Nexsen Pruet LLC v. Westport Insurance Corporation

Filing 49

ORDER denying 6 Motion to Dismiss. Signed by Honorable Joseph F Anderson, Jr on 08/04/2010.(bshr, )

N e x sen Pruet LLC v. Westport Insurance Corporation

Do c. 49

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF SOUTH CAROLINA C O L U M B IA DIVISION N e x se n Pruet, LLC, P l a in tif f , vs. W e stp o rt Insurance Corporation, D e f e n d a n t. ) ) ) ) ) ) ) ) ) ) C / A No.: 3:10-895-JFA

ORDER

T h ro u g h this action a law firm seeks a declaration of coverage under its malpractice in s u ra n c e policy, and asserts claims for bad faith claims adjusting and denial of coverage. D e f en d a n t Westport Insurance Company has moved to dismiss the complaint of plaintiff N e x se n Pruet LLC, requesting that the court exercise its discretion to decline jurisdiction in f a v o r of what it characterizes as a more comprehensive action filed in the United States D is tric t Court for the Western District of North Carolina. This matter has been fully briefed a n d the court heard argument at a June 17, 2010 hearing, where the court took the matter u n d e r advisement. At the June 17 hearing, Westport requested and received the opportunity to provide an additional brief on certain issues. The additional issues have now been fully b rief ed . After reviewing the briefs and considering the argument on this motion, the court is constrained to deny Westport's motion to dismiss in light of the first-filed rule. I. B a c k g ro u n d N e x se n Pruet purchased a professional liability insurance policy (the "Policy") from W e stp o rt on June 27, 2007, and thereafter renewed the Policy for a term encompassing July

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1 , 2008, to July 1, 2009. The Policy was purchased from a South Carolina insurance agent a n d executed in South Carolina. The terms of the Policy provide for Westport to insure all lo s s e s in excess of the deductible and creates a duty on the part of Westport to defend. On April 25, 2008, Nexsen Pruet put Westport on notice of claims arising out of the p e rf o rm a n c e of residential real estate closings at a real estate development ("Grandfather V is ta s " ) in North Carolina by William Phillip Murdock, Jr. and Allen M. Nason, then income m e m b e rs of Nexsen Pruet performing closings for NP Closing Network, LLC, its whollyo w n e d subsidiary. On December 18, 2008, a number of individuals connected to

G ra n d f ath e r Vistas filed suit in Mecklenburg County, North Carolina, against Constitution L a w Associations, NP Closing, Nexsen Pruet, and Murdock, alleging that those defendants f ra u d u le n tly induced the plaintiffs to invest in Grandfather Vistas. On March 16, 2009, two o th e r individuals sued Murdock, Nason, Constitution Law Associates, NP Closing, and N e x se n Pruet, alleging that Murdock and Nason falsified closing documents, commingled c lo s in g funds, and improperly distributed funds to certain individuals. In response to the notice of potential claims, Westport initiated a claims assessment w ith the assistance of certain Nexsen Pruet lawyers and initially agreed to provide a defense, w ith a general reservation of rights to deny coverage. On March 11, 2010, Westport c o n ta c te d Nexsen Pruet to inform it that Wesport would be filing a lawsuit in the United S tate s District Court of the Western District of North Carolina within two business days to d e te rm in e coverage under the Policy. On March 12, 2010, Nexsen Pruet filed the present

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a c tio n in the court of common pleas for Richland County, South Carolina, seeking a d e c lar a tio n of coverage under the Policy. Nexsen Pruet thereafter amended its complaint to a lleg e claims for bad faith. On March 15, 2010, Westport filed suit against Nexsen Pruet, M u rd o c k , and Nason in the United States District Court for the Western District of North C a ro lin a . On April 9, 2010, Westport removed the South Carolina case to this court on the b a sis of diversity jurisdiction. Westport now moves to dismiss this case on the basis that: (1) it is duplicative of Westport's North Carolina action, and (2) the court should not reward N e x s e n Pruet's alleged "race to the courthouse" and afford the present case first-filed status. II. D is c u ss io n A. D is m is s a l of Duplicative Litigation

G e n e r a lly, a case pending in federal court "may be dismissed `for reasons of wise ju d icia l administration whenever it is duplicative of a parallel action already pending in a n o th e r federal court.'" Motley Rice, LLC v. Baldwin & Baldwin, LLP, 518 F. Supp. 2d 688 (D .S .C . 2007) (quoting Serlin v. Arthur Anderson & Co., 3 F.3d 221, 223 (7th Cir. 1993)) ( i n t e r n a l alteration omitted). "Suits are parallel if substantially the same parties litigate s u b s ta n tia lly the same issues in different forums." New Beckley Min. Corp. V. Int'l Union, U n ited Mine Workers of Am., 946 F.2d 1072, 1073 (4th Cir. 1991). T h e Fourth Circuit recognizes the "first-filed" rule, which gives priority to the first s u it filed absent a balance of convenience favoring the second filed. Ellicott Mach Corp. v. M o d e rn Welding Co., Inc., 502 F.2d 178, 180 n.2, 181 (4th Cir. 1974) (finding that the first-

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to -f ile principle is "a rule of sound judicial administration"); see also Learning Network, Inc. v . Disc. Comm., Inc., 11 Fed. App'x 297 (4th Cir. 2001) (same); Nall v. Piper, 948 F.2d 1282 (4 th Cir. 1991) (unpublished) (same). The Fourth Circuit has yet to recognize a "special c irc u m s ta n c es " exception to the first to file rule. Learning Network, 11 Fed. App'x, at *3 n .2 (stating that the Fourth Circuit has yet to recognize explicitly that special circumstances m a y warrant exception to the first-filed rule, but determining that a finding of no special c irc u m s ta n c e s did not constitute abuse of discretion). Assuming, arguendo, that the two actions are "parallel and involve identical issues and c la im s ," as the parties suggest (Mot. Dismiss 14), and that the absence of Murdock and N aso n does not render the first-filed rule inapplicable on the basis of dissimilarity,1 the court f in d s that the present action should be afforded first-filed status--Nexsen Pruet filed the p re se n t action on March 12, 2010, and Westport filed the rival action on March 15, 2010. A c c o rd in g ly, the question before the court is whether the balance of convenience favors the riv a l action. The factors a court considers in weighing the conveniences in this circumstance are e ss e n tia lly the same as those considered in connection with a motion to transfer venue p u rs u a n t to 28 U.S.C. § 1404(a). See, Employers Ins. of Wasau v. Fox Entm't Group, Inc., 5 2 2 F.3d 271, 275 (2d Cir. 2008); St. Paul Fire & Marine Ins. Co. v. Renne Acquisitions
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Should the absence of Murdock and Nason in the present suit render the actions sufficiently dissimilar to constitute nonparallel proceedings, the first-filed rule would have no application and the motion to dismiss on the basis of duplicative litigation would be without foundation. 4

C o rp., 2010 WL 2465543 (W.D.N.C. Jun. 14, 2010). Accordingly, the court will consider: (1 ) the ease of access to the sources of proof; (2) the convenience of the parties and w itn e ss e s; (3) the cost of obtaining the attendance of the witnesses; (4) the availability of c o m p u ls o ry process; (5) the possibility of a view by the jury; (6) the interest in having local c o n tro v e rs ie s decided at home; and (7) the interests of justice. Stewart Organization, Inc. v. R ic o h Corp., 487 U.S. 22, 29 (1988); see also Landers v. Dawson Const. Plant, Ltd., 201 F .3 d 436 (4th Cir. 1999) (unpublished table decision). The moving party, here Westport, b e a rs the burden of clearly establishing that these factors favor transfer. See, e.g., Citigroup v . City Holding Co., 97 F. Supp. 2d 549 (S.D.N.Y. 2000). 1. E a se of Access to Sources of Proof; the Convenience of the Parties and W itn e ss e s; and the Expense of Obtaining Witness Attendance

W es tp o rt contends that the superiority of the Charlotte airport to the Columbia airport w e ig h s in favor of the Western District of North Carolina. Nexsen Pruet argues that neither W e s tp o rt nor any potential witnesses reside in North Carolina, and that all witnesses with in f o rm a tio n about whether Murdock and Nason were acting on behalf of Nexsen Pruet reside in South Carolina. Nexsen Pruet also submits that its principal place of business and p o lic ym a k e rs all work in Columbia. After considering the briefs and especially the argument a t the hearing, the court finds that Westport has failed to show that a proceeding in the W estern District of North Carolina would ease access to sources of proof, prove more c o n v e n ie n t to the parties and witnesses, or result in lesser expense. 2. T h e Interest of Having Local Controversies Decided at Home 5

N e x se n Pruet argues that this is a local controversy because its principal office and p l a c e of business and the majority of its members are located in South Carolina, and because th e Policy was applied for and obtained in South Carolina and is governed by South Carolina law . Nexsen Pruet also submits that the interests insured and the attorneys most closely in v o lv e d in the underlying dispute were and are located in South Carolina. The court agrees a n d finds that the interest of having controversies determined locally weighs in favor of S o u th Carolina. 3. T h e Interests of Justice

W e stp o rt argues that the interests of justice weigh in favor of the North Carolina a c tio n because it is allegedly more comprehensive and because to permit both actions to go f o rw a rd risks piecemeal litigation and contrary rulings. Nexsen Pruet argues in response that a lth o u g h Murdock and Nason are included in the North Carolina action, they are nether n e c e ss a ry nor indispensable to the present policy coverage dispute. As stated in its

s u p p l e m e n t al brief, Nexsen Pruet seeks a determination of "the discrete issues of whether c o v e ra g e for Nexsen Pruet is excluded under the "Owned Business Enterprise" exclusion," a n d whether the Nexsen Pruet management committee knew of certain acts at certain times. (E C F No. 46 at 7.) Based on this representation by Nexsen Pruet as to the scope of this m a tte r, it does not appear at present that the court will be required to make factual findings a s to Murdock and Nason's potential liability for fraud, and risk entanglement with the statec o u rt actions that will determine the facts in the underlying cases.

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B e c a u se Nexsen Pruet filed its action first, and because Westport has failed to c o n v in c e the court that the balance of conveniences favors North Carolina, the court will not d is m is s Nexsen Pruet's complaint to avoid duplicative litigation. B. D ism iss a l of Declaratory Judgment Claim

T h e Federal Declaratory Judgment Act provides that district courts "may declare the rig h ts and other legal relations of any interested party seeking such declaration, whether or n o t further relief is or could be sought." 28 U.S.C. § 2201. This language has been co n sisten tly construed to give district courts discretion in deciding whether to assert ju ris d ic tio n . Wilton v. Seven Falls Co., 515 U.S. 277, 289 (1995); Centennial Life Ins. Co. v . Poston, 88 F.3d 255 (4th Cir. 1996). Exercising jurisdiction is appropriate "(1) when the ju d g m e n t will serve a useful purpose in clarifying and settling the legal relations in issue, and ( 2 ) when it will terminate and afford relief from the uncertainty, insecurity, and controversy g iving rise to the proceeding." Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1 9 3 7 ). However, a court should refuse to hear a declaratory judgment action (1) where a n o th e r court has jurisdiction of the issue; (2) where a proceeding involving identical issues is already pending in another tribunal; (3) where a special statutory remedy has been p ro v id e d ; or (4) where another remedy will be more effective or appropriate under the c ir c u m s ta n c e s . Id. Moreover, a declaratory judgment should not be used "to try a

c o n tro v e rs y by piecemeal, or to try particular issues without settling the entire controversy, o r to interfere with an action which has already been instituted." Id. The Fourth Circuit also

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re q u ire s district courts to consider "whether the declaratory judgment action is being used m e re ly as a device for procedural fencing or to provide "another forum in a race for res ju d ic a ta or to achieve a federal hearing in a case otherwise not removable." See Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422 (4th Cir. 1998) (internal punctuation and c ita tio n omitted). Here, the parties dispute the existence of insurance coverage under a malpractice p o licy and each party has filed a declaratory judgment action to ascertain its rights th e re u n d e r. Accordingly, the parties appear to agree that rendering a declaratory judgment w ill serve a useful purpose in clarifying and settling the legal relations between them. No o ther court had jurisdiction over an identical action at the time this case was filed, nor is there a special statutory remedy. Westport argues that the court should decline jurisdiction because N e x se n Pruet has engaged in improper procedural fencing--that it raced to the District of S o u th Carolina courthouse upon notice that suit was imminent in the Western District of N o rth Carolina. However, the procedural fencing the Fourth Circuit appears concerned with in the context of declining jurisdiction in a declaratory judgment action appears related to m a n ip u la tio n of forum in the state-versus-federal context, rather than manipulation of federal v e n u e . See Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371 (4th Cir. 1994) o v e rru le d on other grounds Wilton v. Seven Falls Co., 515 U.S. 277 (1995), and Ind-Com, 1 3 9 F.3d 419. And the Fourth Circuit seems to have been specifically focused on issues of c o m ity and federalism in the face of a declaratory judgment action or procedural

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m a n e u v e rin g in the federal system while the underlying or parallel litigation proceeded in s ta te court. Nautilus, 15 F.3d at 380 ("[W] are satisfied that this federal declaratory action i s not being used merely as a device for procedural fencing. This is not a case in which a p a rty has raced to federal court in an effort to get certain issues that are already pending b e f o re the state courts resolved first in a more favorable forum, for the issues presented in this declaratory action are not the same as those raised in the pending state court p ro c e e d in g s." ). Those considerations cannot be said to apply when disputing what amounts to venue within the same federal system. Here, the parties agree that a declaratory judgment action "will serve a useful purpose in clarifying and settling the legal relations in issue" and "afford relief from the uncertainty, in s e c u rity, and controversy giving rise to the controversy." See Quarles, 92 F.2d at 324. The is s u e posed by the current motion to dismiss is not whether a federal court should exercise ju ris d ic tio n or not, but rather the geographic location of the district court that should hear the c a se . Because the court finds that a declaratory judgment action will serve the parties and th a t the various arguments favoring dismissal are either inapplicable or unconvincing, the c o u rt declines Westport's invitation to refuse jurisdiction. III. C o n c lu s io n B e c au s e Nexsen Pruet filed first, because the balance of conveniences favors the D i s tric t of South Carolina, and because the court finds no convincing reason to decline ju risd ictio n pursuant to Quarles, 92 F.2d 321, and its progeny, the court is constrained to

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d e n y Westport's motion to dismiss. IT IS SO ORDERED.

A u g u st 4, 2010 C o lu m b ia , South Carolina

J o s e p h F. Anderson, Jr. U n ite d States District Judge

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