MARK DANIEL HOSPITALITY LLC v. AMGUARD INSURANCE COMPANY
Filing
27
OPINION filed. Signed by Chief Judge Freda L. Wolfson on 10/16/2020. (jdb)
*FOR PUBLICATION*
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
MARK DANIEL HOSPITALITY, LLC,
d/b/a INC,
Plaintiff,
v.
AMGUARD INSURANCE COMPANY,
Defendant.
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Civil Action No. 20-6772 (FLW) (TJB)
OPINION
WOLFSON, Chief Judge:
This matter comes before the Court on a Motion to Remand filed by Plaintiff Mark Daniel
Hospitality, LLC, doing business as INC (“Plaintiff”). On May 5, 2020, Plaintiff filed this
insurance coverage action in the Superior Court of New Jersey, Law Division, Mercer County,
seeking a declaratory judgment that, inter alia, Defendant AmGUARD Insurance Company
(“Defendant”) is obligated to provide business interruption coverage, including loss of income,
resulting from the Executive Orders issued by the Governor of the State of New Jersey that limited
the operation of nonessential businesses in response to the 2019 novel coronavirus (“COVID-19”)
pandemic. Defendant removed the matter to this Court on June 2, 2020, pursuant to 28 U.S.C. §
1332(a)(1), based on the diversity of the parties. Plaintiff now moves to remand the matter to state
court. For the reasons set forth below, Plaintiff’s Motion is GRANTED and this matter is
remanded to the Superior Court of New Jersey, Law Division, Mercer County, for further
proceedings.1
1
Also pending before the Court is a motion to dismiss filed by Defendant pursuant to Federal
I.
BACKGROUND
Plaintiff operates the INC American Bar & Kitchen (“INC”) in New Brunswick, New
Jersey. (Compl. ¶ 18.) INC is an upscale sit-down restaurant and whiskey bar offering a full
menu. (Id.) On November 24, 2019, Defendant issued Plaintiff an insurance policy (the “Policy”),
which includes coverage for commercial property, including but not limited to, loss of the use of
Plaintiff’s building, personal property, and personal property of others under certain
circumstances. (Id. ¶¶ 6, 8.) The Policy provides coverage to Plaintiff for, inter alia, business
income, extra expense, and civil authority relating to any covered loss under the Policy. (Id. ¶ 9.)2
On March 9, 2020, in response to the COVID-19 pandemic, New Jersey Governor Phillip
Murphy issued Executive Order 103, which declared a Public Health Emergency and State of
Emergency in the State of New Jersey.3 (Id. ¶ 11.) Shortly thereafter, on March 16, 2020,
Rule of Civil Procedure 12(b)(6). Because the Court finds remand appropriate, Defendant’s
dismissal motion is denied as moot; Defendant may re-file its motion in state court.
2
The Policy specifically provides coverage for
the actual loss of Business Income you sustain due to the necessary
suspension of your “operations” during the “period of restoration.”
The suspension must be caused by direct physical loss of or damage
to property at the described premises. The loss or damage must by
caused by or result from a Covered Cause of Loss.
(ECF No. 7-3, at A4.) The Policy additionally covers “necessary Extra Expense you incur during
the ‘period of restoration’ that you would not have incurred if there had been no direct physical
loss or damage to property at the described premises. The loss or damage must be caused by or
result from a Covered Cause of Loss.” (Id. at A5.) Finally, the Civil Authority provision provides
that “[w]hen a Covered Cause of Loss causes damage to property other than property at the
described premises, we will pay for the actual loss of Business Income you sustain and necessary
Extra Expense caused by action of civil authority that prohibits access to the described premises,”
subject to certain enumerated requirements. (Id. at A5–A6.)
3
The Public Health Emergency and State of Emergency have since been extended by
additional Executive Orders, including Executive Orders 119 and 139 issued on April 7, 2020 and
May 6, 2020, respectively. (See Compl. ¶¶ 14, 16.)
2
Governor Murphy issued Executive Order 104 which, relevant here, limited the scope and hours
of operations for restaurants in the State. (Id. ¶ 12.) On March 21, 2020, Governor Murphy issued
Executive Order 107, which ordered New Jersey residents to remain at home except for certain
enumerated exceptions. (Id. ¶ 13.) Executive Order 107 additionally limited the business of
restaurants and other dining establishments to offer only food delivery and/or take-out service.
(Id.) On April 11, 2020, Governor Murphy issued Executive Order 125, which placed further
restrictions on restaurants and other dining establishments, including limiting building occupancy
to 10% of stated maximum capacity, ensuring six feet of distance between workers and customers,
except at the moment of payment and/or exchange of goods, and arranging for contactless pay and
pickup/delivery options when feasible. (Id. ¶ 15.) At some point following the issuance of these
Executive Orders, Plaintiff temporarily closed INC. (See id. ¶ 20.)
On May 8, 2020, Plaintiff filed a one-count Complaint against Defendant in state court,
seeking a declaratory judgment as to Plaintiff’s rights under the Policy. Specifically, Plaintiff
claims that as a result of Governor Murphy’s COVID-19 Executive Orders, it was forced to close
its restaurant, lay off staff, and has suffered “a substantial loss of business and income.” (Id. ¶ 19.)
Plaintiff further claims that, to its knowledge, at no time has any of its employees or patrons been
diagnosed with COVID-19. (Id. ¶ 20.) Plaintiff alleges that insurers “have been routinely denying
coverage for business interruption losses associated with business closures resulting from ‘Stay at
Home’ orders or other orders that restrict the ability of non-essential business to conduct business.”
(Id. ¶ 25.) Accordingly, “Plaintiff seeks a declaration that [Defendant] is obligated to provide
business interruption and extra expense coverage under the Policy, including coverage under the
Civil Authority provision.” (Id. ¶ 24.)
3
Defendant was served with Plaintiff’s Complaint on May 11, 2020. (Notice of Removal,
¶ 3.) Defendant thereafter removed the matter to this Court pursuant to 28 U.S.C. § 1446(a) on
the basis of diversity jurisdiction under 28 U.S.C. § 1332(a)(1). (Id. ¶¶ 3–5.) Specifically,
Defendant asserts that it is a citizen of Pennsylvania, Plaintiff is a citizen of New Jersey, and the
amount in controversy exceeds $75,000. (Id. ¶¶ 5–9.) On July 28, 2020, Plaintiff filed the instant
motion to remand, arguing, inter alia, the Court should exercise its discretion to decline to hear
this declaratory action under the Declaratory Judgment Act, 28 U.S.C. §§ 2201–2202.4 Defendant
opposes remand.
II.
STANDARD OF REVIEW
Removal of a suit from state to federal court is proper only if the federal court to which the
action is removed would have had original jurisdiction over the matter. Entrekin v. Fisher
Scientific, Inc., 146 F. Supp. 2d 594, 603–04 (D.N.J. 2001) (citing 28 U.S.C. § 1441(a)–(b)).
Indeed, the statute provides in relevant part:
Except as otherwise expressly provided by Act of Congress, any
civil action brought in a State court of which the district courts of
the United States have original jurisdiction, may be removed by the
defendant or the defendants, to the district court of the United States
for the district and division embracing the place where such action
is pending.
28 U.S.C. § 1441(a).
4
Plaintiff additionally argues that this matter should be remanded because Defendant, in its
Notice of Removal, did not sufficiently allege that the amount in controversy exceeds $75,000, as
required by 28 U.S.C. § 1332(a) for diversity jurisdiction. Because, as set forth infra, I decline to
exercise jurisdiction over this matter, I need not address this particular basis for remand. The Court
notes, however, that generally “[i]n an insurance coverage declaration action, courts look to the
value of the insurance policy and the damages alleged in the underlying case to determine whether
the jurisdictional amount in controversy has been met.” Colony Ins. Co. v. Troensa Constr., Inc.,
No. 17-3577, 2018 WL 4676038, at *6 (D.N.J. Sept. 28, 2018) (citing Jumara v. State Farm Ins.
Co., 55 F.3d 873, 877 (3d Cir. 1995)).
4
Remand is governed by 28 U.S.C. § 1447(c), which provides that a
motion to remand the case on the basis of any defect other than lack
of subject matter jurisdiction must be made within 30 days of the
filing of the notice of removal under section 1446(a). If at any time
before final judgment it appears that the district court lacks subject
matter jurisdiction, the case shall be remanded.
28 U.S.C. § 1447(c). Importantly, “[w]hen the propriety of the removal is challenged, the burden
is on the defendant to show that removal is proper, and the Court is obligated to ‘strictly construe
the removal statutes against removal, and resolve any doubts in favor of remand.’” Hackensack
Univ. Med. Ctr. v. Lagno, No. 06-687, 2006 WL 3246582, at *2 (D.N.J. Nov. 3, 2006) (quotation
omitted).
III.
DECLARATORY JUDGMENT ACT
Under the Declaratory Judgment Act (the “DJA”), “any court of the United States . . . may
declare the rights and other legal relations of any interested party seeking such declaration.” 28
U.S.C. § 2201(a) (emphasis added). The permissive language of the DJA “confer[s] on federal
courts unique and substantial discretion in deciding whether [in the first instance] to declare the
rights of litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). In other words, ‘district
courts are authorized, ‘in the sound exercise of [their] discretion, to stay or to dismiss an action
seeking a declaratory judgment before trial or after all arguments have drawn to a close.’” Reifer
v. Westport Ins. Corp., 751 F.3d 129, 139 (3d Cir. 2014) (alteration in original) (quoting Wilton,
515 U.S. at 286). Nevertheless, “[a] federal district court’s discretion to decline jurisdiction
depends on whether the complaint seeks legal or declaratory relief.” Rarick v. Federated Serv.
Ins. Co., 852 F.3d 223, 227 (3d Cir. 2017).
In that connection, when an action contains
independent legal claims, “federal courts have a virtually unflagging obligation’ to exercise
jurisdiction.” Id. When, however, an action seeks only declaratory relief, without independent
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legal claims, courts may decline jurisdiction if appropriate. Id. Importantly, it is undisputed, here,
that Plaintiff seeks only declaratory relief under the DJA and asserts no other independent legal
claims in its Complaint.
In considering whether to exercise jurisdiction over a declaratory action, “[c]ourts should
first determine whether there is a ‘parallel state proceeding,’” as “the absence of pending parallel
state proceedings militates significantly in favor of exercising jurisdiction, although it alone does
not require such an exercise.” Kelly v. Macum Specialty Ins. Grp., 868 F.3d 274, 282 (3d Cir.
2017) (quoting Reifer, 751 F.3d at 144). A parallel state proceeding for this purpose “is a pending
matter ‘involving the same parties and presenting [the] opportunity for ventilation of the same state
law issues.’” Id. at 284 (alteration in original) (quoting Wilton, 515 U.S. at 283). The Third Circuit
has instructed that “the mere potential or possibility that two proceedings will resolve related
claims between the same parties is not sufficient to make those proceedings parallel; rather, there
must be a substantial similarity in issues and parties between contemporaneously pending
proceedings.” Id. at 283–84. It is undisputed that there is no parallel state court proceeding
between the parties.
Nevertheless, while “the absence of pending parallel state court proceedings militates
significantly in favor of exercising jurisdiction . . . , it alone does not require such an exercise.”
Reifer, 751 F.3d at 144. Rather, where there is no parallel state proceeding, a district court
declining jurisdiction under the DJA must “be rigorous in ensuring themselves that the lack of
pending parallel state proceedings is outweighed by opposing factors.” Id. The Third Circuit has
promulgated the following, non-exhaustive list of factors to guide that analysis:
(1) the likelihood that a federal court declaration will resolve the
uncertainty of obligation which gave rise to the controversy;
(2) the convenience of the parties;
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(3) the public interest in settlement of the uncertainty of obligation;
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are pending in
a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a method of
procedural fencing or as a means to provide another forum in a
race for res judicata; and
(8) (in the insurance context), an inherent conflict of interest
between an insurer’s duty to defend in a state court and its
attempt to characterize that suit in federal court as failing within
the scope of a policy exclusion.
Id. at 146; see also Kelly, 868 F.3d at 282–83. The Third Circuit has instructed district courts to
give “meaningful consideration” to any relevant factors, and that some factors may be weighed
heavier than others based on the circumstances of each case. Reifer, 751 F.3d at 146. The circuit
court has also advised that “there will be situations in which district courts must consult and
address other relevant law or considerations.” Id. Importantly, in the insurance coverage context,
the fifth, sixth, and eighth factors are “particularly relevant,” to the extent applicable, based on the
facts of a particular case. See Ewart v. State Farm Mutual Auto. Ins. Co., 257 F. Supp. 3d 722,
725 (E.D. Pa. 2017) (citing State Auto Insurance Cos. v. Summy, 234 F.3d 131, 134 (2000)). In
that connection, “[t]he fact that district courts are limited to predicting—rather than establishing—
state law requires ‘serious consideration’ and is ‘especially important in insurance coverage
cases.’” Reifer, 751 F.3d at 148 (quoting Summy, 234 F.3d at 135).
Here, Plaintiff urges the Court to decline jurisdiction under the DJA, because this “matter
presents a substantial, unprecedented matter of concern for the State of New Jersey, its
businesses[,] and the insurance industry serving New Jersey.” (Pl. Moving Br., at 7.) In other
7
words, Plaintiff argues that because this matter will require this Court to resolve novel issues of
state law, i.e., the impact of the Governor’s Executive Orders related to the COVID-19 pandemic
on business interruption insurance, remand is especially appropriate. Defendant, on the other hand,
maintains that the Reifer factors do not outweigh the presumption that the Court should retain
jurisdiction. (Def. Opp. Br., at 25.)
Having carefully considered the Reifer factors, I find that the third and fifth factors are
most relevant and weigh significantly in favor of remand.5 First, under the third Reifer factor, I
must consider “the public’s interest in settlement of the uncertainty of obligation.” Reifer, 751
F.3d at 146. Generally, “there is no federal interest involved in [cases] concern[ing] purely
questions of state law.” U.S. Liab. Ins. Co. v. Singer, No. 16-887, 2016 WL 5858984, at *5 (D.N.J.
Oct. 6, 2016) (alteration in original) (quoting 1100 Adams St. Condo Ass’n v. Mt. Hawley Ins. Co.,
No. 14-2203, 2014 WL 5285466 (D.N.J. Oct. 15, 2014)); see also Summy, 234 F.3d at 136 (“The
desire of insurance companies and their insureds to receive declarations in federal court on matters
of purely state law has no special call on the federal forum.”). In that connection, the Third Circuit
has instructed that “federal courts should hesitate to entertain a declaratory judgment action where
the action is restricted to issues of state law.” Atl. Mut. Ins. Co. v. Gula, 84 F. App’x 173, 174 (3d
Cir. 2003) (citing Summy, 234 F.3d at 134–35). Thus, “[w]hen a state court, ‘which has more
familiarity with the underlying cases, can equally decide’ the insurance coverage or exclusion
issue, the public interest is not ‘better served by the federal court deciding the issue.’” Venezie
5
The remaining Reifer factors do not significantly impact the Court’s analysis. For example,
the second and fourth factors—the convenience of the parties and the availability of other
remedies—are neutral as both forums are located in the same location and can provide Plaintiff
with its requested remedy. The sixth and seventh factors are similarly not implicated because there
are no parallel proceedings which present any issue of duplicative litigation or res judicata
concerns. Nor is the eighth factor relevant, as there is no underlying action in which Defendant
has a duty to defend Plaintiff.
8
Sporting Goods, LLC v. Allied Ins. Co. of Am., No. 20-1066, 2020 WL 5651598, at *4 (W.D. Pa.
Sept. 23, 2020) (Hornak, J.) (quoting Allstate Fire & Cas. Ins. Co. v. Archer, No. 17-331, 2018
WL 2538859, at *4 (W.D. Pa. June 4, 2018)). Indeed, “where the applicable state law is uncertain
or undetermined, district courts should be particularly reluctant to entertain declaratory judgment
actions.” Summy, 234 F.3d at 135.
Here, Defendant contends that “there is no public interest in the determination of this matter
other than ‘the usual interest in the fair adjudication of legal disputes, an interest which the District
Court is well-equipped to address.” (Def. Opp. Br., at 16 (quoting Kelly, 868 F.3d at 289).) I
disagree. Even a cursory reading of Plaintiff’s Complaint reveals that it presents novel and
important issues of state insurance law. Plaintiff’s Complaint seeks a declaration that “[t]he virus
exclusion in the Policy does not apply to the losses asserted by Plaintiff,” and, further, that
“[a]pplication of the virus exclusion in the Policy to Plaintiff’s losses is void as against public
policy.”6 (Compl. ¶ 27.) Indeed, Defendant contends that Plaintiff is not entitled to coverage for
losses related to its closure based on the Policy’s virus exception, the absence of actual physical
loss or damage to Plaintiff’s restaurant, and because Plaintiff has not met the requirements for civil
authority coverage. (See Br. in Supp. Def.’s Mot. to Dismiss, ECF No. 7-1.) As such, one of the
key issues in this case is whether Plaintiff’s business losses were caused by the presence of the
COVID-19 virus or, rather, caused by the Executive Orders which prompted the closure of
Plaintiff’s restaurant. In other words, resolution of Plaintiff’s claim requires consideration of
whether a state government order, which required partial closure of businesses, constitutes “loss
or damage caused directly or indirectly” by a virus. As one court has observed, the question of
6
The Policy excludes from coverage any “loss or damage caused directly or indirectly by .
. . [a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical
distress, illness, or disease.” (See ECF No. 7-3, at A7–A8.)
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“whether a government stay-at-home order constitutes a ‘direct or indirect’ cause related to the
application of a virus exclusion” is an “inquir[y] that strike[s] the Court as ‘circumstance-specific
determinations’ that would be made with ‘relatively undetermined state law’ and implications of
important state public policy.” Venezie Sporting Goods, LLC, 2020 WL 5651598, at *4. I agree
with that assessment. Despite Defendant’s arguments to the contrary, this matter does not involve
a run-of-the-mill insurance coverage dispute. Rather, this dispute emanates from a once-in-alifetime pandemic that has spurred the mass closure of businesses throughout the State of New
Jersey, and in that context, whether the losses caused by those closures are covered by commercial
insurance contracts. Invariably, consideration of these claims will require careful weighing of
public policy in an area of state law that is not only unsettled, but the outcome of this dispute would
undoubtedly have a far-reaching effect on businesses in New Jersey. Because of this unique
circumstance, the Court is hesitant to exercise jurisdiction and weigh in on an important state issue
in the first instance. As the Third Circuit has made clear, district courts “do not establish state law,
but are limited to predicting it.” Summy, 234 F.3d at 135. For these reasons, I find that the public
interest in resolving the uncertainty of obligation is best served by remand as it allows the New
Jersey courts the opportunity to determine the impact of Governor Murphy’s Orders on insurance
coverage in the State of New Jersey.
The fifth Reifer factor similarly weighs in favor of remand. The fifth factor counsels a
general policy of restraint when the same issues are pending in state court. Reifer, 751 F.3d at
146. A significant number of cases related to insurance coverage for business interruption based
on COVID-19 closures are pending across the country, including in the New Jersey state courts.7
7
Indeed, many of these cases have been assigned to one judge, the Honorable Douglas H.
Hurd, Presiding Civil Judge for the Superior Court of New Jersey, Law Division, Mercer County.
(Ferrara Decl. ¶ 4.)
10
As these cases remain pending, the law on this issue remains unsettled. Indeed, as one New Jersey
state court judge recently observed in denying a motion to dismiss a similar state court action,
“there is limited legal authority in the State of New Jersey addressing this issue,” which is not
surprising given that “the State of New Jersey was recently faced with a historic event which was
unprecedented with respect to the losses sustained by businesses across the State of New Jersey
due to the proliferation of the COVID-19 pandemic.” (See ECF No. 24, at 26.) Were this Court
to step in and exercise jurisdiction over this matter, it could potentially issue a decision inconsistent
with that of the state courts. Such an outcome would upend uniformity at a time when businesses
need clarity and consistency in law. Without it, businesses and insurance companies alike would
be governed by a patchwork of case law, further subjecting them to the chaos already caused by
the pandemic. Accordingly, I find that the fifth Reifer factor weighs significantly in favor of
remand.
Having scrutinized the Reifer factors, I will, in my discretion, decline to exercise
jurisdiction under the DJA over this matter. My decision in this regard is in line with decisions of
our sister districts, the Eastern and Western Districts of Pennsylvania, which have all remanded to
state court similar declaratory judgment actions involving insurance coverage in the wake of the
COVID-19 pandemic. See Venezie Sporting Goods, LLC, 2020 WL 5651598, at *5 (“While it is
undeniable that the COVID-19 pandemic presents a complex and novel factual situation, the
resulting legal disputes are deeply tied to Pennsylvania public policy, as well as the intricacies of
Pennsylvania insurance contract interpretation, such that the Court believes it is most appropriate
to ‘step back’ in this instance.”); Dianoia’s Eatery, LLC v. Motorists Mutual Ins. Co., No. 20-787,
2020 WL 5051459, at *4 (W.D. Pa. Aug. 27, 2020) (Fisher, J.) (“[T]he Commonwealth’s interest
in this and similar litigation is paramount such that a remand to state court is the appropriate course
11
in this case.”); Greg Prosmushkin, P.C. v. Hanover Insurance Group, ___ F. Supp. 3d ___, 2020
WL 4735498, at *5 (E.D. Pa. Aug. 14, 2020) (Jones, J.) (“Given the novelty of the state law issue
of insurance coverage for losses resulting from the COVID-19 pandemic, the Pennsylvania state
courts are clearly better equipped to settle the uncertainty of obligation, and it is in the public’s
interest for them to do so.”). Ultimately, the unique nature of the COVID-19 pandemic and its
resulting legal issues are best for the New Jersey state courts to resolve, as the resolution of these
issues involve significant questions of public policy. Accordingly, as a matter of comity, this
matter shall be remanded to state court.
IV.
CONCLUSION
For the forgoing reasons, Plaintiff’s motion to remand is GRANTED.8 Defendant’s
Motion to Dismiss is DENIED as moot. An appropriate Order accompanies this Opinion.
DATED: October 16, 2020
/s/ Freda L. Wolfson
Freda L. Wolfson
U.S. Chief District Judge
8
The Court notes that its Opinion remanding this matter is substantially similar to its
Opinion in MattDogg, Inc. v. Philadelphia Indemnity Insurance Co., Civil No. 20-6889 (FLW)
(LHG), also being filed on this date. Plaintiffs in both this case and Mattdogg have the same
counsel and raise identical arguments in support of remand. While the insurer defendants in each
of these cases differ and have retained different counsel, nonetheless the arguments they have
raised in opposition to remand are substantively similar.
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