Atl. Cas. Ins. Co. v. United Tours, Inc.

Decision Date30 May 2013
Docket NumberCivil Action No. 3:12CV680-HEH
CourtU.S. District Court — Eastern District of Virginia
PartiesATLANTIC CASUALTY INSURANCE COMPANY, Plaintiff, v. UNITED TOURS, INC., et al., Defendants.
MEMORANDUM OPINION

(Granting Defendant's Motion to Dismiss)

This Matter is before the Court on Defendant Anthony Clarke's ("Clarke") Motion to Dismiss (ECF No. 18), filed on April 16, 2013. Both parties have filed memoranda of law in support of their respective positions. The Court will dispense with oral argument because the facts and legal contentions have been adequately presented, and oral argument would not aid in the decisional process. For the reasons set forth herein, the Motion to Dismiss will be granted.

I. BACKGROUND

On May 31, 2011, a single-vehicle accident occurred on Interstate 95 in Caroline County, Virginia. Defendant Kin Yiu Cheung ("Cheung") allegedly was driving a tour bus owned and operated by Defendant Sky Express, Inc. ("Sky Express") that ran off the road and overturned. (Compl. ¶ 10, ECF No. 1.) In February 2012, Clarke, individually and as administrator of the estate of Karen Blyden-DeCastro ("DeCastro"), filed suit in the Supreme Court of New York against several parties, including Cheung, Sky Express, andUnited Tours, Inc. ("United Tours"), seeking damages for DeCastro's death.(Id. at ¶¶ 11-12; see also Clarke's N.Y. Sup. Ct. Compl., ECF No. 19-2.)

At the time of the accident, Plaintiff Atlantic Casualty Insurance Company ("Atlantic") provided insurance coverage to United Tours under a commercial automobile policy. (Compl. ¶ 9.) In addition to the core liability provision, the policy "included an MCS-90B Endorsement providing financial responsibility in the amount of $5,000,000."1 (Id.) Atlantic contends that the policy provides no coverage for losses arising from the accident because the Sky Express bus does not qualify as a "scheduled auto" or "covered auto" under the terms of the liability provision. (Id. at ¶¶ 15-16.) Atlantic further claims that the financial responsibility provision of the MCS-90B Endorsement is not triggered because United Tours was not operating as a for-hire motor carrier transporting passengers or property in interstate or foreign commerce. (Id. at ¶ 18.) Accordingly, Atlantic seeks a declaratory judgment that there is no coverage under the policy.

Clarke argues for dismissal on two grounds. First, he seeks dismissal pursuant to Fed. R. Civ. P. 12(b)(1), asserting that the Court lacks subject matter jurisdiction because the action does not properly invoke federal question jurisdiction.2 Second, Clarke contends that the Court must dismiss pursuant to Fed. R. Civ. P. 12(b)(2) because the Court lacks personal jurisdiction over him.

For the reasons articulated below, the Court finds that it lacks subject matter jurisdiction and will not address the challenge to personal jurisdiction.

II. STANDARD OF REVIEW

A motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction challenges a court's authority to hear the matter brought by a complaint. See Davis v. Thompson, 367 F. Supp. 2d 792, 799 (D. Md. 2005). The plaintiff bears the burden of proving that subject matter jurisdiction properly exists in the federal court. See Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999) (citation omitted).

A challenge under Rule 12(b)(1) may proceed either as a facial challenge—asserting that the complaint fails to allege facts upon which subject matter jurisdiction can be based—or a factual challenge—asserting that "the jurisdictional allegations of the complaint [are] not true." Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009) (citation omitted). "When a defendant makes a facial challenge to subject matter jurisdiction, . . . the facts alleged in the complaint are taken as true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction." Id. (citation omitted).Accordingly, "a district court should grant the Rule 12(b)(1) motion to dismiss 'only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.'" Evans, 166 F.3d at 647 (quoting Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991)). "If the defendant challenges the factual predicate of subject matter jurisdiction, '[a] trial court may then go beyond the allegations of the complaint and in an evidentiary hearing determine if there are facts to support the jurisdictional allegations.'" Kerns, 585 F.3d at 192 (quoting Adams v. Bain, 697 F.2d 1213,1219 (4th Cir. 1982)).

III. ANALYSIS
A. Applicable Law

"Title 28 U.S.C. § 1331 vests in federal district courts 'original jurisdiction' over 'all civil actions arising under the Constitution, laws, or treaties of the United States.'" Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 689 (2006). There are two ways in which cases arise under federal law within the meaning of § 1331. "[T]he vast majority of cases brought under the general federal-question jurisdiction . . . are those in which federal law creates the cause of action." Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 808 (1986). In certain instances, "suits to enforce contracts contemplated by federal statutes may set forth federal claims and . . . private parties . . . may sue in federal court to enforce contractual rights created by federal statutes." Jackson Transit Auth. v. Transit Union, 457 U.S. 15, 22 (1982). The determination of whether there is an implied cause of action depends on "whether Congress intended that the contracts in question be creations of federal law, and that the rights and duties contained in those contracts be federal in nature."Ins. Corp. of New York v. Monroe Bus Corp., 491 F. Supp. 2d 430, 435 (S.D.N. Y. 2007) (citing Jackson Transit, 457 U.S. at 23) (internal quotation marks omitted).

Alternatively, cases may arise under federal law "where the vindication of a right under state law necessarily turn[s] on some construction of federal law." Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9 (1983). However, "the mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction." Merrell Dow, 478 U.S. at 813. To find that the question of federal law is sufficiently substantial to confer jurisdiction, the district court must determine that the "state-law claim necessarily raise[s] a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities." Grable & Sons Metal Prods, v. Darue Eng'g & Mfg., 545 U.S. 308, 314 (2005).

B. Application

Atlantic maintains that this Court has subject matter jurisdiction over the present action pursuant to 28 U.S.C. § 1331.3 (Mem. Opp. Mot. to Dismiss 3.) The purported federal question establishing jurisdiction under § 1331 involves the interpretation and application of the MCS-90B Endorsement—a creation of federal law.4 Noting that federallaw specifies the terms of the federally-mandated endorsement, Atlantic argues that the interpretation of the endorsement is governed by federal law. (Id. at 5.) Atlantic concludes that subject matter jurisdiction is proper because the determination of the rights, duties, and obligations of the parties under the endorsement "inherently involve[s] questions of interpretation and application of federal statutes and regulations . . . . " (Id. at 7.)

Atlantic's argument is unavailing. As will be explained in greater detail below, this case falls into the second category of federal questions. Accordingly, Atlantic has the burden to show that the state-law claim necessarily raises a federal issue. Here, however, the allegations in the Complaint and the mechanics of the MCS-90B Endorsement do not support the conclusion that the state-law claim necessarily raises a federal issue.

Before delving into the analysis, it is critical to understand the purpose and function of the MCS-90B Endorsement. The endorsement effectively "creates a suretyship triggered by a final judgment to provide a safety net when coverage is lacking." Carlson v. Am. Int 7 Grp., Inc., No. 11-CV-874-A, 2012 U.S. Dist. LEXIS 50442, at *18 (W.D.N.Y. Apr. 10, 2012) (citation and internal quotation marks omitted); see also Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 878-81 (10th Cir. 2009). Like the MCS-90 Endorsement—a creation of the Motor Carrier Act of 1980 that contains substantially similar wording—the MCS-90B Endorsement "comes into play . . . only where (1) the underlying insurance policy to which the endorsement is attached does not otherwise provide liability coverage, and (2) the carrier's other insurance coverage is either insufficient to satisfy the federally-prescribed minimum levels of financial responsibility or is non-existent." Carolina Cas. Ins. Co., 584F.3d at 881. Thus, the MCS-90B Endorsement, "rather than fundamentally altering the terms of the underlying insurance policy, operates to ensure payment of a minimum amount of an injured party's judgment against a negligent motor carrier." Id.

Turning back to the analysis of whether federal-question jurisdiction exists, the first step is to determine which type of federal question is raised—one concerning a federal cause of action or one involving a state-law cause of action necessarily raising a federal issue. This case does not pose a federal question of the first kind. Atlantic does not allege that federal law creates the cause of action asserted, and the Bus Regulatory Reform Act does not explicitly provide a private right of action. See 49 U.S.C. § 31138. Moreover, as explained above, the contract rights created by the MCS-90B Endorsement supplement those set forth in the policy and are only implicated if the Court determines that the policy affords no...

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