Flectat Ltd. v. Kasl Seabreeze, LLC

257 F.Supp.3d 152

FLECTAT LTD., on its own behalf as Lead Underwriter Subscribing to Certificate No. XSZ30510, Plaintiff,

v.KASL SEABREEZE, LLC, Subhash Agrawal, Tammy Eldridge, Lou Almonte, Donna Benevides, and Cape Cod Alarm, Inc., Defendants.

CIVIL ACTION NO. 16-10886-MPK.

United States District Court, D. Massachusetts.

Signed June 30, 2017

James P. McLarnon, Jr., Thomas B. Farrey, III, Burns & Farrey, Worcester, MA, for Plaintiff.

Stephen M. Woodworth, Lynch & Lynch, South Easton, MA, Joseph T. Desmond, Law Office of Joseph T. Desmond, Hingham, MA, William T. Kennedy, Law Offices of William T. Kennedy, Quincy, MA, Steven L. Aiken, Aiken & Aiken P.C., Hyannis, MA, Jocelyn M. Sedney, Thomas R. Donohue, Richard E. Brody, Brody, Hardoon, Perkins & Kesten LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER STAYING THE CASE PENDING THE OUTCOME OF THE UNDERLYING STATE COURT ACTION.

KELLEY, U.S.M.J.

I. Introduction.

On May 16, 2016, Certain Underwriters at Lloyd's, London brought this action seeking a declaratory judgment pursuant to 28 U.S.C. § 2201, the Declaratory Judgment Act, as to its rights, duties, and responsibilities under an insurance policy (the Policy). (# 1.) On August 16, 2016, an amended complaint (# 13) was filed, in which Flectat Ltd., the lead underwriter subscribing to the relevant certificate for the Policy, was substituted as plaintiff.¹ Cross motions for partial summary judgment are now pending before the court. (## 41, 43, 45.)

II. The Facts.

The relevant facts are as follows.² At all times relevant to this action, KASL Seabreeze LLC owned a residential building located at 58 Center Street in Dennis Port, Massachusetts (the Property). (# 42 ¶ 2.) The Policy provided commercial general liability coverage for the Property.³ (# 13 ¶ 1; # 13–3; # 42 ¶ 1.) On June 6, 2014, a fire broke out in the Property. (# 13 ¶ 14; # 42 ¶ 3.) In an effort to escape the blaze, three people, Tammy Eldridge, Lou Almonte, and Donna Benevides, jumped from second story windows of the Property. (# 13 ¶ 15.) Eldridge, Almonte, and Benevides sustained injuries both from their exposure to smoke while in the burning building, and from jumping from the second story. (# 13 ¶ 15; # 42 ¶¶ 5, 9.)

III. Procedural History.

On October 7, 2015, Benevides filed suit in the Massachusetts Superior Court, Barnstable County against KASL, Subhash Agrawal, a manager and officer of KASL, and Cape Cod Alarm Company, an entity whose business consists of fire and security system sales, installation, and maintenance, seeking redress for harm suffered as a result of the fire. (# 13 ¶ 1; # 13–2 (Benevides Complaint); # 42 ¶ 10.) On October 9, 2015, Eldridge and Almonte filed a similar action, stemming from the same set of facts and naming the same defendants, in the same court. (# 13 ¶ 1; # 13–1 (Eldridge and Almonte Complaint); # 42 ¶ 10.) These cases have been consolidated into a single action which remains pending in state court. (# 13 ¶ 1; # 42 ¶ 10.) Thereafter, on May 16, 2016, Certain Underwriters, now Flectat, filed this action. In Count I, Flectat seeks from this court a declaration as to the extent of coverage for which it is potentially liable, either under the Policy's each occurrence limit, $1,000,000.00, or the general aggregate limit, $2,000,000.00. (# 13 ¶¶ 1, 32–37.) In addition, the amended complaint seeks six other declarations that could potentially limit or negate entirely Flectat's liability under the Policy. See id. ¶¶ 38–80.

The case before this court has been bifurcated into Phase I, which consists of no discovery, the submission of an agreed-upon statement of facts, and cross motions for summary judgment as to Count I, and Phase II, adjudication of the remainder of the claims with whatever discovery is necessary. See (# 31 (Joint Statement)); see also (# 37 (adopting the proposed schedule set out in # 31).) Phase I has commenced; the parties have submitted their joint statement of facts (# 42); and summary judgment motions have been briefed and filed (## 41, 43, 44).

Because there is a pending parallel state court proceeding, the court scheduled a hearing to hear argument on whether the case should be stayed pending the outcome of the state court action. On May 3, 2017, a hearing was held to address the parties' positions with respect to the issuance of a stay. At that hearing, the parties agreed that they were asking the court to decide Phase I, that is, to issue a declaration as to the extent of coverage for which Flectat is liable, and then to stay the action so that the case could be mediated or, in the alternative, litigated in state court. (# 52 at 4–5.) The parties agreed that because of the overlap of issues between Counts II through VII in this matter and issues in the pending state court matter, this court is not an appropriate forum for Phase II. Id. at 11. Further, some of the parties asserted that if the court ruled against them in deciding Phase I, they would take an appeal of that decision. Id. at 10–11. Finally, counsel for Cape Cod Alarm stated that at some time she intends to raise the question whether the court has diversity jurisdiction over this matter. She said that she had agreed "to put aside" this issue until "we got to Phase II," but said that she expected to raise the issue in the future and that "perhaps [she] should not have reserved that issue for Phase II." Id. at 14.

For the reasons set out below, after careful consideration, the court will stay the matter pending the outcome of the state court action.

IV. Jurisdiction.

Should the stay be lifted in the future, Flectat will need to file a supplemental pleading to establish diversity pursuant to 28 U.S.C. § 1332. "In the absence of jurisdiction, a court is powerless to act," and whatever Cape Cod Alarm intends to do regarding raising the issue of jurisdiction (which from counsel's statements at the May 3 hearing was not at all clear), parties cannot confer jurisdiction on a federal court by consent. American Fiber & Finishing, Inc., v. Tyco Healthcare Group, LP , 362 F.3d 136, 139 (1st Cir. 2004). At the October 26, 2016 scheduling conference and again at the May 3, 2017 status conference, in response to Cape Cod Alarm's concern as to the existence of jurisdiction in the matter, counsel for plaintiff assured the court that diversity was satisfied. Flectat's position is that its citizenship, as lead underwriter subscribing to the relevant certificate for the Policy, is all that need be considered in the diversity analysis. See, e.g. , (# 52 at 17–18.) Because the matter is being stayed and in the interest of avoiding unnecessary costs, the court has not sought briefing on the matter and will not delve further into the question at this juncture.

V. Standard of Review.

While federal courts are typically to abstain from exercising jurisdiction over a matter only in "exceptional circumstances," Colorado River Water Conservation Dist. v. United States , 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), as they have a "virtually unflagging obligation ... to exercise the jurisdiction given to them," id. at 817, 96 S.Ct. 1236, the Supreme Court has held that a substantially lower discretionary standard applies with regard to claims brought pursuant to the Declaratory Judgement Act when there exists a pending parallel state court proceeding. See Wilton v. Seven Falls Co. , 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995).

By the Declaratory Judgment Act, Congress sought to place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants. Consistent with the nonobligatory nature of the remedy, 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.

Id. at 288, 515 U.S. 277 ; DeNovellis v. Shalala , 124 F.3d 298, 313 (1st Cir. 1997).

Wilton makes clear that the court is well within its authority to decline to exercise jurisdiction over the instant matter. See, e.g., U.S. Liability Ins. Co. v. Wise , 887 F.Supp. 348 (D. Mass. 1995)⁴ (acting sua sponte , the court declined to exercise jurisdiction); see also Sustainable Low Maint. Grass, LLC v. Cutting Edge Sols., LLC , No. 14-CV-11894-IT, 2014 WL 4656627, at *3 (D. Mass. Sept. 15, 2014) ("Under the [Declaratory Judgment] Act, a court may provide declaratory relief, but the decision to award such relief rests within the court's discretion.") (internal citation and quotation marks omitted).

While the Supreme Court in Wilton declined to set forth a test to determine the propriety of abstention, it cited with approval factors applied by the Court in Brillhart v. Excess Ins. Co. of America , 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). Those factors are: (1) the scope of the pending state court proceeding and the nature of defenses open there; (2) whether the claims of all parties in interest can be adjudicated satisfactorily in the state proceeding; (3) whether necessary parties have been joined; (4) whether all necessary parties are amenable to process in the state proceeding; and (5) the virtue of avoiding uneconomical proceedings, vexatiousproceedings, and gratuitous interference by a federal court with an orderly and comprehensive suit pending in a state court, presenting the same issues, not governed by federal law, between the same parties. See Wilton , 515 U.S. at 283, 115 S.Ct. 2137.

In the years since the Wilton decision was handed down, a number of courts in this circuit have applied some variation of the Brillhart factors. See, e.g., Petricca v. FDIC , 349 F.Supp.2d 64, 67 (D. Mass. 2004) (citing Wilton and applying the Brillhart factors); Travelers Cas. & Sur....