American Hallmark Insurance Company of Texas v. Morales-Kratzer, Inc.

Filing 21

MEMORANDUM OPINION AND ORDER by Sr. District Judge Robert C. Brack GRANTING 10 MOTION to Dismiss for Lack of Jurisdiction . (yc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
AMERICAN HALLMARK INSURANCE
COMPANY OF TEXAS,
Plaintiff,
v.

No. CIV 20-0987 RB/JHR

MORALES-KRATZER, INC. d/b/a EL
CALLEJON TAQUERIA AND GRILL,
Defendant.
MEMORANDUM OPINION AND ORDER
American Hallmark Insurance Company of Texas (Hallmark) filed a declaratory judgment
action seeking a declaration on whether a Commercial Advantage Policy it issued to MoralesKratzer, Inc. d/b/a El Callejon Taqueria and Grill (El Callejon) requires Hallmark to compensate
El Callejon for losses the restaurant sustained due to government orders related to the COVID-19
pandemic. Hallmark has already denied El Callejon’s claim, and El Callejon has neither filed suit
nor expressed a present intention to file suit on the denied claim. El Callejon has moved to dismiss
on the basis that the Court does not have subject matter jurisdiction as there is no actual controversy
between the parties. Having considered the parties’ arguments and the relevant law, the Court finds
the motion to dismiss should be GRANTED.
I.

Factual Background 1
Hallmark is an “insurance company incorporated in Oklahoma with its principal place of

business in Texas.” (Docs. 1 (Compl.) ¶ 1.) El Callejon is a New Mexico company operating a

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The Court recites the facts relevant to this motion as they are derived from the Complaint (Doc. 1
(Compl.)) and the exhibits attached thereto.

restaurant in Santa Fe. (Id. ¶¶ 2, 7; Doc. 10 at 2. 2) Hallmark issued a Commercial Advantage Policy
to El Callejon effective September 26, 2019, through September 26, 2020. (See Compl. ¶ 5; Doc.
1-1 at 7.)
On April 28, 2020, El Callejon made a claim under the Policy for “business interruption
losses related to coronavirus and related civil authority orders.” (Compl. ¶ 6 (quotation marks
omitted).) El Callejon claimed that governmental orders issued in response to the pandemic forced
the restaurant to close, causing lost business income, food spoilage, and related expenses. (Id. ¶
7.) Hallmark denied the claim on June 29, 2020, stating that the claimed business interruption and
food spoilage/contamination “did not fall within the scope of the coverage agreements” and was
excluded. (Id. ¶¶ 8–9.)
On September 25, 2020, Hallmark filed a declaratory judgment action in this Court,
seeking a declaration regarding “the parties’ respective rights and obligations with respect to” El
Callejon’s claim of loss. (Id. ¶ 16.) El Callejon argues that there is no justiciable controversy
between the parties and moves to dismiss the action for lack of subject matter jurisdiction. (See
Doc. 10 at 5–7.)
II.

Legal Standards
In resolving El Callejon’s motion to dismiss, “the Court will take the well-pleaded

allegations of the Complaint as true, and it will not consider materials outside of the pleadings
other than those necessary to resolve jurisdictional facts or those referenced in the Complaint and
central to” the declaratory judgment action. Sierra Vista Hosp. v. Barton & Assocs., Inc., No. 17CV-367 JAP/GJF, 2017 WL 3017169, at *2 (D.N.M. July 13, 2017) (citing Pace v. Swerdlow, 519
F.3d 1067, 1072–73 (10th Cir. 2008) (in resolving a motion to dismiss, district courts may properly
2

The Court refers to the motion’s internal pagination, rather than to the CM/ECF pagination. (See Doc. 10.)

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consider documents referred to in the complaint and central to the plaintiff’s claim, and may take
judicial notice of adjudicative facts); Holt v. United States, 46 F.3d 1000, 1003 (10th Cir. 1995)
(when jurisdictional facts are challenged, the district court may consider materials outside the
pleadings without converting the motion to one for summary judgment)).
Where, as here, the Court exercises diversity jurisdiction, it “applies federal procedural law
and state substantive law . . . .” Id. (citing James River Ins. Co. v. Rapid Funding, LLC, 658 F.3d
1207, 1217 (10th Cir. 2011)). “Because a declaratory judgment statute provides only a procedural
remedy and does not create any substantive right, the federal Declaratory Judgment Act (DJA), 28
U.S.C. § 2201, controls this action.” Id. (citing All. Mut. Ins. Co. v. Jones, 570 F.2d 1384, 1386
(10th Cir. 1978)). The Tenth Circuit has explained that the Declaratory Judgement Act “presents
two separate hurdles for parties seeking a declaratory judgment to overcome.” Surefoot LC v. Sure
Foot Corp., 531 F.3d 1236, 1240 (10th Cir. 2008) (citation omitted). “First, a declaratory judgment
plaintiff must present the court with a suit based on an ‘actual controversy,’ a requirement the
Supreme Court has repeatedly equated to the Constitution’s case-or-controversy requirement.” Id.
(citing Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 239–40 (1937);
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)) (subsequent citations omitted).
Second, where an actual controversy exists, district courts are not required to declare the parties’
rights, but instead “are entitled to consider a number of case-specific factors in deciding whether
or not to exercise their statutory declaratory judgment authority.” Id. (citing State Farm Fire &
Cas. Co. v. Mhoon, 31 F.3d 979, 982–83 (10th Cir. 1994)) (subsequent citations omitted).
III.

Hallmark has not alleged facts sufficient to show an actual controversy.
El Callejon moves for dismissal under Federal Rule of Civil Procedure 12(b)(1), arguing

that Hallmark has not alleged an actual controversy and, thus, the Court does not have subject
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matter jurisdiction. 3 (See Doc. 10 at 1.) El Callejon contends that because it has not pursued its
denied claim of loss and “has no present intention to do so[,]” any alleged controversy between
the parties is not ripe for the Court’s review. (See id. at 9.) Hallmark argues that because “El
Callejon refuses to release its claim,” the “threat of future suit” continues to loom over Hallmark,
making this matter ripe for adjudication. (See Doc. 14 at 1, 5.)
“[T]he phrase ‘case of actual controversy’ in the [DJA] refers to the type of ‘Cases’ and
‘Controversies’ that are justiciable under Article III of the United States Constitution.” Columbian
Fin. Corp. v. BancInsure, Inc., 650 F.3d 1372, 1376 (10th Cir. 2011) (quoting MedImmune, 549
U.S. at 127) (quotation marks omitted). In other words, the Court may not issue an advisory
opinion in a suit brought under the DJA. See id. “The question comes down to ‘whether the facts
alleged, under all the circumstances, show that there is a substantial controversy, between parties
having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a
declaratory judgment.’” Id. (quoting MedImmune, 549 U.S. at 127). “These parameters, though
helpful, ‘do not draw the brightest of lines,’ see [Medimmune, 549 U.S.] at 127, and courts
considering claims that seek declaratory relief often struggle with ‘the difficult task of
distinguishing between actual controversies and attempts to obtain advisory opinions on the basis
of hypothetical controversies,’” Hot Springs Land Dev., LLC v. City of Truth or Consequences,
No. CV 13-0736 WPL/LAM, 2014 WL 12605652, at *5 (D.N.M. June 19, 2014) (quoting Rio
Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d 1096, 1111 n.12 (10th Cir. 2010)).
In Columbian Financial, “the Tenth Circuit helpfully engaged in a detailed review of
Supreme Court decisions examining the breadth and limits of declaratory-judgment justiciability.”
Id. (citing Columbian Fin., 650 F.3d at 1377–82). “As the court recognized, the key question in
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Hallmark misses the mark in its response, arguing that it has stated a claim under Rule 12(b)(6). (See Doc. 14 at 2.)

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many cases is whether the issue in question is ‘presented in the context of a specific live
grievance’—that is, whether the issue ‘arises in a specific dispute having real-world
consequences.’” Id. (quoting Columbian Fin., 650 F.3d at 1378, 1379). The Tenth Circuit began
with Aetna, the United States Supreme Court’s first decision “under the [DJA] and, appropriately,
one involving an insurance policy . . . .” Columbian Fin., 650 F.3d at 1377. In that case, Aetna
issued Haworth five life insurance policies, which provided benefits upon proof of disability or
death. See Aetna, 300 U.S. at 237. Haworth made claims on the policies, “contending that he had
become disabled and that his disability had both relieved him of the obligation to pay premiums
and entitled him to receive disability payments. Aetna rejected the claims.” Columbian Fin., 650
F.3d at 1377 (discussing Aetna, 300 U.S. at 237–39). “But instead of Haworth’s bringing suit to
challenge Aetna’s rejection, Aetna filed an action for a declaratory judgment that Haworth was not
disabled and that his policies had therefore lapsed for nonpayment.” See id. The Supreme Court
found that there was jurisdiction to hear the matter, because “the parties had adopted ‘adverse
positions with respect to their existing obligations.’” Id. (quoting Aetna, 300 U.S. at 242). The
Court recognized that without a judicial resolution, Aetna was in danger of losing relevant
“evidence through disappearance, illness, or death of witnesses[,]” and without “a judicial decision
with respect to the alleged disability, [Aetna would] be compelled to maintain reserves in excess
of $20,000” with respect to the insurance policies. Aetna, 300 U.S. at 239. Thus, the controversy
was real and immediate. Hallmark has not alleged facts to show real and immediate consequences,
such as a requirement to maintain reserves based on El Callejon’s denied claim. Rather, it simply
seeks a judicial declaration that affirms its denial of El Callejon’s claim. (See Compl. at 17–18.)
Hallmark argues that because El Callejon has declined to relinquish any right to sue based
on Hallmark’s denial of the claim, there is a real controversy. (See Doc. 14 at 4–5.) In support of
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its position, Hallmark relies on two cases: American Family Mutual Insurance Co. v. Bowser, 779
P.2d 1376 (Colo. App. 1989), and Medimmune, 549 U.S. at 128. Bowser is inapposite, as it
involved a dispute analyzed under Colorado’s Uniform Declaratory Judgments Law, Colo. Stat.
§ 13-51-101, rather than the federal DJA. MedImmune requires more discussion.
“In Medimmune, a patent licensee, who had continued to pay royalties for use of the patent,
brought a declaratory-judgment action against the patent holder to determine whether the patent
was invalid or unenforceable.” Columbian Fin., 650 F.3d at 1377 (discussing MedImmune, 549
U.S. at 121–25). “What appeared to be missing in the case was the requisite immediacy—there
was little likelihood that the patent holder would ever bring suit against the licensee, because the
licensee was continuing to pay royalties.” See id. “Nevertheless, the Supreme Court held that there
was an actual case or controversy because the licensee’s payment of royalties was ‘coerced’ by the
looming threat of the licensee’s having to pay treble damages if it halted payments and the patent
was ultimately upheld. Avoidance of such dilemmas ‘was the very purpose of the [DJA].’” See id.
(quoting MedImmune, 549 U.S. at 129). Again, however, Hallmark fails to point to any “coercion”
or consequences that will occur if the Court fails to render a declaration here.
Hallmark points out that El Callejon could sue, and that the possibility of litigation is
sufficient to show the presence of an actual controversy. 4 Under this logic, any time an insurance
company denies an insured’s claim, the company may immediately file a declaratory judgment
action in federal court, assuming diversity jurisdiction exists. Hallmark cites no authority to
support such a conclusion, and the Court disagrees that the mere fact of a denial, without more, is

Hallmark asserts that the question of whether it should cover such COVID-related claims is important to “other
similarly situated commercial property policies . . . .” (Doc. 14 at 5.) Such a finding would not, however, resolve a
dispute with consequences to the parties before the Court in this matter. See Columbian Fin., 650 F.3d at 1376 (“It is
not the role of federal courts to resolve abstract issues of law[,]” but “to review disputes arising out of specific facts
when the resolution of the dispute will have practical consequences to the conduct of the parties.”).
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sufficient to constitute an actual controversy. It is true that “[a]n actual controversy does not require
an actual lawsuit.” Sierra Vista, 2017 WL 3017169, at *2. Rather, a determination of whether there
is an actual controversy “focuse[s] on the underlying facts, assessing whether they suggest an
extant controversy between the parties or whether instead they merely call on [the court] to supply
an advisory opinion about a hypothetical dispute.” Surefoot LC v. Sure Foot Corp., 531 F.3d 1236,
1242 (10th Cir. 2008). In Surefoot, for example, the similarly named companies were involved in
a trademark dispute for years that had never blossomed into a lawsuit, although the defendant had
threatened litigation several times. See id. at 1238. Relying on MedImmune, the Tenth Circuit
found that there was an actual controversy, because the underlying facts showed that the parties
had extensive and definite adverse legal positions. See id. at 1247.
In Sierra Vista, the defendant accused the plaintiff hospital of breaching the parties’
contract. See 2017 WL 3017169, at *1. In a communication to the plaintiff, the defendant stated
that it “prefer[red] to resolve the issue without litigation, [but] it threatened to bring suit . . . if [the]
negotiations were unsuccessful.” Id. Without waiting for the defendant to file a lawsuit, the
plaintiff filed a complaint under the DJA to obtain a declaration on the pending legal questions.
See id. The defendant argued that the case was not ripe, because neither party had filed a lawsuit.
See id. The court disagreed, finding that “[w]hile a lawsuit between the parties . . . may be
hypothetical, the dispute is not . . . .” Id. at *2. It held that “[t]he parties clearly have adverse legal
interests in an actual dispute arising out of specific facts, and the resolution of the controversy will
have practical consequences as to the parties’ negotiations and business relations even if [the
d]efendant does not file suit.” Id. (citing Columbian Fin., 650 F.3d at 1376); see also, e.g., Mut. of
Omaha Ins. Co. v. Rodriguez, No. 09-2100-EFM, 2009 WL 3672513, at *2 (D. Kan. Nov. 2, 2009)
(where insurer and insured disagreed about coverage and insurer threatened litigation, court found
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that a substantial controversy existed adequate to exercise subject matter jurisdiction); Assoc.
Indus. Ins. Co. v. Hoskins, No. CIV-20-283-G, 2021 WL 951752, at *3 (W.D. Okla. Mar. 12,
2021) (noting that “Plaintiff would not necessarily need to wait for Defendants to initiate litigation
regarding [a disputed] Judgment, but for Plaintiff’s claim to be ripe there must be factual
allegations that show a ‘live controversy’ between the parties ‘of sufficient immediacy and reality
to warrant the issuance of a declaratory judgment’”). Here, Hallmark does not allege that there is
a live controversy between the parties regarding the denial of El Callejon’s claim. (See Compl.)
In sum, Hallmark has not pled any facts to establish that there is an actual and immediate
controversy sufficient to warrant the Court’s exercise of jurisdiction. Accordingly, the Court finds
El Callejon’s motion to dismiss should be granted. The Court will dismiss the Complaint without
prejudice.
THEREFORE,
IT IS ORDERED that Defendant’s Motion to Dismiss for Lack of Subject Matter
Jurisdiction (Doc. 10) is GRANTED.

________________________________
ROBERT C. BRACK
SENIOR U.S. DISTRICT JUDGE

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