Nationwide Prop. & Cas. Co. v. Hunt

NATIONWIDE PROPERTY and CASUALTY COMPANY, Plaintiff, v. PHILLIP HUNT and COMMUNITY, & SOUTHERN BANK,INC. f/k/a FIRST NATIONAL BANK OF GEORGIA, Defendants.

CASE NO.: 1:11-cv-02591-JEO

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA EASTERN DIVISION

June 13, 2014

MEMORANDUM OPINION

In this declaratory judgment action, Plaintiff Nationwide Property and Casualty Company ("Nationwide") seeks a declaratory judgment that a homeowners insurance policy it issued to Defendant Phillip Hunt ("Hunt") is void and provides no coverage for a fire loss suffered by Hunt. Hunt, in turn, has filed a counterclaim against Nationwide for breach of the insurance policy.

Before the court is Nationwide's motion for summary judgment on both its request for declaratory relief and Hunt's counterclaim. (Doc. 19).¹ The motion has been fully briefed and is properly under submission before the court.² (Docs. 19, 20, 25, 26). For the reasons stated below, the court finds that the motion is due to be denied.

I. Factual Background³ and Procedural History

In 2001, Hunt purchased a homeowners insurance policy from Nationwide (the "Policy"). (Doc. 20-1 at 3). The Policy insured the residence located at 783 County Road 50 in Fruithurst, Alabama (the "Property"), and provided coverage for the dwelling, detached structures, and personal property. (Doc. 19-10 at 3). As part of the Policy application process, Hunt confirmed that he was the owner of the Property and that it was owner occupied. (Doc. 19-10 at 3). On July 31, 2001, Hunt transferred title to the Property to his daughter via a warranty deed. (Doc. 194 at 2). He did not notify Nationwide of the transfer of title. (Doc. 20-1 at 2). Hunt continued to live in the residence and continued to pay the insurance premiums and taxes on the Property. (Doc. 20-1 at 2-3).

In May 2007, Hunt obtained a $170,000.00 loan from First National Bank of Georgia ("First National") to make improvements to the Property. (Doc. 20-1 at 3). As security for the loan, Hunt's daughter granted First National a mortgage on the Property. (Doc. 19-5 at 2-6).

On October 1, 2009, Hunt filed a Chapter 13 Voluntary Petition in the United States Bankruptcy Court for the Northern District of Alabama, Case No. 1:09-bk-42917. Hunt represented in the bankruptcy petition that he held no interest in real property and that he leased the Property. (Doc. 19-2 at 19, 31).

On October 24, 2010, the Property and its contents were destroyed by fire. (Doc. 20-1 at 3). Hunt gave notice of the loss to Nationwide that same day. (Id.) Ten days later, on November 3, 2010, the bankruptcy trustee filed a motion to dismiss Hunt's bankruptcy case for failure tomake the required payments under the bankruptcy plan. (Doc. 19-8). The bankruptcy court dismissed the case on December 8, 2010. (Doc. 19-9). Hunt never amended his bankruptcy petition to include a potential claim against Nationwide as an asset of his estate.

Hunt submitted a Proof of Loss to Nationwide on May 14, 2011. (Doc. 19-3). Nationwide initiated this action two months later, seeking a declaration that it owed no coverage to Hunt for the fire loss.⁴ (Doc. 1). Hunt answered the complaint and asserted a counterclaim against Nationwide, alleging that Nationwide had breached the Policy by failing to reimburse him for the fire loss. (Doc. 6). Nationwide has now moved for summary judgment in its favor, arguing that Hunt's counterclaim is barred by judicial estoppel and that the Policy is void.

II. Summary Judgment Standard

Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). The party seeking summary judgment must first identify grounds that show the absence of a genuine issue (dispute) of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the non-movant, who must go beyond the pleadings and present affirmative evidence that a genuine issue (dispute) of material fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986). In ruling on a motion for summary judgment, the court must draw all reasonable inferences in the light most favorable to the non-moving party. Sims v. MVM, Inc., 704 F.3d 1327, 1330 n.2 (11th Cir. 2013); Hill v. Wal-Mart, 510 F. App'x 810, 813 (11th Cir. 2013). The court may consider materials including depositions, documents, electronically storedinformation, affidavits, and declarations. FED. R. CIV. P. 56(c)(1)(A).

III. Discussion

A. Is Hunt's counterclaim barred by judicial estoppel?

The doctrine of judicial estoppel operates " 'to protect the integrity of the judicial process' by 'prohibiting parties from deliberately changing positions according to the exigencies of the moment.' " New Hampshire v. Maine, 532 U.S. 742 , 749-50 (2001) (quoting Edwards v. Aetna Life Ins. Co., 690 F. 2d 595, 598 (6th Cir. 1982), and United States v. McCaskey, 9 F.3d 368, 378 (5th Cir. 1993)); see also Middleton v. Caterpillar Indus., Inc., 979 So. 2d 53, 59 (Ala. 2007) (quoting New Hampshire). Here, Nationwide asserts that Hunt's counterclaim is barred by judicial estoppel because he never identified a fire loss claim against Nationwide in his bankruptcy filings. Nationwide argues that Hunt's fire loss claim was an asset of his bankruptcy estate and that his failure to disclose the claim to the bankruptcy court is "inconsistent" with the assertion of his counterclaim here. (See Doc. 19 at 12-13).

Because this is a diversity case, "the application of the doctrine of judicial estoppel is governed by [Alabama] state law." Original Appalachian Artworks, Inc. v. S. Diamond Assoc., Inc., 44 F.3d 925, 930 (11th Cir. 1995); see also Carribean I Owners' Assoc., Inc. v. Great Amer. Ins. Co. of New York., 619 F. Supp. 2d 1178, 1183 (S.D. Ala. 2008) ("Because federal subject matter jurisdiction in this case is predicated solely on diversity jurisdiction, the Court looks to Alabama's law of judicial estoppel."); Sunbelt Cranes Const. and Hauling, Inc. v. Gulf Coast Erectors, Inc., 189 F. Supp. 2d 1341, 1345 (M.D. Fla. 2002); Lane v. Wal-Mart, Inc., 172 F.3d 879 (10th Cir. 1999). The Supreme Court of Alabama has embraced the factors set forth in New Hampshire for determining whether judicial estoppel applies:

[F]or judicial estoppel to apply (1) "a party's later position must be 'clearly inconsistent' with its earlier position"; (2) the party must have been successful in the prior proceeding so that "judicial acceptance of an inconsistent position in a later proceeding would create 'the perception that either the first or second court was misled'" (quoting Edwards v. Aetna life Ins. Co., 690 F.2d 595, 599 (6th Cir. 1982)); and (3) the party seeking to assert an inconsistent position must "derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped."

Ex Parte First Alabama Bank, 883 So. 2d 1236, 1244-45 (Ala. 2003) (quoting New Hampshire, 532 U.S. at 750-51).⁵

Here, at least two of the three judicial estoppel factors are absent. First, Hunt was not "successful" in his bankruptcy case. The court recognizes that, as a general rule, "[t]he doctrine of judicial estoppel applies, where a debtor in bankruptcy proceedings fails to disclose any claim that may be presented in a nonbankruptcy contest, to estop the debtor from presenting the claim." Luna v. Dominion Bank of Middle Tennessee, Inc., 631 So. 2d 917, 919 (Ala. 1993). Here, however, Hunt's fire loss claim arose on October 24, 2010, more than a year after he filed his bankruptcy petition and just ten days before the bankruptcy trustee moved to dismiss hisbankruptcy case for failure to make his payments under his Chapter 13 plan. Hunt testified in his affidavit in opposition to Nationwide's motion for summary judgment that "[a]fter the motion to dismiss [the bankruptcy case] was filed I knew the case was being dismissed so I did not ask my attorney to amend the petition adding the potential claim against Nationwide." (Doc. 20-1 at 4). The trustee's motion to dismiss was granted and the bankruptcy case was dismissed on December 8, 2010, without a discharge of Hunt's debts. In other words, notwithstanding Hunt's failure to disclose his fire loss claim, he was not "successful" in the bankruptcy because he never received a discharge of his debts. See Martin v. Cash Express, Inc., 60 So. 2d 236, 248 (Ala. 2010) (holding that the plaintiffs were judicially estopped from pursuing a claim they had not included in their Chapter 13 bankruptcy petition and noting that the plaintiffs had been "successful in having the plan confirmed and their debts discharged"); Hamm v. Norfolk Southern Railway Co., 52 So. 2d 484, 494 (Ala. 2010) (holding that the plaintiff's claim was barred by judicial estoppel where he had failed to identify the claim as a potential asset in his bankruptcy proceeding and had been "successful" in receiving a no-assets discharge in the bankruptcy); Luna, 631 So. 2d at 918 (applying judicial estoppel to bar the plaintiff's claim where he had been discharged from his debts in a bankruptcy proceeding without disclosing the claim as a potential asset).

Second, because Hunt's debts were not discharged in bankruptcy, he derived no unfair advantage over Nationwide or any of his creditors by not disclosing his fire loss claim. Indeed, if the court were to apply judicial estoppel to bar Hunt's counterclaim under these circumstances, Nationwide would be "the undeserving recipient of an unwarranted windfall, i.e., the dismissal of [Hunt's] potentially meritorious claim." Middleton, 979 So. 2d at 64. "Such a result wouldthwart the goals of our justice system." Id.

For these reasons, the court finds that the doctrine of judicial estoppel is not applicable here and that Hunt's counterclaim against Nationwide is not barred by judicial estoppel.

B. Does the Policy cover Hunt's fire loss claim?

Nationwide also argues that the Policy is void and...