Liberty Mutual Fire Insurance Company v. SCI Infrastructure LLC

• Court: District Court, W.D. Washington
• Decided: August 2, 2021
• Docket: 3:20-cv-06084
• Status: Unknown

Opinion

1 HONORABLE RICHARD A. JONES 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 11 LIBERTY MUTUAL FIRE CASE NO. 3:20-cv-06084-RAJ INSURANCE COMPANY, a 12 Wisconsin insurance company, ORDER 13 Plaintiff, v. 14

15 SCI INFRASTRUCTURE, LLC, a Washington limited liability company, 16 et al., 17 Defendants. 18

19 I. INTRODUCTION 20 This matter comes before the Court on Defendants’ Motion to Stay. Dkt. # 36. 21 Plaintiff opposes the motion. Dkt. # 40. For the reasons below, the Court DENIES the 22 motion. 23 II. BACKGROUND 24 Plaintiff Liberty Mutual Fire Insurance Company (“Liberty” or “Plaintiff”) filed 25 suit in this Court for declaratory judgment against Defendants SCI Infrastructure, LLC 26 (“SCII”), Black Rock Resources, Inc. (“BRR”), Aztec Equipment Company, Inc. 27 1 (“Aztec”), Scoccolo Construction, Inc. (“SC”), Pinnacle Crushing & Construction, LLC 2 (“Pinnacle”), Patrick Scoccolo (“Patrick”), Mark Scoccolo (“Mark”), Black Lake Quarry, 3 LLC (“BLQ”), and Black Lake Resources, Inc. (“BLR”), (collectively “Defendants”). 4 Dkt. # 1. This action arises out of an underlying dispute involving a gravel mining 5 operation. Id. ¶ 3.2. The Court will summarize the facts of the dispute as relevant here. 6 On January 13, 2017, BLQ, which owned three gravel pits and leased a fourth 7 (collectively, the “Properties”) entered into a Mining Materials Processing and Operating 8 Agreement (the “Agreement”) with BRR, which is owned by Mark and Patrick Scoccolo. 9 Id. ¶ 3.4. BLQ and BRR formed a third entity, BLR, as a signatory to the Agreement, 10 which contracted with other entities, including SCII, Aztec, and Pinnacle, to perform 11 gravel mining activities pursuant to the Agreement. Id. ¶¶ 3.6-3.7. On August 24, 2018, 12 BLQ’s owner sent the Scoccolos a “Notice of Default” claiming that BRR breached the 13 Agreement “by abandoning the project, recording and/or allowing other affiliated entities 14 to record liens against the Properties, and failing to make the required payments,” among 15 other claims giving rise to tort liability. Id. ¶ 3.9-3.11. The Notice of Default stated that 16 “[t]hese and other torts may be subject to coverage under BRR’s CGL policy, as 17 advertising injuries to BLQ, and BLQ demands that BRR tender this notice of default and 18 these claims to its CGL carrier, and demand defense and indemnity.” Id. ¶ 3.14. 19 On March 7, 2019, BLQ filed a complaint in Washington State Superior Court in 20 Thurston County No. 19-2-01233-34 (the “Underlying Action”), naming BRR, Patrick, 21 and Mark as defendants. Dkt. # 1 ¶¶ 3.15-3.16. The complaint alleged that BRR 22 committed “tortious acts” including waste, trespass, and conversion by dumping 23 materials on the Properties and by removing materials from the Properties without 24 authority. Id. ¶ 3.17. The complaint alleged that BRR interfered with BLQ’s pending 25 sale of the Properties by asserting rights to the Properties that it did not have, recording 26 liens, and communicating its assertion of rights to the prospective buyer. Id. ¶ 3.19. The 27 1 complaint also alleged that Patrick and Mark had “misrepresented material facts to 2 BLQ.” Id. ¶ 3.20. On March 26, 2019, BLQ filed an amended complaint adding BLR as 3 a plaintiff and adding SCI, SCII, Aztec, and Pinnacle as defendants. Id. ¶ 3.21-3.22. 4 Less than a week later, on April 1, 2019, Liberty issued a commercial general 5 liability policy for SCII for the policy period from April 1, 2019 to April 1, 2020 (the 6 “Policy”). Id. ¶ 3.26. The Policy included Aztec, BRR, and SCI, among other entities, as 7 additional named insureds. Id. ¶ 3.27. The Policy contained two coverage plans: 8 Coverage A – Bodily Injury and Property Damage Liability; and Coverage B – Personal 9 and Advertising Injury. Id. ¶ 3.28. 10 On November 6, 2019, BLQ filed a second amended complaint re-alleging the 11 substantive allegations set forth in the prior complaints and adding new allegations 12 regarding additional liens recorded against the Properties. Id. ¶ 3.30-3.32. SCII tendered 13 the defense of the second amended complaint to Liberty pursuant to the Policy. Id. 14 ¶ 3.33. Liberty agreed to provide a defense “subject to a full reservation of rights, 15 including the right to file a declaratory judgment action, seek an order allowing it to 16 withdraw from the defense being provided, and to seek allocation and/or reimbursement 17 of defense costs.” Id. ¶ 3.34. 18 On November 4, 2020, Liberty filed a complaint in this Court with two counts. Id. 19 The first count seeks “[d]eclaratory relief pursuant to the Declaratory Judgments Act, 28, 20 U.S.C. § 2201, that Liberty has no duty to defend or indemnify the Underlying 21 Defendants in the Underlying Action” and “that Liberty may withdraw from the defense 22 currently being provided in the Underlying [A]ction.” Id. at 14. The second count seeks 23 “an order declaring that Liberty is entitled to recoup from the Underlying Defendants the 24 costs incurred in providing a defense under a reservation of rights” and such relief as 25 deemed just and appropriate by the Court. Id. at 14. Liberty later voluntarily dismissed 26 its claims against Defendants BLQ and BLR without prejudice. Dkt. # 14. Defendants 27 1 filed an answer to the complaint and counterclaim alleging that Liberty acted in bad faith 2 “by attempting to litigate facts that are at issue in the Underlying Action.” Dkt. # 16 at 3 15. 4 On May 19, 2021, Defendants filed the pending motion to stay. Dkt. # 36. The 5 next day, Liberty filed a motion for partial summary judgment on its first cause of action 6 and seeking an order declaring that “Liberty has no duty to defend or indemnify the 7 [Defendants] in the Underlying Action and that it may withdraw the defense currently 8 being provided.” Dkt. # 38 at 30. In its response to Defendants’ motion to stay, Liberty 9 stipulated to a stay of this action “solely with respect to those coverage defenses that are 10 set forth in Count I1 of its Complaint and which are not addressed in its Motion for Partial 11 Summary Judgment.” Dkt. # 40 at 4. Liberty contends that because the Court can 12 “resolve coverage without finding any facts of consequence to the underlying state court 13 lawsuit, Defendants’ claim of prejudice is without merit.” Id. 14 III. DISCUSSION 15 A district court “has broad discretion to stay proceedings as an incident to its 16 power to control its own docket.” Clinton v. Jones, 520 U.S. 681, 706 (1997). The 17 moving party bears the burden of establishing that a stay is necessary. Id. at 708. 18 This matter involves the Declaratory Judgments Act, 28 U.S.C. § 2201, under 19 which a federal court “may declare the rights and other legal relations of any interested 20 party seeking such declaration, whether or not further relief is or could be sought.” 21 Although the Court “has jurisdiction of the suit under the Federal Declaratory Judgments 22 Act . . . it [is] under no compulsion to exercise that jurisdiction.” Brillhart v. Excess Ins. 23 Co. of Am., 316 U.S. 491, 494 (1942). The Supreme Court in Brillhart held that in a 24 situation in which another proceeding was pending in state court in which the matters at 25 26 1 Liberty noted that it does not agree to stay its request for reimbursement under Count II. 27 Dkt. # 40 at 4. 1 issue before the federal court could be fully adjudicated, “a declaratory judgment in the 2 federal court was unwarranted.” Id. at 495. The Supreme Court explained its reasoning 3 accordingly:

4 Ordinarily it would be uneconomical as well as vexatious for a federal court to 5 proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same 6 parties. Gratuitous interference with the orderly and comprehensive disposition of 7 a state court litigation should be avoided. Id. at 495. 8 Over fifty years later, the Supreme Court reinforced the “unique and substantial 9 discretion [of district courts] in deciding whether to declare the rights of litigants” under 10 the Declaratory Judgments Act. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). In 11 Wilton, the Court concluded that the district court had acted properly when it stayed an 12 action for declaratory relief “when parallel proceedings, presenting opportunity for 13 ventilation of the same state law issues, were underway in state court.” Id. at 290. 14 In determining whether to exercise its discretion to retain jurisdiction over such a 15 declaratory judgment action, a district court should “ascertain whether the questions in 16 controversy between the parties to the federal suit, and which are not foreclosed under the 17 applicable substantive law, can better be settled in the proceeding pending in the state 18 court.” Brillhart, 316 U.S. at 495. This evaluation, the Supreme Court explained, may 19 involve an inquiry as to the scope of the pending state court claims, the nature of 20 defenses, and whether the claims of all parties can be adjudicated satisfactorily in the 21 state proceeding. Id. Specifically, a district court’s exercise of discretion should be 22 guided by three factors: (1) the court should avoid unnecessary determination of state 23 issues; (2) it should discourage the filing of declaratory actions as a means of forum 24 shopping; and (3) it should not engage in duplicative litigation. Am. Cas. Co. of Reading, 25 Pennsylvania v. Krieger, 181 F.3d 1113, 1118 (9th Cir. 1999) (internal citation omitted). 26

27 1 Here, Defendants move the Court to exercise its discretion to stay this action until 2 factual determinations have been made in the Underlying Action in line with the 3 Brillhart-Wilton doctrine. Dkt. # 36 at 2. The Court finds that such a stay is 4 unwarranted. 5 With respect to the first factor, the Court finds that it need not engage in 6 unnecessary determination of state issues. The question of whether the Policy covers the 7 Defendants for the alleged actions and damages in the Underlying Action is not before 8 the state court. Dkt. # 40 at 8. See Krieger, 181 F.3d at 1119 (holding that “[b]ecause the 9 state court case did not include the coverage issue, and because the coverage issue in the 10 federal action was not contingent on any further state court proceedings, the district court 11 found good cause to continue to exercise its jurisdiction”). Indeed, the legal issues before 12 the state court are distinct from the declaratory judgment sought here. As Liberty 13 correctly notes, the issues before the state court involve whether Defendants engaged in 14 the alleged conduct, and if so, whether they are liable to BLR based on that conduct. 15 Dkt. # 40 at 10. The issues before this Court, on the other hand, are whether the Policy 16 covers Defendants, assuming that the allegations are true, and whether the Defendants 17 had knowledge of the allegations before the Policy went into effect. Id. Based on the 18 distinct legal issues before this Court and the state court, this Court’s analysis will not 19 involve a “needless determination of state law issues.” Id. This weighs against a stay. 20 With respect to the second factor, there is no evidence of forum-shopping, and 21 Defendants do not make an argument to the contrary. In their reply brief, they merely 22 note that a stay may be appropriate even in the absence of forum-shopping. Dkt. # 41 at 23 7 n.3 (citing N. Pac. Seafoods, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., C06- 24 795RSM, 2008 WL 53180, at *4 (W.D. Wash. Jan. 3, 2008)). Absent evidence of forum- 25 shopping, this factor leans slightly against a stay. 26 27 1 Finally, with respect to the third factor, the Court finds that a stay is not warranted 2 to avoid duplicative litigation. Indeed, as already discussed, the legal issues before this 3 court in the declaratory action are distinct from those before the state court. Moreover, 4 the Defendants’ bad faith counterclaim adds another claim that is not before the state 5 court—and which does not fall under the Declaratory Judgments Act—that requires this 6 Court to exercise jurisdiction. The federal court action, therefore, is not duplicative of 7 the state court action. This factor weights against a stay. 8 Based on the foregoing analysis, the Court hereby finds that the Brillhart factors 9 do not weigh in favor of a stay here. 10 IV. CONCLUSION 11 For the reasons above, Defendant’s Motion for Stay is DENIED. Dkt. # 36. 12 13 DATED this 2nd day of August, 2021. 14 A 15 16 The Honorable Richard A. Jones 17 United States District Judge 18

19 20 21 22 23 24 25 26 27