Eye Style Optics, LLC et al v. State Farm Fire and Casualty Company

Filing 17

MEMORANDUM AND ORDER granting 7 defendants Motion to Dismiss; finding as moot 10 plsintiff's Motion for Summary Judgment; finding as moot 13 defendant's Motion to Stay Deadlines ; granting 15 Motion for Leave to File. Signed by District Judge Richard D. Rogers on 6/3/13. (meh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
EYE STYLE OPTICS, LLC.,
SPENCER LOWE;
LISA MCDERMOTT;
Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY
COMPANY.
Defendant.

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Case No. 14-2118-RDR

MEMORANDUM AND ORDER
This

civil

action

is

before

the

court

primarily

upon

defendant’s motion to dismiss pursuant to FED.R.CIV.P. 12(b)(1)
and

12(b)(6).

This

action

alleges

a

claim

for

declaratory

judgment and claims for breach of contract and breach of duty of
good faith and fair dealing.
motion

to

judgment.

dismiss

concerns

Defendant

makes

The focus of the arguments in the
plaintiffs’

claim

jurisdictional

for

declaratory

arguments

and

asserts that plaintiffs have failed to state a claim.

also
Upon

review, the court rejects defendant’s jurisdictional attacks,
but agrees that plaintiffs have failed to state a claim.
I.

RELATED MOTIONS
Before addressing the motion to dismiss, the court shall

direct that plaintiffs’ motion for leave to file a surreply in
opposition to the motion to dismiss (Doc. No. 15) be granted.

The court further finds that, in light of the action taken upon
the motion to dismiss, plaintiffs’ motion for summary judgment
(Doc. No. 10) and defendant’s motion to stay deadlines are moot
(Doc. No. 13).
II.

ALLEGATIONS IN THE COMPLAINT
The

insured

complaint
on

a

alleges

that

“Businessowners

plaintiff
Policy”

Eye

Style

issued

by

effective August 9, 2013 through August 9, 2014.

is

the

defendant

Plaintiff Lowe

and plaintiff McDermott are individual members and managers of
plaintiff Eye Style.

The complaint refers to the plaintiffs

collectively as “Eye Style.”

The court shall do the same for

the remainder of this order.
According to the complaint, the policy requires defendant
to

defend

and

indemnify

Eye

Style

in

a

lawsuit

captioned

Romanelli Optix, Inc. v. Eye Style Optics, LLC and Spencer Lowe
and Lisa McDermott, Case No. 13CV6605 filed in the District
Court

of

complaint

Johnson
that

County,

defendant

Kansas.
agreed

Eye
to

Style

defend

asserts

Eye

Style

in

the

in

the

lawsuit as of a letter dated September 30, 2013 and appointed
counsel to do so.

The same letter provided various grounds

under which defendant reserved its right to deny defense and
indemnity to Eye Style.

Eye Style alleges that this letter

created a potential conflict between Eye Style and defendant in
the defense of the state court lawsuit.
2

Eye

Style

has

notified

defendant

that

it

desires

independent counsel of Eye Style’s choosing to defend Eye Style
in the lawsuit.
to

represent

filed.

Eye Style hired counsel from Lathrop & Gage LLP

Eye

Style

in

the

lawsuit

shortly

after

it

was

Eye Style asserts that defendant has wrongfully refused

and continues to wrongfully refuse to reimburse defense costs
incurred by Eye Style through Lathrop & Gage LLP after September
30, 2013.

Defendant’s position is that providing a defense

through defendant’s choice of counsel but still subject to a
reservation

of

rights

is

appropriate

under

Kansas

law.

Defendant has reimbursed expenses and costs charged by Lathrop &
Gage LLP for work done prior to September 30, 2013.
Eye Style seeks a “declaratory judgment that [defendant] is
obligated
costs

to

and

reimburse

expenses

the

reasonable

incurred

by

and

necessary

independent

counsel

defense
of

Eye

Style’s] choosing in defense of Eye Style in the [u]nderlying
[s]uit.”

Doc. No. 1, ¶ 9.

Eye Style asserts that defendant’s

“failure and refusal to pay Eye Style’s selected defense counsel
is a breach of [defendant’s] duty to defend Eye Style under
Kansas law.”
defendant’s

Doc. No. 1, ¶ 46.
conduct

represents

Eye Style also alleges that
a

breach

of

the

insurance

contract and a violation of defendant’s duty of good faith and
fair dealing.

3

III.

MOTION TO DISMISS STANDARDS
Defendant

makes

largely

a

facial

attack

against

this

court’s subject matter jurisdiction over Eye Style’s claim for
declaratory relief, arguing that under the facts alleged by Eye
Style, there is no case or controversy for the court to consider
and

no

prudential

discretion
relief.

to

grounds

consider

Eye

for

the

Style’s

court

to

claims

exercise

for

its

declaratory

Defendant bases these contentions in part upon the fact

that the defense offered by defendant through counsel appointed
by defendant has been refused by Eye Style.

This “fact” is not

directly alleged in the complaint, but it is readily inferred
from the complaint and the parties’ arguments in this matter.
Defendant’s other “jurisdictional” arguments appear to be based
upon the facts as alleged in the complaint.
Accordingly,

the

court

shall

consider

Eye

Style’s

well-

pleaded factual allegations as true and view them in the light
most favorable to Eye Style in deciding defendant’s arguments to
dismiss

this

case

under

Rule

12(b)(1)

and

12(b)(6).

See

Muscogee (Creek) Nation v. Oklahoma Tax Com’n, 611 F.3d 1222,
1227 n.1 (10th Cir. 2010).
Rule

12(b)(6),

the

court

As for defendant’s arguments under
must

decide

whether

stated a claim that is plausible on its face.
Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010).

Eye

Style

has

Casanova v.
“A claim has

facial plausibility when the plaintiff pleads factual content
4

that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”

Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009).
IV.
THE COURT SHALL CONSIDER EYE STYLE’S DECLARATORY JUDGMENT
CLAIM.
Eye

Style

has

filed

this

action

for

declaratory

relief

asking that the court declare that Eye Style is entitled to
select its own counsel and that defendant should pay Eye Style
compensatory

damages

for

alleged

breaches

of

contract

and/or

duty of good-faith and fair dealing.
The Declaratory Judgment Act provides, in relevant part:
“In a case of actual controversy within its jurisdiction, . . .
any

court

of

the

United

States,

upon

the

filing

of

an

appropriate pleading, may declare the rights and other legal
relations

of

any

interested

party

seeking

such

declaration,

whether or not further relief is or could be sought.”

28 U.S.C.

§ 2201(a).
Defendant argues that this court should not exercise its
discretion

to

consider

Eye

Style’s

claim

for

judgment.

Defendant argues this for two reasons.

declaratory
First, as

already mentioned, defendant claims that there is no actual case
or

controversy

independent
underlying

because

counsel
state

defendant

which

lawsuit.

remains

defendant
While

5

willing

selects
this

may

to
be

to

supply

defend

the

true,

the

controversy in this matter is whether defendant is obligated by
the insurance contract to pay for the legal services supplied by
the

counsel

which

declaratory

controversy

Style

chooses.

This

is

an

actual

See Jordan v. Sosa, 654 F.3d 1012, 1025 (10th Cir.

controversy.
2011)(a

Eye

if

it

judgment
settles

action

some

resolves

dispute

which

behavior of the defendant toward the plaintiff).

a

case

affects

or
the

The decision

of this action will affect what charges defendant pays on behalf
of

Eye

Style

for

the

defense

of

the

underlying

lawsuit.

Therefore, it involves an actual case or controversy.1
Defendant further argues that the court should exercise its
discretion to refuse to hear Eye Style’s claims for declaratory
relief.

In deciding whether to exercise the discretion to hear

Eye Style’s claim for declaratory judgment, the court should
consider the following factors:
1) whether a declaratory action would settle the
controversy; 2) whether it would serve a useful
purpose in clarifying the legal relations at issue; 3)
whether the declaratory remedy is being used for the
purpose of procedural fencing or to provide an arena
for a race to res judicata; 4) whether the use of a
declaratory action would increase friction between our
federal and state courts and improperly encroach upon
state jurisdiction; and 5) whether there is an
alternative remedy which is better or more effective.

1

Defendant’s citation to Calderon v. Ashmus, 523 U.S. 740 (1998) is
distinguishable.
In Calderon, a declaratory judgment was sought as to the
validity of a defense that may or may not have been raised in future habeas
proceedings.
Here, there is no doubt that defendant claims now and will
continue to claim that it has fulfilled its obligation to provide independent
counsel for Eye Style’s defense of the underlying lawsuit.

6

State Farm Fire & Casualty Co. v. Mhoon, 31 F.3d 979, 983 (10th
Cir. 1994)(quoting Allstate Ins. Co. v. Green, 825 F.2d 1061,
1063 (6th

Cir. 1987)).

The court’s review of these factors

convinces us that the court should decide Eye Style’s claim for
declaratory relief.
Defendant

argues

that

deciding

the

issue

Eye

Style

has

presented to the court will not settle the entire controversy
between

the

parties

arising

from

the

underlying

lawsuit.

Neither will the resolution of the underlying lawsuit.

But,

there is no requirement that a declaratory judgment offer a
comprehensive resolution of all aspects of a legal dispute.

It

is sufficient if the declaratory judgment will decide an actual
controversy,

if

the

declaratory relief.

other

factors

do

not

weigh

against

In the end, the question is whether the

declaratory action will settle the controversy raised by Eye
Style,

not

the

entire

controversy

between

the

parties.

We

answer that question in the affirmative.
The next factor is whether declaratory relief will serve a
useful purpose in clarifying the legal relations at issue.
believe the answer here is also “yes.”

We

Eye Style is currently

being represented by counsel of its choice in the underlying
lawsuit.

There will be an issue as to whether such counsel will

be reimbursed by defendant under the terms of the insurance
policy or whether Eye Style will be considered to have waived
7

such

payment

by

rejecting

defendant’s

assignment

of

counsel.

Settling the dispute over whether Eye Style or defendant may
choose

independent

counsel

to

defend

the

claims

against

Eye

Style in the underlying lawsuit will serve a useful purpose
because it should assist in determining the cost of Eye Style’s
rejection

of

defendant’s

assignment

of

counsel.

The

court

believes this factor supports a decision to hear Eye Style’s
claims.
Defendant asserts that Eye Style is engaging in “procedural
fencing” by seeking a ruling that defendant is obliged to cover
the expenses of Eye Style’s selected counsel in advance of the
final determination of the underlying case.

However, the court

does not read Eye Style’s complaint as asking for an advance
determination of what are “reasonable and necessary” expenses.
Therefore,

the

court

rejects

defendant’s

allegation

of

“procedural fencing.”
Defendant does not allege that a ruling by this court upon
the

declaratory

judgment

state jurisdiction.
Finally,

the

claim

will

improperly

encroach

The court does not believe it will.
court

should

consider

whether

there

alternative remedy which is better or more effective.
regard,

defendant

duplicative

upon

argues

litigation

and

that
that

Eye
a

Style

decision

is

upon

is

an

In this

advocating
the

dispute

between Eye Style and defendant should be deferred for decision
8

until it is decided whether there is coverage under the policy
for the conduct alleged in the underlying lawsuit.2

The court

disagrees because a decision at this time in this lawsuit may
determine whether Eye Style obtains some of the benefits of the
insurance policy for which Eye Style has paid premiums.
matter

is

deferred

until

the

resolution

of

the

If this

underlying

lawsuit, and Eye Style maintains representation by Eye Style’s
chosen counsel, then Eye Style may not receive a benefit of the
insurance

policy

if

it

is

later

decided

that

Eye

Style

was

obliged to accept defendant’s chosen counsel.

See Federal Ins.

Co.

1223,

1230

expenses

it

v.

X-Rite,

1990)(insured

Inc.,

cannot

748

avoid

F.Supp.
bearing

(W.D.Mich.
voluntarily

incurred by retaining services of independent counsel of its
choice instead of accepting legal services tendered by insurance
company).

We

further

note

that

Eye

Style’s

claim

for

declaratory relief is requesting the court to decide an issue
regarding defendant’s duty to defend and, in general, “[b]ecause
the duty to defend arises when the claim or suit initiates, a
declaration

of

that

duty

is

appropriate

declaration of the duty to indemnity or pay.”

2

earlier

than

a

Aspen Specialty

If defendant felt strongly at this stage that it was not obliged to defend
the underlying lawsuit, defendant could file its own declaratory judgment
action.
See, e.g., Patrons Mut. Ins. Ass’n v. Harmon, 732 P.2d 741 (Kan.
1987)(declaratory judgment action to determine coverage issue filed during
course of underlying wrongful death action).

9

Ins. Co. v. Utah Local Governments Trust, 954 F.Supp.2d 1311,
1316 (D.Utah 2013).
In sum, the court believes it is proper to consider Eye
Style’s

claim

for

declaratory

relief

and

therefore

rejects

defendant’s arguments for dismissal pursuant to Rule 12(b)(1).
V. THE COMPLAINT FAILS TO STATE A CLAIM BECAUSE EYE STYLE DOES
NOT ALLEGE FACTS DEMONSTRATING A PLAUSIBLE CLAIM THAT DEFENDANT
HAS FAILED TO APPOINT INDEPENDENT COUNSEL TO REPRESENT EYE
STYLE.
Kansas
Style’s

law

choice

does
of

not

counsel

require
if

defendant

defendant

counsel to represent Eye Style.

to

pay

selects

for

Eye

independent

In Patrons Mut. Ins. Ass’n v.

Harmon, 732 P.2d 741, 745 (Kan. 1987) the court stated:
In Bell v. Tilton, 234 Kan. 461, 674 P.2d 468 (1983),
there was a conflict of interest between the insured
and the insurer in a civil action.
The insurance
company hired independent counsel to defend the
insured in the civil action and notified the insured
that it was reserving all rights under the policy.
This procedure protects both the insured’s and the
insurer’s interests and rights and eliminates the
necessity of multiple suits to determine the same
issues.
We believe this is the proper procedure to
protect the rights of both parties under their
contract.
In Dyer v. Holland, 1997 WL 807866 *4 (D.Kan. 12/9/1997), the
court repeated above commentary from Patrons, and in U.S. v.
Daniels, 163 F.Supp.2d 1288, 1290 (D.Kan. 2001) the court cited
Patrons

for

the

“established”

principle

that

“insurance

companies often hire independent counsel to represent an insured
while reserving the right to later contest coverage....In such
10

circumstances, retained counsel owe their duty of loyalty to the
insured, not the insurance carrier.”

This principle was also

recognized in Aselco, Inc. v. Hartford Ins. Group, 21 P.3d 1011,
1020 (Kan.App. 2011)(“the proper way for an insurer to protect
both its insured’s and its own interests in cases of conflict is
to hire independent counsel for the insured and reserve all of
its own rights under the policy”) and more recently in Hackman
v.

Western

Agr.

Ins.

Co.,

2012

WL

1524060

*11

(Kan.App.

4/27/2012).3
Eye Style’s argument appears to boil down to a claim that
under

the

facts

alleged

in

this

case

where

the

underlying

lawsuit involves covered and uncovered claims of negligent and
intentional misconduct, any counsel selected by defendant cannot
be considered “independent.”

This is not how this court reads

the Kansas cases cited in the previous paragraph.4

As Eye Style

has not alleged any other facts from which a court could find
that defendant’s appointed counsel was not “independent” or able
to defend all claims asserted against Eye Style showing loyalty
to Eye Style as the insured, the court finds that Eye Style has

3

This view of defendant’s duty is also in accord with the language of the
insurance contract which states that:
“We will have the right and duty to
defend the insured by counsel of our choice against any ‘suit’ seeking those
damages [to which this insurance applies].” Doc. No. 1-1 at p. 65.
4
We note that in the Bell case cited in Patrons, the underlying lawsuit
involved intentional and negligent misconduct claims and that the insurance
company selected the defense counsel for the insured, although the insured
also hired their own counsel.

11

not alleged a plausible claim that defendant has violated its
duty to defend under the insurance contract.5
By virtue of this finding the court holds that all of Eye
Style’s claims must be dismissed.
VI.

CONCLUSION
In conclusion, the court shall grant defendant’s motion to

dismiss.
surreply

Doc. No. 7.
(Doc.

No.

15)

Eye Style’s motion for leave to file a
is

granted.

Eye

Style’s

motion

for

summary judgment (Doc. No. 10) and defendant’s motion to stay
deadlines (Doc. No. 13) shall be considered moot.
IT IS SO ORDERED.
Dated this 3rd day of June 2014, at Topeka, Kansas.

s/RICHARD D. ROGERS
Richard D. Rogers
United States District Judge

5

The court acknowledges that jurisdictions are split on this question and
that it has been said that most courts hold in favor of Eye Style’s position.
See Douglas R. Richmond, A Professional Responsibility Perspective on
Independent Counsel in Insurance, 33 No. 1 INSURANCE LITIGATION REPORTER 5
(Feb. 2, 2011).

12