Essex Ins. Co. v. Sheppard

• Decision Date: 13 July 2015
• Docket Number: Case No. CIV-12-1022-D
• Parties: ESSEX INSURANCE COMPANY, Plaintiff, v. SHEPPARD & SONS CONSTRUCTION, INC., et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

ESSEX INSURANCE COMPANY, Plaintiff, v. SHEPPARD & SONS CONSTRUCTION, INC., et al., Defendants.

Case No. CIV-12-1022-D

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

July 13, 2015

ORDER

Before the Court is the Motion for Summary Judgment of Defendant C&D Dozer Services, L.L.C. (C&D Dozer) [Doc. No. 149]. Plaintiff Essex Insurance Company (Essex) has responded [Doc. No. 159] and C&D Dozer has replied [Doc. No. 166]. The matter is fully briefed and ready for decision.

I. Introduction

Essex brought this declaratory judgment action seeking a declaration that it has no duty to defend or indemnify its insured, Defendant Sheppard & Sons Construction, Inc. (Sheppard), under the terms of certain commercial general liability insurance policies. Insurance coverage is at issue as a result of the alleged negligent construction of a dental facility (the Dental Facility) owned by Defendants Dr. Gabe D. Nabors and The Dental Lodge (collectively, the Dental Defendants). After the commencement of this action, Sheppard was sued in Oklahoma state court by the Dental Defendants as a result of the alleged negligent construction. Sheppard acted as the general contractor and provided services and materials for construction of the Dental Facility. Defendant C&D Dozer is a subcontractor and performed work as part of the construction of the Dental Facility. C&D Dozer is also sued by the Dental Defendants in the state court action as are additional parties who provided work in the course of the construction of the Dental Facility. As pertinent to the discussion below, Sheppard and C&D are alleged to be joint tortfeasors, both contributing to the negligent construction of the Dental Facility.

C&D Dozer moves for summary judgment on a jurisdictional question - whether there is an actual case or controversy between Essex and C&D Dozer sufficient to warrant issuance of a declaratory judgment. Defendants Bituminous Casualty Corporation (Bituminous) and First Mercury Insurance Company (Mercury), did not separately move for summary judgment. However, in responding to the motion for summary judgment of Essex, see Responses [Doc. Nos. 131, 134], these defendants contend, like C&D Dozer, that no justiciable controversy exists. Essex filed a reply [Doc. No. 142] and fully addressed the arguments raised by Mercury and Bituminous, raising essentially the same arguments as those made with respect to C&D Dozer. See, e.g., Essex's Reply at p. 6 ("At the very least, the rights that Sheppard and C&D have against each other as co-defendants in the state court action gives rise to a sufficient controversy between Essex and Bituminous, their insurers."). Therefore, the Court addresses the actual case or controversy issue as to all three Defendants in this Order.¹

Because Defendants C&D Dozer, Bituminous and Mercury seek dismissal on grounds that no actual case or controversy exists, the Court finds the motion for summary judgment is more properly treated as a motion pursuant to Fed. R. Civ. P. 12(b)(1). See, e.g., Goodman v. United States, 185 Fed. Appx. 725, 727 (10th Cir. 2006) ("Subject matter jurisdiction is appropriately dealt with by means of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), and we will treat the district court's summary judgment ruling as if it were a ruling on a 12(b)(1) motion.").²

II. Discussion

Federal courts are limited by Article III of the United States Constitution to hearing only "cases" or "controversies." U.S. Const. Art. III, § 2. This is a "bedrock requirement." Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471 (1982) Indeed, "'[n]o principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies.'" Raines v. Byrd, 521 U.S. 811, 818 (1997) (quoting Simon v. Eastern Kentucky Welfare Rights Org., 426 U.S. 26, 37 (1976)).

The Declaratory Judgment Act provides "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . 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." 28 U.S.C. § 2201. The Act, therefore, recognizes the constitutional limitation that federal courts only have jurisdiction over "cases" and "controversies." Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 277, 240 (1937).

The party seeking the declaration bears the burden of establishing the existence of an actual case or controversy. Cardinal Chem. v. Morton Int'l, Inc., 508 U.S. 83, 95 (1967). To determine whether a case or controversy exists, the court must determine "whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941).

Even where the case or controversy requirement is satisfied, whether the power to issue a declaration of rights should be exercised is a matter within the sound discretion of the district court. St. Paul Fire and Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1168 (10th Cir. 1995). Factors the court may consider include: (i) whether the declaratory judgment action would resolve the controversy; (ii) whether the action would serve a useful purpose in clarifying legal relations between the parties; (iii) whether the action is being used for "procedural fencing" or a "race to res judicata"; (iv) whether entertaining the action would increase friction between state and federal courts and improperly encroach upon state jurisdiction; and, (v) whether a better or more effective remedy is available. Id. at 1169. Where a concurrent proceeding in state court encompasses the same controversy, "the federal court is not required to refuse jurisdiction" but it should not entertain the action "if the same fact-dependent issues are likely to be decided in another pending proceeding." Id. at 1170 (citations omitted).

C&D Dozer contends there is no actual case or controversy on the following grounds: (1) under governing Oklahoma law, C&D Dozer cannot sue Essex directly for any claim of indemnity or contribution and "C&D's insurer would have the right to seek contribution from the joint tortfeasor, not from the joint tortfeasor's insurer;" (2) Oklahoma law governing joint and several liability "obviate[s] the need to seek indemnity or contribution from an entity named on the verdict form" as each defendant in the state court action "will be allocated a percentage of responsibility on the jury verdict form;" and (3) no contractual right of indemnity exists between C&D Dozer and Sheppard. See Motion at pp. 8, 9, 10. C&D Dozer further claims that Essex is impermissibly using this federal forum to litigate the state court action. C&D Dozer contends the Court has no subject matter jurisdiction to do so because the parties to the state court action are non-diverse. See id. at pp. 10-11. C&D Dozer's primary concern is that "this Court will make Findings of Fact to which C&D will be bound in the State Court Action" and that such findings "should not be the result of a 'Declaratory Judgment' concerning insurance coverage." See id. at p. 11.

Bituminous similarly contends no adverse legal interest of sufficient immediacy exists between it and Essex. And, like C&D Dozer, Bituminous relies on the fact that Oklahoma is not a "direct action" state. Mercury adopts the arguments of Bituminous.

In response, Essex urges the Court to apply the law of the case doctrine and adhere to previous rulings the Court has made finding this declaratory judgment action is proper and that the actual case or controversy requirement is satisfied. See Response at pp. 4-8. Alternatively, Essex states that sufficient adverse interests exist between it and C&D Dozer and relies on Maryland Cas. Co. for the proposition that if C&D Dozer recovers a judgment against Sheppard under any contribution or indemnity theory, the fact that C&D Dozer could in turn seek payment under Essex's policies gives rise to a sufficient justiciable controversy. See id. at pp. 8-9. According to Essex, the fact that joint and several liability may exist under Oklahoma law further supports its position because such liability could create issues involving contribution and indemnity that "in turn, would require determinations of insurance coverage." Id. at p. 11. Finally, Essex contends the coverage issues before this Court could impact "the flow of the underlying litigation" including the prospect for settlement and, therefore, there is a sufficient case or controversy. See id at pp. 11-12. Essex alleges that Bituminous and Mercury may make subrogation claims against Sheppard, and consequently, Essex, for benefits that may be due under C&D Dozer's policies.³ On this basis, Essex contends an actual case or controversy exists as against all three Defendants.

A. The Court's Prior Justiciability Ruling

The Court previously denied the Dental Defendants' motion seeking dismissal of this action on grounds of lack of a justiciable controversy. See Order [Doc. No. 92]. The Court stated in its Order the following regarding sources of insurance coverage:

In addition to its insurance policy with Essex, Sheppard had [a] builder's risk insurance policy issued by Zurich and effective during the time period in which the dental facility was constructed. Defendant C&D had liability and excess liability policies issued by Defendants Bituminous Insurance Company ("Bituminous") and First Mercury Insurance Company ("Mercury"), and these were effective during the time period in which the dental facility was constructed.

See Order at p. 2. In a subsequent Order [Doc. No. 98] the Court denied as moot a motion of Zurich to the extent "some...