United States District Court, N.D. Alabama, Southern Division
MADELINE HUGHES HAIKALA, District Judge.
In this declaratory judgment action, plaintiff Auto-Owners Insurance Company asks the Court to declare that under the terms of a commercial general liability policy that Auto-Owners issued to defendant Premiere Restoration & Remodeling, Inc., Auto-Owners does not have a duty to continue to defend or indemnify Premiere against a $125, 051.00 default judgment in an underlying state court action. The other defendants in this case, William Newell Sheridan and Cynthia P. Sheridan, are the plaintiffs in the state court lawsuit.
According to Auto-Owners, Premiere violated the terms and conditions of the policy when Premiere failed to cooperate with Auto-Owners and the attorney Auto-Owners provided to represent Premiere in the state court action that the Sheridans filed. Pursuant to Federal Rule of Civil Procedure 55, Auto-Owners seeks a default judgment against Premiere for Premiere's failure to answer or otherwise defend this action. Pursuant to Federal Rule of Civil Procedure 56, Auto-Owners seeks judgment as a matter of law against the Sheridans. The Court grants Auto-Owners's motions because Premiere violated the terms and conditions of the policy by failing to cooperate with Auto-Owners in defending in the underlying state court action. The Court explains its decision in greater detail below.
STANDARD OF REVIEW
I. Default Judgment
Federal Rule of Civil Procedure 55(a) provides that "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Fed.R.Civ.P. 55(a). Auto-Owners filed a motion for entry of default against the defendants accompanied by proof of service and an affidavit. (Docs. 26, 26-1, 27, 27-1). The Clerk entered default against Premiere on September 25, 2014. (Doc. 28).
The entry of default does not by itself warrant an entry of default judgment. Rather, there must be a sufficient basis in the pleadings for the judgment. Khufu El v. Platinum Home Mortgage Servs., Inc., 490 Fed.Appx. 306, 307 (11th Cir. 2012) (citing Nishimatsu Constr. Co v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)). To decide whether there is a sufficient basis for an entry of default judgment, the Court must review the complaint and its underlying merits. See Stegeman v. Georgia, 290 Fed.Appx. 320, 323 (11th Cir. 2008) (citation omitted). Although "a defaulted defendant is deemed to admit the plaintiff's well-pleaded allegations of fact, " Tyco Fire & Sec., LLC v. Alcocer, 218 Fed.Appx. 860, 863 (11th Cir. 2007), the Court has "an obligation to assure that there is a legitimate basis" for the judgment. Anheuser Busch, Inc. v. Philpot, 317 F.3d 1264, 1266 (11th Cir. 2007). In other words, "a default judgment cannot stand on a complaint that fails to state a claim." Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1370 n. 41 (11th Cir. 1997).
II. Summary Judgment
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A party opposing a motion for summary judgment must identify disputed issues of material fact by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed.R.Civ.P. 56(c). When considering a summary judgment motion, the Court must view the evidence in the record in the light most favorable to the non-moving party. Moton v. Cowart, 631 F.3d 1337, 1341 (11th Cir. 2011). "The court need consider only the cited materials, but it may consider other materials in the record." Fed.R.Civ.P. 56(c)(3).
I. Underlying State Court Action
On March 2, 2011, the Sheridans sued Premiere, Jerry Sulzby, Rodney Bates, and Gary Thompson in the Circuit Court of Jefferson County, Alabama. The Sheridans alleged that in July 2010, they entered into a contract with Premiere. In the contract, Premiere agreed to construct a new home for the Sheridans after a fire destroyed their previous residence. (Doc. 1-1, ¶¶ 7-9). The contract obligated Premiere to construct the new home for the amount the Sheridan's insurance company had agreed to pay for reconstruction. (Doc. 1-1, ¶ 11). Despite being paid half the contract price, Premiere did not complete construction of the home in compliance with the contract specifications. The Sheridans claimed that the work performed by Premiere is faulty and fails to meet industry standards. The home continued to sustain damage because Premiere left the home unprotected from the weather and elements. (Doc. 1-1, ¶¶ 12-30). The Sheridans contend it would cost more than $185, 000.00 to finish construction of the house to meet the contract specifications and to repair the faulty construction that Premiere had performed to date. (Doc. 1-1, ¶ 33). The Sheridans were unable to obtain additional funds from their insurance company to complete construction of the home, and numerous subcontractors threated to file liens due to Premiere's failure to pay amounts due to them for work performed on the home and for which the Sheridans had paid Premiere. (Doc. 1-1, ¶¶ 36-37). Premiere refused to execute a release of liens against the project, which prevented the Sheridans from obtaining funds to pay a third party to finish the work. (Doc. 1-1, ¶ 39). The Sheridans claimed they missed work, lost wages, and suffered mental anguish, pain, and suffering due to Premiere's actions.
The Sheridan's state court complaint asserted claims for: (1) breach of contract; (2) negligent construction; (3) wantonness; (4) fraudulent misrepresentation; (5) fraudulent suppression; (6) breach of warranty; and (7) bad faith. (Doc. 1-1, pp. 7-12). The Sheridans sought compensatory and punitive damages. (Doc. 1-1, p. 13).
On August 1, 2011, the Sheridans served Premiere with interrogatories and requests for production. (Doc. 19-4, pp. 2-8). Premiere made a claim with Auto-Owners for it to provide a defense and indemnification. Pursuant to Commercial General Liability Policy number XXXXXX-XXXXXXXX-XX, Auto-Owners provided a defense in the underlying case under a reservation of rights. (Doc. 1, ¶ 10; Doc. 19-5, pp. 2-3, 5-11). On May 14, 2012, Auto-Owners sent Premiere a letter requesting Premiere's assistance in responding to the Sheridans' discovery requests. (Doc. 19-5, p. 17). On January 16, 2013, Auto-Owners sent another letter to Premiere requesting assistance in completing the discovery requests. Auto-Owners asked for a response "as quickly as possible" to avoid adverse court action. (Doc. 19-5, p. 20). On March 13, 2013, Auto-Owners sent Premiere a letter explaining that counsel "ha[d] been unable to reach you and thereby unable to appropriately respond and participate in the ongoing discovery" in the state court action. (Doc. 19-5, p. 13). The letter ...