Opinion
CASE NO: 1:22-cv-049 (WLS)
2023-03-20
CYPRESS INSURANCE COMPANY, Plaintiff, v. JESSE BATTEN FARMS, LLC, et al., Defendants.
Kenan G. Loomis, Atlanta, GA, for Plaintiff. Eric A. Sterling, Athens, GA, for Defendants Jesse Batten Farms LLC, Jesse Lee Batten. Franklin T. Gaddy, William H. Larsen, Macon, GA, for Defendant Scoular Company. David M. Lewis, Atlanta, GA, for Defendants Letitia Williams, Colton McKenzie Fillingame, Collin Mikhail Fillingame, Ashley Nicole Fillingame. Kevin A. Adamson, Norcross, GA, Shaheen Wallace, Pittsburgh, PA, for Defendant Kelly Bernard.
Kenan G. Loomis, Atlanta, GA, for Plaintiff. Eric A. Sterling, Athens, GA, for Defendants Jesse Batten Farms LLC, Jesse Lee Batten. Franklin T. Gaddy, William H. Larsen, Macon, GA, for Defendant Scoular Company. David M. Lewis, Atlanta, GA, for Defendants Letitia Williams, Colton McKenzie Fillingame, Collin Mikhail Fillingame, Ashley Nicole Fillingame. Kevin A. Adamson, Norcross, GA, Shaheen Wallace, Pittsburgh, PA, for Defendant Kelly Bernard. ORDER W. LOUIS SANDS, SR., JUDGE
This matter (sometimes referred to as the "Cypress Dec Action") is before the Court on the following matters:
1. Plaintiff Cypress Insurance Company's Motion to Drop Lakista McCuller as a Party (Doc. 39) ("Cypress Motion to Drop McCuller"). No responses were filed by any party to this motion.
2. Defendants Jesse Batten Farms, LLC and Jesse Lee Batten's Motion to Dismiss (Doc. 16) ("Battens Motion to Dismiss"), along with the response (Doc. 22) of Plaintiff Cypress Insurance Company ("Cypress"), and the reply (Doc. 26) ("Battens MTD Reply") of Defendants Jesse Batten Farms, LLC ("Batten Farms") and Jesse Lee Batten ("Jesse Batten" and together with Batten Farms, the "Battens").
3. Defendant The Scoular Company's Motion to Dismiss or Abstain (Doc. 19) ("Scoular Motion to Dismiss 1"), along with Cypress' response (Doc. 25), and the reply (Doc. 28) of The Scoular Company ("Scoular" and together with the Battens, the "Moving Defendants"). On March 6, 2023, Scoular filed a second Motion to Dismiss Plaintiff's Complaint for Lack of Subject-Matter Jurisdiction (Doc. 42) ("Scoular Motion to Dismiss 2"). When appropriate, the Battens Motion to Dismiss, Scoular Motion to Dismiss 1 and Scoular Motion to Dismiss 2, are referred to together as the "Motions to Dismiss").
The Court notes that the Scoular Motion to Dismiss 2 raises the same issue (subject matter jurisdiction) addressed herein. The issues being fully joined, for purposes of efficiency and judicial economy, the Court will address the Scoular Motion to Dismiss in this Order.
4. Defendants Jesse Batten Farms, LLC and Jesse Lee Batten's Motion for Sanctions, Attorney's Fees, and Expenses (Doc. 31) ("Battens Sanctions Motion"), along with Cypress' response (Doc. 34), the Battens' reply (Doc. 35), and Cypress' surreply (Doc. 38) filed with the permission of the Court.
I. BACKGROUND AND FACTS
On April 25, 2022, Cypress filed a Complaint for Declaratory Judgment (Doc. 1) ("Complaint") under 28 U.S.C. § 2201, the Declaratory Judgment Act. Therein, Cypress seeks to have this Court find that there is no coverage under a business automobile policy ("Policy") that Cypress issued to Batten Farms on December 1, 2019, for an accident the occurred on August 11, 2020. (Doc. 1 ¶ 20.) Cypress asserts this Court has diversity jurisdiction and that the amount in controversy exceeds $75,000. (Id. ¶¶ 13, 14.) Cypress states the Policy at issue has a $1,000,000 limit, which is Cypress' exposure. The underlying State Court Tort Action, as defined below, seeks damages "in an amount not less than $15,000,000." (Id. ¶ 14 Ex. A ¶ 177.)
The Battens are named as defendants, along with Calvin King ("King") and Scoular, in a wrongful death action ("State Court Tort Action") alleging that on August 11, 2020, King, as an employee, agent, or servant of Batten Farms or Jesse Batten, was operating a 1999 Freightliner Conventional Truck ("1999 Freightliner") owned by Jesse Batten, when King collided with a Toyota Camry operated by Lakista McCuller ("McCuller"). (Doc. 1 ¶ 16.) Scoular allegedly hired Batten Farms and King to transport corn product in the 1999 Freightliner. Floyd Fillingame was a passenger in the Toyota Camry and the injuries he sustained in the accident resulted in his death. (Id.) Cypress is not a named defendant in the State Court Tort Action.
On November 22, 2021, a wrongful death action was filed in the State Court of Gwinnett County, Georgia, Case No. 21-C-08393-S4, styled Letitia Williams, as the Administrator of the Estate of Floyd J. Fillingame, deceased; Kelly Bernard, as the Surviving Spouse of Floyd J. Fillingame, deceased; and Colton McKenzie Fillingame, Collin Mikhail Fillingame, and Ashley Nicole Fillingame, as the Surviving Children of Floyd J. Fillingame, deceased vs. Jesse Batten Farms, LLC, Jesse Lee Batten (individually), Calvin D. King, and The Scoular Company. (Id. at 2, Ex. A.)
In a letter dated November 2, 2020, Cypress denied Batten Farm's request for coverage under the Policy on the basis that the 1999 Freightliner was not a covered vehicle under the Policy when the August 11, 2020 accident occurred. (Id. ¶ 25, Doc. 1-2 Ex. B at 5-6.) Cypress contends the 1999 Freightliner was not a covered vehicle "as it had been removed via an Endorsement on December 1, 2019." (Id. ¶ 22.) Cypress asserts that the 1999 Freightliner was also not covered under the Policy as an after-acquired vehicle, nor as a temporary substitute for a vehicle that was out of service because of a breakdown, repair, servicing, "loss" or destruction. (Id. ¶¶ 23, 24.)
On April 7, 2022, Batten Farms, through its attorney, again sought coverage under the Policy for the August 11, 2020 automobile accident. Cypress states that on April 7, 2022, Batten Farms' counsel contacted Cypress' counsel via email disputing the denial of coverage and demanding indemnification. (Id. at ¶ 28.) Batten Farms' counsel requested on behalf of his client that Cypress cover the claim and tender the $1 million Policy limits to Batten Farms in exchange for a limited liability release. (Id.) A copy of the email correspondence is attached to the Complaint as Exhibit B. Therein, the Battens' counsel states that he is in "the middle of drafting a Complaint for declaratory judgment against Cypress Insurance Company and others concerning Cypress' denial of coverage." (Doc. 1-2 at 2.)
On April 25, 2022, Cypress filed its Complaint naming all of the plaintiffs and defendants in the State Court Tort Action as Defendants in the Cypress Dec Action. In addition, Cypress included McCuller as a Defendant in this action. In support of its position that the Barrens are not entitled to coverage under the Policy for the August 11, 2020 accident, Cypress quotes portions of the Policy in its Complaint, but did not attach the Policy as an exhibit to the Complaint. (Id. ¶ 20.) Nor did it incorporate the Policy by reference into the Complaint.
As noted above, there are five motions pending before the Court which are ripe for decision. The Court resolves the motions in the following order: (1) Cypress Motion to Drop McCuller; (2) the Battens and Scoular Motions to Dismiss which will be resolved together as they raise the same arguments; and (3) the Battens Sanctions Motion.
II. DISCUSSION OF CYPRESS MOTION TO DROP McCULLER
Cypress states that Lakista McCuller was named as a party in the Cypress Dec Action because a state court personal injury and property damage action filed by McCuller against Batten Farms, Georgia Farm Bureau Mutual Insurance Company ("Georgia Farm"), and King ("McCuller Lawsuit") could have potentially implicated coverage under the Policy. However, on August 29, 2022, Cypress' counsel was advised that the McCuller Lawsuit was resolved, McCuller entered into a Release Agreement releasing Batten Farms, King and Georgia Farm from all claims against them, and the McCuller Lawsuit had been dismissed with prejudice. Therefore, McCuller's claims could no longer implicate coverage under the Policy. As such, Cypress requests that pursuant to Federal Rule of Civil Procedure 21, the Court drop McCuller as a party to the Cypress Dec Action.
Rule 21, in relevant part, provides that: "Misjoinder of parties is not a ground for dismissing an action. On motion or on its own, the court may at any time, on just terms, add or drop a party." No objections or responses have been filed to the Cypress Motion to Drop McCuller.
Based on the foregoing, the Court finds that the Cypress Motion to Drop McCuller should be and hereby is, GRANTED.
III. DISCUSSION OF MOTIONS TO DISMISS
The Battens initially argued that state law applies in this case because federal jurisdiction is based solely on diversity. (Doc. 16 at 2-3.) The Battens then argued that under Georgia's Declaratory Judgment Act § 9-4-1, an insurance company cannot deny coverage to an insured and then file a declaratory judgment action seeking a declaration that such liability coverage does not exist. Cypress has unqualifiedly denied coverage. Therefore, the Battens argued that Cypress cannot demonstrate uncertainty or insecurity with respect to its rights, status, and other legal relations with the Battens. The Battens concluded that as no actual justiciable controversy exists under Georgia's Declaratory Judgment Act, the Court should dismiss this action. (Doc. 16-1 at 3.)
In the Battens' MTD Reply, they concede that "there is an ongoing demand for coverage in this case. Thus, there is currently a coverage controversy sufficient for this action to proceed." (Doc. 26 at 2.) Citing authority from the United States District Court for the Northern District of Illinois, the Battens then contend that they "could withdraw their demand for coverage to destroy the actual controversy requirement of the Federal Declaratory Judgment Act, but this would waste judicial resources in prolonging resolution of this coverage issue." (Id. at 2 (citation omitted).) The Court does not need to decide now whether such action would in fact destroy the actual controversy requirement where a party clearly intends to retain a right to demand coverage at a later date, the Court will consider whether such statement reflects the Battens' own bad faith "procedural fencing" attempts to preclude Cypress from exercising its rights to bring a Declaratory Judgment Act in federal court.
The relevant portion of the Battens MTD Reply is titled "Plaintiff concedes that federal law applies and that there is a case or controversy sufficient for this action to move forward." (Doc. 26 at 2.) Given the discussion in that section, the use of "Plaintiff" instead of "Defendants" in the title appears to be a typographical error.
While the Battens concede that an actual controversy exists in this case, Scoular has not made such a concession. The Scoular Motion to Dismiss 2 contends that coverage under the Policy is not yet ripe because the underlying State Court Tort Action has not been resolved.
Alternatively, the Moving Defendants request the Court exercise its discretion under the federal Declaratory Judgment Act 28 U.S.C. § 2201 and dismiss the Cypress Dec Action on the grounds that it constitutes "procedural fencing." In addition, the Moving Defendants assert the Court should decline jurisdiction of the Cypress Dec Action because the same issues that are in the Cypress Dec Action are being litigated in a declaratory judgment action filed April 21, 2022, in the Superior Court of Gwinnett County, Georgia, Case No. 22-A-03466-5 styled Jesse Lee Batten and Jesse Batten Farms, LLC v. Letitia Williams, as the Administrator of the Estate of Floyd J. Fillingame, deceased, et al. (the "State Court Dec Action"). According to the Motions to Dismiss, the State Court Dec Action lists Cypress as a defendant, along with Scoular, and three other insurance companies: Auto Owners Insurance Company ("Auto Owners"), Georgia Farm, and Nationwide Agribusiness Insurance Company ("Nationwide"). (See Doc. 16 at 2, Doc. 19 ¶ 7.) The Cypress Dec Action was filed April 25, 2022, four days after the State Court Dec Action.
Kelly Bernard, the Surviving Spouse of Floyd J. Fillingame, deceased; and Colton McKenzie Fillingame, Collin Mikhail Fillingame, and Ashley Nicole Fillingame, the Surviving Children of Floyd J. Fillingame, deceased, are also included as defendants in the State Court Dec Action.
The Moving Defendants did not cite the Federal Rule on which the Motions to Dismiss are premised. "But a challenge to justiciability is 'actually a challenge to the Court's subject matter jurisdiction.' " Great Am. Assurance Co. v. Braddy Preparatory Acad., Inc., No. 1:18-CV-4974-TWT, 2019 WL 5485260, at *3 (N.D. Ga. Sept. 5, 2019) (adopting alterations) (quoting Provident Life & Acc. Ins. Co. v. Transamerica-Occidental Life Ins. Co., 850 F.2d 1489, 1491 (11th Cir. 1988)). As such, the Court analyzes the arguments in the Motions to Dismiss that the Cypress Dec Action lacks an actual controversy under Fed. R. Civ. P. 12(b)(1) which provides "lack of subject matter jurisdiction" as a basis for dismissal.
Although the Scoular Motion to Dismiss 2 states clearly that it is filed based on an argument that the Complaint should be dismissed for lack of subject-matter jurisdiction, Scoular has not cited to Fed. R. Civ. P. 12(b)(1) or the standard the Court should use in analyzing Scoular's argument.
A. Legal Standard
Federal Rule of Civil Procedure 12(b)(1) permits a party to assert by motion the defense of lack of subject matter jurisdiction. "A defendant can move to dismiss a complaint under Rule 12(b)(1) for lack of subject matter jurisdiction by either facial or factual attack." Stalley ex rel. U.S. v. Orlando Reg'l Healthcare Sys., Inc., 524 F.3d 1229, 1232 (11th Cir. 2008). "A facial attack on the complaint requires the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion." McElmurray v. Consol. Gov't of Augusta-Richmond Cnty., 501 F.3d 1244, 1251 (11th Cir. 2007) (alterations accepted) (internal quotations marks omitted) (citations omitted); see also Carmichael v. Kellogg, Brown & Root Servs., Inc., 572 F.3d 1271, 1279 (11th Cir. 2009) ("[T]he court must, as with a Rule 12(b)(6) motion, take the complaint's allegations as true." (citation omitted)). Factual attacks, on the other hand, serve to "challenge the existence of subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits are considered." McElmurray, 501 F.3d at 1251 (internal quotation marks omitted) (citations omitted). "Under a factual attack, the Court is free to weigh the facts and is not required to view them in the light most favorable to the plaintiff." Am. Ins. Co. v. Evercare Co., 699 F. Supp. 2d 1355, 1358 (N.D. Ga. 2010) (citing Carmichael, 572 F.3d at 1279), aff'd per curiam, 430 F. App'x 795 (11th Cir. 2011). "The burden of proof on a motion to dismiss for lack of subject-matter jurisdiction is on the party asserting jurisdiction." Murphy v. Sec'y, U.S. Dep't of Army, 769 F. App'x 779, 782 (11th Cir. 2019) (per curiam).
B. Justiciability Under the Declaratory Judgment Act
The Declaratory Judgment Act provides:
In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.28 U.S.C. § 2201. "Congress did not broaden the jurisdiction of the federal courts via the declaratory judgment act, but rather provided a new procedural device for handling controversies over which the courts already have jurisdiction." Provident Life & Acc. Ins. Co. v. Transamerica-Occidental Life Ins. Co., 850 F.2d 1489, 1491 (11th Cir. 1988).
The determination of whether an actual case or controversy exists is made on a case-by-case basis. We have stated that the difference between an abstract question and a "controversy" contemplated
by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. 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.Am. Ins. Co. v. Evercare Co., 430 F. App'x 795, 798 (11th Cir. 2011) (alterations adopted) (internal quotation marks omitted) (citations omitted). In Evercare, the Eleventh Circuit cited "Wright and Miller's Federal Practice, which pointed out that 'the standard declaratory judgment action brought by a liability insurer against its insured often times contains two 'ifs,' if the insured is sued and if he is found liable . . . .' " Id. (citing 10A Wright & Miller, p. 586). The Eleventh Circuit found that a controversy existed in Evercare stating that "we do not think it is necessary for [the insurer] to wait to be sued. [The insurer] denied coverage and [the insured] has demanded it. That is a controversy and thus there is jurisdiction." Id. at 799.
C. Cypress' Complaint Presents an Actual Controversy
Scoular asserts Cypress failed to present an actual case or controversy because under Georgia law, the obligation for Cypress to indemnify the Battens is not ripe because a judgment has not been rendered against the Battens. Therefore, before analyzing whether the Complaint presents a justiciable controversy, the Court first addresses the argument that Georgia law applies to that determination. It does not. The Eleventh Circuit addressed the question of whether an insurer is precluded from filing a federal Declaratory Judgment Act because Georgia law prevents an insurer from seeking declaratory relief as to the extent of underinsured motorist coverage unless and until an underinsured motorist's liability has been adjudicated. In answering this question, the Eleventh Circuit stated:
Assuming, arguendo, that the district court correctly interpreted the law of Georgia to provide that an insurer cannot seek declaratory relief in Georgia as to its obligation under uninsured motorist coverage unless and until the tort liability of the uninsured motorist to the insured has been adjudicated, an invocation of the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202, is neither precluded nor controlled by Georgia's procedural law. The principle of Georgia law upon which the district court opinion turned is procedural and not substantive. The mere fact, if it be a fact, that the doors of Georgia's courts are closed to [the insurer] unless and until the liability [of defendant to plaintiff in the underlying tort action], if any, has been determined, does not mean that the doors of the federal courts are automatically closed to [insurer] where the requisites for diversity jurisdiction exist. Here, under traditional federal constitutional principles and under the Declaratory Judgment Act, a "case or controversy" did, in fact, exist when [the insurer] filed its action in the district court. The district court, therefore, was in error when it dismissed the action. Although the district court has an area of discretion in deciding whether to grant or deny declaratory relief, that discretion should be exercised liberally in favor of granting such relief in order to accomplish the purposes of the Declaratory Judgment Act.Cincinnati Ins. Co. v. Holbrook, 867 F.2d 1330, 1332-33 (11th Cir. 1989), abrogated on other grounds by Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (emphasis added). Similar to the insurer in Cincinnati Ins. Co., Cypress' position is that there is NO coverage under the Policy for the August 11, 2020 accident. The result is also the same here as it was in Cincinnati Ins. Co.; i.e., federal law—not state law—determines the issue of whether Cypress's Complaint presents an actual controversy. The Court finds that Cypress has stated an actual controversy sufficient to satisfy the requirements of the Declaratory Judgment Act.
D. The Court has Subject Matter Jurisdiction
A federal court has diversity jurisdiction over an action where the amount in controversy exceeds $75,000, exclusive of interest and costs, and the parties have complete diversity of citizenship. 28 U.S.C. § 1332(a). The Motions to Dismiss do not directly contest that diversity of citizenship is satisfied and on its face, the Complaint reflects diversity of citizenship is satisfied. In determining whether the amount in controversy is satisfied, the Eleventh Circuit has stated:
In a declaratory judgment action, for amount in controversy purposes, the value of declaratory relief is the value of the object of the litigation measured from the plaintiff's perspective. Stated another way, the value of declaratory relief is the monetary value of the benefit that would flow to the plaintiff if the relief he is seeking were granted. Thus, when an insurer seeks a judgment declaring the absence of liability under a policy, the value of the declaratory relief to the plaintiff-insurer is the amount of potential liability under its policy.First Mercury Ins. Co. v. Excellent Computing Distributors, Inc., 648 F. App'x 861, 864-65 (11th Cir. 2016)(per curiam) (alterations adopted) (internal quotation marks omitted) (citations omitted). As in First Mercury, Cypress established on the face of its Complaint that it meets the amount in controversy threshold of $75,000. The plaintiffs in the underlying State Court Tort Action seek damages in an amount not less than $15,000,000. Cypress' potential liability under its Policy is $1,000,000.
The amount in controversy here exceeds $75,000. In the underlying state court action, [the injured third party] seeks to recover from [insured] for the loss of more than $2,000,000 worth of computer equipment. [Insurer's] policy covering [insured] during the relevant time contained a $2,000,000 aggregate limit and a $1,000,000 per-occurrence limit. Thus, if [insurer] loses its declaratory judgment action, it may face $1,000,000 or more in coverage liability. Put differently, the value of the object of this litigation—a judgment declaring [insurer] free from any indemnification obligation under its policy—far exceeds $75,000. [Insurer] therefore satisfied § 1332(a)'s amount-in-controversy requirement, and the district court had subject-matter jurisdiction over the action.
Scoular's argument in part appears to be that the amount in controversy cannot be determined until the underlying tort action is resolved. In support of its argument, Scoular states:
[The] Eleventh Circuit law is clear that the issue of whether an insurer has a duty to indemnify is not ripe for adjudication if, as here, that adjudication is sought prior to resolution of an underlying claim for damages against the insured. As recently as February 2023, the
Eleventh Circuit reiterated this in observing that "in this circuit, a declaratory judgment claim with respect to indemnification is generally not ripe until (and if) the insured has been held liable to a third party."(Doc. 42-1 at 6) (quoting Sullivan v. Everett Cash Mut. Ins. Co., No. 19-11943, 2023 WL 1521579, at *4 (11th Cir. Feb. 3, 2023)). Scoular did not provide any further discussion of Sullivan which—based on Scoular's statement—appears to be in direct conflict with the Eleventh Circuit reported case of Cincinnati Ins. Co. See, supra Part III.C. The amount in controversy in Sullivan actually could not be determined because the underlying tort did not specify the damages sought. Sullivan, 2023 WL 1521579, at *3. The insured merely argued that the "amount in controversy exceeded $75,000 because the underlying complaints filed by the [injured plaintiffs]—as a matter of 'common sense'—more likely than not satisfied the amount in controversy requirement." Id. The Sullivan insurer did not rely on the amount it would incur in defending its insured in the underlying cases, nor was the amount of the insurer's policy limits discussed. In Sullivan, the Eleventh Circuit found that because the underlying cases had not been resolved, the insurer's claim had a value of zero for amount-in-controversy analysis and the Eleventh Circuit found that the district court should have remanded the case to state court. Id. at *4.
This Court finds, however, that it is required to follow the precedent set forth in Eleventh Circuit reported case of Cincinnati Ins. Co.—Cypress denied coverage, the Battens not only demanded coverage, they requested that Cypress "tender their $1 million to Plaintiffs on its behalf in exchange for a limited liability release so as to protect the assets of both Jesse Batten and Jesse Batten Farms LLC." (Doc. 1-2 at 4.) An actual controversy exists and Cypress' potential liability is $1,000,000. "[C]ourts have recognized that in insurance practice, coverage disputes may present cases ripe for declaratory judgment before any suit has been filed implicating an insurer's duty to defend." W. World Ins. Co. v. J & R Roofing, Inc., No. 1:14-CV-2174-MHS, 2014 WL 12366405, at *3 (N.D.) (citing cases and finding that where injured parties sent insured and insurer notice asserting claim based on insured's negligent use of a torch while repairing roof that caused a fire destroying injured parties' home, insurer's declaratory judgment action based on policy exclusion of property damage arising out of "the use of a torch" or "the torch down process of applying membrane roofing" was ripe).
Based on the foregoing, the Court finds that Cypress has established that this Court has subject matter jurisdiction and the Motions to Dismiss are DENIED as to any assertion of lack of subject matter jurisdiction.
E. Discretionary Jurisdiction Under the Declaratory Judgment Act
The Moving Defendants last request the Court exercise its discretion under the Act, and dismiss the Cypress Dec Action.
The unusual jurisdictional provisions of the Act, "vests district courts with discretion to dismiss declaratory suits when, in their best judgment, the costs outweigh the benefits. Its language is spare, but direct: federal courts 'may declare the rights and other legal relations of any interested party seeking such declaration.' " James River Ins. Co. v. Rich Bon Corp., 34 F.4th 1054, 1059 (11th Cir. 2022) (emphasis in original) (quoting 28 U.S.C. § 2201(a)).
In Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), the Supreme Court stated that "[t]he question for a district court presented with a suit under the Declaratory Judgment Act, . . . is 'whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in the state court.' " Id. at 282, 115 S.Ct. 2137 (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942)).
Brillhart makes clear that district courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites. Although Brillhart did not set out an exclusive list of factors governing the district court's exercise of this discretion, it did provide some useful guidance in that regard. The Court indicated, for example, that in deciding whether to enter a stay, a district court should examine the scope of the pending state court proceeding and the nature of defenses open there. This inquiry, in turn, entails consideration of whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, whether such parties are amenable to process in that proceeding, etc. Other cases, the Court noted, might shed light on additional factors governing a district court's decision to stay or to dismiss a declaratory judgment action at the outset. But Brillhart indicated that, at least where another suit involving the same parties and presenting opportunity for ventilation of the same state law issues is pending in state court, a district court might be indulging in gratuitous interference, if it permitted the federal declaratory action to proceed.Wilton, 515 U.S. at 282-83, 115 S.Ct. 2137 (alterations adopted) (internal quotation marks omitted) (citations omitted). As invited by the Supreme Court, in Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328 (11th Cir. 2005), the Eleventh Circuit provided additional factors governing a district court's decision to stay, dismiss, or exercise jurisdiction of a suit brought under the Declaratory Judgment Act. In doing so, the Eleventh Circuit stated:
Guided by the[ ] general principles expressed by the Supreme Court, as well as the same considerations of federalism, efficiency, and comity that traditionally inform a federal court's discretionary decision whether to abstain from exercising jurisdiction over state-law claims in the face of parallel litigation in the state courts, we provide the following factors for consideration to aid district courts in balancing state and federal interests.
(1) the strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts;
(2) whether the judgment in the federal declaratory action would settle the controversy;
(3) whether the federal declaratory action would serve a useful purpose in clarifying the legal relations at issue;
(4) whether the declaratory remedy is being used merely for the purpose of "procedural fencing"—that is, to provide an arena for a race for res judicata or to achieve a federal hearing in a case otherwise not removable;
(5) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction;
(6) whether there is an alternative remedy that is better or more effective;Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328, 1330-31 (11th Cir. 2005) (internal quotations marks omitted) (citations omitted) footnotes omitted). In James River Ins. Co., the Eleventh Circuit provided additional guidance, stating:
(7) whether the underlying factual issues are important to an informed resolution of the case;
(8) whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and
(9) whether there is a close nexus between the underlying factual and legal issues and state law and/or public policy, or whether federal common or statutory law dictates a resolution of the declaratory judgment action.
Our list is neither absolute nor is any one factor controlling; these are merely guideposts in furtherance of the Supreme Court's admonitions in Brillhart and Wilton.
To be sure, courts are not restricted to this set of factors—the list is not absolute, and no single factor is controlling. Indeed, we have characterized the inquiry as a "totality-of-the-circumstances analysis." So whatever the district court decides to do, it must capture the breadth of the competing interests; without a complete understanding of those interests, it cannot properly balance them.James River 34 F.4th at 1060 (11th Cir. 2022) (emphasis added). "[T]o appropriately assess the degree of similarity between concurrent state and federal proceedings, a district court needs to look at the cases as a whole." Id. at 1061 (internal quotations marks omitted) (citation omitted). In his concurring opinion in James River, Circuit Judge Brasher provided still more guidance stating:
. . . .
We agree that the district court erred . . . . For one, the district court was wrong to assess whether the federal and state cases were "parallel" as a prerequisite to considering the Ameritas guideposts. . . . [The district court] should not have focused on one of the federal claims almost to the exclusion of the other—in doing so it failed to properly consider the totality of the circumstances.
. . . .
To begin, the existence of a parallel proceeding is not a prerequisite to a district court's refusal to entertain an action under § 2201(a), the Declaratory Judgment Act. Courts possess unique and substantial discretion under the Act. And neither our precedents nor the Act itself give specific guidance on what constitutes a "parallel" case—whether the parties must be identical, for example, or whether the claims must overlap completely. That uncertain inquiry finds no home in the analysis.
[T]he mere pendency or threat of such a related action is no justification for a district court to decline to adjudicate a federal lawsuit between an insurer and its insured.
In weighing the Ameritas factors in a dispute between a liability insurer and its insured, I suggest district courts focus on whether there is anything unique or extraordinary that differentiates their case from the mine run of liability insurance disputes. For example, one could ask: Does the State have a stronger interest in deciding this particular state-law issue in state court than it normally would in a state-law liability insurance dispute? Is there a state-specific public policy at play that is not present in most other insurance disputes? Is there some
important factual dispute in the state litigation that would be unusually dispositive in the declaratory judgment action? . . .James River, 34 F.4th at 1062-63 (Brasher, J., concurring).
. . . [A]s the Court's opinion suggests, there is nothing special about this case that warrants declining jurisdiction. Far from it. The district court can resolve this dispute by interpreting the terms of the insurance contract—specifically, the policy's bodily injury limits, a worker's compensation exclusion, and an employer liability exclusion, which are all common features of commercial insurance policies. Federal courts routinely answer questions like these.
The Moving Defendants assert that the "parties agree that the similarity of the [State Court Dec Action and the Cypress Dec Action] is the most important factor in determining whether or not this Court ought to dismiss [the Cypress Dec Action] in favor of the [State Court Dec Action]." (Doc. 26 at 3.) Interestingly, the Moving Defendants and Cypress totally disagree on the similarity of the cases. In any event, the Court disagrees with the parties that any one factor is the most important. The parties' disagreement on the outcome of the similarity issue emphasizes the basis for the Eleventh Circuit's instruction that no single factor in the Ameritas analysis is controlling. Rather the inquiry is a totality of the circumstances analysis. Ameritas, 411 F.3d at 1331; James River, 34 F.4th at 1060.
F. The Ameritas Factors
Factor 1: The strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts.
The Cypress Dec Action requires this Court to interpret the terms of a commercial automobile insurance contract and determine whether the 1999 Freightliner involved in the August 11, 2020 accident was listed as a "covered auto" or otherwise qualified as an after acquired or temporary substituted auto, under the Policy.
The State Court Dec Action raises the same issues against Cypress. In addition, the state case requests a declaratory judgment finding Scoular is vicariously liable to the Battens, and that the Battens are entitled to coverage under the policies of three other insurers.
The August 11, 2020 accident occurred in Georgia, the injured parties, and the Battens are all residents of Georgia. According to the State Court Dec Action, Scoular and all of the insurance companies are authorized to do business in Georgia.
This Court finds that where all of the parties are residents of, or authorized to do business in, Georgia, that the state court's interest in this case is compelling and Factor One weighs in favor of the Moving Defendants.
Factor Two: Whether the judgment in the federal declaratory action would settle the controversy, and
Factor Three: Whether the federal declaratory action would serve a useful purpose in clarifying the legal relations at issue.
The Cypress Dec Action will settle the controversy and will clarify the legal relations as between Cypress and the Battens. It will not resolve the issues between the Battens and the remaining insurers which are based solely on the terms of the insurance contracts of those insurers. Nor will this case resolve these issue as to Scoular's vicarious liability.
The Cypress Dec Action has no effect on the outcome of the underlying State Court Tort Action, and none of the parties assert that any of the issues to be resolved in the State Court Tort Action affect Cypress' liability under the Policy. Likewise, none of the parties assert that a decision on the liability of any of the other insurers named in the State Court Dec Action are affected by, or have any effect on the interpretation of the terms of Cypress' Policy.
Where the Cypress Dec Action resolves the issues and relations between Cypress and the defendants in this case, the Court finds that Factors Two and Three weigh in Cypress' favor. Factor Four: Whether the declaratory remedy is being used merely for the purpose of "procedural fencing"—that is, to provide an arena for a race for res judicata or to achieve a federal hearing in a case otherwise not removable.
The State Court Dec Action was filed four days before the Cypress Dec Action. The Moving Defendants contend that this fact shows that Cypress was engaging in "procedural fencing." The Moving Defendants further contend—the fact that Cypress cannot remove the State Court Dec Action to federal court is further indication that Cypress acted in bad faith in filing this action. Cypress states it had not been served with the State Court Dec Action and while threatened with the filing of such case, it was unaware that the State Court Dec Action had been filed when it filed the Cypress Dec Action. Therefore, Cypress argues that the timing of its filing does not support the Moving Defendants' argument that Cypress engaged in "procedural fencing."
The Court agrees with Cypress. Cypress had a right to file this action. According to the Battens, under Georgia's Declaratory Judgment Act § 9-4-1, an insurance company cannot file a declaratory judgment action in Georgia state courts seeking a declaration that such liability coverage does not exist. Where Cypress was prohibited from filing a state court declaratory judgment action, its only option was to file its action in federal court. It is unreasonable to penalize a party for exercising the rights given to it under the federal Declaratory Judgment Act.
As mentioned above, the Battens' position that they "could withdraw their demand for coverage and destroy the actual controversy requirement of the Federal Declaratory Judgment Act," could supports an inference that they may be involved in "procedural fencing" rather than Cypress.
The Court finds that Factor Four does not weigh in favor of dismissal.
Factor Five: Whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction;
There are no state law issues that need to be resolved before this Court can determine Cypress' liability, if any, under the Policy. This dispute is simply a matter of interpreting the Policy issued by Cypress to Batten Farms. Factor Five weighs in Cypress' favor.
Factor Six: Whether there is an alternative remedy that is better or more effective;
Factor Seven: Whether the underlying factual issues are important to an informed resolution of the case; and
Factor Eight: Whether the state trial court is in a better position to evaluate those factual issues than is the federal court.
As noted in Factor Four above, Cypress had no other forum in which it could adjudicate its liability under the Policy at this time. Cypress cannot file an action in the Georgia courts, and it is not at all clear that the State Court Dec Action will proceed until the State Court Tort Action is fully and finally resolved.
The Moving Defendants contend that the claims in the two declaratory judgment actions are exactly the same. However, they are not considering all of the claims in the cases and are, therefore, not looking at the cases as a whole. See James River, 34 F.4th at 1061 ("[T]o appropriately assess the degree of similarity between concurrent state and federal proceedings, a district court needs to look at the cases as a whole.") (internal quotation marks omitted) (citation omitted). The Court agrees with Cypress—the only claim that overlaps between the two declaratory judgment actions is that both cases seek to determine Cypress' liability under the Policy based on the characterization of the 1999 Freightliner. The State Court Dec Action, however, includes the Battens claims against Scoular and Scoular's insurer based on the assertion that Scoular is vicariously liable to the Battens. Cypress is not a necessary party to resolution of the Battens' claims against Scoular, Nationwide, or any of the other insurers who are name defendants in the State Court Dec Action. "The Declaratory Judgment Act . . . should be liberally construed to achieve the objectives of the declaratory remedy. Those objectives include affording one threatened with liability, but otherwise without a satisfactory remedy, an early adjudication of an actual controversy." Cameron & Barkley Co. v. Fabreeka Int'l, Inc., 144 F. Supp. 2d 1382, 1384 (M.D. Ga. 2001). Dismissal of the Cypress Dec Action leaves Cypress in limbo waiting on resolution of the State Court Tort Action and the necessity of being involved in a more complex State Court Dec Action than is necessary. Dismissal defeats the objectives of the Declaratory Judgment Act to provide an early adjudication of one threatened with liability.
The Court finds that Factors Six, Seven, and Eight weigh in Cypress' favor.
Factor Nine: Whether there is a close nexus between the underlying factual and legal issues and state law and/or public policy, or whether federal common or statutory law dictates a resolution of the declaratory judgment action
As reflected above, "there is nothing special about this case that warrants declining jurisdiction. Far from it. [This Court] can resolve this dispute by interpreting the terms of the insurance contract—specifically," whether the 1999 Freightliner is a "covered auto" under the Policy, which is a common feature of commercial insurance policies. "Federal courts routinely answer questions like these." James River, 34 F.4th at 1062-63 (Brasher, J., concurring).
Factor Nine weighs in Cypress' favor.
The Court finds that a review of the Ameritas factors, as well as a consideration of the totality of the circumstances of this case, weigh in favor of this Court exercising its discretion to hear the Cypress Dec Action. Accordingly, the Battens Motion to Dismiss (Doc. 16), the Scoular Motion to Dismiss 1 (Doc. 19), and the Scoular Motion to Dismiss 2 (Doc. 42) are DENIED.
IV. DISCUSSION OF BATTENS SANCTION MOTION
The Battens assert that the mere filing of the Cypress Dec Action violated Federal Rule of Civil Procedure 11. The Battens contend that Cypress' decision to file the Cypress Dec Action after the State Court Dec Action had already been filed was frivolous and amounts to "procedural fencing." The Battens contend that the two declaratory judgment actions are exactly the same. They criticize Cypress' position that the actions are not the same, stating that Cypress' contention is "obviously not true." (Doc. 31 at 2.) The Battens cite no legal authority to support their assertion that the Cypress Dec Action is frivolous.
There is no requirement in the federal Declaratory Judgment Act that an insurer is prohibited from filing such an action if a state court declaratory action is pending. The issue of whether a party is engaging in "procedural fencing" which is at the crux of this motion, is one of the factors the courts address in analyzing the Ameritas factors to determine whether to exercise its discretion to hear or dismiss an action filed under the Declaratory Judgment Act.
The issues raised in the Battens' Sanction Motion, are the same issues raised in the Battens' Motion to Dismiss. The Court finds that it has sufficiently addressed these arguments in its analysis of the Ameritas factors. Accordingly, the Battens Sanction Motion (Doc. 31) is DENIED.
Having denied the motion, the Court finds it unnecessary to address Cypress' arguments that the Battens Sanction Motion should be denied on the basis that the Battens failed to comply with Rule 11's Safe Harbor Provisions.
V. CONCLUSIONS
Accordingly, IT IS HEREBY ORDERED that:
1. Cypress Motion to Drop McCuller (Doc. 39) should be and hereby is, GRANTED.
2. The Battens Motion to Dismiss (Doc. 16), the Scoular Motion to Dismiss 1 (Doc. 19), and the Scoular Motion to Dismiss 2 (Doc. 42) should be and hereby are DENIED.
3. The Battens Sanction Motion (Doc. 31) should be and hereby is DENIED.
SO ORDERED, this 20th day of March 2023.