Cornerstone Construction Company of Tennessee, LLC et al v. Builders Mutual Insurance Company

Filing 27

MEMORANDUM OPINION OF THE COURT. Signed by District Judge Eli J. Richardson on 6/9/2020. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(mg)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

CORNERSTONE CONSTRUCTION
COMPANY OF TENNESSEE, LLC, et al.,
Plaintiffs,
v.
BUILDERS MUTUAL INSURANCE CO.,
Defendant.

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NO. 3:19-cv-01056
JUDGE RICHARDSON

MEMORANDUM OPINION
Pending before the Court is Plaintiffs’ Motion to Remand1 (Doc. No. 8) (“Motion”).
Defendant has filed a response in opposition (Doc. No. 13), and Plaintiffs have filed a reply (Doc.
No. 18).
BACKGROUND
This action, involving an insurance dispute, was originally filed in the Chancery Court for
Williamson County, Tennessee. (Doc. No. 1 at 4). Plaintiffs allege that Plaintiff Cornerstone
Construction Company of Tennessee (“Cornerstone”) was the general contractor for construction
of a home (“Residence”) in Franklin, Tennessee, and that, during the relevant time period,
Defendant insured Cornerstone under a commercial package policy comprising three different
policies. Plaintiffs assert that the Mabrys, owners of the Residence, sued Plaintiffs in the Chancery
Court of Williamson County, Tennessee (“the Underlying Litigation”) related to alleged defects

1

This case was originally filed in the Eastern District of Tennessee, and as originally filed in that
district, this motion was a Motion for Remand or, Alternatively, to Transfer Venue. The court for
the Eastern District granted the Motion to Transfer Venue and left the Motion for Remand for this
Court’s determination. See Doc. No. 11.

in the construction of the Residence and personal injuries allegedly caused by that construction.
(Id. at 5).
Plaintiffs allege that they tendered defense of the Underlying Litigation to Defendant for
both defense and indemnity, but Defendant denied Plaintiff’s request. Plaintiffs contend that, as a
result of Defendant’s refusal to defend Plaintiffs in the Underlying Litigation, Plaintiffs have been
required to retain and pay their own attorney to defend them. (Doc. No. 1 at 5-6). Plaintiffs’
Complaint alleges causes of action for breach of contract, including a bad faith claim; declaratory
judgment; and injunctive relief. (Id. at 6-7). Plaintiffs seek the following relief: “compensatory,
consequential and incidental damages” in an amount to be determined at trial; injunctive relief;
declaratory relief; pre-judgment interest; post-judgment interest; that all costs be taxed to
Defendant; and “such other and further relief to which they may be entitled.” (Id. at 7).
Defendant removed the case from the Williamson County Chancery Court to federal court,2
pursuant to 28 U.S.C. § 1332, asserting diversity of citizenship between Plaintiffs and Defendant
and an amount in controversy in excess of $75,000. (Doc. No. 1 at 2). Now Plaintiffs ask the Court
to remand this case back to the state court, arguing that the amount in controversy does not exceed
$75,000.
REMOVAL AND REMAND
Under 28 U.S.C. § 1441(a), a defendant may generally remove to federal court “any civil
action brought in a State court” if a federal court has original jurisdiction over the action. Meadows
v. Douglass, No. 3:20-cv-00355, 2020 WL 2319784, at *1 (M.D. Tenn. May 11, 2020). After a
case has been removed from state court, a district court must remand “[i]f at any time before final

2

Defendant admits that it inadvertently filed the removal papers in the U.S. District Court for the
Eastern District of Tennessee, rather than here. (Doc. No. 13 at 2).

judgment it appears that the district court lacks subject matter jurisdiction.” 28 U.S.C. § 1447(c).
It is the removing party’s burden to show that the district court has jurisdiction in a case, and all
doubts are resolved in favor of remand. Meadows, 2020 WL 2319784, at *1 (citing Smith v.
Nationwide Prop. & Cas. Ins. Co., 505 F.3d 401, 404 (6th Cir. 2007)).
AMOUNT IN CONTROVERSY
Federal district courts have original jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between
citizens of different states. 28 U.S.C. § 1332(a). Plaintiffs do not dispute that there is diversity of
citizenship here. In determining whether Section 1332's “amount in controversy” requirement is
met, federal courts look to the amount alleged in the complaint. Leys v. Lowe's Home Centers, Inc.,
601 F. Supp. 2d 908, 914 (W.D. Mich. 2009) (citing Mitan v. Int'l Fidelity Ins. Co., 23 F. App’x
292, 297 (6th Cir.2001)).
Plaintiffs maintain that this action is only a declaratory judgment action seeking only a
declaration that Defendant must, under the terms of its insurance policies with Plaintiffs, provide
a defense for Plaintiffs in the Underlying Litigation. Plaintiffs argue that they are not, in this case,
seeking indemnity for any amounts for which they may become liable to the Mabrys. Thus,
Plaintiffs contend, the amount in controversy is simply and solely the amount of providing a
defense for them in the Underlying Litigation, and they “do not reasonably anticipate that the cost
of defending a garden variety residential construction defect lawsuit would remotely approach
$75,000.” (Doc. No. 9 at 4).
The problem with Plaintiffs’ argument is that their Complaint does not seek only a
declaratory judgment and neither is the amount in controversy solely the amount of providing
Plaintiffs’ defense. As noted above, Plaintiffs have alleged three causes of action, only one of

which is declaratory judgment. Plaintiffs ask the Court to find that Defendant breached its contract
(policies) with Plaintiffs by refusing to defend Plaintiffs in the underlying lawsuit and that
Defendant did so in bad faith. Plaintiffs “demand” compensatory, consequential, and incidental
damages from Defendant, placing no limit on the amount of those damages. Even though Plaintiffs
are not asking, in this case, for indemnity for the claims in the Underlying Litigation, Plaintiffs are
not seeking simply a declaration. Neither are they seeking simply a defense.
The Court does not dispute Plaintiffs’ argument that this case involves only the issue of
whether Defendant must provide a defense. Even the breach of contract claim is based on this
issue, and whether Defendant must provide a defense differs from whether Defendant must
indemnify Plaintiffs for any judgment entered against them. The duty to defend (under an
insurance policy) is broader than the duty to indemnify. York v. Vulcan Materials Co., 63 S.W.3d
384, 387–88 (Tenn. Ct. App. 2001). But even excluding potential indemnity amounts from the
amount in controversy does not change the fact that Plaintiffs’ demand in this action reasonably
exceeds $75,000. According to Defendant (Doc. No. 13 at 7), the costs of defense will clearly
exceed $75,000, given the nature of the Mabrys’ claims and the need to defend against both
property and personal injury claims. And Plaintiffs seek remedies besides just Defendant’s
provision of a defense; Plaintiffs also seek damages, for Defendant’s alleged breach of the policies
and bad-faith failure to defend Plaintiffs.3 Defendant has carried its burden, as the party seeking

3

Defendant correctly notes that, in declaratory judgment actions, the amount in controversy
requirement is measured by the value of the object of the litigation. Allstate Ins. Co. v. Renou, 32
F. Supp. 3d 856, 860 (E.D. Mich. 2014). The value of the object of the litigation measured from
the plaintiff’s perspective is the monetary value of the benefit that would flow to the plaintiff if
the relief he is seeking were granted. Id. at 361. Here, if the relief Plaintiffs are seeking were
granted, they would be awarded the costs of their defense in the Underlying Litigation, plus
damages for breach of the polices and bad-faith failure to defend.

removal, to show that the amount in controversy here more likely than not exceeds $75,000. See
Tenn. Farmers Mut. Ins. Co. v. Cummins, Inc., No. 3:19-cv-492-TAV-DCP, 2020 WL 620280, at
*1 (E.D. Tenn. Feb. 10, 2020) (where plaintiff seeks to recover some unspecified amount that is
not self-evidently greater or less than the federal amount-in-controversy requirement, defendant
bears the burden of establishing that the amount in controversy “more likely than not” exceeds
$75,000).
Therefore, Plaintiffs’ Motion to Remand on the basis of the amount in controversy must be
denied.
EXERCISE OF DISCRETION TO HEAR DECLARATORY JUDGMENT CLAIM
Plaintiffs also argue that the Court, in its discretion, should “abstain” from hearing this
declaratory judgment action. As noted above, this is not simply a declaratory judgment action.
Nonetheless, the Court will look to whether it should decline to hear—not to say “abstain”—4from
the declaratory judgment portion of this action.
The Declaratory Judgment Act provides that in a case of actual controversy within its
jurisdiction, any court of the United States, upon the filing of an appropriate pleading, may declare
the rights and other legal relations of any interested party seeking such declaration. 28 U.S.C.

4

Plaintiffs describe the Sixth Circuit, in Grand Trunk W. R.R. Co. v. Consolidated Rail Corp.,746
F.2d 323 (6th Cir. 1984), as “adopt[ing] a doctrine of abstention with respect to actions seeking
insurance-related declaratory judgments.” (Doc. No. 9 at 5). Grand Trunk, however, actually did
not refer to abstention, which is something different from the notion of declining to entertain a
request for relief in the form of a declaratory judgment in particular, based on factors specific to
declaratory judgment actions. True, one of the so-called abstention doctrines can apply to preclude
the Court’s exercise of jurisdiction over a declaratory judgment claim, and some of the
considerations applicable to some of the abstention doctrines are mirrored in the five factors
specific to declaratory judgments. But that is not say that the Court’s declination of jurisdiction
over a declaratory judgment action based on those five factors constitutes “abstention” as the term
is properly used. So the Court herein will refer to declination of jurisdiction rather than
“abstention.”

§ 2201. The Declaratory Judgment Act empowers the district court to entertain certain actions, but
it does not compel the court to exercise the jurisdiction thus granted to it. Commc'ns Unlimited
Contracting Servs., Inc. v. Comdata, Inc., No. 3:17-cv-01158, 2020 WL 606592, at *8 (M.D. Tenn.
Feb. 7, 2020). The existence of the court’s discretion not to hear a declaratory judgment action,
even where jurisdiction exists, is undisputed. Id. Where a court has the power to grant declaratory
relief as to an actual controversy, the court nevertheless retains discretion to deny such relief. Id.
As Plaintiffs note, in deciding whether to exercise jurisdiction over a declaratory action,
district courts in this Circuit consider five factors: (1) whether the declaratory action would settle
the controversy; (2) whether the declaratory action would serve a useful purpose in clarifying the
legal relations in issue; (3) whether the declaratory remedy is being used merely for the purpose
of “procedural fencing” or “to provide an arena for res judicata;” (4) whether the use of a
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. Nationwide Affinity Ins. Co. of Am. v. Richards, --- F. Supp. 3d ---, 2020 WL
475833, at *5 (W.D. Tenn. Jan. 29, 2020). These factors are based upon the holding in Grand
Trunk W. R.R. Co. v. Consolidated Rail Corp.,746 F.2d 323 (6th Cir. 1984).
Plaintiffs first argue that the Court should decline to hear “this action” because it “would
not settle the controversy between the parties.” (Doc. No. 9 at 6). Plaintiffs also argue that the state
court sits in a better position to resolve factual disputes between the parties, and the legal issues in
this case deal with fundamental policy matters under Tennessee law. (Id.). Otherwise, Plaintiffs
do not address the five factors. Defendant disputes each of Plaintiffs’ arguments.
The Court believes that resolution of the declaratory judgment claim will settle the crux—
if not all aspects of—the current dispute. As Plaintiffs note, the current dispute is about whether

Defendant has a duty to defend; a dispute about duty to indemnify will be broached, if at all, only
later. And the declaratory judgment sought by Plaintiffs would address this directly, because
Plaintiffs seek “a declaratory judgment holding that [Defendant] has a duty to defend” Plaintiffs
in the Underlying Lawsuit. (Doc. No. 1 at 7).
It is true that such a ruling would not resolve all issues implicated by the current
controversy, since (although, as noted, Plaintiffs ignore this fact) the current dispute involves
claims for damages, which cannot be resolved completely via such a declaratory judgment ruling.
But the existence of these damages claims actually hurts, rather than helps, Plaintiffs here. As
noted above, the Court has subject-matter jurisdiction over the damages claims and must entertain
them.5 In adjudicating them, the Court would necessarily be adjudicating the key issue involved
in the declaratory judgment action: whether Defendant has a duty to defend. That being so, it would
be extremely duplicative and thus inefficient, and otherwise serve little purpose, to do what
Plaintiffs propose: have the declaratory judgment claim proceed in state court.
As for factor two, the declaratory portion of this action would serve a useful purpose in
clarifying the legal relations at issue in this case; that is, a determination in this case would clarify
the legal relations of the parties as to Defendant’s duty to defend Plaintiffs in the Underlying
Litigation. The Sixth Circuit’s remarks in Massachusetts Bay Ins. Co. v. Christian Funeral
Directors, Inc., 759 F. App'x 431 (6th Cir. 2018), are instructive here:
Here, the district court found that “the only legal relationship presented to
the Court is whether [the] Mass. Bay policy will cover actions taken by [the
“We have often acknowledged that federal courts have a strict duty to exercise the jurisdiction
that is conferred upon them by Congress.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716
(1996). True, this strict duty does not apply “where abstention is warranted,” see id., but Plaintiffs
have set forth no basis for the Court to abstain from hearing the damages claims. And Plaintiffs
have not asserted, and the Court does not perceive, any other conceivable basis for the Court not
to entertain the damages claims if, as the Court concludes, they are within the Court’s subjectmatter jurisdiction.
5

insured]. A declaratory judgment on insurance coverage squarely clarifies that
relation thereby pointing in favor of the Court exercising jurisdiction over the
declaratory judgment.” The district court properly exercised its discretion in
making this determination.
Id. at 438 (citation to the record omitted). Likewise, it would be proper to exercise jurisdiction
over a declaratory judgment action here as to duty to defend.
As to factor three, no one has even suggested that this action is being used merely for the
purpose of procedural fencing or to provide an arena for a race for res judicata. This is not the
situation often encountered by the courts where there is a “race to the courthouse” for a
determination concerning contract interpretation or insurance coverage. The Sixth Circuit has
noted:
Primarily, “[t]he third factor 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] at 558 [6th Cir.
2008)] (quoting AmSouth Bank v. Dale, 386 F.3d 763, 788 (6th Cir. 2004)). “We
are reluctant to impute an improper motive to a plaintiff where there is no evidence
of such in the record.” Id.
Id. The Court here likewise finds that Plaintiffs did not act with any improper motive. While this
is no doubt good news for the Plaintiffs in one respect, it actually is bad news in another sense: it
is yet one more reason for the Court not to decline the exercise of declaratory judgment
jurisdiction.
Factor four asks the Court whether this action would increase friction between the federal
and state courts and improperly encroach on state jurisdiction. The federal courts are called on to
interpret insurance contracts all the time in diversity cases. The issues before this Court
(concerning breach of contract and duty to defend) are not, to the Court’s knowledge, issues in the
Underlying Litigation or any other state court proceeding. There is nothing about this action that,
in this Court’s opinion, would increase friction between this Court and the state courts.

The Court realizes that this factor can cut in favor of a federal court declining to exercise
jurisdiction over a declaratory judgment action as to insurance coverage (i.e., defense and/or
indemnity) with respect to particular claims made by a third-party against the insured, when the
third party’s claims against the insured are pending in state court. After all, perhaps a federal court
should just leave the entire matter—including the declaratory judgment action—in the hands of
the state court, which perhaps would appreciate handling the insurance coverage dispute, since the
timing and substance of its outcome could substantially impact case management of the case
involving the third party’s underlying claims.
Finally, the Court looks to whether there is an alternative remedy that is better or more
effective. Plaintiffs have not suggested any such alternative, and the Court finds that this factor is,
at best, neutral in the weighing of factors concerning abstention.6
Balancing all these factors, the Court has not been persuaded that it should decline to
exercise declaratory judgment jurisdiction. Largely because this action involves more than a
request for declaratory judgment—including as it does damages claims over which the Court
cannot decline jurisdiction—the factors weigh in favor of exercising jurisdiction over the
declaratory judgment claim. Thus, Plaintiffs’ Motion to Remand will be denied to the extent that
it alternatively would have this Court decline to adjudicate the declaratory judgment claim even
while adjudicating the damages claims.

In their Reply (Doc. No. 18), Plaintiffs failed to respond to any of Defendant’s arguments
concerning these factors.
6

CONCLUSION
For these reasons, Plaintiffs’ Motion to Remand (Doc. No. 8) will be denied. An
appropriate Order will be entered.

___________________________________
ELI RICHARDSON
UNITED STATES DISTRICT JUDGE