Commercial Office Furniture Co. v. Charter Oak Fire Ins. Co., CIVIL ACTION NO. 20-4713

COMMERCIAL OFFICE FURNITURE COMPANY, INC. t/a COFCO OFFICE FURNISHINGS, INC. v. THE CHARTER OAK FIRE INSURANCE COMPANY

CIVIL ACTION NO. 20-4713

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

May 6, 2021

MEMORANDUM

Padova, J.

Plaintiff, Commercial Officer Furniture Company, Inc., filed this breach of contract and declaratory judgment action against The Charter Oak Fire Insurance Company ("Charter Oak") in the Court of Common Pleas of Philadelphia County. Plaintiff seeks payment under a policy of insurance issued to it by Charter Oak for losses it has suffered as a result of orders issued by Pennsylvania Governor Tom Wolf, Philadelphia Mayor Jim Kenney, and District of Columbia Mayor Muriel Bowser, which required non-essential businesses to close their physical locations in response to the COVID-19 pandemic. Charter Oak removed the action to this Court on the ground that we have diversity jurisdiction. Plaintiff has moved to remand the action to the Court of Common Pleas, asserting that it involves only an unsettled issue of Pennsylvania state insurance law that the courts of Pennsylvania should decide in the first instance. For the reasons that follow, we grant the Motion.

I. FACTUAL BACKGROUND

The Complaint alleges the following facts. Charter Oak issued Plaintiff a policy of insurance for the period from June 29, 2019 to June 29, 2020 (the "Policy"). (Compl. ¶ 6.) The Policy is an "all risk" policy that includes coverage for commercial property, including Plaintiff's building and personal property. (Id. ¶¶ 8, 10.) The Policy provides business income, extra expense, and civil authority coverages. (Id. ¶ 9.)

On March 6, 2020, while the Policy was in effect, Governor Wolf issued a Proclamation of Disaster Emergency in response to the COVID-19 pandemic. (Id. ¶ 11.) On March 16, 2020, Governor Wolf announced that, in order to curtail the spread of COVID-19 throughout the Commonwealth, nonessential businesses would be required to close beginning at midnight on March 17, 2020. (Id. ¶ 12.) On the same day, Mayor Kenney ordered all nonessential businesses in the City of Philadelphia to shut down by 5:00 p.m. on March 16, 2020. (Id. ¶ 13.) On March 17, 2020, Mayor Kenney, along with the Philadelphia Commissioner of Health, issued an Emergency Order prohibiting the operation of non-essential businesses. (Id. ¶ 14.) On March 19, 2020, Governor Wolf announced that all non-life-sustaining businesses in the Commonwealth of Pennsylvania were required to close their physical locations as of 8:00 p.m. that day. (Id. ¶ 16.) Plaintiff's business, an office furniture company, is not considered to be life sustaining. (Id. ¶¶ 16, 20.) On March 22, 2020, Mayor Kenney issued an Emergency Order prohibiting the operation of non-essential businesses and activities in Philadelphia. (Id. ¶ 17.) On March 24, 2020, Mayor Bowser ordered all non-essential businesses to close in the District of Columbia. (Id. ¶ 18.) These proclamations, announcements and orders are referred to collectively herein as the COVID-19 Orders.

Plaintiff is based in Philadelphia and has a showroom and warehouse in the District of Columbia. (Id. ¶ 20.) Plaintiff was forced to close its showrooms as a result of the COVID-19 Orders and can only sell its products and services online or by phone. (Id. ¶ 21.) Plaintiff has lost half of its business and most of its income as a result of the COVID-19 Orders and has had to lay off staff. (Id. ¶ 22.) It has also been unable to deliver and install furniture that had been ordered,but not yet paid for, prior to the issuance of the COVID-19 Orders. (Id. ¶ 23.) As a result, Plaintiff has been unable to realize the revenue from those orders and has been forced to store the ordered furniture in its warehouses, increasing its expenses. (Id.) Plaintiff has suffered significant business losses and extra expenses as a result of the COVID-19 Orders and coverage under the Policy is vital to its ability to continue as a business. (Id. ¶ 28.) Charter Oak has denied coverage for Plaintiff's losses arising from the COVID-19 Orders. (Id. ¶ 29.)

The Complaint asserts two claims against Charter Oak. Count I asserts a declaratory judgment claim and asks this Court to determine Plaintiff's rights under the Policy, declare that its losses are covered under the Policy, declare that Charter Oak is obligated to provide coverage to it under the business interruption, extra expense, and civil authority provisions of the Policy, and declare that the virus exclusion in the Policy does not apply to Plaintiff's losses. (Id. ¶¶ 27, 31.) Count II asserts a breach of contract claim arising from Charter Oak's denial of coverage for which Plaintiff seeks monetary damages.

II. LEGAL STANDARD

"[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant . . . to the district court of the United States for the district . . . embracing the place where such action is pending." 28 U.S.C. § 1441(a). The district courts have original jurisdiction over cases involving a federal question or diverse parties. 28 U.S.C. §§ 1331, 1332. We have federal question jurisdiction where the claims arise under the Constitution, laws, or treaties of the United States. Id. § 1331. We have diversity jurisdiction over civil actions where "the matter in controversy exceeds the sum or value of $75,000 . . . and is between . . . citizens of different states." 28 U.S.C. § 1332(a)(1)).

Under the Declaratory Judgment Act ("DJA"), "courts '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.'" Reifer v. Westport Ins. Corp., 751 F.3d 129, 134 (3d Cir. 2014) (quoting 28 U.S.C. § 2201(a)). The DJA "confers discretionary, rather than compulsory, jurisdiction upon federal courts." Id. (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942)). "This is an exception to the general rule that 'federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress.'" Id. (quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996)). Thus, "[c]onsistent with the nonobligatory nature of the [DJA], a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (footnote omitted). Our jurisdiction over a claim for a declaratory judgment is discretionary even if the declaratory judgment claim originated under state law rather than under the DJA. See Reifer, 751 F.3d at 134 n.4.

III. DISCUSSION

Plaintiff asks us to remand this action to state court because it seeks declaratory relief and depends on unsettled and novel issues of state law which should be decided in the first instance by the state courts. Charter Oak, however, maintains that we lack the discretion to remand this action because Count II of the Complaint alleges a separate and independent claim for breach of contract. In Rarick v. Federated Service Insurance Company, 852 F.3d 223 (3d Cir. 2017), the United States Court of Appeals for the Third Circuit explained that "[a] federal district court's discretion to decline jurisdiction depends on whether the complaint seeks legal or declaratory relief. When anaction seeks legal relief, federal courts have a 'virtually unflagging obligation' to exercise jurisdiction." Id. at 227 (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). "There are . . . a few 'extraordinary and narrow exception[s]' to this rule." Id. (second alteration in original) (quoting Colo River, 424 U.S. at 813). The Third Circuit held in Rarick that "[w]hen a complaint contains claims for both legal and declaratory relief, a district court must determine whether the legal claims are independent of the declaratory claims. If the legal claims are independent, the court has a 'virtually unflagging obligation' to hear those claims, subject of course to Colorado River's exceptional circumstances." Id. at 229 (citing Colo. River, 424 U.S. at 817-19).

Using the Rarick test, we first determine whether Plaintiff's breach of contract claim is independent of its claim for declaratory judgment. "'Non-declaratory claims are "independent" of a declaratory claim when they are alone sufficient to invoke the court's subject matter jurisdiction and can be adjudicated without the requested declaratory relief.'" Id. at 228 (quoting R.R. Street & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, 715 (7th Cir. 2009)). If a plaintiff's legal claims are independent of its declaratory claim, "the court must adjudicate the legal claims unless there are exceptional circumstances as described in Colorado River," and "courts generally will not decline the declaratory judgment action in order to avoid piecemeal litigation." Id. at 228 (alteration in original) (citing R.R. Street, 569 F.3d at 715-16). On the other hand, "'[w]here the [legal] claims are not independent, the district court has discretion . . . to abstain from hearing the entire action.'" Id. (second alteration in original) (quoting R.R. Street, 569 F.3d at 716).

Count II of the Complaint alleges that Charter Oak breached its obligations under the Policy by denying coverage for the losses that Plaintiff suffered as a result of the COVID-19 Orders. (Compl. ¶ 35.) Count II also alleges that Plaintiff has suffered damages as a result ofCharter Oak's breach of its obligations under the Policy. (Id. ¶ 36.) While the Complaint does not specify the extent of Plaintiff's damages, it alleges that Plaintiff has suffered significant...