General Star Indemnity Company v. Garrett et al

Filing 12

DECISION AND ENTRY GRANTING THE MOTION OF DEFENDANT SPRINGFIELD PROPERTIES TO DISMISS GENERAL STAR'S COMPLAINT FOR DECLARATORY JUDGMENT (Doc. 8 ). Signed by Judge Timothy S. Black on 8/1/2013. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
GENERAL STAR INDEMNITY CO.,

:
:
Plaintiff,
:
:
vs.
:
:
SPRINGFIELD PROPERTIES, INC., et al., :
:
Defendants.
:

Case No. 3:13-cv-114
Judge Timothy S. Black

DECISION AND ENTRY GRANTING THE MOTION OF DEFENDANT
SPRINGFIELD PROPERTIES TO DISMISS GENERAL STAR’S COMPLAINT
FOR DECLARATORY JUDGMENT (Doc. 8)
This civil case is before the Court on the Motion to Dismiss (Doc. 8) filed by
Defendant Springfield Properties, Inc. (“Springfield”). Plaintiff General Star Indemnity
Company (“General Star”) filed a Memorandum in Opposition. (Doc. 10). Thereafter,
Springfield filed a Reply. (Doc. 11). Springfield’s Motion is now ripe for decision.
FACTUAL ALLEGATIONS
This case concerns an insurance coverage dispute brought in this Court on the
basis of diversity jurisdiction. General Star is an excess insurer who seeks a declaration
that it has no obligation to defend or indemnify Colin Garrett, doing business as
American Builders General Contractors, LLC (hereinafter “American Builders”), in
connection with a lawsuit filed by Springfield against American Builders in the Clark
County Ohio Court of Common Pleas (the “state case”).

Springfield is believed to be the owner of real property located at 3000 East Main
Street, Springfield, Ohio (“the property”). Springfield is believed to have contracted with
American Builders to install a new roof system on the property. At the time of the
repairs, the Cincinnati Specialty Underwriters Insurance Company (“CSU”) purportedly
insured American Builders under a primary liability insurance policy. Plaintiff General
Star allegedly issued an excess insurance policy to American Builders effective
November 12, 2009. American Builders allegedly cancelled the excess policy effective
March 19, 2010.
In June 2010, Springfield filed the state case against American Builders and
several subcontractors alleging that the roof repairs were faulty and that American
Builders was negligent in performing the repairs. A jury ultimately returned a verdict in
favor of Springfield, and against American Builders, in the amount of $2,182,873.00.
The state court entered judgment in that amount against American Builders.
On April 16, 2013, General Star filed its Complaint for Declaratory Judgment
(Doc. 1) in this Court. General Star requests this Court to declare that General Star has
no obligation under the excess policy for the defense or indemnity of American Builders
in the state case. General Star generally contends that the claims and damages at issue in
the state case do not fall within the coverage provided by the excess policy or are
excluded by its terms. In addition to the language of the excess policy, General Star
contends that the claims and damages at issue are not covered, or are excluded by, the

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terms and conditions of the underlying liability CSU policy, and that the terms and
exclusions of the CSU policy apply equally to the excess policy.
On or about April 24, 2013, Springfield, as judgment creditor of American
Builders, filed a supplemental complaint against General Star and CSU in the state case
(Doc. 8-4) pursuant to Ohio Rev. Code § 3929.06(A)(2). In the supplemental state
complaint, Springfield alleges that CSU and General Star must pay the judgment issued
against its insured, American Builders.
ANALYSIS
Springfield contends that the Court should abstain from exercising jurisdiction
over this declaratory judgment action pursuant to its discretionary authority under 28
U.S.C. § 2201(a). In addition, Springfield argues that the Court should abstain from
exercising jurisdiction over General Star’s declaratory judgment action under the
Colorado River abstention doctrine because a parallel proceeding remains pending in
state court.
The Court’s Discretion Under § 2201(a)
Pursuant to 28 U.S.C. § 2201(a), “[i]n a case of actual controversy within its
jurisdiction, . . . any court of the United States . . . 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.” A declaration under § 2201(a) “shall have the force and effect of a
final judgment or decree and shall be reviewable as such.” Id. Because the word “may”
appears in § 2201(a), district courts ultimately possess “discretion to decide whether to
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entertain actions for declaratory judgments.” Adrian Energy Associates v. Michigan Pub.
Serv. Comm’n, 481 F.3d 414, 421 (6th Cir. 2007).
The Sixth Circuit employs a “five-factor test to determine when a district court
should exercise jurisdiction over a declaratory judgment” action. Id. at 422. Those fivefactors include:
(1) whether the judgment would settle the controversy;
(2) whether the declaratory judgment action would serve a useful
purpose in clarifying the legal relations at 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 the
friction between our federal and state courts and improperly
encroach on state jurisdiction; and
(5) whether there is an alternative remedy that is better or more
effective.
Id. (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 967 (6th Cir. 2000)). Courts are
“particularly reluctant to entertain federal declaratory judgment actions premised on
diversity jurisdiction in the face of a previously-filed state-court action.” Id. at 421.
Such reluctance stems from concern that, “even if the plaintiffs acted in good faith, the
ultimate outcome of their procedural behavior has been to wrest the case away from the
state courts[.].” Id. at 421-22.
Here, Springfield concedes that this action would settle the controversy, at least as
to General Star Indemnity, and would serve a useful purpose in clarifying legal relations
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between the parties at issue. While the Court recognizes Springfield’s concession as to
the first factor, the Court also notes that this action is only part and parcel to a larger
overall action pending in the Clark County, Ohio Court of Common Pleas wherein
Springfield seeks to recover a $2,182,873 judgment against American Builders and its
alleged insurers, General Star and CSU. In other words, while this declaratory judgment
action may settle the controversy between General Star and Springfield, it would not
settle the controversy between Springfield and American Builders or Springfield and
CSU. While the second factor favors entertaining this action, the Court concludes that
the first factor is neutral.
Concerning the third factor, it “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.’” Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 558 (6th Cir. 2008) (citing
AmSouth Bank v. Dale, 386 F.3d 763 (6th Cir. 2004)). In considering this factor, courts
consider “whether the declaratory plaintiff has filed in an attempt to get her choice of
forum by filing first.” Id. (citation omitted). However, courts “are reluctant to impute an
improper motive to a plaintiff where there is no evidence of such in the record.” Id.
Springfield asserts that General Star initiated this action in federal court for the
purpose of procedural posturing, such as adding unnecessary complexity and costs to
Springfield’s attempts to collect the state court judgment. Springfield supports this
contention by merely pointing at the fact that General Star filed the Complaint in this
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case a mere eight days before Springfield initiated the supplemental proceeding in state
court. The Court is not inclined to conclude that General Star filed this action merely for
procedural posturing purposes based solely on the timing of the filings, and therefore, the
third factor does not weigh in favor of Springfield’s argument.
With regard to the fourth factor, i.e., whether the use of a declaratory action would
increase the friction between our federal and state courts and improperly encroach on
state jurisdiction, the Sixth Circuit instructs courts to consider three factors. Bituminous
Cas. Corp. v. J&L Lumber Co., Inc., 373 F.3d 807, 814-15 (6th Cir. 2004) (citing
Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 967 (6th Cir. 2000)). Those factors are:
(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 or statutory law dictates a resolution of the declaratory
judgment action.
Id. (citation omitted).
Here, underlying factual issues are certainly important to determine whether the
claims set forth against American Builders are covered. The state court, having already
tried and issued judgment against American Builders, is certainly in a better position, at
this time, to evaluate the factual issues. In addition, any potential coverage by General
Star is subject to the limits, terms and conditions of the policy issued by CSU, who is not
a party to this action, but is a party to the supplemental state court proceeding. As a
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result, any determination by this Court concerning the limits, terms and conditions of the
CSU policy may potentially conflict with the state court’s conclusions in that regard.
Finally, this case is before the Court solely on the basis of diversity “and neither federal
common law nor federal statutory law apply to the substantive issues of the case.”
Bituminous, 373 F.3d at 816. Thus, “[a]ll three of the Scottsdale factors indicate that
exercise of jurisdiction in this case could create friction between the state and federal
courts.” Id.
Finally, with regard to the fifth factor, i.e., whether there is an alternative remedy
that is better or more effective, the state court supplemental proceeding provides an
alternative avenue for General Star to assert any and all defenses to coverage. See
Sanderson v. Ohio Edison Co., 69 Ohio St.3d 582, 585 (Ohio 1994)(stating that “an
insurer in a supplemental proceeding under [Ohio] R.C. 3929.06 has available to it any
defense arising from the insured’s failure, in the underlying action, to satisfy any
conditions in the insurance policy which are a prerequisite to indemnification”); see also
Westfield Companies v. Gibbs, No. 2004-L-058, 2005 WL 1940305 (Ohio App. 2005).
In addition, the state supplemental proceeding is better and more effective than
this separate declaratory judgment action. Again, any potential coverage by General Star
is subject to the limits, terms and conditions of the policy issued by CSU, who is not a
party to this action, but is a party to the state court action. Because all issues and parties
are currently before the state court, in which American Builders’ liability and damages

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have already been determined, the state court supplemental proceeding presents a more
effective venue for determining the issues of coverage.
Finally, the Court notes that choosing not to exercise jurisdiction over this
declaratory judgment action avoids piecemeal litigation and gives the state court the
ability to adjudicate the entire controversy without the risk of conflicting findings by this
Court. Because the Scottsdale factors weigh in favor of this Court declining to exercise
jurisdiction over this declaratory judgment action, the Court will exercise its discretion
and not entertain General Star’s Complaint for Declaratory Judgment. Accordingly,
Springfield’s Motion to Dismiss is GRANTED and General Star’s Complaint is
DISMISSED without prejudice.
Colorado River Abstention
Further, even if the Court did not reach the foregoing conclusion, the Court would
choose to abstain from hearing this case under the Colorado River abstention doctrine,
which provides that “that federal courts may abstain from hearing a case solely because
there is similar litigation pending in state court.” Bates v. Ban Buren Twp., 122 Fed.
Appx. 803, 806 (6th Cir. 2004) (citing Colorado River Water Conservation Dist. v.
United States, 424 U.S. 800, 818 (1976). Although “[t]he threshold question in Colorado
River abstention is whether there are parallel proceedings in state court[,]” state
proceedings “need not be identical, [but] merely ‘substantially similar.’” Id. (citing
Crawley v. Hamilton County Comm’rs, 744 F.2d 28, 31 (6th Cir. 1984); Heitmanis v.
Austin, 899 F.2d 521, 528 (6th Cir. 1990)).
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Here, these proceedings and the state proceedings, if not substantially identical,
are, at the least, substantially similar. In the state court supplemental proceeding,
Springfield asserts that General Star must pay up to the limits of its coverage by virtue of
the fact that it insured American Builders under an excess insurance policy and because
Springfield is American Builders’ judgment creditor. Because General Star can assert
any and all defenses to coverage in the state court supplemental proceeding, this
declaratory judgment action, in which General Star asserts that has no duty to indemnify
American Builders with regard to the judgment entered against American Builders in the
state court, is a parallel proceeding.
Where parallel state proceedings exist, this Court “must next examine whether
judicial economy warrants abstention.” Bates, 122 Fed. Appx. at 807. To do so, the
Court considers the following factors:
(1) whether the state court has assumed jurisdiction over any res or
property; (2) whether the federal forum is less convenient to the
parties; (3) avoidance of piecemeal litigation; and (4) the order in
which jurisdiction was obtained . . . (5) whether the source of
governing law is state or federal . . . (6) the adequacy of the state
court action to protect the federal plaintiff's rights . . . (7) the relative
progress of the state and federal proceedings . . . ; and (8) the
presence or absence of concurrent jurisdiction,
Romine v. Compuserve Corp., 160 F.3d 337, 340-41 (6th Cir. 1998) (internal citations
omitted).
Here, the first, second fourth factors weigh against abstention. There is no res or
property at issue, there is no evidence that the federal forum is less convenient to the
parties and General Star filed this action before Springfield asserted the supplemental
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state proceedings. The weight accorded to the order in which jurisdiction was obtained,
however, is perhaps minimized by the fact that the underlying state court action against
American Builders was filed years before General Star initiated this case.
Nevertheless, the remaining factors all weigh heavily in favor of abstention. As
more fully set forth above, should this Court proceed in this declaratory judgment action,
piecemeal litigation would result. Further, state law provides the law governing the
relationship between the parties. Again, General Star can set forth all of its coverage
defenses in the state court supplemental proceeding, and therefore, the state supplemental
proceeding will adequately protect General Star’s rights. The state court proceedings are
also considerably more advanced in that the state court considered the underlying claims
against American Builders through the liability, damages and final judgment stages.
Finally, while concurrent jurisdiction appears to exist, jurisdiction in this Court is based
solely upon diversity and application of state law will ultimately determine the
controversy. Accordingly, the Court finds that the factors weigh in favor of abstention.
CONCLUSION
As set forth above, the Court concludes that it should decline to exercise
jurisdiction over the declaratory judgment action filed by General Star. Further, even if
the Court concluded that factors weighed in favor of considering the controversy, the
Court finds that it should abstain from exercising jurisdiction based upon the Colorado
River abstention doctrine. As a result, the Springfield’s Motion to Dismiss (Doc. 8) is
GRANTED and General Star’s Complaint is DISMISSED without prejudice.
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The Clerk shall enter judgment accordingly, whereupon this case shall be CLOSED on
the docket of this Court.
IT IS SO ORDERED.

Date: 8/1/13

/s/ Timothy S. Black
Timothy S. Black
United States District Judge

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