Philadelphia Indemnity Insurance Company v. Greenway Park Commercial Owners Association Inc et al

Filing 36

ORDER granting in part and denying in part 14 Defendants Rodney D. Thornton and R.T. Properties, LLC's Motion to Dismiss; granting in part and denying in part 16 Defendant Greenway Park Commercial Owners Association, Inc.'s Motion to Abstain and Dismiss. Signed by Honorable Robin J. Cauthron on 2/8/17. (lg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
PHILADELPHIA INDEMNITY
INSURANCE COMPANY,

)
)
)
Plaintiff,
)
)
v.
)
)
GREENWAY PARK COMMERCIAL )
OWNERS ASSOCIATION, INC.;
)
RODNEY D. THORNTON; and
)
R.T. PROPERTIES, LLC,
)
)
Defendants.
)

Case No. CIV-16-797-C

MEMORANDUM OPINION AND ORDER
Plaintiff Philadelphia Indemnity Insurance Company (“Philadelphia”) filed this case
seeking a declaratory judgment pursuant to 28 U.S.C. § 2201 in regard to the scope of two
insurance policies between Plaintiff and Defendant Greenway Park Commercial Owners
Association, Inc. (“Greenway Association”). 1 Defendants Thornton and R.T. Properties,
LLC (collectively, “RTP”) filed a Motion to Dismiss (Dkt. No. 14) and Defendant
Greenway Association filed a Motion to Abstain and Dismiss (Dkt. No. 16). 2 Plaintiff has
responded and the Motions are now at issue. Due to the similar issues presented, both
Motions will be addressed herein.

1

The Court granted leave for Greenway Association’s counselor to withdraw on October
3, 2016. (Dkt. No. 30.) As of the date of this Order, Greenway Association has not entered a new
appearance.
2
The Court will construe Defendants’ Motions as requests to abstain and stay or dismiss
the action because both Motions draw upon the doctrine founded in Brillhart v. Excess Ins. Co. of
Am., 316 U.S. 491 (1942).

Greenway Association is an owners’ association governing commercial office
buildings located in Norman, Oklahoma. Philadelphia issued two policies to Greenway
Association, one in 2013 and one in 2014, forming the subject matter of this declaratory
action. RTP owned a building governed by Greenway Association.
In June 2013, Greenway Association filed a case in the Cleveland County District
Court of Oklahoma against RTP. The case, referred to herein as the “First Underlying
Lawsuit,” case number CJ-2013-822, sought an injunction for alleged breaches of
covenants regarding the commercial office buildings. RTP brought counterclaims and was
successful with those claims; a jury found in favor of RTP. The First Underlying Lawsuit
gave rise to the “First Bad Faith Lawsuit,” Cleveland County case number CJ-2016-56,
where RTP sought indemnification from Philadelphia and other insurance companies for
the expenses of the First Underlying Lawsuit. The First Bad Faith Lawsuit was removed
to this Court, case number CIV-16-907, and later remanded to Cleveland County where
litigation continues. 3
In May 2016, all Greenway Association directors except Defendant Thornton
resigned, leaving Thornton the only person to act on behalf of the entity. In June 2016,
RTP and Greenway Association entered into the “First Settlement Agreement” regarding
a claim from the First Underlying Lawsuit where Greenway Association agreed to pay
Thornton $2 million. Thornton signed the First Settlement Agreement as a representative

3

On May 23, 2016, RTP filed the “Erroneously Filed Bad Faith Lawsuit” in Cleveland
County, case number CJ-2016-596, and it was soon dismissed for being substantively equal to the
First Bad Faith Lawsuit.
2

for (1) R.T. Properties, (2) Thornton, individually, and (3) as Greenway Association’s
President and Director.
In October 2015, RTP filed the “Second Underlying Lawsuit” in Cleveland County,
case number CJ-2015-1188. Here, RTP asserted claims against the officers of Greenway
Association for events transpiring after the First Underlying Lawsuit. This litigation
resulted in the “Second Settlement Agreement” on July 13, 2016 where Greenway
Association agreed to pay Thornton $4 million.

Again, Thornton was the only

representative for both parties.
On July 14, 2016, Philadelphia filed the present “Declaratory Action,” seeking the
Court’s decision as to the scope of the policies between Philadelphia and Greenway
Association. More specifically, Philadelphia requests that this Court enter a declaratory
judgment that (1) R.T. Properties is not an “Insured” under the policies, and therefore
Philadelphia has no duty to defend or indemnify R.T. Properties in connection to the First
or Second Underlying Lawsuit, or the First or Second Settlement Agreements; (2)
Philadelphia has no duty to defend or indemnify Thornton because he was not a named
defendant in the First or Second Underlying Lawsuit; (3) the policies preclude coverage of
the First and Second Underlying Lawsuits and the First and Second Settlement Agreements
because an exclusion was triggered when Thornton became both the director and individual
insured; (4) the First and Second Settlement Agreements were not covered because
Greenway Association did not seek Philadelphia’s consent before entering into the
agreements and the agreements and are unenforceable, collusive instruments; (5) no
coverage is available because a claim on the policy was not made during the proper time
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period; and (6) additional terms, conditions, limitations, and exclusions limit or preclude
coverage.
The next day, on July 15, 2016, RTP filed the “Second Bad Faith Lawsuit” against
Philadelphia and other insurance companies in Cleveland County, case number CJ-2016821, seeking indemnification for the Second Underlying Lawsuit. The Second Bad Faith
Lawsuit was removed to this Court, case number CIV-16-908, and then RTP voluntarily
dismissed the case after RTP and Greenway Association canceled and rescinded the
Second Settlement Agreement, making the claim unripe for determination and reviving the
Second Underlying Lawsuit conflict. On the same day, RTP also amended the Petition in
the First Bad Faith Lawsuit, adding allegations that Philadelphia failed to pay $2 million
owed from the First Settlement Agreement.
The Declaratory Judgment Act, 28 U.S.C. §§ 2201 et seq., “confers upon district
courts unique and substantial discretion in deciding whether to declare the rights of
litigants.” United States v. City of Las Cruces, 289 F.3d 1170, 1183 (10th Cir. 2002)
(citation and internal quotation marks omitted). Factors relevant to this Court’s evaluation
of whether to accept jurisdiction or abstain under the Brillhart analysis 4 include “the scope
of the state proceeding, whether the claims of all parties can be adjudicated in that
proceeding, whether necessary parties have been joined, whether they are amenable to
process, and any other factor bearing on the central question of which forum can better
resolve the controversy.” Id. at 1187 (citation omitted). The Tenth Circuit in State Farm

4

See generally Brillhart, 316 U.S. 491.
4

Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 981 (10th Cir. 1994), articulated five additional
factors the district court should weigh:
[1] whether a declaratory action would settle the controversy; [2] whether it
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 to res judicata; [4]
whether use of declaratory action would increase friction between our federal
and state courts and improperly encroach upon state jurisdiction; and [5]
whether there is an alternative remedy which is better or more effective.
Id. at 983 (emphasis, citation, and internal quotation marks omitted).
The first and second factors are whether a declaratory action would settle the
controversy and whether it would serve a useful purpose in clarifying the legal relations at
issue. These factors are “designed to shed light on the overall question of whether the
controversy would be better settled in state court.” City of Las Cruces, 289 F.3d at 1187
(citation omitted). Matters related to the transactions between the parties have been
litigated in the Cleveland County District Court since 2013, and although Philadelphia
claims the Declaratory Action could resolve the case, the Court is unconvinced that every
legal issue in the conflict that may arise would be resolved by the questions presented in
this Declaratory Action. For example, the First Bad Faith Lawsuit includes a wider array
of parties and claims than are at issue in the Declaratory Action, including the allegation
that Philadelphia acted with malice or reckless disregard for the rights of others. (First Bad
Faith Lawsuit Petition, Dkt. No. 14-1, p. 8.) Much like in City of Las Cruces, when the
facts and issues are intertwined with other parties not joined in the declaratory action, it is
best for the federal court to abstain in favor of a state decision binding on all parties. City
of Las Cruces, 289 F.3d at 1187-90.
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The third factor is whether the declaratory remedy is being used merely for the
purpose of procedural fencing. Each party asserts allegations of misconduct and it appears
that none of the parties have been completely straightforward in their tactics. The Court
will consider this factor to weigh equally for and against abstention.
The fourth factor is whether use of declaratory action would increase friction
between our federal and state courts and improperly encroach upon state jurisdiction. The
Court is wary of treading upon state jurisdiction by ruling on issues that overlap with two
cases currently pending before the state court. This factor favors abstention.
The fifth factor is whether there is an alternative remedy which is better or more
effective. Philadelphia argues the Declaratory Action should proceed because the Second
Bad Faith Lawsuit was dismissed. However, Philadelphia stated the Declaratory Action
would merely “serve a useful purpose in clarifying the legal relations between the parties
relating to coverage for the [Second Bad Faith Lawsuit],” not that the action is required.
(Pl.’s Resp. to Mot. to Dismiss, Dkt. No. 34, p. 14.) Philadelphia argues this Court should
determine a precautionary remedy for issues of liability not yet asserted. If Greenway
Association or RTP bring indemnification claims after the conclusion of the Second
Underlying Lawsuit, the Cleveland County District Court is better equipped to decide the
matter and Philadelphia will have the proper defenses available. Because the same
insurance policies are at issue in both lawsuits, the more effective remedy is to allow the
state court to decide the issues as they arise.
Philadelphia argues it would be an abuse of discretion to abstain from the
Declaratory Action so far as it relates to the Second Bad Faith Lawsuit. In ARW Expl.
6

Corp. v. Aguirre, 947 F.2d 450 (10th Cir. 1991), the Tenth Circuit found that the district
court should not have dismissed the declaratory action because the state action had also
been dismissed. However, the circuit court came to that determination because the state
court proceeding did not “afford a ‘plain adequate, and speedy remedy.’” Id. at 455
(citation omitted). Here, the First Bad Faith Lawsuit and the Second Underlying Lawsuit
relate to the same facts and are still before the state court. The federal court “should not
entertain a declaratory judgment action over which it has jurisdiction if the same factdependent issues are likely to be decided in another pending proceeding.” St. Paul Fire &
Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1170 (10th Cir. 1995) (citation and internal
quotation marks omitted).
The Court finds that the combined Mhoon factors weigh in favor of abstention. The
remaining question is whether the case should be stayed or dismissed. The Tenth Circuit
has stated that “[a] stay will often be preferable in the declaratory judgment context.” City
of Las Cruces, 289 F.3d at 1192. Because the Court cannot predict the course of litigation
with certainty, the Court will allow a path for it to “quickly reconsider whether the state
forum remains the best in which to hear the federal parties' claims should the court's
predictions regarding the scope of the state proceedings turn out to be erroneous.” Id.
(citation omitted). Accordingly, the case is stayed.

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CONCLUSION
For the reasons stated, The Motion to Dismiss by Thornton (Dkt. No. 14) is
GRANTED in part and DENIED in part and the Motion to Dismiss by Greenway (Dkt.
No. 16) is GRANTED in part and DENIED in part. An Administrative Closing Order shall
issue.
IT IS SO ORDERED this 8th day of February, 2017.

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