Certain Underwriters at Lloyd's, London v. KASL Seabreeze, LLC et al

Filing 54

Magistrate Judge M. Page Kelley: ORDER entered. MEMORANDUM AND ORDER STAYING THE CASE PENDING THE OUTCOME OF THE UNDERLYING STATE COURT ACTION. " For all of the reasons stated, it is ORDERED this action is to be stayed pending the outcome of the state court proceeding. The parties shall file updates with the court every 6 months with respect to the status of the state court action."(Moore, Kellyann)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

FLECTAT LTD, ON ITS OWN BEHALF
AS LEAD UNDERWRITER
SUBSCRIBING TO CERTIFICATE
NO. XSZ30510,
Plaintiff,

v.

CIVIL ACTION NO. 16-10886-MPK

KASL SEABREEZE, LLC,
SUBHASH AGRAWAL,
TAMMY ELDRIDGE,
LOU ALMONTE,
DONNA BENEVIDES,
AND CAPE COD ALARM, INC.,
Defendants.

MEMORANDUM AND ORDER STAYING THE CASE PENDING THE
OUTCOME OF THE UNDERLYING STATE COURT ACTION.

KELLEY, U.S.M.J.
I. Introduction.
On May 16, 2016, Certain Underwriters at Lloyd’s, London brought this action seeking a
declaratory judgment pursuant to 28 U.S.C. § 2201, the Declaratory Judgment Act, as to its
rights, duties, and responsibilities under an insurance policy (the Policy). (#1.) On August 16,
2016, an amended complaint (#13) was filed, in which Flectat Ltd., the lead underwriter

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subscribing to the relevant certificate for the Policy, was substituted as plaintiff.1 Cross motions
for partial summary judgment are now pending before the court. (##41, 43, 45.)
II. The Facts.
The relevant facts are as follows.2 At all times relevant to this action, KASL Seabreeze
LLC owned a residential building located at 58 Center Street in Dennis Port, Massachusetts (the
Property). (#42 ¶ 2.) The Policy provided commercial general liability coverage for the
Property.3 (#13 ¶ 1; #13-3; #42 ¶ 1.) On June 6, 2014, a fire broke out in the Property. (#13 ¶ 14;
#42 ¶ 3.) In an effort to escape the blaze, three people, Tammy Eldridge, Lou Almonte, and
Donna Benevides, jumped from second story windows of the Property. (#13 ¶ 15.) Eldridge,
Almonte, and Benevides sustained injuries both from their exposure to smoke while in the
burning building, and from jumping from the second story. (#13 ¶ 15; #42 ¶¶ 5, 9.)
III. Procedural History.
On October 7, 2015, Benevides filed suit in the Massachusetts Superior Court, Barnstable
County against KASL, Subhash Agrawal, a manager and officer of KASL, and Cape Cod Alarm
Company, an entity whose business consists of fire and security system sales, installation, and
maintenance, seeking redress for harm suffered as a result of the fire. (#13 ¶ 1; #13-2 (Benevides
Complaint); #42 ¶ 10.) On October 9, 2015, Eldridge and Almonte filed a similar action,
stemming from the same set of facts and naming the same defendants, in the same court. (#13 ¶

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Flectat Ltd. was substituted for the original plaintiffs, Certain Underwriters at Lloyd’s, London, in an
effort to ensure that diversity was established. See infra Section IV; transcript of May 3, 2017 hearing,
#52 at 16-18.
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The facts are taken from the amended complaint (#13) and the parties’ joint statement of facts filed as
part of their cross motions for summary judgment on Count I (#42).

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It appears that Agrawal is seeking indemnification under the Policy based on his status as a member of
KASL, see (#13 ¶¶ 7, 43-48), and Cape Cod Alarm is likewise seeking contractual indemnification via
cross claims asserted against Flectat, see id. ¶ 69.

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1; #13-1 (Eldridge and Almonte Complaint); #42 ¶ 10.) These cases have been consolidated into
a single action which remains pending in state court. (#13 ¶ 1; #42 ¶ 10.) Thereafter, on May 16,
2016, Certain Underwriters, now Flectat, filed this action. In Count I, Flectat seeks from this
court a declaration as to the extent of coverage for which it is potentially liable, either under the
Policy’s each occurrence limit, $1,000,000.00, or the general aggregate limit, $2,000,000.00.
(#13 ¶¶ 1, 32-37.) In addition, the amended complaint seeks six other declarations that could
potentially limit or negate entirely Flectat’s liability under the Policy. See id. ¶¶ 38-80.
The case before this court has been bifurcated into Phase I, which consists of no
discovery, the submission of an agreed-upon statement of facts, and cross motions for summary
judgment as to Count I, and Phase II, adjudication of the remainder of the claims with whatever
discovery is necessary. See (#31 (Joint Statement)); see also (#37 (adopting the proposed
schedule set out in #31).) Phase I has commenced; the parties have submitted their joint
statement of facts (#42); and summary judgment motions have been briefed and filed (##41, 43,
44).
Because there is a pending parallel state court proceeding, the court scheduled a hearing
to hear argument on whether the case should be stayed pending the outcome of the state court
action. On May 3, 2017, a hearing was held to address the parties’ positions with respect to the
issuance of a stay. At that hearing, the parties agreed that they were asking the court to decide
Phase I, that is, to issue a declaration as to the extent of coverage for which Flectat is liable, and
then to stay the action so that the case could be mediated or, in the alternative, litigated in state
court. (#52 at 4-5.) The parties agreed that because of the overlap of issues between Counts II
through VII in this matter and issues in the pending state court matter, this court is not an
appropriate forum for Phase II. Id. at 11. Further, some of the parties asserted that if the court

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ruled against them in deciding Phase I, they would take an appeal of that decision. Id. at 10-11.
Finally, counsel for Cape Cod Alarm stated that at some time she intends to raise the question
whether the court has diversity jurisdiction over this matter. She said that she had agreed “to put
aside” this issue until “we got to Phase II,” but said that she expected to raise the issue in the
future and that “perhaps [she] should not have reserved that issue for Phase II.” Id. at 14.
For the reasons set out below, after careful consideration, the court will stay the matter
pending the outcome of the state court action.
IV. Jurisdiction.
Should the stay be lifted in the future, Flectat will need to file a supplemental pleading to
establish diversity pursuant to 28 U.S.C. § 1332. “In the absence of jurisdiction, a court is
powerless to act,” and whatever Cape Cod Alarm intends to do regarding raising the issue of
jurisdiction (which from counsel’s statements at the May 3 hearing was not at all clear), parties
cannot confer jurisdiction on a federal court by consent. American Fiber & Finishing, Inc., v.
Tyco Healthcare Group, LP, 362 F.3d 136, 139 (1st Cir. 2004). At the October 26, 2016
scheduling conference and again at the May 3, 2017 status conference, in response to Cape Cod
Alarm’s concern as to the existence of jurisdiction in the matter, counsel for plaintiff assured the
court that diversity was satisfied. Flectat’s position is that its citizenship, as lead underwriter
subscribing to the relevant certificate for the Policy, is all that need be considered in the diversity
analysis. See, e.g., (#52 at 17-18.) Because the matter is being stayed and in the interest of avoiding
unnecessary costs, the court has not sought briefing on the matter and will not delve further into the
question at this juncture.

V. Standard of Review.
While federal courts are typically to abstain from exercising jurisdiction over a matter
only in “exceptional circumstances,” Colorado River Water Conservation Dist. v. United States,
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424 U.S. 800, 813 (1976), as they have a “virtually unflagging obligation . . . to exercise the
jurisdiction given to them,” id. at 817, the Supreme Court has held that a substantially lower
discretionary standard applies with regard to claims brought pursuant to the Declaratory
Judgement Act when there exists a pending parallel state court proceeding. See Wilton v. Seven
Falls Co., 515 U.S. 277 (1995).
By the Declaratory Judgment Act, Congress sought to place a remedial arrow in
the district court’s quiver; it created an opportunity, rather than a duty, to grant a
new form of relief to qualifying litigants. Consistent with the nonobligatory nature
of the remedy, 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 or after
all arguments have drawn to a close. In the declaratory judgment context, the
normal principle that federal courts should adjudicate claims within their
jurisdiction yields to considerations of practicality and wise judicial
administration.
Id. at 288; DeNovellis v. Shalala, 124 F.3d 298, 313 (1st Cir. 1997).
Wilton makes clear that the court is well within its authority to decline to exercise
jurisdiction over the instant matter. See, e.g., U.S. Liability Ins. Co. v. Wise, 887 F. Supp. 348 (D.
Mass. 1995)4 (acting sua sponte, the court declined to exercise jurisdiction); see also Sustainable
Low Maint. Grass, LLC v. Cutting Edge Sols., LLC, No. 14-CV-11894-IT, 2014 WL 4656627, at
*3 (D. Mass. Sept. 15, 2014) (“Under the [Declaratory Judgment] Act, a court may provide
declaratory relief, but the decision to award such relief rests within the court’s discretion.”)
(internal citation and quotation marks omitted).
While the Supreme Court in Wilton declined to set forth a test to determine the propriety
of abstention, it cited with approval factors applied by the Court in Brillhart v. Excess Ins. Co. of
America, 316 U.S. 491 (1942). Those factors are: (1) the scope of the pending state court
proceeding and the nature of defenses open there; (2) whether the claims of all parties in interest

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While Wise was decided shortly before Wilton, the Wise court applied the Brillhart factors, see infra,
and therefore, the case remains relevant to this court’s analysis. See Wise, 887 F. Supp. 348.

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can be adjudicated satisfactorily in the state proceeding; (3) whether necessary parties have been
joined; (4) whether all necessary parties are amenable to process in the state proceeding; and (5)
the virtue of avoiding uneconomical proceedings, vexatious proceedings, and gratuitous
interference by a federal court with an orderly and comprehensive suit pending in a state court,
presenting the same issues, not governed by federal law, between the same parties. See Wilton,
515 U.S. at 283.
In the years since the Wilton decision was handed down, a number of courts in this circuit
have applied some variation of the Brillhart factors. See, e.g., Petricca v. FDIC, 349 F. Supp. 2d
64, 67 (D. Mass. 2004) (citing Wilton and applying the Brillhart factors); Travelers Cas. & Sur.
Co. v. Boston Gas Co., 76 F. Supp. 2d 59, 62 (D. Mass. 1999) (same).
The question for a district court presented with a suit under the Declaratory
Judgment Act . . . is whether the questions in controversy between the parties to
the federal suit, and which are not foreclosed under the applicable substantive
law, can better be settled in the proceeding pending in the state court.
Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Mar. Terminal, Inc., No. CIV.A. 14-14541-DJC,
2015 WL 3952766, at *3 (D. Mass. June 29, 2015) (quoting Wilton, 515 U.S. at 282) (alteration
in original) (internal quotation marks and some citations omitted).
VI. Discussion.
A. Nexus between Proceedings.
“A court in deciding whether to exercise its broad discretion to dismiss an action pending
the outcome of a parallel state action should compare the nexus between the two suits,
considering the totality of the circumstances.” Petricca, 349 F. Supp. 2d at 67. The matter of
parallel proceedings in the context of a declaratory judgment action has not been addressed headon by the First Circuit. That said, courts in this district, relying on the First Circuit’s
interpretation of parallel proceedings in similar contexts, have concluded that state and federal
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proceedings are considered parallel “where ‘substantially the same parties are
contemporaneously litigating substantially the same issues’ and there is a ‘substantial likelihood
that the state litigation will dispose of all claims presented in the federal case.’” Nat’l Union Fire
Ins. Co. of Pittsburgh, PA, 2015 WL 3952766, at *3 (quoting Mass. Biologic Labs. of the Univ.
of Mass. v. Medimmune, LLC, 871 F. Supp. 2d 29, 36 (D. Mass. 2012)).
It is uncontroverted that Flectat is not a party to the state court action, however, this alone
does not bar a classification of the relevant actions as parallel. “[A]n identity of parties is not
required for proceedings to be considered parallel. There need only be an available procedural
vehicle in state court by which the federal plaintiff, even if not a party in the state action, can
resolve the issues raised in the federal action.” Id. at *4 (internal citation omitted). Here, Flectat
is afforded such a vehicle in the form of Mass. Gen. Laws ch. 231A, the Massachusetts
Declaratory Judgment Act, by which Flectat can raise coverage questions and obtain the
declarations sought in the instant action in state court. See, e.g., Wise, 887 F. Supp. at 352. Such
a claim can be consolidated with the underlying state action. See id., citing Worcester Insurance
Company v. Fells Acres Day School, Inc, 408 Mass. 393 (1990); Samagaio v. Davidson, 6 Mass.
App. Ct. 773 (1979). “Such a procedural posture would achieve the favorable goal of ‘resolving
all litigation stemming from a single controversy in a single court system.’” Wise, 887 F. Supp.
at 351 (quoting Mitcheson v. Harris, 995 F.2d 235, 239 (4th Cir. 1992)).
In short, the court finds that there is a sufficient nexus between the federal and state court
proceedings, considering the totality of the circumstances, such that this factor weighs in favor of
abstention.

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B. Same Factual Issues/Risk of Piecemeal Litigation.
“Where adjudication of a declaratory judgment action requires resolution of factual
questions that will be litigated in the underlying state court proceeding, practicality and wise
judicial administration would counsel against proceeding with the declaratory judgment action.”
Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2015 WL 3952766, at *4 (internal citation omitted).
The parties agree that there is substantial overlap between the necessary factual determinations in
the state court action and those of this case. They resolve the problem by asking the court to
decide only Count I, and agree that the court should not decide Counts II through VII but stay the
case and defer to the state court on those counts. The problem with this proposal is that at the
May 3 hearing it was clear that whatever the court’s judgment here, the losing party would
appeal, resulting in further delays in the timely progress of the case and difficulties in scheduling
matters between state and federal courts. The question of the efficient and orderly progression of
the case is further complicated by Cape Cod Alarm’s persistent assertions that this court does not
have jurisdiction. Thus, even though the factual overlap in the cases may not be exact because of
the parties’ proposal that the court only decide Count I, there are other issues of judicial
economy and scheduling that weigh in favor of abstention.
C. Necessary Parties are Amenable to Process in State Court Proceedings.
The only party who appears to want to stay these proceedings and go forward in state
court is Cape Cod Alarm, who in the joint statement submitted in anticipation of the scheduling
conference (#31), raised the issue of the potential for overlap between this action and the pending
state court proceeding and proposed that this action be stayed pending the outcome of the state
court action (#31 at 7) and seemed to reiterate this position at the May 3, 2017 hearing (#52 1315.) That said, all parties other than Flectat are already involved in the state court proceedings

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and have agreed that they will need to litigate the factual basis for Counts II-VI there and not in
this court.
D. Uneconomical and Vexatious Proceedings.
Applying the fifth Brillhart factor – the avoidance of uneconomical proceedings,
vexatious proceedings, and gratuitous interference by a federal court – the district court, in Haley
& Aldrich, Inc., found that “[t]he absence of any question of federal law here eliminates a
potential federal interest in entertaining this case sufficient to override the inefficiencies of dual
proceedings.” Haley & Aldrich, Inc., 158 F. Supp. 3d at 19. In the instant action, all claims arise
from state law and concern matters of Massachusetts policy, i.e., interpretation of contractual
terms in the context of an insurance policy. See Nat’l Union Fire Ins. Co. of Pittsburgh, PA,
2015 WL 3952766, at *6 (“The absence of any issue of federal law weighs in favor of staying
this action”); see also Wise, 887 F. Supp. at 350-351 (“this court believes that there is a
significant state interest in having the insurance coverage issues raised in the federal declaratory
judgment action decided in the Massachusetts state courts.”). Even if one only considers Count I,
the court notes that the question to be decided, namely, whether the facts underlying this action
constitute a single “occurrence,” is hotly contested by the parties and is totally governed by
substantive Massachusetts law. Clearly, these considerations counsel towards abstention.
After review of the pending actions and relevant abstention factors, this court will
exercise its discretion to find that a stay of the instant action is warranted.

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VII. Conclusion.
For all of the reasons stated, it is ORDERED this action is to be stayed pending the
outcome of the state court proceeding.5 The parties shall file updates with the court every 6
months with respect to the status of the state court action.

/s / M. Page Kelley
M. Page Kelley
United States Magistrate Judge

June 30, 2017

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The effect of a stay of these proceedings as opposed to dismissal outright has been considered carefully
by the court, and, in light of the Supreme Court’s suggestion in Wilton, the matter will be stayed. See
Wilton, 515 U.S. at 288 n. 2 (“We note that where the basis for declining to proceed is the pendency of a
state proceeding, a stay will often be the preferable course, because it assures that the federal action can
proceed without risk of a time bar if the state case, for any reason, fails to resolve the matter in
controversy.”). Thus, should the need arise, upon conclusion of the state court action, the parties will have
the opportunity to move to lift the stay.

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