Auto-Owners Insurance Company et al v. Lake Erie Land Company et al

Filing 40

OPINION AND ORDER denying 24 Rule 12(f) Motion to Strike Lake Erie Land Company's Request for a Jury Trial. Signed by Magistrate Judge Andrew P Rodovich on 12/17/2012. (rmn)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
AUTO-OWNERS INSURANCE COMPANY;
PROPERTY-OWNERS INSURANCE
COMPANY,
Plaintiffs/
Counterclaim Defendants
v.
LAKE ERIE LAND COMPANY,
Defendant/
Counterclaim Plaintiff
and
B & B, LLC; STATE OF INDIANA
Defendants

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CIVIL NO. 2:12 cv 184

OPINION AND ORDER
This matter is before the court on the Motion to Strike Lake
Erie Land Company’s Request for a Jury Trial [DE 24] filed by
Auto-Owners Insurance Company and Property-Owners Insurance
Company on August 16, 2012.

For the reasons set forth below, the

motion is DENIED.
Background
Lake Erie Land Company held an insurance policy with the
plaintiffs, Auto-Owners Insurance Company and Property-Owners
Insurance Company.

The defendant, B & B, LLC, filed a lawsuit

against Lake Erie which alleged criminal trespass, trespass,

nuisance, and negligence, and further claimed that Lake Erie
caused a wetland to be established on its property.

At conclu-

sion of the trial of the underlying case, a judgment was entered
against Lake Erie in the amount of $3,220,313.50, including a
punitive damage award of $1,460,044.50.
Lake Erie timely notified Auto-Owners of the underlying
action.

Lake Erie represents that Auto-Owners agreed to defend

it without a reservation of rights, except to note that the
damages might exceed the limit of liability under the policy.
Four years later, Auto-Owners issued a letter to Lake Erie stating that it was defending under a full reservation of rights.
Lake Erie states that this letter came after it could have taken
any meaningful steps to protect its interests in the underlying
action.
Lake Erie also complains that Auto-Owners engaged in other
actions that caused it damage.

Auto-Owners did not inform Lake

Erie of a proposed settlement that was below the amount of
compensatory damages awarded to B & B.

Auto-Owners also refused

to authorize a motion to stay judgment and an appeal bond.

This

resulted in Lake Erie’s assets being frozen, triggering fees,
penalties, and vendor payment issues.
On May 8, 2012, Auto-Owners filed this lawsuit against Lake
Erie seeking a declaratory judgment that Auto-Owners owed no duty

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to indemnify Lake Erie under the insurance policy.

Lake Erie

filed an answer and counterclaim which contained three counts,
including: (1) a request for declaratory judgment; (2) breach of
contract; and (3) bad faith.

Lake Erie seeks damages requiring

Auto-Owners to indemnify it for all damages incurred in the
underlying litigation, including the award of punitive damages,
compensatory damages, punitive damages for Auto-Owner’s bad
faith, prejudgment interest, and attorneys fees.

Lake Erie

demanded a jury trial, and the plaintiffs now move to strike the
demand.
Discussion
Federal Rule of Civil Procedure 12(f) states that "the court
may strike from a pleading any . . . redundant, immaterial,
impertinent, or scandalous matter." Motions to strike generally
are disfavored, although they may be granted if they remove
unnecessary clutter from a case and expedite matters, rather than
delay them. Heller Financial, Inc. v. Midwhey Powder Co., Inc.,
883 F.2d 1286, 1294 (7th Cir. 1989); Shirley v. Jed Capital, LLC,
2010 WL 2721855, *5 (N.D. Ill. July 8, 2010); Doe v. Brimfield

Grade School, 552 F.Supp.2d 816, 825 (C.D. Ill. 2008). The
decision whether to strike material is within the discretion of
the court. Talbot v. Robert Matthews Distrib. Co., 961 F.2d 654,
665 (7th Cir. 1992). "Motions to strike under Federal Rule 12(f)
are not favored [ ] and are usually denied unless the language in
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the pleading has no possible relation to the controversy and is
clearly prejudicial." Tektel, Inc. v. Maier, 813 F.Supp. 1331,
1334 (N.D. Ill. 1992).
"Whether a plaintiff is entitled to a jury trial is a matter
of federal procedural law rather than state substantive law."

Madison Tool and Die, Inc. v. ZF Sachs Automotive of America,
Inc., 2007 WL 2286130, *8 (S.D. Ind. Aug. 7, 2007); Simler v.
Conner, 372 U.S. 221, 222, 83 S.Ct. 609, 610, 9 L.Ed.2d 691
(1963); Int'l Fin. Serv. Corp. v. Chromas Tech. Canada, Inc., 356
F.3d 731, 735 (7th Cir. 2004).

Federal Rule of Civil Procedure

38(a) provides that "[t]he right of trial by jury as declared by
the Seventh Amendment to the Constitution - or as provided by a
federal statute - is preserved to the parties inviolate." No
federal statutes apply to this case.

The Seventh Amendment to

the United States Constitution states:
In Suits at common law, where the value in
controversy shall exceed twenty dollars, the
right of trial by jury shall be preserved,
and no fact tried by a jury, shall be otherwise reexamined in any Court of the United
States, than according to the rules of the
common law.
Therefore, whether a party is entitled to a jury trial depends on
whether the claim is legal or equitable as determined by federal
law. Simler, 372 U.S. at 222, 83 S.Ct. at 611.

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Legal remedies traditionally involve money damages, where
equitable remedies such as an accounting or injunction, typically
are coercive in nature. Int'l Fin. Serv. Corp., 356 F.3d at 735
(citing Great–West Life & Annuity Ins. Co. v. Knudson, 534 U.S.
204, 210, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002)).

The Seventh

Circuit employs a two-part test, first comparing the claim to
18th century claims brought in the courts of England prior to the
merger of the courts of law and equity, and second, examining the
remedy sought and determining whether it is legal or equitable in
nature. Int'l Fin. Serv. Corp., 356 F.3d at 735 (citing Tull v.

United States, 481 U.S. 412, 417–18, 107 S.Ct. 1831, 1835, 95
L.Ed.2d 365 (1987)). The second part of the test is the most
important. Int'l Fin. Serv. Corp. 356 F.3d at 755 (citing Gran-

financiera S.A. v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 106
L.Ed.2d 26 (1989)).

A party may not avoid a jury demand solely

because the legal issues are characterized as "incidental" to the
equitable issues. See Simon Property Group, L.P. v. mySimon,

Inc., 2001 WL 66408, *19 (S.D. Ind. Jan. 24, 2001) (citing Dairy
Queen, Inc. v. Wood, 369 U.S. 469, 470, 82 S.Ct. 894, 900, 8
L.Ed.2d 44 (1962)).
Auto-Owner’s complaint for declaratory judgment seeks a
declaration of the parties’ rights and obligations under the
insurance contract. Declaratory judgments were unknown at common

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law.

Zurich Insurance Co. v. Raymark Industries, Inc., 514

N.E.2d 150, 165 (Ill. 1987).
analysis.

However, this does not conclude the

An action for declaratory judgment may be either

equitable or legal in nature.

10 Fed. Proc., L.Ed. §23:57.

When

making this determination, the court must consider whether the
action is an inverted lawsuit for legal relief or the counterpart
of a suit in equity.

10 Fed. Proc., L.Ed. §23:57; Marseilles

Hydro Power, LLC v. Marseilles Land and Water Co., 299 F.3d 643,
649 (7th Cir. 2002); Kaeser Compressors, Inc. v. Compressor &

Pump Repair Services, 803 F.Supp.2d 974, 977 (E.D. Wis. 2011).
An inverted lawsuit is one that is brought by a plaintiff who
would have been a defendant at common law.
at 649.

Marseilles, 299 F.3d

The court must ask what form an action would have taken

if the declaratory judgment procedure was not available.

Kaeser,

803 F.Supp.2d at 977.
Lawsuits questioning the parties’ rights under a contract
turn on the relief sought.

If the party is seeking to rescind a

contract or arguing that a contract is null and void due to
fraud, the action is equitable in nature.

However, when one is

arguing that the contract was breached, it is a legal action that
could give rise to damages.

Kaeser, 803 F.Supp.2d at 978.

In Reiswerg v. Great American Insurance Co., 2009 WL 2923036
(S.D. Ind. Sept. 8, 2009), Pam Statom filed a legal malpractice

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suit against Reiswerg who notified his insurer.

The company

hired an attorney to represent Reiswerg, but later denied coverage, arguing that Reiswerg’s failure to disclose the dispute in
his insurance application voided the policy.
2923036 at *1.

Reiswerg, 2009 WL

Reiswerg filed a declaratory judgment lawsuit

against his insurer, asking the court to find that his insurer
was obligated to defend and to indemnify him in the underlying
suit.

The insurer filed a counterclaim, seeking a declaratory

judgment that it had no duty to defend or indemnify Reiswerg.
Statom later was added as a third-party defendant and demanded a
jury trial.

Reiswerg, 2009 WL 2923036 at *1.

The insurer moved

to strike the jury demand, but the court determined that the
lawsuit was an inverted action and denied the motion to strike.
In doing so, the court explained:
In one typical case, an insurance company
sought a declaratory judgment in a federal
court that an accident in which its insured
was involved came within one of the exclusions of the policy. There were three ways in
which this coverage issue could have been
litigated if there were no declaratory judgments. First, the insured could have paid a
judgment against him and sued the insurer for
the amount due him by way of indemnity. This
would be a simple action for the recovery of
money only. Therefore, at common law it would
have been tried in debt or assumpsit and
would be triable to a jury today. Second, if
the insured chose not to pay the judgment,
the injured person could have brought an
independent action against the insurer for
the amount of the judgment, which would be
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triable to a jury. Third, the insured person
alternatively could have garnisheed the insurer as a part of the tort action against
the insured. A garnishment would be tried to
the court without a jury. Since the issue of
coverage usually would be tried to a jury,
unless the injured person elected to proceed
by garnishment rather than to bring an independent action, the Eighth Circuit held that
in the declaratory judgment action it was
reversible error to deny trial by jury when
the injured person and the insured had demanded a jury. The Supreme Court cited this
decision with approval in Beacon Theatres,
Inc. v. Westover.

Reiswerg, 2009 WL 2923036 at *2 (citing
Wright & Miller, Federal Practice and Procedure Civil 3d §2313)(discussing Johnson v.
Fidelity & Cas. Co. of NY, 238 F.2d 322 (8th
Cir. 1956))
The Reiswerg court concluded that in the absence of the declaratory judgment act, the determination of whether the terms of the
contract provided coverage for any judgments would arise after
the judgment was obtained, the insurer refused to pay, and either
Statom or Reiswerg sued the insurer.
at *2.

Reiswerg, 2009 WL 2923036

For this reason, the court determined that the lawsuit

was legal in nature and refused to strike the jury demand.
Auto-Owner’s complaint seeks a declaratory judgment that it
does not owe indemnity for punitive damages or interest on
punitive damage awards.
contract.

It is not seeking to void or nullify the

See Kaeser, 803 F.Supp.2d at 978 (explaining that

actions to void or nullify a contract are equitable in nature).

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Similar to Reiswerg, Lake Erie could have filed a common law suit
against Auto-Owners seeking monetary damages for Auto-Owner’s
refusal to pay the punitive damage award.
so in its counterclaim.

In fact, Lake Erie did

The right to a jury trial in a declara-

tory judgment action should not be determined by the "race" to
the courthouse.

Kaeser, 803 F.Supp.2d at 977.

Rather, it is

determined by the basis of the lawsuit, and here the declaration
sought is legal in nature and could have resulted in monetary
damages if it was not filed as an inverse lawsuit.

For these

reasons, the court DENIES the plaintiffs’ motion to strike Lake
Erie’s jury demand.
More straightforward is Lake Erie’s request for a jury trial
on its counterclaim, which seeks monetary damages for breach of
contract and bad faith.

Monetary damages generally are charac-

teristic of a legal claim rather than an equitable one, however,
Auto-Owners argues that this is not dispositive of the issue.
Auto-Owners contends that the central issue of the dispute
determines whether a jury trial is appropriate, and that the
resolution of Auto-Owner’s declaratory judgment claim will
determine the outcome of Lake Erie’s counterclaim.
Auto-Owners cites to two cases in support of its position.
In Evanston v. Howard, 2012 WL 1190177 (N.D. Ind. April 9, 2012),
the insurer filed a claim for declaratory judgment. Neither party

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sought monetary damages, and the only relief sought was a declaration of rights.

Evanston, 2012 WL 1190177 at *1.

Because of

this, the court determined that the parties were not entitled to
a jury trial.

Evanston, 2012 WL 1190177 at *2. Similarly, in

Strack and Van Til Supermarkets v. First Security Underwriting,
1995 WL 831557 (N.D. Ind. Nov. 21, 1995), the plaintiff filed a
complaint for breach of contract and bad faith and requested
punitive damages. The court considered the plaintiff’s claims and
determined that the Employee Retirement Income Security Act
(ERISA) preempted any state law claims.

Therefore, the plain-

tiff’s claims had to be analyzed under ERISA. Strack and Van Til,
1995 WL 831557 at *6.

Because ERISA does not permit punitive

damages or provide a right to a jury trial, the court struck the
plaintiff’s jury demand from the record. Strack and Van Til, 1995
WL 831557 at *7.
Auto-Owners has failed to point to one case where the party
making the jury demand had a legitimate claim for monetary
damages and was denied a jury trial.

In both cases which Auto-

Owners has pointed to, neither party requested nor was able to
recover monetary relief under the applicable laws.

The cases

overwhelmingly suggest that claims for breach of contract and bad
faith that seek monetary damages require a jury trial.

Dairy

Queen, 369 U.S. at 479, 82 S.Ct. at 900 ("[I]n an action to

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collect a debt for breach of a contract between these parties,
petitioner has a right to have the jury determine not only
whether the contract has been breached and the extent of the
damages if any but also just what the contract is."); Int.’l Fin.

Serv. Corp., 356 F.3d at 735; Marseilles Hydro Power, 299 F.3d at
649-50; Kaeser, 803 F.Supp.2d at 978; Reiswerg, 2009 WL 2923036
at *2.

In fact, the most important factor to the court’s inquiry

is the type of relief sought.

Jury trials are permitted on

issues where monetary damages are sought, as Lake Erie seeks
here.
Furthermore, when examined under the two-part test cited in

Int’l Fin. Serv. Corp., 356 F.2d at 735, it is clear that a jury
trial is appropriate for Lake Erie’s counterclaims.

The court

first considers whether the claim would have been brought in a
court of law and equity.

Claims for damages arising from breach

of contract were a suit at common law within the meaning of the
Seventh Amendment.

Marseilles Hydro Power, 299 F.3d at 648.

Likewise, bad faith actions are "a type of 'traditional relief
offered in the courts of law.'"

Northwestern Mutual Life Ins. v.

Koch, 771 F.Supp.2d 1253, 1256 (W.D. Wash. 2009).

The second

prong of the test analyzes the type of relief sought.

Both of

Lake Erie’s claims are for monetary damages, which traditionally

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are legal relief.

Both factors weigh in favor of affording Lake

Erie a jury trial.
Auto-Owners’ claims are the type of inverse lawsuit that
renders a complaint for declaratory judgement a legal action.
This is compounded by the fact that Lake Erie seeks damages in
its counterclaim for Auto-Owners' refusal to pay the punitive
damages awarded in the underlying lawsuit and for its bad faith.
For these reasons, the court finds that the claims are legal in
nature and that a jury trial is appropriate.
_______________
For the foregoing reasons, the Motion to Strike Lake Erie
Land Company’s Request for a Jury Trial [DE 24] filed by AutoOwners Insurance Company and Property-Owners Insurance Company on
August 16, 2012, is DENIED.
ENTERED this 17th day of December, 2012

s/ ANDREW P. RODOVICH
United States Magistrate Judge

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