Continental Casualty Company v. TLC Services, Inc.
Filing
36
ORDER AND REASONS granting 15 24 Motions to Dismiss Case. Signed by Judge Ivan L.R. Lemelle on 12/15/2014. (Reference: 14-1124, 14-1438)(ijg)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CONTINENTAL CASUALTY COMPANY
CIVIL ACTION
VERSUS
CASE NO. 14-1124
c/w
14-1438
TLC SERVICES, INC.
SECTION “B”(4)
ORDER AND REASONS
I.
Nature of Motion and Relief Sought
This consolidated matter is before the Court on a Motion to
Dismiss under Federal Rule of Civil Procedure 12(b)(7) or, in the
alternative,
on
the
grounds
of
abstention
by
Defendant,
TLC
Services, Inc.1 Plaintiff, Continental Casualty filed an opposition
to the motion.2 Consolidated Plaintiff, Rockhill Insurance Company
also filed an opposition to the motion.3 Defendant filed a reply.4
The motion, set for submission on December 3, 2014, is before the
Court, without oral argument.
Accordingly,
IT IS ORDERED that the Motion to Dismiss pursuant to Fed. R.
Civ. P. 12(b)(7) and on the grounds of abstention is GRANTED and
the instant action is DISMISSED WITHOUT PREJUDICE.
1
Rec. Docs. No. 15, 24.
Rec. Doc. No. 17.
3
Rec. Doc. No. 25.
4
Rec. Docs. No. 28, 29.
2
1
II.
Statement of Facts and Procedural History
This diversity action for declaratory judgment arises out of
underlying
wrongful
death
and
survival
suits,
and
the
ensuing
issues related to liability insurance coverage.5 In April and May
of 2014, TLC Services, Inc. (“TLC”) was named as a defendant in
two
separate wrongful death
District
Court
for
the
and survival actions
Parish
of
Orleans.6
in the Civil
One
action
was
resolved.7 The remaining case, Gee, alleges that TLC was negligent
in providing allegedly contaminated linen products that resulted
in
the
death
of
a
minor
child
at
Children’s
Hospital
in
New
Orleans in 2008.8 All damages allegedly sustained arise of exposure
to and ultimate death from mucormycosis, an infection caused by
fungi, alleged to be spread by the linens.9 The case names as
defendants:
TLC
and
its
insurers,
Continental
Casualty
Company
(“Continental”), and Rockhill Insurance Company (“Rockhill”).10
Continental issued a Business Owners Liability policy to TLC
for the effective period of December 31, 2007 to December 31,
2008, providing coverage for “bodily injury,” “property damage,”
5
28 U.S.C. § 2201; Rec. Doc. No. 15-1 at 2.
Terrel Jones and Cassandra Gee v. Children’s Hospital and TLC Services, Inc., No. 2014-3900, Div. A-15 9 (“Gee”) and
Tina Scanlon, Individually and on behalf of their Minor Child, Caroline Scanlon v. Children’s Hospital, Continental
Casualty Company, TLC Services, Inc., Lafayette Insurance Company, Aramark Management Services, Limited
Partnership, Glenn Cobb and XYZ Insurance Company, No. 2014-4849, Div. M-13 (“Scanlon”).
7
Rec. Doc. No. 31, 31-2 at 3..
8
Rec. Doc. No. 15-1 at 3.
9
Rec. Doc. No. 1 at 5.
10
Id. ; Rec. Doc. No. 17-2 at 15.
6
2
and “personal and advertising injury.”11 TLC tendered the defense
of the Gee action to Continental on May 1, 2014.12 Continental
initially denied coverage and a duty to defend; however, on May
16, 2014, Continental agreed to provide TLC with a defense under a
non-waiver agreement, preserving all coverage defenses available
to Continental.13
On
June
seeking
a
withdraw
5,
2014,
Continental
declaration
from
the
insurance
policy
exclusion
bars
that:
defense;
is
clear
coverage
(1)
(2)
and
for
filed
an
amended
Continental
the
Fungi
unambiguous;
TLC
for
can
complaint
immediately
Exclusion
and
the
(3)
damages
in
the
the
Fungi
allegedly
sustained by state court plaintiffs.14
Rockhill
issued
a
Commercial
Umbrella
Policy
to
TLC,
effective from December 31, 2007 to December 31, 2008, providing:
“this policy provides coverage on a claims made basis...if the
scheduled
underlying
[Continental]
policy
provides
claims
made
coverage.”15
On
June
20,
2014,
Rockhill
filed
a
complaint
seeking
a
declaration that: (1) Rockhill owes no duty to defend TLC in the
pending
state
court
matters;
(2)
the
Fungi
Exclusion
in
the
11
Id.
Rec. Doc. No. 1 at 5.
13
Id.
14
Rec. Doc. No. 8 at 1-2.
15
Case No. 14-1438, Rec. Doc. No. 1 at 5.
12
3
Continental
Policy
bars
coverage
under
the
Rockhill
Commercial
Umbrella Policy (“Umbrella Policy”) for TLC; and (3) the clear and
unambiguous Fungi Exclusion in the Umbrella Policy bars coverage
for TLC for the damages sustained by the state court plaintiffs.16
The related cases were consolidated by the Court.17
III.
Law and Analysis
In the motion to dismiss, TLC argues the action should be
dismissed: (A) under Fed. R. Civ. P. 12(b)(7) because Plaintiffs
have
failed
to
join
the
state
court
plaintiffs
who
are
indispensable parties under Fed. R. Civ. P. 19; and, (B) under the
abstention doctrine.18
A. Whether Disposition of the Action Might Impair or Impede
the Gee Plaintiffs’ Ability to Protect Their Interests
Federal Rule of Civil Procedure 12(b)(7) authorizes a motion
to dismiss for failure to join a required party in accordance with
Rule 19. A party is indispensable under Rule 19 of the Federal
Rules of Civil Procedure if, as a matter of equity, the court
finds that the lawsuit cannot proceed without the absent party.
Persons
required
to
be
joined
include
a
person
who,
“in
that
person’s absence, the court cannot accord complete relief among
existing parties; or that person claims an interest relating to
16
Id.; Rec. Doc. No. 1 at 2.
Rec. Doc. No. 23.
18
Rec. Doc. No. 24 at 1; Rec. Doc. No. 15 at 1.
17
4
the subject of the action and is so situated that the disposition
of the action in his absence may as a practical matter impair or
impede his ability to protect that interest.” Fed. R. Civ. P.
19(a)(1)(B).19
The movant bears the initial burden of demonstrating that an
absent party is a required party, but if an initial appraisal of
the facts demonstrates the absent person is required, the burden
is shifted to the opponent of joinder. Hood v. City of Memphis,
570 F.3d 625, 628 (5th Cir. 2009).
Continental and Rockhill argue that the Gee plaintiffs are
not indispensable to this action, in particular, because their
interest
is
determined,
speculative,
and
because
as
any
TLC’s
liability
interest
they
may
has
have
not
is
been
merely
financial.20 However, in seeking a declaratory judgment that they
are not liable under the insurance policies with regard to the
pending state action, Plaintiffs cannot now claim that the Gee
plaintiffs lack a sufficient interest.
The
absent
Gee
plaintiffs
are
necessary
and
indispensable
parties to this declaratory judgment action seeking to determine
whether insurers are liable for judgments rendered against its
insured. See Ranger Ins. Co. v. United Housing of New Mexico,
19
The Court proceeds under Fed. R. Civ. P. 19(a) and not (b) as joinder of the Gee plaintiffs, of Louisiana, would not
deprive this Court of subject matter jurisdiction under 28 U.S.C. § 1332.
20
Rec. Doc. No. 17 at 4-5.
5
Inc., 488 F.2d 682 (5th Cir. 1974). First, their interest relating
to the state court litigation is real. Having to contend with the
stare
decisis
effect
of
rulings
impairs
or
impedes
a
party’s
ability to protect its interest in the underlying action. Ranger
Ins. Co. v. Events, No. Civ. A. 03-2831, 2004 WL 2004545, at *5
(E.D. La. Sept. 8, 2004)(citing United Housing, 488 F.2d at 683
(concluding
were
that
claimants
indispensable
parties
seeking
under
damages
Rule
against
19(a)
to
a
an
insured,
declaratory
judgment action brought by the insurer against the insured and
seeking to establish policy coverage provisions)); cf. Tower Group
Companies v. Ozark Housing Development Inc., 984 F.Supp. 2d 1193,
1199 (M.D. Ala. Nov. 22, 2013)(“entering summary judgment...on its
declaratory judgment claims...could preclude any claims brought by
the Tort Plaintiffs in a subsequent direct action...should the
Tort
Plaintiffs
prevail
in
the
state
court
action.”).
Second,
binding authority has not restricted or differentiated financial
interests. See Ranger Insurance Co., 2004 WL 2004545, at *4.
Many federal courts have also held that injured persons are
necessary
and
indispensable
parties
in
actions
for
declaratory
judgments construing coverage under a liability insurance policy.
See e.g. American Safety Cas. Ins. Co. v. Condor Associates, Ltd.
129 Fed. App’x 540, 542 (11th Cir. 2005)(applying the binding
conclusion in United Housing, 488 F.2d 682, which was adopted by
6
the new Eleventh Circuit); Alonzo v. State, No. Civ. A. 02-2792,
2002 WL 31654918 at *2 (E.D. La. Nov. 21, 2002); Allstate Property
and Cas. Ins. Co. v. Cogar, 945 F.Supp. 2d 681, n. 2 (N.D. W.Va.
May 13, 2013); Star Ins. Co. v. Treible’s Wrecker Service, Inc.,
No.
3:12-cv-0047,
2012)(stating
2012
that
WL
this
2389750,
rule
is
at
well
*2
(M.D.
settled
Pa.
in
June
the
22,
Third
Circuit); but see e.g. Hartford Cas. Ins. Co. v. Cardenas, 292
F.R.D. 235, 242 (E.D. Pa. 2013) (finding that injured parties were
not indispensable parties).
The
Court
practically
concludes
impair
or
that
disposition
impede
the
of
possible
this
action
recovery
by
may
Gee
plaintiffs in their state court action, making them necessary and
indispensable
parties
to
this
declaratory
judgment
action.
However, joinder would not deprive this Court of subject matter
jurisdiction. The Court next considers whether joinder would be
appropriate in this matter.
B. Whether
the
Court
Should
Abstain
from
Exercising
Jurisdiction over This Declaratory Judgment Action
The Declaratory
understood
to
confer
Judgment Act, 28 U.S.C. § 2201,
on
federal
courts
unique
and
has been
substantial
discretion in deciding whether to declare the rights of litigants.
RLI Ins. Co. v. Wainoco Oil & Gas Co., 131 Fed. App’x 970, 972
(5th Cir. 2005). When a district court is considering abstaining
from exercising jurisdiction over a declaratory judgment action,
7
it
must
apply
the
standard
derived
from
Brillhart
v.
Excess
Insurance Co. of America. 316 U.S. 491 (1942); New England Ins.
Co. v. Barnett, 561 F.3d 392, 394 (5th Cir. 2009). The Brillhart
standard affords a district court broad discretion in determining
whether to
stay or dismiss a declaratory judgment action when
parallel state court proceedings are pending. Brillhart, 316 U.S.
494.21
In St. Paul Ins. Co. v. Trejo, the Fifth Circuit stated that,
in determining whether to dismiss a declaratory judgment action, a
district court must consider the following:
(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
could
serve
the
purposes
of
judicial
economy;
and,
(7)
whether the federal court is being called on to construe a
21
The Colorado River doctrine does not apply here as the consolidated cases seek only declaratory judgment and
there are no coercive claims or claims for monetary or other relief. Colorado River Water Conservation District v.
United States, 424 U.S. 800, 817 (1976).
8
state judicial decree involving the same parties and entered
by the court before whom the parallel state suit between the
same parties is pending. 39 F.3d 585, 590 (5th Cir. 1994);
see also Trent v. National City Bank of Indiana, 145 Fed.
App’x 896 (5th Cir. 2005); see Sherwin-Williams Co. v. Holmes
County, 343 F.3d 383, 390-91 (5th Cir. 2003).
These
seven
federalism,
factors
fairness
and
address
three
broad
considerations-
improper
forum
shopping,
as
well
as
efficiency. American Bankers Life Assurance Co. of Fl. v. Overton,
128 Fed. App’x 399, 402 (5th Cir. 2005); Sherwin- Williams Co. v.
Homes Cnty., 343 F.3d at 389-91.
Application of Brillhart and the Trejo Factors
There is a pending state action, involving all three parties,
in which all of the matters in controversy may be fully litigated.
The relevant issues in the pending state action are the following:
(1) whether TLC was negligent in providing linens to Children’s
Hospital; (2) whether TLC is liable to state court plaintiffs for
the
same;
(3)
whether
Continental
is
liable
to
state
court
plaintiffs under the Continental Policy with TLC; and, (4) whether
Rockhill is liable to state court plaintiffs under the Umbrella
Policy.
9
Rockhill argues that, “there is no state court action pending
between
Rockhill
and
TLC
concerning
the
issue
coverage.”22
of
However, the state court pleadings in Gee directly implicate the
insurance
pending
policies
state
controversy
obligations
court
before
to
TLC.23
with
its
Continental
actions
this
do
Court,
insured.”24
not
i.e.
However,
argues
address
that,
“the
the
specific
Continental’s
coverage
the
state
court
cannot
address the claims by state court plaintiffs against Continental
and
Rockhill,
without
addressing
their
respective
coverage
obligations. The issue of coverage may be fully litigated and
resolved
by
the
state
court.
Cf.
Axis
Ins.
Co.
v.
Turner
Industries Group, No. 14-146, 2014 WL 3796425, at * 3 (E.D. La.
July
31,
2014).
Whether
the
Fungi
Exclusion
applies
to
bar
coverage and relieve Plaintiffs of their obligations under both
policies depends entirely upon whether TLC is liable as alleged by
the Gee plaintiffs. Therefore, this Court may not be able to fully
resolve
all
matters
in
controversy,
unless
necessary
and
indispensable parties are joined.
The purpose of judicial economy is not served by retaining
the lawsuit in federal court. “Proceeding to trial in this forum
might
lead
to
a
ruling
that
ultimately
turns
out
to
be
inconsistent with the state court’s ruling, creating unnecessary
22
Rec. Doc. No. 25 at 16.
Rec. Doc. No. 17-2 at 12, 15.
24
Rec. Doc. No. 17 at 8.
23
10
issues and unnecessarily complicating the procedural posture of
both lawsuits.” Accident Ins. Co., Inc. v. Blanchet, No. 13-0387,
2013 WL 3868091, at *6 (W.D. La. July 22, 2013). “The coverage
questions involved in this suit will likely be very fact intensive
so duplicative discovery and motion practice with the potential
for inconsistent rulings in the state and federal forums is a
genuine concern.” Clarendon America Ins. Co. v. Grant, No. 084286, 2009 WL 511308, (E.D. La. Feb. 27, 2009). Federal court may
become a highly inconvenient forum for the parties and witnesses
to simultaneous litigation. In sum, issues of judicial economy
militate in favor of allowing the coverage issues to be determined
in state court.
The circumstances surrounding the filing of the individual
cases in federal court
suggest
that Plaintiffs sought to gain
inequitable precedence in the state court action. The Gee action
was filed in state court on April 21, 2014. TLC tendered the
defense
of
the
Gee
action
to
Continental
on
May
1,
2014.25
Continental filed the instant action on May 16, 2014.26 Although
Continental and Rockhill were not added as defendants in the state
action until June 18, 2014, and July 17, 2014,27 respectively, both
were aware of the state court action, and anticipated or should
have anticipated that they would be, either as the state action
25
Rec. Doc. No. 1 at 5.
Rec. Doc. No. 1.
27
Rec. Doc. No. 17-2 at 12, 15.
26
11
progressed and documentation on liability coverage was made known
to state court plaintiffs, or, as the insured reasonably implead
its liability insurer.
In May and June of 2014, Plaintiffs filed their respective
complaints
seeking
declaratory
judgment
on
coverage
related
issues.28 Plaintiffs are fully aware that any declaratory judgment
in this matter would result in the absent state court plaintiffs,
as well as TLC, being estopped from raising the coverage related
issues in state court. Although there is insufficient evidence of
forum-shopping, the foregoing circumstances are highly suggestive
of Plaintiffs having filed their suits to gain precedence in the
state court action.
The federal court is not being called on to construe a state
judicial decree. However, the Court notes that this consolidated
matter
related
does
not
issues
involve
here,
any
are
federal
intricately
law
issues.
related
to
The
the
coverage
liability
issues, both of which are at issue in the state court action, and
arise under state negligence and insurance law.
Conclusion
Under
the
Brillhart
discretionary
standard,
and
upon
consideration of the Trejo factors, the Court concludes that it
28
Rec. Doc. No. 1; Case No. 14-1438, Rec. Doc. No. 1.
12
would be uneconomical as well as vexatious for a federal court to
proceed
in
a
declaratory
judgment
suit
where
another
suit
is
pending in a state court presenting the same issues, not governed
by federal law, between the same parties. Brillhart, 316 U.S. at
495. After careful consideration, this Court finds that permitting
the underlying litigation to proceed unimpeded would be the better
course of action. Gratuitous interference with the orderly and
comprehensive
disposition
of
state
court
litigation
should
be
avoided. Id.
Lastly,
the
state
court
action
raises
the
same
coverage
questions here, as well as the underlying liability issues not
present in this action, all of which suggest that the state action
would be the more efficient venue for resolving the rights of all
interested
parties.
The
federalism,
fairness
and
efficiency
factors strongly favor allowing the state court to resolve the
issues before it in the pending state court action. Accordingly,
IT IS ORDERED that the Motion to Dismiss (Rec. Docs. No. 15,
24)
is
GRANTED
and
the
instant
lawsuit
is
DISMISSED
WITHOUT
PREJUDICE.
New Orleans, Louisiana, this 15th day of December, 2014.
____________________________
UNITED STATES DISTRICT JUDGE
13
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