First Mercury Insurance Company v. Earleigh Heights Volunteer Fire Company of Anne Arundel Co
MEMORANDUM OPINION. Signed by Judge Ellen L. Hollander on 12/19/2014. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
FIRST MERCURY INSURANCE
Civil Action No. ELH-14-3156
THE EARLEIGH HEIGHTS
VOLUNTEER FIRE COMPANY OF
ANNE ARUNDEL COUNTY,
This declaratory judgment case was initiated by First Mercury Insurance Co. (“Mercury”
or “Insurer”) against the Earleigh Heights Volunteer Fire Company of Anne Arundel County
(“Fire Company”). It presents a question of insurance coverage and is related to a tort action
pending in the Circuit Court for Anne Arundel County (“Tort Action”), as well as a declaratory
judgment action filed by the Fire Company in the same Maryland court (the “State Declaratory
The Tort Action involves a suit filed in May 2013 by Sean Snyder and Joseph Micciche,
Jr., individually and as Personal Representative of the Estate of Kara Richelle Micciche and to
the use of Kimberly Micciche,1 against, inter alia, Frank Joseph & Sons, Inc. d/b/a Jolly Shows
(“Jolly” or “Jolly Shows”) and the Fire Company. See Micciche, et al. v. Goldman, 02-C-13178420 (Cir. Ct. for Anne Arundel Cnty.). The Tort Action is rooted in a tragic accident that
occurred on July 12, 2011, in which Kara Micciche was fatally injured and Sean Snyder was
seriously injured when they were struck by a motor vehicle while crossing Ritchie Highway.
The vehicle was driven by William Goldman. The complaint in the Tort Action (ECF 1-1, “State
Joseph and Kimberly Micciche are the parents of the decedent, Kara Micciche.
Complaint”) alleges, inter alia, that Jolly and the Fire Company were negligent in failing to
secure safe crossing at a roadway adjacent to a carnival sponsored by the Fire Company and
operated by Jolly. The decedent and Snyder, who were pedestrians, were heading to the carnival
when the accident occurred. See State Complaint ¶¶ 29, 30, 35.
In November 2013, under a general liability policy issued by the Insurer to Jolly, the
Insurer undertook defense of Jolly, as an insured, and of the Fire Company, as an additional
insured. See ECF 1 (“Complaint”) ¶ 19. In July 2014, plaintiffs in the Tort Action voluntarily
dismissed their claims against Jolly. Id. ¶ 11; ECF 1-2 (stipulation of dismissal). Thereafter, in
August 2014, the Fire Company voluntarily dismissed its cross-claim in the Tort Action against
Complaint ¶ 12; ECF 1-3 (stipulation of dismissal).
Soon after, Mercury ceased
defending Jolly and the Fire Company. Complaint ¶ 24. When the Fire Company disputed the
Insurer’s right to withdraw the Fire Company’s defense, the Insurer filed this action, seeking a
declaratory judgment that it has no duty to defend or indemnify the Fire Company. Id. ¶¶ 28, 32.
Before me now is the Fire Company’s “Motion to Dismiss” (ECF 7, “Motion”), filed
pursuant to Fed. R. Civ. P. 12(b)(6), with an accompanying memorandum of law (ECF 7-1,
“Memo”). The Fire Company argues that the federal declaratory action should be litigated in the
Maryland court, where a parallel suit filed by the Fire Company, seeking declaratory judgment
on the same issue, is currently pending. Memo at 6-8. Mercury has opposed the Motion. ECF 8
(“Opposition”). The Insurer argues that it is entitled to its forum of choice; that Maryland has no
strong interest in deciding the coverage question; and that the coverage issue is separable from
the tort claims in the Tort Action. Opposition at 5, 22. The Fire Company has replied. ECF 12
The Motion is fully briefed, and no hearing is necessary to resolve it. See Local Rule
105.6. For the reasons that follow, I will grant the Motion.
The basic facts appear to be undisputed. Compare Memo at 2-4 with Opposition at 5-8
and Complaint. As discussed, this case is related to the Tort Action now pending in a Maryland
trial court, as well as to the State Declaratory Action. Trial of the Tort Action is scheduled to
commence on April 14, 2015. As noted, the Insurer, the plaintiff in this federal action, came to
be involved by way of an insurance contract between Jolly and the Insurer.
The Insurer issued Jolly a general liability policy (the “Policy”), effective from April 18,
2011 to April 11, 2012. Complaint ¶ 13. The Policy contains an “additional insured” provision,
which amends the Policy to include “additional insureds”, which are individually defined as
follows, id. ¶ 14 (quoting Policy) (alterations in Complaint):
any person or organization for whom you [i.e., Jolly Shows] are performing
operations when you and such person or organization have agreed in writing in a
contract or agreement that such person or organization be added as an additional
insured on your policy. Such person or organization is an additional insured only
with respect to liability arising out of your ongoing operations performed for that
The operation of the carnival at issue in the Tort Action was indeed governed by an
agreement between Jolly and the Fire Company. Complaint ¶ 15. The Insurer appears to agree
that the agreement obligated Jolly to name the Fire Company as an additional insured under the
Policy. The agreement stated, id. ¶ 17 (quoting agreement) (alterations in Complaint):
The Lessor [i.e., Jolly Shows] maintains for its protection, at it’s [sic] own
expense, workmen’s compensation insurance, general liability insurance, and auto
liability insurance. The Lessor will name the Lessee [i.e., Earleigh Heights] and
any property owners as additional insured on the general liability insurance
As noted, in May 2013 plaintiffs in the Tort Action filed suit in State court against, inter
alia, Jolly and the Fire Company. State Complaint. “Pursuant to the ‘additional insured’
endorsement and the agreement between” Jolly and the Fire Company, on November 4, 2013,
the Insurer “accepted the tender of defense” from the Fire Company “under a full reservation of
[the Insurer’s] rights under” the Policy. Complaint ¶ 19. By August 2014, all claims against
Jolly in the Tort Action had been voluntarily dismissed. See Complaint ¶ 24; ECF 1-2, ECF 1-3
(stipulations of dismissal).
Mercury sent a letter to the Fire Company on September 5, 2014, stating that it believed
that, “in light of the dismissal” of Jolly, “the remaining claims against [the Fire Company] did
not arise out of” Jolly’s operations, and that the Insurer, therefore, “no longer had a duty to
defend” the Fire Company. Complaint ¶¶ 24, 25. Further, the Insurer stated that it would
continue to cover the fees of the attorney it had provided to the Fire Company, Christopher R.
Dunn, for an additional 30 days, i.e. until October 5, 2014, “‘to help facilitate any transition of
the defense.’” Id. ¶¶ 25, 27 (quoting letter).
The Fire Company disputed the Insurer’s right to withdraw its defense, “contending that
there is a potentiality of coverage and therefore a duty to defend on the part of” the Insurer. Id.
¶ 28; Memo at 4. Nonetheless, the Insurer withdrew its defense of the Fire Company. See
Micciche, supra (the Tort Action) (docket showing only Hamilton Fisk Tyler as counsel for the
Fire Company); Memo at 6 (“The issue of whether [the] … Fire Company is owed a defense has
essentially been rendered moot by the timing … of [the Insurer] in withdrawing the defense … .
Undersigned counsel [Hamilton F. Tyler] is defending [the] … Fire Company in the [Underlying
Action].”). Moreover, as discussed in more detail, infra, it appears the Fire Company is not
asking the Insurer to renew its defense of the Fire Company before resolution of the Tort Action,
which is set for trial beginning April 14, 2015.
The Insurer filed this lawsuit on October 7, 2014, invoking the Court’s diversity
jurisdiction under 28 U.S.C. § 1332, and seeking only a declaratory judgment, pursuant to 28
U.S.C. § 2201. ECF 1. On October 20, 2014, with the consent of the Insurer, the Fire Company
filed a motion for extension of time to answer (ECF 5), seeking an extension until November 14,
2014. This Court granted the request. ECF 6. Then, on November 5, 2014, the Fire Company
filed the State Declaratory Action in the Circuit Court for Anne Arundel County. See Earleigh
Heights Volunteer Fire Company of Anne Arundel Cnty. v. First Mercury Insur. Co., Case No.
C-02-CV-14-000308 (Cir. Ct. for Anne Arundel Cnty.); Memo at 1-2. That action appears to be
nearly a mirror image of this one.
Neither side has submitted a copy of the complaint in the State Declaratory Action.
However, it appears that, as plaintiff in the State Declaratory Action, the Fire Company seeks a
declaration that the insurance policy issued by the Insurer to Jolly covers claims asserted by
plaintiffs in the Tort Action against the Fire Company, or, in the alternative, that the Insurer has a
duty to indemnify the Fire Company “for any and all claims” in the Tort Action. Memo at 4.
The Fire Company argues, ECF 7-1 at 10, and the docket sheet for the State Declaratory Action
shows, that more parties are involved in that case. See Docket, Earleigh Heights Volunteer Fire
http://casesearch.courts.state.md.us/. There, the Fire Company has named as defendants Jolly as
well as four other parties from the Tort Action. Id.
The Fire Company explains here that it filed a motion in the State Declaratory Action to
consolidate that case with the Tort Action, Memo at 2, and that it requested a stay of the State
Declaratory Action pending resolution of the Tort Action. Id. at 5. The docket of the Tort
Action reflects that a motion to consolidate with the State Declaratory Action was filed on
November 13, 2014. See Micciche, supra. As of the date of this Memorandum, a motion to stay
does not yet appear on the docket of either state action. Id; Earleigh Heights Volunteer Fire
Company of Anne Arundel Cnty., supra.
On November 13, 2014, the Fire Company filed the pending Motion. ECF 7.
Federal courts are courts of limited jurisdiction and “may not exercise jurisdiction absent
a statutory basis.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005).
Nevertheless, when, as here, jurisdiction is established, federal courts have a “virtually
unflagging obligation . . . to exercise the jurisdiction given them.”
Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817 (1976); accord Lexmark Int’l, Inc. v.
Static Control Components, Inc., --- U.S. ---, 134 S. Ct. 1377, 1386 (Mar. 25 2014); Great Am.
Ins. Co. v. Gross, 468 F.3d 199, 206 (4th Cir. 2000). Although the Supreme Court has identified
some situations in which, for reasons of comity, federalism, or other prudential concerns, federal
courts may abstain from exercising jurisdiction, “[a]bstention from the exercise of federal
jurisdiction is the exception, not the rule.” Colorado River, 424 U.S. at 813.
In Colorado River, the Supreme Court held that, when there are “parallel federal and state
suits” but no “traditional grounds for abstention” apply, a stringent “exceptional circumstances”
standard ordinarily governs a federal court’s decision whether to abstain from exercising
jurisdiction. Chase Brexton Heath Servs., Inc. v. Maryland, 411 F.3d 457, 463 (4th Cir. 2005)
(analyzing Colorado River). In other words, even where there is parallel state and federal
litigation, “‘[a]bdication of the obligation to decide cases’” is justified only in “‘exceptional
circumstances.’” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 14 (1983)
(citations and some internal quotation marks omitted).
However, as the Supreme Court reaffirmed in Wilton v. Seven Falls. Co., 515 U.S. 277,
286 (1995), district courts have “greater discretion” to abstain from exercising jurisdiction “in
declaratory judgment actions than that permitted under the ‘exceptional circumstances’ test of
Colorado River and Moses H. Cone.” In other words, “[i]n the declaratory judgment context, the
normal principle that federal courts should adjudicate claims within their discretion yields to
considerations of practicality and wise judicial administration.” Id. at 288. This is because the
Declaratory Judgment Act, 28 U.S.C. § 2201(a), which is the source of a federal court’s authority
to issue declaratory judgments, has been understood, “[s]ince its inception,” to “confer on federal
courts unique and substantial discretion in deciding whether to declare the rights of litigants.”
Wilton, 515 U.S. at 286 (citing Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942)).
Indeed, the Declaratory Judgment Act contains a “textual commitment to discretion”: it
provides that a court “‘may declare the rights and other legal relations of any interested party
seeking such declaration.’” Wilton, 515 U.S. at 286 (quoting 28 U.S.C. § 2201(a)) (emphasis in
Wilton); see also United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir. 1998). Thus, of
import here, when a federal suit seeks only discretionary declaratory relief, and there is another
proceeding regarding the same issues pending in state court, “a district court may either stay the
suit in favor of state court action or ‘decline to exercise jurisdiction altogether by . . . dismissing
the suit or,’” when the case has been removed from a state tribunal, by “‘remanding it to state
court.’” Myles Lumber Co. v. CNA Fin. Corp., 233 F.3d 821, 823 (4th Cir. 2000) (quoting
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 721 (1996)).
Defendant’s Motion invokes this inherent discretion of a federal court to abstain from
entertaining a declaratory action, which is often referred to as Wilton/Brillhart abstention or
In general, the Fourth Circuit has long maintained that “‘a declaratory
judgment action is appropriate ‘when the judgment will serve a useful purpose in clarifying and
settling the legal relations in issue, and . . . when it will terminate and afford relief from the
uncertainty, insecurity, and controversy giving rise to the proceeding.’” Penn-America Ins. Co.
v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004) (quoting Centennial Life Ins. Co. v. Poston, 88 F.3d
255, 256 (4th Cir. 1996), in turn quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th
Cir. 1937)) (alteration in Coffey).
However, “[w]hen a related state court proceeding is
pending,” such as the State Declaratory Action, “‘considerations of federalism, efficiency, and
comity’ should inform the district court’s decision whether to exercise discretion over a
declaratory judgment action.” Coffey, 368 F.3d at 412 (citations and some internal quotation
In a number of cases decided in the wake of Wilton, the Fourth Circuit has elucidated and
applied several factors to guide district courts in the exercise of their discretion whether to
abstain from issuing a declaratory judgment.
See, e.g., Gross, supra, 468 F.3d 199; New
Wellington Fin. Corp. v. Flagship Dev. Corp., 416 F.3d 290 (4th Cir. 2005); Coffey, supra, 368
F.3d 409; Myles Lumber, supra, 233 F.3d 821; Kapiloff, supra, 155 F.3d 488; Aetna Cas. & Sur.
Co. v. Ind-Com Elec. Co., 139 F.3d 419 (4th Cir. 1998). The factors are often called the
“Kapiloff factors” or the “Ind-Com factors,” deriving from the cases decided soon after Wilton.2
Several of the factors articulated in Kapiloff and Ind-Com were drawn from an earlier
case, Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371 (4th Cir. 1994). Although both
Kapiloff and Ind-Com drew from Nautilus, the Fourth Circuit has recognized that one aspect of
Nautilus was overruled by the Supreme Court in Wilton: the Nautilus Court had balanced the
factors itself, applying an “essentially ‘de novo’” standard of review to the district court’s
decision to abstain from exercising jurisdiction over a declaratory action. Nautilus, 15 F.3d at
In Kapiloff, 155 F.3d at 493-94 (citations omitted), the Fourth Circuit said:
[D]istrict courts are not without guidance in exercising [their] discretion. We have
explained that a declaratory judgment “is appropriate ‘when the judgment will
serve a useful purpose in clarifying and settling the legal relations in issue, and
. . . when it will terminate and afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding.’” At the same time, whenever a
parallel proceeding is pending in state court, district courts must also take into
account “considerations of federalism, efficiency, and comity.” To aid district
courts in balancing the state and federal interests when a parallel state action is
pending, we have articulated four factors for consideration: (1) whether the state
has a strong interest in having the issues decided in its courts; (2) whether the
state courts could resolve the issues more efficiently than the federal courts; (3)
whether the presence of “overlapping issues of fact or law” might create
unnecessary “entanglement” between the state and federal courts; and (4) whether
the federal action is mere “procedural fencing,” in the sense that the action is
merely the product of forum-shopping.
In balancing the factors, “‘[t]he existence or nonexistence of a state court action is simply
one consideration relevant to whether to grant declaratory relief.’” Ind-Com, 139 F.3d at 423
And, “[a]s with any multi-factor test governing the exercise of federal
jurisdiction, a district court should not treat the factors as a ‘mechanical checklist,’ but rather
should apply them flexibly in light of the particular circumstances of each case.”
VRCompliance, LLC v. HomeAway, Inc., 715 F.3d 570, 573 (4th Cir. 2013).
On balance, consideration of the Kapiloff factors directs dismissal of this case in favor of
permitting the litigation to proceed in state court. I will review each factor in turn.
375 (citation omitted). However, the Supreme Court held in Wilton that such a decision must be
reviewed only “for abuse of discretion.” Wilton, 515 U.S. at 290; see Poston, supra, 88 F.3d at
257 (reaffirming use of factors articulated in Nautilus, but stating: “To whatever extent our
previous decisions have implied further constraints on district court discretion [to abstain from
exercising jurisdiction over a declaratory action], see, e.g., Nautilus, . . . those decisions must
give way to the clear teachings of Wilton.”).
The first factor is “whether the state has a strong interest in having the issues decided in
its courts.” Kapiloff, 155 F.3d at 493-94.
As an initial matter, both sides appear to agree that Maryland law governs the insurance
coverage question. See Memo at 8; Opposition at 10-11; see also Brillhart, 316 U.S. at 496
(“Whether and under what circumstances a reinsurer can be reached through a judgment against
the insured are questions of local law.”).
Consequently, the Fire Company asserts that “‘there exists an interest in having the most
authoritative voice speak on the meaning of applicable law, and that voice belongs to the state
courts when state law controls the resolution of the case.’” Memo at 8 (quoting Mitcheson v.
Harris, 955 F.2d 235, 237 (4th Cir. 1992)). The Insurer counters that, although “the insurance
coverage issues here do involve state law, federal courts frequently interpret insurance contracts
and determine coverage issues.” Opposition at 10. It relies on Kapiloff for the proposition that
state interests are “‘not particularly significant’” when the state law issues are “standard matters
of agency and contract interpretation.” Opposition at 8 (quoting Kapiloff, 155 F.3d at 494).
In my view, the Insurer has the better argument. Certainly, Maryland has an interest in
having Maryland law adjudicated in a Maryland court. And, as the Fire Company points out, the
action “involves conduct occurring in Maryland which allegedly caused damages to Maryland
residents.” Memo at 8; see also Reply at 3. But, the Fire Company does not argue that the legal
issues presented are other than “standard matters.” See Memo at 8-9; see also, e.g., Moscarillo v.
Prof. Risk Mgmt. Servs., Inc., 398 Md. 529, 537, 921 A.2d 245, 249 (2007) (“This Court has, on
numerous occasions, discussed the duty of an insurer to provide a defense for an insured.”).
In Nautilus, supra, 15 F.3d at 378 (citing Mitcheson, 955 F.2d at 236, 240), the Fourth
Circuit said that, in order for a state’s interest to “weigh against the exercise of federal
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jurisdiction,” the questions of law raised must be “difficult” or “unsettled”; that is, they should
involve more than “the routine application of settled principles of law to particular disputed
facts.” See also Kapiloff, 155 F.3d at 494; Poston, 88 F.3d at 258; Hartford Cas. Insur. Co. v.
Wugin, 247 F. Supp. 2d 723, 727 (D. Md. 2003) (interest factor favors neither side where state
law issue not novel). Accordingly, I cannot say that Maryland’s interest weighs against the
exercise of federal jurisdiction.
The second factor is “whether the state courts could resolve the issues more efficiently
than the federal courts.” Kapiloff, 155 F.3d at 494. As I see it, this factor weighs heavily in
favor of dismissing the Complaint so that the entire matter may be resolved in a single court.
The rationale was well put by the Fourth Circuit in Mitcheson, 955 F.2d at 239:
It hardly husbands scarce judicial resources to allow separate suits
stemming from the same overall controversy and involving overlapping issues to
proceed simultaneously on parallel tracks. The inefficiencies that could result are
not hard to imagine. For example, … a federal declaration that an insurer had no
duty to indemnify could be rendered totally unnecessary by a subsequent state
verdict for the insured in the underlying state action. See Indemnity Ins. Co. v.
Schriefer, 142 F.2d 851, 853 (4th Cir. 1944) (approving dismissal of declaratory
action because duty to indemnify could be decided as well after the state court
litigation). Such potential problems reinforce the inherent appeal of having all
litigation stemming from a single controversy resolved in a single court system.
… While inefficiencies can of course occur within a single court system, the
prospects for coordinated management and alleviation of abrasion are greater
when the litigation is handled under one jurisdictional roof. Because the principal
litigation … is non-removable, the Maryland courts are the only system with the
jurisdictional power to resolve all facets of this controversy, and they are also in
the best position to assess how best to handle any satellite suits.
Here, as in Mitcheson, this case and the state cases, as discussed infra, concern
overlapping issues. And, “a federal declaration that an insurer had no duty to indemnify could be
rendered totally unnecessary by a subsequent state verdict for the insured in the underlying state
action,” 955 F.2d at 239, as the Fire Company repeatedly stresses in its Memo, at 5-6, 9.
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Moreover, as in Mitcheson, the Tort Action is non-removable,3 meaning that only the Maryland
courts can resolve “all facets of this controversy” and “assess how best to handle any satellite
suits.” 955 F.2d at 239.
This analysis is strengthened by the Fire Company’s assertion that it will seek only
indemnification, and that it would do so only after resolution of the Tort Action, and only if there
is a judgment against it. As noted, the Tort Action is scheduled for trial in early April 2015, in
the Circuit Court for Anne Arundel County. Memo at 5; Micciche, supra. In its Memo, the Fire
“The issue of whether [the] … Fire Company is owed a defense has
essentially been rendered moot by the timing … of [the Insurer] in withdrawing the defense,”
because it is “doubtful that a resolution of the instant case … would occur in sufficient time prior
to the jury trial in the [Tort Action] to permit a change in counsel.” Memo at 6. And, in any
event, the Fire Company has indicated it does not seek a change in counsel. Rather, it seeks to
stay the State Declaratory Action until resolution of the Tort Action. Memo at 5. Consequently,
it argues, if the Fire Company “prevails at trial in the [Tort Action], the declaratory judgment
coverage issues will be moot.” Memo at 5; see also Reply at 2, 4.
Although no one can say with certainty if the trial of the Tort Action will occur in early
April, or whether the state court will indeed stay the State Declaratory Action, or whether
schedule changes would affect the Fire Company’s intentions, these uncertainties only weigh
heavier still in favor of permitting the litigation to go forward “within a single court system.” A
The statutory window for removal of the Tort Action has long since passed. See 28
U.S.C. § 1446(b). But, it appears that the Tort Action could not have been removed even
immediately after filing. With certain exceptions not present here, actions “removable solely on
the basis of jurisdiction under section 1332(a)” cannot be removed from state court if any of the
parties “properly joined and served as defendants is a citizen of the State in which such action is
brought.” 28 U.S.C. § 1441(b). Because there do not appear to be any federal questions in the
Tort Action, see ECF 1-1 (complaint in Tort Action alleging two counts in common law tort),
and because, inter alia, the Fire Company is a citizen of Maryland, Complaint ¶ 4, the Tort
Action could not have been removed to this Court.
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single court with a view of all competing claims and their progress is best positioned to
determine how to resolve the controversy fairly and efficiently. See Wilton, 515 U.S. at 289
(“We believe it more consistent with the statute to vest district courts with discretion in the first
instance, because facts bearing on the usefulness of the declaratory judgment remedy, and the
fitness of the case for resolution, are peculiarly within their grasp.”); AMEX Assur. Co. v.
Giordano, 925 F. Supp. 2d 733, 745 (D. Md. 2013) (quoting Brillhart, 316 U.S. at 495)
(alterations in AMEX) (“In evaluating … efficiency concerns, courts focus on ‘whether the
questions in controversy between the parties to the federal suit ... can better be settled in the
[pending state] proceeding.’”).
Accordingly, I conclude that the state court is in a better position than the federal
court to resolve efficiently the issues in controversy here.
The third factor is “whether the presence of ‘overlapping issues of fact or law’ might
create unnecessary ‘entanglement’ between the state and federal courts.” Kapiloff, 155 F.3d at
494. This factor also weighs in favor of dismissing the action.
“The concern about entanglement turns on what preclusive effect the declaratory
judgment action will have on the state action.” Hartford Cas. Ins. Co., 247 F. Supp. 2d at 727
(citing Mitcheson, 955 F.2d at 239-40); see also Kapiloff, 155 F.3d at 494 (“[S]ince both actions
raised the same core issues of law and fact, and both actions aimed at determining the rights of
the parties under the insurance policy, potential entanglement between the state and federal
courts was a genuine possibility.”).
In its Opposition, the Insurer dedicates more argument to this factor than to any other.
See Opposition at 12-19. However, the Insurer’s argument focuses only on the potential for
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entanglement with the Tort Action; it completely ignores the potential for entanglement with the
State Declaratory Action. In sum, the Insurer concludes, Opposition at 19 (emphasis added):
The issue to be determined in this declaratory judgment action is independent and
separable from the issues for trial in the tort action. Therefore, there is no
possibility that this Court’s exercise of its jurisdiction would create any
unnecessary ‘entanglement’ between the state and federal courts, and no grounds
As discussed, the State Declaratory Action essentially presents a mirror-image of the
claims in this action.4 Thus, both this Court and the Circuit Court for Anne Arundel County
have been asked to decide the exact same issues between the Insurer and the Fire Company. If
this case were to proceed, this case and the State Declaratory Action would simply become a
race between the two courts to see which tribunal resolves the issues first, thereby achieving
claim preclusive effect.
Accordingly, “there is a clear threat of unnecessary entanglement
between the state and federal courts in this case … .” The Ohio Cas. Ins. Co. v. Williams, 09CV-00513, 2010 WL 274233, at *4 (M.D.N.C. Jan. 15, 2010) (considering potential
entanglement between declaratory judgment action brought by insurer in federal court and
declaratory judgment action brought by insured in state court).
The fourth factor is “whether the federal action is mere ‘procedural fencing,’ in the sense
that the action is merely the product of forum-shopping.” Kapiloff, 155 F.3d at 494. This factor
also weighs in favor of dismissing the action.
In its Memo, the Fire Company argues that there are “additional parties” in the State
Declaratory Action and therefore “the absence of interested parties in the instant action creates
… ‘entanglement’ … .” Memo at 10. As discussed, in that action, the Fire Company has named
five additional parties as defendants. However, the Fire Company has not explained why these
are interested parties, or why they are named in the complaint. Consequently, I cannot
meaningfully consider this argument on the information before me.
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Each party accuses the other of forum shopping. The Fire Company argues,
Memo at 11:
First Mercury Insurance Company filed the Federal Declaratory Judgment
Action in anticipation of a claim being asserted against it should the Circuit Court
for Anne Arundel County enter judgment in favor of the Plaintiffs in the [Tort
Action]. If there is a Plaintiffs’ verdict, both Earleigh Heights Volunteer Fire
Company and the Plaintiffs would look to the policy issued by First Mercury
Insurance Company to satisfy the judgment. However, First Mercury Insurance
Company apparently does not wish to have the coverage issues litigated in the
Circuit Court for Anne Arundel County as it apparently believes this Court is a
more favorable forum for it.
The Fire Company further argues, correctly, that declaratory judgment actions “are
disfavored when they are filed in anticipation of another lawsuit in order to obtain a more
favorable forum or procedural posture,” as in this case. Memo at 10 (citing, e.g., Quarles, 92
F.2d at 324; Myles Lumber Co., 233 F.3d at 824); see also Reply at 7.
The Insurer responds, Opposition at 19 (emphasis in original):
[A]fter First Mercury had already filed this action, Earleigh Heights sought and
received an extension of time to respond to the complaint, but used that
opportunity to file its subsequent state court coverage action, which it has
apparently not served on First Mercury and intends to have stayed. First
Mercury’s complaint cannot be considered an ‘anticipatory filing’ as never, prior
to its filing of the instant motion, did Earleigh Heights provide any indication to
First Mercury that it intended to file a parallel state court action.
The Insurer puts much emphasis on the fact that it filed this action before the Fire
Company filed the State Declaratory Action. However, that fact does not control. In both
Brillhart and Wilton, the insurers filed for declaratory judgment first in the federal court, and the
insureds subsequently haled the insurers into state court. Brillhart, 316 U.S. at 493 (after federal
action filed, insurer named reinsurer as defendant in action already pending in state court);
Wilton, 515 U.S. at 280 (after federal action filed, insured filed new action in state court, naming
insurer as defendant).
And, in both cases, the Supreme Court upheld the district courts’
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decisions to dismiss or stay the cases, emphasizing the primacy of entanglement concerns and
efficiency. 316 U.S. at 496-96; 515 U.S. at 283, 288.
Additionally, in VRCompliance, LLC, supra, 715 F.3d at 574, the Fourth Circuit said:
“In general, where two parallel suits are pending in state and federal court, ‘the first suit should
have priority, absent the showing of balance of convenience in favor of the second action.’”
(Quoting Ellicott Mach. Corp. v. Modern Welding Co., 502 F.2d 178, 180 n.2 (4th Cir. 1974));
see also Poston, 88 F.3d at 258 (“[A]lthough the federal action was filed first, we decline to
place undue significance on the race to the courthouse door, particularly in this instance where
[the Insurer] had constructive notice of [the defendants’] intent to sue … .”). Here, as discussed
in relation to the second Kapiloff factor, the “balance of convenience” certainly tips in favor of
the second, state-court action.
Moreover, it seems unlikely that the Insurer “never” had “any indication” that the Fire
Company might hale it into state court. Even assuming that the Fire Company never expressly
said it would do so, the Tort Action had been pending in state court for more than seventeen
months before the Insurer filed this declaratory action, as the Fire Company points out. Memo at
12. The Insurer has known almost all along — at least since the Fire Company tendered its
defense, sometime before November 2013, Complaint ¶¶ 18, 19 — that the Fire Company
believes the Insurer may be liable for its defense and/or losses. The Fire Company expressly
reaffirmed that belief when it disputed the Insurer’s right to withdraw defense in the wake of
Jolly’s dismissal from the case. See Complaint ¶ 28. And, presumably the Insurer anticipates
some future formal claim from the Fire Company — otherwise, why would it have filed this case
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Accordingly, it appears that the Insurer has filed this action in order to avoid being haled
into state court, which can only be called “forum-shopping.” See, e.g., Wilton, 515 U.S. at 280
(“The District Court observed the state lawsuit … encompassed the same coverage issues raised
in the declaratory judgment action and determined a stay warranted in order to avoid piecemeal
litigation and to bar [the insurer’s] attempts at forum shopping.”).
For the foregoing reasons, I will grant defendant’s Motion (ECF 7) and dismiss the
Complaint, without prejudice. A separate Order follows, consistent with the Memorandum
Date: December 19, 2014
Ellen Lipton Hollander
United States District Judge
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