Opinion
C.A. No. 10C-08-277 FSS.
Submitted: January 13, 2011.
Decided: April 29, 2011.
Upon Defendant Richard P. Gielata's Motion to Dismiss — DENIED.
MEMORANDUM OPINION
Defendant Richard Gielata is the representative plaintiff in a federal class action suing Defendant Grant Eisenhofer for alleged malpractice. Plaintiff here, the law firm's liability carrier, seeks a declaratory judgment it does not owe a duty to defend or indemnify the law firm. Gielata moves to dismiss because the court lacks personal jurisdiction over him or because there is no actual controversy between him and Plaintiff. Gielata, however, chose to file suit in Delaware and he does not deny that he has an indirect but real interest in the insurance here.
I.
Richard Gielata, a nonresident defendant, is suing the law firm in federal court alleging it took more fees than what it agreed to as co-counsel in a large securities class action in New Hampshire. Gielata was a plaintiff in that case. Besides allegedly breaching the fee agreement, Gielata contends the law firm breached its fiduciary duty and committed legal malpractice.Attorneys Liability Protection Society, Inc., (ALPS) is the law firm's malpractice carrier. When notified of the federal action, ALPS told the law firm no coverage was available under the policy. ALPS agreed, however, to defend, subject to a reservation of rights. The law firm refused the counsel ALPS retained and paid for its own counsel. That led to ALPS's motion for declaratory judgment that it owes no duty to defend or indemnify the law firm.
ALPS also named Gielata as a rearguard action. Working off language in 10 Del. C. § 6511 that "no declaration shall prejudice the rights of persons not parties to the proceeding[,]" ALPS named Gielata so that if it "obtain[s] a judgment declaring that no coverage exists for the Gielata lawsuit, all potentially interested persons will be bound by that judgment." Naming all "persons needed for just adjudication," is also called for by Superior Court Civil Rule 19.
II.
Gielata raises two issues: First, does the court have personal jurisdiction? Second, is there an actual case or controversy between him and ALPS? The answers to both questions are yes, and both answers turn on Gielata's admission that "[r]egarding . . . indemnification, it is possible that an adverse judgment in the [f]ederal [a]ction will be entered against [the law firm] in the future." If the law firm is found liable to Gielata, ALPS can count on him to sue or join a suit against ALPS. So, ALPS wants its declaratory judgment to be effective against potential claimants, especially Gielata. Alternatively, Gielata requests a stay pending resolution of the federal action.Plaintiff bears the burden of establishing jurisdiction. When, as here, no evidentiary hearing has been held, Plaintiff needs only make a prima facie case. Doubts are resolved in Plaintiff's favor. As to the second issue, a declaratory judgment action requires an actual controversy between the parties. The controversy must involve the rights or legal interests of the movant; they must be asserted against a party who has an interest in contesting them; the parties' interests must be real and adverse; and finally the issue must be ripe for judicial determination. To determine ripeness, the court balances the declaratory judgment statute's remedial purpose against the need to conserve judicial resources and avoid issuing a ruling before the facts are set. Additionally, the court makes a practical evaluation of the plaintiff's interests and considers problems caused by delay.
Aeroglobal Capital Mgmt. v. Cirrus Indus., 871 A.2d 428, 437 (Del. 2005).
Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2737409 (Del. Ch. July 14, 2008) (PARSONS, V.C.).
Hornberger Mgmt. Co. v.
See e.g. Rollins Int'l, Inc. V. Int'l Hydronics Corp., 303 A.2d 660, 662-3 (Del. 1973).
Id. at 662-3.
See Id.
See Stroud v. Milliken Enter., Inc., 552 A.2d 476 (Del. 1989).
III. A.
Gielata implicitly consented to the court's personal jurisdiction when he filed the federal class action in Delaware. Like any individual right, a defendant can waive personal jurisdiction. A nonresident defendant can also implicitly consent to jurisdiction when he "has `purposefully directed' his activities at residents of the forum, and the litigation results from alleged injuries that `arise out of or relate to' those activities." As summarized by Delaware's Supreme Court, the first half of that quote means "in the absence of express consent, due process requires minimum contacts for a finding of implied consent to a forum's jurisdiction." The second half defines specific jurisdiction, which limits the court's jurisdiction over the defendant to cases "arising out of or related to" the minimum contact.Minimum contacts require some "act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." That satisfies due process concerns because the defendant "should reasonably anticipate being haled into court" in the forum State. Here, choosing to sue the law firm in Delaware provides the minimum contact that confers personal jurisdiction over Gielata. Regardless of whether Gielata filed in state or federal court, his actions were purposefully directed at Delaware such that he should reasonably anticipate litigating related claims, like this one, in a Delaware court.
Burger King, 471 U.S. at 475 citing Hanson v. Denckla, 357 U.S. 235, 253 (1958).
ALPS's declaratory judgment was spawned by and is closely related to Gielata's federal class action. Although ALPS was not named in the federal class action, both suits are based, in part, on the same transaction: the law firm's representation of Gielata. As mentioned, Gielata tacitly admits an interest in the ALPS's policy's proceeds. When Gielata sued the law firm for legal malpractice, he could have anticipated litigation in Delaware between the law firm and its carrier over coverage of his claim. Having come to Delaware to sue the law firm, Defendant impliedly agreed to participate in litigation here over insurance potentially covering his damages.
See e.g., Foster Wheeler Energy Corp. v. Metallgesellschaft AG, 1993 WL 669447 (D.Del. Jan. 4, 1993).
See e.g., World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) ( "the foreseeability that is critical to due process . . . is that the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there").
B.
As to the second question, there is an actual controversy between Gielata and ALPS. ALPS contends it "has a legitimate interest in ensuring, to the extent possible, that if it is able to obtain a judgment declaring that no coverage is available for the Gielata lawsuit, all potentially interested persons will be bound by that judgment." There is pending litigation over ALPS's duty to indemnify. As discussed above, Gielata has an indirect interest in that litigation. That interest is real and adverse to Gielata's potential interest in ALPS's duty to indemnify the law firm.
Finally, although ALPS's declaratory judgement action is ripe, that does not mean it must be decided before the underlying litigation is over. If Gielata loses in the underlying case, the question of indemnification will be moot. Otherwise, it remains to be seen how much the law firm owes. It will be more efficient from the court's perspective to wait and see how the federal case ends.
IV.
For the foregoing reasons, Defendant Gielata's motion to dismiss is DENIED, but this action is STAYED pending resolution of the underlying federal litigation.
IT IS SO ORDERED.