McNeely et al v. Soyoola et al

Filing 32

MEMORANDUM OPINION & ORDER denying as moot Oceanus Insurance Company's 4 MOTION to Dismiss; dismissing Oceanus Insurance Company's 4 MOTION to Sever; denying as moot Oceanus Insurance Company's 24 MOTION to Consolidate Cases. Signed by Judge John T. Copenhaver, Jr. on 7/9/2013. (cc: attys; any unrepresented party) (tmr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
JAMIE L. MCNEELY, individually and as
the natural mother and next friend of
TRACE JAMES MCNEELY,
Plaintiffs,
v.

Civil Action No. 2:12-cv-8727

EMMANUEL O. SOYOOLA, MD and
OLAN COMPREHENSIVE WOMEN’S HEALTHCARE CENTER and
OCEANUS INSURANCE COMPANY,
Defendants.

MEMORANDUM OPINION & ORDER
Pending is the motion by Oceanus Insurance Company
(“Oceanus”) to dismiss or sever, filed December 17, 2012, and its
motion to consolidate this case with another case pending in this
court, filed June 12, 2013.

I. Background
This “medical malpractice case arises out of the
traumatic birth of a newborn infant at Logan Regional Medical
Center . . . on November 10, 2005.”

3d. Amend. Compl. ¶ 4.

Plaintiff Jamie L. McNeely is a resident of Monaville, West

Virginia.

Id. ¶ 1.

She is the “natural mother and next friend

of” Trace James McNeely (“Baby Trace”).

Id. ¶ 2.

Dr. Emmanuel O.

Soyoola is a resident of Logan, West Virginia and an agent of Olan
Comprehensive Woman’s Healthcare Center (“Olan Comprehensive”), a
West Virginia business.

Id. ¶ 2.

The third amended complaint (“the complaint”) sets forth
the following allegations of fact.

Baby Trace’s birth was carried

out by “elective induction” under the care of Dr. Soyoola.
¶¶ 5, 17.

Id.

McNeely alleges that the delivery was “a disaster”

caused by “[a]n avoidable medical error.”

Id. ¶¶ 6-7.

As a

result of that error, Baby Trace suffered a traumatic brain injury
and now suffers from hypoxic ischemic encephalopathy.

Id. ¶¶ 8-

11.
Oceanus Insurance Company issued an insurance policy to
Dr. Soyoola and Olan Comprehensive effective August 1, 2004 and
expiring on August 1, 2005.

Id. ¶ 33.

The policy was renewed

over four consecutive policy periods, extending from August 1,
2005 to August 1, 2009.

Id. ¶ 34.

The policy is a “claims made

malpractice policy” with policy limits of $1 million per claim.
Id.

It was “cancelled, nonrenewed and/or terminated” on August 1,

2009, by which time the medical malpractice claim herein had not
been made.

Id. ¶ 35.

At the policy’s termination, Oceanus did

not offer Dr. Soyoola and Olan Comprehensive tail insurance with

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amortized premiums, as required by W. Va. Code § 33-20D-3(a).
¶ 46.

Id.

As a result, Dr. Soyoola and Olan Comprehensive did not

purchase $1 million in tail insurance, but instead opted to
purchase a “lesser amount.”

Id. ¶ 48.

In her opposition to the

pending motion, McNeely clarifies that Dr. Soyoola purchased a
$250,000 tail policy.

Opp’n ¶ 3.

McNeely initiated this action on April 4, 2013 in the
Circuit Court of Kanawha County, alleging medical malpractice
against Dr. Soyoola, Olan Comprehensive, and Logan Regional
Medical Center (“Logan Medical”).

On August 31, 2012, the circuit

court approved a settlement between McNeely and Logan Medical.

On

November 8, 2012, McNeely filed a third amended complaint, joining
Oceanus as a defendant and removing Logan Medical.

McNeely

alleges that Oceanus, by not offering Dr. Soyoola a $1 million
policy with amortized premiums, violated its statutory duty under
West Virginia Code § 33-20D-3(a) to make a commercially reasonable
and effective offer of tail insurance.

Id. ¶¶ 38, 43.

She

asserts that as a result of the violation, Oceanus must provide
Dr. Soyoola with tail insurance in the amount of $1 million.

Id.

¶ 50.
The complaint asserts two counts.

Count I alleges

medical malpractice against Dr. Soyoola and Olan Comprehensive.
Count II seeks a declaratory judgment against Oceanus as to the

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tail insurance coverage, pursuant to the West Virginia Uniform
Declaratory Judgment Act, W. Va. Code § 55-13-1.
On December 10, 2012, Oceanus removed the case pursuant
to this court’s diversity jurisdiction, contending that McNeely
“either mistakenly or fraudulently pled” that Dr. Soyoola and Olan
Comprehensive are West Virginia citizens.

Not. Removal ¶ 8.

Oceanus filed the pending motion to dismiss or sever one week
later, on December 17, 2012.
On April 4, 2013, Dr. Soyoola filed a separate action to
assert his rights against Oceanus under the insurance contract.
That case, Soyoola v. Oceanus Insurance Company, Civil Action No.
2:13-cv-8907, is now pending in this district before the Honorable
Joseph R. Goodwin, and is the case with which Oceanus seeks
consolidation.

II. Discussion
In its motion, Oceanus asserts that McNeely, who is not
its insured, has no right under the operative statutes to bring a
third-party claim against it.

McNeely, in response, recognizes

the limitations imposed on third-party claims by W. Va. Code § 3311-4a, and explains that she “does not assert a claim for breach
of contract, common law bad faith, and/or violation of West
Virginia’s Unfair Trade Practices Act.”

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Opp’n ¶ 15.

She states

that the “sole issue” with regard to Oceanus is a declaratory
judgment action relating to insurance coverage.

Id.

As McNeely

disavows any third-party cause of action against Oceanus, the
court need only address whether she properly states a declaratory
judgment claim against Oceanus.
Oceanus argues that McNeely lacks standing to bring a
declaratory action claim regarding Dr. Soyoola’s statutory rights
as to his contract with Oceanus.

McNeely filed her declaratory

judgment claim against Oceanus pursuant to the West Virginia
Uniform Declaratory Judgment Act, see W. Va. Code § 55-13-2, and
it is with respect to that act that Oceanus formulates its
arguments for dismissal.

However, “federal courts sitting in

diversity apply state substantive law and federal procedural law.”
Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996).
The court therefore analyzes McNeely’s claim under the federal
Declaratory Judgment Act.

See Bourazak v. N. River Ins. Co., 379

F.2d 530, 533 (7th Cir.1967) (“The Declaratory Judgment Act is a
procedural statute and creates no substantive rights.”).
The Declaratory Judgment Act states, “In a case of
actual controversy within its jurisdiction . . . any 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 sought.”

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28 U.S.C. § 2201(a).

A

court may constitutionally exercise jurisdiction in a declaratory
judgment proceeding only when “the complaint alleges an actual
controversy between the parties of sufficient immediacy and
reality to warrant issuance of a declaratory judgment.”

Volvo

Constr. Equip. N. Am. v. CLM Equip. Co., 386 F.3d 581, 592 (4th
Cir. 2004) (internal quotations omitted).

“A case meets the

actual controversy requirement only if it presents a controversy
that qualifies as an actual controversy under Article III of the
Constitution.”

Id.

Even if the actual controversy requirement is met, a
district court retains significant discretion to abstain from
issuing a declaratory judgment.

“Since its inception, 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.”
U.S. 277, 286 (1995).

Wilton v. Seven Falls Co., 515

This is apparent from the Act’s language

that a district court “may declare the rights and other legal
relations.”

28 U.S.C. § 2201 (emphasis added); see also

VRCompliance LLC v. HomeAway, Inc., 715 F.3d 570, 575 (“[T]he
breadth of the district court’s discretion reflects the permissive
language in the Declaratory Judgment Act itself.”).

In applying

the Declaratory Judgment Act, a district court “has the duty to
consider whether it should abstain from exercising its
discretionary jurisdiction to avoid needlessly deciding state
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issues” and to “prevent duplicitous litigation.”

Gov’t Emps. Ins.

Co. v. Dizol, 133 F.3d 1220, 1232 (9th Cir. 1998); see also
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)
(“Ordinarily 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.”).
Oceanus asserts that McNeely’s claim fails because she
“seeks to impose obligations on Oceanus despite an absence of any
contract with her.”

Mem. Supp. Mot. 6.

However, “[t]he Supreme

Court established some time ago that an actual controversy can
exist between an insurer and the allegedly injured third party
even though that third party is not a party to the insurance
contract.”

Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183,

1189 (9th Cir. 2009) (citing Md. Cas. Co. v. Pac. Coal & Oil Co.,
312 U.S. 270, 273-74 (1941)).

Moreover, an actual controversy may

exist between an injured third-party and an insurer though the
underlying action between the third party and the insured
“[a]pparently . . . has not proceeded to judgment.”

Md. Cas. Co.

v. Pac. Coal & Oil Co., 312 U.S. 270, 273-74 (1941)); see also
White v. Nat. Union Fire Ins. Co. of Pittsburgh, Pa., 913 F.2d
165, 168 (4th Cir. 1990) (“[I]n Maryland Casualty Co. the Supreme
Court held that a controversy existed between an insurer and a

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person injured by the insured even though the injured person had
not yet obtained a judgment against the insured.”).
Here, McNeely is seeking a medical malpractice judgment
against Dr. Soyoola and Olan Comprehensive that presumably would
be covered by their tail insurance.

She contends that Oceanus

made an ineffective offer of tail insurance to Dr. Soyoola and
Olan Comprehensive and is therefore obligated to provide tail
coverage of $1 million.

Oceanus asserts that the tail insurance

coverage is limited to the $250,000 that Dr. Soyoola purchased.
Although McNeely and Oceanus lack privity of contract, and
although McNeely has yet to secure a judgment against Dr. Soyoola
for which Oceanus might be responsible, there appears to be an
actual controversy.

Consequently, it also appears that the court

may constitutionally exercise jurisdiction over McNeely’s
declaratory judgment claim.
Nevertheless, in the interest of judicial economy, the
court exercises its discretion to abstain from hearing McNeely’s
declaratory judgment claim.

Although concerns over duplicitous

litigation generally arise with reference to concurrent state
court proceedings, the underlying efficiency concerns hold no less
true when the concurrent proceeding is in federal court.

See

Great Am. Ins. Co. v. Gross, 468 F.3d 199, 206 (4th Cir. 2006)
(“As between two federal district courts, the general rule is that

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duplicative litigation should be avoided.”).

In Soyoola v.

Oceanus Insurance Company, Civil Action No. 2:13-cv-8907, Dr.
Soyoola now asserts, on his own accord, the very contractual
rights for which McNeely seeks a declaratory judgment.

Proceeding

with this declaratory judgment claim would lead to identical
issues being determined in separate actions and would create both
confusion and inefficiency.

The potential for inefficiency is

especially pronounced in this action, where the declaratory
judgment claim, relating to the non-renewal of an insurance
contract, presents issues legally and factually distinct from
McNeely’s medical malpractice claim.

III.
Based upon the foregoing discussion, it is, accordingly,
ORDERED that the Count II declaratory judgment claim be, and it
hereby is, dismissed.

It is further ORDERED that Oceanus

Insurance Company be, and it hereby is, dismissed from this
action.
Having dismissed the declaratory judgment claim, the
court need not determine the merits of Oceanus’s motion to dismiss
or sever, which is hereby ORDERED denied as moot.

The court

likewise ORDERS that Oceanus’s motion for consolidation, which has
not been joined by any of the remaining parties to this action, be
denied as moot.
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The Clerk is directed to transmit copies of this order
to all counsel of record and any unrepresented parties.
ENTER:

July 9, 2013

John T. Copenhaver, Jr.
United States District Judge

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