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Zurich American Ins. Co. v. Central Texas Highway Constructors, LLC

United States District Court, W.D. Texas, Austin Division

July 20, 2019

ZURICH AMERICAN INS. CO., et al.
v.
CENTRAL TEXAS HIGHWAY CONSTRUCTORS, LLC

          HONORABLE ROBERT PITMAN UNITED STATES DISTRICT JUDGE

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN UNITED STATES MAGISTRATE JUDGE

         Before the Court are Defendant's Motion to Dismiss Plaintiffs' Second Amended Complaint (Dkt. No. 27); Plaintiffs' Response (Dkt. No. 32); Defendant's Reply (Dkt. No. 34); Plaintiffs' Supplemental Brief in Light of Stay of CTHC's State Court DJ (Dkt. No. 41); Defendant's Supplemental Reply (Dkt. No. 42); Plaintiffs' Notice of Change of Factual Circumstances (Dkt. No. 51); Steadfast Insurance Company's Motion to Intervene (Dkt. No. 52); Defendant's Response in Opposition to Steadfast Insurance Company's Motion to Intervene & Notice of Change of Circumstances (Dkt. No. 53); and Steadfast Insurance Company's Reply (Dkt. No. 54). The District Court referred the motion to intervene to the undersigned Magistrate Judge for resolution and the motion to dismiss for Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure 72 and Rule 1(c) of Appendix C of the Local Rules.

         I. GENERAL BACKGROUND

         Plaintiffs Zurich American Insurance Company and its subsidiary American Guarantee & Liability Insurance Company (“AGLIC”) filed this suit seeking declaratory relief under 22 U.S.C. § 2201 against Defendant Central Texas Highway Constructors, LLC (“CTHC”). Dkt. No. 23 at 1. Plaintiffs seek a declaration that they have no obligation under their respective insurance policies to defend or indemnify CTHC for the allegations in an underlying lawsuit pending in bankruptcy court. Id. Steadfast Insurance Company-another subsidiary of Zurich-also seeks leave to intervene as a plaintiff in this case, and to join in the request for declaratory relief under 28 U.S.C. § 2201 against CTHC. Dkt. No. 52 at 1. Zurich and AGLIC have their principal place of business in Illinois and are incorporated in New York. Dkt. No. 23 at 2. Steadfast was originally incorporated in Delaware, but as of December 31, 2018, is incorporated in Illinois. Id.; Dkt. No. 52 at 2-3. CTHC has its principal place of business in Texas and is incorporated in Delaware. Id. at 3.

         This insurance coverage lawsuit arises out of a demand for coverage and defense that CTHC has made in relation to a suit filed against it an adversarial proceeding pending in the Western District of Texas Bankruptcy Court. Dkt. No. 23 at 5. That suit was filed by SH 130 Concession Company. On March 9, 2018, CTHC sought coverage under its insurance policy with Zurich for the claim filed by SH 130 Concession Co., and Zurich responded on April 5, 2018, stating it had no duty to defend CTHC against that claim. Id. at 3. CTHC did not seek coverage under its policy with AGLIC until almost six months after the underlying bankruptcy lawsuit was filed. Id. Roughly three and a half months after Zurich notified CTHC of its determination that it had no duty to defend the case, Zurich filed this lawsuit seeking a declaration of its rights and duties under its policy with CTHC. Id. A month later, CTHC filed a lawsuit in the 192nd District Court of Dallas County, Texas, addressing the same issues present in this lawsuit, but including Steadfast as a party, and raising additional claims beyond those it has raised in this suit. Id.

         CTHC moves to dismiss this case under Rule 12(b)(1), and asks the Court to decline to exercise jurisdiction over this dispute and grant its motion to dismiss because a Texas state court action is currently pending over the same matters at issue in this case. Dkt. No. 27 at 1. CTHC alleges that the state action is more complete than this case, because Steadfast is included as a defendant there, and other related contractual and extra-contractual claims are pending there, but not here. Id. at 8-9.[1]

         II. LEGAL STANDARD

         Rule 24(b)(2) provides for permissive intervention when timely application is made by the intervenor, the intervenor's claim or defense and the main action have a question of law or fact in common, and intervention will not unduly delay or prejudice the adjudication of the rights of the original parties. Additionally, a motion to intervene must be “accompanied by a pleading setting forth the claim or defense for which intervention is sought.” Fed.R.Civ.P. 24(c). A party may not intervene if its presence would destroy complete diversity. 28 U.S.C. § 1367(b) (providing that, in diversity actions, “the district courts shall not have supplemental jurisdiction . . . over claims by persons . . . seeking to intervene as plaintiffs under Rule 24 . . . when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.”). Whether to permit intervention “is wholly discretionary with the [district] court . . . even though there is a common question of law or fact, or the requirements of Rule 24(b) are otherwise satisfied.” New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 470-71 (5th Cir. 1984) (quoting Wright, A. Miller & M. Kane, Federal Practice and Procedure § 1913, at 551). In acting on a request for permissive intervention, the district court may consider, among other factors, whether the intervenors' interests are adequately represented by other parties, and whether intervention will unduly delay the proceedings or prejudice existing parties. Id. at 472.

         Rule 12(b)(1) allows a party to assert a lack of subject-matter jurisdiction as a defense to a lawsuit. Federal district courts are courts of limited jurisdiction and may only exercise such jurisdiction as is expressly conferred by the Constitution and federal statutes. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). “The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction.” Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). “Accordingly, the plaintiff constantly bears the burden of proof that jurisdiction does in fact exist.” Id. But in a declaratory judgment suit, even if the court determines it has jurisdiction that does not mean the court must decide the action. Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). The Declaratory Judgment Act is “an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant, ” and the district court has “unique and substantial discretion in deciding whether to declare the rights of litigants.” 515 U.S. at 286-87. To decide whether to dismiss a declaratory judgment action, courts should determine: (1) whether the declaratory action is justiciable; (2) whether this court has the authority to grant declaratory relief; and (3) whether to exercise its discretion to decide or dismiss the action. Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 387 (5th Cir. 2003) (citing Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000)). For a declaratory action to be justiciable it must seek to resolve an “actual controversy” rather than an abstract or hypothetical dispute. Orix, 212 F.3d at 895. Generally, an actual controversy exists when “a substantial controversy of sufficient immediacy and reality exists between parties having adverse legal interests.” Id. at 896. Furthermore, if the court has jurisdiction over a declaratory judgment action, the court must balance the following factors in deciding whether to dismiss the action:

1) whether there is a pending state action in which all of the matters in controversy may be fully litigated; 2) whether plaintiffs filed suit in anticipation of a lawsuit filed by defendant; 3) whether the plaintiff engaged in forum shopping in bringing the claim; 4) whether any inequities will ensue by allowing the declaratory plaintiff to gain precedence in time or to change forums; 5) whether the federal court is a convenient forum for the parties and witnesses; 6) whether retaining the suit would further judicial economy; and 7) whether the federal court is being called on to construe a state judicial decree.

St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1994).

         III. ANALYSIS

         I. Steadfast's Motion to ...


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