State Farm Mutual Automobile Insurance Company v. Watkins et al
Filing
20
ORDER GRANTING Defendants' 4 Motion to Dismiss for Lack of Jurisdiction; GRANTING Defendants' Supplemental 11 Motion to Dismiss for Lack of Jurisdiction. IT IS ORDERED that State Farm's complaint is DISMISSED WITHOUTPREJUDICE. Signed by Judge Sam Sparks. (klw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
5
MAY
14
P11
t: 314
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY,
Plaintiff,
Case No. A-15-CA-143-SS
-vs-
ERNEST LYNDEN WATKINS, III;
KATHY WATKINS,
Defendants.
AND
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Defendants' Motion to Dismiss [#4], Plaintiffs Response [#5], Plaintiff's First
Amended Complaint [#6], Defendants' Supplemental Motion to Dismiss [#1 1], Defendants' Letter
Brief [#15], Plaintiff's Letter Brief [#18], and Defendants' Reply Letter Brief [#19]. Having
reviewed the documents, the relevant law, and the file as a whole, the Court now enters the following
opinion and order GRANTING the motion.
Background
Plaintiff State Farm Mutual Automobile Insurance Company (State Farm) filed this lawsuit
to obtain a declaratory judgment that it has no duty to indemnify Defendants Ernest Lynden Watkins
III (Mr. Watkins) and Kathy Watkins (Mrs. Watkins) for a separate lawsuit brought in Texas state
court (the Underlying Suit).
See
Compl. [#1-2] Ex. B (Orig. Pet.). In the Underlying Suit, police
officer Doff Slade Fisher alleges Ernest Lynden Watkins IV (Watkins IV), the son of Mr. and Mrs.
Watkins, negligently operated a vehicle causing bodily injury to Fisher. id. According to the
petition, Officer Fisher was in pursuit of a ear owned by Mr. and Mrs. Watkins that had evaded
detention during a traffic stop. Id. at 1-2. Fisher alleges Watkins IV was driving the vehicle, and
in the processing of pursuing Watkins IV, Fisher crashed his motorcycle and sustained injuries. Id.
State Farm issued a Texas personal automobile policy to Mr. and Mrs. Watkins with a
coverage period of April 20, 2012, to October 20, 2012 (the Policy).
See
Compl. [#1-1] Ex. A (the
Policy). According to State Farm, the express language and scope of coverage of the Policy have
been implicated by the Underlying Suit.
See
Am. Compi. [#6] ¶ 1. Indeed, State Farm is currently
providing a defense in the Underlying Suit, and it does not seek an adjudication of its duty to defend
through its declaratory judgment action. Instead, State Farm only requests a declaration the Policy
bars any claim for indemnification arising from the Underlying Suit. Id. ¶J 15-16. In other words,
State Farm contends the Policy does not provide coverage for the events at issue.
For this position of"no coverage," State Farm represents that, while Fisher alleges Watkins
IV was driving, he has subsequently testified he cannot identify the driver of the vehicle. Id. ¶ 3.
Moreover, State Farm represents Watkins IV has testified that, while he was in the vehicle, he was
not driving. Id. Rather, according to State Farm, Watkins IV has testified he was kidnapped from
his nearby home, tied up, and held in the car against his will. Id. In addition, State Farm represents
Fisher conceded in his deposition that his crash of the motorcycle did not directly involve the fleeing
vehicle, and the accident was actually due to his operating error. Id. In sum, State Farm argues it
has no duty to indemnify because the evidentiary record already establishes an unauthorized driver
was behind the wheel, and the accident was not caused by the negligence of the insured.
Mr. and Mrs. Watkins have moved to dismiss State Farm's declaratory judgment action on
two grounds. First, they argue the declaratory judgment is not yet ripe because the key factual
-2-
disputes, which State Farm prematurely declares as undisputed, are actually yet to be decided by a
fact finder.
See Mot,
Dismiss [#4] at 2. Mr. and Mrs. Watkins urge the Court not to duplicate the
state court proceedings and seek dismissal for lack of subject matterjurisdiction. Second, they argue
for dismissal because State Farm has failed to join indispensable parties. Specifically, Mr. and Mrs.
Watkins highlight the fact they are not the defendants in the Underlying Suit, and they are not the
parties seeking coverage under the Policy. Id. at 3. Rather, Watkins IV, who is an independently
covered person under the Policy, is the defendant in the Underlying Suit, and as a result, he should
be the party sued by State Farm in its declaratory judgment. Id. Furthermore, Mr. and Mrs. Watkins
contend Fisher, the person who would have a direct indemnity claim against State Farm ifhe prevails
in the Underlying Suit, is the party most impacted by the declaratory judgment action and therefore
should be joined as a party. Id.
State Farm filed a response along with an amended complaint. In its amended complaint,
State Farm added Fisher as a defendant (who has yet to be served or make an appearance) but
declined to add Watkins IV.
See Resp. [#5]
at 3. On April 17, 2015, the Court held a hearing on the
motion to dismiss and asked the parties to submit letter briefs post-hearing, which they have done.
The Court now addresses the merits of the motion.
Analysis
I.
The Proper Parties
Rule 12(b)(7) provides for dismissal when a plaintiff fails to join a party under Rule 19,
which requires joinder of certain parties.
See FED.
R. Civ. P. 12(b)(7), 19(a). As Mr. and Mrs.
Watkins highlight, they have not been sued in the Underlying Suit, and they have not made a claim
under the Policy for indemnity coverage. Rather, Watkins IV is the defendant in the Underlying Suit,
-3-
and he, as a covered person under the Policy, is the only party demanding indemnity from State
Farm. Yet, in its declaratoryjudgment regarding its duty to indemnify, State Farm has sued Mr. and
Mrs. Watkins. Under these circumstances, Watkins IV is the proper defendant in this declaratory
judgment action. Relatedly, Mr. and Mrs. Watkins are not proper defendants at this time although
that could change depending on how the Underlying Suit unfolds. Therefore, the Court dismisses
without prejudice State Farm's claims against Mr. and Mrs. Watkins.
Subject Matter Jurisdiction
II.
Even if State Farm had named Watkins IV as a defendant, the indemnification question is
not yet ripe as to Watkins IV, or Mr. and Mrs. Watkins for that matter.
A.
Legal Standards
1.
Federal Rule of Civil Procedure 12(b)(1)
Because federal courts have limited jurisdiction, a court must dismiss any case if it lacks
subject-matter jurisdiction over the claims.
v.
FED. R.
Civ. P. 12(b)(1); Owen Equip. & Erection Co.
Kroger, 437 U.S. 365, 374 (1978). A party seeking to invoke federal jurisdiction bears the burden
of demonstrating the exercise of that jurisdiction is proper. Rivera-Sanchez v. Reno, 198 F.3d 545,
546 (5th Cir. 1999). The court "must presume that a suit lies outside [its] limited jurisdiction, and
the burden of establishing federal jurisdiction rests on the party seeking the federal forum." Howery
v.
Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001).
The federal declaratory judgment act grants the federal courts jurisdiction to grant declaratory
relief only in "a case of actual controversy." 28 U.S.C. § 2201(a). When considering a declaratory
judgment action, a district court must engage in a three-step inquiry: (1) whether it is justiciable;
(2) whether,
if the court has jurisdiction, it has the authority
to grant declaratory relief; and (3)
whether the court should exercise its discretion to decide the action. Orix Credit Alliance, Inc.
v.
Wolfe, 212 F.3d 891, 896 (5th Cir. 2000). With respect to the first prong, typically this becomes a
question of whether an "actual controversy" exists between the parties. Id. The statutory phrase
"case or controversy" refers to the types of "cases" or "controversies" that are justiciable under
Article III of the U.S. Constitution. Medlmmune, Inc.
v.
Genentech, Inc., 549 U.S. 118, 125-26
(2007). One of the "justiciability doctrines" is ripeness. United Transp. Union
v.
Foster, 205 F.3d
851, 857 (5th Cir. 2000) (citation omitted). "Ripeness separates those matters that are premature
because the injury is speculative and may never occur from those that are appropriate for judicial
review. Id. (citing Abbott Labs.
v.
Gardner, 387 U.S. 136, 148-49 (1967), overruled on other
grounds by Calfano v. Sanders, 430 U.S. 99 (1977)). "A case is generally ripe if any remaining
questions are purely legal ones; conversely, a case is not ripe if further factual development is
required." New Orleans Pub, Serv., Inc.
1987) (citing Thomas
v,
v.
Council ofNew Orleans, 833 F.2d 583, 586-87 (5th Cir.
Union Carbide Agric. Prods. Co., 473 U.S. 568, 581 (1985)). When
determining ripeness, the two primary considerations are "the fitness of the issues for judicial
decision and the hardship to the parties of withholding court consideration." AbbottLabs., 387 U.S.
at 148-49.
2.
Duty to Indemnify
Whereas the duty to defend is based upon the allegations in the pleadings and the so-called
eight-corners rule, the duty to indemnify "is triggered by the actual facts that establish liability in the
underlying suit." Guar. Nat'l Ins. Co.
v.
Azrocklndus. Inc., 211 F.3d 239, 243 (5th Cir. 2000).
Under Texas law, "an insurer's duty to indemnify generally cannot be ascertained until the
completion of litigation, when liability is established, if at all." Colony Ins. Co.
-5-
v.
Peachtree Constr.
Ltd., 647 F.3d 248, 253 (5th Cir. 2011) (citing Farmers Tex. Cnty. Mut. Ins. Co.
v.
Griffin, 955
S.W.2d 81, 84 (Tex. 1997)).
In Griffin, the Texas Supreme Court recognized an exception to this general rule. The court
held "the duty to indemnify is justiciable before the insured's liability is determined in the liability
lawsuit when the insurer has no duty to defend and the same reasons that negate the duty to defend
likewise negate any possibility the insurer will ever have a duty to indemnify." Griffin, 955 5 .W.2d
at 84. In other words, "[i]n some circumstances, the pleadings can negate both the duty to defend
and duty to indemnify." Burlington N & Santa Fe Ry. Co.
v.
Nat '1 Union Fire Ins. Co., 334 S.W.3d
217,220 (Tex. 201 1) (citing Griffin, 955 S.W.2d at 84). The GrfJIn exception is "fact specific" and
should not be construed broadly. D.R. HortonTex., Ltd.
v.
Markel Int'l Ins. Co., 300 S .W. 3d 740,
744 (Tex. 2009). The Texas Supreme Court has explained the rationale behind Griffin:
In GrfJIn, the insurance policy covered bodily injury or property damage "for which
any person becomes legally responsible because of an auto accident." Griffin, 955
S.W.2d at 82. Farmers sought a declaratory judgment that it had no duty to defend
or indemnify its insured under the facts pled in a suit brought by the victim of a
drive-by shooting. Id. at 8 1-82. This Court evaluated the duty to defend under the
eight-corners rule and held that a drive-by shooting could not constitute an "accident"
as contemplated by the language of the policy. Id. at 83. The Court then explained
that the pleadings alleging that the plaintiffs injuries resulted from a drive-by
shooting likewise negated "any possibility the insurer will ever have a duty to
indemnify." Id. at 84. In other words, under the facts pled by the plaintiffs it would
have been impossible for the insured defendant to show by extrinsic evidence that the
loss fell under the terms of the policy.
Burlington, 334 S.W.3d at 220.
B.
Application
State Farm filed this declaratory judgment action before the Texas state court's determination
of Watkins IY's liability. According to Mr. and Mrs. Watkins, the Underlying Suit is not even set
for trial yet. Mot. Dismiss [#4] at 2. Following the general rule in Texas, the instant case is
therefore not ripe. The Court could accept jurisdiction under the "limited circumstances" provided
for in the GrffIn exception, but the Court finds this case does not meet Griffin's requirements.
While there has been no briefing or argument on whether State Farm has a duty to defend, there also
appears to be no dispute State Farm has such a duty. State Farm is already providing the defense in
the Underlying Suit, it does not seek a declaration regarding its duty to defend, and it acknowledges
the express language and scope of coverage of the Policy have been implicated by the Underlying
Suit, Because State Farm has a duty to defend, it cannot satisfy the first requirement of the GrfJmn
exception, ie., that the insurer has no duty to defend. See GrfJIn, 955 S.W.2d at 84.
Moreover, there is no indication "the same reasons that negate the duty to defend likewise
negate any possibility the insurer will ever have a duty to indemnify." Id. In GrfJIn, the allegation
of a drive-by shooting negated the possibility the insurer would ever have a duty to indemnify. Id.
Here, Fisher's allegation is Watkins IV was driving, and his negligent driving caused Fisher's
accident and injuries. These allegations do not negate the possibility State Farm will ever have a
duty to indemnify. State Farm asks the Court to go ahead and decide the factual disputes based on
the testimony already elicited in the Underlying Suit, which contradicts Fisher's allegations. In other
words, State Farm asks the Court to find that Watkins IV was not driving and that any negligent acts
of the driver did not cause Fisher's accident. But the rule in Texas is "an insurer's duty to indemnify
generally cannot be ascertained until the completion of litigation, when liability is established, if at
all." Colony, 647 F.3d at 253 (citing Griffin, 955 S.W.2d at 84). The rule is not, as State Farm's
argument implies, the duty to indemnify can be ascertained before the completion of the underlying
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litigation if there is testimonyeven undisputed testimonynegating liability. State Farm cites no
authority for this contention, and the Court concludes it is inconsistent with clear Texas law.
Therefore, the facts must first be established in the state court by a fact finder before this
Court can address State Farm's duty to indemnify. If Watkins IV prevails on the fact question of
who was driving, then the indemnity question will be moot since he cannot be held liable if he was
kidnapped. If the fact finder instead determines Watkins IV was driving, then the indemnification
issue becomes ripe. Consideration of State Farm's duty to indemnify (and the various fact issues
implicated) will then be appropriate by this Court. See Brown & Root, Inc.
v.
Big Rock Corp., 383
F.2d 662, 665 (5th Cir. 1967) (describing an action as justiciable when "it can presently be litigated
and decided and not hypothetical, conjectural, conditional or based upon the possibility of a factual
situation that may never develop").
Alternatively, even assuming the Court could decide the indemnity question at this juncture,
it would not. The Declaratory Judgment Act "has been understood to confer 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). As already explained, some of the facts to be decided here
could overlap with those facts to be determined in the state court proceeding. Further factual
development is needed in the Underlying Suit to determine liability, and the Court exercises its
discretion in declining jurisdiction.
Conclusion
State Farm has failed to sue the proper
partyWatkins
IV. Even
if State Farm had sued
Watkins IV, however, the duty to indemnify question is not ripe because the resolution of the matter
is dependent on factual findings and factual development in the Underlying Suit. The factual
questions of who was driving the car and whether the alleged negligent acts of the driver proximately
caused Fisher's motorcycle wreck must be determined in the Underlying Suit first, not by this Court
in a collateral insurance coverage case.
The Court acknowledges this case is a strange one, and it is difficult to imagine a scenario
in which there will be coverage under the Policy. For instance, if the fact finder in the Underlying
Suit concludes Watkins IV actually was not the victim of a kidnapping and was driving the car
himself, he will be hard-pressed to escape his own sworn testimony that he was not driving in a
subsequent declaratory judgment action by State Farm on the indemnification question. In addition,
the Court can imagine potential problems for Watkins IV concerning whether he cooperated with
the insurance company and whether any criminal acts exceptions might apply. Nevertheless, those
musings are no more than hypotheticals at this time as Texas law makes plain State Farm's
declaratory judgment is not yet justiciable.
The Court therefore GRANTS the motion to dismiss for failure to join the proper parties
under Rule 12(b)(7) and for lack of subject matter jurisdiction under Rule 12(b)(1). Also, while
Fisher was added as a defendant by State Farm upon the request of Mr. and Mrs. Watkins, he has yet
to be served, and there is no reason to keep this case open on Fisher's account. As such, the Court
closes the case.
Accordingly,
IT IS ORDERED that Defendants' Motion to Dismiss [#4] and Supplemental Motion
to Dismiss [#11] are GRANTED; and
IT IS FiNALLY ORDERED that State Farm's complaint is DISMISSED WITHOUT
PREJUDICE.
SIGNED this the
,//'day of May 2015.
SAc172'4-'fz--UNITED STATES DISTRICT JUDGE
143 mtd ordjtw.frrn
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