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Inc. v. Colony Insurance Co.

United States District Court, D. New Hampshire

November 6, 2017

Fletch's Sandblasting and Painting, Inc.
v.
Colony Insurance Company Colony Insurance Company
v.
Thick Tech Systems, Inc.

          REPORT AND RECOMMENDATION

          Andrea K. Johnstone United States Magistrate Judge.

         Fletch's Sandblasting and Painting Company, Inc., brought this declaratory judgment action against Colony Insurance Company in state court, seeking a determination that it was entitled to coverage under a commercial general liability insurance policy (the "policy") issued by Colony. Doc. no. 1-1. Colony removed the case to this court and filed a third-party action against Thick Tech Systems, Inc., seeking a declaration that the policy did not provide coverage for claims brought by Thick Tech against Fletch's in another jurisdiction. Doc. no. 5. The district judge granted summary judgment in favor of Colony on Fletch's declaratory judgment action, concluding that Fletch's was not entitled to coverage under the policy. See 2017 DNH 097 (doc. no. 19). Colony now moves for an entry of default against Thick Tech on its third-party action (doc. no. 22) and for declaratory relief against both Thick Tech and Fletch's on the coverage issue (doc. no. 23). These motions have been referred to the undersigned magistrate judge for report and recommendation. For the reasons that follow, the court recommends that the district judge (1) deny Colony's motion for declaratory judgment as to Fletch's for want of standing or, alternatively, as moot; (2) deny Colony's motion for declaratory judgment as to Thick Tech as moot; (3) deny Colony's motion for default as moot; and (4) dismiss Colony's third-party action.

         I. BACKGROUND

         Fletch's filed its declaratory judgment action (the "first-party action") against Colony in Rockingham County Superior Court, seeking a defense and indemnification with respect to a liability action Thick Tech filed against Fletch's (among others) in the United States District Court for the District of Maine (the "Maine action"). See Thick Tech Systems, Inc. v. Methuen Construction Co., No. 2:15-cv-00076-DBH (D. Me.). Colony removed the first-party action here, invoking this court's diversity jurisdiction under 28 U.S.C. § 1332 (doc. no. 1), and thereafter filed a "Third-Party Complaint for Declaratory Judgment" against Thick Tech (the "third-party action") (doc. no. 5). Though this complaint prayed for declaratory relief against both Thick Tech and Fletch's, it was filed solely against Thick Tech and only named Thick Tech as a respondent. Id. at 1, 4. The summons prepared by Colony with respect to the third-party action similarly only named Thick Tech as a third-party defendant. Doc. no. 6. Colony never filed a separate counterclaim for declaratory relief against Fletch's.

         Colony moved for summary judgment on the first-party action, contending that Thick Tech's claims against Fletch's in the Maine action were not covered by the policy. Doc. no. 16. On June 6, 2017, the district judge granted that motion over Fletch's objection, concluding that Thick Tech's claims did not constitute "occurrences" under the policy and were subject to the policy's "your work" exclusion. See 2017 DNH 097.

         At the time the summary judgment order issued, there was no docket entry indicating that Colony had served Thick Tech with the third-party action. The undersigned therefore issued an endorsed order directing Colony to show cause why the third-party action should not be dismissed for failure to serve or, alternatively, as derivative of the first-party action, which was resolved on the merits in the summary judgment order. See June 13, 2017 Endorsed Order. In response, Colony filed an affidavit of service indicating that its third-party action had been served upon Thick Tech as of January 8, 2016. Doc. no. 20. Four days later, Colony filed a written response, conceding that the summary judgment order "fully resolve[d] the issues in the case, including the issues raised in Colony's third-party action against Thick Tech, " but nonetheless arguing that dismissal was not warranted and that the court should instead issue a declaratory judgment against both Fletch's and Thick Tech. Doc. no. 21 ¶ 15. Colony subsequently filed a motion for default as to Thick Tech and a motion for declaratory judgment as to Thick Tech and Fletch's, which are currently before the undersigned for report and recommendation. See doc. nos. 22, 23.

         II. DISCUSSION

         A. Motion for Declaratory Judgment

         Colony asks the court to enter a declaratory judgment in its favor against both Thick Tech and Fletch's. Colony specifically seeks a declaration that the policy provides no coverage for the dispute between Thick Tech and Fletch's in the Maine action and that, accordingly, Colony is under no obligation to defend Fletch's in that lawsuit or indemnify Fletch's in the event of a judgment or settlement in that case. The court will first consider this motion as it pertains to Fletch's.

         1. Fletch's

         Colony's request for a declaratory judgment against Fletch's suffers from a fatal infirmity: Colony does not have standing, at this point in the case, to seek such relief. The Declaratory Judgment Act specifies that, "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration . . . ." 28 U.S.C. § 2201(a) (emphasis added).[1] The "case of actual controversy" requirement "refers to the type of 'Cases' and 'Controversies' that are justiciable under Article III." Sevigny v. United States, No. 13-cv-401-PB, 2014 WL 3573566, at *4 (D.N.H. July 21, 2014) (quoting Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)). To establish standing under the Act, the dispute must be "definite and concrete, touching the legal relations of parties having adverse legal interests; and must be real and substantial and admit of specific relief through a decree of conclusive character . . . ." Id. (brackets and internal quotation marks omitted) (quoting Medlmmune, 549 U.S. at 127). "The question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Id. (brackets omitted) (quoting Medlmmune, 549 U.S. at 127).

         Here, Colony never formally sought declaratory relief against Fletch's until after the district judge resolved the underlying controversy between Fletch's and Colony in the summary judgment order. As noted, Colony never filed a counterclaim for declaratory relief against Fletch's. Though Colony did seek a declaration with respect to Fletch's in the prayer for relief in its third-party complaint (doc. no. 5 at 4), that pleading was presented as a "Third-Party Complaint for Declaratory Judgment against Thick Tech Systems, Inc., " id. at 1 (emphasis added) and named only Thick Tech as a defendant to that claim, id. ¶ 2. By the same token, the request for summons prepared by Colony in conjunction with the third-party complaint named only Thick Tech as a defendant (doc. no. 6), and the affidavit of service ultimately submitted by Colony solely referenced Thick Tech (doc. no. 20). And even if Colony had named Fletch's as a defendant in the third-party complaint, this likely would have run afoul of the Federal Rules of Civil Procedure, which only contemplate third-party practice against "a nonparty, " see Fed.R.Civ.P. 14(a)(1), with a separate protocol for bringing a claim against "an opposing party, " as Fletch's was here, see Fed.R.Civ.P. 13.

         It is also telling that Colony never sought any relief against Fletch's in the course of litigating summary judgment beyond the dismissal of Fletch's first-party action. Though Colony did argue in the conclusion of its summary judgment motion that it was "entitled to summary judgment declaring that Fletch's is not entitled to a defense or indemnity" under the policy, this argument was plainly raised in reference to Fletch's claims against Colony, and not as a request for relief under any action brought against Fletch's by Colony. See doc. no. 16-1. To this end, Colony notably did not ask the district judge to clarify or reconsider his summary judgment order on the basis that Colony was entitled to some affirmative declaratory relief that the order did not provide.

         Based on these facts, the court concludes that Colony never formally sought a declaratory judgment against Fletch's until after the summary judgment order issued. At that time, there was no longer any "actual controversy" pending between Colony and ...


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