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Mid-Continent Casualty Co. v. Nassau Builders, Inc.

United States District Court, M.D. Florida, Jacksonville Division

March 31, 2017

MID-CONTINENT CASUALTY COMPANY, Plaintiff,
v.
NASSAU BUILDERS, INC., et al., Defendants.

          ORDER

          MARCIA MORALES HOWARD UNITED SLATES DISTRICT JUDGE.

         THIS CAUSE is before the Court on the Report and Recommendation (Doc. 24; Report), entered by the Honorable James R. Klindt, United States Magistrate Judge, on January 31, 2017. Cape Sound on Amelia Island Condominium Association, Inc. (the Association) filed a motion to dismiss, or in the alternative, to stay the instant action on August 22, 2016. See Defendant Cape Sound on Amelia Island Condominium Association, Inc.'s Motion to Dismiss Plaintiff's Complaint for Declaratory Relief, or in the Alternative, Motion to Stay and Memorandum of Law in Support (Doc. 8; Motion). Mid-Continent Casualty Company (Plaintiff) responded to the Motion on September 27, 2016. See Response in Opposition to Cape Sound on Amelia Island Condominium Association, Inc.'s Motion to Dismiss Plaintiff's Complaint for Declaratory Relief, or in the Alternative, Motion to Stay and Memorandum of Law in Support (Doc. 9; Motion Response). Plaintiff filed supplemental authority on November 14, 2016. See Notice of Filing Supplemental Authority (Doc. 23). The undersigned referred the Motion to Judge Klindt on October 11, 2016. See Order (Doc. 18). In the Report, Judge Klindt recommends that the Court grant the Motion to the extent that it seeks a stay of this action pending resolution of a related state court action, Case No. 14-CA-000444-AXYX (the Underlying Action), and deny the Motion in all other respects. See Report at 2, 9-10. Plaintiff filed objections to the Report on February 13, 2017. See Mid-Continent Casualty Company's Objections to Magistrate's Report and Recommendation on Motion to Dismiss or Stay Complaint for Declaratory Relief (Doc. 25; Objections). Plaintiff separately filed Exhibit A to the Objections on February 22, 2017. See Notice of Filing Supplemental Authority (Doc. 26; Supplement). The Association responded to the Objections on February 27, 2017. See Cape Sound on Amelia Island Condominium Association, Inc.'s Response to Mid-Continent Casualty Company's Objections to the Magistrate Judge's Report and Recommendation (Doc. 27; Objection Response). The Association separately filed Exhibits A and B to the Response on February 17, 2017. See Notice of Filing Supplemental Authority (Doc. 28). Accordingly, this matter is ripe for review.

         I. Standard of Review

         The Court “may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b). If no specific objections to findings of facts are filed, the district court is not required to conduct a de novo review of those findings. See Garvey v. Vaughn, 993 F.2d 776, 779 n.9 (11th Cir. 1993); see also 28 U.S.C. § 636(b)(1). However, the district court must review legal conclusions de novo. See Cooper-Houston v. S. Ry. Co., 37 F.3d 603, 604 (11th Cir. 1994); United States v. Rice, No. 2:07-mc-8-FtM-29SPC, 2007 WL 1428615, at * 1 (M.D. Fla. May 14, 2007).

         II. Discussion

         In the Objections, Plaintiff challenges Judge Klindt's recommendation to stay this matter pending resolution of the Underlying Action on three principle bases.[1] First, Plaintiff asserts that Judge Klindt failed to apply a balancing test and consider whether the Association met its alleged burden to show “either ‘a clear case of hardship or inequity' if the case proceeds, or little possibility the stay will harm others.” See Objections at 4-5. Additionally, Plaintiff objects to Judge Klindt's decision not to discuss the factors set forth by the Eleventh Circuit in Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328 (11th Cir. 2005). See Objections at 8-10. Last, Plaintiff contends that Judge Klindt improperly rejected Higgins v. State Farm Fire & Cas. Co., 894 So.2d 5 (Fla. 2004) on the basis that its holding does not bind a court applying the federal Declaratory Judgment Act, 28 U.S.C. § 2201. See Objections at 7-8. The Court finds that the Report is due to be adopted, as supplemented in this Order, and that Plaintiff's Objections are due to be overruled for the reasons explained below.

         A. Inherent Authority

         At the outset, the Court notes that it has the inherent authority “to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 166, 81 L.Ed. 153 (1936). When addressing cases brought under the Declaratory Judgment Act, the Court has particularly wide latitude to exercise this authority because “‘[t]here is … nothing automatic or obligatory about the assumption of ‘jurisdiction' by a federal court' to hear a declaratory judgment action.” Wilton v. Seven Falls Co., 515 U.S. 277, 288, 115 S.Ct. 2137, 2143, 132 L.Ed.2d 214 (1995) (citation omitted). The Declaratory Judgment Act provides that “[i]n 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 supplied).

Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants. … The statute's textual commitment to discretion, and the breadth of leeway we have always understood it to suggest, distinguish the declaratory judgment context from other areas of the law in which concepts of discretion surface.

Wilton, 515 U.S. at 286-87, 115 S.Ct. at 2142-43. In light of this undisputed broad discretion, Plaintiff's argument that Judge Klindt erred by not applying a balancing test to determine whether to allow the case to proceed is misplaced. Notably, none of the cases Plaintiff cites in support of its argument addressed claims brought under the Declaratory Judgment Act. See Objections at 4-5 (citing Gold v. Johns-Manville Sales Corp., 723 F.2d 1068, 1075-76 (3d Cir. 1983), Williford v. Armstrong World Indus., Inc., 715 F.2d 124, 127-28 (4th Cir. 1983), Dunn v. Air Line Pilots Ass'n, 836 F.Supp. 1574, 1584 (S.D. Fla. 1993), and McCabe v. Foley, 233 F.R.D. 683, 685 (M.D. Fla. 2006)). Unlike the Declaratory Judgment Act, which “gives the federal courts competence to make a declaration of rights, [but] does not impose a duty to do so, ” Ameritas, 411 F.3d at 1330, when addressing other claims, “federal courts have a ‘virtually unflagging obligation' to exercise the jurisdiction conferred on them by Congress.” Wilton, 515 U.S. at 284, 115 S.Ct. at 2141 (citing Colorado River Water Conservation District v. United States, 424 U.S. 800, 813, 96 S.Ct. 1244, 1246, 47 L.Ed.2d 483 (1976)). Plaintiff's cases address circumstances in which the court labored under its “‘virtually unflagging obligation'” to decide cases, see Wilton, 515 U.S. at 284, 115 S.Ct. at 2141 (citation omitted), not its discretionary authority under the Declaratory Judgment Act. Accordingly, the balancing test Plaintiff urges does not apply to actions brought under the Declaratory Judgment Act. See Wilton, 515 U.S. at 286-7, 115 S.Ct. at 2142-43 (explaining that the standard applicable to actions brought under the Declaratory Judgment Act differs from the ordinary case).

         Pursuant to the Court's inherent authority to abstain from hearing matters over which it has subject matter jurisdiction, and as explained in the Report, the Court finds that the instant matter is premature and will not be ripe for adjudication until the Underlying Action is resolved. See Report at 7. Indeed, prudential considerations dictate that it is not “appropriate for this case to be litigated in a federal court by these parties at this time.” Nat'l Adver. Co. v. City of Miami, 402 F.3d 1335, 1322 (11th Cir. 2005).

         In the instant action, Plaintiff's duty to indemnify will necessarily turn on complex factual findings and issues of Florida law which are currently pending in the Underlying Action before the state court. Specifically, to resolve the disputed indemnity obligations, the Court would have to determine whether the Association breached any implied warranties, see Complaint, Ex. B: Third Amended Complaint (Underlying Complaint) ¶¶ 46-53, violated Florida's Building Code, id. at ¶¶ 54-57, and breached its “duty to use reasonable care when constructing the Improvements and to contract the Improvements in a workman like manner consistent with industry standard, ” id. at ¶¶ 58-61. As the Association explains in its Objection Response, a determination regarding whether the Association is liable for covered property damage will require:

determinations regarding when various types of damages began to occur at the various condominium buildings that are at issue in this action. Such findings cannot be made without testimony from expert witnesses, who will already be providing such evaluation and testimony for purposes of establishing the causation of damages in each of the claims set forth in the Underlying Action.

See Objection Response ¶¶ 26-27. The Association further explains that a decision as to whether one of Plaintiff's insurance policy exclusions apply:

requires determinations regarding the type and causation of damages (i.e., whether the damages were caused by fungus, water, blunt force; whether the work that resulted in injured property was performed by a subcontractor; identification of the scope of work that such subcontractor was performing; whether the injured property was included in the scope of work being performed by the subcontractor response for causing the injury; etc.).

Id. at ¶¶ 28-29; see also Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240, 1249-51 (11th Cir. 2015) (performing an intricate factual analysis to determine whether damages to brick, tile, a mud base and a balcony constituted covered property damage pursuant to the nuanced distinction under Florida law between “a claim for the costs of repairing or removing defective work, which is not a claim for ‘property damage, ' and a claim for the costs of repairing damage caused by the defective work, which is a claim for ‘property damage.'”) (quoting U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla. 2007)). Thus, the factual record is incomplete at this time, and the instant action is not yet ripe for adjudication. The Court would benefit from a more fully developed factual record upon resolution of the Underlying Action. Notably, even if the Court performed this inquiry and determined that the damage, as alleged in the Underlying Complaint, is not covered, at this “preliminary stage in the proceedings, … it is still possible for the [underlying] plaintiff … to change the theory of liability and assert a claim that is covered by the policy at issue.” Guar. Nat'l Ins. Co. v. Beeline Stores, Inc., 945 F.Supp. 1510, 1514 (M.D. Ala. 1996). Accordingly, any declaration as to Plaintiff's duty to indemnify would be premature until the Underlying Action is resolved.

         In a recent case where necessary facts similarly remained to be adjudicated, this Court explained that a declaration regarding an insurer's duty to indemnify prior to a determination of an insured's liability is premature because the duty to indemnify is “dependent upon the entry of a final judgment, settlement, or a final resolution of the underlying claims.” See Diamond State Ins. Co. v. Boys' Home Ass'n, Inc., 172 F.Supp.3d 1326, 1342 (M.D. Fla. 2016). Notably, an insurer is only obligated to indemnify the insured if the allegations in the complaint are correct and meritorious, see Jones v. Fla. Ins. Guar. Ass'n, 908 So.2d 435, 443 (Fla. 2005); see also State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So.2d 1072, 1077 n.3 (Fla. 1998) (holding that an insurer's duty to indemnify must be determined by analyzing the policy coverage in light of the actual facts in the underlying case, depends on the actual facts of the case). Indeed, as one district judge has noted, in the Eleventh Circuit, “‘[c]ase law is legion for the proposition that an insurer's duty to indemnify is not ripe for adjudication unless and until the insured or putative insured has been held liable in the underlying action.'” Allstate Prop. & Cas. Ins. Co. v. Peluchette, No. 15-CV-80325-KAM, 2015 WL 11438215, **4-5 (S.D. Fla. Jul. 30, 2015) (citation omitted). Consistent with this authority and given the need for resolution of disputed factual issues being litigated in the Underlying Action, the Court is of the view that the proper course of action here is to stay this matter pending resolution of the Underlying Action.

         B. The Ameritas Factors

         Plaintiff further challenges Judge Klindt's failure to apply the Ameritas factors. See Objections at 8-10. In Ameritas, the Eleventh Circuit promulgated the following list of factors for courts to consider in determining whether to exercise their discretionary authority ...


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