Auto Owners Ins. Co. v. Trip Cat, LLC

444 F.Supp.3d 764

AUTO OWNERS INSURANCE CO., Plaintiff,

v.TRIP CAT, LLC et al., Defendants.

Civil Action No. 6:19-CV-115-CHB

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

Signed March 17, 2020

Heather M. McCollum, Kopka Pinkus Dolin, PC, Lexington, KY, for Plaintiff.

Daniel G. Yeast, Morgan, Madden, Brashear, Collins & Yeast, John T. Pruitt, Jr., Travis, Pruitt, Powers & Yeast, Somerset, KY, for Defendants.

MEMORANDUM OPINION AND ORDER GRANTING MOTION TO DISMISS

CLARIA HORN BOOM, UNITED STATES DISTRICT COURT JUDGE

Plaintiff Auto Owners Insurance Company ("Auto Owners") brought this declaratory judgment action to adjudicate its obligations under an insurance contract. [R. 1] Auto Owners' suit arises from an underlying action brought in Kentucky state court by Defendant Trip Cat, LLC ("Trip Cat") against Auto Owners' insured, Marshall Todd, following a construction dispute between Trip Cat and Todd. [Id. ]

This matter is now before the Court on Trip Cat's Motion to Dismiss, which argues that the Court should decline to exercise its discretion over this declaratory judgment action. [R. 6] Defendant Todd filed a response in support of Trip Cat's Motion to Dismiss [R. 8]; Plaintiff filed a response in opposition [R. 9]; and Trip Cat did not file a reply. This matter is ripe for review. For the reasons stated below, the Court will GRANT the Motion to Dismiss.

I. Background

In 2011, Trip Cat contracted with Todd, a general contractor, to renovate a building by stripping down the existing building to its foundation and erecting a new structure. [R. 1-3 ¶¶ 5–6] Todd allegedly agreed to inspect the foundation of the original building and inform Trip Cat if the foundation was unfit. [Id. at ¶¶ 7, 9] Todd proceeded to demolish the existing building and construct a new building on the original foundation. [Id. at ¶¶ 10–11] In 2017, Trip Cat discovered that the foundation was in "unfit condition" and that these issues would have been present when Todd inspected it. [Id. at ¶ 12] As a result, on August 15, 2018 Trip Cat filed a lawsuit against Todd in Pulaski Circuit Court, alleging that Todd (1) breached the contract by building the new structure upon an unfit foundation, (2) fraudulently misrepresented the condition of the foundation, and (3) breached the warranties given to Trip Cat. [Id. at ¶¶ 14–31]

Auto Owners insures Todd under a policy of general liability insurance. [R. 1] On May 3, 2019, Auto Owners filed a complaint in this Court seeking a judicial declaration that it has no duty to defend or indemnify Todd in the Pulaski Circuit Court action. [Id. at ¶ 8] Plaintiff first argues that the events alleged by Trip Cat in its state court complaint do not consist of either "bodily injury," "property damage," or an "occurrence" as defined by the policy. [Id. at ¶ 15] Therefore, no coverage would be afforded for the events set forth in the state court complaint. [Id. ] Plaintiff then argues that even if the events do fall under one of these definitions, the policy issued to Todd specifically excludes intentional torts from coverage. [Id. at ¶ 16] Accordingly, Todd's alleged fraud, intentional misrepresentations, and false, misleading, and deceptive practices would be excluded from coverage under the policy. [Id. ]

II. Discussion

While the Court has jurisdiction to hear this action, see [R. 17], under 28 U.S.C. § 2201 it must still decide whether jurisdiction is appropriate. 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." 28 U.S.C. § 2201(a) (emphasis added). The Act thus "confer[s] on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co. , 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). Generally, courts should only exercise this discretionary jurisdiction when doing so would advance the interests of justice or preserve resources of the parties. Grange Mut. Cas. Co. v. Safeco Ins. Co. of Am. , 565 F. Supp. 2d 779, 785 (E.D. Ky. 2008) (citing Panhandle E. Pipe Line Co. v. Mich. Consol. Gas Co. , 177 F.2d 942, 944 (6th Cir. 1949) ) (other citations omitted).

The Sixth Circuit's Grand Trunk factors guide district courts when deciding whether to exercise jurisdiction under Section 2201. These factors are:

1. Whether the declaratory action would settle the controversy;

2. Whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue;

3. Whether the declaratory remedy is being used merely for the purpose of procedural fencing or to provide an arena for a race for res judicata;

4. Whether the use of a declaratory action would increase friction between our federal and state courts and improperly encroach on state jurisdiction; and

5. Whether there is an alternative remedy which is better or more effective.

Grand Trunk W. R.R. Co. v. Consol. Rail Corp. , 746 F.2d 323, 326 (6th Cir. 1984). The Sixth Circuit has noted that these factors are not given any particular weight and are meant to focus the district court on three things: efficiency, fairness, and federalism. Western World Ins. Co. v. Hoey , 773 F.3d 755, 759 (6th Cir. 2014) (internal citations omitted). Therefore, "the essential question is always whether a district court has taken a good look at the issue and engaged in a reasonable analysis of whether issuing a declaration would be useful and fair." Id.

A. Factors One and Two: Will the Action Settle the Controversy and Clarify the Legal Relations?

The first two factors are closely related and therefore often considered together. Scottsdale Ins. Co. v. Flowers , 513 F.3d 546, 557 (6th Cir. 2008). The Sixth Circuit has developed split lines of precedent concerning these two factors, each discussed in turn below. The Sixth Circuit explained that the incongruence between each line of cases results from the "different factual scenarios" presented. Id. at 555.

The first factor is whether the district court's judgment would settle the controversy. Grand Trunk , 746 F.2d at 326. One line of cases has held that this factor is met if the declaratory action can settle the insurance coverage controversy presented, even though it will not resolve the underlying state court action. Northland Ins. Co. v. Stewart Title Guar. Co. , 327 F.3d 448, 454 (6th Cir. 2003) ("[W]hile the declaratory judgment would not end the dispute ... it would settle the controversy regarding the scope of insurance coverage issued by Northland to Cailu, and whether Northland had a duty to defend...."). The reasoning is often that "a declaratory judgment is proper if it will only have to decide purely legal questions or engage in fact-finding that does not affect the parties in the underlying action." United Specialty Ins. Co. v. Cole's Place, Inc. , No. 3:17-CV-326-TBR, 2018 WL 1914731, at *4 (W.D. Ky. Apr. 23, 2018) (citation omitted), aff'd 936 F.3d 386 (6th Cir. 2019).

A second line of cases has held that although such declaratory actions might clarify the legal relationship between the parties, they ultimately fail factor one analysis by failing to settle the ultimate controversy between the parties which is ongoing in state court. Travelers Indem. Co. v. Bowling Green Prof'l Assoc., PLC , 495 F.3d 266, 272 (6th Cir. 2007) ("Granting the declaratory relief sought by Evanston and Travelers settles the scope of insurance coverage under the respective policies and clarifies their obligation to defend Bowling Green in the state court action, but it does nothing to ... ‘clarify the legal relationship’ between the other parties."); see also State Farm Fire & Cas. Co. v. Odom , 799 F.2d 247, 251 (6th Cir. 1986) (Merritt, J., dissenting) ("[D]eclaratory judgment actions seeking an advance opinion on indemnity issues are rarely helpful when there is an ongoing action in another court ... Such actions seldom resolve the entire dispute among the parties, and they create confusion among courts as to schedules, orderly resolution of factual disputes, and res judicata. "). These cases often involve factual disputes that are also at issue in the state court, or instances where the state court plaintiff has not been joined. Cole's Place , 2018 WL 1914731, at *4 ; Encompass Indem. Co. v. Gray , No. 3:17-CV-713-RGJ, 434 F.Supp.3d 560, 569–72 (W.D. Ky. Jan. 21, 2020).

The Sixth Circuit has provided similarly conflicting guidance on factor two, "whether the district court's decision must only clarify the legal relations presented in the declaratory judgment action or whether it must also clarify the legal relations in the underlying state action." Scottsdale Ins. Co. v. Flowers , 513 F.3d 546, 557 (6th Cir. 2008) (internal citations omitted). In Flowers , the Sixth Circuit held that for a declaratory judgment to satisfy factor two, it must simply provide a final resolution of the discrete dispute presented and need not settle all the relations in state court. Id. On the other hand, the Travelers Court held that the second factor was not met when the judgment would not clarify the legal relations between the other parties to the state court action who may have been potentially affected by the judgment. Travelers , 495 F.3d at 272 ; Bituminous Cas. Corp. v. J & L Lumber Co. , 373 F.3d 807, 814 (6th Cir. 2004) ("[A]lthough a declaratory judgment would clarify the legal relationship between Bituminous and J & L pursuant to the insurance contracts, the judgment would not clarify the legal relationship between Shields and J & L in the underlying state action.").

The instant action bears similarities to both lines of cases. As in Northland , the party who brought this declaratory judgment action, Auto Owners, is not named in the underlying state court matter. [R. 1-3] Thus, the insurance coverage dispute is...