The opinion of the court was delivered by: Hillman, District Judge
Before the Court are the parties' written submissions in response to the Court's order to show case why this insurance declaratory judgment action should not be dismissed for lack of jurisdiction following a settlement of the state court litigation underlying this action. Finding that a "live controversy" exists as to the existence of a claim for attorneys' fees, this Court has jurisdiction over defendants' counterclaim.
This case arises out of an insurance coverage dispute concerning the litigation surrounding the collapse of the Tropicana Parking Garage in Atlantic City, New Jersey, on October 30, 2003. Several lawsuits were filed by either injured plaintiffs or decedents' estates in the Superior Court of New Jersey against several defendants, including SITE-Blauvet Engineers, Inc. ("SBE").
SBE tendered the defense of the Tropicana cases to its insurers including Commerce and Industry Insurance Company ("CIIC").*fn1 CIIC filed a complaint for declaratory judgment in this Court requesting a determination of the rights and liabilities of the parties with respect to certain policies issued by CIIC to SBE, and to find that CIIC had no duty to defend or indemnify SBE.
The parties filed a motion and cross motion for summary judgment as well as a motion in limine to exclude the expert report of Andrew J. Pennoni, P.E. In April 2007, the parties informed the Court that a global settlement had been reached in the underlying state cases. In June 2007, the parties requested that the Court suspend this action for 45 days to allow the parties to discuss settlement in this case. By Order entered on June 26, 2007, the parties' motions were denied without prejudice with leave to re-file within 45 days in order for the parties to engage in settlement discussions. By Order entered on August 9, 2007, the time was extended an additional 14 days. On August 23, 2007, the parties re-filed their motions for summary judgment and motion in limine.
In correspondence to the Court, CIIC stated that it intended to move to dismiss this matter on the ground that settlement of the underlying litigation mooted the coverage issues in this case. In reply, SBE sent correspondence to the Court stating that its counterclaim for defense costs and attorneys' fees remains an open issue to be determined by this Court. Since the parties' correspondence raised the issue of whether the settlement of the underlying litigation which mooted the coverage issues in CIIC's declaratory judgment action also divested this Court of subject matter jurisdiction over SBE's counterclaim, and since CIIC never filed its intended motion to dismiss, the Court entered an order to show cause why this case should not be dismissed for lack of jurisdiction.
In response to the Court's Order, SBE filed a brief arguing that its counterclaims against CIIC for breach of contract and bad faith in refusing to defend SBE in the underlying state cases are not moot. Particularly they argue that CIIC is responsible for over $90,000.00 in attorneys' fees in the underlying cases and for approximately $450,000.00 in attorneys' fees in defense of this declaratory action.*fn2 CIIC argued in response that SBE's claim for $90,000.00 represents the shortfall amount that SBE's other insurers, Liberty Mutual and American Guarantee, deducted and did not pay out of the approximately $1.5 million in attorneys' fees tendered in the underlying litigation. CIIC argues that the $90,000.00 claim should be stricken because SBE failed to comply with its continuing duty under Rule 26 to disclose this claim and only did so after the Court entered its order to show cause. CIIC also argues that if the $90,000.00 claim is stricken then SBE's counterclaims are moot and the case should be dismissed for lack of jurisdiction.
This Court exercises subject matter jurisdiction pursuant to 28 U.S.C. § 1332 (diversity). Plaintiff CIIC is a corporation organized under the laws of the State of New York with a principal place of business in New York. Defendant SBE is a corporation organized under the laws of the State of New Jersey with a principal place of business in New Jersey. Plaintiff alleges that the amount in controversy exceeds $75,000.00.
A. Application of State Law for Attorneys' Fees
A federal district court exercising jurisdiction on the basis of diversity applies the law of the forum state. Chemical Leaman Tank Lines, Inc. V. Aetna Casualty and Surety Co., 89 F.3d 976, 983 (3d Cir. 1996) (stating that "[a]s a federal court sitting in diversity, we must apply the substantive law of New Jersey.") (citing Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992)). In this case, jurisdiction is founded upon diversity and, therefore, we apply New Jersey law. Id. Under New Jersey law, rules governing attorneys' fees are generally considered procedural rather than substantive. Leonardis v. Burns Intern. Sec. Services, Inc., 808 F.Supp. 1165, 1184 (D.N.J. 1992)(relying on New Jersey law for the proposition that court rules regulating attorney fees are clearly procedural)(quoting Du-Wel Prods., Inc. v. United States Fire Ins. Co., 565 A.2d 1113 (N.J.Super.A.D. 1989), cert. denied, 583 A.2d 316 (N.J. 1990)). "A federal court sitting in diversity must apply state substantive law and federal procedural law." Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000)(citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)). However, even though attorneys' fees are generally considered procedural and federal courts apply federal procedural rules rather than state procedural rules, in diversity cases the Third Circuit has held that state procedural rules apply concerning attorneys' fees. McAdam v. Dean Witter Reynolds, Inc., 896 F.2d 750, 775 n. 47 (3d Cir. 1990) (stating that "[s]tate rules concerning the award or denial of attorneys' fees are to be applied in cases where federal jurisdiction is based on diversity or if the court is exercising pendent jurisdiction, provided such rules do not run counter to federal statutes or policy considerations.") (comparing Montgomery Ward & Co. v. ...