 ELR 21102

Page 12

*1240  Diversity jurisdiction cannot be con- ferred upon the federal courts by the parties' own determination of who are plaintiffs and who defendants. It is our duty,  as it is that of the lower federal courts, to "look beyond the pleadings and arrange the parties accord- ing to their sides in the dispute." Dawson v. Columbia Trust Co., 197 U.S. 178, 180, 49

L. Ed. 713, 25 S. Ct. 420. . . . Whether the necessary "collision of interests," Dawson v. Columbia Trust Co., supra, at 181, exists, is therefore not to be determined by mechanical rules. It must be ascertained from the "princi- pal purpose of the suit," East Tennessee, V. & G. R. v. Grayson, 119 U.S. 240, 244, 7 S. Ct.

190,  30  L.  Ed.  382,  and  the  "primary  and controlling  matter  in  dispute,"  Merchants' Cotton Press Co. v. Insurance Co., 151 U.S.

368, 385, 38 L. Ed. 195, 14 S. Ct. 367. **29

City of Indianapolis v. Chase National Bank, 314 U.S.

63, 69-70, 86 L. Ed. 47, 62 S. Ct. 15 (1941).

This   landmark   explication   presents   a   two-tiered methodology for judicial implementation of the federal diversity statute. The first step obliges the federal court to isolate the "primary purpose" or "primary and controlling matter" in a multiple claim suit. The court then directs its attention exclusively to this "primary" or substantively most significant claim in order to facilitate ascertainment

of whether the statutory requisites of diversity jurisdiction have been met. This "primary purpose" test, which ranks issues  according  to  their  substantive  importance  in  the lawsuit, reflects the approach appropriate to a restrictive and limited jurisdictional mandate, as in the case of the diversity statute. It appears, in fact, to be uniquely well suited to the express language and broad policy objectives of § 1332. We have indeed adopted this test when deter- mining that jurisdiction is properly based on diversity of citizenship.  See,  e.g.,  Employers  Insurance  of  Wausau v. Crown Cork and Seal Co.,  Inc.,  905 F.2d 42,  46 (3d Cir. 1990) **30   (requiring a "real dispute on a primary issue in the controversy" for purposes of the diversity ju- risdiction statute). The "primary purpose" test, however, appears much less well suited to the purposes of § 1330, which embodies an effort on the part of Congress to en- courage rather than merely permit litigation in the federal courts.

The second step involved in implementing the juris- dictional mandate at issue in the Court's landmark diver- sity realignment case obliges the federal courts to "look beyond the pleadings and arrange the parties according to their sides in the dispute." This step, though sometimes conflated  with  the  first  step  in  a  diversity  analysis  and hence commonly identified with diversity jurisprudence, in fact represents a broader principle of judicial interpre- tation of statutes conferring jurisdiction in federal courts, where the statutory conferral of jurisdiction is predicated upon the adversarial relationship of the parties.  n10

15 F.3d 1230, *1241; 1994 U.S. App. LEXIS 362, **30;

25 ELR 21102

Page 13

*1241    In other words, where party designations have jurisdictional consequences under the relevant federal ju- risdiction statute, be it § 1332 diversity, § 1330 FSIA or their related removal provisions, the principle of "realign- ment"   **31   obliges the court to penetrate the nominal party alignment and to consider the parties' actual adver- sity of interest for purposes of determining whether there is a statutory basis for jurisdiction. Thus,  despite some confusion in nomenclature caused perhaps by the com- monplace  application  of  "realignment"  in  the  diversity context, the principle embodied by the term "realignment" is one of broader application and is not reducible to the

"primary purpose" test utilized in the diversity context. It is incumbent upon us in the present appeal to consider whether a complex FSIA case warrants departure from the "primary issue" analysis which we have adopted in the context of diversity jurisdiction, and application of a more inclusive realignment analysis.

n10 Although the "realignment" of parties typ- ically occurs as part of a federal court's determina- tion of diversity of citizenship, the Supreme Court has "realigned" nominal parties in at least one case where diversity of citizenship indisputably created grounds for original jurisdiction in the federal dis- trict court, and was not challenged.  Chicago, R.I.

& P.R. Co. v. Stude, 346 U.S. 574, 98 L. Ed. 317,

74 S. Ct. 290 (1954). In Stude, state law provided for appeal to a state court from an administrative condemnation proceeding instituted under state law and resulting in a damages award to a landowner. The petitioner filed an appeal in state court,  des- ignating the landowner as "plaintiff" and the peti- tioner as "defendant," as was required also by state law. The petitioner subsequently sought to remove the  state  court  proceeding  on  the  ground  that  28

U.S.C. § 1441, the relevant federal removal statute, authorized "the defendant or the defendants" to re- move civil actions brought in a state court of which the  federal  court  has  original  jurisdiction.  In  the context of examining the merits of a motion to re- mand, the Court decided that the procedural pro- visions  of  the  state  law  were  not  controlling  for purposes of construing the federal removal statute. Id.,  346  U.S.  at  580.  Thus  the  fact  that  the  case was docketed in state court with the petitioner as

"defendant" was not dispositive for purposes of the right to remove. The Court "realigned" the parties in conformity with their substantive adversity of in- terest, and held that remand was proper. The Court realigned the parties not to effectuate the limits of diversity jurisdiction, which would not have been vitiated by realignment,  but rather to enforce the separate limits on removal jurisdiction. Thus, it is

clear that the obligation of the federal courts to re- align parties to reflect their true adversity of interest for purposes of deciding the statutory basis for ju- risdiction is not limited to cases purportedly based on § 1332.

**32

With  this  in  mind,  we  note  that  other  circuits  have rejected the "primary purpose" test in favor of the more lenient "substantial controversy" test to determine § 1330 jurisdiction  where  multiple  claims  are  pleaded.  See, e.g.,  American  Motorists  Insurance  Company  v.  Trane Company, 657 F.2d 146, 149 (7th Cir. 1981) (substantial controversy applied to diversity action). HN9  Under the

"substantial controversy" ranking of issues standard, the court determines, as precursor to potential realignment, which of the conflicts asserted in the litigation are merely

"substantial," and then whether the parties in question are really opposed according to their true interests in any of their substantial conflicts. Under this standard, it would not defeat jurisdiction if there were no statutory basis for jurisdiction on the primary issue in the litigation, as long as the statutory elements of jurisdiction were present on any other "substantial" issue.

In an even more lenient approach than the "substantial controversy" test, a federal court might recognize a plain- tiff/defendant  relationship  of  adversity  if  real  adversity exists between the parties on any issue **33   asserted in the plaintiff's complaint, regardless of the relative signif- icance of that issue. Such a liberal approach has not been applied to diversity cases in any circuit, as well it ought not given the restrictive language and policy of § 1332. The present complex FSIA case, however, being one of first impression in our circuit, leads us to examine whether it is warranted here. We are guided in this determination by consideration of the structure and purpose of the FSIA and related statutes.

3.

In letter and spirit, a liberal approach in implementing the FSIA's comprehensive jurisdictional scheme is most conducive to the FSIA's paramount objectives of keep- ing federal courts open to foreign states,  and indeed of affirmatively encouraging private actions against foreign states  to  be  adjudicated  in  federal  court.  See  Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488-89, 76

L. Ed. 2d 81, 103 S. Ct. 1962 (1983); H.R. Rep. No. 94-

1487, 94th Cong., 2d Sess. 6 (1976), reprinted in 1976

U.S.C.C.A.N. 6611. Unlike the diversity statute, § 1330 grants  original  jurisdiction  in  the  district  court  without regard   **34    to  the  amount  in  controversy  in  order to facilitate this policy.   Similarly, § 1441(d) confers an absolute right of removal on the defendant foreign state.

15 F.3d 1230, *1241; 1994 U.S. App. LEXIS 362, **34;

25 ELR 21102

Page 14

Thus, the judicial trend to constrict federal diversity ju- risdiction does not inform our application of the principle of realignment here. We hold that the restrictive "primary issue" test does not comport with the statutory language or legislative intent of the FSIA. Because the "substantial controversy" test is more than adequately satisfied in the AEGIS action, we need not decide whether only minimal adversity need exist between the party bringing the action and the foreign state in order to trigger § 1330 original

jurisdiction and § 1441(d) removal jurisdiction. Applying  the  substantial  controversy  standard,  we

note preliminarily that Texas Eastern itself raises substan- tial claims against ICI in all three actions, contravening its assertion that ICI is an insignificant party. Moreover, in the AEGIS action, AEGIS has sought the adjudication of its rights and obligations inter se with respect to the other

15 F.3d 1230, *1242; 1994 U.S. App. LEXIS 362, **34;

25 ELR 21102

Page 15

*1242   insurers, including ICI. AEGIS sought a decla- ration of entitlement to relief by way of contribution or indemnification **35   from ICI and the other insurers; hence,  ICI  was  subject  to  potential  liability,  which  the district court found to be more than seven million dollars. n11 ICI was indeed haled into court by AEGIS against its will and must be afforded the special protection of the FSIA. Texas Eastern cross-claimed and counterclaimed in the AEGIS action asserting joint and several liability among the insurers, including ICI, and not limited to the excess insurers as between themselves.  n12 Thus, while on the primary issue in AEGIS there is not a collision of interests between AEGIS and ICI, there is certainly an element of adversity between AEGIS and ICI sufficient to  satisfy  §  1330's  requisite  that  an  action  be  brought

"against" a foreign sovereign. Although the district court erroneously reasoned that realignment was a principle as- sociated exclusively with diversity jurisdiction,  we will affirm the conclusion of the district court that § 1330 sub- ject matter jurisdiction over the AEGIS case was proper.

n11 In the AEGIS complaint AEGIS alleged a  dispute  between  "plaintiffs  and  some  or  all  of the Defendant Insurers as to  whether and to what extent each is obligated to provide insurance cover- age to Texas Eastern with respect to the Underlying Environmental Matters." AEGIS complaint, P 35. In  the  Ad  Damnum  Clause,  AEGIS  demanded  a declaration of "the respective rights and obligations of  plaintiffs,  each  Defendant  Insurer,  the  United States, EPA, and Texas Eastern, inter se, with re- spect  to  insurance  coverage  for  the  amounts  ex- pended or to be expended by Texas Eastern regard- ing the Underlying Environmental Matters."

**36

n12 In response to a question from our panel regarding the adversity of interest between the syn- dicates or groups of syndicates of individual entities and limited partnerships organized under the laws of Great Britain for the purpose of selling insurance,

collectively referred to as Lloyds, and ICI, which participated in one or more syndicates of Lloyds, counsel for the insurers responded

There  is  an  issue  as  to  whether   the discharge of PCB from 89 sites along the  pipeline  over  a  protracted  period of  time   constitutes  one  occurrence or  multiple  occurrences.  AEGIS  is  a first-layer excess insurer in the middle to late '70s. Other excess insurers sit above it. If there is a finding that there are  multiple  occurrences,  the  loss  is spread  numerous  times  over  the  pri- mary and low-layer excess insurance companies and would never come up vertically to the higher layer excess in- surers. However, if there is a finding of a single occurrence, Texas Eastern has made a claim of $750 million against its  insurers   and  liability  would  run vertically .

Transcript of argument on panel rehearing at p. 39-

40.

**37

C. The Texas Eastern Case

Texas Eastern Transmission Corp. v. Fidelity & Casualty,

995 F.2d 219, No. 88-5707, n13 the third action before the district court, was filed on March 21, 1988 in Harris County,  Texas,  against  all  insurers  and  removed  to  the United States District Court for the Southern District of Texas by ICI, pursuant to 28 U.S.C. § 1441(d).  n14 It was then transferred to the Eastern District of Pennsylvania by order of the Southern District Court dated July 7, 1988. Texas Eastern contends that a service of suit clause ap- pearing in policies subscribed by ICI in favor of Texas Eastern constitutes a waiver of ICI's right of removal un- der 28 U.S.C. § 1441(d).  n15 Texas Eastern

15 F.3d 1230, *1243; 1994 U.S. App. LEXIS 362, **37;

25 ELR 21102

Page 16

*1243   relies   on   our   prior   holding   in   Foster   v. Chesapeake Ins. Co., Ltd. 933 F.2d 1207 (3d Cir. 1991), in which we reviewed a similar contractual provision in the context of diversity jurisdiction. n16

n13  In  filing  this  case  Texas  Eastern  was  in substance refiling its earlier action against all of its insurers brought in New Jersey state court, Texas Eastern  Transmission  Corporation  v.  Fidelity  & Casualty Company, docketed as No. WO-30685--

87,  and  dismissed  on  March  17,  1988.  This  ear- lier state court action formed the basis for Texas Eastern's motion to dismiss or stay the F&C action which was then pending in the Northern District of Texas.

**38

n14 Section 1441(d) provides:

HN10

(d) Any civil action brought in a State court against a foreign state as defined in section 1603(a) of this title may be removed  by  the  foreign  state  to  the district court of the United States for the district and division embracing the place  where  such  action  is  pending. Upon removal the action shall be tried by  the  court  without  jury.  Where  re- moval  is  based  upon  this  subsection, the time limitations of section 1446(b) of this chapter may be enlarged at any time for cause shown.

n15 The service of suit clause in question pro- vides:

. . . Underwriters hereon, at the request of the Assured, will submit to the ju- risdiction  of  any  Court  of  competent jurisdiction  within  the  United  States and will comply with all requirements necessary to give such Court jurisdic- tion and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

n16  The  issue  of  waiver  is  the  only  one  re- maining on rehearing. The district court dispelled the  other  issues  raised  by  Texas  Eastern,  includ- ing its assertion that because ICI's interest in the case is allegedly de minimis, it should have been precluded from removing the case to federal court.

The district court held that ICI clearly has a poten- tial liability as an excess insurer of at least several million dollars, and even if its monetary interest in the case were de minimis,  it retained the express right to remove the case to federal court under §

1441(d). The district court also found that ICI had timely removed the case to federal court.

**39

Noting that Congress had made clear its intent that foreign states and instrumentalities of foreign states shall have the right to have civil litigation decided in federal court  under  the  FSIA,  the  district  court  concluded  that a forum selection clause, by which a defendant foreign state purports to accede to jurisdiction in either federal or state court, does not preclude removal to federal court.

(Citing Proyecfin de Venezuela, S.A. v. Banco Industrial de Venezuela, S.A., 760 F.2d 390 (2d Cir. 1985) (forum selection clause which places jurisdiction in either fed- eral or state court is not waiver of foreign sovereign's §

1441(d) right to remove)). Assuming for purposes of ar- gument that the right to remove could be contractually waived, the district court held that, at the very least, such a waiver must be express and unambiguous in the context of the FSIA. Not finding this, the district court denied the motion of Texas Eastern to remand the action to the state court of Texas.

In examining the nature of the service of suit clause in question and its efficacy in depriving ICI of its § 1441(d) right to remove in Texas Eastern, we are again obliged to

**40   take cognizance of the policy imperatives of the FSIA. We find those imperatives absent in Foster, the case upon which Texas Eastern relies. It is true that in Foster we construed a forum selection clause in a reinsurance agreement as a waiver of the reinsurer's right to remove. But in Foster, a diversity of citizenship breach of contract case, we also explicitly noted that the FSIA poses unique considerations that might warrant a different conclusion.

933 F.2d at 1217-18 n.15. In an extensive footnote, we contrasted the diversity context of Foster with the FSIA removal context of In re Delta American Re Ins. Co., 900

F.2d  890  (6th  Cir.),  cert.  denied,  498  U.S.  890  (1990), which held that contractual waiver of the § 1441(d) right to  remove,  if  it  is  to  be  recognized,  must  be  clear  and unequivocal. Id. at 894. Although waiver of a § 1441(d) right of removal was not an issue in Foster, we acknowl- edged In re Delta's reliance on the peculiar purposes of the FSIA, which are best served by a uniform body of law developed in federal court, and the **41    purpose of § 1441(d) in particular, which is to give the defendant foreign state the unqualified right to remove any civil ac- tion brought against it in state court. See also Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1409 (9th Cir. 1989)

15 F.3d 1230, *1243; 1994 U.S. App. LEXIS 362, **41;

25 ELR 21102

Page 17

(generally applicable rules of removal do not apply to the uniquely expansive § 1441(d)).

We concur with our sister circuits which give an ex- pansive interpretation of the nature of the right to remove under § 1441(d). Given Congress' unusually strong pref- erence for adjudication of claims against foreign states in the federal court system,  we hold that it would contra- vene strong public policy to permit a less than absolutely unequivocal contractual provision to divest a federal dis- trict court of FSIA subject matter jurisdiction. While the FSIA does not confer exclusive jurisdiction in the federal

courts and does not explicitly limit a foreign state's abil- ity to waive its right to remove, the district court's power to remand based on breach of a contractual forum selec- tion clause is doubtful where, as here, the clause may be construed as nothing more than a waiver of the right to contest in personam jurisdiction. See   **42   Proyecifin,

760 F.2d at 397. Thus, our holding in Foster is inapplica- ble in the FSIA context. A remand in this case would be unreasonable, and hence the purported contractual waiver is not enforceable.  M/S Bremen v. Zapata Off-Shore Co.,

407 U.S. 1, 15, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972)

(forum selection clause is binding

15 F.3d 1230, *1244; 1994 U.S. App. LEXIS 362, **42;

25 ELR 21102

Page 18

*1244    unless enforcement is unreasonable,  unfair or unjust).

Moreover, we note that ICI was not a "foreign state" within the meaning of FSIA at the time ICI subscribed the policies at issue. Thus, ICI at the time it entered into the contracts did not have an absolute right of removal under

§ 1441(d) to waive, and did not conduct its contract nego- tiations with the effect of the forum selection clause on a

§ 1441(d) right of removal in mind. The purported waiver was negotiated strictly between private parties. The for- eign sovereign was not a party to the original contract and did  not  negotiate  the  original  terms.  Inasmuch  as  ordi- nary principles of contract interpretation apply here, the fact that the forum selection clause was not the subject of  negotiations  between  Texas  Eastern   **43    and  the foreign state militates against a finding of waiver. Under these circumstances, the service of suit clause does not abrogate ICI's absolute right to remove under § 1441(d). The  structure  and  purpose  of  the  FSIA,  as  well  as  or- dinary  principles  of  contract  interpretation,  support  the district court's exercise of subject matter jurisdiction and its denial of Texas Eastern's motion for remand.

III.

We  will  affirm  the  district  court's  exercise  of  juris- diction in each of the three consolidated actions that are the subject of this opinion. The substantive questions pre- sented in these three cases were decided as to all parties in the opinion of the district court granting summary judg- ment against Texas Eastern, dated July 9, 1992, which we will affirm in a separate opinion filed contemporaneously with this one.

In  sum,  in  our  companion  opinion  which  will  be filed today, we affirm the judgment of the district court as  to  Texas  Eastern's  liability  in  all  three  cases.    The Fidelity & Casualty Co. of New York v. The Texas Eastern Transmission Corp., 15 F.3d 1249 (3d Cir. 19  ). For the sake  of  completeness  and  for  the  purpose  of  appropri- ate cross reference, we retiterate the   **44   affirmance of that judgment here. After rehearing, we hold that the judgments of the district court as to subject matter or per- sonal jurisdiction in Associated Electric & Gas Insurance Services, Ltd. v. Texas Eastern Transmission Corp. et al.,

The Fidelity & Casualty Co. of New York v. Texas Eastern Transmission  Corp.  and  Texas  Eastern  Transmission Corporation v. Fidelity and Casualty Company of New York et al. will be affirmed in all respects.

DISSENTBY: ALITO

DISSENT: ALITO, Circuit Judge, dissenting:  (Dissent

#1 of 2)

This case was originally decided by an unpublished opinion filed in May 1993. For two reasons, I dissented in part. First, I believed that the district court, ruling prior to our decisions in Foster v. Chesapeake Insurance Co. , 933

F.2d 1207 (3d Cir.), cert. denied, 116 L. Ed. 2d 245, 112

S. Ct. 302 (1991), and Employers Insurance of Wausau v. Crown Cork & Seal Co., 942 F.2d 862 (3d Cir. 1991), had erroneously rejected TETCO's argument that subject matter jurisdiction was lacking in two of the three civil actions that were before the court --  the Texas Eastern

**45    and AEGIS actions. Second, I believed that the district court's grant of summary judgment in favor of F

& C in the third action --  the F & C action --  should be reversed in part. (My views on this latter issue are set out in my partial dissent from the other opinion that the panel majority has filed in this case).

On June 11, 1993, TETCO filed a petition for rehear- ing and a suggestion for rehearing in banc, contending that the district court lacked jurisdiction in the Texas Eastern and AEGIS cases. On August 18, 1993, an order grant- ing panel rehearing was issued. After receiving supple- mentary briefing on the jurisdictional questions and after reargument, the panel majority has reached precisely the same conclusion as it did before, albeit in some respects for different reasons. I remain in disagreement with the majority on these jurisdictional questions, and I therefore respectfully dissent.

As noted, three civil actions were before the district court.  The  first  case,  the  F  &  C  action,  was  originally filed in the United States District Court for the Northern District of Texas, with federal jurisdiction predicated on diversity of citizenship. This is the only one **46    of the three actions in which I think

15 F.3d 1230, *1245; 1994 U.S. App. LEXIS 362, **46;

25 ELR 21102

Page 19

*1245   federal  jurisdiction  was  present.  The  second case,  the  Texas  Eastern  case,  was  filed  in  state  court in Texas and subsequently removed (improperly, in my view) to the United States District Court for the Southern District of Texas. The third case,  the AEGIS case,  was filed in the United States District Court for the Eastern District of Pennsylvania, with federal jurisdiction based

(wrongly, I believe) on 28 U.S.C. § 1330(a). Presumably because  of  the  pendency  of  the  AEGIS  case  in  the Eastern  District  of  Pennsylvania,  the  Judicial  Panel  on Multidistrict Litigation transferred the other two actions to that district and consolidated all three cases for pur- poses  of  pretrial  proceedings.  In  September  1988,  the district  court  rejected  TETCO's  challenges  to  the  exis- tence  of  federal  jurisdiction  in  the  Texas  Eastern  and AEGIS cases. Several years later, in a single order bear- ing the multidistrict litigation docket number assigned to the  consolidated  cases,  the  district  court  granted  sum- mary judgment against TETCO, and the current appeal followed. It was by this route -- based from the start on er- roneous **47   jurisdictional premises -- that these cases involving difficult, unsettled, and controversial questions of Texas insurance law, found their way to our court.

I will discuss, in turn, the jurisdictional questions pre- sented in each of the three actions that were before the district court, but I will do so in the opposite order from that used by the majority. I have chosen this order, not for sheer contrariness, but because my discussion of the F & C action can best be understood after I have addressed the other two cases.

I.

The Texas Eastern Case.

As  I  have  noted,  TETCO,  preferring  to  litigate  in the  Texas  state  courts,  originally  filed  this  action  in Harris  County,  Texas,  against  its  primary  carrier,  F  & C, and its many excess carriers, including the Insurance Company of Ireland ("ICI"). ICI was a private entity when it  entered  into  its  insurance  contract  with  TETCO,  but

"when financial difficulties threatened in 1985, the Irish government moved to preserve the company. Sealuchais Arachais  Teoranta,  a  holding  company  created  by  the Irish Parliament and controlled by the Irish Minister for Industry, Trade, Commerce, and Tourism, acquired all of

ICI's  shares.  With  financial   **48    stability,  its  shares are to revert to the original shareholders." Mobil Corp. v. Abeille General Insurance Co.,  984 F.2d 664,  665 (5th Cir. 1993). Contending that these developments made it a "foreign state" within the meaning of 28 U.S.C. § 1603, n17  ICI  then  removed  this  entire  action  to  the  United States District Court for the Southern District of Texas.

n17 Under 28 U.S.C. § 1603(a) and (b),  the term "foreign state" includes any entity

(1) which is a separate legal per- son, corporate or otherwise, and

(2) which is an organ of a foreign state  or  political  subdivision  thereof, or   a   majority   of   whose   shares   or other ownership interest is owned by a foreign state or political subdivision thereof, and

(3) which is neither a citizen of a State  of  the  United  States  as  defined in section 1332(c) and (d) of this title, nor created under the laws of any third country.

Assuming  that  ICI  falls  within  28  U.S.C.  §  1603

**49    's definition of a "foreign state," I nevertheless believe that this removal was improper and that federal jurisdiction was lacking because the insurance contract between  TETCO  and  ICI  contained  a  clause  featuring language that our court has already construed as a waiver of  the  right  to  remove.  The  clause  in  the  TETCO-ICI contract stated that if ICI failed to pay any TETCO claim, ICI  would,  "at  the  request  of  the  Insured,"  "submit  to the  jurisdiction  of  any  court  of  competent  jurisdiction within  the  United  States"  and  would  "comply  with  all requirements necessary to give such Court jurisdiction." In Foster v. Chesapeake Insurance Co., supra, one insur- ance company, Chesapeake, agreed to a virtually identi- cal clause in a contract with another insurance company, Mutual  Fire.  When  the  rehabilitator  appointed  to  mar- shal Mutual Fire's assets later sued Chesapeake in state court, Chesapeake removed the action based on diversity of citizenship. Holding that Chesapeake

15 F.3d 1230, *1246; 1994 U.S. App. LEXIS 362, **49;

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*1246    had  waived  its  right  to  remove,  we  wrote  as follows:

By consenting to "submit" to "any court" of competent jurisdiction "at the request of the Company,"  and  to  comply  with  all   **50  requirements necessary to give "such court" jurisdiction, Chesapeake agreed to go to, and stay in, the forum chosen by Mutual Fire.

Foster,  933 F.2d at 1216-17 (emphasis in original). In light of this holding, the virtually identical clause in the TETCO-ICI contract must be construed in the same way. Although the majority tries to distinguish Foster on the ground that Foster involved removal based on diversity, rather than the Foreign Sovereign Immunities Act (FSIA),

I find that effort unconvincing. The majority states: Given Congress' unusually strong preference for  adjudication  of  claims  against  foreign states  in  the  federal  court  system,  we  hold that it would contravene strong public policy to  permit  a  less  than  absolutely  unequivo- cal contractual provision to divest a federal district court of FSIA subject matter jurisdic- tion.

Maj.  Op.  #1,  Typescript  at  36  (emphasis  added).  This argument seems to fly in the face of Foster. Immediately after noting that In Re: Delta Insurance Co., 900 F.2d 890

(6th Cir.), cert. denied, 498 U.S. 890 (1990), had held that

**51    a waiver of the right to remove under the FSIA

must be clear and unequivocal, the Foster panel wrote: We do not see why contractual waivers of the right to remove must be clear and unequivo-

cal. . . .

We think the "clear and convincing" stan- dard  so  stringent  as  to  be  contrary  to  the right of parties to contract in advance regard- ing where they will litigate. A court simply should determine contractual waiver of the right to remove using the same benchmarks of construction and, if applicable, interpreta- tion as it employs in resolving all preliminary contractual  questions.  Indeed,  inasmuch  as

the determination of whether there is a waiver of the right of removal to be derived from a forum selection clause will at least in some cases, such as here, be a matter of construc- tion and thus of law, it seems anomalous to speak of a "clear and unequivocal" standard for we simply make plenary determinations of legal issues.

933 F.2d at 1218 n.15 (emphasis added). I do not believe that the majority's decision in this case can be reconciled with this passage.

Moreover, even if such reconciliation were possible, I would find the majority's position unacceptable,   **52  for I cannot understand why "foreign states," when they choose to enter into contracts, should have the benefit of especially favorable rules of contract construction or inter- pretation. Are "foreign states" unable to afford competent lawyers to draft and review their contracts and thereby insure that the removal rights conferred by 28 U.S.C. §

1441(d) are not inadvertently compromised?

In  any  event,  even  if  it  were  appropriate  to  apply such a rule to contracts signed by a foreign state, it sim- ply  makes  no  sense  to  apply  that  rule  to  the  TETCO- ICI  contract,  since  ICI  was  not  a  "foreign  state"  when that contract was formed. When TETCO entered into its agreement  with  ICI,  it  contracted  for  (and  presumably paid for) ICI's agreement not to exercise any of the rights it then possessed to resist the jurisdiction of any court of competent jurisdiction in the United States. I do not think that TETCO should lose the benefit of this bargain sim- ply because the Irish government chose to acquire ICI's assets. Nor do I think that TETCO should be penalized for failing to secure from ICI an agreement specifically stating that, if ICI should subsequently become   **53   a

"foreign state," it would not exercise the special removal rights that such states possess. We can properly demand that parties exercise prudent foresight; we cannot require clairvoyance.

II.

The AEGIS Action.

Two of TETCO's excess insurers, Associated Electric

&  Gas  Insurance  Services,  Ltd.  (AEGIS)  and  National Surety Corp. (NS), filed this action in the United States District

15 F.3d 1230, *1247; 1994 U.S. App. LEXIS 362, **53;

25 ELR 21102

Page 21

*1247    Court for the Eastern District of Pennsylvania against TETCO, F & C, and TETCO's other excess carri- ers, including ICI. Relying on ICI's status as a defendant, the complaint alleged that jurisdiction was present based on 28 U.S.C. § 1330(a), which confers jurisdiction over a

"civil action against a foreign state."

In  its  initial  brief  on  appeal,  TETCO  argued  that this  action  was  not  in  reality  against  a  foreign  state. TETCO contended that the "primary issue" test adopted in Employers Insurance of Wausau v. Crown Cork & Seal Co.,  supra,  should  be  applied,  that  the  realignment  of the parties was therefore required, and that ICI should be realigned as a plaintiff. After such realignment, TETCO argued, jurisdiction under 28 U.S.C. § 1330 **54    (a) would be lacking because the action would not be one

"against a foreign state." TETCO Br. at 67-68 (emphasis added).

In response, the carriers did not argue that the "sub- stantial conflict" test or any other lesser standard should be applied to determine whether ICI's interests were adverse to those of the other carriers. Nor did the carriers even hint that there was any real conflict between ICI and the other carriers. Instead, the carriers contended that "realignment to test subject matter jurisdiction is not appropriate where jurisdiction is based on the FSIA. Rather,  it is an anti- dote to artificial maneuvers by parties to create diversity jurisdiction."  Appellees'  Joint  Br.  at  66.  Alternatively, the  carriers  argued  that,  if  the  parties  were  realigned, one of the following two realignments should be chosen:

"TETCO as plaintiff and the Carriers as defendants" or

"all Carriers plaintiffs and TETCO a defendant." Id. at 66,

67. Tellingly, both of these realignments place all of the carriers, including ICI, on the same side.

In  its  initial  unpublished  opinion,  the  panel  major- ity agreed with the carriers that realignment need not be considered. The panel described realignment **55    as

"a creature of diversity jurisprudence" and concluded that

"application of realignment to Immunities Act jurisdiction would not serve any purpose." Op. at 7. Now, however, the majority states:

It is self-evident that Congress conditioned

its conferral of jurisdiction on the substan- tive party alignment of any purported FSIA action. Thus we are obliged to ascertain the real adversity of interest between AEGIS and ICI in the AEGIS case and to realign them according to their substantive interests before recognizing section 1330 jurisdiction.

Maj. Op. #1, Typescript at 24. Nevertheless, the majority again reaches the conclusion that the district court had jurisdiction  over  the  AEGIS  action  under  28  U.S.C.  §

1330(a). The majority reasons that this provision requires a  lesser  degree  of  adversity  than  is  needed  in  diversity cases.  Rejecting  the  "primary  issue"  test  that  our  court has adopted in diversity cases, the majority holds that no more than a "substantial conflict" is necessary and finds that that test is satisfied here. The majority bases this con- clusion on (1) the fact that the AEGIS complaint sought, among other things, a declaration **56   of the plaintiffs' rights with respect to the carriers named as defendants, including ICI, and (2) a statement made by the carriers' counsel at oral argument. Maj. Op. #1, Typescript at 31,

32. I disagree with this approach.

First, I question whether we should abandon the "pri- mary  issue"  test  simply  because  federal  jurisdiction  is invoked under 28 U.S.C § 1330(a) rather than 28 U.S.C.

§ 1332(a)(1). Particularly if the "substantial conflict" test can be satisfied with the type of showing that the majority finds sufficient,  I fear that that test may permit the un- warranted evasion of federal jurisdictional requirements. Second, even if the "substantial conflict" test is to be ap- plied, I am not willing to hold that a "substantial conflict" exists in this case based on the facts that the majority cites. Surely, a "substantial conflict" cannot be found solely be- cause that the complaint requests a declaration of AEGIS's and NS's rights with respect to ICI. Nor do I think that we should base our decision solely on the remarks of the car- riers' attorney at oral argument. I certainly recognize, as the carriers' attorney **57   pointed out, that the interests of the primary carrier, F & C, might under some circum- stances become adverse to those of the excess carriers and that the interests

15 F.3d 1230, *1248; 1994 U.S. App. LEXIS 362, **57;

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*1248     of  excess  carriers  at  "different  levels"  might become adverse. The critical question here, however, is whether there was in fact at least a "substantial conflict" between, on the one hand, two particular excess carriers

(AEGIS and NS) and, on the other hand, another particu- lar excess carrier (ICI). This question cannot be decided without analyzing the actual terms of the relevant insur- ance contracts. The parties have never provided us with any such analysis, and I do not think that we should at- tempt to perform such analysis on our own at the panel rehearing stage. Therefore, at the very least, I think that a remand to the district court is needed so that an appropri- ate analysis can be undertaken and so that the disposition of this question can be based on facts rather than suppo- sition.

III.

The F & C Action.

This action was filed by F & C in the United States District Court for the Northern District of Texas against TETCO, with jurisdiction based on diversity of citizen- ship. There is no question that the district court **58  had jurisdiction with respect to this action, but it is now hotly disputed whether the excess insurance carriers were or  could  properly  be  made  parties  to  this  action.  F  & C did not name the excess insurers as parties --  and F

&  C  could  not  have  named  many  of  them  without  de- stroying  federal  jurisdiction,  since  they  share  common citizenship with TETCO. As noted, however, the excess carriers were named as parties in the Texas Eastern and AEGIS actions. After those cases had been consolidated with the F & C action and after TETCO's jurisdictional challenges in the Texas Eastern and AEGIS actions had been rejected, TETCO filed counterclaims against the ex- cess insurers in the F & C case, but TETCO never served the excess carriers with summonses, and many of them asserted the absence of personal jurisdiction as a defense. For the most part, however, it appears that the parties and the district court paid little if any attention to the question whether the excess insurers were parties in the F & C case as opposed to the other two consolidated cases.

It was not until TETCO petitioned for rehearing that

the parties paid any significant attention to the question

**59   whether the excess insurers had been made par- ties in the F & C case. Then, after panel rehearing was granted, both sides advanced precisely the opposite of the arguments that one would have expected them to make when the counterclaims were filed. TETCO offered a long list of reasons why its own counterclaims were defective: the counterclaims were never served, and the excess insur- ers did not waive their objections to personal jurisdiction; the  counterclaims  were  improper  under  Fed.  R.  Civ.  P.

13(h) and, in any event, the district court never decided whether,  in the exercise of its discretion,  it would per- mit the excess insurers to be joined under that provision; and  finally,  since  there  was  no  independent  federal  ju- risdictional basis for TETCO's counterclaims against the excess insurers, the district court could not, under Finley v. United States, 490 U.S. 545, 104 L. Ed. 2d 593, 109

S. Ct. 2003 (1989), exercise jurisdiction over them. The carriers responded with an equally lengthy list of reasons why  the  excess  insurers  had  properly  been  made  par- ties. Agreeing with the carriers,  the majority rejects all of TETCO's arguments.   **60   Among other things, the majority finds that the excess insurers waived their objec- tions to personal jurisdiction by litigating in the district court, and the majority adopts a narrow (and, to my mind, questionable) interpretation of Finley.

I  think  it  is  inadvisable  for  the  panel  to  delve  into these  questions  at  this  juncture.  For  example,  I  would not, at the rehearing stage, decide whether the excess in- surers participated in the F & C case (as opposed to the other two cases) so as to be deemed to have waived their objections to personal jurisdiction;  this is a fact-bound question never addressed by the district court. Nor would I rush to decide whether, despite Finley, the district court could exercise subject matter jurisdiction over the coun- terclaims.

Beginning in September 1988, when the district court rejected TETCO's jurisdictional challenges to the Texas Eastern and AEGIS actions, the proceedings in the three consolidated cases went forward on the premise that the court had jurisdiction in all three

15 F.3d 1230, *1249; 1994 U.S. App. LEXIS 362, **60;

25 ELR 21102

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*1249   actions. Hence, when the district court granted summary  judgment  against  TETCO,  it  issued  a  single order bearing the multidistrict litigation docket number assigned **61    to all three consolidated cases. Since I believe that the district court lacked jurisdiction in two of those actions, I would vacate that order and remand the F & C case to the district court. The district court could then, in the first instance, rule on whatever arguments the parties  chose  to  pursue.  If  necessary,  the  district  court

could  also,  in  the  first  instance,  decide  the  fact-bound question whether the excess insurers waived any objec- tions to personal jurisdiction in the F & C case as a result of  participating  in  it.  Until  the  district  court  has  ruled, however,  I  do  not  think  that  our  court  should  consider the long list of questions --  some highly artificial, some fact-bound, and some legally difficult --  that the parties advanced with respect to these counterclaims after panel rehearing was granted.

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