In re Dolphinite, Inc.
| Decision Date | 11 December 2006 |
| Docket Number | Adversary No. 06-1333.,Bankruptcy No. 04-12657-JNF. |
| Citation | 355 B.R. 391 |
| Parties | In re DOLPHINITE, INC., Debtor. Gary W. Cruickshank, Chapter 7 Trustee of the Estate of Dolphinite, Inc., Plaintiff, v. Mid-Continent Casualty Company, Clean Seas Company, Inc., Westport Marina, the Coast Distribution System, Inc., Kellogg Marine, Inc., C.C. Marine Distributors, Inc., West Marine Products, Inc., and United States Fire Insurance Company, Defendants. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Charles R. Bennett, Jr., Hanify & King, P.C., Karen A. Whitley, Hanify & King, Esq., Natalie B. Sawyer, Hanify & King, Boston, MA, for Gary W. Cruickshank, Chapter 7 Trustee.
R. Steven Rawls and Ryan K. Hilton, Butler Pappas Weihmuller Katz Craig LLP, Tampa, FL, for Mid-Continent Cas. Co.
Stephen H. Durant, Hedrick, Dewberry, Regan & Durant, PA., Jacksonville, FL, for Clean Seas Co., Inc.
Westport Marina, pro se.
Coast Distribution System, Inc., pro se.
Joseph J. Perrone, Bennett, Giuliano, McDonnell & Perrone, New York, NY, for Kellogg Marine, Inc.
C.C. Marine Distributors, Inc., pro se.
Joanne L. Goulka and Joseph P. Evans, Griffin & Goulka LLC, Stoneham, MA, West Marine Products, Inc.
Joanne L. Goulka, Griffin & Goulka LLC, Stoneham, MA, for United States Fire Ins. Co.
Clean Seas Company, Inc., pro se. Kellogg Marine, Inc., pro se.
The matter before the Court is "Defendant Mid-Continent Casualty Company's Motion to Dismiss the Plaintiffs Complaint for Declaratory Judgment for Lack of Subject Matter Jurisdiction, [and] Motion to Lift or Modify Automatic Stay." The Plaintiff and Defendants West Marine Products, Inc. and Unites States Fire Insurance Company objected to the Motion.1 The Court heard the Motion and the Oppositions on October 25, 2006, at which time it denied the Motion to Dismiss Plaintiff's Complaint for Declaratory Judgment for Lack of Subject Matter Jurisdiction, finding only that the Trustee's Complaint for Declaratory Judgment was within this Court's "related to" jurisdiction. See 28 § 1334(b). See also In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991).2 Additionally, the Court determined that the District Court, if it chose, could exercise supplemental jurisdiction over the Declaratory Judgment Complaint as a result of its diversity jurisdiction. See 28 U.S.C. § 1367; see generally In re Adamson, 334 B.R. 1, 9-10 (Bankr.D.Mass.2005).
At the October 25, 2006 hearing, Mid-Continent Casualty Company ("Mid-Continent") raised, for the first time, an issue as the applicability of Florida's so-called "non-joinder" statute, specifically Fla. Stat. § 627.4136. That statute creates a condition precedent, in the form of a settlement or a verdict against an insured, before a cause of action accrues or can be maintained against a liability insurer. Mid-Continent also raised the issue of whether this Court should abstain from determining the Trustee's Declaratory Judgment Complaint. Following the hearing, the Court took the Mid-Continent's Motion, as orally amended, under advisement. The Court shall treat Mid-Continent's orally amended Motion as a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6), made applicable to this contested matter by Fed. R. Bankr.P. 7102.
The parties filed supplemental briefs addressing the issues raised by Mid-Continent. Although at the outset the issue appears to require a choice of law analysis, the Court finds the first issue that must be decided is whether Massachusetts and Florida law differ, and, if not, what relief should be afforded Mid-Continent.
The material facts necessary to decide Mid-Continent's Motion, as orally amended, are not in dispute. None of the parties present at the hearing requested an evidentiary hearing with respect to the limited issues before the Court. Accordingly, the Court makes the following findings of fact and rulings of law.
Dolphinite, Inc. ("Dolphinite" or the "Debtor"), a distributor of boat hull paint, filed a voluntary Chapter 11 petition on April 1, 2004. It disclosed on its Statement of Financial Affairs that, at the time it filed its Chapter 11 petition, it was a party to various law suits pending in state and federal courts, including, inter alia a civil action pending in the United States District Court for the District of Massachusetts captioned Dophinite, Inc. v. Clean Seas Co. and Suntec Paint, Inc. (C.A.03-CV-11659-PBS); a civil action pending in the United States District Court for the District of Massachusetts captioned West Marine Products and United States Fire Insurance Co. v. Dophinite, Inc., Clean Seas Co., Inc., et al., (C.A.04-CV-10251-PBS); and a civil action pending in the United States District Court for the District of New Jersey captioned Coast Distribution [sic] et al. v. Dolphinite, Inc. et al. (C.A.03-CV-5927).3 As set forth in more detail in the pleadings, Dophinite entered into a distribution agreement with Clean Seas Company ("Clean Seas"), a Florida corporation with a principal place of business in Florida, for the right to distribute a marine paint product containing enzymes and microbes developed by Clean Seas to prevent marine growth on boat hulls. Suntec Paint, Inc. ("Suntec") produced the product for Clean Seas. The civil actions involve breach of warranty claims with respect to the failure of the marine hull paint to perform as represented.
Three months after the filing of its Chapter 11 case, the United States Trustee moved to convert Dophinite's case to a case under Chapter 7 for its failure to comply with the United States Trustee's operating requirements and to pay quarterly fees for the second quarter of 2004. On September 20, 2004, this Court granted the Motion of the United States Trustee to Convert Debtor's Chapter 11 Case to Chapter 7.
Approximately six months after his appointment, on March 25, 2005, the Chapter 7 Trustee filed a "Motion for Authority to Enter into Stipulation with respect to Payment of Expenses Regarding Products Liability Litigation and Grant of a Security Interest to United States Fire Insurance Company in the Proceeds of Such Litigation," seeking permission to grant United States Fire Insurance Company ("UFIC") a security interest in the proceeds of litigation involving the Debtor's products liability claims against Clean Seas and Suntec. According to the Trustee, USFIC agreed to advance $25,000 to pay litigation fees and expenses incurred in liquidating his claims against Clean Seas and Suntec. On May 11, 2005, the Court granted the Trustee's Motion and approved the Stipulation.
On November 22, 2005, the Trustee filed a five-count adversary proceeding (Adv. P. No. 05-1608) against Suntec, a Florida corporation with a principal place of business in Florida, claiming damages for breaches of warranties and negligence with respect to the manufacture of marine boat paint for Clean Seas, which Clean Seas then sold to Dolphinite under the distribution agreement. Four months later, the Trustee moved for approval of a settlement with Suntec pursuant to which Suntec agreed to pay the estate $65,000 and the parties agreed to exchange mutual releases. On May 1, 2006, the Court approved the settlement agreement between the Trustee and Suntec.
On August 9, 2006, the Trustee filed the Declaratory Judgment Complaint that is now before the Court. In his Complaint, the Trustee described the various civil actions involving Dolphinite which are pending in the United States District Courts for the Districts of Massachusetts and New York and itemized proofs of claim totaling in excess of $2 million filed by the Defendants in this adversary proceeding in the Chapter 7 case, including a $705,848.02 proof of claim filed by West Marine, a California corporation with a principal place of business in California, and a $48,716.70 proof of claim filed by USFIC, New York corporation with a place of business in Massachusetts. According to the Trustee, "[e]ach of the Claims is premised upon a failure of the Product purchased by Dophinite, from Clean Seas and, in turn, sold by Dophinite to the Claimants or the Claimant's insured in the case of USFIC." Specifically, the Trustee alleged that the boat hull paint "suffered physical injury and failed because of the introduction of a foreign substance and / or temperature change to the Product, resulting in a sudden degradation of the enzymes and microbes."
The Trustee represented in his Complaint that Mid-Continent, an insurance company with a principal place of business in Oklahoma, issued a policy of insurance with general liability coverage to Clean Seas. According to the Trustee, the policy limits are $2 million, with a limit of $1 million per individual occurrence, and a deductible on a per claim basis of $1,000. The Trustee also alleged that Dolphinite suffered property damage loss within the meaning of the policy issued by Mid-Continent and, as such, is entitled to recover the value of the property loss in an amount not to exceed $2 million, less any applicable deductible. According to the Trustee, Mid-Continent is asserting that each individual retail sale constitutes a separate occurrence subject to the deductible and that because no individual boat owner's claim exceeded the deductible amount it has no liability under the policy. Noting that Clean Seas entered into an Assignment for the Benefit of Creditors in Florida, the state of its incorporation and principal place of business, the Trustee stated:
In addition to the controversy between Mid-Continent and the Trustee with respect to the amount of coverage available pursuant thereto, there existed [sic] controversy between Dophinite, Mid Continent and the Defendants ... with respect to how the proceeds if any from the policy should be divided, if at all, among Dophinite and the Claimants.
Based upon these allegations, the Trustee...
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