Great American Insurance Company v. Cumberland Investment Group, LLC et al

Filing 16

ORDER AMD OPINION: That defendant The Cumberland Investment Group, LLC's 7 Motion toDismiss and/or Stay the Complaint for Declaratory Judgment and defendants Darrell Kelly's and Deborah Kelly's 14 Motion to Dismiss [and/or Stay] are GRANTED. FURTHER ORDERED that these proceedings are hereby STAYED and STATISTICALLY CLOSED pending the resolution of the state court proceeding. Signed by Judge Stanwood R. Duval, Jr on 10/23/2013.(my, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
GREAT AMERICAN INSURANCE
COMPANY

CIVIL ACTION

VERSUS

NO. 13-4763

THE CUMBERLAND INVESTMENT
GROUP, LLC, DARRELL KELLY AND
DEBORAH KELLY

SECTION “K”

ORDER AND OPINION
Before the Court is a Motion to Dismiss and/or Stay the Complaint for Declaratory
Judgment brought by defendant The Cumberland Investment Group, LLC ("CIG") (Rec.Doc.
No. 7) and a Motion to Dismiss brought by defendants Darrell Kelly and Deborah Kelly
(Rec.Doc. No. 14). CIG moves this Court to dismiss the case for lack of subject matter
jurisdiction on the grounds that the amount in controversy is insufficient for diversity jurisdiction
under 28 U.S.C. § 1332 or, in the alternative, to dismiss or stay the case as a prudential matter
because of a parallel state court proceeding. The Kellys move this Court to dismiss the case on
the same prudential grounds. For the following reasons, the Court finds merit in the motions.
I.

BACKGROUND
Defendants Darrell Kelly and Deborah Kelly (the "Kellys") filed a lawsuit on February 7,

2013 in the Twenty-Fourth Judicial District Court for the Parish of Jefferson, State of Louisiana,
for damages they allegedly sustained during a construction project to elevate their family
residence. (Rec.Doc. No. 7-1, 10-3). The Kellys named, as defendants in the now-pending state
court action, multiple parties involved in the project, including: Shadday Construction and
Elevation, Inc. ("Shadday"), the general contractor; CIG, defendant herein, who was hired by
1

Shadday as a subcontractor to perform the elevation work on the Kellys' home; various
individuals allegedly involved in the project; and Allstate, the Kellys' homeowners' insurer.
(Rec.Doc. No. 9-1). While the Kellys did not name any of the defendants' insurers as parties to
the lawsuit, the Kellys averred in their pleadings that CIG was "insured against losses for the
improper performance of [its] contracts" (Rec.Doc. No. 9-1 at 6) and CIG, in its answer,
admitted that it "maintained proper insurance at the time of the elevation of the [Kellys'] home"
(Rec.Doc. No. 9-2 at 5).
Plaintiff herein, Great American Insurance Company ("Great American"), provided
defendant CIG with an insurance policy for the period of September 13, 2011 to September 13,
2012. (Rec.Doc. No. 1-2 at 2). CIG also alleges that it had an insurance policy with Century
Surety Company ("Century") for the following twelve-month period from September 13, 2012 to
September 13, 2013. (Rec.Doc. No. 7-1). In their state court petition, the Kellys aver:
The contract [for elevation of the Kellys' home] was signed . . . on
22 June 2011; work did not begin until months later; work stopped
in August 2012 when the house was a total loss; engineers began
to inspect in October; Code enforcement condemned the house in
November, and scheduled a City Council hearing for emergency
demolition on 14 November 2012.
(Rec.Doc. No. 9-1 at 5). According to CIG, both Great American and Century have denied
claims citing that the alleged damages occurred outside their respective policy periods.
(Rec.Doc. No. 7-1 at 2). Presumably, Great American's position is that the damages, if any, were
sustained after September 13, 2012, and Century's position is that they were sustained before that
date. The alleged damages include the replacement cost of the Kellys' home, which is in excess
of $160,000. (Rec.Doc. No. 9-7). Great American asserts that the coverage limit for the type of
claim asserted is $100,000. (Rec.Doc. No. 9-5).
2

II.

LEGAL STANDARDS
A.

Subject Matter Jurisdiction

In declaratory judgment actions, the amount in controversy "is the value of the right to be
protected or the extent of the injury to be prevented." Leininger v. Leininger, 705 F.2d 727, 729
(5th Cir. 1983) (citing Texas Acorn v. Texas Area 5 Health Systems Agency, Inc., 559 F.2d 1019
(5th Cir. 1977)). Where the plaintiff in a declaratory judgment is an insurer seeking to deny
coverage under an insurance policy, "the 'value of the right to be protected' is plaintiff's potential
liability under that policy." St. Paul Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1253 (5th
Cir. 1998) (quoting Allstate Ins. Co. v. Hilbun, 692 F. Supp. 698, 700 (S.D. Miss. 1988)). Where
the amount in controversy is not facially apparent from the complaint, the court may review
"summary judgment-type" evidence in order to determine the amount in controversy at the time
of filing. Id. (quoting Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1336 (5th Cir.1995)).
B.

Abstention

Great American filed its Complaint for Declaratory Judgment denying coverage under
the policy pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. (Rec.Doc. No. 1).
"Since its inception, the Declaratory Judgment Act has been understood to confer on federal
courts unique and substantial discretion in deciding whether to declare the rights of litigants."
Agora Syndicate, Inc. v. Robinson Janitorial Specialists, Inc., 149 F.3d 371 (5th Cir.1998)
(quoting Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995));
compare Black Sea Inv., Ltd. v. United Heritage Corp., 204 F.3d 647, 652 (5th Cir. 2000) (citing
PPG Indus. Inc. v. Cont'l Oil Co., 478 F.2d 674, 679 (5th Cir. 1973)) ("When a party seeks both
injunctive and declaratory relief, the appropriateness of abstention must be assessed according to

3

the doctrine of Colorado River.") (emphasis added). As such, "[i]t is well settled ... that the
granting of a declaratory judgment rests in the sound discretion of the trial court exercised in
[the] public interest." Wright, Miller & Kane, Federal Practice and Procedure, Civil 3d § 2759;
see also Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 604 (5th Cir.1983). The
Supreme Court has held that the Declaratory Judgment Act "created an opportunity, rather than a
duty, to grant a new form of relief to qualifying litigations [; therefore,] ... a district court is
authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a
declaratory judgment before trial." Wilton, 515 U.S. at 288. Because Great American is seeking
relief solely under the Declaratory Judgment Act and is not seeking injunctive relief, this Court
finds that use of the standard articulated in Brillhart v. Excess Insurance Company of America,
316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942) and reaffirmed in Wilton is proper.
The Brillhart/Wilton standard instructs courts to consider whether the claims of all
parties in interest can satisfactorily be adjudicated in a pending state court proceeding. Wilton,
515 U.S. at 283. Prior to the Wilton decision, the United States Court of Appeals for the Fifth
Circuit, in St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1994), identified seven
non-exhaustive factors for a court to consider in deciding whether to abstain from adjudicating a
declaratory judgment action: 1) whether there is a pending state action in which all of the
matters in controversy may be fully litigated; 2) whether the plaintiff filed suit in anticipation of
a lawsuit filed by the defendant; 3) whether the plaintiff engaged in forum shopping in bringing
the suit; 4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in
time or to change forums exist; 5) whether the federal court is a convenient forum for the parties
and witnesses; 6) whether retaining the lawsuit in federal court would serve the purposes of

4

judicial economy; and 7) whether the federal court is being called on to construe a state judicial
decree involving the same parties and entered by the court before whom the parallel state suit
between the same parties is pending.1
Notably, whether there is a pending state action in which all the matters in the
controversy can be fully litigated is of paramount concern. See Amer. Fidelity Ins. Co. v.
Acadian Geophysical Services, Inc., 1997 WL 786233 (E.D. La. Dec 18, 1997). "It is well
recognized that unnecessary interference with state court litigation should be avoided." Wright,
Miller & Kane, Federal Practice and Procedure, Civil 3d § 2758.
III.

ANALYSIS
A.

Subject Matter Jurisdiction

For the purposes of diversity jurisdiction in a declaratory judgment action, the amount of
controversy is the value of the right to be protected, which, in an insurance coverage case, is the
insurer's potential liability under the policy. See Greenberg, 134 F.3d at 1253. Here, it is not
"facially apparent" from plaintiff Great American's complaint that the amount in controversy
exceeds the statutory minimum despite the plaintiff's bare assertion that it does.
The Court thus turns to other "summary judgment-type" evidence available to ascertain
the value of the right Great American seeks to protect. It is apparent from the record that the
Kellys allege that the replacement cost of their family residence exceeds $160,000. (Rec.Doc.
No. 9-6). Furthermore, Great American admits that its potential liability for the type of claim
being asserted by the Kellys against its policyholder is at least $100,000, according to the
1

The first six factors were set forth the preceding year in Travelers Ins. Co. v. Louisiana Farm Bureau
Federation, Inc. 996 F.2d 774, 777 (5th Cir.1993). These seven factors remain at the core of Brillhart/Wilton
abstention analysis in the Fifth Circuit for declaratory judgment actions. See Sherwin-Williams v. Holmes County,
343 F.3d 383, 388-89 (5th Cir. 2003).

5

coverage limits of the policy. (Rec.Doc. No. 9-5). While an insurance policy coverage limit is
not dispositive of the amount in controversy in declaratory judgment actions, see Hartford Ins.
Grp. v. Lou-Con Inc., 293 F.3d 908, 911-12 (5th Cir. 2002), the fact that the alleged damages
and alleged coverage limit both exceed $75,000 sufficiently establishes that the statutory
minimum amount in controversy requirement is satisfied.
B.

Abstention

The task before the Court is to weigh each of the Trejo Factors with respect to the facts of
this case to determine whether abstention is prudentially required.
As to the first Trejo factor, there is a case pending before the Twenty-Fourth Judicial
District of Louisiana in Jefferson Parish in which the Kellys, CIG, and Great American are all
parties. (Rec.Doc. No. 9). The subject of the litigation involves claims for damages to the
Kellys' family residence during a residential elevation project undertaken by Shadday, as the
general contractor, and CIG, as a subcontractor. The Kellys allege in their state-court petition
that the elevation project "stopped in August 2012 when the house was a total loss [and] Code
Enforcement condemned the house in November [of 2012]." (Rec.Doc. No. 9-1 at 5). CIG, in
its answer, denied these factual allegations. Great American denied coverage for liability to CIG
for all damages alleged by the Kellys because "among other reasons . . . [the damages] did not
occur during the effective dates of the policy." (Rec.Doc. No. 1). CIG's insurance policy with
Great American expired on September 13, 2012. (Rec.Doc. No. 1-2 at 2). CIG avers that it had
an insurance policy with Century that began on September 13, 2012 and that Century also denied
coverage on the basis that the damages occurred outside of the effective dates of the Century
policy. (Rec.Doc. No. 7-1 at 2). Thus, multiple issues of material fact are disputed, including

6

(1) whether the Kellys sustained any recoverable damages, and (2) if so, when those damages
were actually sustained to trigger coverage. That factual finding is necessary to resolve the issue
of coverage and is better left to the state court.
As to the second Trejo factor, Great American was on notice as early as November 29,
2012 when it received an email from the Kellys' attorney informing them of alleged damages
sustained by the Kellys, allegations of fault, and an intent to make a formal demand upon further
investigation. (Rec.Doc. No. 9-6). Great American confirmed receipt of a claim notice in a
letter to CIG dated February 6, 2013. (Rec.Doc. No. 10-3). The Kellys' state court petition
specifically avers that CIG was insured against losses for the improper performance of their
contracts (Rec.Doc. No. 9-1 at 6) and CIG, in its answer, admitted that it "maintained proper
insurance at the time of the elevation of the [Kellys'] home" (Rec.Doc. No. 9-2 at 5). Clearly,
Great American was aware the issue of its insurance coverage of CIG would be at issue in the
pending state court proceeding. Thus, it can be assumed that Great American filed for
Declaratory Judgment on June 10, 2013 in anticipation of becoming a party to that pending state
court action. Indeed, a third-party claim was filed against Great American on July 22, 2013 by
the general contractor (Rec.Doc. No. 9 at 3) and CIG is not procedurally barred from making its
own third-party claim against Great American, which it has indicated in briefing that it may still
do (Rec.Doc. No. 10-2 at 2-3).
As to the third Trejo factor, Great American fails to offer a legitimate reason for its
attempt to select the federal forum to litigate the issues pertaining to its coverage of CIG. There
are "legitimate and improper reasons for forum selection" with the former being permissible and
the latter constituting "abusive 'forum shopping.'" Sherwin-Williams v. Holmes Cnty, 343 F.3d

7

383, 391 (5th Cir. 2003). The plaintiff in Sherwin-Williams filed its declaratory judgment
complaint in federal court in order to resolve certain issues of its liability for lead paint that was
likely to be at issue in multiple lawsuits filed in various state courts. Id. at 398-99. The Fifth
Circuit held that the plaintiff was not engaged in impermissible forum shopping because it was
seeking to avoid litigating multiple lawsuits in multiple courts rather than merely change forums
for one lawsuit. Id. at 400. Likewise, in Travelers Ins. Co. v. Louisiana Farm Bureau
Federation, Inc., the Fifth Circuit held that the plaintiff sought only to resolve legal issues
surrounding its coverage of seventeen Farm Bureau members in a single forum rather than in as
many as seventeen different state court actions and, therefore, was consistent with the purpose of
the Declaratory Judgment Act (i.e. seeking to avoid a multiplicity of lawsuits and forums). 996
F.2d 774, 777-79 (5th Cir. 1993). Unlike the plaintiffs in Sherwin-Williams and Travelers, who
sought to avoid litigating the same issues in multiple state court actions, Great American makes
no contention that other potential plaintiffs, similarly situated to the Kellys, are likely to file suit
raising the same issues that Great American asks this Court to resolve. Therefore, this Court
finds that Great American is engaged in impermissible forum shopping. Great American can
raise an affirmative defense of non-coverage in the pending state court action, but the
Declaratory Judgment Act is not to be used to litigate a possible state-court affirmative defense
in federal court. See Int'l Ass'n of Entrepreneurs of Amer. v. Angoff, 58 F.3d 1266 (8th Cir.
1995).
As to the remaining Trejo Factors, the fourth and sixth weigh in favor of abstention while
the fifth is neutral and the seventh is inapplicable here. As to the fourth factor, possible
inequities exist in allowing Great American to bring this action, because a decision of this Court

8

on the coverage issue will have a preclusive effect on any state court action. As to the fifth
factor, the federal forum, located in Orleans Parish, is no more convenient than the state forum,
located in Jefferson Parish. As to the sixth factor, there are issues of judicial economy as the
resolution of the coverage issues Great American presents would necessarily require this Court
to duplicate the judicial efforts of the state court in the findings of fact related to the underlying
claim upon which Great American has denied coverage.
For these reasons, the Court finds that the exercise of jurisdiction here would result in a
gratuitous interference with the state court proceeding; therefore, applying the standard set forth
in Brillhart/Wilton, this Court will abstain from exercising jurisdiction over this matter.
Accordingly,
IT IS ORDERED that defendant The Cumberland Investment Group, LLC's Motion to
Dismiss and/or Stay the Complaint for Declaratory Judgment (Rec.Doc. No. 7) and defendants
Darrell Kelly's and Deborah Kelly's Motion to Dismiss [and/or Stay]2 (Rec.Doc. No. 14) are
GRANTED.

2

This Court construes the Kellys’ “Motion to Dismiss under the Brillhart/Wilton Abstention Doctrine” to be
a motion to dismiss and/or stay the proceedings and thus grants the motion to stay.

9

IT IS FURTHER ORDERED that these proceedings are hereby STAYED and
STATISTICALLY CLOSED pending the resolution of the state court proceeding. When
those proceedings are completed, any party, if it chooses, may move the Court to reopen the
case.
New Orleans, Louisiana, this 23rd day of October, 2013

STANWOOD R. DUVAL, JR.
UNITED STATES DISTRICT COURT JUDGE

10