Opinion
C. A. PC-2022-01105
07-27-2022
AUBERGE RESORTS LLC, CALISTOGA RANCH OWNER LLC, SOLAGE OWNERS LLC, ICONICPROPERTIES - JEROME, LLC, TELLURIDE RESORT PARTNERS LLC, VANDERBILT HOTEL, LLC, and U.S. HOTELS NEW ENGLAND LLC, Plaintiffs, v. ALLIANZ GLOBAL RISKS U.S. INSURANCE COMPANY, EVEREST INDEMNITY INSURANCE COMPANY, GREAT LAKES INSURANCE SE, HOMELAND INSURANCE COMPANY OF NEW YORK, INTERSTATE FIRE & CASUALTY COMPANY, LANDMARK AMERICAN INSURANCE COMPANY, and NATIONAL FIRE AND MARINE INSURANCE COMPANY, Defendants.
For Plaintiff: David A. Wollin, Esq.; Rebecca F. Briggs, Esq. For Defendant: Geoffrey W. Millsom, Esq.; Brenna A. Force, Esq.; Joseph V. Cavanagh, III, Esq.; Timothy J. Keough, Esq.; Marc E. Finkel, Esq.
For Plaintiff:
David A. Wollin, Esq.; Rebecca F. Briggs, Esq.
For Defendant:
Geoffrey W. Millsom, Esq.; Brenna A. Force, Esq.; Joseph V. Cavanagh, III, Esq.; Timothy J. Keough, Esq.; Marc E. Finkel, Esq.
DECISION
STERN, J.
Before this Court is Plaintiffs' - Auberge Resorts LLC, Calistoga Ranch Owner LLC, Solage Owners LLC, Iconic Properties - Jerome, LLC, Telluride Resort Partners LLC, Vanderbilt Hotel, LLC, and U.S. Hotels New England LLC, (collectively, Plaintiffs) - Motion to Enjoin Defendant Insurance Companies - Allianz Global Risks U.S. Insurance Company, Everest Indemnity Insurance Company, Great Lakes Insurance SE, Homeland Insurance Company of New York, Interstate Fire & Casualty Company, Landmark American Insurance Company, and National Fire and Marine Insurance Company (collectively, Defendants) from litigating a substantially similar action in a New York state court proceeding. Also before this Court is Defendants' Cross-Motion to Stay the instant matter so that the parties may litigate this matter exclusively in New York.
I
Facts and Travel
Plaintiffs are a group of entities that own and manage property throughout the United States. (Pls.' Mot. at 1.) The majority of the Plaintiff entities in this action are incorporated and have their principal places of business outside of Rhode Island, in states such as Delaware, Colorado, and California. See generally Pls.' Compl. As stated above, Plaintiffs seek an injunction to prevent Defendants from litigating this matter in New York state court. (Pls.' Mot. at 1.) On February 25, 2022, Plaintiffs filed the present action in Rhode Island Superior Court against the Defendant insurance companies. Id. at 1-2. Plaintiffs allege that they suffered direct "physical loss [or] damage" as defined in the property insurance policies at issue. Id. at 2. Plaintiffs claim that the source of their losses resulted from the COVID-19 pandemic and they argue, as other plaintiffs before this Court have previously, that COVID-19 caused physical loss or damage to their insured property. See id.
After filing this action against Defendants and previously named Defendant Westport Insurance Corporation (Westport), Westport invoked a forum selection clause against Plaintiffs. (Defs.' Obj. at 12.) This clause requires Plaintiffs to bring any actions against Westport in the State of New York. Id. After Plaintiffs voluntarily dismissed Westport from this action, Westport filed a new action in New York on March 24, 2022. (Pls.' Mot. at 7.) Westport Insurance Corporation v. Auberge Resorts LLC, et al., Index No. 651396/2022 (N.Y. Sup. Ct. 2022). Westport brought this New York action against all of the insured Plaintiffs in the instant matter. (Defs.' Obj. at 12.) Westport also filed suit against all of the Defendant insurance companies currently before this Court. Id.
Unlike other business interruption insurance matters that this Court has heard previously, Plaintiffs here purchased insurance from Defendants through a "tower" insurance policy. (Defs.' Obj. at 13.) This form of an insurance policy requires the interrelation between multiple insurance companies, and it is organized to provide coverage to claimants through a tiered coverage scheme. See id. Further, based on the design of the set of policies at issue here, certain excess policies in the coverage tower cannot attach unless the insured exhausts the entire "primary layer" of the policy. Id. Defendant Westport makes up 20 percent of the primary layer. Id.
In its Objection to Defendants' Motion to Stay, Plaintiffs attempt to argue that this Court should disregard the Insurance Policy's requirement that they must first satisfy the "primary layer" of the Policy before they can obtain excess coverage from Defendants. (Pls.' Obj. at 4.) In support of this idea, Plaintiffs argue that they must only allege losses in excess of the primary layer, and that they do not need to demonstrate the ability to actually recover from the Defendants in the primary layer. Id. The Excess Participation Clause states the following in relevant part: "There will be no coverage hereunder until the amount of direct physical loss, damage or destruction arising out of any one Occurrence exceeds the underlying layer above which the Company's participation attaches, as shown in the Participation Clause E of the Declarations…" (Defs.' Ex. A. at 35.) Regardless of Plaintiffs' arguments surrounding the required method to allege harm under the policy, as this Court will explain in further detail below, in order to determine the Defendants' liability under the Policy, this Court would need to make coverage determinations concerning Defendant Westport. As stated above, Westport is not currently before this Court as a Defendant.
In response to Westport filing an action including all of the relevant parties in New York, Plaintiffs filed a Motion to Enjoin in this Court. See Pls.' Mot. at 1. As stated above, Plaintiffs ask this Court to issue a preliminary injunction preventing Defendants from litigating this action, either as plaintiffs or defendants, in the New York action. Id. Plaintiffs argue that this Court has the authority to enjoin the ongoing New York action under the first-to-file doctrine. Id. at 10-11. In response to Plaintiffs' Motion to Enjoin, Defendants filed a Cross-Motion to Stay. (Defs.' Mot. at 1.) Defendants ask this Court that, rather than issue an injunction preventing Defendants from litigating the New York lawsuit, this Court should stay the instant matter until the New York lawsuit "reaches a final conclusion." Id. at 1. On June 21, 2022, this Court heard oral argument on Plaintiffs' Motion to Enjoin and Defendants' Cross-Motion to Stay. See Docket. PC-2022-01105. This Court's Decision follows.
II
Standard of Review
"The decision to grant or to deny a preliminary injunction lies within the sound discretion of the trial justice." City of Woonsocket v. Forte Brothers, Inc., 642 A.2d 1158, 1159 (R.I. 1994). In determining whether to grant this relief, the "hearing justice should consider and resolve 'each of the appropriate preliminary-injunction factors[.]'" DiDonato v. Kennedy, 822 A.2d 179, 181 (R.I. 2003) (quoting Iggy's Doughboys, Inc. v. Giroux, 729 A.2d 701, 705 (R.I. 1999)). To issue a valid preliminary injunction, the Rhode Island Supreme Court requires the Superior Court to assess the factors listed below and reach the following conclusion:
"[I]n deciding whether to issue a preliminary injunction, the hearing justice should determine whether the moving party (1) has a reasonable likelihood of success on the merits, (2) will suffer irreparable harm without the requested injunctive relief, (3) has the balance of the equities, including the possible hardships to each party and to the public interest, tip in its favor, and (4) has shown that the issuance of a preliminary injunction will preserve the status quo." DiDonato, 822 A.2d at 181 (citing Fund for Community Progress v. United Way of Southeastern New England, 695 A.2d 517, 521 (R.I. 1997)).
Separately, regarding the Superior Court's authority to stay its own proceedings, the Rhode Island Supreme Court has stated the following:
'"A trial justice is vested with great authority in managing his or her trial calendar. '[T]he management of a trial calendar is among the most difficult of all judicial assignments. * * * Consequently[,] the widest discretion must be given to calendar justices and trial justices in carrying out this enormously difficult function
* * *.'" Bergeron v. Roszkowski, 866 A.2d 1230, 1235 (R.I. 2005) (quoting Mills v. State Sales, Inc., 824 A.2d 461, 469 (R.I. 2003)).
Further, the Rhode Island Supreme Court has "defined the exercise of judicial power as the control of a decision in a case or the interference with its progress, or the alteration of the decision once made." Lemoine v. Martineau, 115 R.I. 233, 238, 342 A.2d 616, 620 (1975) (emphasis added). Additionally, it is well established that "[c]ontrol of judicial dockets rests in the court." State v. Johnson, 116 R.I. 449, 456, 358 A.2d 370, 374 (1976). Finally, this Court has both the ability and the discretion to issue a continuance, so long as doing so is within the Court's "sound discretion, exercised not arbitrarily or willfully, but with just regard to what is right and equitable under the circumstances and the law." Strzebinska v. Jary, 58 R.I. 496, 193 A. 747, 749 (1937).
III
Analysis
This Court will first address Plaintiffs' Motion and the Court's ostensible authority to issue an injunction preventing all parties from litigating this business interruption insurance dispute in New York. Next, it will address Defendants' Cross-Motion to Stay and this Court's authority to manage its docket in conjunction with the first-to-file doctrine.
A. Plaintiffs' Motion for an Injunction
As stated above, Plaintiffs' motion asks this Court to enjoin Defendants in this action to prevent them from litigating the New York lawsuit filed against them by Westport. (Pls.' Mot. at 1.) In order to issue a preliminary injunction, the Rhode Island Supreme Court requires a Superior Court justice to find that the moving party: (1) has a reasonable likelihood of success on the merits; (2) will suffer irreparable harm in the absence of an injunction; (3) has the balance of the equities, including possible harm to either party and the public interest in its favor; and (4) has shown that the injunction will preserve the status quo. See DiDonato, 822 A.2d at 181.
Plaintiffs' Motion to Enjoin fails to cite the standard articulated above and instead attempts to argue, without valid authority, that this Court is free to ignore the standard for a preliminary injunction and may enjoin Defendants from litigating the New York action solely on the basis of the first-to-file doctrine. (Pls.' Mot. at 8.) This argument is invalid. Although neither party directly implicates this constitutional provision, this Court will restrain itself from issuing the requested injunction because doing so has the high likelihood of violating the Full Faith and Credit Clause of the United States Constitution. See U.S. Const. art. IV, § 1.
As mentioned above, Plaintiffs argue that this Court does not need to apply the preliminary injunction standard before enjoining the Defendants from litigating this matter in New York. (Pls.' Reply at 11-12.) Instead, Plaintiffs argue that this Court possesses the inherent authority under the first-to-file doctrine to issue an injunction binding a party's conduct in another state proceeding. Id. at 8. Further, Plaintiffs also advance the concerning argument that this Court has the ability to enjoin both the Plaintiffs and the Defendants in the New York action and that doing so will not violate the United States Constitution. (Pls.' Obj. at 10.)
To support this argument, Plaintiffs rely on non-binding federal case law and Rhode Island Supreme Court precedent on the subjects of family law and comity. (Pls.' Mem. at 10-11.) For example, Plaintiff relies on Halliwell v. Lippitt Realty Co., 121 R.I. 927, 927, 394 A.2d 708, 708-09 (Mem) (1978), for the contention that Rhode Island applies the first-to-file doctrine. However, this family law case does not discuss or suggest that this Court has the authority to issue the requested inunction. See id. Further, Plaintiffs rely on Kerotest Manufacturing Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-86 (1952). Plaintiffs fail to highlight the fact that the United States Supreme Court's Opinion in Kerotest concerned patent-related injunctions in the federal judiciary, as opposed to separate states with distinct and independent authority. Id. at 181-82. The remaining case law Plaintiffs rely on is both unpersuasive and inapplicable as these cases concern an unrelated Washington State Court proceeding and federal caselaw governing the interactions of federal district courts with one another. See Martin v. Graybar Electric Co., 266 F.2d 202 (7th Cir. 1959); Computer Associates International, Inc. v. Altai, Inc., 893 F.2d 26 (2d Cir. 1990). Overall, Plaintiffs' attempt to argue that this Court has the ability to issue the requested injunction is misplaced.
In addition to the case law discussed above, Plaintiffs cite a provision in some of the insurance contracts that allegedly prevents Defendants from both contesting jurisdiction in any action or transferring this case to a different forum. (Pls.' Obj. at 2.) In response to Plaintiffs' arguments, Defendants correctly note that they are not contesting jurisdiction in this matter or seeking to transfer the case. As this Court will discuss in greater detail below, Defendants seek a stay from this Court, not the dismissal of this action. (Defs.' Mot. at 19-20.)
In their Objection to Plaintiffs' Motion to Enjoin, Defendants argue that this Court lacks the authority to grant the requested relief because doing so would violate the Due Process Clause of the Fourteenth Amendment. (Defs.' Obj. at 3.) Defendants assert that an injunction preventing them from litigating a case brought against them in New York would violate their Due Process rights because the injunction would unlawfully restrain them from defending a lawsuit in a different forum. Id. While this may be a valid alternative basis on which to challenge Plaintiffs' Motion, this Court finds that the most applicable authority preventing it from issuing the requested injunction is the Full Faith and Credit Clause of the United States Constitution. See U.S. Const. art. IV, § 1. The Full Faith and Credit Clause provides the following:
"Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof." Id. (emphasis added).
Despite Plaintiffs' attempt to characterize the issue before the Court as a determination related to the first-to-file doctrine, enjoining Defendants from litigating this matter in New York could either result in a deprivation of Defendants' Due Process rights, as they argue, or a potentially improper encroachment of the New York Court's authority under the Full Faith and Credit Clause.
Although the issues regarding violations of the Full Faith and Credit Clause in relation to multiple state court proceedings do not occur often, existing authority advises against state courts interfering with one another. See Stewart E. Sterk, The Muddy Boundaries Between Res Judicata and Full Faith and Credit, 58 Wash. & Lee L. Rev. 47, 91 (2001) (discussing the longstanding concept "that full faith and credit makes a judgment conclusive on the merits of the claim, but not on methods of enforcement") (emphasis added). Moreover, the New York Court of Appeals has expressed longstanding skepticism regarding the ability of sister states to enjoin New York courts from hearing issues before them. See Dobson v. Pearce, 12 N.Y. 156 (1854). In Dobson, the New York Court of Appeals stated the following:
"The decree of the court of chancery of the State of Connecticut as an operative decree, so far as it enjoined and restrained the parties, had and has no extra-territorial efficacy, as an injunction does not affect the courts of this state; but the judgment of the court upon the matters litigated is conclusive upon the parties everywhere and in every forum where the same matters are drawn in question." Id. at 167 (emphasis added).
Based on the existing authority on this subject, this Court declines to issue an injunction affecting the New York action. The arguments and authority Plaintiffs rely on to support an injunction in this context are misplaced. Therefore, this Court denies Plaintiffs' Motion to Enjoin the Defendants' participation in the New York proceeding.
B. Defendants' Cross-Motion to Stay
In their Cross-Motion, Defendants ask this Court to stay the instant matter so that the New York action may proceed first. (Defs.' Mot. at 1.) As discussed briefly above, Defendants prefer that the New York court hear this matter first so that all of the relevant parties may litigate this dispute simultaneously. Id. at 2. In their Objection, Plaintiffs argue that the first-to-file rule applies, and this Court must deny Defendants' Motion to Stay on that basis. See Pls.' Obj. at 4. Both parties rely on the first-to-file rule and its application to this matter in their arguments for and against staying the Rhode Island litigation.
The first-to-file doctrine exists to prevent the waste of judicial resources resulting from piecemeal litigation, potential conflicting judgments, and is also animated by a generalized concern that the litigation of simultaneous actions will result in courts interfering with one another. See TPM Holdings, Inc. v. Intra-Gold Industries, Inc. 91 F.3d 1, 4 (1st Cir. 1996). Courts will generally apply the first-to-file rule in overlapping cases by allowing the court that first possessed jurisdiction to proceed with the action. See id. The court presiding over the second-filed action will then defer to the first-filed court's resolution of the matter. Id. The preference for the first-filed action is not a "per se rule." In re CVS Health Corporation Securities Litigation, No. PC-2019-5658, 2020 WL 5392078 at *6 (R.I. Super. Sept. 1, 2020). Further, equitable considerations govern whether a court should apply this doctrine, and the ultimate determination rests within the court's discretion. Id.
When deciding matters implicating the first-to-file doctrine, this Court must first consider the chronology of the actions in order to determine which lawsuit was filed first. Id. at *7. Here, both parties agree that Plaintiffs filed the first lawsuit in Rhode Island. (Pls.' Mot. at 7.); (Defs.' Mot. at 2.) Therefore, it is readily apparent that the Rhode Island lawsuit is the first-filed action for the purpose of this Court's analysis. However, the fact that Plaintiffs filed this action in Rhode Island before Westport filed the New York lawsuit does not end this Court's analysis.
This Court must next determine whether a "substantial overlap" exists between the parties and issues in both actions. In re CVS Health Corporation Securities Litigation, 2020 WL 5392078 at * 7. While this Court understands that the broader issues presented in each action overlap in a substantial manner between the New York and Rhode Island cases, it finds that the Plaintiffs' failure to properly include Defendant Westport requires this Court to determine that there is not a substantial overlap between the parties. Id. Plaintiffs' failure to include Defendant Westport in the Rhode Island lawsuit creates a high likelihood that Westport's litigation of the same matter in New York will create a serious risk of inconsistent judgments between New York and Rhode Island.
Next, this Court must weigh the equitable considerations for and against hearing the first-filed case at issue. See id. at 9-10. This Court's review of equitable considerations in the context of the first-to-file doctrine generally require it to review whether one of two exceptions to the rule apply. Id. The first exception requires this Court to analyze whether the '"balance of convenience"' favors the second-filed action. Id. (quoting Learning Network, Inc. v. Discovery Communications, Inc., 11 Fed.Appx. 297, 302 (4th Cir. 2001)). This exception closely mirrors a forum non conveniens analysis. See id. at 10. The second exception to the first-to-file doctrine requires this Court to consider whether '"forum shopping alone motivated the choice of the situs for the first suit."' Id. at 9, n.11 (quoting 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F.Supp. 128, 132 (S.D.N.Y. 1994)).
While this Court declines to find that forum shopping alone caused Plaintiffs to file this action in Rhode Island, it does wish to highlight the fact that the majority of the Plaintiffs in this action failed to demonstrate any meaningful nexus with the State of Rhode Island. See generally Pls.' Compl. For example, Plaintiff Auberge Resorts is a Delaware LLC with its principal place of business in California. Id. ¶ 9. Plaintiff Calistoga is a Delaware LLC with its principal place of business in Illinois. Id. ¶ 10. Plaintiff Solage Owners is a Delaware LLC with its principal place of business in California. Id. ¶ 11. Plaintiff Jerome is a Delaware LLC with its principal place of business in Colorado. Id. ¶ 12. Moreover, Plaintiffs' only connection to Rhode Island is through Plaintiff Vanderbilt LLC. Id. at 5. Vanderbilt LLC is a Rhode Island LLC with its principal place of business in Rhode Island. Id. Vanderbilt LLC owns the Vanderbilt Hotel in Newport, Rhode Island. (Pls.' Mot. at 2.) However, Vanderbilt LLC's sole member is a separate entity, Vanderbilt Owners LLC. (Pls.' Compl. ¶ 16.) Vanderbilt Owners LLC is a Delaware LLC and a citizen of both Delaware and Texas. Id. ¶ 17.
Although this Court declines to find that forum shopping alone motivated Plaintiffs' decision to file the instant matter in Rhode Island, the fact that the vast majority of the Plaintiffs have absolutely no connection with this state suggests that Plaintiffs' choice of forum was not motivated by Rhode Island's connection to this matter, given that Plaintiffs could have easily brought this action in Delaware, New York, or California. Moreover, this Court also wishes to acknowledge that Plaintiffs' choice of forum may be motivated, at least in part, by the fact that the Rhode Island Supreme Court has not yet ruled on whether COVID-19 constitutes "physical loss or damage" as a matter of Rhode Island law. Regardless, as it relates to this Court's equitable considerations for its first-to-file analysis, this Court finds that Plaintiffs did not file this action in Rhode Island based solely on a motivation to forum shop.
Finally, the Court must also consider whether the "balance of convenience" favors the second-filed, New York lawsuit. See Learning Network, Inc., 11 Fed.Appx. at 302. Regarding this final factor, this Court finds that the balance of convenience weighs heavily in favor of the New York court hearing this matter. As discussed above, the Plaintiffs purchased an insurance policy from several Defendant insurance companies. (Defs.' Obj. at 12.) Allowing this lawsuit to proceed against some, but not all, of the Defendants when each Defendant entity plays a vital role in this tower policy would create a serious risk of inconsistent judgments between simultaneous New York and Rhode Island proceedings. By staying the instant matter in Rhode Island, this Court can and will permit the most holistic and efficient resolution of this business interruption insurance matter. See Johnson, 116 R.I. at 456, 358 A.2d at 374 (holding that control of a judicial docket rests with the court).
Plaintiffs' final argument against staying this matter in Rhode Island and allowing the New York lawsuit to proceed first is based on a provision in the Master Insurance Policy. The Master Policy states that Defendants will "submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all of the requirements necessary to give such court jurisdiction…" (Pls.' Ex. C. at 40-41.) Further, the Master Insurance Policy states that Defendants "shall not transfer, change venue, or remove, or seek to transfer, change venue, or remove any lawsuit filed by the Insured in any such court." Id. Plaintiffs' argument that these provisions prevent the Defendants from seeking a stay are unfounded. As quoted above, the first provision prevents Defendants from contesting this Court's jurisdiction to hear the instant matter. Defendants have not filed a Rule 12 motion before this Court, and they do not argue that they have the ability to do so based on this provision. Similar to the first provision, Defendants do not seek to transfer, remove, or change the venue of this case to a different jurisdiction. This matter will remain in Rhode Island, and this Court will retain the ability to issue any and all final judgments in this matter despite the fact that the New York lawsuit will proceed first. Notwithstanding the fact that allowing the New York action to proceed first is not Plaintiffs' ideal manner to litigate this action, the Master Policy's language does not prevent Defendants from seeking a stay pending an outcome in the New York action. See Strzebinska, 58 R.I. at 496, 193 A. at 749.
Therefore, the Court finds that, based on its discretion to manage its docket and the balance of convenience considerations inherent in the first-to-file doctrine, New York is the proper venue to hear this matter, and this Court will stay the instant matter until the New York litigation reaches a conclusion.
IV
Conclusion
Based on the foregoing, Plaintiffs' Motion to Enjoin the parties from litigating the New York action is denied. Additionally, Defendants' Motion to Stay the instant matter is granted. Because this Court has determined that allowing this matter to proceed before this Court alongside the New York action will create a risk of inconsistent judgments, it will use its discretion to stay this action and allow the New York action to proceed first. Counsel for Defendants shall submit the appropriate order for entry.