Wesco Insurance Company v. Southern Management Services Inc et al
MEMORANDUM OPINION. Signed by Judge R David Proctor on 4/13/2017. (AVC)
2017 Apr-13 AM 08:45
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
WESCO INSURANCE COMPANY,
SERVICES, INC., et al.,
Case No.: 2:16-CV-1955-RDP
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.
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
In addition to the briefs filed in conjunction with Defendants’ amended motion, the parties incorporate
argument from briefs previously filed with court. (See Docs. # 7, 16, 18).
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.).
While it proceeds under two different theories, Plaintiff=s Complaint in this action sounds
exclusively in a request for declaratory judgment. 2 A[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)). A[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 Aonly gives the federal courts competence to make a
Plaintiff’s Amended Petition for Declaratory Relief contains two counts. The first asks the court to
declare that no coverage exists under the policy because Defendant SMS, by way of Defendant Raughton, made
material misrepresentations with the intent to deceive Plaintiff. (Doc. # 15 at p. 16). The second asks the court to
declare that no coverage exists under the policy because the conditions of the policy were not met. (Id. at p. 18).
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). A>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 Adecline 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, Awhen 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) (AFor 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
(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
Aprocedural 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 encroach on state jurisdiction;
(6) whether there is an alternative remedy that is better or more effective;
(7) whether the underlying factual issues are important to an informed resolution
of the case;
(8) whether the state trial court is in a better position to evaluate those factual
issues than is the federal court; and
(9) whether there is a close nexus between the underlying factual and legal issues
and state law and/or public policy, or whether federal common or statutory law
dictates a resolution of the declaratory judgment action.
Ameritas Veritable Life Ins Co., 411 F.3d at 1331. This Alist is neither absolute nor is any one
factor controlling; these are merely guideposts in furtherance of the Supreme Court's
admonitions in Brillhart and Wilton.@ Id. Applying those factors here, and after careful review,
the court concludes it should exercise its discretion in favor of abstention.
Defendants’ State Court Claims Need Not be Pled as Compulsory
Counterclaims in this Action
Plaintiff first argues that the court need not engage in abstention analysis, because
Defendants’ state law claims against Plaintiff are compulsory counterclaims which must be
brought in this action pursuant to Fed. R. Civ. P. 13(a).
But this position fails to take into
account both the court’s “unique and substantial discretion in deciding whether to declare the
rights of litigants,” and the guidance offered by Brillhart. Lexington Ins. Co., 434 F. Supp. 2d at
1233. While Defendants’ state law claims could be compulsory counterclaims in this matter, the
court need only make such a determination after deciding whether to exercise its discretion to
hear the federal declaratory judgment action in the first place. This comports with the Supreme
Court’s admonishment that federal courts avoid “[g]ratuitous interference with the orderly and
comprehensive disposition of a state court litigation.” Brillhart v. Excess Ins. Co. of America,
316 U.S. 491, 495 (1942). Here, the court will not interfere with the pending state court action
by finding the state claims to be compulsory counterclaims in this action without first assessing
whether it should abstain from hearing this action at all. Indeed, if the court adopted Plaintiff’s
position, there would be almost no place for Wilton/Brillhart abstention in situations such as the
one presented here. A plaintiff must do more than win the race to the courthouse before a federal
district court is compelled to hear its declaratory judgment action. See Triple S. Ref. Corp. v. Mt.
Canaan Full Gospel Church, 254 Fed. App’x. 762, 763 (11th Cir. 2007) (“That the action in
state court was filed after the federal complaint in anticipation of the motion to dismiss, is of no
moment.”). And, if a declaratory action plaintiff were rewarded for filing first -- and the court
were to supplant the abstention analysis with a finding that subsequently filed state claims are
compulsory counterclaims -- Wilton/Brillhart abstention would have no place in actions where
state court actions are filed after the federal declaratory judgment complaint.
Instead, in cases such as this (where there is a parallel state proceeding), the court must
engage in this Circuit’s abstention analysis. Only after engaging in such an analysis is a court
tasked with determining whether the claims raised in the state court are compulsory
counterclaims for the federal declaratory action. For the reasons explained below, the court finds
that a parallel proceeding exists here, and the Ameritas guideposts counsel in favor of abstention
in this matter. Accordingly, the court does not address whether the state court claims in this
matter would be compulsory counterclaims in this action if the court continued to retain
jurisdiction over this matter.
The Pending Action in Jefferson County Constitutes a Parallel Proceeding
Plaintiff argues that the pending state court action and this declaratory judgment action
are not parallel. (Doc. # 24 at p. 7). The court disagrees. Specifically, Plaintiff argues that if
Defendants’ state law claims for breach of contract, bad faith, and fraud were brought as
counterclaims in this matter, all of the claims between Plaintiff and Defendant would be included
in this action, and not the state court action. (Doc. # 24 at pp. 7-8). While the analysis in this
matter would certainly be different if Defendants’ state court claims were dismissed and filed as
counterclaims in this action, that simply is not the posture of the present proceedings. As it
stands now, both this declaratory action and a state court action exist on parallel “litigation
That the claims raised in the state court are not identical to those raised in this action does
not prevent them from being construed as “parallel proceedings.” See Metro. Prop. & Cas. Ins.
Co. v. Butler, 2016 WL 2939633, at *6 (N.D. Ala. May 20, 2016) (finding a federal declaratory
judgment action and a state court action including claims for fraud, negligence, and wantonness
to be “parallel proceedings”). The action before this court involves claims seeking a declaratory
judgment that Plaintiff owes no duty to Defendants under the subject policy. (Doc. # 15). The
state court action involves claims against Plaintiff and others for breach of contract, bad faith,
fraud, and negligence. (Doc. # 7-2). The issue of coverage necessarily arises as part of the state
court claims. And, an adjudication of those claims will necessarily resolve the only claim in this
case: is there coverage? However, the converse is not true. An adjudication of the coverage
claim in this case will not resolve all of the issues in the state court litigation.
Further, the fact that there are parties named in the state court action that are not named in
this action does not support a finding that the actions do not involve “the same parties.” See id.
at *7. Here, the state court action involves each of the parties to this action, as well as certain
other Defendants. As such, the state court action involves the same parties present in this action,
and other parties that will be a part of the resolution the various underlying issues. This does not
change the state court action’s status as a “parallel proceeding;” rather, it actually counsels in
favor of abstention.
The Ameritas Guideposts Counsel in Favor of Abstention
The principles underlying the Ameritas decision are instructive. There, the court noted as
In fact, in cases such as this, the Supreme Court has expressed that “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.” The Supreme
Court has warned that “[g]ratuitous interference with the orderly and
comprehensive disposition of a state court litigation should be avoided.” This
warning should be heeded.
Ameritas Variable Life Ins. Co., 411 F.3d at 1330. Among the questions presented in the state
court action is the issue of coverage. All parties may be joined in the state forum and complete
relief may be awarded there. That is, all parties (including the Defendants named in the state
court complaint who are not parties to this action) will have an opportunity to litigate in the state
court. The availability of an alternative forum weighs strongly in favor of dismissal of this case.
Moreover, litigation in a forum that includes those Defendants will place the trier of fact in that
case in a better position to reach an informed resolution of this controversy. Both cases are in
their infancy. In light of the existence of the state litigation, this case will not help clarify the
legal relations at issue, nor help resolve the controversy between all parties. On the other hand,
the state court litigation will do so. Failure to dismiss this case (and to allow this case to proceed
simultaneously with the state action) would result in both duplication of effort and the potential
for inconsistent results.
For all these reasons, dismissal of this action would also serve the
interests of judicial efficiency.
Careful application of the Ameritas guideposts further supports this determination. The
first Ameritas factor concerns the “strength of the state’s interest in having the issues raised in
the federal declaratory action decided in the state courts.” Id. at 1331. Here, the issues presented
both in this action and the state court action involve an insurance contract issued to an Alabama
corporation, and sound exclusively in Alabama state law.
Alabama clearly has a significant
interest in having its state courts resolve these matters. Canal Ins. Co. v. Morgan, 2007 WL
174387, at *3 (S.D. Ala. Jan. 19, 2007) (finding as much where “[t]he legal issues presented in
this case are exclusively Alabama state law issues concerning interpretation of an insurance
policy issued to an Alabama citizen with respect to an automobile accident that occurred in
Alabama and that allegedly injured an Alabama citizen.”); Lexington Ins. v. Rolison, 434 F.
Supp. 1228 (S.D. Ala. 2006) (finding that the state court had a substantial interest in deciding
Alabama state law issues concerning the interpretation of an insurance contract issued to an
The second Ameritas factor -- whether the judgment in the federal declaratory action
would settle the controversy – also clearly counsels in favor of abstention as well. As mentioned
above, while resolution of the pending state court matter could resolve the issues pending before
this court, the same is not true in the reverse. Thus, the continuation of this federal declaratory
action would risk “piecemeal [resolution] in two different fora.”
Id. Plaintiff argues that if it
were to prevail in this declaratory judgment action there would be no cause of action against it in
the state court for breach of contract, bad faith, or fraud. (Doc. # 16 at p. 13). However, that
analysis is only half true. The same cannot be said if Plaintiff does not prevail in this action. If
the court finds that Defendants are entitled to coverage in this declaratory judgment action, the
state court would still be needed to decide the breach of contract, bad faith, and fraud issues.
Similarly, other of the Ameritas factors further tip the scale in favor of abstention. The
Ameritas decision requires that the court consider “whether the use of a declaratory action would
increase the friction between our federal and state courts and improperly encroach on state
jurisdiction” and “whether there is an alternative remedy that is better or more effective.”
Ameritas Variable Life Ins. Co., 411 F.3d at 1331.
Both questions are answered in the
With the overlapping issue of coverage pending before both the state and
federal courts, the first ruling by one of those courts on the issue will carry with it at least a
potential of having a res judicata effect on the second court’s ability to hear and decide the same
issue. Canal Ins. Co., 2007 WL at *3. Accordingly, an alternative remedy (i.e., a dismissal of
this action) would be both more effective and efficient.
Likewise, the last factors of the Ameritas analysis favor abstention. The court is tasked
with considering “whether the underlying factual issues are important to an informed resolution
of the case,” “whether the state trial court is in a better position to evaluate those factual issues
than is the federal court,” and “whether there is a close nexus between the underlying factual and
legal issues and state law and/or public policy, or whether federal common or statutory law
dictates a resolution of the declaratory judgment action.” Ameritas Variable Life Ins. Co., 411
F.3d at 1331. While this action may not require substantial factual inquiry, the state court will be
tasked with the evaluating the facts of this case in order to resolve Defendants’ breach of
contract, bad faith, fraud, and negligence claims. Rather than have two courts duplicate effort
and assess the same underlying facts, “a far more sensible and efficient approach is for the state
court that is already tasked with examining those facts in the underlying case to apply those same
facts to the pending claims for declaratory relief.” Canal Ins. Co., 2007 WL 174387 at *4.
Further, Plaintiff’s Complaint raises only state law issues and in no way references federal
common or statutory law.
Accordingly, the bulk of the Ameritas factors weigh in favor of abstention. The final two
factors neither weigh in favor of or against abstention, and thus cannot be said to tip the scale in
the other direction. Indeed, the third guidepost tasks the court with considering “whether the
federal declaratory action would serve a useful purpose in clarifying the legal relations at issue.”
Ameritas Variable Life Ins. Co., 411 F.3d at 1331. While this declaratory action would certainly
clarify the legal relations related to coverage, the same is true of the pending state court action.
And, the state court is equally capable of deciding the issue of coverage in addition to the other
issues before it. Similarly, there is little indication that this declaratory remedy “is being used
merely for the purpose of ‘procedural fencing.’” Id. Courts have found this factor met even
when the declaratory judgment action was filed first. See Metro. Prop. & Cas. Ins. Co., 2016
WL at *7. However, the facts before the court do not indicate that Plaintiff knew of Defendants
intention to file an action in state court, and the limited record before the court contains little
evidence from which it could infer that either party engaged in procedural fencing.
For the reasons explained above, and with the guidance of the Ameritas factors, the court
determines that it should exercise its Wilton discretion.
The court exercises its Asubstantial
discretion@ to decline to declare the parties= rights in this case. Lexington Ins. Co., 434 F.Supp.2d
at 1233. Therefore, Defendant=s Motion to Dismiss (Doc. # 22) is due to be granted. A separate
order will be entered.
DONE and ORDERED this April 13, 2017.
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE
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