Ironshore Specialty Insurance Company v. Advanced Stimulation Technologies, Inc. et al

Filing 46

MEMORANDUM OPINION AND ORDER: Defendants' 11 16 and 21 Motions to Dismiss are GRANTED, and this case is DISMISSED without prejudice. (Ordered by Judge Barbara M.G. Lynn on 9/10/2015) (ran)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

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IRONSHORE SPECIALTY INSURANCE
COMPANY,
Plaintiff,
v.
ADVANCED STIMULATION
TECHNOLOGIES, INC.; BILLY
WILLIAMS; ENDEAVOR ENERGY
RESOURCES, L.P.; and CYNTHIA
MONTOYA,
Defendants.

NO. 3:15-CV-00136-M

MEMORANDUM OPINION AND ORDER
Before the Court are (1) a Motion to Dismiss under Federal Rule of Civil Procedure 12
filed by Defendants Advanced Stimulation Technologies, Inc. and Endeavor Energy Resources,
L.P. [Docket Entry #11]; (2) a Motion to Dismiss under Federal Rule of Civil Procedure 12, and
in the alternative, Motion to Transfer filed by Defendant Billy Williams [Docket Entry #16]; and
(3) a Motion to Dismiss or Abstain under Federal Rule of Civil Procedure 12 filed by Defendant
Cynthia Montoya [Docket Entry #21]. For the reasons stated below, the Motions are
GRANTED.
I.

FACTUAL BACKGROUND
This is an insurance coverage dispute arising out of a car accident that occurred on

January 15, 2012 in Odessa, Texas. On the date of the accident, Billy Williams, an employee of
Advanced Stimulation Technologies, Inc. (“AST”), was driving a truck owned by AST when he

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struck a car driven by Cynthia Montoya. AST is owned by Autry C. Stephens. Stephens also
owns a related, or “sister,” entity, Endeavor Energy Resources, L.P. (“Endeavor”). Prior to the
accident, Ironshore Specialty Insurance Company (“Ironshore”) had issued a commercial
umbrella insurance policy to Endeavor. Montoya later filed a personal injury lawsuit against
Williams, AST, Endeavor, and Stephens in the 70th Judicial District Court of Ector County,
Texas. A jury awarded Montoya damages in the amount of $3,615,908.00.
On January 15, 2015, Ironshore brought this action in federal court seeking declaratory
relief that it had no liability to AST or Williams for the damages awarded in Montoya’s personal
injury lawsuit. In its First Amended Complaint, filed on March 2, 2015, Ironshore added a claim
against Endeavor and AST for negligent handling of the defense in Montoya’s personal injury
lawsuit. On March 27, 2015, after accepting service of Ironshore’s complaint in this action,
Endeavor and AST filed suit against Ironshore and McGriff Seibels & Williams of Texas, Inc,
Endeavor’s insurance broker, in Harris County, Texas, seeking declaratory relief that Ironshore
is liable for the judgment Montoya obtained against Williams and AST.
Defendants have now filed separate motions to dismiss this federal action. By their
motions, Defendants argue that the Court should decline to exercise its discretionary jurisdiction
to hear Ironshore’s declaratory judgment claims under the Brillhart abstention doctrine.
Defendants further argue that the Court should dismiss this action under Fed. R. Civ. P. 12(b)(2)
and (b)(3) because this Court lacks jurisdiction over them for venue purposes and the Northern
District of Texas is an improper venue. AST and Endeavor also contend that Ironshore’s
allegations of negligent claims handling against them should be dismissed under Fed. R. Civ. P.
12(b)(6) for failure to state a claim upon which relief can be granted. In the alternative,
Defendants seek to transfer the case to the Western District of Texas, Midland Division, pursuant

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to 28 U.S.C. § 1406(a). Ironshore opposes Defendants’ motions. The issues have been fully
briefed, and this matter is ripe for determination.
II.

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM
AST and Endeavor argue that Count III of Ironshore’s Complaint for negligent claims

handling should be dismissed under Fed. R. Civ. P. 12(b)(6) because it fails to state a claim upon
which relief can be granted. “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The “[f]actual allegations must be enough to raise a
right to relief above the speculative level, on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007).
On its face, Ironshore’s claim that the defense in Montoya’s suit was negligently handled
is a negligence action by Ironshore, as an insurer, against Endeavor and AST, its insureds, for
“breach[ing] their duty to Ironshore” by not “exercis[ing] ordinary care in discharging their
duties and obligations under the [insurance policy] with regard to defense of the underlying
lawsuit.” Doc. No. 4 ¶¶ 57-64. Specifically, Ironshore contends that Endeavor and AST
breached their duty to retain separate counsel for Williams, despite an obvious conflict of interest
and failed to supervise defense counsel or the defense. See id. Ironshore also contends that
Endeavor and AST missed key pretrial deadlines and failed to conduct adequate fact or expert
discovery. See id.
In American Centennial v. Canal, the Texas Supreme Court considered “whether an
excess insurance carrier has a cause of action against a primary carrier and trial counsel for
mishandling a claim.” 843 S.W.2d 480, 481 (Tex. 1992). While the Court recognized an excess

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insurer’s equitable subrogation claim against a primary insurer, it declined to recognize a direct
cause of action by an excess insurer against a primary insurer. Id. at 483. A bankruptcy court in
this district similarly declined to recognize such a direct claim under Texas law. Admiral Ins.
Co., Inc. v. Arrowood Indem. Co., 471 B.R. 687, 713 (N.D. Tex. 2012). This reasoning would
similarly preclude a direct claim by an insurer against an insured if, as in this case, the insured
allegedly is responsible for defending the underlying claim.
Ironshore’s negligent handling claim treats Endeavor and AST like the primary insurers
in American Centennial, because they controlled the defense in Montoya’s personal injury
lawsuit, and it asserts a direct action against them for their alleged “fail[ure] to exercise ordinary
care in discharging their duties and obligations under the [insurance policy] with regard to
defense [against Montoya’s lawsuit].” Doc. No. 4 ¶ 63. Since a direct claim by an excess
insurer against a primary carrier is not recognized under Texas law, the alleged insurer should
similarly not have a negligent handling claim against those in charge of the defense in Montoya’s
lawsuit.
Thus, the Court must analyze whether Ironshore has “plead[ed] facts sufficient to show
that [its] claim has substantive plausibility,” even if its legal theory was not perfectly pled.
Johnson v. City of Shelby, Miss., 135 S.Ct. 346, 347 (2014). The legal theory in which this claim
sounds is equitable subrogation. Under Texas law, an equitable subrogee “stands in the shoes
of” the insured and “obtain[s] only those rights held by the insured against a third party, subject
to any defenses held by the third party against the insured.” Mid-Continent Ins. Co. v. Liberty
Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex. 2007). However, if Endeavor and AST are found to
have been insured by Ironshore, then they are not third parties and Ironshore cannot assert rights
against them and does not “stand in the[ir] shoes.” On the other hand, if Endeavor and AST are

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found not to have been insureds of Ironshore, then Ironshore cannot stand in their shoes to obtain
rights against them. Thus, the facts pleaded by Ironshore are insufficient, as a matter of law, to
show that an equitable subrogation claim has substantive plausibility.
III.

ABSTENTION FROM EXERCISING DISCRETIONARY JURISDICTION
A. Legal Standard
Defendants all contend that this Court should decline to exercise its discretionary

jurisdiction over Ironshore’s remaining claims for declaratory judgment. Under 28 U.S.C. §
2201(a), a district 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.”
The Supreme Court held in Brillhart v. Excess Insurance Co. of America that the Declaratory
Judgement Act vested federal district courts with substantial discretion to decide or dismiss
declaratory judgment claims, and that a federal court was “under no compulsion to exercise that
jurisdiction” if the controversy might be, or might have been, settled more expeditiously in state
court. 316 U.S. 491, 494 (1942); see also Batie v. Subway Real Estate Corp., 2008 WL 413627,
at *5 (N.D. Tex. Feb. 15, 2008) (Lynn, J.); Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23
F.3d 948, 950 (5th Cir. 1994).
The Fifth Circuit has adopted a seven-factor test to determine when it is appropriate to
dismiss a case under Brillhart. St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1994);
see also Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382, 390 (5th Cir. 2001). The
seven Trejo factors are:
1) whether there is a pending state action in which all of the matters in controversy may
be fully litigated, 2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the
defendant, 3) whether the plaintiff engaged in forum shopping in bringing the suit, 4)
whether possible inequities in allowing the declaratory plaintiff to gain precedence in
time or to change forums exist, 5) whether the federal court is a convenient forum for the
parties and witnesses, [6)] whether retaining the lawsuit in federal court would serve the

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purposes of judicial economy, [and 7)] whether the federal court is being called on to
construe a state judicial decree involving the same parties and entered by the court before
whom the parallel state suit between the same parties is pending.
Trejo, 39 F.3d at 590-91. “Careful balancing of each of these factors is required before a district
court may dismiss a declaratory judgment claim.” Batie, 2008 WL 413627 (citing Travelers Ins.
Co. v. Louisiana Farm Bureau Fed’n, Inc., 996 F.2d 774, 778 (5th Cir. 1993).
B. Application
1. Pending State Court Action
The first Trejo factor requires the Court to avoid “[g]ratuitous interference with the
orderly and comprehensive disposition of a state court litigation.” Brillhart, 316 U.S. at 495.
The Fifth Circuit has stated that “if the federal declaratory judgment action raises only issues of
state law and a state case involving the same state law issues is pending, generally the state court
should decide the case and the federal court should exercise its discretion to dismiss the federal
suit.” Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 390-91 (5th Cir. 2003). “If there
is a pending related state proceeding but it is not ‘parallel’ because it does not involve all the
same parties or issues, the federal district court properly considers the extent of similarity
between the pending state court and federal court cases in deciding which court should decide
the dispute….” Id. at 394 n. 5.
Endeavor and AST commenced litigation against Ironshore in Harris County, Texas, also
including Williams and Montoya as parties. Doc. 13 (AST App. Ex. 1-F at 263-277). That case
seeks declarations that Ironshore must indemnify AST and Williams for claims relating to
Montoya’s personal injury suit, thus litigating the coverage issues asserted here. Id. at 276. The
issues that Ironshore seeks to have this Court declare are not governed by federal law, and
properly can be adjudicated by the state court. See, e.g., Sherwin–Williams, 343 F.3d at 390–91

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(“[I]f the federal declaratory judgment action raises only issues of state law and a state case
involving the same state law issues is pending, generally the state court should decide the case
and the federal court should exercise its discretion to dismiss the federal suit.”).
Ironshore also argues that Texas’s “first-filed” rule prevents the state court in Harris
County from serving as an adequate alternate forum, but that argument is without merit. The
Texas “first-filed” rule states that when a lawsuit is proper in more than one jurisdiction, the
second-filed lawsuit should be stayed or abated in favor of the first-filed action. See Wyatt v.
Shaw Plumbing Co., 760 S.W.2d 245, 248 (Tex. 1988). However, the rule is applicable “when
suit would be proper in more than one county,” and thus by its very terms is limited to competing
state court cases filed in state courts in different Texas counties. See Wyatt v. Shaw Plumbing
Co., 760 S.W.2d 245, 248 (Tex. 2008).
While Ironshore correctly notes that the First Amended Complaint added a cause of
action against AST and Endeavor for negligent handling of the underlying defense, and that the
Harris County coverage suit does not contain such a claim, Ironshore misapplies the first Trejo
factor in concluding that the state court is thus not an adequate alternate forum. The first Trejo
factor considers “whether there is a pending state action in which all of the matters in
controversy may be fully litigated.” Trejo, 39 F.3d at 590 (emphasis added); see also SherwinWilliams, 343 F.3d at 390. The claims that Ironshore has brought in this Court could be fully
litigated in the state court action, because Ironshore is a party to that action and could file a
timely counterclaim for negligent handling of the defense. TEX. R. CIV. P. 97 (b). Resultantly,
the first Trejo factor weighs in favor of dismissal.
2. Anticipation of Litigation, Forum Shopping, and Possible Inequities
The second, third, and fourth Trejo factors “require this Court to assess whether

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[Ironshore] improperly is using the declaratory judgment process to unfairly gain access to
federal court.” AIX Specialty Ins. Co. v. W. States Asset Mgmt., Inc., 2013 WL 4603775, at *3
(N.D. Tex. Aug. 29, 2013) (quoting Sherwin-Williams, 343 F.3d at 391). Simply filing a
declaratory judgment action in a federal court that has jurisdiction to hear it does not necessarily
constitute “abusive ‘forum shopping.’” Sherwin-Williams, 343 F.3d at 391. However, a
declaratory judgment suit by an insurance company “can be ‘reactive’ and therefore an improper
attempt to preempt a state court proceeding, even if filed before the state court action, when ‘the
insurer may anticipate that its insured intends to file a non-removable state court action, and
rush[es] to file a federal action before the insured does so.’” AIX Specialty, 2013 WL 4603775,
at *4 (quoting Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1372-73 (9th Cir. 1991), overruled on
other grounds by Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998)).
The Court concludes that Ironshore filed this action in anticipation that a non-removable
state court action would be filed by Defendants. Ironshore was fully aware of the real possibility
that such would occur, and the Court thus finds that Ironshore’s anticipatory declaratory
judgment action constitutes improper forum shopping. Therefore, the Court finds that the Trejo
fairness factors, 2, 3, and 4, militate against it exercising its discretionary jurisdiction over these
claims.
3. Convenient Forum
While the accident that is the basis of the underlying personal injury lawsuit occurred in
the Western District of Texas, Ironshore negotiated and issued the subject policy through its
surplus lines agent in the Northern District of Texas. See Ex. E, App. 148. AST and Endeavor
have their principal places of business in Harris County, which is in the Southern District of
Texas. Ex. C, App. 079-080. Thus, it appears that no one district is more convenient than the

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other. The Court concludes that the fifth Trejo factor, convenience, is neutral as to whether the
Court should exercise its discretionary jurisdiction in this case.
4. Judicial Economy
The sixth Trejo factor concerns whether retaining the lawsuit in this Court would serve
the purposes of judicial economy. Ironshore’s claims do not involve issues of federal law, and
the issues involved “will be best adjudicated by the state court, where all the parties are present
and duplicative and piecemeal litigation can be avoided.” AIX Specialty, at *5. If the Court were
to exercise its discretionary jurisdiction in this case, it would run “the risk of inconsistent rulings
and compel[] an unnecessary duplication of judicial resources.” As Judge Fitzwater of this Court
explained in Evanston Ins. Co. v. Tonmar, L.P., 669 F. Supp. 2d 725, 734 (N.D. Tex. 2009), “[i]t
is a waste of judicial resources to litigate a federal declaratory judgment action involving only
issues of state law that are already being litigated in the [state court].” Taking this into
consideration in conjunction with the fact that this case is at an equal stage, the Court finds that
this factor weighs in favor of dismissal.
5. State Judicial Decree
The seventh Trejo factor requires the Court to take into consideration concerns of
federalism and comity. Sherwin-Williams, 343 F.3d at 392. The parties are not asking the Court
to construe a state judicial decree, and so this factor is neutral. See, e.g., Beaufort Dedicated No.
5 Ltd. v. USA Daily Exp., Inc., 2012 WL 6608869, at *10; Smith v. McLean, 2011 WL 2792387,
at *8 (S.D. Tex. July 14, 2011).
Nevertheless, the first, second, third, fourth, and sixth Trejo factors weigh so heavily in
favor of abstention that the Court concludes it should not exercise jurisdiction over Ironshore’s
declaratory judgment claims.

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IV.

CONCLUSION
For these reasons, Count III of Ironshore’s First Amended Complaint fails to state a claim

upon which relief can be granted. Additionally, the Court declines to exercise its discretionary
jurisdiction over Ironshore’s claims for declaratory judgment, which are Counts I, II, and IV of
Ironshore’s First Amended Complaint. Accordingly, Defendants’ separate Motions to Dismiss
[Docket Entry #11, #16, and #21] are GRANTED, and this case is DISMISSED without
prejudice. See Trent v. Nat'l City Bank of Indiana, 145 F. App’x 896, 899 (5th Cir. 2005)
(finding no abuse of discretion in the district court’s decision to dismiss declaratory judgment
action in favor of pending state-court action).
SO ORDERED.
August 10, 2015.

_________________________________
BARBARA M. G. LYNN
UNITED STATES DISTRICT JUDGE
NORTHERN DISTRICT OF TEXAS

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