Metropolitan Direct Property and Casualty Insurance Company v. Farmer
Filing
16
MEMORANDUM OPINION & ORDER: DENYING pla's 9 MOTION to Dismiss by Larry Farmer.. Signed by Judge Karen K. Caldwell on 2/21/18.(KJR)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
METROPOLITAN DIRECT PROPERTY
AND CASUALTY INSURANCE COMPANY,
CIVIL NO. 5:17-CV-40-KKC
Plaintiff,
V.
MEMORANDUM OPINION
AND ORDER
LARRY FARMER,
Defendant.
*** *** ***
This matter is before the Court on Defendant Larry Farmer’s motion to dismiss. (DE 9).
Farmer’s main argument is that this Court should decline to exercise its discretionary
jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201. For the reasons set forth
below, the Court denies Defendant’s motion to dismiss and will retain jurisdiction over the
declaratory action.
I. Background
Larry Farmer claims that on October 1, 2015 he was struck by a vehicle while walking near
a grocery store in Lexington, Kentucky. At the time of the alleged incident, Farmer was insured
by Metropolitan Direct Property and Casualty Insurance Company (“Metropolitan”) under a
policy that included uninsured motorist benefits for $100,000 per person, $300,000 per
accident. Farmer did not immediately report the incident to police or Metropolitan and he did
not exchange information with the driver. On May 16, 2016, Farmer first filed a claim for
uninsured motorist benefits. Metropolitan denied Farmer’s claim because he did not report the
incident within twenty-four hours to police and did not report the incident within thirty days
to Metropolitan, as required by the policy.
1
On January 25, 2017, Metropolitan filed this action seeking a declaratory judgment
regarding its obligation to afford Farmer uninsured motorist benefits. Fifteen days after being
served with the complaint, Farmer filed an action in Fayette Circuit Court against
Metropolitan and the driver of the vehicle which he alleged struck him, identified only as
“Unknown Defendant.” Larry Farmer v. Metro. Direct Prop. & Cas. Ins. Co., No. 17-CI-00533
(Ky. Cir. Ct.). Farmer’s original complaint in that action sought a declaratory judgment that
“the insurance coverage[] . . . is in full effect and available to pay any judgment rendered in
this matter.” (State Court Compl. DE 12-2, at ¶ 9).
Shortly thereafter, Metropolitan filed a motion to dismiss the state court action because
the same issues were being litigated in federal court, (DE 12-3), Farmer amended his state
court complaint to add a claim that Metropolitan wrongfully denied his claim for Reparations
Benefits/PIP benefits. (DE 12-4, at ¶ 4). Farmer then filed the motion to dismiss that is
currently before the Court. (DE 9).
As a result of Farmer’s amended state court complaint, Metropolitan filed a motion to
amend its complaint in this action to seek a declaratory judgment that Farmer is not entitled
to basic reparations benefits under the policy. (DE 11). Simultaneously, Metropolitan filed a
response to Farmer’s motion to dismiss. (DE 12). The Court has granted Metropolitan’s motion
to amend its complaint. (DE 13). Farmer’s motion to dismiss is now ripe for consideration.
II. Analysis
A. Farmer’s first argument does not state a basis for dismissal
Farmer’s first argument is that the alleged incident was not a “hit and run” and therefore
the exclusions Metropolitan cited for denying coverage do not apply. Farmer does not state the
legal basis on which he seeks dismissal. To the extent that Farmer believes that Metropolitan
has failed to state a claim upon which relief can be granted, Fed. R. Civ. P. 12(b)(6), that
argument fails. The Declaratory Judgment Act provides that “[i]n a case of actual controversy
2
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 . . . .” 28 U.S.C. 2201(a). Metropolitan’s complaint successfully sets out a claim
upon which relief can be granted under the Act.
B. The Declaratory Judgment Act
Farmer’s next argument is that the Court should exercise its discretion under the
Declaratory Judgment Act to decline jurisdiction because of the ongoing state court
proceedings. The Sixth Circuit has identified five factors, one of which includes three subfactors, that district courts must assess in determining whether to exercise jurisdiction.1 See
Grand Trunk W. R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984). Those 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 res judicata;”
(4) whether the use of a declaratory action would increase the friction between our
federal and state courts and improperly encroach upon state jurisdiction; [which is
determined by asking]
a. whether the underlying factual issues are important to an informed resolution
of the case;
b. whether the state trial court is in a better position to evaluate those factual
issues than is the federal court; and
c. whether there is a close nexus between 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 judgment action; and
Metropolitan argues that the Court does not need to resort to the Grand Trunk balancing factors in determining
whether to retain jurisdiction. But Metropolitan does not cite any case which suggests there is a “step zero” for
determining if the factors should be weighed. In fact, the recent cases cited by Metropolitan applied Grand Trunks
balancing test. See Scottsdale Ins. Co. v. Flowers, 513 F.3d 546 (6th Cir. 2008); Kmart Corp. v. Key Industries, Inc.,
877 F. Supp. 1048 (E.D. Mich. 1994).
1
3
(5) whether there is an alternative remedy which is better or more effective.
W. World Ins. Co. v. Hoey, 773 F.3d 755, 759 (6th Cir. 2014) (quoting Scottsdale, 513 F.3d at
554, 560) (alteration in original). These factors are intended to consider “efficiency, fairness,
and federalism.” Id. The factors have not been assigned weight in the abstract. Instead, their
relative weight depends on the facts of the case. Id. These factors are addressed in turn.
1. Whether the declaratory action would settle the controversy and whether the declaratory
action would serve a useful purpose in clarifying the legal relations in issue
The first and second factors are appropriately considered together in this case. See
Scottsdale, 513 F.3d at 546. The Plaintiff and Defendant in this case both seek a declaration
of their rights under Metropolitan’s insurance policy.2 Thus, the “competing policy
considerations of consolidating litigation into one court versus permitting a party to determine
its legal obligations as quickly as possible” are not present. Scottsdale, 513 F.3d at 555. The
federal and state proceedings in this case have identical issues—whether the policies hit and
run exclusion applies and whether Farmer is entitled to payment of reparation benefits. There
is no aspect of the Farmer’s parallel state proceeding that cannot be resolved in this federal
action. Thus, resolution of the federal action will resolve the entire controversy and clarify all
legal relations between Farmer and Metropolitan. Farmer argues that these factors support
dismissal because the controversy is factual in nature. This argument is misguided. First, the
interpretation of the insurance contract in this case is a question of law, not fact. See Kemper
v. Heaven Hill Distilleries, 82 S.W.3d 869, 871 (Ky. 2002) (“Interpretation and construction of
an insurance contract is a matter of law for the court.”). Second, even if there were factual
issues, their mere presence does not mean that the declaratory action cannot settle the
When Farmer filed this motion to dismiss, the only difference between the actions was that this case did not seek
a declaration regarding Metropolitan’s obligation to pay reparation benefits. Since Metropolitan amended its
complaint, the issues between Farmer and Metropolitan are identical in both proceedings. The only remaining
difference is the claim against the “Unknown Defendant” driver in the state action. But Farmer himself admits he
lacks any information as to this Unknown Defendant’s identity, and nowhere in his motion to dismiss does he argue
that his state claim against the Unknown Defendant should preclude this Court from retaining jurisdiction of this
case.
2
4
controversy or clarify the legal relations. Thus, these factors weighs heavily in retaining
jurisdiction.
2. Whether the declaratory remedy is being used merely for the purpose of
procedural fencing or to provide an arena for res judicata
Third, the Court must consider if this declaratory action is being used for procedural
fencing or as an arena for a race for res judicata. The term procedural fencing “encompass[es]
a range of tactics that courts regard as unfair or unseemly.” Hoey, 773 at 761. It appears that
Farmer, not Metropolitan, is the party attempting to play procedural games. Farmer initiated
his state court action raising identical claims after Metropolitan initiated this federal action.
And Farmer has amended his state court complaint to add new claims in an apparent attempt
to avoid dismissal. In contrast, Metropolitan has done nothing more than file its action in its
preferred forum. See Scottsdale, 513 F.3d at 559 (holding that “exercise of [plaintiff’s] right to
choose a federal forum was not designed to precipitate a race for res judicata.”). Farmer’s claim
that Metropolitan initiated this action to avoid litigating underlying factual issues in state
court is unavailing. Farmer has not identified any factual issues being litigated in state court
that cannot be addressed by this federal action. There is no evidence that Metropolitan had an
improper motive in bringing this action, and the Court should hesitate before imputing one.
Id. at 558. Accordingly, this factor also weighs in favor of retaining jurisdiction.
3. Whether the use of a declaratory action would increase the friction
between our federal and state courts and improperly encroach
upon state jurisdiction
The fourth factor is intended to address federalism concerns. The Sixth Circuit has
identified three sub-factors to determine if federalism concerns are present. The first subfactor “focuses on whether the state court’s resolution of the factual issues in the case is
necessary for the district court’s resolution of the declaratory judgment action.” Id. at 560.
Declaratory actions which resolve the scope of insurance coverage can “sometimes be resolved
as a matter of law and do not require factual findings by a state court.” Id. But, the Court must
5
also be aware that resolution of the federal case may “require factual findings that might
conflict with similar findings made by the state court.” Id. The second sub-factor considers
which court “is in a better position to resolve the issues in the declaratory action.” Id. State
courts are generally considered to be the better forum for resolving novel questions of state
law. If state law is unclear or if the question of the scope of insurance coverage is before the
state court, federal jurisdiction may offend principles of comity. Id. (quoting Northland Ins.
Co. v. Stewart Title Guar. Co., 327 F.3d 448, 454 (6th Cir. 2003)). The third sub-factor asks
“whether the issue in the federal in the federal action implicates important state polices and
is, thus, more appropriately considered in state court.” Id. at 561. The Sixth Circuit has stated
that “issues of insurance contract interpretation are questions of state law with which the
Kentucky state courts are more familiar and, therefore, better able to resolve.” Id. (quoting
Travelers Indem. Co. v. Bowling Green Pro’l Assocs., PLC, 495 F.3d 266, 273 (6th Cir. 2007))
(internal quotation marks omitted). On the other hand, “not all issues of insurance contract
interpretation implicate such fundamental state polices that federal courts are unfit to
consider them.” Id. (citing Northland, 327 F.3d at 454).
The first sub-factor supports retaining federal jurisdiction. The scope of Metropolitan’s
insurance policy is a question of law, not fact, and does not require factual findings by the state
court. The second factor is neutral or weighs slightly against federal jurisdiction. It is unclear
based on the parties briefing if there are novel issues of state law to be addressed. Neither
party addresses the clarity of Kentucky state law when discussing this factor in their briefing.
Elsewhere, however, Farmer claims that Metropolitan’s policy does not define hit and run and
that its common dictionary meaning therefore applies. Metropolitan also claims that the
Kentucky Supreme Court has found language similar to Metropolitan’s uninsured motor
vehicle provision to not exclude insurance coverage on the basis of the vehicle being
unidentifiable. See Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872, 878 (Ky. 2006). Metropolitan
6
claims that Dowell is distinguishable because neither injured person spoke to the driver and
they filed a police report. Instead, Metropolitan asserts that, pursuant to the holding in
Motorists Mut. Ins. Co. v. Hunt, 549 S.W.2d 845 (Ky. App. 1977), the burden is on Farmer to
prove the driver was uninsured because he is the party claiming benefits. Id. at 847. While
these issues have not been fully briefed, it appears there some possibility that the Court will
be faced with deciding novel questions of state law. The extent to which this Court can
reasonably predict how Kentucky courts’ would resolve the question remains unclear. Finally,
the third sub-factor is neutral. While interpretation of an insurance contract is a question of
state law, there is no evidence that interpretation of the scope of the provisions at issue in this
case implicate fundamental state policies. Thus, having analyzed these sub-factors, the Court
finds that the fourth Grand Trunk factor is neutral or, at most, weighs slightly against
retaining jurisdiction.
4. Whether there is an alternative remedy which is better or more effective
The final Grand Trunk factor requires the Court to consider if “an alternative remedy is
better or more effective.” Grand Trunk F.2d at 326. The alternative remedy in this case is a
state declaratory action, such as the one initiated by Farmer. And this remedy may be better
because “Kentucky courts are in a superior position to resolve undecided questions of state law
. . . .” Scottsdale, 513 F.3d at 562. Thus, this factor weighs slightly against exercising
jurisdiction.
5. Balancing the Grand Trunk factors
When balancing all Grand Trunk factors, the Court must keep in mind the goals of
efficiency, fairness, and federalism upon which they are based. The first two factors—
settlement of the controversy and clarification of the legal relations—serve the purpose of
promoting efficiency, and weigh in favor retaining jurisdiction. The third factor—race for res
judicata—promotes fairness. The record contains no evidence that Metropolitan has an
7
improper motive in initiating this federal action, while there is evidence that Farmer has
engaged in a race for res judicata by subsequently filing a state action and amending his
complaint to avoid dismissal. This also weighs in favor of retaining jurisdiction. The remaining
factors—friction between federal and state courts and the availability of an alternative
remedy—promote federalism. These factors are neutral or, at most, weigh only slightly in favor
of dismissal. Accordingly, efficiency and fairness outweigh the slight federalism interest that
would be served by refusing jurisdiction of this action. The Court will retain jurisdiction over
Metropolitan’s declaratory action.
III. Conclusion
For the reasons stated above, the Court HEREBY ORDERS that Plaintiff’s motion to
dismiss (DE 9) is DENIED.
Dated February 21, 2018.
8
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?