Westfield Insurance Company v. Records Imaging & Storage, Inc. et al
Filing
36
MEMORANDUM OPINION & ORDER re: 12 MOTION to Dismiss and/or Stay the 1 Complaint for Declaratory and Other Relief; directing that this case is stayed pending the resolution of the parallel suit in the Circuit Court of Wood County. Signed by Judge John T. Copenhaver, Jr. on 11/13/2014. (cc: attys; any unrepresented parties) (tmh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
WESTFIELD INSURANCE CO.,
Plaintiff,
v.
Civil Action No. 2:14-18854
RECORDS IMAGING & STORAGE, INC.
and CAMDEN-CLARK MEMORIAL HOSPITAL CORP.,
and JAMES F. SMITH and JOHN E. SMITH
as co-executors and on behalf of
the estate of Donald E. Smith,
Defendants.
MEMORANDUM OPINION & ORDER
Pending is a motion to “dismiss and/or stay” this
action, filed by Records Imaging & Storage, Inc. (“RIS”) on July
17, 2014.
I.
RIS and Camden-Clark Memorial Hospital (“CCMH”) are
defendants in a state-court class action currently pending in
the Circuit Court of Wood County, West Virginia (the “underlying
action”).
See Compl. ¶¶ 8-9.
The underlying action was
instituted on behalf of the estate of Donald E. Smith and other
similarly situated individuals who requested copies of medical
records from CCMH.
Id.
The plaintiffs in the underlying action
assert that RIS contracted with CCMH to produce copies of
patients’ medical records, and that CCMH and RIS charged
unreasonable fees to patients for those records.
Id. ¶¶ 8-19.
After the underlying action was filed, RIS presented a
request to Westfield Insurance Co. (“Westfield”) -- its insurer
and the plaintiff in this case -- for a defense to the suit and
indemnification.
Id. ¶ 20.
Around the same time, CCMH demanded
a defense and indemnification from RIS.
Id. ¶¶ 21-23.
The
basis for that latter request was an agreement between RIS and
CCMH that required RIS to “indemnify and hold [CCMH] harmless
from and against any and all actions . . . arising out of or
related to any act or omission by RIS . . . with respect to the
services rendered” by RIS to CCMH; that agreement also required
RIS to maintain insurance policies naming CCMH as an additional
insured.
Id. ¶ 24.
On June 19, 2014, Westfield commenced this action
under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202
(2012), seeking a declaration that it is not required to defend
or indemnify RIS or CCMH in the underlying action.
Prayer for Relief (a)-(d).
Id. at
Westfield asserts that its policy
with RIS does not cover the claims alleged in the underlying
action, id. ¶ 45, and maintains that CCMH is “not a named
insured under” Westfield’s policy with RIS, and “does not
qualify as an additional insured,” id. ¶ 49.
On July 17, 2014, RIS moved to dismiss or stay the
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declaratory judgment action, asserting that it “intend[ed] to
file a third-party complaint for declaratory relief against
Westfield as well as against another of its insurers,
Philadelphia [Indemnity] Insurance Company[ (“PIIC”),] . . . and
seek complete relief from both its insurers in a single forum”
in the underlying action.
Stay (“Def.’s Mot.”) at 1.
Defendant’s Motion to Dismiss and/or
RIS argues that the court has the
discretion to dismiss or stay this case if a parallel state
court action would provide, among other things, a more
convenient forum for resolving the pending coverage dispute.
Id. at 4-6.
Westfield responded in opposition on July 31, 2014.
It asserted that dismissal or a stay was inappropriate as a
matter of law, but also noted that the issue was largely
academic given that, whatever RIS’s intentions, it had not, at
that point, initiated any parallel coverage action in state
court.
Plaintiff’s Response (“Pl.’s Resp.”) at 6.
On August
11, 2014, RIS filed its reply, along with two attached
documents.
The first attached document is an order entered on
July 28, 2014 by Judge Reed of the Wood County Circuit Court,
granting RIS leave to file a third-party complaint against
Westfield and PIIC in the underlying action.
Ex. A at 1-2.
See RIS’s Reply,
The second is a copy of that third-party
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complaint, filed on or around August 8, 2014, seeking a
declaratory judgment that Westfield and PIIC are required to
defend and indemnify RIS in the underlying action.
Id. Ex. B ¶¶
17-50.
CCMH, for its part, did not join in RIS’s motion to
dismiss or stay, and did not join RIS’s third-party complaint
for declaratory relief against Westfield and PIIC in the
underlying action.
Instead, on July 28, 2014, CCMH answered
Westfield’s complaint in this court, denying that Westfield is
entitled to the requested declaratory relief.
II.
Under the Declaratory Judgment Act, a federal court
“may declare the rights and other legal relations” of parties to
“a case of actual controversy within its jurisdiction[.]”
U.S.C. § 2201(a).
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As that language indicates, and as our court
of appeals has often noted, the decision “to assert jurisdiction
over declaratory judgment actions” is a discretionary one.
United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir.
1998) (internal quotation marks and citation omitted).
When
exercising that discretion, “district courts must [] take into
account ‘considerations of federalism, efficiency, and comity,’”
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if, as here, “a parallel proceeding is pending in state
court[.]”
See id. (quoting Nautilus Ins. Co. v. Winchester
Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994)).
Four factors
guide the court’s inquiry:
(1) whether the state has a strong interest in having
the issues decided in its courts; (2) whether the
state courts could resolve the issues more efficiently
than the federal courts; (3) whether the presence of
“overlapping issues of fact or law” might create
unnecessary “entanglement” between the state and
federal courts; and (4) whether the federal action is
mere “procedural fencing,” in the sense that the
action is merely the product of forum-shopping.
Id. (quoting Nautilus, 15 F.3d at 377); see also VRCompliance
LLC v. HomeAway, Inc., 715 F.3d 570, 573-75 (4th Cir. 2013)
(reciting and applying the Kapiloff/Nautilus factors).
The first and fourth factors weigh in favor of
retaining jurisdiction.
As for the first, there appears to be
no particularly strong state interest in adjudicating the
insurance coverage claim between RIS and Westfield in state
court.
See Great Am. Ins. Co. v. Gross, 468 F.3d 199, 211 (4th
Cir. 2006) (“[T]he questions of state law raised in the federal
action are not difficult or problematic; instead, they involve
the routine application of settled principles of insurance law
to particular disputed facts.”).
Regarding the fourth factor,
it does not appear that Westfield engaged in “procedural
fencing” by “rac[ing] to federal court in an effort to get
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certain issues that [we]re already pending before the state
courts resolved first in a more favorable forum,” id. at 211, as
Westfield had not yet been joined in the underlying action by
the time it initiated this suit.
Nor does it appear that
Westfield neglected to pursue less duplicative routes into
federal court.
Contra HomeAway, Inc., 715 F.3d at 572
(affirming district court’s stay where “appellants had every
opportunity to procure a federal forum by removing appellees’
first-filed state suit rather than by bringing a separate
federal action in an entirely separate federal district.”).
On the other hand, the second and third factors weigh
heavily in favor of a stay.
Respecting the second, our court of
appeals has explained that, “where two parallel suits are
pending in state and federal court, the first suit should have
priority, absent the showing of balance of convenience in favor
of the second action.”
citation omitted).
Id. at 574 (internal quotation marks and
Although Westfield’s federal declaratory
judgment action was filed before Westfield and PIIC were added
to the underlying dispute, the state-court action presents a
more convenient vehicle for resolving the coverage dispute.
The
underlying action now includes all of the parties joined here,
as well as PIIC, suggesting that the state court can completely
resolve the question of RIS’s coverage, as well as the merits of
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the underlying dispute.
Cf. id. (“The Texas suit includes not
only all the parties in the federal suit, but also CAST, thus
promising a more comprehensive resolution.”).
It is true, as
noted, that CCMH did not join RIS’s third-party complaint
against Westfield and PIIC.
But so far as the pleadings in this
court and the state court reveal, CCMH has never demanded a
defense and indemnification from Westfield directly.
Presumably, then, the question of Westfield’s duty to CCMH is
dependent on (1) whether RIS is obligated to defend and
indemnify CCMH, and, if so, (2) whether Westfield is obligated
to cover any costs that RIS incurs in doing so.
The second
question, in particular, depends entirely on the interpretation
of Westfield’s policy with RIS, and would therefore seem to
present issues squarely raised by RIS’s third-party declaratory
complaint against Westfield in the underlying action.
Moreover,
should it choose to do so, nothing would prevent Westfield from
seeking clarification of its obligations to CCMH in the statecourt action.
As a result, the state court can more
comprehensively and more conveniently resolve the issues raised
in this case.
As for the third factor, the “overlapping” -- indeed,
identical -- legal question of RIS’s coverage under the
Westfield policy suggests that a stay is appropriate inasmuch as
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any decision on that question by this court would likely bind
the state court, and vice-versa.
undesirable.
Either scenario is
Should the state court rule first, any efforts
undertaken to resolve the dispute between RIS and Westfield in
this case will have been in vain.
On the other hand, a ruling
by this court would result in “unnecessary entanglement” between
the federal and state court systems, leaving the state court
“with some parts of [its] case foreclosed from further
examination but still other parts in need of full scale
resolution.”
Nautilus, 15 F.3d at 379; see also HomeAway, Inc.,
715 F.3d at 574-75 (noting that “such risk of entanglement is
especially acute where the same issues being litigated in
federal court ‘are already being litigated by the same parties
in the related state court action’” (quoting Nautilus)).
III.
The central issue presented by this declaratory
judgment action is now pending in state court, and, as described
above, considerations of efficiency and comity suggest that it
can be more appropriately decided in the state-court action.
Accordingly, after considering the relevant factors, it is
ORDERED that this matter be, and it hereby is, stayed pending
the resolution of the parallel suit in the Circuit Court of Wood
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County.
See Wilton v. Seven Falls Co., 515 U.S. 277, 288 n.2
(1995) (“[W]here the basis for declining to proceed is the
pendency of a state proceeding, a stay will often be the
preferable course, because it assures that the federal action
can proceed without risk of a time bar if the state case, for
any reason, fails to resolve the matter in controversy.”).
The Clerk is requested to transmit copies of this
order to all counsel of record and any unrepresented parties.
DATED: November 13, 2014
John T. Copenhaver, Jr.
United States District Judge
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