Houston Specialty Insurance Company v. Titleworks of Southwest Florida, Inc. et al
Filing
28
OPINION AND ORDER denying 25 Defendant Westcor Land Title Insurance Company's Motion to Dismiss Plaintiff's Amended Complaint. See Opinion and Order for details. Signed by Judge John E. Steele on 9/22/2015. (MAW)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
HOUSTON SPECIALTY INSURANCE
COMPANY,
Plaintiff,
v.
Case No: 2:15-cv-219-FtM-29DNF
TITLEWORKS
OF
SOUTHWEST
FLORIDA,
INC.,
MIKHAIL
TRAKHTENBERG, and WESTCOR
LAND
TITLE
INSURANCE
COMPANY,
Defendants.
OPINION AND ORDER
This matter comes before the Court on review of Defendant
Westcor
Land
Title
Insurance
Company’s
Motion
to
Dismiss
Plaintiff’s Amended Complaint (Doc. #25) filed on August 20, 2015.
Plaintiff filed a Response (Doc. #27) on September 3, 2015.
For
the reasons set forth below, the motion is denied.
I.
Plaintiff Houston Specialty Insurance Company (Plaintiff or
HSIC) has filed a single-count Amended Complaint (Doc. #24) against
Defendants Titleworks of Southwest Florida, Inc. (Titleworks),
Mikhail
Trakhtenberg
(Trakhtenberg),
and
Westcor
Land
Title
Insurance Company (Westcor) seeking declaratory relief regarding
coverage under an insurance policy.
The underlying facts, as set
forth in the Amended Complaint, are as follows:
In
2014,
HSIC
issued
a
professional
policy (the Liability Policy) to Titleworks.
liability
insurance
(Id. at ¶ 9.)
The
Liability Policy is effective from August 2, 2014 through August
2, 2015 with a “Retroactive Date” of August 2, 2005 and “Prior and
Pending Litigation Date” of August 2, 2014.
On
August
22,
2014,
Trakhtenberg
Titleworks in Florida state court.
(Id. at ¶ 10.)
filed
suit
against
(Id. at ¶¶ 11-12.)
In that
suit, Trakhtenberg alleges that he retained Titleworks as his
closing agent and title examiner for the purchase of real property
and that Titleworks failed to uncover certain defects in title.
(Id.)
As a result, Trakhtenberg purchased the property (the
Property) unaware that it was encumbered by over $2 million in
liens.
requested
(Id.)
that
Pursuant to the Liability Policy, Titleworks
HSIC
provide
lawsuit, and HSIC did so.
a
defense
against
Trakhtenberg’s
(Id. at ¶ 13.)
Trakhtenberg also had purchased a title insurance policy (the
Title Insurance Policy) from Westcor.
The Title Insurance Policy
affords coverage for certain claims of clouded title on the
Property.
(Id. at ¶ 16.)
Pursuant to the Title Insurance Policy,
Westcor has attempted to clear title to the Property by filing a
separate state court lawsuit which, in essence, seeks to quiet
2
title to the Property in favor of Trakhtenberg.
(Id. at ¶ 19.)
Titleworks and Westcor have a separate contractual relationship
whereby Titleworks is permitted to issue title insurance policies
on behalf of Westcor, including the Title Insurance Policy at issue
here.
(Id. at ¶ 22.)
In exchange, Titleworks executed an agency
agreement which allows Westcor to recover from Titleworks any
losses Westcor incurs as a result of its obligations to clear
title.
(Id.)
As a result, Westcor has requested that Titleworks
put HSIC on notice of a claim stemming from Titleworks’ alleged
negligence and breach of fiduciary duty in connection with the
Property.
(Id. at ¶ 24.)
In response to an interrogatory served by Titleworks in the
state court lawsuit, Trakhtenberg stated that he spoke with a
Titleworks
defects.
representative
(Id. at ¶ 14.)
in
July
2014
concerning
the
title
During that conversation, the Titleworks
representative told Trakhtenberg that Titleworks had “missed” the
clouded title and, as a result, Trakhtenberg could “go after
[Titleworks] or go after his title insurance.”
According
to
HSIC,
Trakhtenberg’s
(Id.)
interrogatory
response
demonstrates that Titleworks knew of Trakhtenberg’s claims against
it (e.g., its failure to uncover title defects) prior to the
Liability Policy’s August 2, 2014 inception date.
31.)
(Id. at ¶¶ 26-
As a result, HSIC alleges that the Liability Policy does not
3
cover Trakhtenberg’s claims against Titleworks in the state court
law suit.
(Id.)
HSIC further alleges that any amounts paid by
Titleworks to Westcor would be part of the same “Claim” (as defined
in the Liability Policy) made by Trakhtenberg against Titleworks.
(Id.)
Thus, HSIC contends that the Liability Policy also does not
cover any claims brought by Westcor against Titleworks.
(Id.)
Based on these allegations, HSIC seeks a declaratory judgment that
it has no duty to defend Titleworks against Trakhtenberg’s lawsuit
and/or any related claims brought against Titleworks by Westcor.
(Id.)
Westcor now moves to dismiss, arguing that the Court does
not have subject matter jurisdiction over HSIC’s request for a
declaratory judgment as it pertains to Westcor.
II.
Under Federal Rule of Civil Procedure 8(a)(2), a Complaint
must contain a “short and plain statement of the claim showing
that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2).
This obligation “requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not
do.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(citation omitted).
To survive dismissal, the factual allegations
must be “plausible” and “must be enough to raise a right to relief
above the speculative level.”
Id. at 555.
See also Edwards v.
Prime Inc., 602 F.3d 1276, 1291 (11th Cir. 2010).
4
This requires
“more
than
accusation.”
an
unadorned,
Ashcroft
v.
the-defendant-unlawfully-harmed-me
Iqbal,
556
U.S.
662,
678
(2009)
(citations omitted).
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides
for dismissal of an action if the Court lack subject matter
jurisdiction. Fed. R. Civ. P. 12(b)(1). When reviewing a 12(b)(1)
motion to dismiss, the Court construes the allegations in the
complaint in the light most favorable to the plaintiff.
Scheuer
v. Rhodes, 416 U.S. 232, 237 (1974); Cole v. United States, 755
F.2d 873, 878 (11th Cir. 1985).
In deciding a Rule 12(b)(6) motion to dismiss for failure to
state a claim upon which relief can be granted, the Court must
accept all factual allegations in a complaint as true and take
them in the light most favorable to plaintiff, Erickson v. Pardus,
551 U.S. 89 (2007), but “[l]egal conclusions without adequate
factual support are entitled to no assumption of truth,” Mamani v.
Berzaín, 654 F.3d 1148, 1153 (11th Cir. 2011) (citations omitted).
“Threadbare
recitals
of
the
elements
of
a
cause
of
action,
supported by mere conclusory statements, do not suffice.” Iqbal,
556 U.S. at 678.
with
a
“Factual allegations that are merely consistent
defendant’s
plausible.”
liability
fall
short
of
being
facially
Chaparro v. Carnival Corp., 693 F.3d 1333, 1337 (11th
Cir. 2012) (internal quotation marks and citations omitted). Thus,
5
the Court engages in a two-step approach: “When there are wellpleaded factual allegations, a court should assume their veracity
and
then
determine
whether
entitlement to relief.”
they
plausibly
give
rise
to
an
Iqbal, 556 U.S. at 679.
III.
As
explained
above,
HSIC
seeks
a
obligations under the Liability Policy.
determination
of
its
Specifically, HSIC seeks
a declaratory judgment (1) that it has no duty to defend or
indemnify Titleworks against Trakhtenberg’s lawsuit; and (2) that
it has no duty to defend or indemnify Titleworks against any claims
brought by Westcor.
For the purposes of Westcor’s motion, only
the second request is at issue.
Westcor argues that the HSIC’s
request for a declaratory judgment concerning Westcor’s claims
against Titleworks must be dismissed because the Court lacks
subject matter jurisdiction.
In the alternative, Westcor argues
that it should be dismissed from this case because it has no legal
interest in the coverage dispute and, therefore, it is not a
necessary party.
A.
Whether the Court Has Subject Matter Jurisdiction over HSIC’S
Request for a Declaratory Judgment Concerning Westcor’s
Potential Claim against Titleworks
HSIC brings the case pursuant to the Declaratory Judgment
Act.
(Doc. #24, ¶ 1.)
federal
courts
may
“Under Article III of the Constitution,
adjudicate
only
6
actual,
ongoing
cases
or
controversies.”
Lewis v. Cont'l Bank Corp., 494 U.S. 472, 477
(1990).
federal
Thus,
district
courts
lack
subject
matter
jurisdiction over suits which do not present an ongoing case or
controversy.
WL
4100064,
Esteves v. SunTrust Banks, Inc., No. 14-13105, 2015
at
*4
(11th
Cir.
July
8,
2015).
Echoing
that
requirement, the Declaratory Judgment Act specifically provides
that a declaratory judgment may be issued only in the case of an
“actual controversy.”
28 U.S.C. § 2201(a); see also Walden v.
CDC, 669 F.3d 1277, 1284 (11th Cir. 2012).
The Supreme Court has
summarized the requirements of such an actual controversy as
follows:
“Basically, the question in each case is whether the
facts alleged, under all the circumstances, show that there is a
substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.” MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118, 126 (2007).
In the context of an insurance coverage dispute, a plaintiffinsurer typically demonstrates the existence of a justiciable
controversy by alleging that the insured has made a demand for
coverage under the insurance policy or that the insured is liable
to an injured party.
However, the existence of actual liability
by the insured is not required, and the mere fact that “the
[insured’s]
liability
may
be
contingent
7
does
not
necessarily
defeat
jurisdiction
of
a
declaratory
judgment
action.”
GTE
Directories Pub. Corp. v. Trimen Am., Inc., 67 F.3d 1563, 1569
(11th
Cir.
1995)
(quoting
Associated
Indem.
v.
Industries, 961 F.2d 32, 35 (2nd Cir. 1992)).
Fairchild
“Rather, the
practical likelihood that the contingencies will occur and that
the controversy is a real one should be decisive in determining
whether an actual controversy exists.”
Id. (quoting 10A Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure §
2757, at 587 (2d ed. 1983)).
Indeed, as explained by the Eleventh
Circuit in GTE, a declaratory judgment may be appropriate even if
both the claim by the injured party against the insured and the
resulting coverage request by the insured to the insurer have yet
to occur:
It is clear that in some instances a
declaratory judgment is proper even though
there are future contingencies that will
determine whether a controversy ever actually
becomes real. The familiar type of suit in
which a liability insurer seeks a declaration
that it will not be liable to indemnify an
insured person for any damages the injured
person may recover against the insured is an
example. The injured person may not sue or he
may not obtain a judgment against the insured,
but there is held to be sufficient controversy
between the insurer and the injured person
that a declaratory judgment is permissible.
Id. (quoting Wright & Miller § 2757, at 586).
However, a “remote
possibility that a future injury may happen is not sufficient to
satisfy
the
‘actual
controversy’
8
requirement
for
declaratory
judgments.”
Malowney v. Fed. Collection Deposit Grp., 193 F.3d
1342, 1347 (11th Cir. 1999) (quoting Emory v. Peeler, 756 F.2d
1547, 1551–52 (11th Cir. 1985)).
The double-contingency scenario outlined in GTE is precisely
the case we have here.
HSIC does not allege that Titleworks has
made a request for coverage under the Liability Policy for a claim
by Westcor.
Nor does HSIC allege that Westcor has made a demand
to Titleworks in the first instance.
Instead, HSIC alleges (1)
that Westcor is currently incurring expenses in an attempt to clear
title to the Property; (2) that Westcor has a contractual and
common law right to recover those expenses from Titleworks; and
(3) that Westcor requested that Titleworks put HSIC on notice of
a claim Westcor may have against Titleworks.
Based upon the
potential for Westcor to bring a claim against Titleworks, HSIC
seeks a determination that the Liability Policy does not provide
coverage.
Thus, to determine the existence of a justiciable
controversy, the Court must address the “practical likelihood”
that Westcor will bring a claim against Titleworks and that, in
turn, Titleworks will request coverage from HSIC pursuant to the
Liability Policy.
GTE, 67 F.3d at 1569.
Taking the allegations in the Amended Complaint as true,
Westcor is currently incurring expenses in an attempt to clear
title to the Property, and Westcor has a contractual and common
9
law right to recover those expenses from Titleworks.
Thus, the
practical likelihood that Westcor ultimately seeks recovery from
Titleworks (the first necessary contingency) is quite high.
The
second necessary contingency requires Titleworks to seek coverage
under the Liability Policy for Westcor’s claim.
It is undisputed
that Titleworks has sought coverage for Trakhtenberg’s claim, and
it is alleged that Westcor’s claim is equivalent to Trakhtenberg’s
for the purposes of the Liability Policy.
Thus, as alleged, the
likelihood that the second contingency occurs is also quite high.
As a result, the Court concludes that it is highly likely that, at
the conclusion of Westcor’s attempt to clear title to the Property,
HSIC will be faced with a request to cover Westcor’s expenses via
a claim by Titleworks under the Liability Policy.
Accordingly,
under the facts alleged in the Amended Complaint, the Court
concludes
that
there
is
a
legal
conflict
between
HSIC
and
Titleworks of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.
B.
Whether Westcor is a Necessary Party
As set forth above, the Court concludes that it possesses
subject matter jurisdiction over HSIC’s request for a declaratory
judgment
Westcor’s
concerning
potential
coverage
claim
under
against
the
Liability
Titleworks.
Policy
for
Nevertheless,
Westcor argues that they should be dismissed as a Defendant because
10
HSIC has failed to state a claim for declaratory relief against
Westcor (as opposed to a claim against Titleworks).
In essence,
Westcor contends that it is not a necessary party to this case
because Westcor does not have a legal interest in the outcome of
the coverage dispute between HSIC and Titleworks.
The Court
disagrees.
Rule 19 of the Federal Rules of Civil Procedure requires a
person to be joined in an action if, “that person claims an
interest relating to the subject of the action and is so situated
that disposing of the action in the person's absence may . . .
leave an existing party subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations because of
the interest.”
Fed. R. Civ. P. 19(a)(1)(B)(ii).
In the context
of a dispute regarding insurance coverage, Rule 19 requires joinder
of a plaintiff in an underlying lawsuit against an insured because
that plaintiff’s ability to recover against the insured would be
impacted by the presence or absence of insurance coverage.
Am.
Safety Cas. Ins. Co. v. Condor Assocs., 129 F. App’x 540, 542 (11th
Cir. 2005).
Thus, to ensure that the coverage dispute will be
litigated only once, the underlying tort plaintiff must be joined
in the declaratory action.
Id.
Here, under Condor, Trakhtenberg is an indispensable party
because
his
ability
to
recover
11
damages
in
his
suit
against
Titleworks is impacted by the availability of HSIC’s insurance
coverage.
As alleged in the Amended Complaint, Trakhtenberg’s and
Westcor’s right to recovery from Titleworks are part of the same
“Claim” for the purposes of the Liability Policy.
29.)
(Doc. #24, ¶
Taking those allegations as true, Westcor’s ability to
recover from Titleworks the amounts Westcor pays in connection
with clearing title to the Property is likewise impacted by the
presence or absence of HSIC’s insurance coverage.
Thus, to ensure
that the coverage dispute is litigated only once, both Westcor and
Trakhtenberg must be joined in this action.
Condor, 129 F. App’x
at 542.
Accordingly, it is now
ORDERED:
Defendant Westcor Land Title Insurance Company’s Motion to
Dismiss Plaintiff’s Amended Complaint (Doc. #25) is DENIED.
DONE AND ORDERED at Fort Myers, Florida, this
September, 2015.
Copies: Counsel of record
12
22nd
day of
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