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Wesco Insurance Co. v. Southern Management Services, Inc.

United States District Court, N.D. Alabama, Southern Division

April 13, 2017

WESCO INSURANCE COMPANY, Plaintiff,
v.
SOUTHERN MANAGEMENT SERVICES, INC., et al., Defendants.

          MEMORANDUM OPINION

          R. DAVID PROCTOR UNITED STATES DISTRICT JUDGE

         This matter is before the court on Defendants' Amended Motion to Dismiss Plaintiff's Amended Petition for Declaratory Relief. (Doc. # 22). The Motion is fully briefed. (Doc. # 24, 25)[1]. In their Motion, Defendants argue that in addition to this declaratory judgment action, there is a pending “parallel proceeding” in state court, and that this court should exercise its discretion and decline to declare the parties' rights in this case. After careful review, the court agrees.

         I. Background

         On December 7, 2016, Plaintiff filed its Complaint in this declaratory judgment action, which requests this court to declare the rights and obligations of the parties with regard to issues of coverage for the alleged loss and destruction of a 2015 Morbark Flail Chiparvestor chipper. (Doc. # 1). The Complaint was served on Defendants, and Defendant Southern Management Services, Inc. (“SMS”) signed a formal waiver of service. (Doc. # 24 at ¶ 2). On January 5, 2017, Defendants SMS and Raughton filed an action in state court alleging claims of breach of contract, bad faith, and fraud against Plaintiff Wesco Insurance Company. (Doc. # 7-2). In the state court action, Defendants SMS and Raughton also plead other claims arising from the destruction of the chipper against entities which are not parties in this declaratory judgment action. (Id. at ¶¶ 88-118).

         On February 6, 2017, Defendants filed a motion to dismiss which argued that the court should (1) abstain from hearing this action under the Wilton/Brillhart doctrine or (2) dismiss this action for failure to state a claim. (See Doc. # 7). Following this motion, Plaintiff filed an Amended Petition for Declaratory Judgment. (Doc. # 15). On March 28, 2017, Defendants filed an amended motion to dismiss, directed at the operative complaint. (Doc. # 22). This amended motion again argued that the court should abstain from hearing this action or dismiss count two of Plaintiff's Amended Petition. (Id.).

         II. Analysis

         While it proceeds under two different theories, Plaintiff's Complaint in this action sounds exclusively in a request for declaratory judgment.[2] “[T]he Declaratory Judgment Act is properly 'understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants.'" Lexington Ins. Co. v. Rolison, 434 F.Supp.2d 1228, 1233 (S.D. Ala. 2006) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)). “[C]ourts in this Circuit have long recognized that they have discretion to '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[, ]'" i.e., where a parallel state court action exists. State Farm Fire and Cas. Co. v. Knight, 2010 WL 551262, *2 (S.D. Ala. 2010) (citation omitted); Pennsylvania National Mutual Cas. Ins., Co. v. King, 2012 WL 280656 (S.D. Ala. 2012). The Eleventh Circuit has observed that the 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 Ins. Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir. 2005). “'The desire of insurance companies ... to receive declarations in federal court on matters of purely state law has no special call on the federal forum.'" Lexington Ins. Co., 434 F.Supp.2d at 1233 (quoting State Auto Ins. Companies v. Summy, 234 F.3d 131, 136 (3rd Cir.2000)).

         This court has discretion to “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 emphasized that considerations of federalism, comity, and efficiency require district courts to balance federal and state interests in determining how (and whether) to exercise their discretion to hear a declaratory judgment action in the face of a parallel state action. Ameritas Variable Life Ins. Co., 411 F.3d at 1330-31.

         As our Circuit has explained, “when federal and state proceedings involve substantially the same parties and substantially the same issues" they are sufficiently parallel. Ambrosia Coal and Const. Co. v. Pages Morales, 368 F.3d 1320, 1330 (11th Cir. 2004) (addressing the Colorado River abstention analysis); see Scottsdale Ins. Co. v. Detco Industries, Inc., 426 F.3d 994, 997 (8th Cir. 2005) (“For purposes of Wilton abstention analysis, '[s]uits are parallel if substantially the same parties litigate substantially the same issues in different forums."). The Eleventh Circuit has provided a list of factors to inform federal courts' discretionary decisions about whether to abstain from exercising jurisdiction over state-law claims in the face of parallel litigation in the state courts:

(1) the strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts;
(2) whether the judgment in the federal declaratory action would settle the controversy;
(3) whether the federal declaratory action would serve a useful purpose in clarifying the legal relations at issue;
(4) whether the declaratory remedy is being used merely for the purpose of “procedural fencing"- that is, to provide an arena for a race for res judicata or to achieve a federal hearing in a case otherwise not removable;
(5) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly ...

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