Employers Mutual Casualty Company v. Kenny Hayes Custom Homes, Inc. et al
ORDER DENYING Builders' & the Nelson's 11 Motion to Dismiss or for Stay, 18 Motion to Dismiss as set out. Signed by Judge Callie V. S. Granade on 4/23/2015. (tot)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
KENNY HAYES CUSTOM
KENNY HAYES, individually,
JOE NELSON, individually,
TAMMY NELSON, individually.
Civil Action No. 2:15-00054CG-B
This matter is before the Court on the motions to dismiss or, in the
alternative, to stay this action filed by Defendants Kenny Hayes Custom
Homes, Kenny Hayes, David Chancellor (the “Builders”) (Doc. 11) and Joe
and Tammy Nelson (“Nelsons”) (Doc. 18) as well as Plaintiff Employers
Mutual Casualty Company’s (“EMCC”) response in opposition (Doc. 21), the
Builders’ reply (Doc. 22) and EMCC’s supplemental response (Doc. 23). For
the reasons stated below, the motions to dismiss or, in the alternative, stay
are due to be denied.
The underpinnings of this insurance coverage declaratory judgment
action lie in a breach of contract and tort claim suit filed on May 19, 2014, in
the Circuit Court of Wilcox County, Alabama (the “underlying action”),
Docket No. 14-900046,. (Doc. 11 Exh. A). In the underlying action, Joe and
Tammy Nelson sued the Builders for breach of contract, fraud, negligence,
and wantonness arising from the construction of the Nelsons’ home. (Doc. 1 p.
4). According to the complaint in the underlying action, the Nelsons entered
into a contract for the construction of their home with the Builders. (Doc. 11
Exh. A). Throughout the construction process and subsequent to completion,
the Nelsons allege numerous failures of the Builder to adequately supervise
the construction resulting in serious latent defects with the home, including
water intrusion. (Id.) The Builders’ insurance company, EMCC, filed a motion
for limited permissive intervention in the underlying action on October 28,
2014. (Id.) All parties in the underlying action objected to EMCC’s
intervention, arguing the insurance company’s presence was prejudicial.
(Doc. 1 Exhs. 1, 2). On January 8, Judge Meigs denied EMCC’s intervention
at the hearing on the underlying action. (Doc. 1). EMCC then filed a
complaint for declaratory judgment in this Court on February 2, 2015. Id.
After receipt of service for the present action, the Builders filed a Third
Party Complaint against EMCC in the underlying action. The Builders (Doc.
11) filed a motion to dismiss or stay this action citing the Wilton/Brillhart
abstention doctrine, arguments which the Nelsons adopted by reference (Doc.
18). On March 18, 2015, the judge in the underlying action allowed EMCC to
be added as a third party, “in order that Employers Mutual may participate
in discovery.” However, the judge limited this addition by stating “[t]he Court
may, subject to motion or on its own motion, subsequently disallow the third
party complaint to avoid injection of insurance into the underlying case. No
party will be prejudiced by allowing this third party complaint at this point in
the proceedings.” (Doc. 23-1).
II. Wilton/Brillhart Abstention
It is well settled that the Declaratory Judgment Act is properly
“understood to confer on federal courts unique and substantial discretion in
deciding whether to declare the rights of litigants.” Wilton v. Seven Falls Co.,
515 U.S. 277, 286, 115 S. Ct. 2137, 132 L. Ed. 2d 214 (1995). Indeed, the
Supreme Court has “repeatedly characterized the Declaratory Judgment Act
as an enabling Act, which confers a discretion on the courts rather than an
absolute right upon the litigant.” Id. at 287 (citations omitted). As the
Eleventh Circuit Court of Appeals has observed, 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); see also Prudential Ins. Co. of Am. v. Doe, 140 F.3d
785, 789 (8th Cir. 1998) (“The Supreme Court's decision in Wilton ... vests the
district courts with broad discretion in deciding whether to hear a declaratory
judgment action.”). “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.” Westchester Surplus Lines Ins. Co. v. Romar House
Ass'n, Inc., 2008 WL 5412937, *2 (S.D. Ala. Dec. 29, 2008) (quoting State
Auto Ins. Co. v. Summy, 234 F.3d 131, 136 (3rd Cir. 2000)).
Over seventy years ago, the Supreme Court opined that it would be
both “uneconomical” and “vexatious” for a federal district court to hear a
declaratory judgment action, concurrently with ongoing proceedings involving
the same parties and same legal issues (not arising under federal law) in
state court. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495, 62 S. Ct.
1173, 86 L. Ed. 1620 (1942). Brillhart admonished lower courts to avoid
“[g]ratuitous interference with the orderly and comprehensive disposition of a
state court litigation.” Id. In the wake of Brillhart, courts 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.” Ven–
Fuel, Inc. v. Dep’t of the Treasury, 673 F.2d 1194, 1195 (11th Cir. 1982); see
also Fed. Reserve Bank of Atlanta v. Thomas, 220 F.3d 1235, 1247 (11th Cir.
2000) (“A court may exercise its discretion to dismiss a declaratory judgment
action in favor of a pending state court proceeding that will resolve the same
state law issues.”).
In Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328 (11th Cir.
2005), the Eleventh Circuit guided district courts on how to wield their
Wilton/Brillhart discretion under the Declaratory Judgment Act in the
presence of parallel state proceedings. Ameritas emphasized that district
courts must balance the interests of federalism, comity, and efficiency in
determining whether to hear a declaratory judgment action in those
circumstances, and promulgated a non-exhaustive set of nine “guideposts” to
be considered. Id. at 1330–31.1
In moving for dismissal, both the Builders and the Nelsons cast their
motions entirely in terms of Ameritas principles. Specifically, the parties urge
the Court to apply the multifactor test from Ameritas and to conclude from
those considerations that Wilton/Brillhart abstention is warranted here.
An important threshold question is whether Ameritas even applies in
this case. Notably, the Supreme Court in Brillhart addressed the
circumstance “where another suit is pending in a state court presenting the
same issues, not governed by federal law, between the same parties.”
The guideposts are: “(i) the state's interest in deciding the matter; (ii)
whether a judgment in the federal action would completely resolve the
controversy; (iii) whether the declaratory judgment action would clarify the
parties' legal relations; (iv) 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 case not otherwise removable; (v) whether a
ruling in the declaratory judgment action would increase friction between
federal and state courts or otherwise encroach on state proceedings; (vi)
whether a superior alternative remedy exists; (vii) whether underlying facts
are important to informed resolution of the matter; (viii) whether the state
court is better situated than the federal court to evaluate those facts; and (ix)
the nexus (if any) between the underlying issues and state law/policy, and
whether federal common or statutory law requires resolution of the
declaratory judgment action.” Lexington Ins. Co. v. Rolison, 434 F.Supp.2d
1228, 1234 (S.D. Ala. 2006) (citation and internal quotation marks omitted).
Brillhart, 316 U.S. at 495 (emphasis added). Ameritas itself applied the
guidepost analysis where there is “parallel litigation in the state courts.” 411
F.3d at 1331.
The first determination before an Ameritas analysis is whether there
is parallel litigation in state court. For purposes of Wilton/Brillhart
abstention, “[s]uits are parallel if substantially the same parties litigate
substantially the same issues in different forums.” Scottsdale Ins. Co. v.
Detco Indus., Inc., 426 F.3d 994, 997 (8th Cir. 2005) (citations omitted); see
also Tyrer v. City of S. Beloit, Ill., 456 F.3d 744, 752 (7th Cir. 2006)
(“Generally, a suit is parallel when substantially the same parties are
contemporaneously litigating substantially the same issues in another
forum.”) (internal quotation marks omitted); Indian Harbor Ins. Co. v.
Republic Serv., Inc., 2010 WL 3701308, *2 (N.D. Ill. Sept. 10, 2010) (“Two
actions are deemed to be parallel actions when substantially the same parties
are contemporaneously litigating substantially the same issues in two fora.”)
(citation and internal quotation marks omitted). When a declaratory
judgment action is brought by an insurer against an insured, there are no
parallel proceedings if “(1) the insurer was not a party to the suit pending in
state court; and (2) the state court actions involved issues regarding the
insured's liability, whereas the federal suit involved matters of insurance
coverage.” Cont’l Cas. Co. v. Advance Terrazzo & Tile Co., 462 F.3d 1002,
1006 (8th Cir. 2006) (citation omitted).
As to the issue of the parties, EMCC asked the state court if it could
intervene, a motion opposed by both the Nelsons and the Builder. Upon
denial of that motion in the underlying action, EMCC filed this declaratory
judgment action. Then in an act of procedural maneuvering, the Builder filed
a Third Party Complaint against EMCC in the underlying action, which the
court granted with substantial limitations. In the underlying action, EMCC is
allowed to participate in discovery, but the court reserved the right to
disallow the third party complaint to prevent the “injection of insurance” in
the case. (Doc. 23-1). The state judge’s ruling is clear that insurance coverage
issues are not to be joined in that case. Id. Thus, the judge in the underlying
action will make no conclusive determinations about the contract provisions
of the Builder’s insurance policy. The core issue in this case is insurance
coverage and not the Builder’s liability.
The factual questions requiring resolution in this declaratory judgment
action do not include the Builders’ failure to adequately construct the
Nelsons’ home. The Builders’ assertion that the federal and state court
proceedings are parallel, while supported by the fact that the parties involved
in the case are the same, fails on account of the distinct factual questions
involved in the federal and state proceedings. What exists here are not
parallel state court proceedings, but merely related state court proceedings.
See Essex Ins. Co. v. Foley, 2011 WL 290423, at *2 (S.D. Ala. Jan. 27, 2011).
This lack of parallelism weighs strongly against this Court's dismissal of the
declaratory judgment action. “In such circumstances, courts have shown
marked reluctance to exercise their discretion to stay or dismiss the
declaratory judgment action.” State Farm Fire & Cas. Co. v. Knight, 2010 WL
551262, *3 (S.D. Ala. Feb. 11, 2010). Some Circuits hold that in the absence
of parallel proceedings the broad Wilton discretion is narrowed. See e.g.,
Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 998 (8th Cir. 2005) (“A
number of our sister courts agree that the broad discretion granted in Wilton
does not apply when there are no parallel state court proceedings.”);
Maryland Cas. Co. v. Knight, 96 F.3d 1284, 1289 (9th Cir. 1996) (cases “in
which there are no parallel state court proceedings[ ] lie at the outer
boundaries of the district court's discretion under the Declaratory Judgment
Act”). An alternative approach considers the dissimilarities between the state
and federal lawsuits as essential to the Wilton/Brillhart analysis. See e.g.,
Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 394 n. 5 (5th Cir. 2003)
(where there is a related, but not parallel, state court action, “the federal
district court properly considers the extent of similarity between the pending
state court and federal court cases” in deciding whether to hear the
declaratory judgment action). 2 It appears that the Eleventh Circuit has not
See also United States v. City of Las Cruces, 289 F.3d 1170, 1182 (10th Cir.
2002) (degree of similarity between two cases should be considered in making
Brillhart abstention determination); Atlantic Cas. Ins. Co. v. GMC Concrete
Co., 2007 WL 4335499, *3 (S.D. Ala. Dec. 7, 2007) (applying Wilton/Brillhart
factors and remarking that the bulk of them “only favor abstention when
both the state and federal courts are asked to decide the same legal or factual
issues”); Standard Fire Ins. Co. v. Gordon, 376 F.Supp.2d 218, 230-31
had the opportunity to consider or adopt one of these approaches.
At a minimum, however, the absence of parallel proceedings is a
substantial factor bearing on the Wilton/Brillhart analysis. See e.g., Med.
Assur. Co. v. Hellman, 610 F.3d 371, 379 (7th Cir. 2010) (“One factor
supporting a decision to stay an action is the existence of adequate parallel
Even if the Ameritas analysis were fully applicable in the absence of
actual parallel litigation in state court, the Court finds dismissal or a stay is
unwarranted here. While there are (or may be) common facts between the
two cases, the legal issues presented are entirely distinct. As such, the
interests of federalism, comity and efficiency on which Wilton/Brillhart
abstention are founded are not directly implicated here. Stated in terms of
Ameritas guideposts, it does not appear that adjudicating EMCC's
declaratory judgment action would in any way encroach on the state
proceedings or cause friction between federal and state judiciaries. If
anything, the opposite is true since a definitive ruling by this Court
concerning whether EMCC has a duty to defend or indemnify the Builders in
the underlying action may facilitate disposition of those state court
proceedings by eliminating uncertainty as to EMCC’s duties owed to the
Builders. Moreover, the declaratory judgment action would clarify the
(D.R.I.2005) (explaining that “the absence of parallel proceedings does not
compel the district court to entertain the action” and that the presence or
absence of parallel proceedings in state court is simply one relevant
parties' legal relations in a manner that the underlying action cannot and
will not (at least as between the Nelsons and the Builders). Furthermore, it is
clear that EMCC did not improperly multiply the proceedings or bring this
action in an act of “procedural fencing” to race for res judicata; to the
contrary, EMCC appears to have brought this action in the proper forum for a
proper purpose to resolve issues not joined in the underlying action.
In any event, staying this case pending the outcome of the underlying
action would be unproductive (and would not preserve judicial or litigant
resources) because the coverage issues would remain undecided in this case
after the underlying action was completed. What's more, the duty-to-defend
component of this declaratory judgment action would almost certainly be
rendered moot by a stay pending resolution of the underlying action, thereby
needlessly frustrating EMCC's efforts to obtain a ruling on the merits as to
This declaratory judgment action does not amount to gratuitous
interference with the orderly and comprehensive disposition of the pending
state court litigation between the Nelsons and the Builders. It does not foster
tension between federal and state courts. It will not breed redundancy or
waste judicial or litigant resources by raising the specter of inconsistent
rulings or duplication of effort. And it does not run afoul of considerations of
practicality and judicial administration. In short, it does not implicate any of
the fundamental policy considerations that prompted creation of the judicial
doctrine of Wilton/Brillhart abstention in the first place. Accordingly, the
Court will not exercise its discretion under the Wilton/Brillhart line of
authorities to stay this declaratory judgment action pending resolution of the
underlying case pending in state court.
After due consideration of all matters presented and for the reasons set
forth herein, the Court finds that the Builders’ and the Nelsons’ motions to
dismiss, or in the alternative to stay, (Docs. 11 & 18) are DENIED.
DONE and ORDERED this 22nd day of April, 2015.
/s/ Callie V. S. Granade
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?