State Farm Fire and Casualty Company v. Skarl et al
AMENDED OPINION and ORDER (1) Denying Motion to Set Aside Defaults; (2) Denying Motion to Decline Exercise of Jurisdiction; and (3) Granting 11 Motion for Entry of Default Judgment against Defendants Kelly Skarl, Lake 2 Lake Transport, Inc., and Rebecca Skarl Signed by District Judge Linda V. Parker. (AFla)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
STATE FARM FIRE AND
Case No. 20-cv-10062
Honorable Linda V. Parker
KELLY SKARL, LAKE 2 LAKE
TRANSPORT, INC., REBECCA SKARL,
AND WILLIAM GRAHAM,
AMENDED OPINION & ORDER (1) DENYING MOTION TO SET ASIDE
DEFAULTS; (2) DENYING MOTION TO DECLINE EXERCISE OF
JURISDICTION; AND (3) GRANTING MOTION FOR ENTRY OF
DEFAULT JUDGMENT AGAINST DEFENDANTS KELLY SKARL, LAKE
2 LAKE TRANSPORT, INC., AND REBECCA SKARL (ECF NO. 11)
Plaintiff State Farm Fire & Casualty Company (“State Farm Casualty”)
brought this action against Defendants, seeking a declaration regarding whether
State Farm Casualty is obligated to defend or indemnify Defendants Kelly Skarl,
Lake 2 Lake Transport, and/or Rebeca Skarl in an action brought against them in
state court by Defendant William Graham. (ECF No. 1; ECF No. 15 at Pg. ID
The underlying lawsuit filed in Wayne County Circuit Court arises out of an
accident that occurred when Graham, while a trainee of Kelly Skarl and Lake 2
Lake Transport, was hit by a pallet of tire rims that shifted during transport. (ECF
No. 13 at Pg. ID 251.) State Farm Casualty insures Kelly Skarl and Rebecca Skarl
under two homeowner’s policies and a personal liability umbrella policy, and
insures Kelly Skarl and Lake 2 Lake under a businessowner’s policy, while State
Farm Mutual Automobile Insurance Company (“State Farm Automobile”) insures
Kelly Skarl under an automobile policy. (Id. at Pg. ID 253.) The parties do not
dispute that State Farm Casualty is a wholly separate entity from State Farm
Automobile. The parties also do not dispute that State Farm Casualty did not issue
the automobile policy.
In its Complaint, State Farm Casualty alleges that jurisdiction is proper in
this Court pursuant to the Declaratory Judgment Act (ECF No. 1 at Pg. ID 2 (citing
28 U.S.C. § 2201(a))), and “seek[s] a determination as to whether it has to defend
or indemnify [Kelly] Skarl or Lake 2 Lake under the subject Businessowners
policy, the two Homeowners policies, and the Umbrella policy” considering a
number of exclusions that State Farm Casualty argues apply (ECF No. 16 at Pg. ID
375). Defendants Kelly Skarl, Lake 2 Lake Transport, and Rebeca Skarl have
failed to answer or otherwise respond to State Farm Casualty’s Complaint.
Plaintiff filed a request for a clerk’s entry of default as to these three co-defendants
on March 3, 2020, which was entered on March 9. (ECF Nos. 7, 8, 9, 10.)
Subsequently, State Farm Casualty filed a Motion for Entry of Default Judgment
Against Defendants Kelly Skarl, Lake 2 Lake Transport, and/or Rebeca Skarl.
(ECF No. 11.) Defendant Graham filed an “Answer and Opposition to Plaintiff’s
Motion for Entry of Default Judgment Against Defendants Kelly Skarl, Lake 2
Lake Transport, and/or Rebeca Skarl and Counter-Motion to Set-Aside Defaults.”
(ECF No. 13.) Graham’s response brief not only included a motion to set aside the
defaults against the other co-defendants, but also a motion for this Court to decline
to exercise jurisdiction of the instant declaratory action.1
MOTION FOR DEFAULT JUDGMENT &
MOTION TO SET ASIDE DEFAULTS
State Farm Casualty, through its default judgment motion, seeks not only an
entry of default judgment against Defendants Kelly Skarl, Lake 2 Lake Transport,
and Rebecca Skarl, but also a declaration that these co-defendants may not
challenge the findings of this Court as to whether State Farm Casualty has a duty to
defend and/or indemnify them in the state court. (ECF No. 11 at Pg. ID 239-40.)
The determination of this question is of great interest to Graham, who is litigating
in state court against the other co-defendants in the instant federal action.
Notably, the facts of this case parallel those in Allstate Ins. Co. v. Hayes, 499
N.W.2d 743, 743-44 (Mich. 1993). As summarized by the Michigan Supreme
The Court reminds Graham that “a response or reply to a motion must not be
combined with a counter-motion.” ECF Pol. & Pro. R. 5(e).
In an action for declaratory judgment brought by an
insurer against the insured and the injured party, the
question presented is whether a default judgment entered
against the insured deprives the trial court of its power to
declare the rights and liabilities of the parties remaining
before it. We hold that it does not. We also hold that the
default judgment entered against the insured does not bind
the injured party. Because the court had the authority to
declare the parties’ rights even after the default of the
insured, William Keillor was entitled to contest Allstate’s
request for a declaration of no coverage. . . . The precise
issue is whether Keillor, as a joined defendant, has
standing in a declaratory action instituted by the insurer to
pursue the action to a final determination of policy
coverage. . . . While the Court of Appeals correctly
concluded that Keillor was not a third-party beneficiary, it
erred in concluding that third-party-beneficiary status was
necessary to allow Keillor to “continue to pursue the
action” for a declaration of coverage. The nature of the
procedural remedy is to declare interests not yet vested.
Thus, the fact that the injured party is not a third-party
beneficiary of the insurance contract is not determinative
of his “standing” to continue the action for a declaration
of his rights as a conceded real party in interest.
Id. at 743-44, 746.
Here, since the Court has the authority to “declare the rights and other legal
relations of an interested party seeking a declaratory judgment in a case of actual
controversy”—just as in Allstate—once State Farm Casualty named Graham as a
defendant in its declaratory action, “the court possessed the power to declare the
rights of any interested party before it.” Id. at 745. “This power [is] not destroyed
by virtue of the default judgment entered against the insured. Although the [C]ourt
[may]  refuse to declare the rights of the remaining parties, leaving [Graham] to
pursue the underlying tort action and, if successful, a garnishment action against
[State Farm Casualty], it was within its discretion to allow the action to continue
and declare the rights of the parties remaining before it.” Id.
Graham has moved to set aside the defaults entered against the other codefendants in this federal action. Pursuant to Federal Rule of Civil Procedure
55(c), a court may set aside an entry of default for “good cause.” In determining if
“good cause” exists, courts consider whether: (1) the plaintiff will be prejudiced if
the default is set aside; (2) the defendant has a meritorious defense; and (3)
culpable conduct of the defendant led to the default. United States v. $22,050.00
U.S. Currency, 595 F.3d 318, 324 (6th Cir. 2010) (citing Waifersong, Ltd. v.
Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992)). Courts employ a
“lenient standard” in evaluating a request to set aside a default that has not yet
reached judgment. Shepard Claims Serv., Inc. v. William Darrah & Assocs., 796
F.2d 190, 193 (6th Cir. 1986). Federal courts favor trials on the merits; therefore,
“any doubt should be resolved in favor of the petition to set aside the judgment.”
United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 846 (6th Cir.
1983) (quoting Tozer v. Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951)).
Having considered the relevant factors in determining whether to grant State
Farm Casualty’s Motion for Default Judgment or grant Graham’s Motion to Set
Aside the Defaults, the Court finds that State Farm Casualty has sufficiently
demonstrated that Defendants Kelly Skarl, Lake 2 Lake Transport, and Rebecca
Skarl have failed to answer or defend against the present action and the Court is
not persuaded that “good cause” exists to set aside the defaults against them.
Therefore, a default judgment will be entered against Defendants Kelly Skarl, Lake
2 Lake Transport, and Rebecca Skarl.
State Farm Casualty also requests specific declaratory relief. The Court will
grant this relief, but emphasizes that a default judgment against Defendants Kelly
Skarl, Lake 2 Lake Transport, and Rebecca Skarl is only a recognition that they
“[cannot] contest the allegation that the insurer is not contractually bound to
indemnify him.” Allstate, 499 N.W.2d at 751. However, [i]t is not an admission
that there is no coverage in respect to an interested party.” Id. (emphasis added).
The instant order makes no such determination and, to the extent that this order is
interpreted to go beyond the limited purpose outlined herein, it is void. See id.
(“[W]e hold that once Allstate pleaded and proved that an actual controversy
existed between itself and [the injured], the trial court possessed the power to make
a declaration regarding the coverage provided by Allstate’s policy. The court’s
authority to declare the rights of a named interested party was not eliminated by
the entry of the default judgment against the insured.”).
For the foregoing reasons, the Court will grant State Farm Casualty’s
Motion for Default Judgment and deny Graham’s Motion to Set Aside Defaults.
MOTION TO DECLINE EXERCISE OF JURISDICTION
The exercise of jurisdiction under 28 U.S.C. § 2201(a) is not mandatory,
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942), and at times the
better exercise of discretion favors abstention, see Bituminous Cas. Corp. v. J & L
Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004). In declaratory judgment
actions seeking an opinion on insurance coverage impacting litigation pending in
another court, declining jurisdiction is a reasonable option because “[s]uch actions
. . . should normally be filed, if at all, in the court that has jurisdiction over the
litigation giving rise to the indemnity problem.” Bituminous Cas., 373 F.3d at 812
(quoting Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine Ins. Co.,
791 F.2d 460, 463 (6th Cir. 1986)).
Indeed, the Sixth Circuit has “repeatedly held in insurance coverage
diversity cases that ‘declaratory judgment actions seeking an advance opinion on
indemnity issues are seldom helpful in resolving an ongoing action in another
court.’” Bituminous Cas., 373 F.3d at 812 (quoting Manley, 791 F.2d at 463); see
also AM South Bank v. Dale, 386 F.3d 763, 786 (6th Cir. 2004) (citing 10B
Wright, Miller & Mary Kay Kane § 2765 at 638 (3d ed. 1998) (“[I]t is not one of
the purposes of the declaratory judgments act to enable a prospective negligence
action defendant to obtain a declaration of nonliability.”)).
However, “[t]hat is not to say that there is a per se rule against exercising
jurisdiction in actions involving insurance coverage questions.” Bituminous Cas.,
373 F.3d at 812-13 (citation omitted). Instead, the Sixth Circuit has articulated
several factors to be considered by a district court faced with a complaint seeking
relief under § 2201(a):
(1) whether the declaratory action would settle the
(2) whether the declaratory action would serve a useful
purpose in clarifying the legal relations in issue;
(3) whether the declaratory remedy is being used merely
for the purpose of “procedural fencing” or “to provide an
arena for a race for res judicata”;
(4) whether the use of a declaratory action would increase
friction between our federal and state courts and
improperly encroach on state jurisdiction;2 and
(5) whether there is an alternative remedy which is better
or more effective.
Travelers Indem. Co., 495 F.3d at 271 (internal quotation marks omitted) (quoting
Grand Trunk W. R.R. Co. v. Consol. Rail Co., 746 F.2d 323, 326 (6th Cir. 1984)
There are “three  factors that bear on whether a declaratory action would
increase friction between federal and state courts: (1) whether the underlying
factual issues are important to an informed resolution of the case; (2) whether the
state trial court is in a better position to evaluate those factual issues than is the
federal court; and (3) whether there is a close nexus between the underlying factual
and legal issues and state law and/or public policy, or whether federal common law
or statutory law dictates a resolution of the declaratory judgment action.”
Travelers Indem. Co. v. Bowling Green Prof’l Assocs., PLC, 495 F.3d 266, 271
(6th Cir. 2007) (internal quotation marks omitted) (quoting Scottsdale Ins. Co. v.
Roumph, 211 F.3d 964, 968 (6th Cir. 2000)).
and citing Roumph, 211 F.3d at 967). Essentially, “the Grand Trunk factors . . .
direct the district court to consider three things: efficiency, fairness, and
federalism.” W. World Ins. Co. v. Hoey, 773 F.3d 755, 759 (6th Cir. 2014). The
Sixth Circuit has “never assigned weights” to these factors because they are “not
. . . always equal.” Id. “The essential question is always whether a district court
has taken a good look at the issue and engaged in a reasoned analysis of whether
issuing a declaration would be useful and fair.” Id. (citing Sherwin–Williams Co.
v. Holmes Cty., 343 F.3d 383, 390 (5th Cir.2003)).
(A) Factor One: Settlement of the Controversy
“Two lines of precedent seem to have developed in [Sixth Circuit]
jurisprudence regarding consideration of this first factor in the context of an
insurance company’s suit to determine its policy liability.” Mass. Bay Ins. Co. v.
Christian Funeral Dirs., Inc., 759 F. App’x 431, 435 (6th Cir. 2018) (quoting
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 555 (6th Cir. 2008)). “One line of
cases focuses on whether the declaratory judgment action will settle the coverage
controversy regardless [of] whether it will settle the underlying state-court action.”
Id. (citing cases). “The other line of cases reasons that while such declaratory
actions might clarify the legal relationship between the insurer and the insured,
they do not settle the ultimate controversy between the parties which is ongoing in
state court.” Id. (internal quotations marks omitted) (citing cases).
State Farm Casualty concedes that “a decision in this litigation will not end
the dispute between  Graham and [Kelly] Skarl/Lake 2 Lake” in state court (ECF
No. 16 at Pg. ID 364), but the Sixth Circuit’s “most recent decisions have held that
district courts d[o] not abuse their discretion in concluding that a declaratory
judgment would settle the controversy by resolving the issue of indemnity,” United
Specialty Ins. Co. v. Cole’s Place, Inc., 936 F.3d 386, 397 (6th Cir. 2019) (citing
Mass. Bay, 759 F. App’x at 437-38; Hoey, 773 F.3d at 760-61; Flowers, 513 F.3d
at 556). This is the case here. State Farm Casualty and Defendants are not
currently litigating the issue of insurance coverage in state court and a declaratory
judgment resolves the issue. See id. Moreover, as will be discussed further below,
no question of fact or state law relevant to the coverage issue is being litigated in
state court and the parties give the Court no reason to conclude that the application
of Michigan contract interpretation law to the coverage issue will be anything but
straightforward. “In these circumstances, efficiency considerations favor the
exercise of federal jurisdiction, and fairness and federalism concerns do not
counsel against it.” Id. (citing Hoey, 773 F.3d at 759).
(B) Factor Two: Clarification of the Legal Relations at Issue
State Farm Casualty contends that a declaratory judgment will clarify “the
only issue before this Court”: “whether or not State Farm [Casualty] has a duty
under any of the four policies . . . to defend and/or to indemnify [Kelly] Skarl
and/or Lake 2 Lake against the allegations brought against them by  Graham in
the Wayne County Circuit Court litigation.” (ECF No. 16 at Pg. ID 363-64.)
“[A]s with the jurisprudence concerning the first factor, a split has developed in
[Sixth Circuit] precedent concerning whether the district court’s decision must
only clarify the legal relations presented in the declaratory judgment action or
whether it must also clarify the legal relations in the underlying state action.”
Mass. Bay, 759 F. App’x at 438 (quoting Flowers, 513 F.3d at 557). The Sixth
Circuit has further explained:
In general, courts tend to consider this factor with the first
factor, reaching the same conclusion for both. Compare,
e.g., Bituminous, 373 F.3d at 814 (“Like the first factor,
although a declaratory judgment would clarify the legal
relationship between Bituminous and J & L pursuant to the
insurance contracts, the judgment would not clarify the
legal relationship between Shields and J & L in the
underlying state action.”), with Northland, 327 F.3d at 454
(“[W]hile the declaratory judgment would not end the
dispute between Cailu and Stewart, it would settle the
controversy regarding the scope of insurance coverage
issued by Northland to Cailu, and whether Northland had
a duty to defend the insureds. [A] prompt declaration of
policy coverage would surely serve a useful purpose in
clarifying the legal relations at issue.” (second alteration
in original) (internal quotation marks and citation
omitted)). Some cases, however, have treated this factor
as distinct from the first factor, reasoning that the first
factor examines whether the declaratory action will
resolve the coverage dispute as well as the underlying
action, whereas this factor is focused just on the insurancecoverage dispute. See Allstate Ins. Co. v. Mercier, 913
F.2d 273, 279 (6th Cir. 1990).
Id. Here, the only legal relationship presented to the Court is whether the four
policies issued by State Farm Casualty will cover actions of the insured. A
declaratory judgment on insurance coverage clarifies this relation, therefore
pointing in favor of the Court exercising jurisdiction. Id. (finding district court
properly exercised its discretion in exercising jurisdiction for the same reasons).
“Furthermore, an important consideration under the first two factors is
whether the declaratory judgment would be res judicata in a parallel state-court
proceeding.” Byler v. Air Methods Corp., 823 F. App’x 356, 366 (6th Cir. 2020).
In Bituminous, “for instance, declaratory jurisdiction was not warranted because
the plaintiff in the parallel state-court litigation was not a party to the federal
declaratory action and thus ‘any judgment in the federal court would not be
binding as to him and could not be res judicata in the tort action.’” Id. In contrast,
here, the plaintiff in the state court proceeding at bar is a party to the instant federal
litigation, thereby giving preclusive effect to a federal-court declaratory judgment.
For these reasons, the second factor weighs in favor of exercising jurisdiction.
(C) Factor Three: Procedural Fencing
“The third factor is meant to preclude jurisdiction for ‘declaratory plaintiffs
who file their suits mere days or weeks before the coercive suits filed by a “natural
plaintiff” and who seem to have done so for the purpose of acquiring a favorable
forum.’” Mass. Bay, 759 F. App’x at 438 (quoting Flowers, 513 F.3d at 558). The
Sixth Circuit has expressed “reluctan[ce] to impute an improper motive to a
plaintiff where there is no evidence of such in the record.” Id. (quoting Flowers,
513 F.3d at 558).
Here, the record does not suggest that State Farm Casualty had any improper
motive or engaged in any unfair tactics. “Filing a declaratory judgment action in a
forum separate from the underlying litigation is not considered improper by itself,”
id. at 439 (quoting Flowers, 513 F.3d at 558), and State Farm Casualty waited
nearly one year after Graham filed his state court action to file the instant federal
Graham argues that this action is being used for procedural fencing because
“[State Farm Casualty] specifically left out one policy in this declaratory action but
seek[s] an order that states ‘Lake 2 Lake Transport, Inc., Kelly Skarl and Rebecca
Skarl are precluded from challenging the findings of this Court as to whether State
Farm [Casualty] has a duty to defend and/or indemnify Lake 2 Lake Transport, Inc.
or Kelly Skarl (and Rebecca Skarl if she is added as a party) in the litigation filed
against them by Co-Defendant William Graham.’” (ECF No. 13 at Pg. ID 258.)
According to Graham, “[State Farm Casualty’s] request for a declaration
specifically fails to mention which policies are at issue in this action” and, if the
Court grants the relief sought, State Farm Casualty would use the order to “relieve
[itself] of any obligations in the [s]tate [c]ourt action . . . . even though Plaintiff has
at least one policy that applies in the [s]tate [c]ourt action.” (Id.) But Graham
agrees that there are only five policies at issue in state court: a businessowner’s
policy, two homeowner’s policies, and a personal liability umbrella policy—all
issued by State Farm Casualty—as well as an automobile policy, issued by State
Farm Automobile, which Graham does not dispute is a wholly separate entity.
(See State Court Compl., ECF No. 13-3 at Pg. ID 282; Pl.’s Resp., ECF No. 16 at
Pg. ID 356; Def.’s Supp. Br., No. 18 at Pg. ID 469; Pl.’s Mot., ECF No. 13 at Pg.
ID 252-53.) The Court is not persuaded by Graham’s argument as to this factor
because, in the Complaint, State Farm Casualty listed the four policies issued by it
(see ECF No. 1 at Pg. ID 2-3, ⁋⁋ 9-11) and Graham does not identify any other
policy that was issued by State Farm Casualty that is also relevant to the state court
proceeding. Moreover, Graham provides no evidence suggesting that the outcome
of this declaratory action would impact the Co-Defendants’ rights as to the
automobile policy issued by State Farm Automobile.
Because there is no evidence of procedural fencing, the third factor supports
accepting jurisdiction, though the Court gives this factor little weight. Mass. Bay,
759 F. App’x at 439 (citing Travelers, 495 F.3d at 272) (affirming district court’s
conclusion that third factor supported accepting jurisdiction where there was no
evidence of procedural fencing and apparent decision to give factor “little
weight”); see Travelers, 495 F.3d at 272 (“With respect to the third factor, the
district court determined correctly that no facts demonstrate that the declaratory
judgment action by Travelers was an attempt at ‘procedural fencing’ or exude the
appearance of a ‘race’ to judgment. Although no improper motive prompted this
action, this factor is neutral.”).
(D) Factor Four: Increased Friction Between Federal and State Courts
State Farm Casualty contests the notion that the use of this declaratory
action would increase friction between federal and state courts and improperly
encroach on state jurisdiction. As noted above, to analyze this factor, the Court
must consider the following subfactors:
(1) whether the underlying factual issues are important to
an informed resolution of the case; (2) whether the state
trial court is in a better position to evaluate those factual
issues than is the federal court; and (3) whether there is a
close nexus between the underlying factual and legal
issues and state law and/or public policy, or whether
federal common law or statutory law dictates a resolution
of the declaratory judgment action.
Travelers, 495 F.3d at 271 (internal quotation marks omitted) (quoting Roumph,
211 F.3d at 968).
As to the first subfactor, Defendant conceded in his counter-motion that
there are no “factual issues that will need to be resolved by this Court and the state
court.” (ECF No. 13 at Pg. ID 259.) However, Defendant reversed course in his
Supplemental Answer to Plaintiff’s Motion for Default Judgment, arguing that
three questions of fact exist: (i) when a load is “accepted” such that the
businessowner’s policy exclusion for “bodily injury” arising out of “the handling
of property [a]fter it is moved from the place where it is accepted for movement
into or onto an . . . auto”3 is triggered (ECF No. 1 at Pg. ID 12-13 (internal
quotation marks omitted) (emphasis added); see also ECF No. 18 at Pg. ID 472);
(ii) what constitutes a “professional service” such that the four policies’ exclusion
for “bodily injury” arising out of “the rendering or failure to render any
professional service or treatment” is triggered (ECF No. 1 at Pg. ID 17 (emphasis
added); see also ECF No. 18 at Pg. ID 472); and (iii) whether Kelly Skarl violated
his alleged “duty to secure and inspect his load before acceptance of the load”
(ECF No. 18 at Pg. ID 472).
While it is true that the Sixth Circuit has “held that the existence of
unresolved factual issues counsel against the exercise of jurisdiction,” Cole’s
Place, Inc., 936 F.3d at 400 (citing Travelers, 495 F.3d at 273), the first two
aforementioned issues are matters of contract interpretation and, thus, are questions
of law, see JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 583 (6th Cir.
2007) (“The proper interpretation of a contract is a question of law.”). And
notably, the parties do not suggest that the application of Michigan contract
interpretation law to the coverage issue at bar will be particularly complex. The
Per the policy, this is the definition of “loading or unloading.” (ECF No. 1 at Pg.
third issue is a question of fact, but it is not one relevant to making the coverage
determination. Even if Kelly Skarl did not satisfy his duty to inspect the load
before acceptance, the fact remains that, under the businessowner’s policy, State
Farm Casualty need not indemnify an insured for bodily injury arising out of
loading and unloading an auto and, under all four policies, State Farm Casualty
need not indemnify an ensured for bodily injury arising out of the rendering or
failure to render professional service. If Kelly Skarl did satisfy his duty to inspect
the load before acceptance, the applicability of the exclusions remains unchanged.
See Cole’s Place, 936 F.3d at 400 (“[T]he policy expressly excludes coverage of
litigation arising from an alleged battery, so we need not determine whether facts
constituting a battery have been or will be proven.”) Because “there are no factual
issues remaining in the state court litigation . . . that are ‘important to an informed
resolution’ of this case,” “Grand Trunk factor four, subfactor one, weighs in favor
of exercising jurisdiction here.” Id. (quoting Flowers, 513 F.3d at 560-61).
Regarding the second subfactor—“whether the state trial court is in a better
position to evaluate those factual issues than is the federal court”—the Court
reiterates that “there are  no unresolved factual issues relevant to the coverage
question pending in the state-court action.” See id. at 401. Accordingly, this
subfactor is neutral. Id.
The third subfactor—“whether there is a close nexus between the underlying
factual and legal issues and state law and/or public policy, or whether federal
common law or statutory law dictates a resolution of the declaratory judgment
action”—cuts against exercising jurisdiction because “[n]o federal-law questions
are involved in the coverage issue.” Id. “Furthermore, even in cases where state
law has not been difficult to apply, [the Sixth Circuit] has usually found that the
interpretation of insurance contracts is closely entwined with state public policy.”
In sum, the first subfactor of the fourth Grand Trunk factor weighs in favor
of jurisdiction; the second is neutral; and the last subfactor cuts against it. Overall,
therefore, this factor is neutral. See id.
(E) Factor Five: Availability of Alternative Remedy
The fifth factor asks “whether there is an alternative remedy which is better
or more effective” than federal declaratory relief. Grand Trunk, 746 F.2d at 326.
State Farm Casualty argues that there is no alternative remedy that is better or
more effective than pursuing a declaratory judgment in this Court because, “if the
coverage case is forced to be tried in the [s]tate [c]ourt, it would likely be joined to
the underlying litigation, which ‘would make the matter even more complicated
and increase the potential for confounding the distinct and separate legal issues
between the tort action and the declaratory action.’” (ECF No. 16 at Pg. ID 374
(quoting State Farm Fire & Cas. Co. v. Stone, 2017 WL 3017538, at *4 (E.D.
Mich. 2017)).) State Farm Casualty points to nothing that convinces the Court that
the state court would find the process of resolving the coverage issue complicated
Graham contends that the Court should dismiss the present action and allow
State Farm Casualty to file for relief in state court because the state court action is
“still on-going” and the judge in that case “is well informed of the facts of this
matter and [is] able to determine when policies apply and don’t apply.” (ECF No.
13 at Pg. ID 260.)
Similar to the other factors in this analysis, case law as to this factor is
somewhat inconsistent within the Sixth Circuit. Compare, e.g., Mass. Bay, 759 F.
App’x at 441 (finding district court did not abuse its discretion when concluding
fifth factor weighed against exercising jurisdiction where the plaintiff “could have
just as easily filed a comparable suit in state court” because “Tennessee courts are
in a superior position to resolve questions of state law, including any that may arise
that may be unsettled, and the Tennessee courts might also have been able to
combine the two actions so that all issues could be resolved by the same judge,”
thus “[t]here is no reason to suppose that the alternate remedies available in state
court would not adequately protect [the plaintiff’s] interests”), with Byler v. Air
Methods Corp., 823 F. App’x 356, 367 (6th Cir. 2020) (finding that the fifth factor
“does not cut against exercise of jurisdiction” where “[a]nother option would be
for plaintiffs to bring a declaratory judgment action in state court” because,
“[w]hile this would likely entail similar advantages as a federal declaratory action,
it is not clear that the state-law remedy would be superior”).
In this case, because it is not clear that filing a declaratory judgment action
in state court constitutes an alternative remedy that is “‘better or more effective’
than federal declaratory relief,” the Court finds that this factor does not cut against
exercise of jurisdiction. See Byler, 823 F. App’x at 367.
For the foregoing reasons, the Court finds that no “good cause” exists to set
aside the defaults. In addition, a balancing of the Grand Truck factors supports the
Court’s exercise of jurisdiction over Plaintiffs’ request for declaratory relief.
IT IS ORDERED that Co-Defendant Graham’s Motion to Set Aside
Defaults is DENIED.
IT IS FURTHER ORDERED that Co-Defendant Graham’s Motion to
Decline Exercise of Jurisdiction is DENIED.
IT IS FURTHER ORDERED that State Farm Casualty’s Motion for Entry
of Default Judgment Against Defendants Kelly Skarl, Lake 2 Lake Transport, Inc.,
and Rebecca Skarl (ECF No. 11) is GRANTED. A default judgment shall be
entered against the aforementioned co-defendants. To be clear, however, the
default judgment entered against the insured co-defendants does not bind the
injured co-defendant, Graham. Because the court has the authority to declare the
parties’ rights even after the default of the insured, Graham is entitled to contest
State Farm Casualty’s request for a declaration regarding its duty to defend and/or
indemnify the other co-defendants per the insurance policies.
IT IS SO ORDERED.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: March 31, 2021
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