Essex Insurance Company v. Napple's Bullpen, LLC et al
Filing
21
MEMORANDUM AND OPINION AND ORDER CONFIRMING PRONOUNCED ORDER OF THE COURTDENYING DEFENDANTS' MOTION TO DISMISS AND DEFERRING RULING ON PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT; 10 Motion to Dismiss is DENIED AND 14 Motion for Default Judgment is DEFERRED. Signed by Senior Judge Frederick P. Stamp, Jr. on 12/23/13. (copy to counsel of record via CM/ECF)(rjs)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
ESSEX INSURANCE COMPANY,
Plaintiff,
v.
Civil Action No. 5:13CV115
(STAMP)
NAPPLE’S BULLPEN, LLC,
a West Virginia limited
liability company,
PATRICK MICHAEL NAPPLE,
and WHEELING COIN, LLC,
a West Virginia limited
liability company,
Defendants.
MEMORANDUM OPINION AND ORDER
CONFIRMING PRONOUNCED ORDER OF THE COURT
DENYING DEFENDANTS’ MOTION TO DISMISS AND
DEFERRING RULING ON PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT
I.
Procedural History
Essex Insurance Company (“Essex”), the plaintiff, filed a
complaint in this Court requesting a declaratory judgment that it
does not have a duty to provide coverage to the named defendants,
Napple’s Bullpen, LLC (“Napple’s Bullpen”), Patrick Michael Napple
(“Napple”), and Wheeling Coin, LLC (“Wheeling Coin”), under a
commercial general liability insurance policy (Policy No. 3DF3504).
The plaintiff filed this complaint in order to determine the
rights, duties, and obligations of the parties under the insurance
policy in regards to a state court personal injury action (“Ayers
action”) that had been filed by Douglas Ayers (“Ayers”) against the
three defendants.
The Ayers amended complaint1 alleges that Ayers
was attacked in the parking lot of the Bullpen bar/tavern (Napple’s
Bullpen) after patronizing the bar.
Further, the Ayers complaint
claims that the three defendants, acting in a joint venture, are
liable for keeping the premises on which the attack occurred in a
dangerous condition and also are liable for his injuries because
they violated a West Virginia state regulation that prohibits the
sale of alcohol between the hours of 3:00 a.m. and 7:00 a.m.
In lieu of an answer, two defendants, Napple’s Bullpen and
Napple, filed a motion to dismiss for lack of subject matter
jurisdiction (this is filed as ECF Nos. 8 and 10).
The plaintiff
filed a timely response in opposition to the motion to dismiss.
Wheeling Coin, however, has not made an appearance in this case nor
participated in any way.
Accordingly, the plaintiff filed an
affidavit for entry of default.
The Clerk of Court, finding that
Wheeling Coin had defaulted, entered an entry of default on
December 4, 2013.
The plaintiff then filed a motion for default
judgment as to Wheeling Coin with this Court under Federal Rule of
Civil Procedure 55(b)(2). This Court then scheduled an evidentiary
hearing on December 19, 2013 at 3:15 p.m. Essex, Napple’s Bullpen,
and Napple attended the hearing through counsel. Wheeling Coin did
not attend.
During that hearing, this Court found that it had
1
The plaintiff filed an amended complaint in order to join
Wheeling Coin as a defendant after discovery revealed that Wheeling
Coin could possibly be liable for the alleged conduct.
2
jurisdiction and thus the defendants’ motion to dismiss was denied.
Further, this Court found that it must defer making a finding on
the plaintiff’s motion for default judgment against Wheeling Coin.
This order sets forth those findings in more detail.2
II.
A.
Facts
Motion to Dismiss for Lack of Subject Matter Jurisdiction
In the plaintiff’s complaint in the current action, the
plaintiff claims that it is not required to provide a defense for
any of the defendants, although it is currently providing a defense
for Wheeling Coin in the state court action under a reservation of
rights agreement.
The plaintiff asserts that it does not have to
indemnify Wheeling Coin under its insurance policy because the
state court action is for premises liability and a violation of
public safety laws.
Under the insurance policy, there is an
exemption of coverage for liquor liability.
The plaintiff claims
that the Ayers action falls within that exemption because the
statutory public safety laws claimed by Ayers relate to the sale,
gift,
or
distribution
of
liquor
which
is
thus
not
covered.
Further, the plaintiff asserts that it has no duty to the other two
defendants because they were not insured under the policy.
In the
alternative, if the Court finds that they were, the plaintiff
2
A scheduling order was also discussed during the evidentiary
hearing. However, this Court has set forth the scheduling order in
a separate order. See ECF No. 20.
3
asserts the same claims against those two defendants as against
Wheeling Coin.
Napple’s Bullpen and Napple filed a motion to dismiss in
response to the complaint.
The motion to dismiss sets forth an
argument that this Court should follow the Charles v. State Farm
Mutual Auto Ins. Co., 452 S.E.2d 384 (1994), and Mitcheson v.
Harris, 955 F.2d 235 (4th Cir. 1992), decisions.
The defendants
argue that Charles and Mitcheson stand for the policy that a
federal district judge should decline to entertain an insurer’s
declaratory judgment action when the primary litigation seeking
recovery from the insured is pending in state court at the time the
federal action is filed. Thus, because the Ayers action is pending
in state court, the defendants argue that this Court should decline
to hear the plaintiff’s action.
The
plaintiff
filed
a
response
in
opposition
to
the
defendants’ motion to dismiss arguing that there is no pending
action in state court that must be resolved before this Court can
address the plaintiff’s claims.
Further, the plaintiff contends
that this is an appropriate declaratory action because it involves
nothing more than applying the insurance policy provisions to the
allegations against the insured.
The plaintiff goes on to state
that the defendants’ characterization of the Charles and Mitcheson
holdings is incorrect and that in reality, the rule is that a
district court should hear a declaratory judgment action and the
4
exception is to dismiss it.
Additionally, the plaintiff claims
that the defendants failed to apply the Nautilus Ins. Co. v.
Winchester Homes, Inc., 15 F.3d 371 (4th Cir. 1994), four factor
test which the plaintiff argues is in its favor because: (1) West
Virginia does not have a strong interest in deciding the action for
declaratory judgment because this case provides no novel issues
that are difficult, complex, or unsettled because assault and
battery issues under the liquor liability exclusions have been
previously addressed, and the law is clear, in West Virginia; (2)
the federal courts are equally equipped to resolve the issues
efficiently and may be better equipped because there are different
parties in the federal action than there are in the state action,
and
the
applicable
law
is
well
developed;
(3)
there
is
no
unnecessary entanglement because there are no overlapping issues of
fact or law because there is no parallel declaratory action in
state court -- this Court’s decision will not effect the liability
issues in state court; and (4) the plaintiff is not forum shopping
because there are different parties and different factual and legal
issues involved in the two cases.
No reply was filed by the two defendants. Thus, the motion to
dismiss was fully briefed at the time of the evidentiary hearing.
B.
Motion for Default Judgment
In its motion for default judgment against Wheeling Coin, the
plaintiff claims that it is not responsible for insuring Wheeling
5
Coin because there is an exemption in the insurance agreement which
exempts coverage if Wheeling Coin violated a state alcohol law.
Also, the plaintiff contends that Wheeling Coin is not entitled to
coverage if an assault and battery is the crux of the underlying
claim under the Habitational Combination Endorsement, which exempts
from coverage assaults and battery that were caused by a patron,
employee, or any other person. Additionally, the plaintiff asserts
that because “occurrence” means “an accident, including continuous
or repeated exposure to substantially the same general harmful
conditions”
under
the
applicable
insurance
incident involving Ayers does not qualify.
policy,
that
the
Further, the plaintiff
argues that the other two defendants were not named as an insured
in the insurance agreement with Wheeling Coin and thus are not
covered.
However, the plaintiff asserts that if they are covered,
then the plaintiff is still not required to defend the other
defendants against the claims of the injured third party based on
the same reasoning exempting Wheeling Coin from its defense.
At the evidentiary hearing, the two non-defaulting defendants
argued that to the extent that the plaintiff’s motion applies to
them, they believe an entry of default judgment by this Court would
be premature.
The defendants contended that there are several
factual issues that have yet to be addressed and resolved because
there has been limited discovery in the Ayers action. Further, the
defendants asserted that the Ayers amended complaint could be
6
amended again as the discovery process moves forward. Finally, the
defendants contended that it could be found that Napple’s Bullpen
is in reality Wheeling Coin but by another name and thus although
the defendants are not named insureds in the policy, they may be
covered because there is no distinction, in terms of control,
management, etc., between Wheeling Coin and Napple’s Bullpen.
The
plaintiff
addressed
the
defendants’
arguments
by
requesting again that this Court enter a default judgment against
Wheeling Coin.
Further, the plaintiff argued that in looking at
the four corners of the Ayers amended complaint, pursuant to West
Virginia case law, the plaintiff must consider that coverage of all
the defendants is possible because of Ayers’ claim that the three
defendants were in a “joint venture.”
See Ayers Am. Compl. ¶ 9.
The plaintiff, however, reiterated its argument that Wheeling Coin
cannot claim a right to coverage because of the alcohol and battery
exemptions in the insurance policy, and because there was not an
“occurrence” that would trigger coverage.
Thus, even if the
plaintiff assumes the complaint is true, the plaintiff would still
not have a duty to provide coverage to any of the defendants nor
have a duty to defend the defendants in the Ayers action.
III.
A.
Applicable Law
Motion to Dismiss for Lack of Subject Matter Jurisdiction
The Federal Rules of Civil Procedure provide that, prior to
filing
a
responsive
pleading,
a
7
defendant
may
challenge
the
district
court’s
subject
matter
jurisdiction
over
the
claims
brought against it by filing a motion to dismiss under Rule
12(b)(1).
The federal district courts are courts of limited
jurisdiction, and may only hear cases over which they have been
granted jurisdiction either by statute or by the Constitution.
When a defendant brings a motion under Rule 12(b)(1), a court must
dismiss the case against it if the court finds that it “lacks the
statutory or constitutional power to adjudicate it.”
Makarova v.
United States, 201 F.3d 110, 113 (2d Cir. 2000).
Once subject matter jurisdiction has been challenged, it is
the plaintiff’s “burden of proving that subject matter jurisdiction
exists.”
1999).
Evans v. B. F. Perkins Co., 166 F.3d 642, 647 (4th Cir.
Further, because subject matter jurisdiction cannot be
waived by the court or by the parties, and if lacking, renders the
district court wholly unable to rule on any matter in controversy,
in resolving a motion to dismiss for lack of subject matter
jurisdiction under Rule 12(b)(1), a district court “may refer to
evidence outside the pleadings without converting the proceeding to
one for summary judgment.”
Richmond, F. & P. R. Co. v. United
States, 945 F.2d 765, 768 (4th Cir. 1991).
B.
Motion for Default Judgment
To obtain a default judgment, a party must first seek an entry
of default under Federal Rule of Civil Procedure 55(a). Under Rule
55(a), an entry of default is appropriate “[w]hen a party against
8
whom a judgment for affirmative relief is sought has failed to
plead or otherwise defend . . . .”
Fed. R. Civ. P. 55(a).
Once
default is entered by the clerk, the party may seek a default
judgment under Rule 55(b)(1) or (2), depending on the nature of the
relief sought.
If the plaintiff’s claim is for “a sum certain” or
a “sum that can be made certain by computation,” the plaintiff may
seek entry of default judgment from the Clerk under Rule 55(b)(1).
However, in cases in which the plaintiff seeks a form of relief
other than liquidated damages, Rule 55(b)(2) requires plaintiff to
seek an entry of default judgment from the court.
It is well-established in the United States Court of Appeals
for the Fourth Circuit that default judgments are to be granted
sparingly.
951,
954
See, e.g., Lolatchy v. Arthur Murray, Inc., 816 F.2d
(4th
Cir.
1987).
“[T]rial
judges
are
vested
with
discretion, which must be liberally exercised, in entering such
judgments and in providing relief therefrom.”
United States v.
Moradi, 673 F.2d 725, 727 (4th Cir. 1982).
However, default
judgment is available “when the adversary process has been halted
because of an essentially unresponsive party.” S.E.C. v. Lawbaugh,
359 F. Supp. 2d 418, 421 (D. Md. 2005) (citing Jackson v. Beech,
636 F.2d 831, 836 (D.C. Cir. 1980)).
A defaulting party admits the plaintiff’s well-pleaded factual
allegations in the complaint, in contrast to the allegations
regarding damages. Ryan v. Homecomings Fin. Network, 253 F.3d 778,
9
780 (4th Cir. 2001).
The party in default, however, is not held to
admit conclusions of law.
Id.
IV.
A.
Discussion
Motion to Dismiss for Lack of Subject Matter Jurisdiction
In their motion to dismiss, the defendants simply state that
because the plaintiff has filed this action in order to determine
its rights and duties pursuant to the insurance policy, and there
is
a
pending
jurisdiction
state
and
court
abstain
action,
from
this
hearing
Court
this
should
action.
In
deny
its
response, the plaintiff goes through each of the Nautilus factors
listed above and argues that this Court should retain jurisdiction
based on the application of those factors to this case. This Court
found, during the evidentiary hearing, that none of the Nautilus
factors would require this Court to abstain from hearing this
action.
Abstention is a doctrine in which a federal court will decline
to adjudicate an issue over which it has jurisdiction in order to
allow deference to a state court on that issue.
F.3d 371.
See Nautilus, 15
It is intended to allow a state court to decide issues
which are more properly decided in that forum rather than in a
federal court, in a context where a parallel state proceeding is
ongoing concurrently with a federal proceeding.
Id. at 377.
Under the Declaratory Judgment Act, 28 U.S.C. § 2201, federal
courts are not required to hear declaratory judgment actions.
10
See
Nautilus, 15 F.3d at 375.
Rather, a district court’s decision to
hear such a case is discretionary.
Id.
Initially, the Fourth
Circuit in Mitcheson v. Harris, 955 F.2d 235, 237-40 (4th Cir.
1992), indicated that when determining whether to entertain a
declaratory judgment action, a district court should consider:
(i) the strength of the state’s interest in having the
issues raised in the federal declaratory judgment action
decided in the state courts; (ii) whether the issues
raised in the federal action can more efficiently be
resolved in the court in which the state action is
pending; and (iii) whether permitting the federal action
to go forward would result in unnecessary “entanglement”
between the federal and state court systems, because of
the presence of overlapping issues of fact or law.
Id. (as cited in Nautilus Ins. Co. v. Winchester Homes, Inc., 15
F.3d 371, 377 (4th Cir. 1994)).
Circuit
added
that
courts
Later, in Nautilus, the Fourth
should
also
consider
“whether
the
declaratory judgment action is being used merely as a device for
‘procedural fencing’ -- that is, ‘to provide another forum in a
race for res judicata’ or ‘to achieve a federal hearing in a case
otherwise not removable.’” 15 F.3d at 377 (quoting 6A J. Moore, B.
Ward & J. Lucas, Moore’s Federal Practice, ¶ 57.08[5] (2d ed.
1993)).
1.
The
state
State Court’s Interest
court’s
interest
in
judgment action is not a strong one.
hearing
this
declaratory
First, this case provides no
novel issues that are difficult, complex, or unsettled.
This case
involves an alleged assault and battery that occurred at Napple’s
11
Bullpen.
These issues have been previously addressed in West
Virginia case law as they relate to liquor liability exclusions in
an insurance policy.
Further, this Court would not have to
adjudicate any of the issues that are now pending in the Ayers
action because the plaintiff Essex is not a party to the Ayers
action.
Thus, this Court would not be treading on the state
court’s authority to make the primary determinations of liability
in the Ayers action.
2.
Efficiency
The issues raised by the plaintiff are issues that this Court
can resolve and are issues similar to those that this Court has
resolved in the past.
Additionally, this Court, because of its
location in the Northern District of West Virginia, is familiar
with West Virginia case law.
Further, this Court will be able to
efficiently proceed with this action.
3.
Entanglement
Additionally, there is no unnecessary entanglement because
there are no overlapping issues of fact or law between this action
and the Ayers action.
The Ayers action deals with claims of
premises liability and a violation of the West Virginia Code,
whereas this case deals with the applicability of coverage under
the insurance policy in question.
Further, as stated previously,
the plaintiff is not a party in the Ayers action and no declaratory
12
relief has been asserted by any of the parties in the Ayers action
against the plaintiff.
4.
Procedural Fencing
Finally, the plaintiff is not forum shopping because there are
different parties and different factual and legal issues involved
in the two cases.
The plaintiff thus cannot be said to be
attempting to win a race for res judicata because the determination
of declaratory relief in this Court will be much different than a
liability determination in the Ayers action.
Accordingly, because the application of the Nautilus factors
do not counsel in favor of this Court abstaining from hearing this
action, this Court finds that it has subject matter jurisdiction in
this case.
B.
Thus, the defendants’ motion to dismiss is denied.
Motion for Default Judgment
In
the
Ayers
amended
complaint,
Ayers
defendants were involved in a joint venture.
claims
that
the
Thus, Ayers claims
that his allegations do not simply apply to a certain defendant
independently. The parties addressed the merits of their claims at
the evidentiary hearing and in their briefs to this Court.
This
Court, however, must consider the implication of Federal Rule of
Civil Procedure 54(b) which states that:
When an action presents more than one claim for relief -whether as a claim, counterclaim, crossclaim, or thirdparty claim -- or when multiple parties are involved, the
court may direct entry of a final judgment as to one or
more, but fewer than all, claims or parties only if the
court expressly determines that there is no just reason
13
for delay.
Otherwise, any order or other decision,
however designated, that adjudicates fewer than all the
claims or the rights and liabilities of fewer than all
the parties does not end the action as to any of the
claims or parties and may be revised at any time before
the entry of a judgment adjudicating all the claims and
all the parties’ rights and liabilities.
Accordingly, this Court may not enter a default judgment against
Wheeling Coin in this case unless it first expressly determines
that there is no just reason for delay.
If no such determination
can be made, then this Court must defer a finding on the merits of
the claims made by the plaintiff and then proceed with the action
as to the other defendants.
Frow v. De La Vega, 82 U.S. 552, 554
(1872); see also Home Ins. Co. of Illinois v. Adco Oil Co., 154
F.3d 739, 741 (7th
Cir. 1998) (citing Frow for the rule that “[i]n
a suit against multiple defendants a default judgment should not be
entered against one until the matter has been resolved as to
all.”); Loyless v. Oliveira, 1:09–CV–239, 2011 WL 3703535 at n.2
(E.D. Tenn. Aug. 23, 2011) (“When default is entered against one of
multiple defendants in a case, the preferred practice is to
withhold granting a default judgment until the trial of the action
on the merits against the remaining defendants.”).
The defaulting
defendant thus loses his standing in court and “will not be
entitled to service of notices in the cause, nor to appear in it in
any way, [h]e can adduce no evidence, [and] he cannot be heard at
the final hearing.”
Frow, 82 U.S. at 554.
Thus, if the suit is
found in favor of the remaining, non-defaulting defendants, then
14
the defaulting party is entitled to the same finding.
Id.
On the
other hand, if the merits are decided against the remaining, nondefaulting defendants, the defaulting party will have the same
finding applied to it.
Id.
“This principle is designed to avoid inconsistent verdicts, as
it would be incongruous and unfair to allow a plaintiff to prevail
against defaulting defendants on a legal theory that was rejected
with regard to answering defendants in the same action.”
See
Angelo Iafrate Constr., LLC v. Potashnick Constr., Inc., 370 F.3d
715, 722 (8th Cir. 2004).
“To avoid such inconsistent results, a
judgment on the merits for the answering party should accrue to the
benefit of the defaulting party.”
Id. (citations omitted).
In this case, this Court has not found that there is no just
reason for delay. The Ayers complaint, along with the arguments of
the non-defaulting defendants as to coverage of the insurance
policy, make it apparent that there are overlapping claims between
the defendants.
Thus, if a default judgment on the merits was
entered against Wheeling Coin at this time, there is at least a
possibility that inconsistent judgments by this Court would be
entered.
Also, this is not a case where the claims against the
defendants are independent of each other and thus this Court may
not make a determination that there is no just reason for delay.
Curtiss-Wright v. General Elec. Co., 446 U.S. 1, 8 (1980) (in
making such a determination the Court must consider “whether the
15
claims under review were separable from the other remaining to be
adjudicated and whether the nature of the claims already determined
was such that no appellate court would have to decide the same
issues more than once even if there were subsequent appeals.”).
This Court notes that deferment does not allow Wheeling Coin
to participate in the action, but rather only defers judgment
pending resolution of the action as to the other two non-defaulting
defendants.
Thus, as of December 4, 2013, because default was
entered against Wheeling Coin, Wheeling Coin has no right at this
time to present evidence or a right to appear in this action.
Accordingly, this Court defers judgment on the plaintiff’s motion
for default judgment on the merits against Wheeling Coin.
V.
Conclusion
For the reasons stated above, the defendants’ motion to
dismiss (ECF No. 10) is DENIED and the plaintiff’s motion for
default judgment as to Wheeling Coin, LLC (ECF No. 14) is DEFERRED.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:
December 23, 2013
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
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