Evanston Insurance Company v. Dan Ryan Builders, Inc.

Filing 67

MEMORANDUM AND ORDER GRANTING 54 Motion to Dismiss. Signed by Judge Marvin J. Garbis on 1/19/2017. (hmls, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
EVANSTON INSURANCE COMPANY;
SUSSEX INSURANCE COMPANY f/k/a
COMPANION SPECIALTY INSURANCE
COMPANY; UNITED SPECIALTY
INSURANCE COMPANY; and
PENNSYLVANIA NATIONAL MUTUAL
CASUALTY INSURANCE COMPANY
Plaintiffs
vs.

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DAN RYAN BUILDERS, INC.

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Defendant
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CIVIL ACTION NO. MJG-15-3419

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MEMORANDUM AND ORDER RE: DISMISSAL
The Court has before it Dan Ryan Builders, Inc.’s Motion to
Dismiss [ECF No. 54] and the materials submitted relating
thereto.

The Court has held a hearing and has had the benefit

of the arguments of counsel.

I.

BACKGROUND
The instant action relates to coverage under commercial

general liability (“CGL”) policies that several insurers issued
to Dan Ryan Builders, Inc. (“Dan Ryan”) and certain of its
subcontractors.
At all times relevant, Dan Ryan has been a residential home
builder.

In a period from a time prior to September 2005

through 2010, Dan Ryan and its subcontractors built a number of
homes in West Virginia in high radon1 areas.
On October 31, 2014, two putative class actions (the
“Underlying Actions”)2 were filed in the Circuit Court of
Jefferson County, West Virginia, alleging that Dan Ryan and its
subcontractors (“the Subs”) defectively constructed the homes at
issue, allowing excessive radon into the homes and thereby
putting the homeowners at risk for lung cancer.
Dan Ryan and the Subs sought to have their respective
insurers provide defenses and indemnity.

All of the insurers

have denied coverage for various reasons, including a “pollution
exemption.”

As discussed herein, the litigation regarding

coverage is now pending in overlapping litigation in the Circuit
Court for Frederick County, Maryland and the District of
Maryland.

By the instant motion, Dan Ryan seeks, in effect, to

have the litigation consolidated and proceed in the Circuit
Court for Frederick County, Maryland.

1

Radon is a radioactive gas that is produced by the decay of
radium in the soil, and it is a known carcinogen that can cause
lung cancer. Compl. Ex. F ¶ 11-14, ECF No. 1-6.
2
Brian and Jane Carter, et al. v. Dan Ryan Builders, Inc.,
et al., Civil Action No. 14-C-379, and John and Donna Koch, et
al., v. Dan Ryan Builders, Inc. et al., Civil Action No. 14-C380.

2

A.

The Insurers
1.

Dan Ryan as Insured

Dan Ryan is the insured in relevant policies issued by
Evanston Insurance Company (“Evanston”), Sussex Insurance
Company f/k/a Companion Specialty Insurance Company (“Sussex”),
United Specialty Insurance Company (“USIC”), and Pennsylvania
National Mutual Casualty Insurance Company (“Penn National”).

2.

The Subs as Insureds

The Subs are insureds in relevant policies issued by Erie
Insurance Exchange (“Erie”), Nationwide Mutual Insurance
Company/Nationwide Mutual Fire Insurance Company (“Nationwide”),
and Frederick Mutual Insurance Company (“Frederick Mutual”).

3.

Dan Ryan as Additional Insured

Dan Ryan is an additional insured in the relevant Subs’
policies issued by Erie, Nationwide, and Frederick Mutual.

B.

The State Case

In April 2015, Erie filed “no coverage” declaratory
judgment actions, later consolidated3 in the Circuit Court for

3

The lawsuits were consolidated on November 3, 2015, under
the caption Erie Insurance Exchange v. Freestate Drywall Inc.,
et al., 10-C-15-000991-DJ.

3

Frederick County, Maryland, against Dan Ryan, the Subs, and the
plaintiffs in the Underlying Actions.

Nationwide and Frederick

Mutual later intervened as Plaintiffs.
On September 28, 2016, Dan Ryan filed third-party
complaints against Evanston, Sussex, USIC, and Penn National in
the State Court Action.
At present, all concerned with the relevant insurance
coverage – Dan Ryan, its insurers, the Subs and their insurers,
and the plaintiffs in the Underlying Actions – are parties in
the State Case.

C.

The Federal Case

The instant federal case is a “no coverage”4 declaratory
judgment action filed by Evanston against Dan Ryan invoking the
Court’s diversity jurisdiction under 28 U.S.C. § 1332(a).

When

filed, there was complete diversity between Plaintiff Evanston5
and Defendant Dan Ryan6.
There ensued developments that present the jurisdictional
issue depicted in the instant motion as set forth in the
following chronology.

4

Evanston issued five CGL policies to Dan Ryan spanning the
period October 24, 2005 to October 24, 2010.
5
An Illinois corporation.
6
Then, a Maryland corporation.

4

12/17/15 Dan Ryan answered and counterclaimed.
12/31/15 Dan Ryan converted from a Maryland corporation to Dan
Ryan Builders West Virginia, LLC, a Maryland limited
liability company. Yeager Affidavit ¶ 4, Ex. 2, ECF
No. 56.
12/31/15 Dan Ryan’s parent company, DRB Enterprises, Inc.,
converted to DRB Enterprises, LLC, a Delaware limited
liability company.
1/1/16

Sumitomo Forestry America, Inc. (“Sumitomo America”)
became a member of DRB Enterprises, LLC.7

7/14/16

Sussex (a South Carolina Corporation)8 intervened as a
Plaintiff.

8/4/16

USIC, a citizen of Delaware and Texas, intervened as a
plaintiff.9
Penn National10 (a Pennsylvania citizen) intervened as a
plaintiff.

9/12/16

D.

The Instant Motion

By the instant motion, Dan Ryan seeks dismissal for lack of
diversity or by abstention.11

Alternately, Dan Ryan contends

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On January 1, 2016, Sumitomo Forestry Co., Ltd., a Japanese
corporation, through its wholly-owned United States subsidiary,
Sumitomo Forestry America, Inc. (“Sumitomo America”), acquired a
60% interest in DRB Enterprises, LLC. Yeager Affidavit ¶ 5.
Sumitomo America is a Washington corporation with offices in
Washington, Texas, and Maryland. Id. at ¶ 5-8. Sumitomo
America’s President operates from the Texas office, and Dan Ryan
avers that Texas is Sumitomo America’s principal place of
business. Id. at ¶ 9.
8
Sussex issued three CGL policies to Dan Ryan spanning the
period July 31, 2010 to October 24, 2013. One of Sussex’s
policies was issued to DRB Enterprises, Inc. Sussex voluntarily
dismissed DRB Enterprises, Inc. on August 18, 2016.
9
USIC’s motion for leave to intervene filed July 29, 2016
was granted August 4, 2016.
10
Penn National issued one CGL policy to Dan Ryan for the
period from October 24, 2004 to October 24, 2005.

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that Erie, Nationwide, and Frederick Mutual (its additional
insurers) must be joined to the instant action as necessary and
indispensable parties, an action that would defeat diversity
jurisdiction, and requests the Court dismiss under Rule12 19.

II.

DISMISSAL STANDARD
Rule 12(b)(1) governs motions to dismiss for lack of

subject matter jurisdiction.

Biktasheva v. Red Square Sports,

Inc., 366 F. Supp. 2d 289, 294 (D. Md. 2005).

It is well

established that “[t]he burden of proving subject matter
jurisdiction on a motion to dismiss is on the plaintiff, the
party asserting jurisdiction.” Adams v. Bain, 697 F.2d 1213,
1219 (4th Cir. 1982).
The court may “consider evidence outside the pleadings” in
a 12(b)(1) motion to determine if it has jurisdiction over the
case. Richmond, Fredericksburg & Potomac R.R. Co. v. United
States, 945 F.2d 765, 768 (4th Cir. 1991).

“Unless the

jurisdictional facts are intertwined with the facts central to
the merits of the dispute, the district court may then go beyond
the allegations of the complaint and resolve the jurisdictional

11

Dan Ryan had, at least at one point, suggested that if the
case were not dismissed it should be stayed pending final
decision in the State Court Action. See Mot. 5-6, ECF No. 54.
12
All “Rule” references herein are to the Federal Rules of
Civil Procedure.

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facts in dispute by considering evidence outside the pleadings,
such as affidavits.”

U.S. ex rel. Vuyyuru v. Jadhav, 555 F. 3d

337, 348 (4th Cir. 2009) (quoting Adams v. Bain, 697 F. 2d 1213,
1219 (4th Cir. 1982)).
“The court should grant the 12(b)(1) motion only if the
material jurisdictional facts are not in dispute and the moving
party is entitled to prevail as a matter of law.” Biktasheva,
366 F. Supp. 2d at 294 (quoting Richmond, 945 F.2d at 768).

III. DISCUSSION
A.

Diversity Jurisdiction

The Court’s jurisdiction over the instant case is based
upon diversity of citizenship pursuant to 28 U.S.C. § 1332.
Section 1332 has been consistently interpreted by the United
States Supreme Court to require “complete diversity,” meaning
that “[i]n a case with multiple plaintiffs and multiple
defendants, the presence in the action of a single plaintiff
from the same State as a single defendant deprives the district
court of original diversity jurisdiction over the entire
action.”

Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S.

546, 553 (2005)(citing Strawbridge v. Curtiss, 7 U.S. 267
(1806); Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 375
(1978)).

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B.

The Jurisdictional Issue
1.

As of When is Diversity Determined?

The instant motion presents an apparently novel question
with conflicting reasonable positions.

The question is, as of

when is diversity to be determined in a case in which, after the
initial filing of the action, an additional plaintiff is added
as a party?

That is, in regard to the added plaintiff, is

diversity determined in regard to the defendant’s and added
plaintiff’s citizenship at the time the case was filed although
the added plaintiff was not then a party?

Or, is diversity

determined in regard to the added plaintiff’s and defendant’s
citizenship at the time the added plaintiff became a party?
In regard to the original parties to a case, the general
rule is that “the jurisdiction of the court depends upon the
state of things at the time of the action brought.”

Grupo

Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570 (2004)
(quoting Mollan v. Torrance, 22 U.S. 537, 539 (1824)). “[This
time-of-filing rule] measures all challenges to subject-matter
jurisdiction premised upon diversity of citizenship against the
state of facts that existed at the time of filing . . . .”
at 571.13

Id.

Therefore, as to Dan Ryan and Evanston, who were

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“A civil action is commenced by filing a complaint with the
court.” Fed. R. Civ. P. 3. The Fourth Circuit has stated that
to support diversity jurisdiction in removed cases, “diversity

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diverse parties at the time the case was filed, a post-filing
change in the citizenship of Dan Ryan that would make it a
citizen of the same state as Evanston would not oust the Court
of jurisdiction.

See, e.g., Freeport-McMoRan, Inc. v. K N

Energy, Inc., 498 U.S. 426, 428 (1991)(“if jurisdiction exists
at the time an action is commenced, such jurisdiction may not be
divested by subsequent events”); Nationwide Mut. Ins. Co. v.
Simms, 231 F. Supp. 787, 792 (D. Md. 1964) (“It is a basic and
well established principle that jurisdiction must exist at the
time of the filing of the complaint and is not defeated by
subsequent changes in the citizenship of a party.”).
The situation is different in regard to an intervenor that
was not a party when the case was filed.

The Court concludes

that, although the matter is not free from doubt, in the context
of the instant case, the Court should determine the existence of
diversity as of the date that USIC became a party.
None of the cases cited by Plaintiffs regarding the timeof-filing rule relate to intervention, but rather discuss

must have existed both at the time the action was originally
commenced in state court and at the time of filing the petition
for removal.” Rowland v. Patterson, 882 F.2d 97, 99 (4th Cir.
1989)(internal citation omitted). But when a Plaintiff files an
amended complaint, diversity may be reevaluated at the time of
the filing of the amended complaint. See Rockwell Intern. Corp.
v. United States, 549 U.S. 457, 473-74 (2007)(noting that the
withdrawal of allegations, unless they are replaced by others
that establish jurisdiction, may defeat jurisdiction).

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amendments, substitutions, mergers, removals, joinder, and
corporate consolidations.14

“Intervention is a device that

allows a person to join someone else’s lawsuit.” Intervention 1,
Fed. R. Civ. P. Rules and Commentary, Rule 24.

“Rule 24 does

not confer jurisdiction. So, in addition to meeting the
requirements of Rule 24, an intervenor also must show that the
court will have subject matter jurisdiction over any claims to
which it is a party.”

Id.

Not all intervenors assert their own

independent claims for relief.

However, in the instant action,

the plaintiff-intervenor is asserting its own rights, not the
rights of the original plaintiff.
Under such circumstances, an intervenor’s complaint may be
considered to be similar to an amended complaint with a new
party or cause of action.

As explained by the Fourth Circuit in

a case where the plaintiff died and the complaint was amended to
substitute the administrator of the estate as plaintiff and
converted from a personal injury action into an action for
wrongful death:
There is great difference, however, between
a formal substitution of a personal
14

There appear to be no cases directly on point with the
scenario we are faced with herein. Indeed, a change of parties
as a result of intervention under Rule 24 presents difficult
questions about whether diversity should be redetermined at the
time of the intervention. See Jurisdiction, 7C Fed. Prac. &
Proc. Civ. § 1917 (3d ed.); The Time for Determining Diversity
Jurisdiction, 13E Fed. Prac. & Proc. Juris. § 3608 (3d ed.).

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representative to prosecute the action in
aid of the same right asserted by his
decedent and an amendment or supplemental
bill which changes the nature of the right
asserted and alters the substance of the
action. In the latter instance, jurisdiction
should be re-examined in the light of the
citizenship of all of the indispensable
parties including those introduced upon
allowance of the new pleading.
Grady v. Irvine, 254 F.2d 224, 226 (4th Cir. 1958).
This is consistent with the Supreme Court’s ruling in
Rockwell related to the time-of-filing rule: “The state of
things and the originally alleged state of things are not
synonymous . . . . when a plaintiff files a complaint in federal
court and then voluntarily amends the complaint, courts look to
the amended complaint to determine jurisdiction.”
473-74.15

549 U.S. at

See also Kroger, 437 U.S. at 375-76 (noting that a

grant of jurisdiction involving particular parties does not
itself confer jurisdiction over additional claims by or against
different parties); Louwers v. Knight-Ridder Newspapers, Inc.,
570 F. Supp. 1211, 1212–13 (E.D. Mich. 1983)(“[W]hen a complaint
is filed against a new defendant, the subject matter
jurisdiction over that defendant must be determined as of that
date and not as of the date of the filing of the original
complaint.”).

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Not a diversity case.

11

In determining whether an intervenor’s claim has been
asserted within the period of the applicable statute of
limitations, the relevant date is the filing of the intervenor’s
motion accompanied by the proposed complaint.

Motion and

Pleading, 7C Fed. Prac. & Proc. Civ. § 1914 (3d ed.)(citing Sec.
& Exch. Comm’n v. Keller Bros. Sec. Co., 30 F.R.D. 532, 533 (D.
Mass. 1962)).

An intervenor’s timeliness does not relate back

to the original action’s filing date.
The Court, concluding that it should determine diversity as
of the date of intervention by USIC, must determine whether at
that time, USIC and Dan Ryan were diverse.

2.

Are Dan Ryan and USIC Nondiverse Parties?

At the time the suit was filed, Dan Ryan was a citizen of
Maryland and USIC was a citizen of Delaware and Texas.

Hence,

they were diverse and, had USIC then been a party, the Court
would have had, and would still have, diversity jurisdiction
regardless of any post-filing change in the citizenship of Dan
Ryan.
On January 1, 2016, Dan Ryan had become Dan Ryan Builders
West Virginia, LLC, a Maryland limited liability company.
LLC, Dan Ryan’s citizenship is that if its members.16

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As an

Hence, if

Section 1332(c)(1) provides that a corporation “shall be

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any member is a citizen of Texas, Dan Ryan would be a citizen of
Texas and would not be a diverse party vis-à-vis USIC, a Texas
citizen.
The Court finds that the evidence of record establishes
that as of January 1, 2016 Dan Ryan became a citizen of Texas
and that no valid purpose would be served by discovery
proceedings related to the matter.
A business entity resides at its “principle place of
business,” which “refers to the place where the corporation’s
high level officers direct, control, and coordinate the
corporation’s activities.”
80 (2010).

Hertz Corp. v. Friend, 559 U.S. 77,

The Members Schedule of the Limited Liability

Company Agreement of DRB Enterprises, LLC, ECF No. 56-3,
attached to Paul Yeager’s Affidavit shows that the members of
DRB Enterprises, LLC are RyCrew, Inc. of Frederick, Maryland and
Sumitomo Forestry America, Inc. of Southlake, Texas.
Further, the list of Sumitomo America’s Directors and
Officers, ECF No. 56-4, indicates that Atsushi Iwasaki is the

deemed to be a citizen of every State and foreign state by which
it has been incorporated and of the State or foreign state where
it has its principal place of business.” 28 U.S.C. § 1332(c)(1).
“A limited liability company organized under the laws of a state
is not a corporation and cannot be treated as such under section
1332.” Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d
114, 121 (4th Cir. 2004). “It is an unincorporated association,
akin to a partnership for diversity purposes, whose citizenship
is that of its members.” Id.

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Director and President with a primary office location in Dallas,
Texas, and he is the main Sumitomo America representative in the
United States.

An additional Director and Vice President is

also located in Dallas, Texas, and there are only two other
Directors and Vice Presidents, one in Frederick, Maryland, and
one in Seattle, Washington.

The list of staff in locations, ECF

56-5, indicates that there are ten in Dallas compared to four in
Seattle and two in Frederick, and the staff in Dallas is at a
more senior level, including its President and two General
Managers.
Additionally, in Dan Ryan’s Second Amended Disclosure of
Corporate Interest, ECF No. 60, citizenship of Sumitomo America
is stated to be Washington and Texas.
The Court concludes that, at the time USIC became a party,
Dan Ryan was a citizen of Texas17 and, therefore not a diverse
party vis-à-vis USIC.

C.

Resolution of Jurisdictional Issue

As discussed herein, the Court concludes – albeit
recognizing that its decision is subject to reasonable debate –
that the case should be dismissed for lack of jurisdiction.

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As well as Maryland and Washington.

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The Court notes that were it to decline dismissal, the case
would be proceeding under a lingering cloud of jurisdictional
uncertainty that could result in rendering the proceedings a
nullity.

Such a circumstance renders appropriate the Fourth

Circuit’s statement that “[a] court is to presume . . . that a
case lies outside its limited jurisdiction unless and until
jurisdiction has been shown to be proper.”

United States v.

Poole, 531 F.3d 263, 274 (4th Cir. 2008)(citing Kokkonen v.
Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)).
Accordingly, the Court shall dismiss this action so that
the parties to the instant case and all other concerned parties
may proceed to resolution of the issue in the State Action.

D.

Abstention

The instant action is brought under the Declaratory
Judgment Act, 28 U.S.C. § 2201(a), which provides that district
courts “may declare” the rights of interested parties.

“This

permissive language has long been interpreted to provide
discretionary authority to district courts to hear declaratory
judgment cases.”

United Capitol Ins. Co. v. Kapiloff, 155 F.3d

488, 493 (4th Cir. 1998).

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Here, even if the Court were to decline dismissal on
jurisdictional grounds, it would exercise its discretion to
abstain from exercising jurisdiction.
The Fourth Circuit has provided guidance in the exercise of
declaratory judgment discretion: “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.”

Id.

(citations omitted). Further, “whenever a parallel proceeding is
pending in state court, district courts must also take into
account considerations of federalism, efficiency, and comity.”
Id. (citations omitted).

Indeed, a district court’s discretion

“is especially crucial when, as here, a parallel or related
proceeding is pending in state court.” New Wellington Fin. Corp.
v. Flagship Resort Develop. Corp., 416 F.3d 290, 297 (4th Cir.
2005).
Four factors have been articulated for district courts to
consider in this context:
(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;

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(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 forumshopping.
Kapiloff, 155 F.3d at 493–94.
First, this case involves interpretation of insurance
contracts in light of Maryland law, and the resolution of the
issues presented as to duty to defend and coverage, turn on some
novel issues of Maryland law.

There is certainly a State

interest in resolving such unsettled issues in its own courts.
Second, the State Action has all the interested parties
joined, and is efficiently proceeding pursuant to a scheduling
order.

The instant action has only a subset of the interested

parties and cannot join all the interested parties due to lack
of diversity.

Proceeding in this Court would likely result in

duplicative litigation.

Additionally, the Fourth Circuit has

stated that “[i]n 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.”

VRCompliance LLC v. HomeAway, Inc., 715 F.3d

570, 574 (4th Cir. 2013)(citations omitted).
Court Action was filed first.

Here, the State

Thus it appears that the State

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court is in a better position to resolve efficiently the issues
in controversy.
Third, as in Kapiloff, “since both actions raise[] the same
core issues of law and fact, and both actions aim[] at
determining the rights of the parties under the insurance
policy, potential entanglement between the state and federal
courts [i]s a genuine possibility.”

155 F.3d at 494.

Fourth, while the Court finds no “procedural fencing,”
there appears no purpose served by having the instant case and
the State Action proceeding simultaneously.
In sum, if the Court did have jurisdiction, it would
abstain from exercising that jurisdiction.

IV.

CONCLUSION
For the foregoing reasons:
1.

Dan Ryan Builders, Inc.’s Motion to Dismiss [ECF
No. 54] is GRANTED.

2.

The case shall be dismissed for lack of
jurisdiction.

3.

Judgment shall be entered by separate Order.

SO ORDERED, on Thursday, January 19, 2017.
/s/__________
Marvin J. Garbis
United States District Judge

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