Ce Design Ltd. v. Am. Econ. Ins. Co.
| Decision Date | 21 December 2012 |
| Docket Number | Civil Action No. 12–11106–FDS. |
| Citation | 947 F.Supp.2d 151 |
| Parties | CE DESIGN LTD., Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY and Ernida, LLC, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
OPINION TEXT STARTS HERE
Alan L. Cantor, Swartz & Swartz, Boston, MA, David M. Oppenheim, Jeffrey A. Berman, Anderson & Wanca, Rolling Meadows, IL, for Plaintiff.
Myles W. McDonough, Christopher M. Reilly, Sloane & Walsh, LLP, Boston, MA, for Defendants.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS
This is an action for declaratory judgment concerning the existence of insurance coverage. Plaintiff CE Design Ltd. seeks a declaration that American Economy Insurance Company has a duty to defend and to indemnify defendant Ernida, LLC in a pending state-court action in Illinois.
Jurisdiction is based on diversity of citizenship. Plaintiff CE is an Illinois corporation with a principal place of business in Illinois. Defendant Ernida is an Illinois limited liability company “that does business in Massachusetts.” 1 (Compl. at ¶ 5). Defendant American Economy is a Massachusetts corporation with a principal place of business in Massachusetts.
This action is related to a state-court action pending in Illinois, in which CE alleges that Ernida violated the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, common law conversion, and the Illinois Consumer Fraud Act, 815 Ill. Comp. Stat.. 505/2 (2012), by sending unsolicited junk faxes to CE and others similarly situated.
Defendant American Economy has moved to dismiss on the grounds that the case does not present a justiciable controversy and, in any event, the complaint does not state a claim upon which relief can be granted. For the reasons set forth below, the motion will be granted.
The facts are stated as alleged in the complaint.
Between January 9, 2005, and January 9, 2006, Ernida sent unsolicited junk faxes to CE and hundreds of other similarly situated recipients. CE alleges that Ernida knew, or should have known, that these recipients had not given express permission for the faxes to be sent to them. (Compl. at ¶¶ 12–15). The unsolicited faxes required the expenditure of the recipients' fax toner and paper, and occupied the recipients' fax machines during the transmissions, rendering them unavailable for sanctioned use during that time. ( Id. at ¶¶ 24–25).
American Economy issued comprehensive general liability policies to Ernida covering the period during which the unsolicited junk faxes were allegedly sent. ( Id. at ¶ 15). The policies provide coverage to Ernida for its liability for property damage “caused by an ‘occurrence’ that takes place in the ‘coverage territory’ ” during the policy period. ( Id. at ¶ 18). The policies define “property damage” as They define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” ( Id. at ¶¶ 19–20). The policies further provide coverage for liability for “personal and advertising injury,” which they define as including “injury ... arising out of ... [o]ral or written publication of material, in any manner, that violates a person's right of privacy.” ( Id. at ¶ 40).
On July 11, 2008, CE commenced an action in Illinois state court on behalf of itself and a class of others similarly situated. Ernida subsequently tendered defense of the action to American Economy. Although American Economy promptly took control of Ernida's defense, on February 25, 2009, it sent Ernida a letter reserving its rights to contest coverage.
On June 21, 2012, CE commenced this action. The complaint seeks (1) a declaration that American Economy has a duty to defend Ernida in the Illinois action, (2) a declaration that American Economy is required to indemnify and pay any judgment entered in that action against Ernida, and (3) an award of costs.
On August 6, American Economy moved to dismiss this action under Fed.R.Civ.P. 12(b)(1) and (6). It contends that CE has not presented a justiciable controversy over which the Court can properly exercise subject-matter jurisdiction, and, in any event, the complaint fails to state a claim upon which relief can be granted. Should the Court rule against it on those issues, American Economy also asks the Court to exercise its discretion and decline to render a declaratory judgment.
On a motion to dismiss, the Court “must assume the truth of all well-plead[ed] facts and give plaintiff the benefit of all reasonable inferences therefrom.” Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir.2007) (citing Rogan v. Menino, 175 F.3d 75, 77 (1st Cir.1999)). To survive a motion to dismiss, the complaint must state a claim that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). That is, “[f]actual allegations must be enough to raise a right to relief above the speculative level, ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. at 555, 127 S.Ct. 1955 (citations omitted). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). Dismissal is appropriate if the well-pleaded facts do not “possess enough heft to show that plaintiff is entitled to relief.” Ruiz Rivera v. Pfizer Pharm., LLC, 521 F.3d 76, 84 (1st Cir.2008) (quotations and original alterations omitted).
III. AnalysisA. Actual Controversy and Standing
Under Article III of the United States Constitution, federal courts may not grant declaratory relief unless an “actual controversy” exists. Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 272, 61 S.Ct. 510, 85 L.Ed. 826 (1941). In an action for a declaratory judgment, the facts alleged must present “a substantial controversy, between parties having adverselegal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Id. at 273, 61 S.Ct. 510.
It is well-established that there is an actual controversy between an insured party facing potential liability and its insurer if coverage is unclear or in dispute. See Metropolitan Life Ins. Co. v. Ditmore, 729 F.2d 1, 6 (1st Cir.1984) (). This is particularly true where the insurer refuses to defend the insured or contests coverage, because the controversy is then “immediate” and “real.” See Maryland Casualty, 312 U.S. at 273, 61 S.Ct. 510;compare Metropolitan Life, 729 F.2d at 6 ().
Here, the insurer's letter of February 25, 2009, indicating its intent to contest coverage, renders the controversy between the insured and its insurer “of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Maryland Casualty, 312 U.S. at 273, 61 S.Ct. 510. It is of no consequence that in a later action to contest coverage, the insurer might be the plaintiff and the insured the defendant; “[a] party who would normally be defendant under other forms of procedure may seek a declaration under the [Declaratory Judgment Act].” Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617 (1937).
This does not end the inquiry, however, because it is not the insured, but rather the state-court claimant, that seeks the declaratory judgment here. The question thus becomes whether there is an actual controversy between the state-court claimant (and similarly situated injured parties) and the state-court defendant's insurer. In Maryland Casualty—a lawsuit brought by the insurer—the Supreme Court found an actual controversy in a suit about the policy coverage. 312 U.S. at 273–74, 61 S.Ct. 510. The Court reasoned that because there was certainly a controversy between the insured and its insurer, the federal courts had jurisdiction to interpret the policy. Id. The Court reasoned that in such a situation, if its judgment were not binding as to the potential liability of the insurer to the state-court claimant, then, should such liability arise, the coverage issue would be re-litigated in state court between those parties and perhaps yield a conflicting result. Id. at 274, 61 S.Ct. 510. Because conflicting judgments from the state and federal courts on precisely the same issue would be highly undesirable, the Court found that the controversy between the state-court claimant and the insurer was not “too remote” for it to issue a binding declaratory judgment. Id.
However, neither the Supreme Court nor the First Circuit has decided whether Maryland Casualty holds that there is federal jurisdiction over a suit initiated by a potential state-court claimant for a declaratory judgment concerning insurance policy coverage.2 In light of this unclear precedent, and because there is without question an actual controversy between the insured and the insurer, the Court finds that the question of justiciability is more appropriately framed as an issue of standing.3 The relevant inquiry thus becomes “whether the named plaintiff is the proper party to seek declaratory relief adjudication of a particular issue.” Moore's Federal Practice–Civil § 57.22 (3d ed. 2012) (...
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