Auto-Owners Ins. Co. v. Egnew

152 F.Supp.3d 868

Auto-Owners Insurance Company, et al., Plaintiffs

v.J.C. Egnew, et al., Defendants

CIVIL ACTION NO. 13-222-DLB-HAI

United States District Court, E.D. Kentucky, Southern Division . at London .

Signed January 25, 2016

Catherine M. Sewell, Peter J. Sewell, Sewell, O'Brien & Neal, PLLC, Louisville, KY, for Plaintiffs.

John M. Sosbe, D. Duane Cook, Duane Cook & Associates, PLC, Georgetown, KY, Laurence J. Zielke, Pedley, Zielke, Gordinier & Pence PLLC, Victor B. Maddox, Fultz, Maddox, Hovious & Dickens, PLC, Louisville, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

David L. Bunning, United States District Judge

Plaintiffs Auto-Owners Insurance Company (“Auto-Owners”) and Owners Insurance Company (“Owners”) brought this action pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, against Defendants J.C. Egnew, Azalie Egnew, Lloyd Moncrief, Linda Moncrief, Kentucky Highlands Investment Corporation, Kentucky Highlands Development Corporation, Outdoor Venture Corporation d/b/a Stearns Manufacturing, Stearns Manufacturing, LLC (collectively “Insured Defendants”), LEEP, Inc. d/b/a LEEP, Inc. of Kentucky, and Roger L. Blanken. Auto-Owners and Owners seek a declaration that they have no obligation to defend or indemnify Insured Defendants in three underlying lawsuits filed by LEEP, Inc. (“LEEP”) and Roger L. Blanken (“Blanken”). (Doc. # 1). In response, Insured Defendants filed a Counterclaim against Auto-Owners and Owners (Doc. # 23) and Third Party Complaints against Grange Mutual Casualty Company, Philadelphia Indemnity Insurance Company, and Scottsdale Indemnity Company (collectively “Third Party Defendants”). (Docs. # 40, 41, and 45).

There are currently seven motions for summary judgment before the Court, which are fully briefed and ripe for review. (Docs. # 88, 89, 90, 91, 92, 93, 94, 97, 98, 99, 100, 101, 102, 103, 104, and 105). However, before reaching the substantive issues in this case, the Court must consider whether to exercise its discretionary jurisdiction under the Declaratory Judgment Act (“Section 2201 ”). Having carefully considered the issues in this case, and for the reasons set forth below, the Court finds it appropriate to decline jurisdiction in this case pursuant to Section 2201. Accordingly, Auto-Owners' and Owners' Complaint, as well as Insured Defendants' Counterclaims and Third-Party Complaints, are dismissed without prejudice.¹

I. FACTUAL AND PROCEDURAL BACKGROUND

The same facts giving rise to this action have spawned three other lawsuits—one also currently pending in this Court,² one in the Jefferson County, Kentucky Circuit Court,³ and another, formerly before the Middle District of Pennsylvania, which was dismissed with prejudice by this Court.⁴ The common denominator between these four lawsuits are Insured Defendants. In short, Insured Defendants are alleged to have engaged in underhanded negotiations and deceptive business transactions, for which they are now facing the possibility of contractual, statutory, and tortious liability.

Insured Defendants' allegedly wrongful conduct began in 2011, when Outdoor Venture Corporation (“OVC”) and LEEP engaged in proposed joint venture negotiations. As part of these negotiations, confidential information was exchanged and the parties allegedly entered into a Non-Disclosure Agreement. (Doc. # 1-2, Ex. “A”). In the Fall of 2012, negotiations broke down. Id. The proposed joint venture did not come to fruition. Id. Shortly thereafter, Kentucky Highlands Investment Corporation (“Kentucky Highlands”) purchased LEEP's debt—a note owned by Fortress Credit Corporation (“Fortress”), which secured a debt in the amount of approximately seven-million dollars ($7,000,000.00). Id. After acquiring the note, Kentucky Highlands notified LEEP of LEEP's default on the note and their intent to take possession and dispose of LEEP's assets, which secured the debt. Id. Once Kentucky Highlands repossessed LEEP's assets, they sold those assets to Stearns Manufacturing, LLC (“Stearns”). Id. Stearns subsequently sold the repossessed assets to its sole member, OVC. (Doc. # 40; Doc. #77, Stipulation, page ID # 966). After Stearns transferred all assets to OVC, Stearns was dissolved (a mere 122 days after the company's formation). (Doc. # 77, Stipulation, page ID # 966; Doc. # 89-5, Ex. “D,” Egnew Depo., pp. 102-103). These alleged actions triggered four lawsuits—three alleging various torts against Insured Defendants, and this insurance coverage dispute.

1. Underlying Litigation

a. LEEP, Inc. v. Outdoor Venture Corp., et al. , 13-CI-86, Jefferson County Circuit Court

On January 7, 2013, LEEP filed a Complaint in the Jefferson County Circuit Court against Insured Defendants. (Doc. # 1-1, Ex. “A”).⁵ LEEP brings seventeen (17) claims against J.C. Egnew, Lloyd Moncrief, Kentucky Highlands, OVC, and Stearns, including: breach of contract, breach of oral contract, fraud, tortious interference with contract between Fortress and LEEP, tortious interference with LEEP/Salzer GMBH contract, conversion, declaration of rights, tortious interference with contract between LEEP and Blanken, tortious interference with prospective business advantage, breach of fiduciary duty, defamation, intentional conduct for punitive damages, tortious interference with contract between LEEP and SC Fundamental, injunctive relief, attorney's fees, violation of RICO, and violation of the Kentucky Uniform Trade Secrets Act (Ky. Rev. Stat. Ann. § 365.900 ). Id. Specifically, LEEP claims that Insured Defendants “conspired, planned, organized, and schemed to force LEEP out of business and to take over LEEP's business by virtue of obtaining LEEP's confidential information and then purchasing the Fortress note.” Id. at ¶ 94. As a result of these alleged wrongful acts, LEEP seeks compensatory damages, attorney's fees, punitive damages, treble damages, a declaration of rights, and injunctive relief. Id. at pp. 39-40.

b. Blanken v. Ky. Highlands, et al. , 0:13-CV-47, Eastern District of Ky.

On March 6, 2013, Blanken filed a Verified Complaint against Kentucky Highlands, OVC, and Stearns seeking a declaration of rights, alleging the wrongful seizure and conversion of his property from LEEP's facility in Pennsylvania, and claiming Insured Defendants had tortiously interfered with the contract between him and LEEP. (Doc. # 1-3, Ex. “B”). Blanken seeks $1,042,000.00 in compensatory damages and $1,000,000.00 for lost profits, attorney's fees, and punitive damages for intentional conduct. Id. Blanken's lawsuit is currently pending before this Court, pursuant to its diversity jurisdiction, 28 U.S.C. § 1332.

c. Blanken v. Ky. Highlands, et al. , 4:14-CV-428, Middle District of Pa.; 6:14-CV-202, Eastern District of Ky.

On February 25, 2014, Blanken filed a Complaint in the Court of Common Pleas of Lyoming County, Pennsylvania, against Kentucky Highlands, OVC, and Stearns based on the repossession and subsequent sale of certain inventory. (Doc. # 40). Specifically, Blanken requested a declaration of rights, and damages for conversion and replevin of inventory. The case was subsequently removed to federal court and then transferred from the Middle District of Pennsylvania to the Eastern District of Kentucky as Civil Action No. 6:14-CV-202. (Doc. # 93). On February 25, 2015, this lawsuit was dismissed with prejudice and stricken from the Court's active docket upon a Stipulation of Dismissal filed by the Plaintiff, with the consent of all Defendants. (6:14-CV-202, Doc. # 31).

2. This Insurance Coverage Dispute

Auto-Owners and Owners ask the Court to determine their rights with respect to eight commercial and personal insurance policies issued to Insured Defendants. Specifically, they ask the Court to declare that “they are not required to either indemnify and/or provide a defense” in the LEEP Lawsuit in Jefferson County Circuit Court or in the Blanken action before this Court. (Doc. #1, pp. 21-22).

The Insured Defendants have filed a Counterclaim, asking the Court to draw the opposite conclusion—that both Auto-Owners and Owners have a duty to defend and indemnify the Insured Defendants. (Doc. # 23). In addition, Insured Defendants ask this Court for reimbursement of costs and a declaration that “Insured Defendants are entitled to a completely independent defense of the claims, through the counsel they have selected, paid for by Plaintiffs” because Plaintiffs are defending Insured Defendants under a reservation of rights. Id.

The Insured Defendants have also filed Third Party Complaints against Philadelphia Indemnity Insurance Company, Grange Mutual Casualty Company, and Scottsdale Indemnity Company, alleging the insurance companies have breached their insurance contracts with the Insured Defendants. Additionally, they seek a declaration that each Third Party Defendant owes a defense and indemnification to Insured Defendants for the claims asserted in the LEEP Complaint and both Blanken Complaints. (Docs. # 40, 41, and 45). In addition, Insured Defendants assert an Unfair Claims Settlement Practices claim against Philadelphia Indemnity Insurance Company, arguing that Philadelphia's conduct upon notification of the claims against Insured Defendants amounted to unfair claims settlement practices. (Doc. # 41).

II. ANALYSIS

1. Standard of Review

The Declaratory Judgment act provides that “[i]n 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.” 28 U.S.C. § 2201(a) (emphasis added). The Act affords “unique and substantial discretion” in deciding whether to provide declaratory relief. Wilton v. Seven Falls Co. , 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). Therefore, federal courts are “under no compulsion to exercise jurisdiction.” Brillhart v. Excess Ins. Co. of Am. , 316 U.S. 491,...