Nationwide Mut. Ins. Co. v. Welker

• Citation: 792 F. Supp. 433
• Decision Date: 24 April 1992
• Docket Number: Civ. A. No. S 91-3333.
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY and Nationwide Mutual Fire Insurance Company, Plaintiffs, v. Elmer E. WELKER, Jr. and Robert Henry Duhamell, Individually, and t/a B & E Trucking, Defendants.
• Court: U.S. District Court — District of Maryland

792 F. Supp. 433

NATIONWIDE MUTUAL INSURANCE COMPANY and Nationwide Mutual Fire Insurance Company, Plaintiffs, v. Elmer E. WELKER, Jr. and Robert Henry Duhamell, Individually, and t/a B & E Trucking, Defendants.

Civ. A. No. S 91-3333.

United States District Court, D. Maryland.

April 24, 1992.

Robert H. Bouse, Jr., and Gregory L. Van Geison, Anderson, Coe & King, Baltimore, Md., for plaintiffs.

Randolph C. Knepper, Levin & Gann, Baltimore, Md., for defendant Elmer E. Welker, Jr.

William N. Zifchak, Sasscer, Clagett, Channing & Bucher, Upper Marlboro, Md., for defendant Robert Henry Duhamell.

MEMORANDUM OPINION

SMALKIN, District Judge.

This civil case is before the Court on defendants' (Robert Henry Duhamell and Elmer E. Welker) motion to dismiss. Plaintiffs, Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Co. (hereinafter "Nationwide") instituted this diversity action, pursuant to 28 U.S.C. § 1332, seeking a declaratory judgment. Specifically, the purpose of this action is to determine whether certain insurance policies, issued to Mr. Duhamell and Mardel Trucking Company (hereinafter "Mardel Trucking") by Nationwide, provide coverage for a December 1, 1986 truck accident between Mr. Duhamell and Mr. Welker. To that end, one of the primary issues to be decided is the employment relationship among Mr. Welker, Mr. Duhamell and Mardel Trucking.

Defendants moved to dismiss, pursuant to Fed.R.Civ.P. 12(b)(6), for failure to state a claim upon which relief can be granted. Additionally, defendants assert the affirmative defenses of res judicata and collateral estoppel and waiver, as well as notions of comity and federalism, in support of their motions to dismiss.

I. Factual Background

On December 1, 1986, defendant Welker was injured in an accident between a 1986 Ford LTL 9000 dump truck driven by Mr. Duhamell and a 1985 Superliner driven by Mr. Welker. The two trucks collided when Mr. Duhamell's truck, loaded with sand and gravel, left its lane, crossed the center line, and struck Mr. Welker's truck. At the time of the accident, the defendants were hauling gravel in connection with a quarry operated by Mardel Trucking. Both Mr. Duhammel and Mardel were insured by Nationwide at the time of the accident.

On April 2, 1987, Mr. Welker¹ filed negligence actions in the Circuit Court of Maryland for Cecil County against both Mr. Duhamell² and Mardel Trucking for injuries sustained in the accident. Mr. Welker alleged that Mr. Duhamell maintained an employee relationship with Mardel Trucking and sought to hold the company vicariously liable for Mr. Duhamell's actions. The two suits were consolidated, and a bench trial on the issue of liability was conducted by Circuit Court Judge Edward D.E. Rollins, Jr. on June 24, 1991.

During the trial, Nationwide provided separate defense counsel for both Mr. Duhamell and Mardel Trucking, while maintaining the position that it owed no coverage to either defendant.³ At the close of Mr. Welker's case, Judge Rollins granted Mardel Trucking's motion for judgment⁴; however, he found Mr. Duhamell liable. On October 8 & 9, 1991, the trial on damages was held, and the court awarded Mr. Welker a judgment of $1,033,768.22 against Mr. Duhamell and B & E Trucking.

On November 22, 1991, Nationwide filed this action seeking a declaration that it owes no insurance coverage under policies issued to Mr. Duhamell and Mardel Trucking, which were in force at the time of the accident. Nationwide contends here that defendants Welker and Duhamell were employed by Mardel Trucking at the time of the accident. Because the December 1, 1986 accident occurred (1) in the course of Mr. Welker's employment and (2) between Mr. Welker and Mr. Duhamell, a fellow employee, Nationwide argues that exclusions in Mr. Duhamell's and Mardel Trucking's policies bar recovery here.⁵

The defendants argue that Nationwide cannot now pursue a declaratory judgment in this federal forum because it would be prohibited from seeking such relief in state court under the Maryland Court of Appeals decision in Allstate v. Atwood, 319 Md. 247, 572 A.2d 154 (1990). Further, defendants contend that Nationwide has already litigated these issues in state court and is thus barred from further proceedings under the doctrines of res judicata and collateral estoppel. Plaintiffs counter that Atwood is inapposite here, because federal law controls this Court's exercise of discretion under the Declaratory Judgment Act.

II. Discussion

A. Res Judicata and Collateral Estoppel

Defendants raise, and have the burden of establishing, the affirmative defenses of res judicata and collateral estoppel. See, e.g., Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir.1982). Pursuant to Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984), this Court is to apply Maryland law to determine whether the prior state court judgment should be given preclusive effect here.

The res judicata defense can be dismissed without discussion because the cause of action in the state tort case is not the same as the cause of action pursued by Nationwide in its declaratory judgment action here. See MPC, Inc. v. Kenny, 279 Md. 29, 33-34, 367 A.2d 486, 489 (1977) and Bankers & Shippers Ins. Co. of New York v. Electro Enter., Inc., 287 Md. 641, 415 A.2d 278 (1980), cited in Mears v. Town of Oxford, Md., 762 F.2d 368, 373 (4th Cir. 1985).

Defendants' collateral estoppel claim merits more analysis. Under Maryland law, collateral estoppel (also known as issue preclusion) applies only when the following criteria are met:

the issue raised in the prior action must be identical with the issue presented in the action in question; there must be a prior final judgment on the merits; and the party against whom the estoppel is asserted must have been a party in the prior litigation.

Id. at 374, citing MPC, Inc., 279 Md. at 35, 367 A.2d at 490-91. See also Allen v. McCurry, 449 U.S. 90, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980) (collateral estoppel does not apply when party against whom asserted did not have a full and fair opportunity to litigate claim in first action.)

In the present case, while there is a prior final judgment on the merits, the remaining criteria cannot be satisfied. The state trial judge did not specifically address whether or not Mr. Duhamell and Mr. Welker were "fellow employees" or whether Mr. Welker's injury arose in the course of his employment so as to fall in the policy exclusion at issue here. Further, the insurance company was not a party to the state negligence litigation, nor were its interests represented there. Because the above criteria have not been met, Nationwide is not precluded under the doctrine of collateral estoppel from litigating its claims in this forum, and the propriety of entertaining this action under the Declaratory Judgment Act must be examined.

B. Declaratory Judgment Act

The Declaratory Judgment Act, 28 U.S.C. § 2201(a) (West 1982 and Supp.1991) (hereinafter "the Act") provides, in pertinent part, as follows:

In 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 (emphasis added).

Cf. Fed.R.Civ.P. 57. The exercise of jurisdiction under the Act is discretionary, not compulsory. Brillhart v. Excess Ins. Co., 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620 (1942). See also Kunkel v. Continental Casualty Co., 866 F.2d 1269, 1273 (10th Cir.1989) ("The Declaratory Judgment Act was an authorization, not a command. It gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so."). This court possesses diversity jurisdiction to entertain this action; however, the more fundamental question is whether entertaining such relief is appropriate. North East Ins. Co. v. Northern Brokerage Co., 780 F.Supp. 318, 320 (D.Md.1991).

C. Mitcheson v. Harris

The Fourth Circuit's most recent pronouncement concerning the propriety of exercising declaratory judgment jurisdiction in cases where prior state proceedings have been instituted is Mitcheson v. Harris, 955 F.2d 235 (4th Cir.1992). In Mitcheson, an insurer sought a declaration in federal court of its obligations to defend and indemnify its insured in a pending state action. Id. at 236. The Mitcheson court articulated two state interests which mitigated in favor of dismissing the declaratory judgment action. The first was the state's interest in deciding questions of state law, especially in light of the pending state proceedings. Id. at 237-38. The second interest was in avoiding piecemeal litigation and promoting efficient use of judicial resources by resolving all aspects of the legal controversy in a single court system. Id. at 239. As the Mitcheson court noted:

An important element in fostering the spirit of cooperation and respect between federal and state courts must be a reluctance on the part of federal courts to entertain a declaratory action that could result in entanglement between the two court systems.

Id.

This Court recognizes that notions of efficiency, comity and federalism clearly militate against a federal court exercising its discretion while a state action is pending. In the present case, however, this Court does not risk interfering with proceedings in a related state action because no such action is pending. In contrast to the situation in Mitcheson, here the state action has been litigated to judgment, and Mr. Duhammel has already been found negligent.

Additionally, it appears that the insurance policies at issue will require interpretation of both Maryland and Delaware law.⁶ While it is true that this court has no strong interest in the exclusively state law issues presented here, the Maryland state courts are not "uniquely" suited to interpret the contested...