Pearson v. Catlin Specialty Insurance Company, Inc. et al

Filing 53

ORDER granting Plaintiff Pearson's 41 Motion to Remand to Ware County Superior Court; denying Defendant Catlin's 5 Motion to Amend/Correct. The remaining issues of Catlin's Motion to Dispense (Dtk. no. 6), Catlin's Motion to Strike (Dtk. no. 12), and Pearson's Motion for Leave to Amend (Dtk. no. 40) will be decided by the Ware County Superior Court Judge. The Clerk is directed to remand this case to the Superior Court of Ware County. Signed by Chief Judge Lisa G. Wood on 3/17/2015. (ca)

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RICHARD E. PEARSON (d/b/a
PEARSON SERVICE COMPANY),
Plaintiff,
CV 514-60
CATLIN SPECIALTY INSURANCE
COMPANY, INC., ROGER DALE
GRIFFIS, and H.H. BURNET &
COMPANY INSURANCE AND REAL
ESTATE, INC.,
Defendants.
ORDER

In this case, the ultimate question before the Court is
whether Defendant Catlin Specialty Insurance Company may
properly remove Plaintiff Pearson's declaratory judgment action
from state court. The parties have approached this question from
multiple angles, as evinced by the slew of motions ripe for
adjudication: Defendant Catlin's Motion to Realign the Parties
(Dkt. no. 5); Defendant Catlin's Motion to Dispense of the Bond
Requirement (Dkt. no. 6); Defendant Catlin's Motion to Strike
Plaintiff Pearson's Amended Complaint (Dkt. no. 12); Plaintiff
Pearson's Request for Leave to Amend his Complaint (Dkt.

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no. 40); and Plaintiff Pearson's Motion to Remand to State Court
(Dkt. no. 41). The Court's ruling on the first motion, though,
resolves the removal question: the parties should not be
realigned in this case, and therefore the diversity of
citizenship required under 28 U.S.C. § 1441(b) is lacking. The
case must be remanded to state court, which can properly rule on
the remaining motions not mooted by this Order.
FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Pearson filed the present action on May 12, 2014
in the Superior Court of Ware County, Georgia. See Dkt. no. 1-1.
The action seeks a declaratory judgment determining that
Defendant Catlin is obligated to both indemnify and defend
Plaintiff Pearson in a pending civil action in Ware County State
Court. Id. at p. 13.
In the underlying state court action, Plaintiff (in this
action) Pearson was sued by Defendant Roger Dale Griffis.
Griffis alleges that Plaintiff Pearson negligently used certain
chemicals without proper ventilation when repairing an air
conditioning unit at Griffis's workplace. Griffis claims that
fumes from these chemicals have caused her to become sick and to
suffer other injuries. Defendant Catlin, Plaintiff Pearson's
insurer, denies that Pearson's policy with Catlin imposes any
duty to defend or indemnify Pearson in the underlying lawsuit
because, under Catlin's interpretation of the policy, indemnity
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and defense for the claims in the underlying lawsuit are barred
by the policy's "Total Pollution Exclusion" and because Pearson
provided late notice of the claim.
In Plaintiff Pearson's declaratory judgment action, he
named both Catlin and Griffis as Defendants, but did not assert
any claims against Griffis. Both Griffis and Pearson are Georgia
residents, but Catlin is a citizen of Delaware.
Catlin removed this case to federal court on August 13,
2014. See Dkt. no. 1 (Notice of Removal). However, because
Griffis, named as a Defendant in the declaratory judgment
action, is a Georgia resident, the case lacks the complete
diversity necessary for removal under 28 U.S.C. § 1441(b). To
overcome this jurisdictional hurdle, Defendant Catlin filed a
Motion to Realign the Parties according to their "true"
interests on August 14, 2014. Dkt. no. 5.
Four days after Defendant Catlin filed its Motion to
Realign, Plaintiff Pearson amended his Complaint to add a new
party, Defendant H.H. Burnet & Company Insurance and Real
Estate, Inc. Dkt. no. 7. H.H. Burnet is a Georgia company that
served as Pearson's insurance broker for the Catlin Policy.
Pearson alleges that H.H. Burnet is liable for failure to
procure insurance. Also, Pearson claims that, even if the Court
realigns Griffis to be a Plaintiff in this action, H.H. Burnet's

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presence in this case still precludes the complete diversity
necessary for removal under 28 U.S.C. § 1441(b).
On August 27, 2014, Defendant Catlin filed a Motion to
Strike Plaintiff Pearson's Amended Complaint. Dkt. no. 12. After
a period of briefing on both the Motion to Strike and Motion to
Realign, Plaintiff Pearson filed a Motion for Leave to Amend his
Complaint (Dkt. no. 40) and a Motion to Remand to State Court
(Dkt. no. 41) on October 26, 2014. All of these motions are
fully briefed.

"[F]ederal courts are required to realign the parties in an
action to reflect their interests in the litigation. The parties
themselves cannot confer diversity jurisdiction upon the federal
courts by their own designation of plaintiffs and defendants."
City of Vestavia Hills v. Gen. Fidelity Ins. Co., 676 F.3d 1310 1
1313 (11th Cir. 2012) (citing City of Indianapolis v. Chase
Nat'l Bank, 314 U.S. 63, 69 (1941)). Conversely, "parties cannot
avoid diversity by their designation of the parties . . ." Id.
(emphasis in original). Rather, lower federal courts must look
beyond the pleadings and arrange the parties according to their
sides in a dispute, as determined by the "principal purpose of
the suit" and "the primary and controlling matter in dispute."
Id. at 1313-14. Even where the parties are opposed outside of

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the subject action, parties with the same interests in the
subject action must be aligned together. Id. at 1314.
Because removal jurisdiction raises significant federalism
concerns, "federal courts are directed to construe removal
statutes strictly. Indeed, all doubts about jurisdiction should
be resolved in favor of remand to state court." Id. at 1313
(quoting Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 411
(11th Cir. 1999)) . As the removing party, Catlin "bears the
burden of demonstrating federal jurisdiction." Triggs v. John
Crump Toyota, Inc., 154 F.3d 1284, 1287 n.4 (11th Cir. 1998).
Here, the Court must determine the proper alignment of the
parties in a declaratory judgment action naming the injured
party and the insurer as defendants and the insured as the
plaintiff. The parties have thoroughly briefed this issue and
have provided an abundance of cases addressing realignment under
these circumstances. While the cases often reach different
outcomes, those differences usually turn on two primary (and
related) considerations: (1) whether the plaintiff seeks a
declaration of rights for indemnity and defense in the
underlying suit pre- or post-judgment; and (2) whether the
plaintiff is seeking a defense or merely indemnity from the
defendant insurer.
In Vestavia Hills, the Eleventh Circuit concluded that the
plaintiff in the underlying suit, Vestavia Hills, should be

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realigned with the insured, Cameron Development Corporation, in
a declaratory judgment action seeking coverage from the insurer,
General Fidelity Insurance Co. Vestavia Hills, 676 F.3d at 1315.
Because Vestavia Hills had already won its judgment against
Cameron, the court held that "[t]here is no longer any dispute
between Vestavia Hills and Cameron, and the only thing that
Cameron could want out of this case is for Vestavia Hills to
win. Obviously, the two parties' interests are identical or at
least materially so." Id. at 1314 (emphasis added) . The court
further stated that "the normal alignment of parties in a suit
seeking a declaratory judgment of non-coverage is Insurer versus
Insured and Injured Party." Id.
Conversely, in Gulf Hauling & Construction, Inc. v. QBE
Insurance Corp., CA 2:13-00083-C, 2013 WL 2179278 (S.D. Ala. May
20, 2013), the court observed that
[i]n cases like Vestavia Hills . . . where a statecourt judgment has already been entered, it is easy to
honor the maxim that, "in determining the subject
matter jurisdiction on the basis of diversity, the
normal alignment of parties in a suit seeking a
declaratory judgment of non-coverage is Insurer versus
Insured and Injured Party."
Id. at *4 (quoting Vestavia Hills, 676 F.3d at 1314) . However,
the court held that such an alignment was not necessarily
required where the underlying state action is pending. To
determine the proper alignment of the parties, the court
examined the relief requested, which was for an order and
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judgment declaring, in part, that the insurer owed a duty to
indemnify the insured for any judgments issued against it in the
underlying action and a continuing duty to defend the insured in
the underlying lawsuit. Id. at *6. Because the underlying state
action was still pending, the court determined that the
indemnity question was not yet ripe. Id.; see also id. at *6,
n.10 ("There is abundant support in the case law for the
proposition that an insurer's duty to indemnify is not ripe for
adjudication in a declaratory judgment action until the insured
is in fact held liable in the underlying suit.") (quotations and
citations omitted); Grange Mut. Cas. Co. v. Dasher, 6:12-CV-63,
2013 WL 85244, *6 (S.D. Ga. Jan. 7, 2013) (declining to decide a
question of coverage because, in a declaratory judgment action,
"[s]hould the defendants in [the underlying] case prevail, any
decision by this Court on the issue of coverage would be moot
and a waste of judicial resources. And wasteful this Court will
not be.").
As noted in Gulf Hauling, whether or not the underlying
action is ongoing matters because it highlights which duty
sought under the declaratory judgment action—the duty to
indemnify or the duty to defend—is the "primary and controlling
matter in the dispute." Where the primary and controlling matter
is strictly a question of coverage, injured parties are usually
realigned with the insureds. See, e.g., Vestavia Hills, 676 F.3d

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at 1314 ("[TJhe normal alignment of parties in a suit seeking a
declaratory judgment of non-coverage is Insurer versus Insured
and Injured Party.") (emphasis added) . But where the primary and
controlling issue is the insurer's duty to defend, the insured's
and the injured party's interests may no longer be aligned. See,
e.g., Sinclair v. Auto-Owners Ins. Co., 22 F. Supp. 3d 1257,
1262 (N.D. Ga. 2014) (where issue of duty to indemnify was
premature because underlying case was ongoing, the injured
parties "have no interest in having [the insurer] provide a
defense to Plaintiffs in the Underlying Action—indeed,
Defendants . . . have adverse interests to Plaintiffs in that
action and would probably prefer that Defendant [insurer] not
provide Plaintiffs with a defense in that case."); Smith v.
Catlin Ins. Co., 7:12-cv-04070, slip op. at 2 (N.D. Ala. Feb.
13, 2013) (where there was no final judgment in the underlying
case, injured party had no interest in the insurer defendants
providing plaintiffs with a defense to the injured party's
claims against them in the underlying case)
Thus, there is a line of case law suggesting that, on
removal, where an insured seeks declarations for both a duty to
defend and a duty to indemnify when there is no final judgment
in the underlying case, the question of the insurer's duty to
indemnify is premature. This renders the question of the
insurer's duty to defend as the "primary and controlling
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matter," on which injured parties and insureds usually have
adverse interests and should thus be placed on opposite sides of
the "v.'1

.

Defendant Catlin has produced some cases, though, reaching
a different conclusion. In La Shangrila, Inc. v. Hermitage
Insurance Co., 2007 WL 2330912 (M.D. Fla. Aug. 13, 2007), the
court realigned the parties in a case seeking a declaration for
both a duty to defend and a duty to indemnify. Id. at *2.
However, when conducting its "principal purpose" analysis, the
court only mentioned the duty to indemnify and said nothing
about either the duty to defend or whether the ongoing nature of
the underlying suit rendered the indemnity question premature.
Id. Thus, without any explanation of how it reached its
conclusion, La Shangrila does not help this Court decide the
motion to realign at issue here. Similarly, the court in Earnest
v. State Farm Fire and Casualty Co., 475 F. Supp. 2d 1113 (N.D.
Ala. 2007), realigned the parties in a declaratory judgment
action seeking a declaration on both the insurer's duty to
defend and duty to indemnify the insured. Id. at 1117. But it
also reached that conclusion without any discussion of what was
the principal purpose of the case or whether the question of
indemnity was ripe. Id. And finally, while the court in Great
West Casualty Co. v. Firstfleet, Inc., CA 2:12-00623, 2013 WL
4165715 (S.D. Ala. July 18, 2013), held that an insured and

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injured party should be aligned together even despite the
insured's claim for duty to defend against the insurer, that
case is distinguishable from the present case because it was not
a removal case, and thus did not scrutinize the alignment issue
as carefully as is required when the court's subject matter
jurisdiction is in question.
Here, Plaintiff Pearson's declaratory judgment complaint
seeks both a declaration of Defendant Catlin's duty to defend
and duty to indemnify Pearson in the underlying state court
lawsuit. Because there is no final judgment, the issue of
Catlin's duty to indemnify Pearson is premature, and the primary
and controlling question is that of Catlin's duty to defend
Pearson.
Defendant Catlin argues that Defendant Griffis's interests
are not aligned with Plaintiff Pearson's on the duty to defend
issue because Pearson has obtained and is funding his own
defense in the underlying suit. To Griffis, Catlin argues, it
hardly matters who is writing the checks to Pearson's defense
counsel. This argument fails for two reasons. First, Plaintiff
Pearson argues that he is simply a small business owner who does
not have the funds to bankroll protracted litigation. If this is
true, then Griffis, like the injured parties in Sinclair and
Smith v. Catlin, would have no interest in seeing Pearson's
defense bolstered by Catlin's deep pockets. Under this scenario,

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then, Griffis's interests are not substantially aligned with
Pearson's. And second, to the degree that one can only speculate
regarding whether or not Pearson and Griffis's interests might
be aligned on the question of Catlin's duty to defend Pearson,
this Court is required to resolve all doubts about jurisdiction
in favor of remand to state court, and it is Catlin's burden to
show that federal jurisdiction is proper. See Vestavia Hills,
676 F.3d at 1313; Triggs, 154 F.3d at 1287 n.4. Defendant
Catlin's mere suggestion that Plaintiff Pearson's defense in the
underlying lawsuit will continue unfazed without Catlin's
financial backing neither satisfies this burden nor removes all
doubt that that federal jurisdiction is appropriate in this
case.
Thus, Defendant Griffis's and Plaintiff Pearson's interests
are not aligned on the issue of Defendant Catlin's duty to
defend Pearson in the underlying suit, and the Court therefore
DENIES Defendant Catlin's Motion to Realign the Parties (Dkt.

no. 5). Because Defendant Griffis and Plaintiff Pearson are both
Georgia residents, there is no diversity of citizenship, and the
Court must GRANT Plaintiff Pearson's Motion to Remand to Ware
County Superior Court (Dkt. no. 41). The remaining issues of
Catlin's Motion to Dispense of the Bond Requirement (Dkt. no.
6), Catlin's Motion to Strike Pearson's Amended Complaint (Dkt.
no. 12), and Pearson's Motion for Leave to Amend his Complaint
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(Dkt. no. 40) will be decided by the Ware County Superior Court
Judge. The Clerk of Court is directed to REMAND the case to the
Superior Court of Ware County.
SO ORDERED, this 17TH day of March, 2015.

12 1 L.,

LISA GODBEY OOD, CHIEF JUDGE
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA

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