Seaman et al v. Safe Auto Insurance Company

Filing 16

MEMORANDUM OPINION by Senior Judge Charles R. Simpson, III on 6/24/2015 - The Court will deny Plaintiffs' motion to remand (DN 7), and it will grant Safe Auto's motion for leave to file a surreply (DN 14). The Court will also require each P laintiff to file and serve on opposing counsel all documents supporting his standing for each claim asserted and a memorandum of law explaining his position. A separate order will be entered this date in accordance with this Memorandum Opinion. cc: Counsel (DAK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CHRISTOPHER SEAMAN, ET AL.

PLAINTIFFS

CIVIL ACTION NO. 3:14-CV-00823-CRS

v.

SAFE AUTO INSURANCE COMPANY

DEFENDANT

MEMORANDUM OPINION
This matter is before the Court on Plaintiffs Christopher Seaman and Francis D. Hagan’s
motion to remand (DN 7) and Defendant Safe Auto Insurance Co.’s (“Safe Auto”) motion for
leave to file a surreply (DN 14). Plaintiffs first urge the Court to decline to entertain this action
as it involves claims for declaratory relief. In the alternative, they argue that the case constitutes
a direct action falling outside of the Court’s subject matter jurisdiction. For the following
reasons, the Court will deny Plaintiffs’ motion to remand (DN 7), and it will grant Safe Auto’s
motion for leave to file a surreply (DN 14).1
I.

BACKGROUND
On May 30, 2012, Hagan injured Seaman in a motor vehicle collision. (Compl., DN 1-1,

¶ 5.) When the collision occurred, Hagan allegedly held insurance coverage under a policy
issued by Safe Auto. (Compl., DN 1-1, ¶ 7.) Safe Auto, however, asserted that Hagan’s policy
was not in effect, and it denied coverage for Seaman’s injuries. (Compl., DN 1-1, ¶ 10.)
Seaman brought suit against Hagan to recover for his injuries in Nelson County Circuit
Court. (Compl., DN 1-1, ¶¶ 20–21.) On September 3, 2014, the state court entered a judgment
1

Safe Auto requests leave to file a surreply (DN 14). Plaintiffs object to this motion, but the Court will benefit from
considering the complete arguments of the parties. Therefore, the Court will grant Safe Auto’s motion. The Court
reviewed Safe Auto’s surreply in ruling on Plaintiffs’ motion to remand (DN 7).

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against Hagan in which he stipulated to liability and damages. (Judgment, DN 12-2.) The
judgment entitles Seaman to $57,889.21 for medical expenses; $15,000.00 for lost income; and
$525,000.00 for pain and suffering. (Judgment, DN 12-2.)
On October 27, 2014, Seaman and Hagan filed this lawsuit against Safe Auto in Nelson
County Circuit Court. (Compl., DN 1-1.) Plaintiffs allege that Safe Auto’s denial of insurance
coverage amounted to breach of contract; bad faith; and violations of the Kentucky Consumer
Protection Act, the Kentucky Unfair Claims Settlement Practices Act, and the Kentucky Motor
Vehicle Reparations Act. (Compl., DN 1-1, ¶ 14.)
Safe Auto removed the action to this Court, citing diversity of citizenship as the sole
ground for subject matter jurisdiction. (Notice of Removal, DN 1, ¶ 7.) Plaintiffs now move to
remand based on the Court’s discretion to hear claims for declaratory relief, or in the alternative,
they argue that the case is a direct action over which subject matter jurisdiction does not exist.
II.

DISCUSSION
A.

Direct Action

Plaintiffs contend that this case involves a direct action under 28 U.S.C. § 1332(c)(1),
eliminating the diversity of citizenship necessary for subject matter jurisdiction. Though raised
as an alternative, Plaintiffs’ direct-action argument casts doubt on the Court’s authority to hear
the case and pronounce the law. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95,
118 S. Ct. 1003, 140 L. Ed. 2d 210 (1998). As a threshold matter, the Court will resolve that
jurisdictional doubt before considering its discretion to entertain requests for declaratory relief.
See id.
The general removal statute allows the defendant or defendants to remove a civil action
from state court to federal district court when that action could have been brought originally in

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federal district court. 28 U.S.C. § 1441(a). As the removing defendant, Safe Auto bears the
burden of establishing subject matter jurisdiction. Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C.,
176 F.3d 904, 907 (6th Cir. 1999). If subject matter jurisdiction is lacking, this removed action
must be remanded to state court. 28 U.S.C. § 1447(c). “All doubts as to the propriety of
removal are resolved in favor of remand.” Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th
Cir. 1999).
Safe Auto asserts that the Court holds subject matter jurisdiction based on diversity of
citizenship. Diversity jurisdiction exists in civil actions “where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens
of different states.” Id. § 1332(a). The language of § 1332(a) requires complete diversity of
citizenship, meaning the statute “applies only to cases in which the citizenship of each plaintiff is
diverse from the citizenship of each defendant.” Caterpillar Inc. v. Lewis, 519 U.S. 61, 68, 117
S. Ct. 467, 136 L. Ed. 2d 437 (1996); accord Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267,
2 L. Ed. 435 (1806). At first glance, Plaintiffs and Safe Auto share no common state citizenship.
Seaman and Hagan are citizens of Kentucky,2 and Safe Auto is an Ohio corporation with its
principal place of business “in a state other than Kentucky.”3 (Notice of Removal, DN 1, ¶ 4–5.)
But Plaintiffs attack complete diversity by arguing that their lawsuit comes within the
direct-action provision of 28 U.S.C. § 1332(c)(1). The direct-action provision states that,
in any direct action against the insurer of a policy or contract of liability
insurance, whether incorporated or unincorporated, to which action the insured is
not joined as a party-defendant, such insurer shall be deemed a citizen
of . . . every State and foreign state of which the insured is a citizen.

2

The state citizenship of a natural person is equated with domicile. Von Dunser v. Aronoff, 915 F.2d 1071, 1072
(6th Cir. 1990).
3
A corporation is deemed a citizen of its state of incorporation and the state where its principal place of business is
located. 28 U.S.C. § 1332(c)(1).

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Id. If applicable here, Safe Auto would be deemed a citizen of Kentucky—the home state of its
insured, Hagan. That result would destroy complete diversity and leave the Court without
subject matter jurisdiction.
Congress added the direct-action provision to § 1332(c) in response to the enactment of
direct-action statutes in several states. Aetna Cas. & Sur. Ins. Co. v. Greene, 606 F.2d 123, 125
(6th Cir. 1979). Those state statutes allow an injured party to sue an out-of-state insurer without
joining the in-state insured. Id. By abolishing the injured party’s obligation to join the nondiverse insured, direct-action statutes caused the civil dockets of federal courts to swell with
cases based on diversity of citizenship—a problem remedied by the amendment of § 1332(c). Id.
“Kentucky is not a direct action jurisdiction.” State Auto. Mut. Ins. Co. v. Empire Fire &
Marine Ins. Co., 808 S.W.2d 805, 807–08 (Ky. 1991) (citing Cuppy v. Gen. Accident Fire & Life
Assurance Corp., 378 S.W.2d 629, 631–32 (Ky. 1964)). Plaintiffs cannot escape federal court
by arguing that their Kentucky claims form a direct action. Adams v. Estate of Keck, 210 F.
Supp. 2d 863, 866 (W.D. Ky. 2002). Accordingly, the direct-action provision of § 1332(c)(1)
will not apply. Id. The parties remain completely diverse, and Safe Auto’s allegation that the
amount in controversy exceeds the jurisdictional minimum as to Seaman and Hagan stands
unchallenged. The Court therefore will continue to exercise subject matter jurisdiction.
Of course, the previous discussion calls into question Seaman’s standing to claim under
Hagan’s insurance policy. In the briefing, Plaintiffs’ counsel refers to an assignment of rights,
but the pleadings and record contain no evidence of such an assignment. (Mem. in Supp. of Mot.
to Remand, DN 7-1, at 2.) If Hagan did assign his rights under the policy to Seaman, then
Hagan’s role as a party to this litigation is questionable. The Court has no information at this
point of what rights Hagan may have assigned, what rights he may have retained, and what

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consideration may have flowed due to an assignment. The situation is made more complicated
by the fact that Seaman and Hagan are represented by the same attorney. Plaintiffs must clarify
their individual standing with respect to each claim. Otherwise, the claims will be subject to
dismissal.
B.

Discretion to Entertain Actions for Declaratory Judgment

Though diversity jurisdiction is present, Plaintiffs ask the Court to decline to entertain
this action based on the discretion afforded by the Declaratory Judgment Act, 28 U.S.C. § 2201
et seq. The Declaratory Judgment Act states,
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.
Id. § 2201(a) (emphasis added). The statute “confer[s] on federal courts unique and substantial
discretion in deciding whether to declare the rights of litigants.” Wilton v. Seven Falls Co., 515
U.S. 277, 286, 115 S. Ct. 2137, 132 L. Ed. 2d 214 (1995). By enacting that statute, Congress
“created an opportunity, rather than a duty, to grant a new form of relief.” Id. at 288. In
deciding how to exercise its discretion, the Court normally weighs the factors articulated in
Grand Trunk Western Railroad Co. v. Consolidated Rail Corp., 746 F.2d 323, 326 (6th Cir.
1984),4 and the sub-factors first set forth in Scottsdale Insurance Co. v. Roumph, 211 F.3d 964,
968 (6th Cir. 2000).5

4

The Sixth Circuit directs district courts to consider the following factors in determining whether a request for
declaratory relief should be entertained:
(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 for 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.

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But such extensive discussion is unnecessary here. “In the declaratory judgment context,
the normal principle that federal courts should adjudicate claims within their jurisdiction yields
to considerations of practicality and wise judicial administration.” Wilton, 515 U.S. at 288.
Plaintiffs, however, request more than a simple declaration of the rights they may or may not
hold against Safe Auto. Plaintiffs also seek recovery of monetary damages—both compensatory
and punitive. (Compl., DN 1-1 at 4–5.) The discretion to issue declaratory relief, by itself, is an
insufficient ground for declining jurisdiction over an action that includes a related demand for
monetary damages:
When a plaintiff seeks relief in addition to a declaratory judgment, such as
damages or injunctive relief, both of which a court must address, then the entire
benefit derived from exercising discretion not to grant declaratory relief is
frustrated, and a stay or dismissal would not save any judicial resources.
Adrian Energy Assocs. v. Mich. Pub. Serv. Comm’n, 481 F.3d 414, 422 (6th Cir. 2007); accord
Farris v. State Farm Ins. Co., 617 F. Supp. 2d 654, 659 (N.D. Ohio 2008).
Judicial economy counsels against declining jurisdiction because the claims for which
Plaintiffs seek damages are the same claims for which they seek declaratory relief. Adrian, 481
F.3d at 422. Plaintiffs demand damages for injuries arising from breach of contract, bad faith,
and various statutory violations. (Compl., DN 1-1, ¶¶ 14, 27–31.) The Complaint mentions
declaratory relief only once, praying for “a declaration that Safe Auto is obligated to Plaintiffs

Grand Trunk, 746 F.2d at 326 (citation omitted) (formatting altered).
5
When assessing the fourth Grand Trunk factor—whether the use of a declaratory action would increase friction
between our federal and state courts and improperly encroach upon state jurisdiction—the following sub-factors
must also be considered:
(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 judgment action.
Bituminous Cas. Corp. v. J & L Lumber Co., 373 F.3d 807, 814–15 (6th Cir. 2004) (quoting Roumph, 211 F.3d at
968).

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under the Policy for the injuries outlined above.” (Compl., DN 1-1, at 5.) For that reason,
declining jurisdiction under the Declaratory Judgment Act is improper, and Plaintiffs’ motion to
remand will be denied.6
III.

CONCLUSION
For the reasons stated above, the Court will deny Plaintiffs’ motion to remand (DN 7),

and it will grant Safe Auto’s motion for leave to file a surreply (DN 14). The Court will also
require each Plaintiff to file and serve on opposing counsel all documents supporting his standing
for each claim asserted and a memorandum of law explaining his position. A separate order will
be entered this date in accordance with this Memorandum Opinion.

June 24, 2015

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6

Plaintiffs cite Estate of Ferrell v. J & W Recycling, Inc., No. 0:13-CV-168-HRW, 2014 WL 1744835 (E.D. Ky.
Apr. 30, 2014), as their principal authority in support of remand based on the Declaratory Judgment Act. Ferrell,
however, did not involve a demand for damages along with the request for declaratory relief. Therefore, Ferrell is
distinguishable from the present case.

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