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Markel Insurance Co. v. Connolly, Connolly & Heun, LLP

United States District Court, D. New Jersey

October 12, 2017

MARKEL INS. CO., Plaintiff,
CONNOLLY, CONNOLLY & HEUN, LLP, et al., Defendants.


          WILLIAM J. MARTINI, U.S.D.J.

         This matter comes before the Court on Defendant-Substitute Administrators' (“Administrators”) motion to dismiss or, in the alternative, stay this case pending the outcome of the New Jersey Superior Court malpractice action (“Underlying Action”). Plaintiff Markel Insurance Company seeks damages for fraud and a declaratory judgment that it owes no duty to defend or indemnify its insured-the law firm of Connolly, Connolly & Heun, LLP (CCH), [1] Richard Heun, Esq., and the Estate of Francis X. Connolly (collectively, “CCH”)-in the on-going Underlying Action.[2] The movant-Administrators, who are plaintiffs in the Underlying Action, contend adjudication of Plaintiff's damages claims remains dependent on the sought declaratory relief and thus warrants abstention. Plaintiff argues the Court should exercise its jurisdiction and adjudicate its legal and declaratory claims because the circumstances here thwart abstention. The matter was taken on submission without oral argument. Fed.R.Civ.P. 78(b). As discussed below, the Administrators' motion to dismiss is GRANTED.

         I. BACKGROUND

         This insurance coverage dispute entered federal court when Plaintiff sought a declaratory judgment that it owed no duty under its Lawyers Professional Liability Policy (the “Policy”) to defend or indemnify CCH in the Underlying Action. This refusal to defend CCH stems from CCH's attorneys, Francis X. Connolly and Richard Heun, Esqs., allegedly making material misrepresentations in the Policy Application concerning their professional conduct. The Application contained a statement from Defendant-Heun that indicated since his last application for coverage he was unaware of anything that could result in a professional liability claim or suit against him, the predecessor firm, or any current or prior CCH members. Am. Compl. ¶¶ 18, 19, 38, ECF No. 6. The Application required applicants to acknowledge having conducted an internal inquiry to identify and disclose anything that may result or bring about a claim. Id. at ¶¶ 16-20. Based on the representations made in the Application, Plaintiff issued and renewed CCH's Policy.

         In December of 2016, the Administrators filed the Underlying Action against CCH.[3] On March 20, 2017, Plaintiff informed Defendant-Heun and Defendant-Ronald Davison, Esq.-an attorney trustee appointed for CCH, the law practice of Francis X. Connolly-of its decision to deny coverage of the Administrators' claims on behalf of the CCH client estates. The next day, Plaintiff filed the declaratory judgment action, seeking to rescind and void the CCH-issued Policy and asserted state and common law fraud claims, demanding judgment against Defendant-Heun only. The Administrators then amended its complaint in the Underlying Action, adding Plaintiff as a defendant, and appended a state law declaratory judgment claim concerning the same Policy. In lieu of filing an answer to Plaintiff's Amended Complaint, the Administrators filed this motion to dismiss.


         In addressing a motion to dismiss, a court must first find jurisdiction over the action. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (citations omitted). When a court has jurisdiction, Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief can be granted. The moving party bears the burden of showing that no claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding a motion to dismiss under Rule 12(b)(6), a court must take all allegations in the complaint as true and view them in the light most favorable to the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501 (1975); Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998).


         Before discussing abstention, the Court will address the Administrators' objection to this Court's assumption of jurisdiction in arguing Plaintiff has failed to meet the $75, 000 amount in controversy requirement. See 28 U.S.C. § 1332(a).

         A. Subject Matter Jurisdiction - Amount in Controversy

         The burden-although not a heavy one-rests on Plaintiff, at the time it filed the action, “to prove, by a preponderance of the evidence, ” it has satisfied the amount in controversy requirement. Auto-Owners Ins. Co. v. Stevens & Ricci Inc., 835 F.3d 388, 395 (3d Cir. 2016) (citation omitted); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938) (stating to permit dismissal, a claim “must appear to a legal certainty” to fall short of the jurisdictional amount). In declaratory actions, the amount in controversy represents “a reasonable reading of the value of the rights being litigated, ” Angus v. Shiley Inc., 989 F.2d 142, 146 (3d Cir. 1993) (citations omitted), which in insurance coverage disputes “is determined by assessing the value of the underlying legal claims for which insurance coverage is sought.” Coregis Ins. Co. v. Schuster, 127 F.Supp.2d 683, 686 (E.D. Pa. 2001) (citations omitted).

         Here, with no dispute as to the parties' citizenship, Plaintiff meets the amount in controversy requirement with its potential exposure of $2, 000, 000 under the Policy for the subject Estate claims. Also, in the Underlying Action on the Estates' behalf, the Administrators assert almost $5, 000, 000 in damages. Thus, in examining Plaintiff's claims and the likely recovery at the time it filed the complaint, this Court cannot conclude to a legal certainty that the claims fall below the $75, 000 threshold. See Auto-Owners Ins. Co., 835 F.3d at 395.

         B. Abstention Question

         Under the Declaratory Judgment Act (“DJA”), federal courts “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 such actions, federal courts retain significant discretion to dismiss or stay claims seeking declaratory relief, Reifer v. Westport Ins. Corp., 751 F.3d 129, 146-47 (3d Cir. 2014), and may decline jurisdiction in deference to parallel state proceedings. Wilton v. Seven Falls Co., 515 U.S. 277, 282-83 (1995); Rarick v. Federated Serv. Ins. Co., 852 F.3d 223, 227, 229 (3d Cir. 2017) (observing “courts have greater discretion to decline jurisdiction over actions for declaratory judgments because they seek an adjudication of rights and obligations prior to the enforcement of a remedy”). On the other hand, when a complaint contains a ...

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