Cigar Box, LLC v. Houston Specialty Ins. Co.

685 F.Supp.3d 1269

The CIGAR BOX, LLC, d/b/a the Cigar Box; and Vanessa Tidmore, Plaintiffs v. HOUSTON SPECIALTY INSURANCE COMPANY, Defendant.

Case No. 5:22-cv-00519-SLP

United States District Court, W.D. Oklahoma

Signed August 7, 2023

Rex K. Travis, Travis Law Office, Oklahoma City, OK, James M. Love, Titus Hillis Reynolds Love PC, Tulsa, OK, for Plaintiff The Cigar Box LLC.

Rex K. Travis, Travis Law Office, Oklahoma City, OK, John P. Truskett, Truskett Law Firm PLLC, Tulsa, OK, for Plaintiff Vanessa Tidmore.

Jay R. Sever, Phelps Dunbar LLP, New Orleans, LA, John H. Sparks, Lisa Monsour Millington, Odom & Sparks PLLC, Norman, OK, Kasi Schuelke, Phelps Dunbar LLP, Southlake, TX, for Defendant.

ORDER

SCOTT L. PALK, UNITED STATES DISTRICT JUDGE

Before the Court is Defendant Houston Specialty Insurance Company's Motion to Dismiss [Doc. No. 14]. Plaintiff has responded [Doc. No. 19] and Defendant has replied [Doc. No. 21]. The matter is fully briefed and ready for determination.

I. Introduction¹

The Plaintiffs in this declaratory judgment action are The Cigar Box, LLC ("Cigar Box") and Vanessa Tidmore ("Ms. Tidmore"), who are adverse to one another in a separate state court action. See Compl. [Doc. No. 1] ¶ 6. In the state court action, Ms. Tidmore sued Cigar Box alleging she was injured in an automobile accident which occurred after Cigar Box over-served alcohol to one of its off-duty employees. Id. Cigar Box had an insurance policy with Defendant, Houston Specialty Insurance Company ("HSIC"), which generally provided coverage for injuries resulting from selling, serving, or furnishing alcoholic beverages (the "Policy"). Id. ¶ 7.

After the accident, HSIC denied coverage based on two exclusions. Id. ¶ 8. First, HSIC determined the Policy does not cover a claim or lawsuit arising out of (or resulting from) service of alcohol to an employee, regardless of whether the employee is on or off duty. Id. Second, HSIC asserted the Policy excludes coverage for incidents arising from service of alcoholic beverages by any person who does not have a "TIPS" Alcohol Certification, and the employee who served the patron was not TIPS certified. Id.

Cigar Box claims the two exclusions HSIC relies on were added to the Policy after the Policy was issued and were never communicated to Cigar Box. Id. ¶ 8. Cigar Box asserts it "understood from [HSIC] that it was buying and paying for coverage for several years and that it was getting coverage which would protect it from suits such as [Ms.] Tidmore's." Id. ¶ 10. Plaintiffs ultimately seek a "judgment reforming the [P]olicy and declaring that the [Policy] afford[s] coverage for the claims" asserted in the separate action brought by Ms. Tidmore against Cigar Box. Id. ¶11.

HSIC moves for dismissal of Plaintiffs' claims under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1), and for dismissal of Ms. Tidmore for lack of standing. Mot. [Doc. No. 14] at 1-3. HSIC first asserts Plaintiffs' declaratory judgment claim fails because there is no actual case or controversy regarding the Policy as it exists without reformation: in other words, the only apparent dispute relates to reformation—which is an independent claim that must be considered separately—and there is no actual case or controversy regarding the Policy. See id. at 1-2, 5-6. Second, HSIC asserts Ms. Tidmore does not have standing to sue for reformation because she is not a party or third-party beneficiary to the Policy. Id. at 6. Finally, HSIC asserts Plaintiffs failed to allege facts to support a reformation claim under Oklahoma law. Id. at 8.

In Response, Plaintiffs assert the Court has jurisdiction over the declaratory judgment claim because there is an actual case or controversy regarding whether coverage exists in general, though Plaintiffs do not assert there is a dispute between the parties beyond the reformation claim. See Resp. [Doc. No. 19] at 1-6. Plaintiffs further respond Ms. Tidmore is a proper and necessary party to this action because she is "interested in the declaration" and other courts have permitted the claimant in a separate action to join in a declaratory judgment action regarding insurance coverage. Id. at 6-7. Plaintiffs do not respond to HSIC's 12(b)(6) argument regarding failure to state a claim for reformation.

II. Governing Standard

A pleading must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. But "mere 'labels and conclusions,' and 'a formulaic recitation of the elements of a cause of action' will not suffice; a plaintiff must offer specific factual allegations to support each claim." Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

"Generally, the sufficiency of a complaint must rest on its contents alone." Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). Thus, "[w]hen a party presents matters outside of the pleadings for consideration . . . 'the court must either exclude the material or treat the motion as one for summary judgment.' " Brokers' Choice of Am., Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1103 (10th Cir. 2017) (quoting Alexander v. Oklahoma, 382 F.3d 1206, 1214 (10th Cir. 2004)). Certain exceptions exist, and the Court may consider: (1) documents attached to the Complaint as exhibits; (2) documents referenced in the Complaint that are central to the Plaintiffs' claims if the parties do not dispute the documents' authenticity; and (3) matters of which the Court may take judicial notice. Gee, 627 F.3d at 1186.

The governing standard for HSIC's 12(b)(1) arguments differs depending on whether HSIC presents a facial attack based on "the factual allegations of the complaint" or a factual attack which "goes beyond the factual allegations of the complaint and presents evidence in the form of affidavits or otherwise to challenge the court's jurisdiction." Rural Water Dist. No. 2 v. City of Glenpool, 698 F.3d 1270, 1272 n.1 (10th Cir. 2012). Here, although it does not specify, HSIC's jurisdictional arguments are based on the allegations in the Complaint, Mot. [Doc. No. 14] at 1-2, 4-8, so the Court considers HSIC's Motion a facial attack. See Schmitz v. Colo. State Patrol, 841 F. App'x 45, 54 (10th Cir. 2020).²

When presented with a facial attack, the Court must accept the allegations in the Complaint as true and evaluate whether the factual matter in the Complaint is sufficient to state a plausible claim. See Schmitz, 841 F. App'x at 54 (citing Safe Streets All. v. Hickenlooper, 859 F.3d 865, 877-78 (10th Cir. 2017)). The Court's review generally "mirrors how [it] assess[es] Rule 12(b)(6) motions," and the Court "evaluate[s] whether the complaint contain[s] sufficient factual matter . . . to state a claim to relief that is plausible on its face." Id. (internal quotation marks and citations omitted).

III. Discussion

A. Justiciability of the Declaratory Judgment Claim

i. Article III Justiciability

HSIC's Motion asserts there is no "actual case or controversy" independent of the reformation claim which is sufficient to confer jurisdiction under 28 U.S.C. § 2201 and Article III of the United States Constitution. Mot. [Doc. No. 14] at 5-6. 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.

28 U.S.C. § 2201(a). " 'The phrase "case of actual controversy" in the Act refers to the type of "Cases" or "Controversies" that are justiciable under Article III' of the United States Constitution." Columbian Fin. Corp. v. BancInsure, Inc., 650 F.3d 1372, 1376 (10th Cir. 2011) (citation omitted). The burden of establishing the existence of an actual case or controversy rests with the party seeking the declaration. Cardinal Chem. v. Morton Int'l, Inc., 508 U.S. 83, 95, 113 S.Ct. 1967, 124 L.Ed.2d 1 (1993).

"The difference between an abstract question and a 'controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree" and there is no "precise test for determining in every case whether there is such a controversy." Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941). The central question 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." MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) (citation omitted). The Court must be able to afford "specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." Id. (citation omitted).

The Court finds the record before it provides a sufficient "case or controversy" to initially afford jurisdiction under Article III. The Complaint alleges a dispute between the parties as to whether the Policy should afford coverage to Cigar Box for the underlying lawsuit filed in state court by Ms. Tidmore, even if that dispute...