GuideOne National Insurance Company v. Bhav Harri LLC
MEMORANDUM OPINION AND ORDER: Defendant's 17 Motion is GRANTED and this case is DISMISSED without prejudice. (Ordered by Chief Judge Barbara M.G. Lynn on 8/15/2017) (ran)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
GUIDEONE NATIONAL INSURANCE
BHAV HARRI, LLC, DBA
CIVIL ACTION NO. 16-CV-00740
MEMORANDUM OPINION AND ORDER
Before the Court is a Motion to Dismiss Plaintiff’s Anticipatory Declaratory
Judgment and Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be
Granted [ECF #17], filed by Defendant Bhav Harri, LLC d/b/a Travelers Inn. For the
following reasons, the Motion is GRANTED.
This action arises out of a dispute concerning Plaintiff GuideOne National Insurance
Company’s handling of an insurance claim filed by Defendant for property damage to a
motel property located in Corsicana, Texas (the “Property”). Plaintiff insured the Property
pursuant to a commercial policy of insurance issued to Defendant, effective September 22,
2014 to September 22, 2015 (the “Policy”). On May 10, 2015, a severe storm allegedly
caused extensive damage to the Property. Defendant submitted a claim under the Policy, but
Plaintiff determined that the claimed damage was not a covered loss. Defendant disputes
Plaintiff’s coverage determination.
On March 4, 2016, Defendant’s counsel sent Plaintiff a demand letter. The letter
advised Plaintiff that Defendant intended to refrain from serving Plaintiff with a lawsuit “for
the statutory period,” in order to give Plaintiff the opportunity to respond with an offer of
settlement. See Def. Mot., Ex. F. Less than two weeks later, on March 16, 2016, Plaintiff
filed this lawsuit seeking a declaration that there is no coverage under the policy for any
alleged damage to the Property. In its Complaint, Plaintiff avers that the damage to the
Property was not caused by the May 10, 2015 storm, but constitutes wear and tear and/or
results from inadequate maintenance, neither of which is covered by the Policy.
On July 21, 2016, Defendant filed a civil action in the 13th Judicial District Court of
Navarro County, Texas, against Plaintiff and William Bobbie Newsom, Jr., a Texas citizen
who acted as Plaintiff’s adjuster for the alleged damage to the Property. See Def. Mot., Ex.
H. In the Original Petition, Defendant (as plaintiff in the state action) asserted claims against
Plaintiff for breach of contract, violations of the Texas Insurance Code and the Texas
Deceptive Trade Practices Act (“DTPA”), breach of the common law duty of good faith and
fair dealing, and fraud. Plaintiff further asserted claims against Newsom for fraud and
violations of the Texas Insurance Code and the DTPA.
Defendant also filed an answer and a Motion to Dismiss in this federal action. By its
Motion, Defendant argues that the Court should dismiss Plaintiff’s claims on grounds that (1)
the declaratory judgment action is anticipatory; (2) Plaintiff does not have a justiciable
injury; (3) Defendant has a concurrent state court action pending in Navarro County, which
is a more appropriate forum for the resolution of the parties’ dispute; and (4) Plaintiff has
failed to state a claim for relief because it has admitted that the Property sustained some
storm-related damage. The issues have been fully briefed, and the Motion is ripe for
Legal Standards and Analysis
The Declaratory Judgment Act provides that “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. § 2201(a) (emphasis added). The
statute thus confers on federal courts “unique and substantial discretion” in deciding whether
to declare the rights of litigants. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995); see
also Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991) (holding declaratory relief is a
matter of district court discretion). When considering its discretion to decide or dismiss a
declaratory judgment action, a district court engages in a three-step analysis. See Orix Credit
Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000). “First, the court must determine
whether the declaratory judgment action is justiciable.” Id. “Second, . . . the court must
resolve whether it has the ‘authority’ to grant declaratory relief in the case presented.” Id.
And, “[t]hird, the court must determine how to exercise its broad discretion to decide or
dismiss the declaratory judgment action.” Id.
Determining whether an action is justiciable typically requires a court to resolve
whether an “actual controversy” exists between the parties. AIX Specialty Ins. Co. v. W.
States Asset Mgmt, 2013 WL 4603775, at *1 (N.D. Tex. Aug. 29, 2013) (Lynn, J.) (citing
Wolfe, 212 F.3d at 895). “‘As a general rule, an actual controversy exists where ‘a substantial
controversy of sufficient immediacy and reality exists between parties having adverse legal
interests.’” Wolfe, 212 F.3d at 896 (quoting Middle S. Energy, Inc. v. City of New Orleans,
800 F.2d 488, 490 (5th Cir. 1986)).
Here, Plaintiff seeks a declaration that there is no coverage under the Policy for
Defendant’s claim for damages to the Property. Defendant contends that the alleged damages
are covered under the Policy, and Plaintiff violated numerous state laws and breached
common law duties in denying its claim. The parties thus have adverse legal interests, and a
real and immediate controversy exists between them. Therefore, the Court determines that
the case is justiciable. See E & R Rubalcava Const., Inc. v. Burlington Ins. Co., 147 F. Supp.
2d 523, 526 (N.D. Tex. 2000) (“A declaratory judgment is a proper manner in which to
resolve disputes over liability insurance coverage.”).
Defendant argues that Plaintiff’s claims are not justiciable because the insurance
company admitted during the claims adjustment process that at least some coverage exists
for Defendant’s claim. Defendant contends that Plaintiff’s “admission” renders it impossible
for the Court to grant the relief Plaintiff seeks. However, the Court does not agree that
Plaintiff’s communications to Defendant can be accurately characterized as an admission that
is fatally inconsistent with the relief Plaintiff seeks by its declaratory judgment claim.
Plaintiff’s Original Complaint alleges that “[t]he majority of claims made by [Defendant]
against [Plaintiff] are for preexisting damage to the roof structure including wear and tear,
faulty design, and maintenance issues leading to corresponding interior property damage.”
Pl. Orig. Compl. at 6, ¶21. “The Policy does not provide coverage to [Plaintiff] for wear and
tear of faulty or inadequate maintenance.” Id., ¶22. Accordingly, Plaintiff seeks a judgment
declaring “there is no coverage under the Policy for the claims of [Defendant].” Id.
This request for relief is consistent with Plaintiff’s prior statements to Defendant
concerning coverage for the alleged damages to the Property. In a June 2, 2015, letter to
Defendant, Plaintiff explained:
Your policy provides coverage subject to a 1% wind and hail
deductible. Line items 1 thru 3 of the estimate total $401.60.
These are the only items caused by wind or hail.
The remaining line items 4 thru 24 are the result of water intrusion
through leaking roofs, and are not the result of wind and hail. This
part of your loss is not a covered loss per your policy, Special
Form PCV 301.
Your policy also contains PDE 313, Property Deductible
The deductible applicable to each enumerated property coverage
shown in the Declaration shall be in the amount of $1,000. The
Company’s liability is understood to be in excess of the
deductible amount for each enumerated coverage.
[Plaintiff] will be unable to issue any payment for your loss, as
the loss does not exceed your 1% wind and hail deductible.
Def. Mot. Ex. B.
Similarly, in a letter dated February 10, 2016, Plaintiff advised Defendant that an
engineering inspection report for the Property concluded (1) “[t]he through-fastened metal
panels on building A are not damaged by hail or wind;” (2) “[t]he modified bitumen material
on building B is not damaged by hail or wind; (3) “[t]he shingles on building C are not
damaged by hail; and (4) “[t]wo shingles on building C are damaged by wind.” Id., Ex. E.
However, the letter further explained:
We have previously advised you the damages sustained by
[Defendant] do not exceed the 1% windstorm or hail deductible
contained in form PDE 313, Property Deductible Endorsement.
The above conclusion support[s] the minimal scope of any
building damage caused by wind or hail, and confirm[s] the
damages covered by the policy do not exceed this deductible.
Id. Contrary to Defendant’s characterization, Plaintiff’s statements are consistent with its
litigation position that there is no coverage under the Policy for Defendant’s claim because
(1) the majority of the damages at issue were not caused by a covered peril, and (2) to the
extent the damages were caused by wind or hail, the amount of the damage does not exceed
Defendant’s deductible. Therefore, Plaintiff has not made any admission that renders this
federal action nonjusticiable.
Authority to Grant Declaratory Relief
It is undisputed that the Court has the authority to grant declaratory relief. Indeed, the
general rule is that a district court lacks the authority to weigh the merits of a declaratory
judgment action only when: “(1) the declaratory defendant previously filed a cause of action
in state court; (2) the state case involved the same issues as those in the federal court; and (3)
the district court is prohibited from enjoining the state proceedings under [28 U.S.C. §]
2283,” the Anti-Injunction Act. Sherwin-Williams Co. v. Holmes Cty., 343 F.3d 383, 388 n.1
(5th Cir. 2003) (citing Travelers Ins. Co. v. La. Farm Bureau Fed’n, Inc., 996 F.2d 774, 776
(5th Cir. 1993)). The presence of all three factors mandates abstention. AIX Specialty Ins.,
2013 WL 4603775, at *2. The absence of any one factor defeats mandatory abstention. Id.
Because Plaintiff filed this declaratory judgment action before Defendant filed its suit in state
court, the Court need not abstain from deciding the declaratory judgment action. Id. (holding
that mandatory abstention was inapplicable where the federal declaratory judgment action
was filed before the related state court action); Cont’l Ins. Co. v. Gifford–Hill & Co., Inc.,
2013 WL 1875930, at *2 n. 6 (N.D. Tex. May 6, 2013) (Fitzwater, J.) (same).
Discretion to Grant Declaratory Relief
Having determined that this case presents a justiciable controversy and that the Court
has the authority to grant declaratory relief, the Court must decide whether to exercise its
discretion to decide this action. This determination rests on “whether the questions in
controversy between the parties to the federal suit, and which are not foreclosed under the
applicable substantive law, can better be settled in the proceeding pending in the state court.”
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942). The following factors guide
the Court’s exercise of its discretion:
(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
(3) whether the plaintiff engaged in forum shopping in bringing 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
(6) whether retaining the lawsuit would serve the purposes of judicial
(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
See St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1994). The concerns of
federalism, fairness, and efficiency underpin the Court’s consideration of these nonexclusive
factors. See Sherwin-Williams, 343 F.3d at 390-92.
The federalism factor “requires the court to examine comity and efficiency.” Id. at
391. In Brillhart, the Supreme Court directed district courts to avoid “[g]ratuitous
interference with the orderly and comprehensive disposition of a state court litigation.” 316
U.S. at 495. Consistent with this direction, the Supreme Court found that “[o]rdinarily it
would be uneconomical as well as vexatious for a federal court to proceed in a declaratory
judgment suit where another suit is pending in a state court presenting the same issues, not
governed by federal law, between the same parties.” Id. This Court has previously
recognized that Brillhart abstention is not restricted only to those instances where federal and
state proceedings are exactly parallel—i.e., where they involve the same parties and the same
issues. See AIX Specialty Ins., 2013 WL 4603775, at *3. Instead, where “there is a pending
related state proceeding but it is not ‘parallel’ . . . 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. (quoting Sherwin–Williams, 343 F.3d at 394
While not exactly parallel, the federal and state proceedings are sufficiently similar
for this Court to conclude that the pendency of the state court action strongly weighs in favor
of the dismissal of this action. The state court action names all of the parties named in this
federal action. The state court action also raises all of the issues before this Court. All of the
matters in controversy here will thus be litigated in the state court action, and that weighs in
favor of dismissal. Id. Finally, the issues that Plaintiff seeks to have this Court resolve are not
governed by federal law, and can be adjudicated properly by the state court. See, e.g.,
Sherwin–Williams, 343 F.3d at 390–91 (“[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.”). Accordingly, the Court finds that the first federalism
factor weighs in favor of dismissal.
The second, third, and fourth factors require this Court to assess whether Plaintiff is
improperly using the declaratory judgment process to unfairly gain access to federal court.
See id. at 391. Plaintiff commenced this action after the parties failed to come to agreement
on whether coverage existed under the Policy for certain alleged damage to the Property.
Between May 31, 2015, and February 10, 2016, the parties conducted three inspections of the
Property, and Plaintiff sent Defendant at least two denial letters. Plaintiff filed its Original
Complaint less than two weeks after Defendant’s attorney sent Plaintiff a formal demand
letter. See Def. Mot., Ex. F. The letter outlined specific instances of alleged unfair and
deceptive conduct by Plaintiff in the handling of Defendant’s claim. See id. The letter further
advised Plaintiff that Defendant would file a lawsuit after the expiration of the statutory
notice period, unless Plaintiff made an acceptable offer to settle the insurance claims. See id.
Plaintiff filed its lawsuit before the expiration of the statutory notice period. On these facts,
the Court concludes that Plaintiff filed this action in anticipation of Defendant’s state court
action. See Capco International, Inc. v. Hass Outdoors, Inc., 2004 WL 792671, at *4 (N.D.
Tex. April 9, 2004) (Fish, J.) (holding that a case was “more likely than not” brought in
anticipation of litigation where the “tenor” of pre-suit correspondence between the parties
“presented a strong indication” that litigation was the next step).
Simply filing a declaratory judgment action in a federal court in anticipation of state
court litigation is not in itself improper anticipatory litigation or otherwise abusive ‘forum
shopping. Sherwin–Williams, 343 F.3d at 391. However, a declaratory judgment suit 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 anticipates that its insured intends to file
a non-removable state court action, and rushes to file a federal action before the insured does
so. See Ironshore Specialty Ins. Co. v. Adv. Stimulation Techns., Inc., 2015 WL 5287028, at
*4 (Aug. 10, 2015) (Lynn, J). Defendant’s demand letter asserted that “[Plaintiff] and/or
[Plaintiff’s] agent(s) made, directly and indirectly causing to be made, an assertion,
representation, or statement with respect to insurance that was untrue, deceptive or
misleading.” Def. Mot., Ex. F. Defendant’s Original Petition includes claims against
Newsom, a nondiverse Texas citizen, for violations of the DTPA and the Texas Insurance
Code. Plaintiff filed its lawsuit before the statutory notice period had elapsed and thus before
Defendant was legally entitled to bring its claims against Newsom under the DTPA and the
Texas Insurance Code. Under these circumstances, the Court concludes that Plaintiff filed
this action in anticipation that Defendant would file a non-removable state court action.
Indeed, Plaintiff does not dispute that Defendant’s state court lawsuit is non-removable.
Although Plaintiff contends that it had “no warning” that Defendant intended to file a state
court lawsuit asserting separate claims against Newsom, the Court finds that Defendant’s
demand letter gave Plaintiff reasonable notice that Defendant was contemplating such action.
The Court therefore finds that the three fairness factors also weigh in favor of dismissing this
Plaintiff also argues that Defendant was not diligent in filing its state court lawsuit
because it waited nearly four months after this federal action was filed. However, Defendant
was required to wait at least sixty days after sending its demand letter before it could bring
claims under the DTPA and the Texas Insurance Code. Tex. Bus. & Com. Code Ann.
§17.505(a) (“As a prerequisite to filing a suit seeking damages under [the DTPA] against any
person, a consumer shall give written notice to the person at least 60 days before filing the
suit . . . .”); Tex. Ins. Code Ann. §541.154(a) (“A person seeking damages in an action
against another person under this subchapter must provide written notice to the other person
not later than the 61st day before the date the action is filed.”). Defendant sent Plaintiff a
demand letter satisfying the 60-day notice requirement on March 4, 2016. The notice period
expired on May 3, 2016. Defendant filed its state court lawsuit two and half months later, on
July 21, 2016. The Court finds that Defendant was diligent in filing its lawsuit within a
reasonable time after the expiration of the statutory notice period.
The fifth factor—whether the federal forum is a convenient forum—implicates
efficiency considerations. Sherwin–Williams, 343 F.3d at 392. Plaintiff filed its federal action
in the same judicial district as the Defendant’s place of business and the location of the
Property. The state courthouse and the federal courthouse are only fifty miles apart. Thus, the
federal and state fora appear to be equally convenient for the parties and witnesses. The
Court therefore concludes that this factor is neutral. See Atlantic Cas. Ins. Co. v. BustosBustos, 2016 WL 5794960, *5 (N.D. Tex. Aug. 31, 2016) (finding convenience factor to be
neutral where the state and federal courts were only forty miles apart).
The sixth factor similarly concerns efficiency and asks whether judicial economy
would be served by retaining the federal lawsuit. Sherwin–Williams, 343 F.3d at 392. The
controversy which Plaintiff asks this Court to decide is pending before the state court. The
federal proceeding does not concern issues of federal law, and the issues can be appropriately
adjudicated by the state court. “It 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].” Evanston Ins. Co. v. Tonmar, L.P., 669 F. Supp. 2d 725, 734 (N.D. Tex.
2009). If the Court were to exercise its discretion to decide this case, it would run the risk of
piecemeal litigation and inconsistent rulings. It would also unnecessarily require the courts
and the parties to duplicate their efforts. If the Court dismissed the case, however, the state
court would not be duplicating this Court’s efforts, as this Court has yet to decide any
substantive issues. The Court thus finds that the sixth factor weighs in favor of dismissal.
Finally, the seventh factor concerns federalism and comity. Sherwin–Williams, 343
F.3d at 392. Because the parties are not asking the Court to construe a state judicial decree,
this factor is neutral or weighs against dismissal. See AIX Specialty Ins., 2013 WL 4603775,
at *5 (citing cases finding the seventh factor is neutral or weighs against dismissal where the
court is not being asked to construe a state judicial decree).
Having considered all the relevant factors, the Court finds that the majority of the
factors—especially the factors that address federalism and fairness—weigh in favor of
dismissal. Accordingly, the Court concludes that it should not decide Plaintiff’s declaratory
judgment action. This determination pretermits consideration of Defendant’s arguments that
Plaintiff’s Complaint fails to state a claim.
Defendant’s Motion [ECF #17] is GRANTED, and this case is DISMISSED without
Dated: August 15, 2017.
BARBARA M. G. LYNN
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