Civ. No. 00-406(WGB)
March 19, 2001
Brian Bendig, Esq., BOLLINGER, RUBERRY GARVEY, Chicago, Illinois; Steven J. Polansky, Esq., SPECTOR, GADON ROSEN, Moorestown, New Jersey, for Plaintiff.
Edward R. Murphy, Esq., MURPHY O'CONNOR, P.C., Haddonfield, New Jersey, for Defendant.
Plaintiff Westport Insurance Corp. ("Westport") has brought a Declaratory Judgment Action pursuant to 28 U.S.C.A. § 2201 et seq., against Defendant Crum Forster Insurance Company ("CF"), seeking a declaratory order that CF owes a duty to participate in the defense of an action pending in New Jersey Superior Court.
This matter is before the Court on Defendant's motion for summary judgment (more properly characterized as a motion to dismiss), Defendant's amended motion for summary judgment, and Plaintiff's cross-motion for summary judgment pursuant to Fed.R.Civ.P. 56. For the following reasons, the Court grants Defendant's motion to dismiss, dismisses as moot Defendant's motion for summary judgment, and dismisses as moot Plaintiff's cross-motion for summary judgment.
On September 15, 1998 Phillip D. Reeve brought an action in Superior Court of New Jersey, Burlington County, styled Phillip D. Reeve v. Dunkin' Donuts Mid-Atlantic Distribution Center, Inc., et al. ("Reeve Action"). Reeve's complaint contains claims against numerous defendants, including several against Dunkin' Donuts Mid-Atlantic Distribution Center ("Dunkin") (See Reeve Compl., attached as Exh. A to Westport's Compl. for Decl. Judgment).
For purposes of this decision the factual allegations in Westport's pleadings are accepted as true. Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 n. 1 (3d Cir. 1987).
Reeve had been employed by Dunkin as a senior manager, but was terminated on September 16, 1997 at approximately 10:30 AM. (Reeve Complaint, ¶ 16). After being instructed to do so, Reeve cleared out his desk and left the Distribution Center at approximately 11:40 AM.Id., at ¶¶ 23, 24. At approximately 4:00 PM on the day of his termination, Reeve arrived at a groundbreaking ceremony for a new Dunkin facility, and was met by officers of the Logan Township Police Department. Id., at ¶ 31. These officers were present on Dunkin's request, and had been informed that Reeve might arrive at the ceremony in an attempt to disrupt it. Id., at ¶¶ 25-33. They requested that Reeve leave the ceremony but Reeve refused, claiming he was an invited guest. Id., at ¶¶ 33, 34. Reeve was subsequently arrested, removed from the site of the groundbreaking, and detained by the Logan Township Police Department. Id., at ¶¶ 36-42. Relevant to this action, Reeve brought claims against Dunkin related to his wrongful termination, as well as claims related to his arrest and prosecution for the incident at the groundbreaking ceremony, which occurred after his termination.
Dunkin is a co-insured of Plaintiff Westport and Defendant CF. Westport reserved its rights with respect to coverage for Dunkin via letter in November 1998, but has been providing Dunkin with a defense in the Reeve Action under that reservation. CF denied coverage to Dunkin under two insurance policies it had issued (a Comprehensive General Liability Policy and a Comprehensive Umbrella Liability Policy), and declined to participate in Dunkin's defense in the Reeve Action.
This Declaratory Judgment action was commenced by Westport in the District of New Jersey on January 27, 2000, pursuant to 28 U.S.C. § 2201 et seq. The Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1332 (a)(1). Westport seeks a declaration of CF's rights and obligations under the insurance policies issued to Dunkin, with respect to CF's duty to defend Dunkin in the Reeve Action.
Defendant CF filed a notice of motion for summary judgment on June 13, 2000, asking the Court to decline jurisdiction under the Declaratory Judgment Act, and dismiss Plaintiff's action without prejudice so that it might be re-filed in state court. As Plaintiff correctly noted in its opposition, such relief is not properly sought via a motion for summary judgment. Because both the Declaratory Judgment Act and the applicable case law contemplate that district courts will exercise discretion in determining whether to entertain jurisdiction over declaratory judgment actions, see Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942), the Court will treat Defendant's motion of June 13, 2000 as a motion to dismiss on discretionary grounds.
Along with its opposition to Defendant's June 13 motion, Plaintiff filed a cross-motion for summary judgment supported by factual affidavits, seeking a judgment on the merits of the action. On November 6, 2000 Defendant CF filed an amended motion for summary judgment, similarly supported by factual affidavits, also seeking a judgment on the merits.
"In a case of actual controversy within its jurisdiction. . . any court of the United States. . .may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a) (emphasis added). In Brillhart v. Excess Insurance, the Supreme Court indicated that while a district court may have jurisdiction to enter a declaratory judgment in a particular controversy, it is under no compulsion to do so. 316 U.S. at 495. More recently, the Supreme Court has stated that "[b]y the Declaratory Judgment Act, Congress sought to place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants." Wilton v. Seven Falls Company, 515 U.S. 277, 288 (1995).
Neither the litigants nor the Court suggest the Court lacks jurisdiction over this matter, or that the Court could not reach the merits of the dispute. Instead, the threshold issue the Court must resolve before turning to the pending cross-motions for summary judgment is whether the Court should decline to exercise its jurisdiction, and dismiss the action.
A recent decision of the Third Circuit Court of Appeals, State Auto Insurance Companies v. Summy, 234 F.3d 131 (3d Cir. 2000), provides the Court with a clear statement of when it should decline to hear a declaratory judgment action. Generally, in the interests of judicial economy a federal court should exercise restraint if the same issues are pending in state court, in order to avoid duplicative litigation. Summy, 234 F.3d a 134. Additionally, in diversity matters, a district court should hesitate to exercise jurisdiction over declaratory judgment actions when the state law involved is uncertain or undetermined. Id., at 135.
A district court should be particularly inclined to question its jurisdiction when there are no federal questions presented in the declaratory judgment action, such as in an action seeking to declare a party's obligations under an insurance policy. Id., at 136. Notably, "[t]he desire of insurance companies and their insureds to receive declarations in federal court on matters of purely state law has no special call on the federal forum." Id., at 136. Federal courts must give serious consideration to the fact that they do not establish state law, but are limited to predicting it. Summy, 234 F.3d at 135.
It is uncontested that Westport seeks a declaration from this Court about CF's duties to defend under a pair of insurance policies it issued to Dunkin. It is similarly uncontested that Westport has failed to raise any federal questions, and by Westport's own words "both counts of Westport's declaratory action are solely about whether there is a CF duty to defend the common insured; under New Jersey law, this requires only a comparison of the policy and the complaint against the insured." (Plaintiff's Opp. Brief, p. 7).
According to Voorhees v. Preferred Mut. Ins. Co., a duty to defend "comes into being when the complaint states a claim constituting a risk insured against." 128 N.J. 165, 173 (1992) (citations omitted). When multiple alternative causes of action are stated, the duty to defend is not extinguished until every covered claim is eliminated, regardless of how poorly developed or doomed to failure the claims may be. Id. (citations omitted).
CF contends it has no duty to defend Dunkin, as every claim brought in the Reeve Action falls either beyond the scope of coverage of the policies it issued, or within the scope of some exclusionary endorsement to the policy. Should either contention prove false, CF would have a duty to defend Dunkin against potential liability. See Aetna Cas. Sur. Co. v. Ply Gem Indus., Inc., 313 N.J. Super. 94, 102 (App.Div. 1997).
A review of the underlying complaint in the state action demonstrates that Reeve has brought claims for malicious prosecution, malicious abuse of legal process, false arrest/imprisonment, intentional infliction of emotional distress, defamation-slander, defamation-libel, wrongful termination/bad faith, tortious interference with contract, and tortious interference with prospective economic advantage against Dunkin. (See Reeve Complaint, attached as Exh. A to Westport Decl. Judgment Complaint). As part of any declaratory judgment inquiry, this Court would have to determine which of these claims (if any) trigger CF's duty to defend.
For at least some of the claims (malicious prosecution, false arrest/imprisonment, defamation-slander, defamation-libel, wrongful termination/bad faith) CF denied coverage on the basis that they constituted "personal injuries" within the scope of an "Employment-Related Practices Exclusion" to one of the policies. (Defendant's Reply Brief, Exh. A). This exclusion provides that the policy will not apply to any "Personal injury to. . .a person arising out of any termination of that person's employment." Id. (emphasis added).
The summary judgment motions of both Westport and CF turn in part on the question of how New Jersey state courts have interpreted this "arising out of" language. Westport argues that CF's Employment-Related Practices Exclusion should not apply to all of Reeves claims, since some of his claims are for injuries allegedly suffered after his termination, not as a direct result of the termination itself (unlike his claim for wrongful termination, which attaches to the act of termination itself). According to Westport, the relevant New Jersey law states that "`arising out of' in the employment termination context means claims for (1) the act of wrongful discharge or termination, as well as (2) alleged actions preceding and integral to such discharge or termination." (Plaintiff's Opp. Brief, p. 11, citing American Motorists Ins. v. Co. v. L-C-A Sales Co., 155 N.J. 29 (1998); Schmidt v. Smith, 294 N.J. Super. 569 (App. Div. 1996)).
CF takes umbrage with Westport's interpretation of the American Motorists decision. CF argues based on American Motorists that simply because an action was brought after an employee's termination, does not mean it did not "arise out of" that termination. They claim that the Employment-Related Practices Exclusion was properly enforced because Reeve's arrest and detention (and the associated claims) were so integrally related to his termination, that they necessarily "arose out of the termination of" his employment. (Defendant's Reply Brief, pp. 6-7).
The American Motorists case upon which both parties rely appears to be one of only two decisions by the New Jersey Supreme Court that even touch on "arising out of" language in an employment-liability insurance context. 155 N.J. at 35 (The other case being Schmidt v. Smith, 155 N.J. 44 (1998), affirming in part and reversing in part Schmidt v. Smith, 294 N.J. Super. 569 (1996)). According to the Court in American Motorists,
[t]he critical phrase "arising out of," which frequently appears in insurance policies, has been interpreted expansively by New Jersey courts in insurance coverage litigation. "The phrase `arising out of' has been defined broadly in other insurance coverage decisions to mean conduct `originating from,''growing out of' or having a `substantial nexus' with the activity for which coverage is provided."155 N.J. at 35 (citations omitted). While both American Motorists andSchmidt involved employment claims, Schmidt involved claims for conduct that occurred during the course of employment, and American Motorists involved claims stemming from wrongful termination. See Schmidt, 155 N.J. at 46; American Motorists, 155 N.J. at 31.
In this matter, in order to reach a judgment on the merits, the Court would inescapably have to determine whether, as a matter of law, the injuries allegedly suffered by Reeve several hours after the termination of his employment "arose out of" that termination. While "arising out of" language has been defined broadly by the New Jersey Supreme Court, it is "well settled that when interpreting insurance contracts the court should broadly read coverage provisions, and narrowly read exclusionary provisions." Schmidt v. Smith, 294 N.J. Super. at 582, citing Search EDP v. American Home Assur., 267 N.J. Super. 537, 542 (App.Div.), cert.denied, 135 N.J. 466 (1994).
The Court is not aware of any decision by a New Jersey court which addresses the question of whether claims for injury resulting from post-termination conduct are properly excludable under an insurance policy like the one in question, or whether the plain language of the exclusion limits it to claims which arise out of the termination itself (i.e. claims for wrongful termination, as in American Motorists). Given the competing directives to broadly interpret "arising out of" language and narrowly construe policy exclusions, in the absence of any additional New Jersey precedent this Court would have no alternative but to venture into uncharted waters in resolving Westport's claims.
In light of the recent Summy decision, when examining a state law question presented in a declaratory judgment action, absent clear guidance on how the state courts would rule, a federal court should decline to issue a declaration of rights and responsibilities which articulates a new rule of law. 234 f.3d at 135 ("district courts should give serious consideration to the fact that they do not establish state law, but are limited to predicting it. This is especially important in insurance coverage cases. . .").
Unlike the Summy case, where a duplicative state court proceeding existed, no such proceeding exists here. While the Reeve Action currently pending in state court forms the factual nexus of the dispute between Westport and CF, neither insurance company is a named party in that litigation. Although the ultimate question of Dunkin's liability will likely be reached in that action, the question of CF's duty to defend will not. Because of the ease with which either party can file an appropriate declaratory judgment action in state court (and noting Defendant's plea that any dismissal here be without prejudice as to Plaintiff's right to file such an action), the current absence of such a state action should not be a bar to dismissal.
The Court finds support for this conclusion in the Summy decision. While the appellate panel gave great weight to the existence of a duplicative state court proceeding, that factor was not central to their analysis. Notably, the Third Circuit found it irrelevant that the state declaratory judgment petition in Summy was filed after its counterpart in federal court, as it was more important for "district courts to "step back" and allow the state courts the opportunity to resolve unsettled state law matters." Summy, 234 F.3d at 136. This is of particular importance where a Defendant vigorously objects to a district court's assumption of jurisdiction, and asks that the matter be resolved in state court. Id.
With the exception of a duplicative action pending in state court, all of the guiding factors set out by the Third Circuit in Summy are present in Westport's action. Defendant CF has vigorously opposed the resolution of the matter before this Court, but by its pleadings does not oppose Plaintiff's filing of a declaratory judgment action in state court. The dispute between Westport and CF is grounded entirely in state law, and involves no federal questions. The Court lacks clear guidance from the state courts on the resolution of a pivotal legal question before it. While the Court is entirely competent to pass judgment on that question, noting the present state of the law in New Jersey, that judgment standing on its own would be necessarily suspect. Given the discretion to decline jurisdiction inherent in the Declaratory Judgment Act, the Court now finds every reason to do so. On that basis, the Court grants Defendant's motion to dismiss.
For the foregoing reasons, Defendant's motion to dismiss is granted. This dismissal shall be without prejudice to the rights of either party to re-file this action in the appropriate New Jersey state court. For the same reasons, Defendant's motion for summary judgment is dismissed as moot, and Plaintiff's cross-motion for summary judgment is dismissed as moot.
An appropriate order follows.