Discover Property & Casualty Insurance Company v. AIM Leasing Company et al
Filing
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OPINION and ORDER TRANSFERRING this action to the United States District Court for the Western District of Pennsylvania. Signed by Judge William S. Duffey, Jr on 7/31/2015. (adg)
(“Jackson”). On November 27, 2009, Mr. Walters’ widow, Cynthia L. Walters,
filed in the Court of Common Pleas for Washington County, Pennsylvania (“Court
of Common Pleas”), a wrongful death action against Genuine Parts and Jackson
(the “Underlying Lawsuit”).
AIM had a Vehicle Maintenance Agreement (“VMA”) with Genuine Parts
to maintain Genuine Parts’ vehicles, including the truck involved in the collision
with the Walters’ vehicle. Genuine Parts claims that AIM’s negligent maintenance
of the truck was the proximate cause of the accident. Genuine Parts joined AIM in
the Underlying Lawsuit, seeking contribution and indemnity from AIM.
The VMA also required Genuine Parts to procure and maintain an
automobile liability insurance policy that named AIM as an additional insured.
Discover issued an insurance policy (the “Policy”) to Genuine Parts that provides
insurance coverage, up to $5,000,000 per accident, for vehicular accidents.1 AIM
filed in the Underlying Lawsuit cross-claims for contribution and indemnity
against Genuine Parts.2
1
Although the Complaint states that the Policy was issued “for the period
November 1, 2009 through November 1, 2010,” the copy of the Policy submitted
with the Complaint shows the policy period as “FROM 09/01/2009 TO
09/01/2010.” (Compare Compl. ¶ 13 with, e.g., Ex. A [1.1 at 4, 20]).
2
The parties appear to dispute whether AIM is named as an additional insured
under the Policy, and that issue has been the subject of extensive litigation in the
2
On October 25, 2010, Genuine Parts settled Ms. Walters’ wrongful death
claim for $1,050,000.
On July 10, 2014, a jury in the Underlying Lawsuit found that AIM was one
hundred percent (100%) liable for Mr. Walters’ death.
Genuine Parts’ claims against AIM for contribution and indemnity remain
pending in the Underlying Lawsuit.3
B.
AIM’s Declaratory Judgment Actions in Pennsylvania
On April 12, 2012, AIM filed, in the United States District Court for the
Western District of Pennsylvania, a declaratory judgment action against Genuine
Parts and Discover (the “Western District of Pennsylvania Action”). AIM seeks a
declaration that Genuine Parts and Discover are required to defend and indemnify
AIM pursuant to the VMA and the Policy. On July 31, 2012, the district court
Court of Common Pleas and the United States District Court for the Western
District of Pennsylvania.
3
Genuine Parts filed in the Underlying Lawsuit a Motion to Mold Verdict, Add
Delay Damages and Enter Judgment, which seeks to “liquidate the $1,050,000
contractual indemnity owed by AIM to [Genuine Parts], reflect property damages
. . . and to add . . . delay damages; reflect prejudgement interest . . . ; and reflect the
attorney fees, costs and expenses incurred by [Genuine Parts] in defending and
prosecuting the Underlying [Lawsuit] and in defending two separate declaratory
judgment actions filed by AIM.” (Compl. ¶ 19).
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stayed the Western District of Pennsylvania Action pending resolution of the
contribution and indemnity issues in the Underlying Action.
On October 23, 2012, AIM filed, in the Court of Common Pleas, a second
declaratory judgment action against Genuine Parts and Discover (the “Court of
Common Pleas Declaratory Judgment Action”). AIM sought a declaration that
Discover is required to provide insurance coverage to AIM as an additional insured
under the Policy.
On June 19, 2014, the Court of Common Pleas granted AIM’s motion for
summary judgment and declared that Discover is required to provide insurance
coverage to AIM as an additional insured under the Policy. Discover has appealed
the judgment to the Pennsylvania Superior Court.
The parties did not move to lift the stay in the Western District of
Pennsylvania Action, and that action is still pending, but stayed.
C.
Discover’s Declaratory Judgment Action in this Court
On September 22, 2014, two and a half years after AIM filed its declaratory
action in the District Court for the Western District of Pennsylvania, and four
months after the Court of Common Pleas declared that AIM was covered under the
Policy, Discover filed this declaratory judgment action in this Court. Discover
seeks a declaration that it is not required under the Policy to defend and indemnify
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Genuine Parts and AIM in the Underlying Lawsuit because they did not comply
with the Policy’s Self-Funded Retention Endorsement (“Self-Funded Retention”).
The Self-Funded Retention requires the insured to fund the first $5,000,000 of each
covered accident, and it specifically provides:
[D]amages . . . caused in any one accident that would otherwise be
payable under LIABILITY COVERAGE will be reduced by the
[S]elf-[F]unded [R]etention applicable to such coverage . . . . The Per
Accident Limit of Insurance applicable to such coverage will be
reduced by the amount of damages . . . payable under the [P]olicy,
both within, and in excess of, such [S]elf-[F]unded [R]etention.
(Compl. ¶ 22 & Ex. A [1.1 at 38]). The Self-Funded Retention also provides:
[Discover] will delegate the responsibility to investigate, adjust,
defend and/or settle all claims or “suits” to [the insured], subject to the
following conditions:
...
e. When a claim or “suit” has been settled or adjudicated, the
insured will promptly pay the amount of such claim or suit to the
party to whom the payment is due for damages, . . . up to the
applicable [S]elf-[F]unded [R]etention . . . .
(Id. ¶ 23 & Ex. A [1.1 at 39]). Discover argues that, “[p]ursuant to the language in
the Policy and [the Self-Funded Retention], Discover [] has no obligation under the
Policy to indemnify AIM or [Genuine Parts] until either insured meets its
contractual obligation to pay the first $5,000,000 in payments and claim expenses.”
(Id. ¶ 25).
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On October 23, 2014, AIM moved to dismiss the Complaint on the grounds
that (1) res judicata and collateral estoppel bar Discover’s declaratory judgment
action because the Court of Common Pleas granted summary judgment in favor of
AIM and found that AIM was covered under the Policy, (2) the first-filed rule
requires the Western District of Pennsylvania Action to proceed first, and (3) the
Colorado River doctrine requires the Court to abstain from exercising jurisdiction
over this action until the Court of Common Pleas Declaratory Judgment Action is
resolved.
On December 19, 2014, Genuine Parts moved to dismiss the Complaint on
the grounds that (1) the first-filed rule requires the Western District of
Pennsylvania Action to proceed first, (2) the Colorado River doctrine requires the
Court to abstain from exercising jurisdiction over this action, and (3) an indemnity
agreement between Genuine Parts and Discover contains a forum selection clause
that requires disputes regarding the Self-Funded Retention to be litigated in
Connecticut.
II.
DISCUSSION
A.
Legal Standard
Dismissal of a complaint, pursuant to Rule 12(b)(6), is appropriate “when,
on the basis of a dispositive issue of law, no construction of the factual allegations
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will support the cause of action.” Marshall Cnty. Bd. of Educ. v. Marshall Cnty.
Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993). In considering a motion to
dismiss, the Court accepts the plaintiff’s allegations as true and considers the
allegations in the complaint in the light most favorable to the plaintiff. See
Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Watts v. Fla. Int’l Univ.,
495 F.3d 1289, 1295 (11th Cir. 2007); see also Bryant v. Avado Brands, Inc.,
187 F.3d 1271, 1273 n.1 (11th Cir. 1999). The Court is not required to accept a
plaintiff’s legal conclusions as true. See Sinaltrainal v. Coca-Cola Co., 578 F.3d
1252, 1260 (11th Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)),
abrogated on other grounds by Mohamad v. Palestinian Auth., — U.S. —,
132 S. Ct. 1702 (2012). The Court also will not “accept as true a legal conclusion
couched as a factual allegation.” See Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). The complaint, ultimately, is required to contain
“enough facts to state a claim to relief that is plausible on its face.” Twombly,
550 U.S. at 570.
“Plausibility” requires more than a “sheer possibility that a defendant has
acted unlawfully,” and a complaint that alleges facts that are “merely consistent
with” liability “stops short of the line between possibility and plausibility of
‘entitlement to relief.’” Id. (citing Twombly, 550 U.S. at 557); see also
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Arthur v. JP Morgan Chase Bank, NA, 569 F. App’x 669, 680 (11th Cir. 2014)
(noting that Conley’s “no set of facts” standard has been overruled by Twombly,
and a complaint must contain “sufficient factual matter, accepted as true, to state a
claim for relief that is plausible on its face.”). “A complaint is insufficient if it
‘tenders naked assertions devoid of further factual enhancement.’” Tropic Ocean
Airways, Inc. v. Floyd, 598 F. App’x 608, 609 (11th Cir. 2014) (quoting Iqbal, 556
U.S. at 678).
B.
Analysis
1.
First-Filed Rule
This case involves interpretation of the Self-Funded Retention provision in
the Policy. The action here was filed after AIM filed the Western District of
Pennsylvania Action. In the Western District of Pennsylvania Action, AIM seeks a
declaration that it is covered by the Policy. Coverage questions usually are
decided before considering whether a policy exclusion applies. The question here
then is how to interpret and apply the first-filed rule.
“Where two actions involving overlapping issues and parties are pending in
two federal courts, there is a strong presumption across the federal circuits that
favors the forum of the first-filed suit under the first-filed rule.” See
Manuel v. Convergys Corp., 430 F.3d 1132, 1135 (11th Cir. 2005) (citations
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omitted). Under the first-filed rule, “when parties have instituted competing or
parallel litigation in separate courts,” the court that “initially seized the
controversy” should hear the case. See Collegiate Licensing Co. v. Am. Cas. Co.,
713 F.3d 71, 78 (11th Cir. 2013) (citations omitted). The court that “initially
seized the controversy” decides the merits of substantially similar cases, and
determines whether the issues raised in the second-filed suit should be dismissed,
stayed or consolidated. Id.
If the court determines that a likelihood of substantial overlap exists between
the two suits, “the proper course of action [is] for the court to transfer the case to
the [first-filed] court to determine which case should, in the interests of sound
judicial administration and judicial economy, proceed.” See
Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 606 (5th Cir. 1999). A
party must show “compelling circumstances” to convince a court to depart from
the first-filed rule. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu,
675 F.3d 1169, 1174 (11th Cir. 1982).4
4
Here, the Court has “unique and substantial” discretion to decide whether to hear
this declaratory judgment action. See Manuel, 430 F.3d at 1135 (quoting
Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995)).
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Discover argues that the “first-filed” rule does not apply here because the
Self-Funded Retention was not raised in the Western District of Pennsylvania
Action. Discover contends:
The Pennsylvania federal action and this action do not involve the
same “coverage dispute” or “substantially similar issues.” . . . [T]he
current case requests a determination on whether the conditions
established by the terms of the [Self-Funded Retention], including the
payment of $5,000,000, the insured’s [Self-Funded Retention], have
been satisfied. That issue was never pled by AIM in the Pennsylvania
federal action or . . . asserted by Discover, the federal action having
been stayed for more than two years. Because the cases do not
involve the “substantial overlap” of issues, the First Filed Rule does
not apply and this case should remain in this jurisdiction.
(Pl’s Resp. to AIM’s Mot. to Dismiss at 15-16).
To determine whether two actions pending in different federal courts involve
“overlapping issues,” the court examines whether (1) “the core issue” is the same
in both actions, (2) the proof required would likely be identical, and (3) if the two
actions overlap “on the substantive issues.” Int’l Fid. Ins. Co. v. Sweet Little
Mexico Corp., 665 F.3d 671, 678 (5th Cir. 2011); Save Power Ltd. v. Syntek Fin.
Corp., 121 F.3d 947, 951 (5th Cir. 1997).
The “core issue[s]” in this case and in the Western District of Pennsylvania
Action overlap and are inextricably intertwined. See id. The Western District of
Pennsylvania Action concerns the coverage of the Policy in which the Self-Funded
Retention is contained. The interpretation of the retention provision is material
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only if the Policy extends coverage to Defendants. The coverage and retention
interpretation issues are integrated and it is illogical and inefficient to interpret the
Self-Funded Retention unless and until the Policy coverage issues are resolved. If
there is no coverage, the retention interpretation issue is moot.
The Court concludes that the “core issue” in the two forums here center on
terms within the Policy and, as a result, these actions significantly overlap “on the
substantive issues.” See Int’l Fid., 665 F.3d at 678; Save Power, 121 F.3d at 951.
The issue of coverage is at the “heart” of AIM’s complaint in the Western District
of Pennsylvania Action. See Kohn Law Group, Inc. v. Auto Parts Mfg. Miss., Inc.,
787 F.3d 1237, 1241 (9th Cir. 2015) (affirming district court’s decision to stay
because the “heart” of the first-filed action concerned whether plaintiff was entitled
to payments defendant owed to a third party). Whether the Self-Funded Retention
applies and, if so, how it applies, is secondary to the coverage question.5
The purpose of the first-filed rule is to “exercise care to avoid interference”
with the jurisdiction of another federal court because “the concern manifestly is to
5
The Self-Funded Retention provides that Discover is not obligated to fund the
costs of defense or indemnity for any judgment unless the amount exceeds
$5,000,000. It is only after the insured’s obligation to fund (1) the costs to defend,
when those costs are ultimately determined, and (2) the amount of the insured’s
liability when determined by adjudication or settlement, is satisfied that Discover’s
obligation under the Policy to pay, if any, can be determined. This further
underscores the interrelationship between Policy coverage and the insured’s
retention obligation.
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avoid the waste of duplication, to avoid rulings which may trench upon the
authority of sister courts, and to avoid piecemeal resolution of issues that call for a
uniform result.” See Int’l Fid., 665 F.3d at 678. Put another way, the first-filed
rule seeks to promote litigation efficiency and avoid duplication of
decision-making by federal courts. Those goals would be interfered with here if
the District Court for the Western District of Pennsylvania was not allowed first to
adjudicate the core issue presented to it.
The District Court for the Western District of Pennsylvania is the
appropriate court to decide the most efficient process for litigating the issues raised
in the case before it and in the case before this Court. See Collegiate Licensing,
713 F.3d at 78. The issue of the interpretation of the Self-Funded Retention first
requires a resolution of the Policy coverage issues and, only when the costs to
defend and extent of damages are determined can the Self-Funded Retention be
interpreted and applied. Discover fails to show that “compelling circumstances”
exist to require the Court to depart from the first-filed rule. See Merrill Lynch,
675 F.3d at 1174.
The question that remains is how best to achieve the objectives of the
first-filed rule. The Court has two logical choices: stay this action until the court in
the Western District of Pennsylvania Action decides the Policy coverage issues
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presented to it; or transfer this action to the Western District of Pennsylvania for it
to preside over the related issues involving interpretation of the Self-Funded
Retention. The Court determines that transfer is the more efficient process and the
one that gives effect to the principles upon which the first-filed rule is founded.
See 28 U.S.C. § 1406(a) (court has discretion to transfer to another district “in
which it could have been brought.”); see also Cadle, 174 F.3d at 606 (vacating
district court’s decision to dismiss the complaint and noting that “the proper course
of action was for the court to transfer the case to the [first-filed] court to determine
which case should, in the interests of sound judicial administration and judicial
economy, proceed”). The Court concludes that sound judicial administration and
judicial economy require this action to be transferred to the United States District
Court for the Western District of Pennsylvania.6
III.
CONCLUSION
Accordingly, for the foregoing reasons,
IT IS HEREBY ORDERED that this action is TRANSFERRED to the
United States District Court for the Western District of Pennsylvania.
6
Having applied the first-filed rule and determined that this matter is required to be
transferred to the District Court for the Western District of Pennsylvania, the Court
does not express a view on whether res judicta, collateral estoppel, abstention, or a
forum selection clause bar Discover from raising the Self-Funded Retention to
deny insurance coverage. See Collegiate Licensing, 713 F.3d at 78.
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SO ORDERED this 31st day of July, 2015.
_______________________________
WILLIAM S. DUFFEY, JR.
UNITED STATES DISTRICT JUDGE
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