United States District Court, D. New Jersey
MARKEL INS. CO., Plaintiff,
CONNOLLY, CONNOLLY & HEUN, LLP, et al., Defendants.
WILLIAM J. MARTINI, U.S.D.J.
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),
Richard Heun, Esq., and the Estate of Francis X. Connolly
(collectively, “CCH”)-in the on-going Underlying
Action. 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
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.
December of 2016, the Administrators filed the Underlying
Action against CCH. 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.
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).
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).
Subject Matter Jurisdiction - Amount in Controversy
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)
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.
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 ...