The Travelers Indemnity Company v. The Plantation Oaks of Alabama, Inc. et al

Filing 29

OPINION AND ORDER as follows: (1) The 14 Motion to Dismiss is granted to the extent that the proceedings in this case are stayed; (2) The proceedings in this case are stayed; (3) On or before June 30 and December 31 of this year and each year thereafter, the parties are to file a joint report as further set out; and (4) The Clerk of the Court is to close this case administratively. Signed by Honorable Myron H. Thompson on 3/31/2009. (Attachments: # 1 Civil Appeals Checklist)(cb, )

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION

THE TRAVELERS INDEMNITY COMPANY, as successor to Gulf Insurance Company, Plaintiff, v. THE PLANTATION OAKS OF ALABAMA, INC., et al., Defendants.

) ) ) ) ) ) ) ) ) ) ) )

CIVIL ACTION NO. 3:08cv637-MHT (WO)

OPINION AND ORDER Plaintiff Travelers Indemnity Company filed this

lawsuit under the Declaratory Judgment Act of 1984, 28 U.S.C. § 2201(a), seeking a declaratory judgment that it need not defend or indemnify the defendants (Plantation Oaks, a hunting resort in Macon County, Alabama, and its owners Hilda, Robert and Bo Pitman ("Plantation Oaks parties")) against the claims of certain third parties and that it does not owe any coverage for the claims of these third parties. Travelers Indemnity contends that

the Plantation Oaks parties failed to notify Travelers

Indemnity of these claims in a timely manner and that some claims are excluded from the terms of coverage. Travelers Indemnity properly invoked this court's diversity-of-citizenship jurisdiction, as the parties are diverse and the amount in controversy exceeds $ 75,000. 28 U.S.C. § 1332. Before the court is a motion to The motion will

dismiss filed by some of the defendants.

be granted to the extent that the proceedings in this case will be stayed.

I. A.

BACKGROUND

Underlying litigation

In September 2004, Stephanie M. Fitzpatrick, Larry V. Glass, John Glass, Roy Kirk, and Willie Kirk

("Fitzpatrick parties") filed a lawsuit in state court against the Plantation Oaks parties. In October 2005,

Willie Kirk Jr. ("Kirk") filed a separate lawsuit in state court against the same defendants. Both Kirk and

the Fitzpatrick parties own property abutting Plantation

2

Oaks,

and,

among

many

other

things,

allege

that,

beginning in 2003, the Plantation Oaks parties interfered with their access to their properties by improperly

identifying certain roads as private roads, rerouting these roads, and engaging in other related acts. Kirk

also alleges that the Plantation Oaks parties improperly removed timber from his property. these lawsuits, Travelers Prior to the filing of predecessor in

Indemnity's

business, Gulf Insurance Company, had issued several commercial liability-insurance policies to the Plantation Oaks parties. Kirk's lawsuit settled and was dismissed. The

Fitzpatrick parties were awarded summary judgment on their claim that certain roads were public roads; that judgment is currently on appeal. The related issue of

damages has been stayed pending resolution of the appeal.

3

B.

Parallel state proceedings

On August 1, 2008, the Plantation Oaks parties filed suit in state court against Travelers Indemnity and agent Rickey Elliott. This suit seeks damages for state-law

breach of contract and bad faith against the insurance company and damages for negligence against Elliott for failing to forward information from the Plantation Oaks parties, regarding the Fitzpatrick and Kirk claims, to the insurance company. On August 25, the complaint was

amended to add a count for a declaratory judgment that the Plantation Oaks parties timely notified Travelers Indemnity of the potential claims and that the insurance company has a duty to defend and indemnify the Plantation Oaks parties against the claims of Kirk and the

Fitzpatrick parties. Kirk and the Fitzpatrick parties subsequently filed a motion to dismiss and an alternative motion to stay the proceeding until the underlying litigation is resolved.

4

C.

Federal declaratory-judgment action

On August 7, Travelers Indemnity filed this federalcourt lawsuit for a declaratory judgment that it does not owe coverage for the claims of Kirk and the Fitzpatrick parties, and that it has no duty to defend or indemnify the Plantation Oaks parties against such claims. The

federal action does not assert any claims that are not in the state-court proceeding.

II.

ANALYSIS

A district court is "under no compulsion" to exercise its jurisdiction" under the Declaratory Judgment Act. Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942); Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). When a parallel state action is pending, a

federal court's exercise of its discretion to hear a declaratory-judgment principles of action should comity, be and guided by

federalism,

efficiency.

Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328,

5

1330-31 (11th Cir. 2005).

"Gratuitous interference with

the orderly and comprehensive disposition of a state court litigation should be avoided." at 495. Brillhart, 316 U.S.

Generally, it is "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.

The Eleventh Circuit Court of Appeals has enumerated a non-exhaustive list of "guideposts" to be considered by federal courts in determining action when whether parallel to hear a

declaratory-judgment

state-court

proceedings are pending: (1) the state's interest in determining the matter; (2) whether the federal action would resolve the controversy; (3) whether the federal action would clarify the parties' legal relations; (4) whether the federal action is a form of "procedural fencing" being utilized "to provide an arena for a race for res judicata or to achieve a federal hearing in a

6

case not otherwise removable"; (5) whether a judgment in the federal action would heighten tension between federal and state courts or otherwise encroach on state

proceedings; (6) whether a superior alternative remedy exists; (7) whether underlying facts are important to informed resolution of the matter; (8) whether the state court is better situated to evaluate those facts; and (9) the nexus (if any) between the underlying issues and state law and policy, and whether federal common or statutory law requires resolution of the declaratory action. Id. at 1331 (adopting factors announced in

Scottsdale Ins. Co. v. Roumph, 211 F.3d 964 (6th Cir. 2000), and Centennial Life Ins. Co. v. Poston, 88 F.3d 255 (4th Cir. 1996)). As explained more fully below, after applying the Ameritas factors to this case, the court holds that it should decline to hear the case. For the sake of brevity

and because the Ameritas factors overlap to some degree,

7

the

court

groups

related

factors

together

in

its

analysis.

A.

Relative effectiveness of a federal judgment

The second, third, and sixth Ameritas factors address the relative effectiveness of a judgment in the federal action. They address whether a federal judgment would

resolve the controversy or lend clarity to the parties' legal relationship and whether a superior alternate

remedy exists.

In this case, although a federal judgment

would lend clarity to the parties' legal relationship, a ruling would not necessarily settle the controversy. Travelers Indemnity's declaratory-judgment action does not capture the full set of issues pending in state court. For example, if this court were to rule that

Travelers Indemnity is obligated to cover and defend the Plantation Oaks parties, that would not resolve the

Plantation Oaks parties' assertion in the parallel state 8

suit that the insurance company acted in bad faith.

See,

e.g., State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 318 (Ala. 1999) (explaining that a claim of bad faith not only requires a contractual breach, but also requires a showing that the insurance company failed to properly investigate the claim). Likewise, because

Elliott is not a party in this federal action, a ruling from this court would not answer whether Elliott is liable because he negligently failed to forward

information from the Plantation Oaks parties to Travelers Indemnity. Because these issues are before the state

court, but not this court, this court further concludes that the sixth factor, the presence of a more effective alternate remedy, also counsels against hearing the case. The better approach is for these issues to be determined together in one court, rather than allowing piecemeal, fractured litigation to emerge between the federal and state courts. Angora Enters., Inc. v. Condo. Ass'n of

Lakeside Village, 796 F.2d 384. 389 (11th Cir. 1986)

9

(highlighting

the

importance

of

"avoiding

piecemeal

litigation" in federal and state courts). then, the in second, favor third, of and sixth to

On balance, factors federal

Ameritas exercise

counsel

declining

jurisdiction.

B. Whether the state court is in a better position to decide factual questions The seventh and eighth Ameritas factors also counsel in favor of declining jurisdiction. district courts to consider Those factors urge the underlying

"whether

factual issues are important to an informed resolution of the case" and, if so, "whether the state trial court is in a better position to evaluate those factual issues than is the federal court." Travelers Indemnity alleges Ameritas, 411 F.3d at 1331. that it need not cover

Plantation Oaks in part because Plantation Oaks did not immediately communicate to it that potential claims had arisen. Plantation Oaks contends that it did, in fact,

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attempt to inform Travelers Indemnity through Elliott. Resolving the factual questions of what was communicated to whom and when would be central to this court's

resolution of this coverage issue.

Because Elliott is

already a party to the state-court proceeding, the state court is in a better position to resolve the factual dispute in a way that is binding on all. Further, it is

certainly better for one court to make this factual determination, rather than for two courts to duplicate each other's efforts.

C. Whether the parties are engaging in procedural fencing The fourth Ameritas factor, whether either party is engaging in procedural fencing, is a wash. The timing of

the federal action is somewhat suspicious, as it was filed only after the Fitzpatrick parties had obtained a judgment against the Plantation Oaks parties, and less than a week after a parallel suit was filed in state court by the Plantation Oaks parties. 11 However, counsel

for Travelers Indemnity represent that they were not aware of the parallel state suit at the time they filed this action. Moreover, the Plantation Oaks parties'

amendment adding a count for declaratory judgment against Travelers Indemnity in the parallel state proceeding is equally suspicious in timing; this count was added after the federal action was filed. Thus, the fourth factor is

not a particularly useful guidepost in the instant case.

D. The relative interests of the state and federal courts in adjudicating the case The remaining three factors (the first, fifth, and ninth) also counsel in favor of declining jurisdiction. These factors consider the relative interests of the state and federal courts in adjudicating the matter, as well as whether the federal court's exercise of

jurisdiction could increase friction between state and federal courts.

12

It is plain that the state courts have a far stronger interest in adjudicating this matter and that exercising jurisdiction here, when identical state-court proceedings are already pending, could cause friction. would be interpreting to an Alabama insurance business, policies an This court issued in

Alabama

endeavor

that The

primarily implicates Alabama, not federal, law.

State of Alabama has a significant interest in these coverage issues. See Lexington Ins. Co. v. Rolison, 434

F. Supp. 2d 1228, 1239 (S.D. Ala. 2006) (Steele, J.) (dismissing substantial a federal action in a because question Alabama of had a

interest

state

law

concerning whether an insurance contract issued to an Alabama business would cover a particular state-court judgment). The legal issues raised here are exclusively

within the purview of Alabama state law and policy, and federal law does not "dictate[] a resolution of the declaratory judgment action," Ameritas, 411 F.3d at 1331, a fact that further weighs in favor of abstaining. See

13

Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 390-91 (5th Cir. 2003) (finding that "if the federal declaratory judgment action raises only issues of state law and a state case involving the same state-law issues is pending, generally the state court should decide the case and the federal court should exercise its discretion to dismiss the federal suit"). A federal court without

a strong interest in the matter, deciding exclusively state-law questions, could "increase the friction between ... federal and state courts." 1331. Further, proceeding with the federal action would result in a federal court and a state court Ameritas, 411 F.3d at

simultaneously wrestling with overlapping questions of state law, with the likely possibility that one court would rule upon the merits before the other, potentially rendering the second court's efforts futile. of federal jurisdiction commitment of in such a "Exercise risks

situation

unnecessary

scarce

judicial

resources,

14

multiplicative

expenditures

of

legal

services,

inconsistent rulings at numerous litigation junctures, and the appearance of disregard for the state trial court's authority and expertise in violation of basic norms of federal and state comity." United States

Fidelity & Guar. Co. v. Algernon-Blair, Inc., 705 F. Supp. 1507, 1514 (M.D. Ala. 1988) (Thompson, J.). In sum, the Ameritas over guideposts this strongly favor

declining action.

jurisdiction

declaratory-judgment

Nevertheless, because a dismissal motion is

pending in the parallel state-court action and, thus, because it is unclear whether the state-court action will remain pending, this court will await the state-court's action on the dismissal motion and, for now, stay this federal lawsuit rather than dismiss it. See Wilton, 515

U.S. at 286 (district courts "have substantial latitude in deciding whether to stay or to dismiss a declaratory judgment suit in light of pending state proceedings").

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*** Accordingly, it is ORDERED as follows: (1) The defendants' motion to dismiss (doc. no. 14) is granted to the extent that the proceedings in this case are stayed. (2) The proceedings in this case are stayed. (3) On or before June 30 and December 31 of this year and each year thereafter, the parties are to file a joint report regarding the status of the parallel state-court proceedings. (4) The clerk of this court is to close this case administratively. DONE, this the 31st day of March, 2009.

/s/ Myron H. Thompson UNITED STATES DISTRICT JUDGE