Sellers v. Nationwide Mutual Fire Insurance Co.
| Decision Date | 20 July 2021 |
| Docket Number | 2:15-cv-957-KOB |
| Court | U.S. District Court — Northern District of Alabama |
| Parties | RONALD SELLERS, as assignee of GARY GARDNER & GARY GARDNER BUILDERS, INC., Plaintiff, v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Defendant. |
Over the course of the past thirteen years, this insurance coverage dispute has wound its way through three separate lawsuits across both the federal and Alabama state courts. During the course of those three cases, this coverage dispute has been the subject of a declaratory judgment, a settlement and subsequent assignment, a consent judgment, a trial, and an opinion from the United States Court of Appeals for the Eleventh Circuit. But now, this dispute has boiled down to one final question: are Ronald Sellers and Gary Gardner in “privity” for preclusion purposes under Alabama law such that this court should give preclusive effect to a finding of no coverage in a prior declaratory judgment action?
Because the court finds the answer to that question to be “yes ” Nationwide is not obligated to pay the consent judgment Sellers/Gardner obtained against Steve Durham Nationwide's insured. Accordingly, the court will GRANT Nationwide's motion for summary judgment (doc. 98) and will ENTER SUMMARY JUDGMENT in favor of Nationwide and against Sellers/Gardner.
Both this court and the Eleventh Circuit have discussed the facts of this case at length. See, e.g., (docs. 24; 79); Sellers v. Nationwide Mut. Fire Ins. Co., 968 F.3d 1267, 1269-72 (11th Cir. 2020). But because the Eleventh Circuit directed this court to “apply Alabama's rules of issue preclusion to determine the issue of privity in the first instance, ” and because “whether a party is in privity with another for preclusion purposes is a question of fact, ” the court will narrate the facts to provide clarity for its fact-intensive reasoning and conclusion. Sellers, 968 F.3d at 1275-76 (quoting Griswold v. County of Hillsborough, 598 F.3d 1289 1292 (11th Cir. 2010)) (emphasis added).
The events underlying this case began in 2004, when Ronald and Kimberly Sellers hired Gary Gardner and Gardner Builders, Inc. to construct their new home. (Doc. 1-1 at 5). Gardner[1]in turn hired Steve Durham, d/b/a S. Durham Contracting, to lay the new home's foundation. (Doc. 1-1 at 4). Nationwide insured Durham pursuant to a Contractors Policy with a policy period running from December 20, 2006 to December 20, 2007. (Doc. 98-6 at 4).
Unfortunately for everyone involved, Durham did a shoddy job on the foundation of the Sellerses' home. And his poor work damaged other parts of the Sellerses' home, too-the Sellerses noticed construction defects in the house at some point after their June 2005 move-in. (doc. 1-1 at 5). So, on June 13, 2008, the Sellerses tipped over the first domino in this dispute by filing suit against Gardner and Durham in Alabama state court. (Doc. 98-4 at 2). In August 2009, Gardner filed various negligence- and warranty-based cross-claims against Durham. (Doc. 98-5 at 2-6).
In July 2011, Nationwide filed a declaratory judgment action in the United States District Court for the Northern District of Alabama against Durham and the Sellerses, invoking the court's diversity jurisdiction and seeking a declaration that it owed no duty to defend or indemnify Durham for any claim arising out of the faulty foundation he built for the Sellerses' home. (Doc. 98-7). Importantly, Gardner-the general contractor-was not a party to the declaratory judgment action.
Meanwhile, in October 2011, Gardner and the Sellerses reached a settlement in the underlying state court action. (Doc. 98-8). Gardner paid the Sellerses $100, 000 and-very importantly for this case-assigned all of his claims against Durham arising out of the construction of the home's foundation to Ronald Sellers. (Doc. 98-9). After the assignment, the Sellerses amended Gardner's cross-claims against Durham in the underlying state court action in November 2011 to include claims for breach of contract, indemnity, and unjust enrichment. (Doc. 98-10 at 2-8).
In January of 2012, Nationwide filed a motion for summary judgment in the declaratory judgment action. (Doc. 10 in 2:11-CV-2581-RBP). That motion went under submission in March 2012. (Doc. 14; 15 in 2:11-CV-2581-RBP). And in August of 2012, Magistrate Judge Paul W. Greene issued his Report and Recommendation (doc. 98-3) in the declaratory judgment action, which United States District Judge Robert B. Propst accepted and adopted. (Doc. 98-12).
In his Report and Recommendation, Magistrate Judge Greene recommended that Judge Propst enter summary judgment for Nationwide because, inter alia, no reasonable jury could conclude that the damage to the Sellerses home “manifested” during the policy period. (Doc. 98-3 at 23-25). Judge Propst entered final judgment in favor of Nationwide and against the Sellerses and Durham on August 27th, 2012. (Doc. 98-12).
Notably, Nationwide received a default declaratory judgment against Durham, as Durham did not litigate the issue of coverage in the declaratory judgment action. (Doc. 98-3 at 15). In a footnote, Judge Greene noted that “[a] default declaratory judgment solely against an insured does not preclude a party who might later prevail in an action against that insured from later seeking to bring an action against the insurer to collect the policy proceeds. (Doc. 98-3 at 15 n.8) (citing Ala. Code § 27-23-2; McDaniel v. Harleysville Mut. Ins. Co., 84 So.3d 106, 112-13 (Ala. Civ. App. 2011)) (emphasis added). Again, Gardner was not a party to the declaratory judgment action.
A little over a year later, in October 2013, the Sellerses and Sellers/Gardner[2] entered into a consent judgment with Durham in the underlying state court action. (Doc. 98-1). Under the terms of the consent judgment, the state court entered judgment against Durham and in favor of Sellers/Gardner for $250, 000. (Doc. 98-1 at 4). Sellers/Gardner, however, agreed to only seek to collect the judgment from Nationwide under Alabama's “direct action” statute; see Ala. Code § 27-23-2; and agreed to forgo executing the judgment on Durham, who at that point had filed for bankruptcy. (Doc. 98-1 at 4-5). In fact, in August 2010-two years before the consent judgment-the bankruptcy court allowed the Sellerses to proceed against Durham in the underlying state court action “to the extent of available insurance benefits only.” (Doc. 13-4 at 2).
Looking to collect on the judgment against Durham from Nationwide, Sellers/Gardner filed this lawsuit on May 12, 2015 in Alabama state court. (Doc. 1 at 1). As contemplated by the consent decree and by the bankruptcy court's order, Sellers/Gardner brought one claim under Alabama's direct action statute to collect the $250, 000 consent judgment against Durham from Nationwide. (Doc. 1-1 at 7). Nationwide subsequently removed the case to this court. Then, in November of 2016, Nationwide filed a motion for summary judgment. (Doc. 13). Nationwide argued that Judge Greene's decision should have preclusive effect on this case, but it raised that argument for the first time in its reply brief. (Doc. 24 at 11). Accordingly, the court refused to consider the argument. See Dates v. Frank Norton, LLC, 190 F.Supp.3d 1037, 1040 (N.D. Ala. 2016) (citing Herring v. Sec'y, Dept. of Corr., 397 F.3d 1338, 1342 (11th Cir. 2005)) (“new arguments are improper if presented for the first time in a reply brief”). But the court-in dicta- opined that Judge Greene's ruling would not have preclusive effect on this case because Gardner was not a party to the declaratory judgment action. And the court grounded that dicta in federal law, not Alabama law. (Doc. 24 at 11-14).
So the case proceeded to trial. But before trial, Nationwide filed a motion in limine in which it argued that Judge Greene's decision in the declaratory judgment action should preclude Sellers/Gardner from attempting to introduce any evidence as to when the damage to their house “manifested” for the purposes of the Nationwide policy, because Judge Greene concluded that the damage “manifested” before the policy period. (Doc. 63 at 2). But the court denied Sellers/Gardner's motion in limine without prejudice “because it raised a new, substantive legal question on the eve of trial without an opportunity for both sides to fully brief the issue and for the court to consider the…issue[.]” (Doc. 79 at 5).
At trial, the jury concluded (1) that “Mr. Durham's faulty workmanship caused property damage to parts of Mr. Sellers' home[;]” and (2) that “the property damage caused by Mr. Durham's work manifest[ed] between December 20, 2006, and December 20, 2007[.]” (Doc. 76). After the jury verdict, Nationwide moved the court to reconsider its ruling on the motion in limine as to the preclusive effect of Judge Greene's ruling that the damage to the Sellerses' home manifested before the policy period. (Doc. 77).
The court granted the motion to reconsider and concluded that it should not have declined to consider the motion in limine only because it raised a new legal issue on the eve of trial. (Doc. 79 at 8). The court denied Nationwide's motion on the merits, however, and concluded that because Gardner was not a party to the declaratory judgment action, Sellers, as Gardner's assignee, could not be bound by Judge Greene's decision in the declaratory judgment action between Nationwide and the Sellerses individually. (Doc. 79 at 12). Importantly, however, the court applied the federal law of issue preclusion in finding that Judge Greene's decision had no preclusive effect on this case.
So, on February 6, 2019, this court entered final judgment in favor of Sellers/Gardner and...
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