State Farm Fire And Causualty Company v. Romans et al

Filing 18

MEMORANDUM OPINION & ORDER: IT IS HEREBY ORDERED that Defendants' Motion to Dismiss DE 9 be OVERRULED. Signed by Judge Henry R. Wilhoit, Jr on 9/22/16.(KSS)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION at ASHLAND

Civil Action No. 15-37-HRW
STATE FARM FIRE AND CASUALTY COMPANY,

v.

PLAINTIFF,

MEMORANDUM OPINION AND ORDER

HAROLD EUGENE ROMANS, et al.,

DEFENDANTS.

Plaintiff State Farm Fire and Casualty Company ("State Farm") filed this action seeking a
declaration of its rights under a policy of insurance pursuant to 28 U.S.C. § 2201. The matter is
pending for consideration of Defendants' Motion to Dismiss [Docket No. 9] State Farm
opposes the motion. [Docket No. 14] For the reasons discussed below, the Defendants' motion
will be overruled.
I.

This case arises from a lawsuit pending in Morgan Circuit Court wherein
Defendant Teresa Fitzpatrick, as Administratrix of the Estate of Jonathan Craig Shepard, sued
Defendants Harold and Lucille Romans in Morgan Circuit Court, Morgan County, Kentucky, for
negligence, gross negligence, negligence per se, breach of contract, and violation of the
Decedent's Due Process Rights under the Fomteenth Amendment to the United States
Constitution, pursuant to 42 U.S.C. 1983. [Complaint, Docket No. 1, ~ 9].
Defendants Harold and Lucille Romans requested State Farm to provide them with a
defense and indemnity for the claims asserted against them by Defendant Fitzpatrick in the state

comt case pursuant to a Manufactured Home Policy ("the Policy") issued to Harold and Lucille
Romans by State Farm, Policy Number l 7-BB-Q845-6, effective for the policy year September 5,
2012 through September 5, 2013. Id.

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21.

In its Complaint, State Farm assetts that it is not obligated to defend or indemnify the
Romans because their claims are excluded by the terms of the policy. Id.
In seeking dismissal, Defendants argue that the Court should decline to exercise
jurisdiction because it would be more appropriate for the state court to decide the issues in this
litigation.

II.
The Declaratory Judgment Act provides that "any co mt of the United States, upon the
filing of an appropriate pleading, may declare the rights and other legal relations of any interested
patty seeking such declaration." 28 U.S.C. § 2201(a). District comts have broad discretion "in
determining whether and when to entertain an action under the Declaratory Judgment Act, even
when the suit otherwise satisfies subject matter jurisdiction prerequisites." Wilton v. Seven Falls

Co., 515 U.S. 277, 282, 115 S. Ct. 2137, 132 L. Ed. 2d 214 (1995); Aetna Cas. & Sur. Co. v.
Sunshine Corp., 74 F.3d 685, 687 (6th Cir. 1996).
The Sixth Circuit has set forth five factors that district courts should consider in
determining whether exercising jurisdiction under the Declaratory Judgment Act is appropriate.
These factors are:
(1) whether the declaratory action would settle the controversy;
(2) whether the declaratory action would serve a useful purpose in
clarifying the legal relations in issue;
(3) whether the declaratory remedy is being used merely for the
purpose of procedural fencing or to provide an arena for a race to

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res judicata;
(4) whether the use of a declaratory remedy would increase friction
between our federal and state courts and improperly encroach on
state jurisdiction; and
(5) whether there is an alternative remedy which is better or more
effective.

Aetna, 74 F.3d at 687 (citation and internal quotations omitted).
In addition, when analyzing the fourth factor, courts should consider three subfactors:
(1) whether the underlying factual issues are important to an
informed resolution of the case;
(2) whether the state trial court is in a better position to evaluate
those factual issues than is the federal court; and
(3) whether there is a close nexus between the underlying factual
and legal issues and state law and/or public policy, or whether
federal common or statutory law dictates a resolution of the
declaratory action.

Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000).
In Scottsdale Ins. Co. v. Flowers the Sixth Circuit discussed the first two factors in great
detail and recognized that there are two schools of though within this circuit regarding the proper
interpretation of them. Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 557 (6th Cir. 2008)
With regard to the first factor, the question is whether the declaratory action will settle the
controversy. One line of cases has required that the action settle the underlying controversy in
the state courts, while the other has only required that the controversy between the parties to the
declarat01y action be settled. Id at 555. The Court in Flowers explained that while these
diverging lines of cases may be explained by competing policy considerations, they might also be
explained based on their different factual scenarios. Id at 556. The Court noted that the line of

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cases declining to exercise jurisdiction because the declaratmy action could not settle the
underlying state court controversy, did so because those cases required district comts to make
factual determinations that were being developed in state comi discovery. Id at 556. However,
where these same concerns were not present because the declaratory plaintiff was not a patty to
the state comt action and the scope of insurance coverage nor the obligation to defend were
before the state court, a declaratmy judgment would resolve the insurance coverage controversy
and clarify the legal relations at issue. Id.
Applying the reasoning in Flowers to the facts of this case, it is clear that this declaratmy
action will resolve the insurance coverage controversy. The only issue to be decided is whether,
as a matter of law, State Farm has a duty to defend and indemnify Defendants in a separate
state court action to which State Farm is not a patty. The insurance coverage question is not
before the state comt and is irrelevant to the outcome of that case. Accordingly, this factor
weighs heavily in favor of this Comt exercising jurisdiction over this matter.
The second factor is often conflated with the first as the issues are interlinked. Id The
Court in Flowers stated that, as to the second factor, to require that the declaratmy action clarify
the legal relations between the parties before the district comi is all that is needed. Id. As set
forth above, a resolution of this case would resolve the coverage issue, thus clarifying the legal
relations between the patties.
The third factor, to-wit, whether federal jurisdiction is being used to provide an arena for
res judicata, is "meant to preclude jurisdiction for 'declaratory plaintiffs who file their suits

mere days or weeks before the coercive suits filed by a natural plaintiff and who seem to have
done so for the purpose of acquiring a favorable forum."' Flowers, 513 F.3d at 558 (quoting

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Amsouth Bank v. Dale, 386 F.3d 763, 788 (6th Cir. 2004)).
In this case, the Court can find no evidence in the record that State Farm's' declarato1y
action was motivated by procedural fencing or to create a race to res judicata. Nor can the Comi
discern any other improper purpose or motive by State Fann, and without evidence of the same,
the Court is not inclined to speculate in that regard. As a result, the Court concludes that this
factor favors the exercise of jurisdiction in this case.
As for whether the declarato1y action will increase friction between the state and federal
courts, a district court must consider three sub-factors. Bituminous Cas. C01p. v. J & L Lumber

Co., Inc., 373 F.3d 807, 814-15 (6'h Cir. 2004). "[T]he mere existence ofa state comt proceeding
is not determinative of improper federal encroachment upon state jurisdiction." Id
The first sub-factor is whether the state court's resolution of the factual issues in
the case is necessaiy for the district comt's resolution of the declaratoty judgment action.

Flowers, 513 F.3d at 560. In cases where a federal court must make factual findings in resolving
a declarat01y judgment action that might conflict with similar findings made by a state court, the
exercise of jurisdiction is inappropriate. Travelers, 495 F.3d at 272. This case however, can be
resolved as a matter oflaw, with no factual findings which may overlap with the findings of the
Morgan Circuit Court.
The second sub-factor is whether this Comt or state comt is in a better position
to resolve the issues presented by the declarato1y action. Given that State Farm is not party in the
appurtenant state Comi action and that the declarato1y judgment action does not appear to allege
issues which are complex or novel, the Court is not convinced that a state comi would
necessarily be in a better position to decide the coverage issue.

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The final sub-factor addresses whether the issues in this action implicates important state
policies and are thus more appropriately considered in a state court. The Sixth Circuit has
recognized that in general, "[t]he states regulate insurance companies for the protection of their
residents, and state courts are best situated to identify and enforce the public policies that form
the foundation of such regulation." Flowers, 513 F.3d at 561 (quoting Bituminous, 373 F.3d at
273). However, not all cases involving insurance contract interpretation involve such important
fundamental state policies that federal courts should decline to consider them. Northland, 327
F.3d at 454. This is particularly the case, where as here the issues involving the insurance
contract do not appear to be especially novel or complex and can be decided as a matter of law.
Finally, whether an alternative remedy exists, the Couit again notes that State Farm is not
a party to the state court action nor is the question of coverage pending in that forum. Therefore,
this factor would appear to weigh in favor of jurisdiction.

III.
The Court is mindful that this particular case does not raise concerns of comity of
federalism. Had those issues been implicated in a significant way, the undersigned would decline
jurisdiction. However, in this matter, an exercise of jurisdiction appropriate because: (I) all of
the pmties from the state court action are parties to the federal action, and thus the state coutt
patties would be bound by a declaratory judgment from the federal couti; (2) the insurer-plaintiff
in the federal action is not a party to the state court action; (3) the insurance coverage issnes
before the federal court are issues of law that can be decided without inquiring into factual
questions being developed in state court discove1y; (4) the coverage issues in the federal court are
not before the state couti, and therefore there is no risk of conflicting judgments; and (5) the

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coverage issues before the federal court are not novel issues of state law.
Accordingly, IT IS HEREBY ORDERED that Defendants' Motion to Dismiss [Docket
No. 9] be OVE7ED.
This

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day of September, 2016.

Henry R. Wilhoit, Jr., Senior Judge

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