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