Farm Bureau Prop. & Cas. Ins. Co. v. OE Trucking

• Decision Date: 09 February 2023
• Docket Number: Civ. 22-501 KK/JFR
• Court: U.S. District Court — District of New Mexico
• Parties: FARM BUREAU PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff, v. OE TRUCKING d/b/a OE & COMPANY, OSVALDO ESPARZA, and ANDRAS SZANTHO, Defendants.

FARM BUREAU PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff,
v.
OE TRUCKING d/b/a OE & COMPANY, OSVALDO ESPARZA, and ANDRAS SZANTHO, Defendants.

Civ. No. 22-501 KK/JFR

United States District Court, D. New Mexico

February 9, 2023

MEMORANDUM OPINION AND ORDER STAYING PROCEEDINGS^[1]

KIRTAN KHALSA, UNITED STATES MAGISTRATE JUDGE.

This case stems from a fatal construction accident in which Johnny Newnum was crushed by the gates of a belly dump truck. Mr. Newnum's Estate brought a state-court wrongful death action against Defendants OE Trucking and Osvaldo Esparza (“OE Defendants”), and others. Plaintiff Farm Bureau Property & Casualty Insurance Company is currently defending the OE Defendants in the state-court case under a reservation of rights and has filed this federal declaratory judgment action to resolve whether it has a duty to defend and/or indemnify the OE Defendants under the insurance policy it issued to them. Before the Court are a (1) Motion to Dismiss by Defendant Andras Szantho, who is the Personal Representative of Mr. Newnum's Estate (the “Szantho Motion to Dismiss”) (Doc. 6) and (2) Motion for Dismissal or Stay by Defendants OE Trucking d/b/a OE & Company (“OE”) and Osvaldo Esparza (the “OE Motion for Dismissal”) (collectively, the “Motions”). (Doc. 18.) Having reviewed the parties' submissions, the record, and

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the relevant law, and being otherwise fully advised, the Court exercises its discretion not to rule on the request for declaratory judgment at this time and stays this case pending resolution of the state court action, or until further order of the Court.

I. FACTS AND PROCEDURAL HISTORY

Farm Bureau issued a Commercial Package Policy (“the Policy”) to OE, a sole proprietorship owned by Defendant Osvaldo Esparza. (Doc. 1 at ¶ 11). After a fatal accident, OE and Mr. Esparza, among others, were sued in a wrongful death complaint (the “Wrongful Death Complaint”) filed in the New Mexico First Judicial District as Andras Szantho, Personal Representative of the Wrongful Death Estate of Johnny Newnum v. Mountain State Constructors, OE Trucking dba OE & Company, Osvaldo Esparza, Spades Trucking, LLC, and Mario Mares, No. D-101-CV-2021-01136 (the “State Case”). (Doc. 1 at 6; Doc. 6 at 1; Doc. 1-2 at 1.)

In the State Case, Mr. Szantho seeks damages based on the following alleged facts. Mountain State Constructors, Inc. (“MSCI”) subcontracted with OE to assist with work MSCI was performing under a contract with the New Mexico Department of Transportation (“NMDOT”). (Doc. 1 at 7; Doc. 1-2 at 3.) MSCI recruited OE to deliver paving material for the project and OE “delegated” the task of delivering the paving material to Spades Trucking, LLC (“Spades”). (Id.) Mario Mares, the owner of Spades, and the “belly dump truck” he used to deliver the paving material were in violation of numerous Federal Motor Carrier Safety Administration regulations. (Id.) Mr. Newnum was an independent contractor hired as a laborer and paid in cash by Mares. (Id.) In August 2020, after a NMDOT project manager observed paving materials coming out of the belly dump truck on the road, Mr. Mares and Mr. Esparza “directed” Mr. Newnum to clean it out using a method prohibited by NMDOT regulations. (Doc. 1 at 8; Doc. 1-2 at 6). “Upon information and belief, [Mr.] Esparza and [Mr.] Mares directed Mr. Newnum to be discre[et] while

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cleaning the gates so [the NMDOT representative] would not notice the prohibited cleaning method [Mr. Newnum] was using.” (Id.) As Mr. Newnum was working, Mr. Mares closed the gates of the belly dump truck to hide the use of the prohibited cleaning method. (Doc. 1 at 8; Doc. 1-2 at 7). Mr. Newnum was crushed by the gates and later died from his injuries. (Id.)

Mr. Szantho alleges that OE and Mr. Esparza “owed a duty to [Mr. Newnum] to ensure that anyone hired, contracted or recruited to assist with the MSCI contract were in compliance with all applicable statutes, regulations and ordinances and would properly observe all safety precautions to prevent injury or death” and that they breached their duties “when [they] delegated the paving material delivery to . . . Spades Trucking and allowed [Mr.] Mares to deliver paving material to the improvement project.” (Doc. 1-2 at 10.) He further alleges that “[w]ith regard to all acts and omissions referred to in [the Wrongful Death Complaint, OE] is responsible for its own, independent negligent acts and omissions as well as the acts and omissions of its employees, members and agents[.]” (Id. at 8.)

Farm Bureau received notice of the accident on September 10, 2021, from the insured's agent. (Doc. 1 at 8.) Farm Bureau agreed to defend Mr. Esparza and OE in the State Case under a reservation of rights to affirm or deny coverage, and counsel hired by Farm Bureau entered an appearance on September 21, 2021. (Id.; Doc. 18 at 2.) A settlement conference was held in the State Case on April 29, 2022. (Doc. 6 at 7.)^[2] The State Case is set for trial in September 2023.

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Roughly nine months after it began providing a defense, Farm Bureau filed the present declaratory judgment action against OE, Mr. Esparza, and Mr. Szantho on July 7, 2022. (Doc. 1); See 28 U.S.C. § 2201 (the “Declaratory Judgment Act”); Fed.R.Civ.P. 57. In its Complaint, Farm Bureau seeks a declaration that it is not obligated under the Policy to defend Esparza and OE in the State Case or indemnify them for any damages because the belly dump truck is not a “covered auto” under the commercial auto coverage provisions or Auto Medical Payments Coverage Endorsement to the Policy. (Doc. 1 at 9.) It also argues that coverage is barred by exclusions in the commercial general liability and the medical payments provisions of the Policy. (Id.) Those exclusions exclude coverage for (1) liability based on “[‘]bodily injury arising out of the ownership, maintenance, use or entrustment of an auto that is owned, operated by or rented or loaned to any insured[‘] and (2) medical payments “to a person hired to do work for or on behalf of any insured[.]” (Doc. 1 at 9; 1-1 at 12.)

II. DISCUSSION

In the Motions,^[3] Defendants first assert that this Court should abstain from exercising its jurisdiction over this matter under Younger v. Harris, 401 U.S. 37, 38 (1971). (Docs. 6, 18.) Defendants next argue that this matter should be dismissed or stayed because the factors set forth in State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979 (10th Cir. 1994) (“Mhoon”) weigh against this Court's exercise of jurisdiction while the State Case is pending. (Id.) As explained below, Younger does not apply to this declaratory judgment action. However, the Court finds that, on balance, the Mhoon factors weigh in favor of this Court staying its hand because facts at issue in

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the state wrongful death action bear on whether the Policy provides coverage for the claims raised therein.

A. The Court is Not Required to Abstain Under Younger.

Defendants argue that this Court should abstain from exercising its jurisdiction over this matter under the “Younger doctrine,” which “provides that a federal court must abstain from deciding a case otherwise within the scope of its jurisdiction in ‘certain instances in which the prospect of undue interference with state proceedings counsels against federal relief.'” Elna Sefcovic, LLC v. TEP Rocky Mountain, LLC, 953 F.3d 660, 669-70 (10th Cir. 2020) (quoting Sprint Commc'ns, Inc. v. Jacobs, 571 U.S. 69, 72 (2013)); see Younger, 401 U.S. at 38; (Docs. 18 at 8-9; Doc. 6 at 8-11.) Plaintiff argues in response that Younger applies only under certain circumstances, which are not present here. (Doc. 21 at 9;Doc. 20 at 12.) The Court agrees that Younger abstention is neither required nor appropriate in this case.

“The seriousness of federal judicial interference with state civil functions has long been recognized.” Huffman v. Pursue, Ltd., 420 U.S. 592, 603 (1975). However, federal-court abstention “is not in order simply because a pending state-court proceeding involves the same subject matter.” Sprint Commc'ns, 571 U.S. at 72. Rather, Younger and its progeny require abstention only in three “exceptional” categories of cases which include “state criminal prosecutions,” “civil enforcement proceedings,” and “civil proceedings involving certain orders that are uniquely in furtherance of the state courts' ability to perform their judicial functions.” Id. at 73 (quoting New Orleans Public Service, Inc. v. Council of City of New Orleans, 491 U.S. 350, 367-68 (1989) (NOPSI)); Huffman, 420 U.S. 592 (extending Younger abstention to state civil proceedings that are akin to criminal prosecutions); Pennzoil Co. v. Texaco Inc., 481 U.S. 1 (1987) (extending Younger abstention where the exercise of federal judicial power interferes with a State's

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interests in enforcing the orders and judgments of its courts); see also Hunter v. Hirsig, 660 Fed.Appx. 711, 714 (10th Cir. 2016). In considering whether abstention is appropriate or required, the Court is mindful that “federal courts ordinarily should entertain and resolve on the merits an action within the scope of a jurisdictional grant, and should not ‘refus[e] to decide a case in deference to the States.'” Sprint Commc'ns, 571 U.S. at 73 (quoting NOPSI, 491 U.S. at 368). Because this case presents none of the three “exceptional” categories of cases requiring abstention under Younger, the Court will not abstain from exercising jurisdiction over this matter during the pendency of the State Case on that basis.

B. The Mhoon Factors.

The Declaratory Judgment Act provides that, “[i]n a case of actual controversy within its jurisdiction,” a federal court “may declare the rights and other legal relations of any interested party seeking such declaration[.]” 28 U.S.C. § 2201(a) (emphasis added). “The Supreme Court has long made clear that the Declaratory Judgment Act g[ives] the federal courts competence to make a...