Opinion
Civ. No. 03-6561 (RHK/AJB)
April 15, 2004
Richard B. Allyn and Heather J. McNeff, Robins, Kaplan, Miller Ciresi, LLP, Minneapolis, Minnesota, for Plaintiff
Patrick D. Reilly and Benjamin B. Bohnsack, Erstad Riemer, PA, Minneapolis, Minnesota, for Defendant
Robert C. Moore and Melissa Ward, Stone Moore, Chartered, Chicago, Illinois, for Defendant
MEMORANDUM OPINION AND ORDER
Introduction
Plaintiff Vine Street Limited Partnership ("Vine Street") and Defendant QBE International Insurance Limited ("QBE") dispute the coverage of an insurance policy after a fire damaged a Vine Street property. QBE sued Vine Street in Iowa state court, while Vine Street sued QBE in this Court. QBE then filed this Motion to Dismiss or, in the Alternative, Stay the Proceedings. For the reasons set forth below, the Court will deny QBE's Motion.
Background
On April 5, 2003, a fire damaged a building Vine Street was constructing in Des Moines, Iowa. (Compl. ¶ 6.) Vine Street, a Minnesota limited partnership with its principal place of business in Minnesota, purchased an All-Risk Builder's Policy ("Policy") from QBE, a British insurance company with its primary place of business in London, England. (Id. ¶¶ 2, 3, 7, Ex. A (Policy).) The Policy covers, inter alia, Soft Costs, which are certain defined economic losses. (Id. Ex. A (Policy Endorsement No. 15).) The Policy limit is $11,383,000 and it has express sub-limits of $500,000 for "Temporary Locations" and "Transit" expenses. (Id. ¶ 7, Ex. A (Policy).) The Policy also contains several conditions for coverage, including a loss appraisal and the retention of books and records. (Id. Ex. A (Policy).)
Soft Costs include "Additional Interest Expenses," "General Overhead Developer," "Real Estate Taxes," "Professional Fees," "Marketing Expenses and Advertising Promotion Fees," "Leasing Expenses," "Construction Loan Fees," "Refinancing Charges," "Bond Interest," "Fees for Letter of Credit, Trustee, Re-Marketing of Bonds," "Demobilization," and "Contractor's Stand-down Costs." (Compl. Ex. A (Policy Endorsement No. 15).) Each term is further defined in the Policy. (Id.)
The parties dispute whether the Policy covers all of Vine Street's $2,516,135.86 in Soft Costs it incurred after the fire. (Id ¶¶ 14, 18.) On December 10, 2003, QBE sued Vine Street in Iowa state court by filing a Petition seeking (1) a declaratory judgment that the Policy provides sub-limits of $10,400,000 for Hard Costs (physical damages) and $983,000 for Soft Costs (economic losses), and (2) a corresponding reformation of the Policy, on the grounds of mutual mistake. (Reilly Aff. Ex. GG (Iowa Petition).) On that same day, December 10, 2003, QBE also sent a letter to Vine Street allegedly invoking the appraisal process. (McNeff Aff. Ex. 3.) Vine Street responded to the Iowa Petition with a motion to dismiss for forum non conveniens, which was denied on March 24, 2004. (Reilly Aff. Ex. II.) On February 16, 2004, QBE filed a motion for leave to file a supplemental petition to compel Vine Street to comply with the Policy's appraisal provision. (Bohnsack Aff. Ex. B.)
On December 30, 2003, Vine Street initiated the instant action against QBE seeking (1) a declaratory judgment that QBE is obligated to insure and pay its Soft Costs, and (2) damages for breach of contract due to QBE's failure to pay Soft Costs and its attempt to impose a Soft Cost sub-limit. (Compl. ¶¶ 18, 25.) QBE responded with this Motion to Dismiss under Federal Rules of Civil Procedure 12(b)(6).
Standard of Review
Under Rule 12(b)(6), all factual allegations must be accepted as true and every reasonable inference must be made in favor of the complainant. Fed.R.Civ.P. 12(b)(6); see Midwestern Mach., Inc. v. Northwest Airlines. Inc.. 167 F.3d 439, 441 (8th Cir. 1999); Carney v. Houston, 33 F.3d 893, 894 (8th Cir. 1994). "[D]ismissal under Rule 12(b)(6) serves to eliminate actions which are fatally flawed in their legal premises and [destined] to fail, thereby sparing litigants the burden of unnecessary pretrial and trial activity." Young v. City of St. Charles. Mo.. 244 F.3d 623, 627 (8th Cir. 2001) (citation omitted). A cause of action "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff cannot prove any set of facts in support of his claim that would entitle him to relief." Schaller Tel. Co. v. Golden Sky Sys. Inc.. 298 F.3d 736, 740 (8th Cir. 2002) (citations omitted). Said another way, "dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Gebhardt v. ConAgra Foods. Inc.. 335 F.3d 824, 829 (8th Cir. 2003) (citation and internal quotations omitted).
Analysis
QBE has moved to dismiss or, in the alternative, stay the instant proceedings on three grounds: (1) Vine Street's Complaint fails to comply with Federal Rules of Civil Procedure 9(c); (2) Colorado River abstention; and (3) the Court's discretion to stay or dismiss under the Declaratory Judgment Act. The Court will consider each in turn. I. Rule 9(c) Claim
QBE argues that Vine Street's Complaint violates Rule 9(c) by failing to allege compliance with the Policy's conditions precedent. (Def.'s Mem. in Supp. at 6-8; Def.'s Reply Mem. in Supp. at 7-12.) Rule 9(c) provides: "In pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred." Fed.R.Civ.P. 9(c). The rationale for Rule 9(c) is to promote simple, concise, and direct pleadings and to eliminate detailed averments. 2 Moore's Federal Practice § 9.04[1]. "A general averment of the performance or occurrence of a condition precedent is typically quite brief and to the point." Id.;see Fitz-Patrick v. Commonwealth Oil Co.. 285 F.2d 726, 729 (5th Cir. 1960) (finding sufficient a complaint that "tracks the language" of Rule 9(c) by stating that `"all conditions precedent have been performed or have occurred'"); Ackerley Media Group. Inc. v. Sharp Electronics Corp.. 170 F. Supp.2d 445, 453 (S.D.N.Y. 2001) (finding sufficient for Rule 9(c) purposes a complaint that alleged "[plaintiff] fully performed its obligations as required by the contract").
Here, Vine Street responds that it has complied with Rule 9(c) and points to Paragraph 12 of its Complaint. (Pl's Mem. in Opp'n at 4.) Paragraph 12 states, in pertinent part, "Although QBE has attempted to cloak its denial in the guise of seeking more documentation, Vine Street has provided more than sufficient documentation of its Soft Costs claim and has fully complied with all conditions precedent to coverage under the Policy." (Compl. ¶ 12 (emphasis added).) Rule 9(c) requires no more than this.
QBE's reliance upon Sara Lee Corp. v. Litton Indus. Automation Sys., Inc.. No. 91-C-971, 1992 WL 22693 (N.D. Ill. Feb. 6, 1992) is misplaced. In Sara Lee, the court addressed the requirements of Rule 9(c) in a situation where "the pleader's failure to comply with conditions precedent is apparent from the face of the complaint and attachments." 1992 WL 22693, at *2. Here, however, it is not apparent from the face of Vine Street's Complaint that it has failed to comply with the conditions precedent.
QBE also argues that Vine Street's Complaint must be dismissed for failure to state a claim upon which relief can be granted because Vine Street cannot show that it complied with the Policy's conditions to submit records and participate in an appraisal. (Def.'s Reply Mem. in Supp. at 7-14.) The Court disagrees. The Court has already found sufficient for Rule 9(c) purposes Vine Street's general averments of compliance with the Policy's conditions precedent. Vine Street also alleges that it "made a fully documented claim to QBE in compliance with the terms and conditions of the Policy." (Compl. ¶ 11.) Viewing the factual allegations in the Complaint as true, and granting Vine Street all reasonable inferences, it does not appear beyond doubt that Vine Street "cannot prove any set of facts in support of [its] claims that would entitle [it] to relief." Schaller, 298 F.3d at 740; Fed.R.Civ.P. 12(b)(6). Accordingly, the Court finds that it has stated a claim upon which relief can be granted. Whether Vine Street actually complied with the Policy's conditions, or whether QBE has waived any conditions, may be issues appropriate for the summary judgment stage—but Vine Street's Complaint should not be dismissed at this stage "merely because the court [or the opposing party, for that matter] doubts that [it] will be able to prove all of the necessary factual allegations." Iowa Network Servs. Inc. v. Qwest Corp.. — F.3d —, 2004 WL 736832, at * 10 (8th Cir. Apr. 7, 2004). II. Colorado River Abstention
In light of this determination, and for the purposes of this Motion, the Court need not address Vine Street's argument that QBE waived appraisal as a condition precedent to suit. (Pl's Mem. in Opp'n at 4-7.)
Next, QBE contends that due to its pending suit in Iowa state court, the instant matter must be dismissed or stayed on the basis ofColorado River abstention. (Def.'s Mem. in Supp. at 8-11; Def.'s Reply Mem. in Supp. at 14-18.) Federal courts have a "Virtually unflagging obligation . . . to exercise the jurisdiction given them."Federated Rural Elec. Ins. Corp. v. Arkansas Elec. Coops., Inc.. 48 F.3d 294, 297 (8th Cir. 1995) (quoting Colorado River Water Conservation Dist. v. United States. 424 U.S. 800, 817 (1979)). However, in Colorado River, the Supreme Court held that in certain exceptional circumstances dismissing or staying a federal action based on the presence of a concurrent state proceeding may be appropriate for reasons of "wise judicial administration." In re Burns Wilcox. Ltd.. 54 F.3d 475, 477 (8th Cir. 1995) (quoting Colorado River. 424 U.S. at 817-18). Abdication of a federal court's obligation to decide cases can be justified "only in the exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest."Federated Rural Elec.. 48 F.3d at 297 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.. 460 U.S. 1, 14 (1983)) (emphasis in original).
Determination of the existence of "exceptional circumstances" for Colorado River abstention purposes requires evaluation of several factors:
(1) whether there is a res over which one court has established jurisdiction, (2) the inconvenience of the federal forum, (3) whether maintaining separate actions may result in piecemeal litigation, unless the relevant law would require piecemeal litigation and the federal court issue is easily severed, (4) which case has priority—not necessarily which case was filed first but a greater emphasis on the relative progress made in the cases, (5) whether state or federal law controls, especially favoring the exercise of jurisdiction where federal law controls, and (6) the adequacy of the state forum to protect the federal plaintiff's rights.Id. (citation omitted). In examining these factors, `"the balance [is] heavily weighted in favor of the exercise of jurisdiction.'"Id. (quoting Moses H. Cone. 460 U.S. at 16).
With these instructions in mind, the Court concludes that the balance weighs in favor of the exercise of jurisdiction. The first factor is irrelevant; there is no res over which either court has jurisdiction. The second factor, the inconvenience of the federal forum, does not carry any weight because QBE does not claim that this forum is inconvenient. (Def.'s Reply Mem. in Supp. at 17.)
Although Vine Street disputes that the two cases are parallel because they raise different issues and request different remedies (Pl's Mem. in Opp'n at 9), the Court will assume parallel proceedings for the purposes of this Motion. See In re Burns Wilcox. Ltd.. 54 F.3d at 477 ("A parallel state court proceeding is a necessary prerequisite to use of the Colorado River factors.").
The third factor, avoidance of piecemeal litigation, "is the predominant factor." Federated Rural Elec., 48 F.3d at 297 (citing Moses H. Cone. 460 U.S. at 16, 21). Underlying Colorado River abstention are considerations of' "[w]ise judicial administration,' giving regard to conservation of judicial resources and comprehensive disposition of litigation." Id. at 297-98 (quotations omitted). The Eighth Circuit has "advanced this policy by favoring the most complete action." Id. at 298 (citations omitted). Here, the instant action is the most complete; Vine Street requests not only a declaratory judgment on Soft Costs, but also requests damages for breach of contract. In contrast, the Iowa state court case, as it now exists, is narrower; QBE requests only a declaration of Soft Costs sub-limits and a corresponding reformation. While the parties are identical and the issues are similar in both cases, this Court's obligation to exercise jurisdiction "does not evaporate simply because there is a pending state court action involving the same subject matter. . . . Nor does the potential for conflict justify the staying of the exercise of federal jurisdiction." Id at 297 (citing Colorado River. 424 U.S. at 813-14, 816-17)).
The fourth factor, which case has priority, does not tilt for or against abstention. Although QBE argues that "there is an absence of any proceedings in the District Court . . . and there is extensive state involvement in the litigation" (Def.'s Mem. in Supp. at 9), the progress in the two cases is virtually identical. In the Iowa case, which was initiated twenty days prior to this case, QBE filed its Petition and Vine Street filed a motion to dismiss, which was denied. While QBE has also moved to supplement the Petition, no hearing has been held nor has any ruling been made. In this case, Vine Street filed its Complaint and QBE responded with the instant Motion. Because the Court cannot determine that the Iowa case has made greater relative progress, this factor does not carry any weight. See Federated Rural Elec.. 48 F.3d at 298, 299-00 ("[Where] the federal action has made essentially as much progress as the state action. . . . [,] Factor 4 . . . although relevant, do[es] not have any weight either for or against abstention.")
As for the fifth factor, although state law will apply, "the presence of state law issues will weigh in favor of abstention only in rare circumstances." Id. at 299 (citing Moses H. Cone. 460 U.S. at 26). In the instant case, the issue is whether the parties intended to place sub-limits on Soft Costs and whether QBE has breached the Policy. These relatively straightforward contract issues are not "rare circumstances" that justify abstention. Thus, "the fact that state law governs this case does not provide a reason for abstention." Id
The Court makes no determination on which State's law applies.
As the Fourth Circuit observes, "[I]n a diversity case, such as this one, federal courts regularly grapple with questions of state law, and abstention on the basis of the presence of state law, without more, would undermine diversity jurisdiction." Gannett Co. Inc. v. Clark Constr. Group. Inc.. 286 F.3d 737, 747 (4th Cir. 2002) (citation omitted).
Finally, the sixth factor, adequacy of the state forum, is not at issue; there is no claim that the Iowa state court will not adequately protect either party's rights.
In light of this analysis, it is safe to say that this case hardly presents "the clearest of justifications [that alone] will warrant" abstention. Federated Rural Elect.. 48 F.3d at 300 (citingColorado River. 424 U.S. at 819) (alteration in original). The lack of compelling circumstances, combined with the heavy weight placed in favor of the exercise of jurisdiction, compels the conclusion that QBE's Colorado River abstention argument fails. III. Dismiss or Stay Under the Declaratory Judgment Act
QBE attempts to draw a parallel between this case and Cigna Healthcare of St. Louis. Inc. v. Kaiser. 294 F.3d 849, 855 (7th Cir 2002), where the Seventh Circuit upheld the district court's stay underColorado River in light of the federal plaintiff's (i.e., the state defendant's) motion to compel arbitration in a concurrent state case. QBE contends that its motion in the Iowa state court for leave to file a supplemental petition to compel an appraisal likewise warrants abstention in this matter. (Def.'s Mem. in Supp. at 12-14.) QBE's reliance on Cigna is misplaced. First, Cigna is factually distinguishable: while it involved an order in the state court for arbitration, which is "a substitute for litigation," the proposed order in the Iowa state court is for an appraisal, which "involv[es] only the ascertainment of facts to selected persons for disposition." 15Couch On Insurance §§ 209.8, 210.46; see Hartford Lloyd's Ins. Co. v. Teachworth, 898 F.2d 1058, 1061-62 (5th Cir. 1990). Second, there is no claim for an appraisal in the state court proceeding as it currently stands; the state court must first grant QBE leave to supplement, then it must assess the merits of its claim. Finally, even if the appraisal claim were part of the current state case, there are still no compelling circumstances that warrant abstention.
Finally, QBE asserts that this Court should exercise its discretion under the Declaratory Judgment Act to dismiss or stay this action in lieu of the Iowa state court litigation. (Def.'s Mem. in Supp. at 11-12; Def.'s Reply Mem. in Supp. at 18-19.) The Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, 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). Noting the "unique and substantial discretion" the Declaratory Judgment Act confers upon federal courts, the Supreme Court has determined that a district court's decision to stay or dismiss a declaratory judgment action is governed by the discretionary standard set forth inBrillhart v. Excess Ins. Co.. 316 U.S. 491 (1942), rather than the more stringent "exceptional circumstances" test enunciated inColorado River and Moses H. Cone. Home v. Firemen's Retirement Sys. of St. Louis. 69 F.3d 233, 236 (8th Cir. 1995) (citing Wilton v. Seven Falls Co.. 515 U.S. 277, 289-90 (1995)).
The discretion afforded by the Declaratory Judgment Act, however, is unavailable in this case. "Brillhart analysis applies only when the action does not include a request for coercive relief," such as damages for breach of contract. 17A Moore's Federal Practice § 122.06[6]. As the Fifth Circuit explains:
[W]hen actions involve coercive relief the trial court must apply the standards enunciated by the Court in Colorado River [and not Brillhart]. . . . Although some of the relief sought by [plaintiff] is declaratory in nature, [plaintiff] also requests coercive remedies for the breach of contract in the form of damages, attorney fees, and injunctive relief. Inclusion of these coercive remedies indisputably removes this suit from the ambit of a declaratory judgment action.Southwind Aviation. Inc. v. Bergen Aviation. Inc.. 23 F.3d 948, 951 (5th Cir. 1994); see also Village of Westfield v. Welch's. 170 F.3d 116, 124 n. 5 (2d Cir. 1999) ("Wilton's [discretionary standard] does not apply here. Although [defendant] did seek a declaration of rights . . ., the federal action did not seek purely declaratory relief."); Gov't Employees Ins. Co. v. Dizol 133 F.3d 1220, 1225 (9th Cir. 1998) (en banc) ("[W]hen other claims are joined with an action for declaratory relief (e.g., bad faith, breach of contract, breach of fiduciary duty, rescission, or claims for other monetary relief), the district court should not, as a general rule, remand or decline to entertain the claim for declaratory relief (footnote and citation omitted)."). Here, because Vine Street requests damages for an alleged breach of contract in addition to a declaratory judgment, the more discretionary Brillhart analysis does not apply.
While QBE is correct in its assertion that the Declaratory Judgment Act cannot be used either for tactical advantage or to file suits in federal court that are essentially defensive or reactive to state actions, (Def.'s Mem. in Supp. at 12); Int'l Ass'n of Entrepreneurs of Am. v. Angoff. 58 F.3d 1266, 1270 (8th Cir. 1995), Vine Street's suit is not such a case. In Angoff. the court was concerned with the "sequence of events" where the federal plaintiff filed a declaratory action in federal court only after its petition to remove a concurrent state court action was denied as untimely. Angoff. 58 F.3d at 1270. No such sequence of events occurred in this case; moreover, Vine Street asserts a breach of contract claim in addition to its claim for a declaratory judgment.