Potter v. Davis et al

Filing 23

OPINION AND ORDER Granting 8 Motion ; Denying 12 Motion to Dismiss for Failure to State a Claim. For the reasons stated above, the Court GRANTS the Motion to Realign the Parties, Doc. 8. but DENIES the Motion to Dismiss. Doc. 12. It is so ORDERED. Signed by District Judge Henry C. Morgan, Jr on 8/31/15 and filed 9/8/15. Copies distributed to all parties 9/8/15. (ldab, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Norfolk Division

RUSSELL LLOYD POTTER,

Plaintiff,

v.

Civil Action No. 2:15cv266

ALVERTA VANESSA DAVIS et al.,
Defendants.

OPINION AND ORDER

This matter is

before the

Court on

Defendant American

Alternative

Insurance

Corporation's ("AAIC") Motion to Dismiss ("Motion"), Doc. 12, and Motion to Realign the
Parties, Doc. 8. The Motion to Realign is unopposed and is hereby GRANTED. AAIC seeks

dismissal of the case on the grounds that "any declaration rendered by this Court would be

advisory, speculative, and may well prove moot." Doc. 13 at 12. Despite AAICs role as an
excess insurer, however, the Court DENIES AAICs Motion due to "the practical likelihood" that
an actual controversy will arise.
I.

BACKGROUND

A. Procedural History

Plaintiff Russell Potter filed a suit in Virginia state court for personal injuries on October

14, 2014 and an Amended Complaint on April 1, 2015. See Doc. 9, Ex. 1. The only named
defendant in that action is Alverta Davis, allegedly the driver of the vehicle that caused Mr.
Potter's injuries. Id. The case is currently set for a jury trial on March 14, 2016, where Plaintiff

seeks five-hundred thousand dollars in damages for personal injuries.

On May 6, 2015, Mr. Potter filed an additional case in the same state court, this time

seeking a declaratory judgment as to the rights and duties of the insurance providers allegedly
implicated by the facts of the underlying claim. Doc. 1, Ex. 1. AAIC, one of those new
defendants, removed the declaratory judgment case to this Court on June 12, 2015. See id. That

same day, AAIC filed its Motion to Realign the Parties seeking to establish complete diversity of
citizenship for the purpose of federal jurisdiction. Doc. 8.
AAIC filed the instant Motion, along with its supporting memorandum, on June 19, 2015.
See Doc. 12. On July 2, 2015, Mr. Potter filed his Memorandum in Opposition, Doc. 18, which
was quickly joined by other defendants, Doc. 19. AAICs Reply was then timely filed on July 8,
2015. Doc. 20.

B. Alleged Facts1
On December 28, 2012, Mr. Potter and Ms. Davis were involved in an automobile

accident in Virginia Beach, Virginia. Doc. 13 at 2. Mr. Potter alleges that the accident occurred

at the fault of Ms. Davis, and claims that at the time of the accident, Ms. Davis was acting within
the scope of her employment with HNH Virginia, Inc. d/b/a Hand 'N Heart ("HNH"). Id. at 3.

Ms. Davis is personally insured through Progressive Northern Insurance Company
("Progressive") with a relevant policy limit of $25,000. l± Mr. Potter is personally insured
through State Farm Mutual Automobile Insurance Company ("State Farm") with a relevant

policy limit on underinsured motorist coverage of $250,000. Id. HNH maintains a corporate
insurance policy with AAIC that provides excess liability coverage for certain instances

involving "hired" or "non-owned" automobiles, id. Although the parties disagree as to the
"In considering a motion to dismiss, [the Court] accept[s] as true all well-pleaded allegations and view[s] the
complaint in the light most favorable to the plaintiff." Venkatraman v. RE1 Svs.. Inc.. 417 F.3d 418, 420 (4th Cir.
2005) (citing Mvlan Labs.. Inc. v. Matkari. 7 F.3d 1130, 1134 (4th Cir. 1993)). The Court cautions, however, that
the facts alleged by Plaintiffare recited here for the limited purpose of deciding the instant Motion. The recited

facts are not factual findings upon which the parties may rely for any other issue in this proceeding.

appropriate application of HNH's excess policy to the facts of this case, the factual
determinations necessary to resolve that dispute are reserved for a different stage of litigation.

Therefore, for the purposes of the instant Motion only, the Court assumes that the HNH policy is
implicated by the facts of the underlying case.
II.

LEGAL STANDARD

AAIC brought the instant Motion under Federal Rules of Civil Procedure 12(b)(1) and
12(b)(6). In its Reply however, AAIC recognizes that the "only issue" at this time is whether
Davis' case will ever "ripen into an actual controversy." Doc. 20 at 1-2. AAIC argues that,
because of this uncertainty, this Court should not exercise its jurisdiction under the Declaratory

Judgment Act. In past cases, this Court has applied the same standard "[rjegardless of whether
the motion was brought forth under Rule 12(b)(1) or 12(b)(6)." See, e.g.. Kettler Int'l. Inc. v.
Starbucks Corp.. 55 F. Supp. 3d 839, 846 (E.D. Va. 2014).

The Declaratory Judgment Act limits issuance of a declaratory judgment to cases

involving an "actual controversy." 28 U.S.C. § 2201(a). If no actual controversy exists, the
court lacks subject matter jurisdiction to consider the claim. Aetna Life Ins. Co. of Hartford.
Conn, v. Haworth. 300 U.S. 227, 239-40 (1937). "[A] declaratory judgment may not be given

for a purely hypothetical situation [or as] . . . an advisory opinion." A.S. Abell Co. v. Chell. 412
F.2d 712, 719 (4th Cir. 1969). "Basically, the question in each case is whether the facts alleged,
under all the circumstances, show that there is a substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a
declaratory judgment." Medlmmune, Inc. v. Genentech. Inc.. 549 U.S. 118, 127 (2007) (quoting
Md. Cas. Co. v. Pac. Coal & Oil Co.. 312 U.S. 270,273 (1941)).

The Fourth Circuit has identified three elements to assist with this analysis. First, the

complaint must allege an "'actual controversy'" between the parties '"of sufficient reality to
warrant issuance of a declaratory judgment.'" Volvo Const. Equip. North America. Inc. v. CLM
Equip. Co.. 386 F.3d 581, 592 (4th Cir. 2004) (quoting 28 U.S.C. § 2201); see also Medlmmune.

Inc.. 549 U.S. at 127 (quoting Md. Cas. Co.. 312 U.S. at 273). Second, there must be an

independent basis for jurisdiction over the parties. Volvo, 386 F.3d at 592. Finally, the district
court cannot abuse its discretion in exercising jurisdiction. Id
III.

DISCUSSION

A. Motion to Realign Parties

In determining whether to permit the realigning of parties, the Fourth Circuit has laid out
a "two-step 'principal purpose' test." Builders Mut. Ins. Co. v. Dragas Memt. Corp.. 497 F.

App'x 313, 316 (4th Cir. 2012) (quoting U.S. Fid. & Guar. Co. v. A & S Mfg. Co., 48 F.3d 131,
133 (4th Cir. 1995)). First, the Court must "determine the primary issue in the controversy by
considering the 'plaintiffs principal purpose for filing its suit."'

Id. (quoting Palisades

Collections LLC v. Shorts. 552 F.3d 327, 337 (4th Cir. 2008)). Second, the Court "align[s] the

parties according to their positions with respect to the primary issue." Id
In the Motion to Realign, AAIC states that "the primary question is whether the AAIC

Policy affords additional liability coverage to Davis for the claims asserted by Potter in the
Underlying Lawsuit in connection with the accident." Doc. 9 at 3. Mr. Potter, Ms. Davis, and
Progressive each filed a response indicating that they had no objection to the realignment of the
parties and that they had no intention of seeking remand. See Docs. 14-16.

With regard to AAICs potential liability as an excess insurer, the "principal purpose" of

this declaratory action, the interests of all other relevant parties2 are opposed to AAIC because
each of them would benefit, either financially or at the negotiating table, from an adverse ruling

against AAIC. Therefore, the Court GRANTS the Motion to Realign the Parties and ORDERS
that Ms. Davis, Progressive, and State Farm are to be considered as Plaintiffs for the duration of
this case. In doing so, complete diversity is created for the purposes of establishing subject
matter jurisdiction, and the Court may move past that threshold issue. See Doc. 9 at 4.
B. Motion to Dismiss

In broad terms, AAIC argues that this case is not ripe for federal review. Primarily,
AAIC claims that, based upon the Virginia law which prohibits direct suits against insurers, Mr.
Potter is barred from proceeding against AAIC in this action unless he first obtains a judgment in

the underlying case and has had that judgment returned unexecuted. See Doc. 13 at 12 (citing
Va. Code § 38.2-2200). As neither of those prerequisites has occurred, AAIC argues that this
case should be dismissed as unripe.

This argument based on state law is unpersuasive, however, "because the Declaratory
Judgment Act is procedural in nature." Nationwide Mut. Ins. Co. v. Welker. 792 F. Supp. 433,
439 (D. Md. 1992) (citing Aetna. 300 U.S. at 240 (stating that "the operation of the Declaratory
Judgment Act is procedural only")). Consequently, "federal law determines whether a federal

court may properly render a declaratory judgment [and sjtate substantive law addressing this
subject is simply inapposite." Nat'l R.R. Passenger Corp. v. Consol. Rail Corp., 670 F. Supp.
424, 429 (D.D.C. 1987) (citing Farmers Alliance Mut. Ins. Co. v. Jones. 570 F.2d 1384, 1386

(10th Cir. 1978)); see also Chapman v. Clarendon Nat. Ins. Co.. 299 F. Supp. 2d 559, 563 (E.D.

2Although HNH isalso listed as AAICs co-defendant in Mr. Potter's original pleadings, thecompany is not relevant
to this discussion because of its status as a "nominal party" relative to the principal purpose of the declaratory action.

Va. 2004) (citing First Nationwide Mortgage Corp. v. FISI Madison. LLC, 219 F. Supp. 2d 669,

672 n.l (D.Md. 2002)) (stating that "once removed, an action originally filed under Virginia
Code § 8.01-184 is treated by the federal court as though it had been filed under 28 U.S.C.
§ 2201"). Accordingly, Virginia's statutory prerequisites to a state-court declaratory judgment
action do not bar the instant federal case from proceeding on jurisdictional grounds.

Despite the Court's rejection of Mr. Potter's state-law based argument against AAICs
Motion, the inquiry as to ripeness is not yet conclusively terminated.

The Court must

independently ensure that all jurisdictional requirements are satisfied. Al Shimari v. CACI Int'l.
Inc.. 679 F.3d 205, 267 (4th Cir. 2012) (quoting Steel Co. v. Citizens for a Better Env't. 523 U.S.

83, 94 (1998) (stating that the "requirement that jurisdiction be established as a threshold matter
spring[s] from the nature and limits of the judicial power of the United States' and is inflexible
and without exception")).

Here, for the reasons explained above, that inquiry necessitates

examination into whether the "actual controversy" requirement of the Declaratory Judgment Act
is properly met. See Volvo. 386 F.3d at 592 (quoting 28 U.S.C. § 2201(a)).

Strictly speaking, the facts at issue in determining AAICs liability have yet to develop.
AAIC is an excess insurer, and therefore, its vulnerability to liability is inevitably contingent

upon the results of the underlying state court case. Merely because a declaratory judgment case
in the insurance context involves a contingency "does not necessarily defeat jurisdiction."

Associated Indem. Corp. v. Fairchild Indus.. Inc.. 961 F.2d 32, 35 (2d Cir. 1992).

In fact,

"litigation over insurance coverage has become the paradigm for asserting jurisdiction despite
future contingencies that will determine whether a controversy ever actually becomes real." Id

In the more specific context of excess insurance policies, courts have specifically found that
merely because there is uncertainty as to whether the primary insurance limits will be exceeded

"does not perse defeat jurisdiction." Cushman & Wakefield. Inc. v. Illinois Nat'l Ins. Co.. No.
14 C 8725, 2015 WL 2259647, at *4 (N.D. 111. May 11,2015).

Rather, in determining whether a declaratory judgment action involving an excess insurer

is ripe for adjudication, "courts should focus on 'the practical likelihood*" that the excess
insurance policy will be implicated. Associated Indem. Corp.. 961 F.2d at 35 (quoting 10A

Wright, Miller & Kane, Federal Practice & Procedure § 2757 at 587 (2d ed. 1983)). In doing so,
"[cjourts have refrained from making a detailed examination of the policy terms and exclusions

[because s]uch an inquiry ... is better left to a later stage in the litigation." Tocci BIdg. Corp. of
New Jersev v. Virginia Sur. Co.. 750 F. Supp. 2d 316, 323 (D. Mass. 2010). Instead, many

courts have simply "compared the amount claimed against the insured to the attachment point of
the relevant excess insurance." See, e.g., Cushman. 2015 WL 2259647, at *4 (citing Tocci. 750
F.Supp.2dat321).

For example, in Tocci BIdg. Corp.. the primary insurance coverage at issue was

$2,000,000 per occurrence and $4,000,000 per year. 750 F. Supp. 2d at 322. The claim for

damages in the underlying action was for over $40,000,000 over no more than three years. JcL
Assuming the plaintiffs allegations were true, as required at this stage of litigation, the district
court found that an actual controversy existed between plaintiff and the excess insurer because

the alleged damages far exceeded the policy limits of the primary insurance carrier. Id at 322—
23 (citing Bankers Trust Co. v. Old Republic Ins. Co.. 959 F.2d 677, 681 (7th Cir. 1992) ("Were

there only a 10 percent chance of its obtaining a judgment in excess of those limits ... the
actuarial value of its claim against [the excess insurer] would still be substantial"); Clark Constr.
Grp.. Inc. v. Eagle Amalgamated Serv.. Inc.. No. 01-2478, 2005 WL 946911, at *3 (W.D. Tenn.

Mar. 9. 2005) (finding a practical likelihood of exceeding the $1 million policy limit given that
the underlying claim was for more than $1 million)).

In the underlying personal injury suit pending before the state court, Mr. Potter seeks

damages in the amount of$500,000. Doc. 1. Ex. 1at 8.3 Progressive, the primary insurer, has
already tendered an irrevocable offer for the total amount of its policy limit of $25,000. See
Doc. 18, Ex. 8 at 1. Viewing "the complaint in the light most favorable to" Mr. Potter, see
Venkatraman. 417 F.3d at 420, it is reasonable for the Court to conclude at this stage of the

litigation that there is a sufficiently "practical likelihood that the excess insurance policy will be
implicated" for an actual controversy to exist involving AAIC. See Associated Indem. Corp..
961 F.2d at 35. Accordingly, the instant Motion is DENIED.
IV.

CONCLUSION

For the reasons stated above, the Court GRANTS the Motion to Realign the Parties, Doc.
8. but DENIES the Motion to Dismiss. Doc. 12.

The Clerk is REQUESTED to send a copy of this Order to all counsel of record.
It is so ORDERED.

/s/

Henry Coke Morgan, Jr.
Senior United States District Jus
HENRYC VKE MORGAN. JR.

SENIOR UNITED STATES DISTRICT JUDGI

Norfolk. Virginia

August 3ig| 2015

3Despite the parties attempts to mark and number exhibits, these markings do not always correspond to how those
exhibits were uploaded to the Court's electronic docket. Therefore, to ensure ease and clarity of citation, the Court
cites to documents and exhibits exclusively in the order and manner in which they were filed on the docket,

regardless of any physical markings on the documents themselves.
8