Diocese of St. Cloud et al v. Arrowood Indemnity Company et al

Filing 105

MEMORANDUM OPINION AND ORDER; granting 32 The Continental Insurance Company's Motion to Dismiss; granting 43 The Order of St. Benedict's Motion to Dismiss; granting 52 Defendant Travelers Indemnity Company's Motion for Joinder of Continental Insurance Company's Motion to Dismiss; Plaintiff's First Cause of Action against the Order of St. Benedict, The Continental Insurance Company, and Travelers Indemnity Company is dismissed without prejudice; denying 73 Plaintiff's Motion to Remand to State Court. (Written Opinion) Signed by Chief Judge John R. Tunheim on 1/4/2018. (JMK)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
DIOCESE OF ST. CLOUD; CHURCH OF
SAINT JOSEPH, ST. JOSEPH; CHURCH
OF THE SACRED HEART OF JESUS,
DENT; CHURCH OF SAINT ANTHONY
OF PADUA, ST. CLOUD; CHURCH OF
OUR LADY OF VICTORY, FERGUS
FALLS; CHURCH OF SAINT ANNE,
KIMBALL; CHURCH OF SAINT
JAMES, RANDALL; CHURCH OF
SAINT LOUIS BERTRAND,
FORESTON; CHURCH OF SAINT
BONIFACE, COLD SPRING; CHURCH
OF THE ASSUMPTION, EDEN
VALLEY; CHURCH OF SEVEN
DOLORS, ALBANY; CHURCH OF
SAINT MARY OF THE
PRESENTATION, BRECKENRIDGE;
CHURCH OF THE HOLY CROSS,
ONAMIA; CHURCH OF SAINT GALL,
TINTAH; CHURCH OF SAINT OLAF,
ELBOW LAKE; CHURCH OF THE
IMMACULATE CONCEPTION,
OSAKIS; CHURCH OF SAINT PETER,
DUMONT; CHURCH OF AVE MARIA,
WHEATON; CHURCH OF THE HOLY
SPIRIT, ST. CLOUD; CHURCH OF THE
HOLY ANGELS OF ST. CLOUD, ST.
CLOUD f/k/a Holy Angels Congregation
of St. Cloud, St. Cloud; CHURCH OF
SAINT HEDWIG, HOLDINGFORD f/k/a
Church of All Saints, Holdingford;
CHURCH OF IMMACULATE
CONCEPTION, NEW MUNICH;
CHURCH OF SAINT PAUL, SAUK
CENTRE; CHURCH OF SAINT JOSEPH,
CLARISSA; CHURCH OF THE SACRED
HEART, STAPLES; CHURCH OF SAINT
STANISLAUS, SOBIESKI; CHURCH OF
SAINT PETER, ST. CLOUD; CHURCH

Civil No. 17-2002 (JRT/LIB)

MEMORANDUM OPINION
AND ORDER

OF SAINT ANDREW, ELK RIVER;
CHURCH OF SAINT EDWARD,
BOWLUS; CHURCH OF SAINT PAUL,
ST. CLOUD; and CHURCH OF ST.
MARY’S CATHEDRAL OF ST. CLOUD,
ST. CLOUD f/k/a Church of the
Immaculate Conception, St. Cloud,
Plaintiffs,
v.
ARROWOOD INDEMNITY COMPANY,
individually and as successor to Royal
Indemnity Company, Connecticut
Indemnity Company, The Fire & Casualty
Insurance Company, Security Insurance
Company of Hartford, Connecticut
Specialty Insurance Company, New
Amsterdam Casualty Company, and Orion
Capital Companies; THE ORDER OF ST.
BENEDICT, d/b/a St. John’s Abbey; THE
CONTINENTAL INSURANCE
COMPANY; ST. PAUL FIRE AND
MARINE INSURANCE COMPANY;
TRAVELERS INDEMNITY COMPANY;
CHURCH MUTUAL INSURANCE
COMPANY; and HARTFORD
ACCIDENT AND INDEMNITY
COMPANY,
Defendants.
CHURCH MUTUAL INSURANCE
COMPANY,
Counterclaim Plaintiff,
v.
CHURCH OF THE SACRED HEART OF
JESUS, DENT,
Counterclaim Defendant.
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John H. Faricy, Jr., and Vadim Trifel, FARICY LAW FIRM, P.A., 12
South Sixth Street, Suite 211, Minneapolis, MN 55402, for plaintiffs.
James S. Carter, Jr., BLANK ROME LLP, 1825 Eye Street Northwest,
Washington, DC 20006, for defendant The Order of St. Benedict.
Scott E. Turner, ELENIUS FROST & WALSH, 333 South Wabash
Avenue, Suite 25th Floor, Chicago, IL 60604, and Troy A. Poetz,
RAJKOWSKI HANSMEIER LTD, PO Box 1433, St. Cloud, MN
56302, for defendant The Continental Insurance Company.
Lance D. Meyer, O’MEARA, LEER, WAGNER & KOHL, PA, 7401
Metro Boulevard, Suite 600, Minneapolis, MN 55439, for defendant
Travelers Indemnity Corporation.

Plaintiffs the Diocese of St. Cloud (“the Diocese”) and various Catholic parishes
located in central Minnesota (collectively, “Plaintiffs”) bring this insurance coverage
action in order to determine which parties will pay compensation to victims of clerical
abuse that have filed claims in state court. Plaintiffs have brought this action against their
own alleged insurers, Arrowood Indemnity Company (“Arrowood”), Church Mutual
Insurance Company (“Church Mutual”), St. Paul Fire and Marine Insurance Company
(“St. Paul”), and Hartford Accident and Indemnity Company (“Hartford”). They have
also brought this action against a fellow Catholic religious organization, The Order of St.
Benedict, doing business as St. John’s Abbey (“the Abbey”), and its alleged insurers, The
Continental Insurance Company (“Continental”) and Travelers Indemnity Company
(“Travelers”).
Against their own insurers, Plaintiffs seek declaratory relief regarding duty to
defend, duty to pay investigation and defense costs, and duty to indemnify. Against
Arrowood, Plaintiffs seek damages for breach of contract, promissory estoppel, bad
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faith/breach of fiduciary duty, fraudulent misrepresentation, and tortious interference
with contractual relations.

Against the Abbey and its insurers, Plaintiffs seek only

declaratory relief with regard to the pending state court liability claims.
There are four motions currently before the Court: (1) Continental’s Motion to
Dismiss; (2) Travelers’ Motion for Joinder of Continental’s Motion to Dismiss; (3) the
Abbey’s Motion to Dismiss; and (4) Plaintiffs’ Motion to Remand to State Court.
Because the Court will find that Plaintiffs’ claims against the Abbey and its insurers are
not ripe, the Court will grant Continental’s Motion to Dismiss, Travelers’s Motion for
Joinder, and the Abbey’s Motion to Dismiss. Upon dismissal of these parties, complete
diversity will exist between the remaining parties. Thus, the Court will deny Plaintiffs’
Motion to Remand to State Court.

BACKGROUND
I.

FACTUAL BACKGROUND
A. The Plaintiffs
The Diocese is a Catholic Diocese corporation in St. Cloud, Minnesota. (Notice of

Removal ¶ 1, Ex. 1 (“Compl.”) ¶ 4, June 12, 2017, Docket No. 1.) The remaining
Plaintiffs are “separate and independent Catholic parish corporations” located in
Minnesota. (Compl. ¶¶ 5-7.) The Diocese is organized and operates under Minn. Stat.
§ 315.16; the remaining Plaintiffs are organized and operate under Minn. Stat. § 315.15.
(Id. ¶¶ 4, 7.)
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In May 2013, the Minnesota Legislature enacted the Minnesota Child Victims Act,
Minn. Stat. § 541.073, which allowed individuals to file sexual abuse claims that had
been previously time-barred. (Id. ¶ 2.) More than 75 actions have been filed naming the
Diocese as a Defendant, and the other Plaintiffs in this case have each been named in one
or more actions. (Id. ¶ 3.) The actions involve some combination of public nuisance,
private nuisance, negligence, negligent supervision, and negligent retention.

(Id.)

Plaintiffs refer to these actions generally as “the Claims.” (Id.)
B. The Defendants
With regard to Plaintiffs’ own insurers, Arrowood is a Delaware corporation with
its principal place of business in North Carolina. (Id. ¶ 9.) According to Plaintiffs,
Arrowood is the successor to numerous insurance companies. (See id.) Plaintiffs allege
that Arrowood or its predecessors issued numerous insurance policies to various Plaintiff
parishes between 1955 and 1967 and insured the Diocese at least from April 1964 to
December 1, 1971. (Id. ¶¶ 18-19, 21-28.) Church Mutual is incorporated and has its
principal place of business in Wisconsin. (Id. ¶ 12.) It allegedly insured Plaintiff Church
of the Sacred Heart from January 1967 to January 1970.

(Id. ¶ 30.)

St. Paul is

incorporated and has its principal place of business in Connecticut. (Id. ¶ 10.) It allegedly
insured Plaintiff Church of St. Andrew around 1960. (Id. ¶ 31.) Hartford is incorporated
and has its principal place of business in Connecticut. (Id. ¶ 11.) It allegedly insured
Plaintiff Church of Saint Olaf from around 1964 to 1966 and Plaintiff Church of Saint
Paul from around 1960 to 1963. (Id. ¶¶ 32-33.)

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The Abbey is a Catholic religious organization in Collegeville, Minnesota,
organized as a Minnesota church corporation under Minn. Stat. § 315.16. (Id. ¶ 8.)
Plaintiff alleges that, by papal decree, several parishes in the Diocese “were staffed by
priests and other staff chosen by and interacting with [the Diocese] and [the Abbey].”
(Id. ¶ 37.) The priests’ and staff’s interaction with both organizations “has resulted in
actions claiming responsibility for clerical abuse by both [the Diocese] and [the Abbey].”
(Id.) The Diocese and the Abbey “maintained separate insurance programs to protect
both themselves and the public.” (Id. ¶ 38.) Plaintiffs allege the following with regard to
the Abbey:
an actual controversy exists between and among [the Abbey]
and the Plaintiffs concerning their respective rights and
obligations of themselves and certain of their insurers as to
the payment of liabilities jointly or separately incurred or to
be incurred by the Plaintiffs and [the Abbey] in the past and
future with respect to the [C]laims.
(Id. ¶ 39.)
With regard to the Abbey’s insurers, Continental is incorporated in Indiana with
its principal place of business in Illinois. (Id. ¶ 13.) Travelers is incorporated and has its
principal place of business in Connecticut. (Id. ¶ 14). Plaintiffs allege that Continental
and Travelers insured the Abbey “under various general liability policies.” (Id. ¶ 34.)
II.

PROCEDURAL BACKGROUND
Plaintiffs filed this action in state court on May 12, 2017. (Compl. at 1.) On June

12, Defendants St. Paul and Travelers removed the action to federal court with the
consent of all Defendants except the Abbey. (Notice of Removal ¶¶ 9-10.) Defendants
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removed the case on a theory of complete diversity jurisdiction. (Notice of Removal ¶ 6.)
On June 19, Continental and the Abbey filed separate Motions to Dismiss. (Continental’s
Mot. to Dismiss, June 19, 2017, Docket No. 32; Abbey’s Mot. to Dismiss, June 19, 2017,
Docket No. 43.) On June 30, Travelers filed a Motion for Joinder of Continental’s
Motion to Dismiss.

(Travelers’ Mot. for Joinder, June 30, 2017, Docket No. 52.) On

July 17, Plaintiffs filed a Motion to Remand to State Court. (Pls.’ Mot. to Remand, July
17, 2017, Docket No. 73.) Arrowood also filed a Partial Motion to Dismiss, and the
Court granted a continuance of the hearing on that motion per the parties’ joint request.
(Arrowood’s Mot. to Dismiss, July 6, 2017, Docket No. 61; Order Approving Stipulation
for Continuance, Oct. 30, 2017, Docket No. 103.)

DISCUSSION
I.

THE ABBEY’S MOTION TO DISMISS
The Abbey seeks dismissal of Plaintiffs’ claim against them, in which Plaintiffs

seek “a judicial determination of the respective rights and duties of the parties.” (Compl.
¶ 41.) Because the Court will find that Plaintiffs’ claim against the Abbey is not ripe, the
Court will grant the Abbey’s Motion to Dismiss.
A. Ripeness
As a preliminary matter, the Court must determine whether the claim at issue is
ripe for judicial review. To show that their claim is ripe, Plaintiffs must meet two
requirements. First, they must show that there is “a sufficiently concrete case or
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controversy within the meaning of Article III of the Constitution.” Christopher Lake
Dev. Co. v. St. Louis Cty., 35 F.3d 1269, 1272 (8th Cir. 1994). Second, they must show
that “prudential considerations . . . justify the present exercise of judicial power.” Id.
The case or controversy requirement is a constitutional question that applies to all
actions, including declaratory judgment actions.

Missouri ex rel. Mo. Highway &

Transp. Com’n v. Cuffley, 112 F.3d 1332, 1337 (8th Cir. 1997). It asks whether there is a
“real, substantial controversy between parties having adverse legal interests.”

Id.

(quoting Babbitt v. United Farm Workers Nat’l Union, 442 U.S. 289, 298 (1979)). The
controversy must be “definite and concrete, not hypothetical or abstract.” Id. An action
is not ripe if it depends upon “contingent future events that may not occur as anticipated,
or indeed may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998)
(quoting Thomas v. Union Carbide Agric. Products Co., 473 U.S. 568, 580-81 (1998)).
Plaintiffs conclusorily allege that there is “an actual controversy” between the
Plaintiffs and the Abbey. (Compl. ¶¶ 36, 39.) However, the Court fails to see how
Plaintiffs’ allegations constitute a definite and concrete dispute that warrants judicial
review. To the extent that Plaintiffs seek a declaratory judgment regarding past liability,
Plaintiffs have not alleged that any court has entered judgment against both parties or that
the parties have jointly settled any claims. 1

To the extent that Plaintiffs seek a

declaratory judgment regarding the parties’ potential future liability, the claim is based

1

In the hearing on these motions, counsel for Plaintiffs said that he was unaware of any
judgments on the underlying Claims, believed they were currently pending in state court, and
believed they had yet to be set for trial.

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entirely on “contingent future events that may not occur as anticipated, or indeed may not
occur at all.” See Texas v. United States, 523 U.S. at 300. Plaintiffs are asking this Court
to determine the rights and obligations of the parties on Claims that are still pending. The
Supreme Court has long made clear that the declaratory judgment procedure “may not be
made the medium for securing an advisory opinion in a controversy which has not
arisen.” Coffman v. Breeze Corp., 323 U.S. 316, 324 (1945).
Furthermore, Plaintiffs fail to show that “prudential considerations . . . justify the
present exercise of judicial power.” Christopher Lake Dev. Co., 35 F.3d at 1272. It
would make little sense for the Court to predetermine liability between Plaintiffs and the
Abbey on fact-specific Claims that are still pending in other courts. Apportionment of
liability should be done in conjunction with the resolution of the underlying claims
because it will be based on the factual circumstances of each case. 2 Were the Court to
determine liability at this time, it would create duplicative litigation and might create
conflicting results. Because Plaintiffs’ claim against the Abbey is not ripe, the Court
does not have jurisdiction and will dismiss the claim.
B. Abstention
Even if the Court found that this claim was ripe, the Court could still abstain from
exercising jurisdiction over it. “[F]ederal courts possess broad discretion to abstain from

2

The Abbey notes that some of the underlying Claims assert certain counts solely against
Plaintiffs and not the Abbey. (Abbey’s Reply at 6, July 24, 2017, Docket No. 81.) For example,
in the complaint that Plaintiffs submitted as an example of the underlying Claims, Doe 453
sought distinct damages from the Diocese alone for private and public nuisance. (Compl. ¶ 37,
Ex. C ¶¶ 37-52.)

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exercising jurisdiction over declaratory judgment lawsuits.” Progressive Preferred Ins.
Co. v. Reagor, 189 F. Supp. 3d 850, 853 (D. Minn. 2016). “[W]here there exists a
‘parallel’ state court action to the federal declaratory judgment action, and the federal
case involves questions of state law, the district court’s discretion is at its peak due to
principles of federalism and comity.” Id. Such abstention comes from Brilhart v. Excess
Insurance Company of America, where the Supreme Court noted that it is “uneconomical
as well as vexatious for a federal court to proceed in a declaratory judgment suit where
another suit is pending in a state court presenting the same issues, not governed by
federal law, between the same parties.” 316 U.S. 491, 495 (1942). Even if the claim
against the Abbey were ripe, it would be prudent for the Court to decline to exercise
jurisdiction over this declaratory judgment action because the underlying Claims are still
being litigated in state court.
II.

CONTINENTAL AND TRAVELERS’ MOTION TO DISMISS
To the extent that Plaintiffs’ claim against the Abbey’s insurers depends on the

Court finding the Abbey liable, it is also not ripe for the reasons set forth above. To the
extent that Plaintiffs seek a judicial declaration regarding Continental and Travelers’
responsibility for past or future liabilities incurred by Plaintiffs, they lack standing and
their claim constitutes an impermissible direct action.
A. Standing
“Whether a plaintiff has standing to sue ‘is the threshold question in every federal
case, determining the power of the court to entertain the suit.’” McClain v. Am. Econ.
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Ins. Co., 424 F.3d 728, 731 (8th Cir. 2005) (quoting Steger v. Franco, Inc., 228 F.3d 889,
892 (8th Cir. 2000)). The jurisdiction of the federal courts “is limited by Article III of the
Constitution to cases or controversies; if a plaintiff lacks standing to sue, the district court
has no subject-matter jurisdiction.” ABF Freight Sys., Inc. v. Int’l Bhd. of Teamsters, 645
F.3d 954, 958 (8th Cir. 2011). “The ‘irreducible constitutional minimum of standing’ is
that a plaintiff show (1) an ‘injury-in-fact’ that (2) is ‘fairly . . . trace[able] to the
challenged action of the defendant’ and (3) is ‘likely [to] be redressed by a favorable
decision’ in court.” Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61
(1992)) (alterations in original).
Plaintiffs lack standing because they are strangers to Continental and Travelers’
contracts with the Abbey and thus have no rights or interests in the contracts. In Spine
Imaging MRI, L.L.C. v. Liberty Mutual Insurance Company, the Court found that a
plaintiff did not have standing to sue for breach of contract and unjust enrichment
because it was not party to the insurance contracts under which it sought to recover, nor
was it an assignee or third-party beneficiary. 743 F. Supp. 2d 1034, 1045 (D. Minn.
2010). Plaintiffs have not alleged that they were insured by Continental and Travelers.
Nor have they alleged that they were assignees or third-party beneficiaries of the Abbey’s
contracts with its insurers. Thus, Plaintiffs do not have standing, and their claim against
Continental and Travelers must be dismissed.

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B. Impermissible Direct Action
Even if Plaintiffs had standing and their claim against Continental and Travelers
was ripe, Plaintiffs’ claim would constitute an impermissible direct action. Because this
case is a diversity action, the Court must apply Minnesota state law to the substantive
claims. In Minnesota there is a “longstanding common-law rule that courts will not allow
third parties to maintain a direct action against an insurer until the third party has a
judgment against the insured.” Camacho v. Todd & Leiser Homes, 706 N.W.2d 49, 56
(Minn. 2005). This prohibition on direct actions applies to declaratory judgments. See
Anderson v. St. Paul Fire & Marine Ins. Co., 414 N.W.2d 575, 576-77 (Minn. Ct. App.
1987) (injured party’s attempt to seek a declaratory judgment against a tortfeasor’s
insurance policy constituted an impermissible direct action). Plaintiffs do not allege that
they were insured by Continental or Travelers, nor do they allege that they have secured a
judgment against the Abbey. Thus, Plaintiffs’ claim against Continental and Travelers
constitutes an impermissible direct action and must be dismissed.
III.

PLAINTIFFS’ MOTION TO REMAND
A. Standard of Review
A defendant may remove a civil action to federal court only if the action could

have been filed originally in federal court. See 28 U.S.C. § 1441(a)-(b); Gore v. Trans
World Airlines, 210 F.3d 944, 948 (8th Cir. 2000). The party seeking removal bears the
burden of demonstrating that removal was proper, and “all doubts about federal
jurisdiction must be resolved in favor of remand.” Cent. Iowa Power Co-op. v. Midwest
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Indep. Transmission Sys. Operator, Inc., 561 F.3d 904, 912 (8th Cir. 2009). Remand is
mandatory “at any time before final judgment [if] it appears that the district court lacks
subject matter jurisdiction.” 28 U.S.C. § 1447(c).
The Court has jurisdiction under 28 U.S.C. § 1332(a) if the amount in controversy
exceeds $75,000 and there is complete diversity of citizenship. Complete diversity of
citizenship means that “no defendant holds citizenship in the same state where any
plaintiff holds citizenship.” OnePoint Sols., LLC v. Borchert, 486 F.3d 342, 346 (8th Cir.
2007) (citing Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373 (1978)).
B. Amount in Controversy
The parties do not dispute that the amount in controversy in this action exceeds
$75,000. This insurance-coverage action seeks indemnity, as well as investigation and
defense costs, in a minimum of 75 clergy sexual abuse actions where victims are each
seeking damages of more than $50,000. (Notice of Removal ¶ 6(j).)
C. Diversity
At issue in this case is whether there is complete diversity of citizenship. A
corporation is a citizen of every state in which it is incorporated and of the state where it
has its principal place of business. 28 U.S.C. § 1332(c)(1). All Plaintiffs are Minnesota
citizens, and no Defendant insurance company is a Minnesota citizen. However, the
Abbey is a Minnesota citizen, thus the action as initially filed was not diverse.

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Nevertheless, the Court will dismiss the claim against the Abbey. 3

Because the

remaining parties are completely diverse and the amount in controversy exceeds $75,000,
the Court will deny Plaintiffs’ Motion to Remand.

ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.

Defendant The Continental Insurance Company’s Motion to Dismiss

[Docket No. 32] is GRANTED.
2.

Defendant The Order of St. Benedict’s Motion to Dismiss [Docket No. 43]

is GRANTED.
3.

Defendant Travelers Indemnity Company’s Motion for Joinder of

Continental Insurance Company’s Motion to Dismiss [Docket No. 52] is GRANTED.

3

The Court also notes that the Abbey would be more properly aligned as a plaintiff in
this matter because there is no actual and substantial controversy between the Plaintiffs and the
Abbey. Federal courts have a duty to “look beyond the pleadings, and arrange the parties
according to their sides in the dispute.” City of Indianapolis v. Chase Nat. Bank of New York,
314 U.S. 63, 69 (1941) (quoting City of Dawson v. Columbia Ave. Sav. Fund, Safe Deposit, Title
& Tr. Co., 197 U.S. 178, 180 (1905)). In coverage disputes, “courts often realign the parties
such that the injured party and defendant/insured are on the plaintiffs’ side of the litigation, with
the insurer on the defendant’s side.” Interlachen Props., LLC v. State Auto Ins. Co., 136 F.
Supp. 3d 1061, 1069 (D. Minn. 2015). Any alleged controversy between the parties seems to
exist only in the underlying litigation. See The Order of St. Benedict v. St. Paul Mercury Ins.
Co., No. 17-CV-781 (DSD/KMM), 2017 WL 1476121, at *2-3 (D. Minn. Apr. 25, 2017)
(defendant insured realigned as plaintiff because it would also “benefit from a determination that
the policies cover[ed] the underlying conduct” and parties’ interests only diverged in underlying
litigation).

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4.

Plaintiffs’ First Cause of Action against The Order of St. Benedict, The

Continental Insurance Company, and Travelers Indemnity Company is DISMISSED
without prejudice.
5.

Plaintiffs’ Motion to Remand to State Court [Docket No. 73] is DENIED.

DATED: January 4, 2018
at Minneapolis, Minnesota.

________s/John R. Tunheim________
JOHN R. TUNHEIM
Chief Judge
United States District Court

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