Stockton v. General Acc. Ins. Co.

• Decision Date: 06 March 1990
• Docket Number: No. 89-5492,89-5492
• Citation: 897 F.2d 530
• Parties: Unpublished Disposition NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Carlos O'Dell STOCKTON and Mary Rebecca Stockton, Plaintiffs-Appellants, v. GENERAL ACCIDENT INSURANCE CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 530

897 F.2d 530

Unpublished Disposition

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

Carlos O'Dell STOCKTON and Mary Rebecca Stockton Plaintiffs-Appellants, v. GENERAL ACCIDENT INSURANCE CO., Defendant-Appellee.

No. 89-5492.

United States Court of Appeals, Sixth Circuit.

March 6, 1990.

On Appeal from the United States District Court for the Middle District of Tennessee, 88-00027, Morton, D.J.

M.D.Tenn.

VACATED AND REMANDED TO BE DISMISSED AS MOOT.

Before KRUPANSKY and DAVID A. NELSON, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.

PER CURIAM.

With his wife, accident victim Carlos O'Dell Stockton here appeals a judgment entered in favor of the defendant insurance company in what the plaintiffs describe as a "garnishment action." The Stocktons had previously obtained default judgments in a tort action brought in a Tennessee state court against both the driver and the owner of an ambulance in which Mr. Stockton had been injured. General Accident Insurance Co. had written a policy of insurance that covered the owner and the driver.

While the present case was pending in the district court, the default judgment against the owner of the ambulance was vacated on appeal and the case against it was dismissed. The default judgment against the driver was affirmed as to liability, but the judgment was vacated as to damages and the case was remanded for trial on that issue only.

In the present appeal, the Stocktons contend that this garnishment case was improperly removed from state court, that the action became moot after the Tennessee Court of Appeals decision, and that the insurance company had no policy defense in any event. We believe the removal was proper, but that the case became moot subsequent to removal. We shall therefore vacate the judgment of the district court and remand the matter with instructions to dismiss it for want of a case or controversy.

I

Carlos O'Dell Stockton was injured while riding as a passenger in an ambulance operated by the DeShields and Ozment Ambulance Service. The ambulance was being driven by one Robert A. McCaleb. The ambulance service was covered by a liability insurance policy issued to it by General Accident Insurance Co. Mr. McCaleb had coverage under the policy as an "additional insured."

As a condition of paying a claim, the policy required that any insured must "[i]mmediately send copies of all notices or legal papers received in connection with the accident or loss." Several months after the accident, Mr. Stockton and his wife filed suit in Tennessee state court against the ambulance service and Mr. McCaleb. The defendants did not answer, and a default judgment was eventually entered against them in the amount of $180,000. As of the entry of that judgment no legal papers had been sent to the insurance company.

Three months later the Stocktons instituted a direct action in Tennessee state court against General Accident. The company removed the case to the United States District Court for the Middle District of Tennessee. ¹ Shortly before the scheduled trial the plaintiffs voluntarily dismissed their case pursuant to Rule 41(a)(1), Fed.R.Civ.P. The present proceeding is essentially a reincarnation of the earlier suit. It too was commenced in Tennessee state court and removed to federal court. The district court denied a motion by the plaintiffs for a remand.

After a bench trial, the district court found that, as the plaintiffs conceded, the defendant insurance company had never received any papers in the tort action against the ambulance service and Mr. McCaleb. The district court went on to enter judgment for the insurance company. The court reasoned that either there was no effective service of process on the ambulance service and Mr. McCaleb, which would render the default judgments invalid, or those defendants did not forward the suit papers to General Accident, which would void coverage under the policy provision requiring immediate transmittal of legal papers. Plaintiffs promptly filed a motion under Rule 59, Fed.R.Civ.P., to set aside the judgment and for a new trial.

Five days before entry of the district court's judgment, and unbeknown to the court, the Tennessee Court of Appeals had vacated the default judgment against the ambulance service and dismissed the service from the case with prejudice. Stockton v. McCaleb, No. 88-95-II (Tenn.Ct.App. Dec. 9, 1988), permission to appeal denied, (Tenn. Apr. 3, 1989). In the same decision, the court of appeals affirmed the default against Mr. McCaleb but vacated the award of damages and remanded the case for a trial on damages only. These facts came to the attention of the district court before it acted on plaintiffs' Fed.R.Civ.P. 59 motion. In ruling on the motion the district court stated "[T]he court of appeals' invalidation of the default judgment now moots the question [of whether there was adequate service of process] since there is no longer any judgment creating a garnishable insurance obligation." But the court declined to amend its judgment and did not vacate its prior orders as moot.

II

The plaintiffs contend that the present proceeding is not removable because it is ancillary or supplemental to the state court tort proceedings. 28 U.S.C. Sec. 1441(c) provides that when a "separate and independent claim" that would be removable by itself is joined with a non-removable claim, the district court has discretion to determine all the issues or to remand all matters not otherwise within its original jurisdiction. The implication is that a claim which is merely ancillary to a non-removable claim may not be removed, even if not formally "joined" with the latter claim.

The district court rejected the argument that the present proceeding is merely an adjunct of the non-removable state tort claim:

"Tennessee's present garnishment law now provides that the defendant-garnishee may file a written answer to the garnishment execution, thereby contemplating an adversarial proceeding in which the defendant-garnishee may deny any indebtedness owed to the defendants in the original lawsuit. See Tenn.Code Ann. Sec. 26-2-204. This type of adversarial proceeding is particularly likely in the case of a garnishment proceeding against the insurer-garnishee of the insured-defendant.

In the present case, the only issue is whether General Accident is liable under an insurance contract for payment of the judgment obtained by the plaintiffs in the state court proceeding. The issue of General Accident's liability is distinct and separate from the issues litigated in the state court proceeding. The characterization of the present action as a 'garnishment proceeding' does not render the action supplemental to the state court proceeding." Stockton v. General Accident Ins. Co., No. 2-88-0027, slip op. at 3-4 (M.D.Tenn. June 30, 1988).

We agree with the district court on this point. The defense that the insureds had failed to comply with the conditions of the insurance policy was not an issue in the state court tort proceeding, and although the defense of the invalidity of the default judgment was being litigated at that time in the Tennessee system, the existence of a parallel state proceeding does not divest the federal court of jurisdiction if it otherwise has it. McClellan v. Carland, 217 U.S. 268, 282 (1910). The federal court may abstain from exercising that jurisdiction only under "exceptional" circumstances. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-19 (1976). Whichever litigation terminated first would become res judicata as to that issue in the other case.

The plaintiffs also argue that removal was improper because of the proviso in 28 U.S.C. Sec. 1332(c) that says that in any "direct action" against a liability insurer, where the insured is not joined as a party-defendant, the insurer shall be deemed a citizen of the state in which the insured is a citizen. If the proviso is applicable here, it destroys diversity because of the fact the citizenship of the plaintiffs in this case is the same as the citizenship of the insureds.

The general understanding in this circuit has been that the term "direct action," as used in the proviso, means an action that under applicable state law may be brought directly against the insurer by the tort claimant prior to entry of any judgment against the alleged tortfeasor. See Carvin v. Standard Accident Ins. Co., 253 F.Supp. 232, 234 (E.D.Tenn.1966), and Cunningham v. State Farm Mut. Auto. Ins. Co., 297 F.Supp. 1138 (E.D.Tenn.1969) (citing Henderson v. Selective Ins. Co., 369 F.2d 143, 149 (6th Cir.1966)).

The plaintiffs claim that despite these cases, the scope of the direct action provision has been broadened over the years. The cases plaintiffs cite in support of this proposition, however, do not go to the issue of whether a judgment creditor's suit against an insurer is a direct action, but whether actions against insurers in the non-tort contexts of workers' compensation (Aetna Casualty & Surety Insurance Co. v. Greene, 606 F.2d 123 (6th Cir.1979)) and no-fault insurance (Ford Motor Co. v. Insurance Co. of North America, 669 F.2d 421 (6th Cir.1982)) were comprehended by the provision. In the present case, a valid judgment against Mr. McCaleb or the Service is a prerequisite to any action by the plaintiffs against General Accident. In our opinion, therefore, the plaintiffs' case is not a "direct action" within the meaning of Sec. 1332(c).

III

This brings us to the question of mootness. Tenn.Code Ann. Sec. 26-2-202 provides, in pertinent part, "All property, debts and effects of the defendant in the possession of the garnishee, or under his control, shall be liable to satisfy the plaintiff's judgment ...." (Emphasis supplied.)...