Murphy-Brown, LLC v. Ace Am. Ins. Co., 2020 NCBC 19.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 19 CVS 2793
MURPHY-BROWN, LLC and SMITHFIELD FOODS, INC.,
Plaintiffs,
v.
ACE AMERICAN INSURANCE COMPANY, et al.,
Defendants.
AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY,
ORDER AND OPINION ON Counterclaim/ COUNTERCLAIM DEFENDANTS’ Third Party MOTIONS TO DISMISS Plaintiff,
Counterclaim Defendants,
and
BANDIT 3 LLC DBA CROOKED RUN FARM, et al.,
Third Party Defendants. THIS MATTER comes before the Court upon Counterclaim Defendants
Murphy-Brown, LLC (“Murphy-Brown”); Murphy-Brown’s Hog Growers (“Growers”)
and the Growers’ insurance providers’ (“Grower Insurers”) (collectively Murphy-
Brown, Growers, and Grower Insurers are referred to as “Counterclaim Defendants”)
Motions to Dismiss American Guarantee & Liability Insurance Company’s (“Zurich”)
Counterclaim. (“Motions,” ECF Nos. 231, 233, 234, 237, 238, 239, 240, 243, 247, 258,
276 1.)
THE COURT, having considered the Motions, the briefs filed in support of and
in opposition to the Motions, the arguments of counsel at the hearing on the Motions,
and other appropriate matters of record, concludes that the Motions should be
GRANTED.
Middlebrooks Law, PLLC by James Middlebrooks for Plaintiffs Murphy- Brown, LLC and Smithfield Foods, Inc.
Reed Smith LLP by Evan T. Knott and John D. Shugrue for Plaintiffs Murphy-Brown, LLC and Smithfield Foods, Inc.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP by Michael W. Mitchell for Plaintiffs Murphy-Brown, LLC and Smithfield Foods, Inc.
Ragsdale Liggett PLLC by Henry Lee Evans and Amie C. Sivon for Counterclaim Defendant Hog Growers.
1 On January 21, 2020, Nicholas Herring d/b/a/ Langston Nursery (“Langston”) filed its Motion to Dismiss. (“Langston Motion,” ECF No. 276.) Langston incorporates by reference the Growers’ arguments for dismissal. (Id.) Langston’s Motion was filed subsequent to the Court’s Notice of Hearing on the Motions (ECF No. 275), but prior to the hearing. In response, Zurich filed a brief that is substantively identical to the brief Zurich filed in response to the Growers’ Motions. (ECF No. 278.) Accordingly, the Court will treat Langston’s Motion as if it was filed along with the Growers’ Motions. Morningstar Law Group by Shannon R. Joseph, Jeffery L. Roether, and Eric R. Hunt for Counterclaim Defendant Hog Growers.
Young Moore and Henderson, P.A. by Walter E. Brock, David W. Earley, Andrew P. Flynt, and Matthew C. Burke for Counterclaim Defendant Grower Insurers.
Nexsen Pruet, PLLC by James West Bryan, Brett Becker, and David S. Pokela for Defendant/Counterclaim Plaintiff American Guarantee & Liability Insurance Company.
McGuire, Judge.
I. FACTS AND PROCEDURAL BACKGROUND
1. The facts and procedural background of the underlying law suit in this
matter are recited in this Court’s Order and Opinion on Defendants’ Motions for
Judgment on the Pleadings. (“Motion for Judgment,” ECF No. 269.) The Court
recites herein only those facts necessary to decide the Motions.
2. Murphy-Brown is in the business of producing and growing hogs on
farms owned by Murphy-Brown (“company-owned farms”) and on farms owned by the
Growers. Murphy-Brown and the Growers enter into contracts (the “Grower
Agreements”) to memorialize their business relationships. (“Counterclaim,” ECF No.
99, at ¶ 107.)
3. Murphy-Brown is a defendant in twenty-six (26) nuisance lawsuits
pending in federal court (“Federal Nuisance Actions”). (Id. at ¶ 87.) Twenty-three of
the twenty-six Federal Nuisance Actions involve farms owned by Growers
(hereinafter, the “Twenty-Three Nuisance Actions”). (Id. at ¶ 88.) The plaintiffs in
the Twenty-Three Nuisance Actions allege that “Murphy-Brown is liable based on, among other things, the following: (1) that Murphy-Brown is in a principal-agent
relationship with the [Growers] and thus is vicariously liable for the alleged nuisance
caused by the [Growers]; or (2) that Murphy-Brown employed the [Growers] to do
work which Murphy-Brown knew or had reason to know would create a nuisance and
thus cause harm.” (Id. at ¶ 89.)
4. Five trials have been conducted in the Federal Nuisance Actions, 2
resulting in jury verdicts against Murphy-Brown of “$98,402,400, not including any
accrued prejudgment or post-judgment interest.” (Id. at ¶ 90.)
5. Zurich is one of Murphy-Brown’s excess insurers. (Id. at ¶ 93.) Zurich
issued four separate polices (the “Zurich Policies”) to Murphy-Brown which insure
Murphy-Brown for “certain risks during the periods of 2010 to 2014.” (Id.) The
Zurich Polices contain the following provision, or a provision with substantially the
same wording, pertaining to defense coverage:
SECTION III. DEFENSE AND SUPPLEMENTARY PAYMENTS
A. We have the right and duty to assume control of the investigation and settlement of any claim, or defense of any suit against the insured for damages covered by this policy:
1. Under Coverage A, when the applicable limit of underlying insurance and other insurance has been exhausted by payment of claims for which coverage is afforded under this policy; or
2. Under Coverage B, when damages are sought for bodily injury, property damage, or personal and
2 It is unclear from the pleadings, motions, and briefs whether all five of the trials have
involved Grower farms that are part of the Twenty-Three Nuisance Actions, or whether some of the trials have involved company-owned farms. advertising injury to which no underlying insurance or other insurance applies.
(Id. at ¶ 100.)
6. Based on this provision, Zurich alleges that: “[t]o the extent any such
‘other insurance’ . . . is applicable to the nuisance claims, actions and damages alleged
against Murphy-Brown in the Twenty-Three Nuisance Actions, then any alleged
coverage under the Zurich Policies, which coverage is denied, is excess to such ‘other
insurance.’” (Id. at ¶ 101.)
7. The Grower Insurers entered into insurance policies (the “Grower
Insurer Policies”) with the Growers, agreeing “to pay those sums that the [Growers
become] legally obligated to pay as damages because of bodily injury or property
damage to which the insurance applies.” (Id. at ¶ 102.) Zurich alleges that the
Grower Insurer Policies provide “contractual liability” and apply to liability for
damages assumed in an “insured contract.” (Id. at ¶ 103.) “An ‘insured contract’ is
that part of any contract or agreement pertaining to the insured [Grower’s] business
under which the insured [Grower] assumes the tort and/or nuisance liability of
another party.” (Id.)
8. The Grower Agreements include a clause (the “Indemnity Agreements”)
requiring the Growers “to indemnify Murphy-Brown with respect to the [Growers’]
acts and omissions in performing under the [Grower Agreements].” (Id. at ¶ 108.)
For example, some of the Grower Agreements contain the following Indemnity
Agreement: Indemnification. Producer does hereby agree to hold and save [Murphy-Brown, LLC] harmless from all losses, claims, damages, or expenses, including reasonable attorney fees and court costs, resulting from any act of Producer, Producer’s employees, representatives, invitees, guests, and agents, or from any omission of Producer, whether said act or omission was required by any State, Federal or local law, rule, regulation or ordinance or under the terms of this Swine Agreement.
(Id. at ¶ 109.) 3
9. Zurich maintains that each indemnification clause in the Grower
Agreements constitutes an “insured contract” under the Grower Insurer Policies and
the Grower Insurer Policies constitute “other insurance” as defined in the Zurich
Policies. (Id. at ¶¶ 105–06.)
10. Accordingly, Zurich alleges that pursuant to the Indemnity Agreements,
the Growers “contractually assumed the tort/nuisance liability of Murphy-Brown,
which would include the nuisance claims asserted in the Twenty-Three Nuisance
Actions”; the Grower Insurer Policies “provide primary insurance coverage to the
[Growers] for the contractual liability related to the . . . indemnity agreements”; and
the Grower Insurer Policies are a source of defense and indemnity for Murphy-Brown.
(Id. at ¶¶ 115, 117–18.)
11. On March 7, 2019, Zurich demanded that Murphy-Brown seek
enforcement of the Indemnity Agreements against the Growers and Grower Insurers.
3 Zurich acknowledges that there is at least one other form of indemnification clause found
in the Grower Agreements and there may well be additional forms of indemnification clauses. (Id. at ¶¶ 109–11.) (Id. at ¶ 133.) However, on May 13, 2019, Murphy-Brown refused to enforce the
Indemnity Agreements. (Id. at ¶ 134.)
12. Plaintiffs initiated the underlying lawsuit on March 5, 2019, by filing a
complaint in the Superior Court of Wake County, North Carolina. (Compl., ECF No.
4.) Contemporaneous with the filing of the Complaint, Plaintiffs filed a Notice of
Designation to have the case designated as a mandatory complex business case.
(Notice of Desig., ECF No. 6.) On March 6, 2019, this action was designated to the
North Carolina Business Court (Desig. Order, ECF No. 3), and was assigned to the
undersigned on March 7, 2019 (Assign. Order, ECF No. 2).
13. On March 19, 2019, Plaintiffs amended their Complaint. (“Amended
Complaint,” ECF No. 9.) On May 16, 2019, Zurich filed its Answer to Plaintiffs’
Amended Complaint. (“Answer to Amended Complaint,” ECF No. 72.) On June 14,
2019, Zurich filed its Counterclaim for Declaratory Judgment by way of Amendment
of [Zurich’s] Answer to Plaintiffs’ Amended Complaint. (ECF No. 99.)
14. Between September 13, 2019 and November 5, 2019, the Grower
Insurers filed their Motions to Dismiss (ECF Nos. 231, 243, 258) and all joined in the
Grower Insurers’ Joint Brief in Support of [their] Motion[s] to Dismiss. (“Grower
Insurers’ Brief in Support,” ECF No. 232.) On October 25, 2019, Zurich filed its
Response Brief in Opposition to [the Grower Insurers’] Motions to Dismiss
Counterclaim. (“Zurich Response to Grower Insurers,” ECF No. 255.) On November
15, 2019, the Grower Insurers filed a Joint Reply Brief in Support of their Motion[s]
to Dismiss. (“Grower Insurers’ Reply,” ECF No. 260.) 15. Between September 13, 2019 and January 21, 2020, the Growers filed
their Motions to Dismiss (ECF Nos. 233, 234, 237, 238, 240, 247, 276) and all joined
in the Joint Brief of [Growers] in Support of their Motions to Dismiss (“Growers’ Brief
in Support,” ECF No. 235). On October 25, 2019, Zurich filed its Response Brief in
Opposition to [the Growers’] Motions to Dismiss Counterclaim. (“Zurich Response to
Growers,” ECF No. 256.) On November 15, 2019, the Growers filed a Joint Reply
Brief in Support of their Motion[s] to Dismiss. (“Growers’ Reply,” ECF No. 259.)
16. On September 13, 2019, Murphy-Brown filed its Motions to Dismiss
(ECF No. 239) and filed a Brief in Support of its Motion to Dismiss [Zurich’s
Counterclaim] (“Murphy-Brown’s Brief in Support,” ECF No. 241). On October 25,
2019, Zurich filed its Response Brief in Opposition to [Murphy-Brown’s] Motion to
Dismiss Counterclaim. (“Zurich Response to Murphy-Brown,” ECF No. 254.) On
November 15, 2019, Murphy-Brown filed a Reply Brief in Support of its Motion to
Dismiss. (“Murphy-Brown’s Reply,” ECF No. 261.)
17. This matter came before the Court for a hearing where the Court heard
oral argument from counsel. The Motions are now ripe for decision.
II. ANALYSIS
18. Grower Insurers move to dismiss Zurich’s Counterclaim pursuant to
North Carolina Rule of Civil Procedure (“Rules”) 12(b)(1); Growers move to dismiss the Counterclaim pursuant to Rules 12(b)(1), 12(b)(6), 13, and 21; 4 and Murphy-
Brown moves to dismiss the Counterclaim pursuant to Rules 12(b)(1) and 12(b)(6).
A. Standard of Review
i. 12(b)(1) Standard
19. “Standing concerns the trial court’s subject matter jurisdiction and is
therefore properly challenged by a Rule 12(b)(1) motion to dismiss.” Fuller v. Easley,
145 N.C. App. 391, 395, 553 S.E.2d 43, 46 (2001) (citations omitted); see also Aubin v.
Susi, 149 N.C. App. 320, 324, 560 S.E.2d 875, 878 (2002) (“Standing is a necessary
prerequisite to a court’s proper exercise of subject matter jurisdiction.”). “If a party
does not have standing to bring a claim, a court has no subject matter jurisdiction to
hear the claim.” Estate of Apple v. Commercial Courier Express Inc., 168 N.C. App.
175, 177, 607 S.E.2d 14, 16 (2005). “A motion to dismiss for lack of subject matter
jurisdiction is not viewed in the same manner as a motion to dismiss for failure to
state a claim upon which relief can be granted.” Tart v. Walker, 38 N.C. App. 500,
502, 248 S.E.2d 736, 737 (1978). A court may consider matters outside the pleadings
in determining whether subject matter jurisdiction exists. Id.; see also Keith v.
Wallerich, 201 N.C. App. 550, 554, 687 S.E.2d 299, 302 (2009). “As the party invoking
jurisdiction, plaintiffs have the burden of proving the elements of standing.” Neuse
River Found. v. Smithfield Foods, Inc., 155 N.C. App. 110, 113, 574 S.E.2d 48, 51
(2002).
4 Since the Court decides the Motions exclusively under Rule 12(b)(1), the Court does not
address the Growers’ arguments for dismissal under Rules 12(b)(6), 13, and 21 or Murphy- Brown’s arguments for dismissal under Rule 12(b)(6). B. Nature of Zurich’s Declaratory Judgment Action
20. To decide the Counterclaim Defendants’ Motions, the Court must first
determine the theory under which Zurich seeks declaratory relief.
21. In the Amended Complaint, Murphy-Brown seeks a declaration that
Zurich and other insurers are required to reimburse Murphy-Brown for the defense
costs associated with, and to indemnify Murphy-Brown for damages arising from, the
Federal Nuisance Actions. (See ECF No. 9; ECF No. 99, at ¶ 123.) Zurich has denied
coverage. (ECF Nos. 72, 99.)
22. Zurich alleges that Murphy-Brown’s liability for the jury verdicts in the
Twenty-Three Nuisance Actions arises from the Growers’ acts or omission which
occurred while the Growers were performing under the Grower Agreements. (ECF
No. 99, at ¶¶ 125–29.) Accordingly, Zurich believes that, pursuant to the Indemnity
Agreements, the Growers owe indemnity to Murphy-Brown with respect to the
Twenty-Three Nuisance Actions. (Id. at ¶ 130.)
23. Zurich avers that the Growers’ indemnity obligations under the Grower
Agreements can and should be determined by this Court by conducting a “review of
the pleadings, written discovery and/or evidence in the Twenty-Three Nuisance
Actions” and conducting a “review of the pleadings in this action.” (Id. at ¶ 131(a)–
(b).) Alternatively, Zurich requests that this “Court determine all issues of fact
necessary to adjudicate the legal question of whether the [Growers] owe indemnity to
Murphy-Brown with respect to the Twenty-Three Nuisance Actions pursuant to the
respective terms of each [Indemnity Agreement].” (Id. at ¶ 131(c).) 24. Zurich next contends that the Grower Insurer Policies provide
contractual liability coverage for the Growers’ obligations under the Indemnity
Agreements, “and these liability policies constitute primary coverage in relation to
the excess policies of Zurich . . . . Until [the Grower Insurer Policies] are properly and
completely exhausted . . . Zurich has no potential liability to Plaintiffs.” (Id. at ¶ 136.)
25. As a result, Zurich alleges that a priority dispute and uncertainty exists
between Zurich and Counterclaim Defendants regarding the allocation of
responsibility to indemnify Murphy-Brown for costs associated with the Twenty-
Three Nuisance Actions. (Id. at ¶¶ 135–38.) In Zurich’s view, the dispute creates an
actual controversy between Zurich and Counterclaim Defendants regarding: (a)
Murphy-Brown’s indemnity rights; and (b) the extent of coverage and priority of
coverage between Zurich and the Grower Insurers. (Id. at ¶ 140.) Zurich asserts that
a declaratory judgment is “necessary to guide the parties’ future conduct in order to
fulfill and/or preserve their respective legal rights and/or obligations relating to the
indemnification of Murphy-Brown, if any, with respect to the Twenty-Three Nuisance
Actions.” (Id. at ¶ 141.)
26. Based on the foregoing, Zurich seeks the following declarations from this
Court:
i. From 2010 to the present, the Growers assumed the tort/nuisance
liability of and are liable to Murphy-Brown pursuant to the Indemnity
Agreements for “Murphy-Brown’s defense costs and any other costs Murphy-Brown pays or is required to pay in the Twenty-Three Nuisance
Actions[;]”
ii. The Grower Insurer Policies apply to and provide coverage for the
“nuisance claims, actions and damages alleged against Murphy-Brown
in the Twenty-Three Nuisance Actions[;]”
iii. “[A]ny alleged coverage under the Zurich Policies, which coverage is
denied, is excess to such ‘other insurance’ of the liability insurance
policies of the [Grower Insurers;]”
iv. “[U]ntil the Zurich Payment Conditions are satisfied . . . Zurich has no
potential liability to Murphy-Brown.”
(Id. at ¶¶ 143–44, Prayer for Relief.)
27. With this understanding of Zurich’s Counterclaim, the Court now
addresses the merits of Counterclaim Defendants’ Motions. The Court will begin by
analyzing Zurich’s standing to maintain its Declaratory Judgment Action.
C. Zurich’s Standing to Maintain its Declaratory Judgment Action
28. Counterclaim Defendants argue that Zurich lacks standing to bring its
Declaratory Judgment action because Zurich is not a party to, nor an intended third-
party beneficiary of, any of the Grower Agreements or any of the Grower Insurer
Policies. (ECF No. 232, at pp. 5–8; ECF No. 235, at pp. 11–14; ECF No. 241, at pp.
3–8.) i. Zurich’s standing to seek a declaration regarding the indemnity rights and obligations under the Grower Agreements
29. The Declaratory Judgment Act provides that “Courts of record within
their respective jurisdictions shall have power to declare rights, status, and other
legal relations, whether or not further relief is or could be claimed.” N.C.G.S. § 1-
253. Pursuant to N.C.G.S. § 1-254:
Any person interested under a deed, will, written contract or other writings constituting a contract, or whose rights, status or other legal relations are affected by a . . . contract . . . , may have determined any question of construction or validity arising under the . . . contract, . . . , and obtain a declaration of rights, status, or other legal relations thereunder. A contract may be construed either before or after there has been a breach thereof.
30. The first clause of § 1-254—“any person interested under a deed, will,
written contract or other writings constituting a contract”— has been interpreted as
only allowing “a party to a contract or a direct beneficiary to have standing
under N.C.[G.S.] § 1-254 to file a declaratory judgment action under N.C.[G.S.] § 1-
253.” Whittaker v. Furniture Factory Outlet Shops & Auto-Owners Ins. Co., 145 N.C.
App. 169, 173, 550 S.E.2d 822, 824 (2001).
31. However, under the second clause of § 1-254, “a third party who has
‘rights, status or other legal relations [that] are affected by . . . [a] contract’” may have
standing to seek a declaration regarding the contract if the party seeking the
declaration has “an enforceable contractual right under the [ ] agreement.”
Whittaker, 145 N.C. App. at 174, 550 S.E.2d at 825 (citing DeMent v. Nationwide
Mutual Ins. Co., 142 N.C. App. 598, 601, 544 S.E.2d 797, 799 (2001)). In other words, under either clause of § 1-254, “[a]bsent an enforceable contract right, an action for
declaratory relief to construe or apply a contract will not lie.” Terrell v. Layers Mut.
Liab. Ins. Co., 131 N.C. App. 655, 661, 507 S.E.2d 923, 926–27 (1998) (emphasis
added).
32. Zurich does not argue that it is a party or third-party beneficiary to the
Grower Agreements; nor does Zurich argue that it has an enforceable contractual
right in the Grower Agreements. Rather, Zurich takes the position that it has
standing to pursue a declaration of the Growers’ indemnity obligations under the
Grower Agreements because Zurich “has a ‘cognizable interest’ in the Grower
Agreements and whether indemnity is owed under them from the Growers to
Murphy-Brown.” (ECF No. 256, at p. 12.) Zurich relies on the North Carolina Court
of Appeals’ holding in Coca-Cola Bottling Co. Consol. v. Durham Coca-Cola Bottling
Co., 141 N.C. App. 569, 541 S.E.2d 157 (2000), to support its position that Zurich has
standing to seek a declaration of rights under the Grower Agreements pursuant to a
less demanding “cognizable interest” standard, even without having an “enforceable
contractual right.” (ECF No. 256, at pp. 9–13.)
33. The facts and procedural background of Coca-Cola Bottling are
complicated. See Coca-Cola Bottling, 141 N.C. App. at 571–76, 541 S.E.2d at 159–62.
In sum, Durham Coca-Cola Bottling Company (“Durham”) sought to purchase
Reidsville Coca-Cola Bottling Company (“Reidsville”). Id. at 571, 541 S.E.2d at 159.
On February 26, 1999, Durham made an offer by letter to purchase Reidsville and on
March 3, 1999, “the president of Reidsville, responded by signing this letter under the language ‘Accepted and Agreed’ and returning it to Durham.” Id. Thereafter,
Durham learned that Coca-Cola Bottling Company Consolidated (“Consolidated”)
was attempting to purchase Reidsville. Id. at 572, 541 S.E.2d at 159–60. In April of
1999, Consolidated filed a complaint naming Durham and Reidsville as defendants
and alleging that Reidsville accepted a purchase offer from Consolidated prior to
Durham’s offer. Id. at 572, 541 S.E.2d at 160. Consolidated then purportedly
purchased Reidsville in May of 1999, and filed an amended complaint seeking, inter
alia, “a declaratory judgment as to . . . whether Durham [had] an enforceable contract
to purchase Reidsville.” Id. at 572–73, 541 S.E.2d at 160.
34. Durham argued that Consolidated did not have standing to maintain a
declaratory judgment action to determine the validity of Durham’s contract with
Reidsville because Consolidated was not a party to that contract. Id. at 575, 541
S.E.2d at 161. The court then cited the second clause of § 1-254 5 and discussed the
Declaratory Judgment Act’s purpose and the requirements for establishing
jurisdiction in declaratory judgment actions as explained by North Carolina’s
Supreme Court and other authorities. Id. at 575–76, 541 S.E.2d at 162. Ultimately,
the court concluded that:
5 The second clause of §1-254 provides that “[a]ny person interested under a . . . written
contract . . . or whose rights, status or other legal relations are affected by a . . . contract . . . may have determined any question of construction or validity arising under the . . . contract . . . and obtain a declaration of rights, status, or other legal relations thereunder.” N.C.G.S. § 1-254 (emphasis added). [T]he fact that Consolidated is not expressly a party to the contract at issue does not necessarily preclude it from bringing a declaratory judgment suit. A party who seeks a declaratory judgment as to the validity of a contract need only have some cognizable interest under the contract. See Terrell v. Lawyers Mut. Liab. Ins. Co., 131 N.C. App. 655, 660, 507 S.E.2d 923, 926 (1998) . . . .
If the alleged contract between Durham and Reidsville is, in fact, enforceable, Consolidated may find that it has also purchased some liability to Durham along with its purported purchase of Reidsville. If Reidsville is at some point found to have breached a contract with Durham, Durham may have a claim to some of the assets which now purportedly belong to Consolidated. Simply put, it appears to us that Consolidated does have a cognizable interest under the alleged contract between Durham and Reidsville as a result of having purportedly purchased Reidsville. Thus, we do not agree with Durham’s contention that Consolidated is precluded from maintaining this declaratory judgment suit simply because Consolidated seeks to determine the validity of a contract to which it is not expressly a party.
141 N.C. App. at 576, 541 S.E.2d at 162 (emphasis added).
35. Counterclaim Defendants argue there is no lesser “cognizable interest”
standard in North Carolina, that Zurich’s characterization of Coca-Cola Bottling
would swallow the general rule regarding standing to bring a declaratory judgment
action, and that no court has applied the cognizable interest standard since Coca-
Cola Bottling was decided. (ECF No. 259, at pp. 2–5; ECF No. 260, at pp. 1–2; ECF
No. 261, at pp. 2–5.)
36. Assuming that there is a lesser “cognizable interest” standard that can
confer standing on parties in declaratory judgment actions, the Court is not
persuaded that it is applicable to the facts of this case. Before and after Coca-Cola Bottling, North Carolina’s appellate courts have repeatedly held that “[a]bsent an
enforceable contract right, an action for declaratory relief to construe or apply a
contract will not lie.” Terrell, 131 N.C. App. at 661, 507 S.E.2d at 926–27 (emphasis
added) (a purported assignee under an insurance policy lacked standing to have a
trial court construe the policy because it was not assignable and therefore, the
“plaintiff [could not be] a person who is or can be ‘interested . . . under [the]
contract.’”); DeMent, 142 N.C. App. at 605, 544 S.E.2d at 802 (holding that a party
who sought to have medical expenses paid under another party’s insurance policy
lacked standing to seek a declaration as to the extent of coverage under said
insurance policy because he was neither a party or third-party beneficiary of the
policy); Beachcomber Props., L.L.C. v. Station One, Inc., 169 N.C. App. 820, 824, 611
S.E.2d 191, 194 (2005) (potential condominium purchasers, whose purchase contract
was terminated, did not have standing to maintain a declaratory judgment action
against the condominium’s homeowner’s association); Brookline Residential, LLC v.
City of Charlotte, 251 N.C. App. 537, 544–47, 796 S.E.2d 369, 373–76 (2017).
37. Contrary to Zurich’s argument, the Court of Appeals’ holding in Coca-
Cola Bottling does not afford Zurich “standing to pursue a declaratory judgment
Counterclaim seeking a declaration of the indemnity obligations of the Growers.”
(ECF No. 256, at p. 13.) The court’s holding in Coca-Cola Bottling does not supplant
North Carolina’s long line of authority regarding the requirements for standing to
maintain a declaratory judgment action. Rather, in Coca-Cola Bottling, under unique
circumstances where the moving party claimed to own rights and liabilities that would be affected by the validity of a contract between two other parties, the court
narrowly held that “[a] party who seeks a declaratory judgment as to the validity of
a contract need only have some cognizable interest under the contract.” Coca-Cola
Bottling, 141 N.C. App. at 576, 541 S.E.2d at 162 (emphasis added).
38. Here, Zurich is not seeking a declaration as to the validity of the Grower
Agreements or the Indemnity Agreements. Instead, in its declaratory judgment
action, Zurich seeks to have this Court construe and apply the Grower Agreements
by declaring that from 2010 to the present, the Growers “assumed the tort/nuisance
liability of and are liable to Murphy-Brown under the [Grower Agreements and
Indemnity Agreements] with respect to Murphy-Brown’s defense costs and with
respect to any monetary judgments or settlements Murphy-Brown pays or is required
to pay in the Twenty-Three Nuisance Actions.” (See ECF No. 99, at ¶ 143.) Zurich
may, theoretically, have a “cognizable interest” in the Grower and Indemnity
Agreements. However, under current North Carolina law, such an interest does not
give Zurich standing to maintain a declaratory judgment action to have this Court
construe or apply the Grower and Indemnity Agreements.
ii. Zurich’s standing to seek a declaration regarding the priority of insurance between Zurich and the Grower Insurers
39. In its Brief in Opposition to the Grower Insurers’ Motions to Dismiss,
Zurich advances an alternative ground for standing under N.C.G.S. § 1-257. (ECF
No. 255, at pp. 1–10.) Section 1-257 provides trial courts with broad discretion to
“refuse to render or enter a declaratory judgment” if entering the judgment “would
not terminate the uncertainty or controversy giving rise to the proceeding.” N.C.G.S. § 1-257. However, “a controversy between insurance companies, . . . with respect to
which of two or more of the insurers is liable . . . and the insurers’ respective liabilities
and obligations, constitutes a justiciable issue and the court should, . . . render a
declaratory judgment as to the liabilities and obligations of the insurers.” Id.
(emphasis added). Zurich contends that this provision counsels in favor of the Court
issuing the requested declarations.
40. Zurich’s argument for standing under § 1-257 is summarized as follows:
Zurich’s Counterclaim pertains to “a controversy between insurance companies . . . with respect to which of two or more of the insurers is liable under its particular policy and the insurers’ respective liabilities and obligations.” [N.C.G.S. § 1-257]. This is a controversy between Zurich and the Grower Insurers. Consequently, under N.C.[G.S.] § 1-257, this Court is required to “render a declaratory judgment as to the liabilities and obligations of the insurers.” Id.
(ECF No. 255, at p. 3.)
41. The Grower Insurers argue that § 1-257 only applies to controversies
between insurers who are liable and not when two or more insurers may be liable.
(ECF No. 260, at p. 5.) Additionally, the Grower Insurers contend that § 1-257
“presumes that each policy at issue covers the same loss such that only priority or
allocation of coverage is at issue.” (Id.) Therefore, § 1-257 is inapplicable here
because the Zurich Policies and the Grower Insurer Policies insure different losses
for different insureds. (Id. at p. 6.)
42. Preliminarily, the Court finds it questionable whether this is truly a
“controversy between insurance companies” as to which one is liable to Murphy- Brown. This case simply has not reached that point. As of right now, Zurich has
completely denied coverage and no coverage whatsoever has been sought from the
Grower Insurers. Moreover, the Court reads § 1-257 as applying to factual scenarios
where two or more insurers insure the same party. Indeed, the only North Carolina
case cited by Zurich in support of its interpretation of § 1-257, Smith v. USAA Cas.
Ins. Co., 819 S.E.2d 610 (N.C. Ct. App. 2018), involved a dispute between two insurers
who owed the same type of coverage to the same insured. (ECF No. 255, at pp. 2–5.)
The situation here, where Zurich and the Grower Insurers cover different parties and
different losses, is inapposite.
43. Finally, even if section 1-257 applies to the factual scenario presented
here, the Court, in its discretion, would decline to rule on Zurich’s Counterclaim. The
Court disagrees with Zurich’s claim that the Court is required to render a declaratory
judgment in this action. Section 1-257 does not contain the strong language, “must”
or “shall,” typically associated with mandatory standards. See In re Williamson Vill.
Condos., 187 N.C. App. 553, 561, 653 S.E.2d 900, 904 (2007); Thigpen v. Ngo, 355
N.C. 198, 202, 558 S.E.2d 162, 165 (2002). Rather, the section states that when the
section applies, a Court should render a declaratory judgment. Under these facts,
the Court is not persuaded that it should render a declaratory judgment.
44. Therefore, Counterclaim Defendants’ Motions should be GRANTED,
and Zurich’s Counterclaim should be DISMISSED, without prejudice, for lack of
standing. THEREFORE, it is ORDERED that the Counterclaim Defendants’ Motions are
GRANTED, and Zurich’s Counterclaim is DISMISSED WITHOUT PREJUDICE.
SO ORDERED, this the 18th day of March, 2020.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases