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Safeco Insurance Co. of Indiana v. Pearson

United States District Court, N.D. Georgia, Atlanta Division

January 3, 2018

SAFECO INSURANCE CO. OF INDIANA, Plaintiff,
v.
DAVID PEARSON, et al., Defendants.

          OPINION AND ORDER

          THOMAS W. THRASH, JR. UNITED STATES DISTRICT JUDGE.

         This is a declaratory judgment action. It is before the Court on the Defendants David and Elizabeth Pearson's Motion to Dismiss [Doc. 8]. For the following reasons, the Defendants' Motion to Dismiss is GRANTED.

         I. Background

         This dispute stems from Safeco's partial denial of coverage under a homeowner's insurance policy that had been purchased by the Pearsons. The Pearsons are Florida domiciliaries, while Safeco is an Indiana corporation with its principal place of business in Massachusetts.[1] On January 29, 2016, Mr. Pearson discovered that a water heater had malfunctioned and caused water damage to their home.[2] The parties seem to agree that the water heater malfunction caused water damage to the home, but the dispute centers around the amount Safeco paid to the Pearsons. The Pearsons argue that subsequent mold damage was covered under the Policy and that Safeco has refused to pay for it. Safeco counters that the Pearsons are merely upset about Safeco's valuation of the damage and that there is no issue of coverage.

         As a result of this dispute, the Pearsons first filed suit against Safeco and Big Red Construction Company, the Georgia contractor that had been hired for remediation, in state court on May 22, 2017. At the time of filing, the Pearsons submitted documents necessary for service on Big Red and Safeco to the DeKalb County and Gwinnett County Sheriffs' Offices, respectively. The Gwinnett County Sheriff served Safeco just three days later, on May 25, 2017, but the DeKalb County Sheriff did not serve Big Red until June 21, 2017. In the meantime, Safeco filed a Notice of Removal on June 15, 2017, based on diversity jurisdiction. The Pearsons filed a Motion to Remand, arguing that the ability for cases to be removed should not turn on the timing of service. When this Court disagreed, the Pearsons voluntarily dismissed their case on September 1, 2017.[3]

         That same day, Safeco filed the present action in this Court. Before the Pearsons waived service, however, they renewed their action against Safeco and Big Red pursuant to O.C.G.A. § 9-2-61(a) by refiling their complaint in the state court of Cobb County on September 7, 2017.[4] This time around, Big Red was served the same day the Complaint was filed, and Safeco was served on September 12. Safeco again attempted to remove that case to this Court, but the Court recently ordered it remanded back to state court for lack of subject matter jurisdiction. The Pearsons now move to dismiss the present action and they also seek attorney's fees.

         II. Discussion

         The Declaratory Judgment Act, which gives federal courts the authority to declare the rights of litigants by issuing declaratory judgments, is “an enabling Act, which [means that it] confers a discretion on the courts rather than an absolute right upon the litigant.”[5] “It only gives the federal courts competence to make a declaration of rights; it does not impose a duty to do so.”[6]The Supreme Court has warned, however, that this power should be used sparingly, especially in cases such as this where it has the potential to interfere with ongoing state court litigation.[7] In cases in which it would be “uneconomical” and “vexatious” for a federal court to hear a declaratory judgment action concurrently with state litigation, district courts are generally advised to abstain from hearing such actions.[8]

         In Ameritas Variable Life Ins. Co. v. Roach, [9] the Eleventh Circuit developed a detailed test to guide district courts in their discretion under the Declaratory Judgment Act. First, courts must determine if there is ongoing parallel litigation in state court. Generally speaking, “[a] parallel action is one involving the same parties and the same issues.”[10] If there is ongoing parallel state litigation, then courts must apply the Ameritas multi-factor test in an effort to balance state and federal interests.[11]

         A. Parallel State Litigation

         This is a case in which there is clearly ongoing parallel state litigation. Though Safeco did remove the companion case to federal court, this Court recently remanded that case for lack of subject matter jurisdiction. Furthermore, that case involves both the same parties and the same issues. Though the state litigation includes an extra party - Big Red - it still includes both the Pearsons and Safeco. And though the causes of action are different from this litigation (as one would expect when the parties are reversed), both actions are ultimately about who owes what to whom.

         Safeco argues that the issues are not the same because Safeco is seeking adjudication on a narrow issue that may not be addressed in the state litigation, namely, whether the Pearsons have complied with an appraisal requirement that is a condition precedent to suit. Safeco essentially contends that courts should only abstain in situations where the issues presented in both cases are exactly the same. The Court disagrees, for to hold otherwise would invite constant federal interference in state litigation, and would consistently undermine a plaintiff's choice of forum. Any time a plaintiff filed a dispute over coverage in state court, insurers could simply file declaratory judgment actions in seeking appraisal in federal court. By doing so, insurers would be able to avail themselves of a federal forum in where they would not otherwise have been able to, despite the fact that they could just as easily have asserted the issue in the state litigation. Instead, the better approach is to abstain whenever (1) the issues in both cases are substantially similar, even if they are not identical, (2) they are based on substantially the same facts, (3) and the party seeking a declaration has the ability to raise their specific issue in the parallel litigation.[12] Following this approach both preserves the plaintiffs' choice of forum, while also giving defendants the opportunity to file claims which would not otherwise be adjudicated.

         Here, as the Court has already said, both actions are ultimately about who owes what to whom as a result of the water heater overflow and its aftermath. Though the state court litigation does not currently address the issue of appraisal, it is not the Pearsons' responsibility to argue Safeco's case. It is still entirely possible for Safeco to raise the issue of appraisal itself. Indeed, Safeco did just that in its motion to dismiss filed in the state litigation before this Court remanded the case. Of course, the state court may or may not reach the issues Safeco wants it to reach, but that is that court's prerogative. Courts are in the business of resolving disputes, not deciding every issue a party brings up. Safeco has the opportunity to raise the issue of appraisal in a state case ultimately addressing the issue of who owes what to the Pearsons. That is enough for the two actions to be considered parallel.

         B. Ameritas Factors

         Having found the two actions to be parallel, the Court now analyzes the present action under the Ameritas test. In Ameritas, the Eleventh Circuit laid out nine factors for district courts to consider when deciding whether to abstain:

(1) the strength of the state's interest in having the issues raised in the federal declaratory action decided ...

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