United States District Court, S.D. Alabama, Southern Division
WILLIAM H. STEELE, Chief District Judge.
This matter is before the Court on the defendants' motion to dismiss. (Doc. 15). The parties have filed briefs and evidentiary materials in support of their respective positions, (Docs. 15, 20, 21, 28), and the motion is ripe for resolution.
A bit of background is in order. In June 2010, the defendants herein ("the Andrews plaintiffs") sued South Alabama Utilities ("SAU") in state court in a dispute over water quality ("the Andrews lawsuit"). The parties settled in April 2014, and a consent judgment was entered on October 3, 2014. (Doc. 15 at 2; Doc. 15-1 at 31).
The plaintiff herein ("Argonaut") insured SAU but denied coverage for the Andrews lawsuit. In November 2010, SAU sued Argonaut in state court for a declaration that Argonaut owed it defense and indemnity ("the coverage lawsuit"). In May 2013, the state court ruled that Argonaut owed SAU a defense. On October 14, 2014, the state court granted the Andrews plaintiffs' motion to intervene in the coverage lawsuit. The Andrews plaintiffs filed their complaint in intervention on October 22, 2014. SAU and the Andrews plaintiffs filed a motion for summary judgment in December 2014, which motion was set for oral argument in February 2015. (Doc. 15 at 2-3; Doc. 15-1 at 12-18, 32; Doc. 28 at 1).
Argonaut filed this action on October 30, 2014, seeking a declaration that it does not owe any duty to the Andrews plaintiffs, including that of satisfying the consent judgment in the Andrews lawsuit. (Doc. 1 at 9). While the Andrews plaintiffs are named as defendants herein, SAU (Argonaut's insured), is not. The relief Argonaut seeks in this action against the Andrews plaintiffs is the mirror image of the relief the Andrews plaintiffs - and SAU - seek in the coverage lawsuit.
Because the parties are completely diverse and the amount in controversy exceeds $75, 000, the Court has subject matter jurisdiction. However, the Declaratory Judgment Act "only gives the federal courts competence to make a declaration of rights; it does not impose a duty to do so." Ameritas Variable Life Insurance Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir. 2005). In particular, "[i]n its discretion, a district court may decline to entertain a declaratory judgment action on the merits when a pending proceeding in another court will fully resolve the controversy between the parties." Ven-Fuel, Inc. v. Department of the Treasury, 673 F.2d 1194, 1195 (11th Cir. 1982).
The Eleventh Circuit has identified a number of factors for a court to consider when weighing whether to exercise its discretion to hear a state-law action "in the face of parallel litigation in the state courts." Ameritas, 411 F.3d at 1331 (internal quotes omitted). Argonaut denies that the coverage lawsuit is parallel litigation, on the grounds that the Andrews plaintiffs intervened before the 30-day period provided in Alabama's direct action statute had expired. (Doc. 20 at 7-9, 11). Argonaut concludes that the Andrews plaintiffs therefore "did not have standing" to intervene and that the state court "had no subject matter jurisdiction to grant" intervention. ( Id. at 8). "As the trial court had no subject matter jurisdiction over the Defendants' claims against Argonaut in the State Court case, Defendants have no claims properly pending against Argonaut in the State Court case." ( Id. at 9).
The unstated, unsupported premise of Argonaut's argument is that any error in the timing of the Andrews plaintiffs' intervention was not cured by the passage of time such that they became proper plaintiffs on November 3, 2014. The single case on which Argonaut relies, (Doc. 20 at 8-9), does not remotely address that issue. More importantly, Argonaut has already moved to undo the Andrews plaintiffs' intervention on the same grounds, and the state court has denied its motion. (Doc. 20-9 at 2-5; Doc. 28-1 at 2). Therefore, regardless of whether Argonaut believes the state court to be in error, the Andrews plaintiffs are in fact parties to the coverage lawsuit.
In a further effort to avoid characterization as parallel litigation, Argonaut scrambles to identify distinctions between the two lawsuits: (1) SAU is not a party to this action; (2) Burkholder Insurance, which SAU sued in the coverage lawsuit, is not a party to this action; (3) SAU sued Argonaut for breach of contract and bad faith, which claims are absent here; and (4) the coverage lawsuit deals "exclusively" with duty to defend, leaving this as the only action addressing duty to indemnify. (Doc. 20 at 11-12).
It is true that SAU is not a party to this action, but Argonaut has not explained how this works to its advantage. As the Court has noted, "[i]n this context, suits are parallel if substantially the same parties litigate substantially the same issues in different forums." Pennsylvania National Mutual Casualty Insurance Co. v. King, 2012 WL 280656 at *4 (S.D. Ala. 2012) (emphasis added, internal quotes omitted). Especially since SAU and the Andrews plaintiffs share a common interest in the policy proceeds,  the two actions involve substantially the same parties despite the absence of SAU.
That the state suit is broader than this one, in that it includes claims against Argonaut for compensatory and punitive damages and claims against a third party, is likewise immaterial to whether the two actions are parallel. In Ameritas, the insurer's federal lawsuit, as here, sought only a declaration of rights and obligations under its policy, while in the state lawsuit the insured sued the insurer for breach of contract and negligence and an agent and his employer for negligence. Despite these distinctions, the Eleventh Circuit described the insured's lawsuit as "a parallel state court action." 411 F.3d at 1329-30.
If it were correct that the coverage lawsuit involves only the duty to defend, the two actions probably could not be considered parallel. But both SAU's complaint and the Andrews plaintiffs' complaint in intervention expressly assert a duty to indemnify/pay amounts due under the settlement agreement. (Doc. 15-1 at 8, 23-25). Argonaut elsewhere admits as much. (Doc. 20 at 13).
In sum, the coverage lawsuit constitutes parallel state litigation, triggering application of the Ameritas factors. With little more than its ipse dixit, Argonaut posits that the first, third, fourth, fifth, sixth and eighth Ameritas factors either weigh in its favor or are neutral, such that the Court should exercise its discretion in favor of hearing this action. (Doc. 20 at 12-13). The Court disagrees.
The second Ameritas factor is "whether the judgment in the federal declaratory action would settle the controversy." 411 F.3d at 1331. As noted, Argonaut did not name SAU as a party to this lawsuit, even though SAU has a patent interest in the policy proceeds. Thus, this action cannot bind SAU, and the coverage lawsuit will have to proceed to its conclusion - not only as to the ancillary issues but also as to the very issue presented herein - regardless of what happens here. Argonaut wisely does not suggest that this factor favors it or is neutral. On the contrary, this factor triggers application of the principle that "[g]ratuitious interference with the orderly and comprehensive disposition of a state court litigation should be avoided." Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 495 (1942). It is up to Argonaut ...