United States District Court, S.D. Alabama, Southern Division
CALLIE V. S. GRANADE, District Judge.
This matter is before the Court on the motion to abstain and dismiss, or stay (Docs. 39, 40), filed by All Crane Rental of Alabama, LLC ("All Crane"), TEK Aerial Lifts, LLC ("TEK"), and Cincinnati Insurance Company ("CIC") (collectively, "Defendants"). New Hampshire Insurance Company ("NHIC") responded and asked this Court to deny the motion to abstain and dismiss, or alternatively to stay the case until a motion to dismiss in a similar state action is decided. (Doc. 45). Defendants replied to NHIC's response, (Doc. 46), and NHIC filed a surreply. (Doc. 50). For the reasons stated below, Defendants' motion to dismiss is due to be granted, and the motions to stay are due to be denied as moot.
This declaratory judgment action concerns insurance coverage and apportioning the damages from a verdict awarded to Christopher Brock Hill. Hill sued Defendants, SMP Welding, LLC ("SMP"), and others in state court after he sustained injuries while working on a manlift at the ThyssenKrupp Steel & Stainless USA, LLP ("TK") plant outside Mobile, Alabama. (Doc. 40, pp. 7-8). At the time of the accident, Hill was a Canadian citizen and a Mississippi resident. (Doc. 40, Exh. 3, p. 2). TEK, an Ohio LLC, owned the manlift. (Doc. 40, Exh. 3, p. 1). SMP leased the manlift from All Crane, a TEK affiliate. SMP and All Crane are also Ohio LLCs. (Doc. 40, Exh. 3, p. 1). CIC, an Ohio corporation, provided commercial general liability coverage for SMP. NHIC, a corporate citizen of New Hampshire and New York, issued a commercial general liability policy that provided coverage to TK as well as certain other parties at the plant. (Doc. 40, p. 5, n. 2).
Following a jury trial, Hill obtained a $1.7 million verdict in his favor. The verdict consisted of $1, 000, 000 in compensatory damages against SMP, All Crane, and TEK, and $700, 000 in punitive damages against All Crane. (Doc. 40, p. 10). That case is currently on appeal to the Alabama Supreme Court. (Doc. 45, p. 5).
On March 6, 2014, NHIC filed this action, seeking four determinations related to the underlying Hill verdict: (1) that NHIC has no duty to defend or indemnify All Crane under the policy it issued to TK; (2) that NHIC has no duty to fund the judgment awarded Hill against All Crane and TEK; (3) apportion payment of the compensatory damages award among the parties; and (4) apportion payment of the damages award against All Crane between NHIC and CIC. (Doc. 1, pp. 6-11). NHIC did not include SMP as a party to this action. On April 16, 2014, Defendants filed motions to dismiss pursuant to Rule 12(b)(7) for failure to join a party, SMP, under Rule 19. (Docs. 19, 22). This Court determined SMP is not a necessary or indispensable party to this action (Doc. 32), and NHIC admits SMP is entitled to coverage under its policy (Doc. 45, p. 4).
On June 20, 2014, Defendants filed a separate lawsuit in the Circuit Court of Mobile County, Alabama that challenges the actions of NHIC and SMP during the Hill case. (Doc. 40, Exh. 3). The complaint in that action, which is attached as an exhibit to Defendants' motion, includes several allegations and counts: (1) false statements made by NHIC; (2) negligence or wantonness by NHIC; (3) SMP's breach of the lease; (4) SMP's breach of forbearance agreement; (5) promissory fraud by SMP; (6) conspiracy to commit promissory fraud by NHIC; and (7) negligent or bad faith failure to settle by NHIC. (Doc. 40, Exh. 3, pp. 11-15). Defendants also seek a declaratory judgment regarding the rights and obligations of All Crane, TEK, SMP, and NHIC under the lease agreements and insurance policies. (Doc. 40, Exh. 3, pp. 15-17).
Defendants now move this court to dismiss because (1) there are duplicative issues raised in the pending state action filed June 20, 2014, (2) the initial Hill lawsuit remains pending before the Alabama Supreme Court, and (3) the Ameritas factors weigh in favor of abstention. (Doc. 39, pp. 1-2). Alternatively, Defendants wish to have this case stayed pending resolution of the action in state court. (Doc. 39, p. 1). NHIC argues Defendants' state claims should have been filed in federal district court as compulsory counterclaims, and the state court must dismiss the June 20 action pursuant to Alabama's abatement statute.(Doc. 45, pp. 2, 8; Doc. 50, pp. 2-3). A state court hearing is scheduled for October 10, 2014 regarding NHIC's motion to dismiss Defendants' state action. (Doc. 45, p. 13).
1. The Alabama Abatement Statute in Federal Court
NHIC asserts the state action must be dismissed pursuant to Alabama's abatement statute, emphasizing that it filed this action first. See Ala. Code § 6-5-440 (1975); (Doc. 50, p. 2). NHIC further argues Defendants must file their claims "against NHIC in the state action" as compulsory counterclaims in federal court. (Doc. 45, p. 8). Alabama's abatement statute "stands for the proposition that a person cannot prosecute two suits at the same time, for the same cause against the same party." Johnson v. Brown-Service Ins. Co. , 307 So.2d 518, 520 (Ala. 1974). The statute treats a defendant asserting a counterclaim as a plaintiff and thus may bar that defendant from asserting the same claim in another, simultaneous or later lawsuit. Penick v. Cado Sys. of Cent. Ala. Inc. , 628 So.2d 598, 599 (Ala. 1993) (holding a compulsory counterclaim is an action for abatement statute purposes).
The abatement statute argument is not for this Court to decide. Am. Cas. Co. of Reading, Pa. v. Skilstaf, Inc. , 695 F.Supp.2d 1256, 1260 (M.D. Ala. 2010) (for a district court sitting in diversity, Alabama's abatement statute does not control the decision to retain or dispose of the litigation).Rather, the state court is responsible for determining whether the abatement statute is applicable to the state action. This Court must only consider the abatement statute if it creates a procedural bar to any state claims. L.A. Draper & Son v. Wheelabrator-Frye, Inc. , 735 F.2d 414, 430 (11th Cir. 1984) (in a case based on federal question jurisdiction, district court erred when it did not consider Alabama's abatement statute as a procedural bar before dismissing state claims). Additionally, NHIC's argument is speculative; it assumes the state court will dismiss the state action. (Doc. 45, p. 8); Ex parte Compass Bank , 77 So.3d 578, 582-86 (Ala. 2011) (collecting cases, discussing how state courts have applied the abatement statute at various stages of state proceedings). For these reasons, the Court first considers whether exercising jurisdiction over the case is appropriate. If the Court decides to dismiss the case, then it must determine whether the abatement statute creates a procedural bar for any state claims.
2. The Court should abstain from exercising jurisdiction.
The Declaratory Judgment Act is an enabling Act that "confers a discretion on the courts rather than an absolute right upon the litigant." Wilton v. Seven Falls Co. , 515 U.S. 277, 287 (1995) (citations and quotations omitted). It only gives the federal courts competence to make a declaration of rights; it does not impose a duty to do so. Brillhart v. Excess Ins. Co. of Am. , 316 U.S. 491, 497 (1942). In fact, "it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Id . at 495. In determining how to exercise the discretion provided by the Declaratory Judgment Act, it bears noting "[t]he desire of insurance companies... to receive declarations in federal court on matters of purely state law has no special call on the federal forum." Pa. Nat'l. Mut. Cas. Ins. Co. v. King , 2012 WL 280656, at *2 (S.D. Ala. Jan. 30, 2012) (citation and quotation omitted).
In Ameritas Variable Life Ins. Co. v. Roach, the Eleventh Circuit listed factors for district courts to consider when faced with a federal declaratory action and a parallel state court action. 411 F.3d 1328, 1331 (11th Cir. 2005). Those factors include:
(1) the strength of the state's interest in having the issues raised in the federal declaratory action ...