MARKEL INSURANCE COMPANY v. CONNOLLY, CONNOLLY & HEUN, LLP et al
OPINION. Signed by Judge William J. Martini on 10/12/17. (gh, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
MARKEL INS. CO.,
Civ. No. 2:17-1885 (WJM)
CONNOLLY, CONNOLLY & HEUN, LLP,
WILLIAM J. MARTINI, U.S.D.J.:
This matter comes before the Court on Defendant-Substitute Administrators’
(“Administrators”) motion to dismiss or, in the alternative, stay this case pending the
outcome of the New Jersey Superior Court malpractice action (“Underlying Action”).
Plaintiff Markel Insurance Company seeks damages for fraud and a declaratory judgment
that it owes no duty to defend or indemnify its insured—the law firm of Connolly,
Connolly & Heun, LLP (CCH),1 Richard Heun, Esq., and the Estate of Francis X.
Connolly (collectively, “CCH”)—in the on-going Underlying Action.2 The movantAdministrators, who are plaintiffs in the Underlying Action, contend adjudication of
Plaintiff’s damages claims remains dependent on the sought declaratory relief and thus
warrants abstention. Plaintiff argues the Court should exercise its jurisdiction and
adjudicate its legal and declaratory claims because the circumstances here thwart
abstention. The matter was taken on submission without oral argument. FED. R. CIV. P.
78(b). As discussed below, the Administrators’ motion to dismiss is GRANTED.
This insurance coverage dispute entered federal court when Plaintiff sought a
declaratory judgment that it owed no duty under its Lawyers Professional Liability Policy
(the “Policy”) to defend or indemnify CCH in the Underlying Action. This refusal to
defend CCH stems from CCH’s attorneys, Francis X. Connolly and Richard Heun, Esqs.,
allegedly making material misrepresentations in the Policy Application concerning their
professional conduct. The Application contained a statement from Defendant-Heun that
indicated since his last application for coverage he was unaware of anything that could
For simplicity, the Court will refer to the law firm as Connolly Connolly & Heun, LLP (CCH).
Prior to his death in October 2016, Francis X. Connolly practiced law in New Jersey at CCH. He was subsequently
disbarred in October 2015. Am. Compl. ¶¶ 4, 21, ECF No. 6.
result in a professional liability claim or suit against him, the predecessor firm, or any
current or prior CCH members. Am. Compl. ¶¶ 18, 19, 38, ECF No. 6. The Application
required applicants to acknowledge having conducted an internal inquiry to identify and
disclose anything that may result or bring about a claim. Id. at ¶¶ 16-20. Based on the
representations made in the Application, Plaintiff issued and renewed CCH’s Policy.
In December of 2016, the Administrators filed the Underlying Action against
CCH.3 On March 20, 2017, Plaintiff informed Defendant-Heun and Defendant-Ronald
Davison, Esq.—an attorney trustee appointed for CCH, the law practice of Francis X.
Connolly—of its decision to deny coverage of the Administrators’ claims on behalf of the
CCH client estates. The next day, Plaintiff filed the declaratory judgment action, seeking
to rescind and void the CCH-issued Policy and asserted state and common law fraud
claims, demanding judgment against Defendant-Heun only. The Administrators then
amended its complaint in the Underlying Action, adding Plaintiff as a defendant, and
appended a state law declaratory judgment claim concerning the same Policy. In lieu of
filing an answer to Plaintiff’s Amended Complaint, the Administrators filed this motion
In addressing a motion to dismiss, a court must first find jurisdiction over the
action. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94-95 (1998) (citations
omitted). When a court has jurisdiction, Federal Rule of Civil Procedure 12(b)(6)
provides for the dismissal of a complaint, in whole or in part, if the plaintiff fails to state
a claim upon which relief can be granted. The moving party bears the burden of showing
that no claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005).
In deciding a motion to dismiss under Rule 12(b)(6), a court must take all allegations in
the complaint as true and view them in the light most favorable to the plaintiff. See Warth
v. Seldin, 422 U.S. 490, 501 (1975); Trump Hotels & Casino Resorts, Inc. v. Mirage
Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998).
Before discussing abstention, the Court will address the Administrators’ objection
to this Court’s assumption of jurisdiction in arguing Plaintiff has failed to meet the
$75,000 amount in controversy requirement. See 28 U.S.C. § 1332(a).
A. Subject Matter Jurisdiction – Amount in Controversy
The burden—although not a heavy one—rests on Plaintiff, at the time it filed the
action, “to prove, by a preponderance of the evidence,” it has satisfied the amount in
controversy requirement. Auto-Owners Ins. Co. v. Stevens & Ricci Inc., 835 F.3d 388,
395 (3d Cir. 2016) (citation omitted); St. Paul Mercury Indem. Co. v. Red Cab Co., 303
U.S. 283, 288-89 (1938) (stating to permit dismissal, a claim “must appear to a legal
On March 15, 2017, the Administrators amended the Underlying Action to add an additional Substitute
Administrator, Fred Delli Santi, and Executor, Suzanne Schuler, as plaintiffs. Def.’s Mot. to Dismiss, Ex. E,
ECF No. 9-2. In this case, on April 28, 2017, Plaintiff added the same two parties as Defendants. Am. Compl. ¶ 1.
certainty” to fall short of the jurisdictional amount). In declaratory actions, the amount in
controversy represents “a reasonable reading of the value of the rights being litigated,”
Angus v. Shiley Inc., 989 F.2d 142, 146 (3d Cir. 1993) (citations omitted), which in
insurance coverage disputes “is determined by assessing the value of the underlying legal
claims for which insurance coverage is sought.” Coregis Ins. Co. v. Schuster, 127 F.
Supp. 2d 683, 686 (E.D. Pa. 2001) (citations omitted).
Here, with no dispute as to the parties’ citizenship, Plaintiff meets the amount in
controversy requirement with its potential exposure of $2,000,000 under the Policy for
the subject Estate claims. Also, in the Underlying Action on the Estates’ behalf, the
Administrators assert almost $5,000,000 in damages. Thus, in examining Plaintiff’s
claims and the likely recovery at the time it filed the complaint, this Court cannot
conclude to a legal certainty that the claims fall below the $75,000 threshold. See AutoOwners Ins. Co., 835 F.3d at 395.
B. Abstention Question
Under the Declaratory Judgment Act (“DJA”), federal courts “may declare the
rights and other legal relations of any interested party seeking such declaration, whether
or not further relief is or could be sought.” 28 U.S.C. § 2201(a) (emphasis added). In such
actions, federal courts retain significant discretion to dismiss or stay claims seeking
declaratory relief, Reifer v. Westport Ins. Corp., 751 F.3d 129, 146-47 (3d Cir. 2014), and
may decline jurisdiction in deference to parallel state proceedings. Wilton v. Seven Falls
Co., 515 U.S. 277, 282-83 (1995); Rarick v. Federated Serv. Ins. Co., 852 F.3d 223, 227,
229 (3d Cir. 2017) (observing “courts have greater discretion to decline jurisdiction over
actions for declaratory judgments because they seek an adjudication of rights and
obligations prior to the enforcement of a remedy”). On the other hand, when a complaint
contains a claim for legal relief or damages, federal courts, by Congress, have a “virtually
unflagging obligation . . . to exercise the jurisdiction given them.” Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817 (1976).
In this Circuit, to evaluate jurisdiction in an action seeking both legal and
declaratory relief, a court must consider “whether the legal claims are independent of the
declaratory claims.” Rarick, 852 F.3d at 229. ‘“Non-declaratory claims are ‘independent’
of a declaratory claim when they are alone sufficient to invoke the court’s subject matter
jurisdiction and can be adjudicated without the requested declaratory relief.’” Id. at 228
(quoting R.R. St. & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, 715 (7th Cir. 2009)
(citation omitted)). If, however, the legal claims are dependent on the declaratory claims,
then the court retains discretion under the DJA to decline jurisdiction. Rarick, 852 F.3d at
To evaluate abstention, apart from the criteria set out in Reifer, a court should
consider, in insurance coverage disputes, additional factors such as leaning towards
“restraint when the same issues are pending in a state court,” “an inherent conflict of
interest between an insurer’s duty to defend in state court and its attempt to characterize
that suit in federal court as falling within the scope of a policy exclusion, and [the]
avoidance of duplicative litigation.” Reifer, 751 F.3d at 146-47 (citing State Auto Ins.
Cos. v. Summy, 234 F.3d 131, 134-35 (3d Cir. 2000) (quotation and footnote omitted)).
In applying the independent claim test for jurisdictional and substantive
independence, the Court finds the legal claims for state insurance and common law fraud
against Defendant-Heun are alone sufficient to invoke this Court’s diversity jurisdiction.
The parties remain diverse, with Plaintiff having its principal place of business in Illinois
and Defendants being New Jersey residents, and, as discussed above, there lacks a legal
certainty that Plaintiff’s fraud claims fail to satisfy the $75,000 threshold.
Although claims be independent if based on the same underlying legal obligation,
here, the declaratory and legal claims remain substantively intertwined because
adjudication of the state and common law fraud claims against Defendant-Heun remains
dependent on Plaintiff’s sought declaratory relief that it owes no duty to defend or
indemnify CCH in the Underlying Action. To rescind and void the Policy based on
CCH’s alleged false or misleading statements in the Policy Application that led to issuing
it would resolve the state insurance and common law fraud claims against DefendantHeun. Thus, the viability of the fraud claims rests upon the claims for declaratory relief.
Next, when deciding to exercise or decline DJA jurisdiction, a federal court should
“giv[e] meaningful consideration” to the relevant Reifer factors. 751 F.3d at 146.
Paramount, although not dispositive, in this Court’s analysis is whether there exists
“substantial similarity in issues and parties between contemporaneously pending
proceedings.” Kelly v. Maxum Specialty Ins. Grp., 868 F.3d 274, 284 & n.8 (3d Cir.
2017). The presence “of a parallel state proceeding ‘militates significantly in favor of
declining jurisdiction.”’ Kelly, 868 F.3d at 282 (quoting Reifer, 751 F.3d at 144-45). In
this case, unlike where our Circuit has found non-parallelism in insurance coverage
disputes like in Kelly, the Underlying Action involves the same parties, arguments, and
issues; it captures the entire conduct among the parties. There is no bar in the Underlying
Action to Plaintiff bringing its state and common law fraud claims against CCH. Further,
Plaintiff’s attempt to seek legal damages against Defendant-Heun represents piecemeal
litigation. See Summy, 234 F.3d at 135 (noting a court should abstain to promote judicial
Next, even though a federal court declaration would resolve uncertainty around the
Policy’s obligations which gave rise to the controversy, see Reifer, 741 F.3d at 146, the
Administrators’ legal malpractice claims in the Underlying Action remain tied to
Plaintiff’s fraud claims. Moreover, such disposition here would leave unresolved the
remaining tort claims in the Underlying Action. Despite a decision on the declaratory
action that could likely resolve the right and obligations owed under the Policy, even
under New Jersey’s Uniform Declaratory Judgments Act, N.J. REV. STAT. §§ 2A:16-51
to -62 (2013), this alone lacks a basis to assert jurisdiction because a state court decision
would also resolve this issue. See Burke-Dice v. Gov’t Emps. Ins. Cos., No.
17-3918, slip op. at 4 (E.D. Pa. Aug. 15, 2017) (citations omitted). Further, Plaintiff
could have brought its declaratory judgment action in state court and has failed to proffer
why it would be any less convenient there to adjudicate the matter rather than call on the
As to the parties’ convenience and public interest in settlement of the uncertainty
of obligation, while Plaintiff desires federal court, the Administrators prefer state court
and from the outset have objected to this Court exercising jurisdiction. See Summy, 234
F.3d at 136 (noting a “vigorous objection” to the district court’s jurisdiction “weighed in
favor of refusing to entertain the action”). Our Circuit has noted that insurance companies
and their insureds who seek federal court declarations on solely state law matters “has no
special call on the federal forum.” Id. The Summy Court went further, stating in matters
of well-settled state law, “there would seem to be even less reason for the parties to resort
to the federal courts. Unusual circumstances may occasionally justify such action, but
declaratory judgments in such cases should be rare.” Id. Here, this Court faces “the all too
common case of an insurance company coming to federal court, under diversity
jurisdiction, to receive declarations on purely state law matters.” United Fin. Cas. Co. v.
Fornataro, No. 08-1301, 2008 WL 4283347, at *1 (W.D. Pa. Sept. 18, 2008). As such,
the Court should take pause in hearing the declaratory judgment action because “the
state’s interest in resolving its own law must not be given short shrift simply because one
or, indeed, both parties perceive some advantage in the federal forum.” Summy, 234 F.3d
at 136. It is of greater service to the public interest to have state courts decide matters
interpreting its laws. To do otherwise and decide the federal declaratory judgment
question would create a race for res judicata and would serve as a method of procedural
fencing. See Reifer, 751 F.3d at 146.
In sum, we have parallel proceedings and no federal questions or interests at stake.
Well-settled state law controls the action and the state court provides an adequate forum
to resolve the dispute that involves substantial similarity in issues and parties. Thus, in
this case and in exercising our discretion, the declaratory judgment action should yield
and allow the state court to decide the more comprehensive Underlying Action because
this course of action would further the goals of promoting ‘“practicality and wise judicial
administration.”’ See Reifer, 751 F.3d at 139, 149 n.25 (quoting Wilton, 515 U.S. at 288).
For the reasons stated above, the Administrators’ motion to dismiss is GRANTED.
An appropriate order follows.
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: October 12, 2017
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