Opinion
2:22-CV-00246-CRE
08-30-2022
AMERICAN EAGLE OUTFITTERS, INC., Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant,
Honorable Marilyn J. Horan United States District Judge
REPORT AND RECOMMENDATION
Cynthia Reed Eddy, Chief United States Magistrate Judge.
I. RECOMMENDATION
Presently before the court is a motion filed by Plaintiff American Eagle Outfitters, Inc. (“AEO”) to remand this declaratory judgment action to state court. (ECF No. 8). The motion is fully briefed and ripe for disposition. (ECF Nos. 9, 10, 11, 12). For the reasons that follow, it is respectfully recommended that the motion be denied.
II. REPORT
a. Background
AEO initiated the present civil action by filing a writ of summons in the Court of Common Pleas of Allegheny County, Pennsylvania, against Defendant Zurich American Insurance Company (“Zurich”) on February 25, 2021. On January 28, 2022, AEO filed a Complaint for Declaratory Judgment seeking declarations that Zurich “is required to cover AEO against business income and extra expense losses caused by the COVID-19 pandemic under an ‘all risks' insurance policy, Police No. PPR9819899-05.” Complaint (ECF No. 1-1) at ¶ 1.
On February 7, 2022, Zurich filed a Notice of Removal in this Court. (ECF No. 1). On March 7, 2022, AEO filed the Motion to Remand to State Court at issue here. (ECF No. 8). It is AEO's position that although complete diversity exists between the parties, which invokes the subject matter jurisdiction of this Court, this Court should, in its discretion, remand this case pursuant to the Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201. AEO's Br. (ECF No. 9). On March 21, 2022, Zurich filed a brief in opposition to AEO's motion, and on March 28, 2022, AEO filed a Reply. (ECF Nos. 10, 11). In addition, on April 4, 2022, Zurich filed a notice of supplemental authority in support of its opposition to AEO's motion. (ECF No. 12). Thus, this matter is fully briefed and ripe for disposition.
b. Standard of Review
“Generally, ‘federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress.'” NORCAL Mut. Ins. Co. v. Laurel Pediatric Assocs., Inc., 2022 WL 1308109, at *2 (W.D. Pa. May 2, 2022) (quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996)). “Declaratory judgment actions implicate an exception to this rule.” DiAnoia's Eatery, LLC v. Motorists Mut. Ins. Co., 10 F.4th 192, 196 (3d Cir. 2021) (citing Reifer v. Westport Ins. Corp., 751 F.3d 129, 134-35 (3d Cir. 2014)). “The [D]A] provides 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, whether or not further relief is or could be sought.'” NORCAL, 2022 WL 1308109, at *2 (quoting 28 U.S.C. § 2201(a) (emphasis added)). “The ‘Supreme Court has long held that the DJA's textual commitment to discretion-i.e., may-confer[s] ... unique and substantial discretion upon district courts to decide whether to exercise jurisdiction in declaratory judgment actions.'” Id. (quoting DiAnoia's Eatery, LLC, 10 F.4th at 196) (some internal quotation marks omitted). “In other words, ‘a district court may abstain from hearing a declaratory judgment action that is properly within the court's subject matter jurisdiction.'” Id.
However, the district court's discretion as to whether to decline jurisdiction is “bounded and reviewable.” Reifer, 751 F.3d at 140. According to the Reifer court, “a district court should guide its exercise of sound and reasoned discretion by giving meaningful consideration to the following factors to the extent they are relevant.” Id. at 146.
(1) the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the uncertainty of obligation;
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are pending in a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata; and
(8) (in the insurance context), an inherent conflict of interest between an insurer's duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion.Id.
These factors are non-exhaustive, and should be considered along with “additional guidance” from State Auto Insurance Cos. v. Summy, 234 F.3d 131 (3d Cir. 2000). See Reifer, 751 F.3d at 146-47. “Summy's additional guidance includes the recommendation that when applicable state law is uncertain or undetermined, district courts should be particularly reluctant to exercise DJA jurisdiction.” NORCAL, 2022 WL 1308109, at *3 (quoting Summy, 234 F.3d at 135) (internal quotation marks omitted). “Further, [t]he fact that district courts are limited to predicting-rather than establishing-state law requires serious consideration and is especially important in insurance coverage cases.” DiAnoia's Eatery, LLC, 10 F4th at 197 (internal quotation marks omitted). “In weighing these factors, district courts declining jurisdiction should be rigorous in ensuring themselves that the lack of pending parallel state proceedings is outweighed by opposing factors. With respect to state law claims, district courts should squarely address the alleged novelty or undetermined nature of state law issues.” Id. Moreover, a district court should weigh these factors in a record sufficient for the Third Circuit's abuse-of-discretion review. Id.
c. Discussion
At the outset, in this matter, the parties agree that there are no parallel state proceedings. See AEO's Br. (ECF No. 9) at 12; Zurich's Br. (ECF No. 10) at 1. Thus, this Court must determine whether “one or more of the factors enumerated in Reifer outweigh[s] the absence of state court proceedings.” Dianoia's Eatery, 10 F4th at 205. This Court will consider each factor, many of which are not disputed.
Dianoia's Eatery, LLC, supra, was a consolidated appeal to the Third Circuit in a COVID-19-related insurance case involving three restaurants where “[e]ach restaurant had purchased an insurance policy that provided coverage for commercial property. Each policy was an ‘all risks' policy.” Dianoia's Eatery, LLC, 10 F4th at 197. “Each Insurer removed the case to federal district courts. [and] each District Court declined to exercise jurisdiction under the DJA and granted each Restaurant's motion to remand the case to state court.” Id. Specifically, “[a]ll three district courts declined to exercise jurisdiction under the DJA because each determined that one mor more of the factors enumerated in Reifer outweighed the absence of parallel state court proceedings.” Id. at 205. The Third Circuit vacated each order for different reasons. In one case, the order was vacated because that court incorrectly understood the first factor, which fell short of a “rigorous weighing of factors.” Id. at 206. In a second case, the Third Circuit vacated the order because the District Court did not squarely address the issue of novelty. Id. at 207. In the third case, the Third Circuit vacated the order because it disagreed with the district court's conclusion that the “issue of a virus exclusion being void as against public policy” being “peculiarly within the purview of state courts as to weigh in favor of abstention.” Id. at 210.
1. Factor 1: “the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy”
In considering “the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy,” this Court points out that AEO “does not dispute” that this factor does “not weigh in favor of remand.” AEO's Br. (ECF No. 9) at 16. In this matter, “the declaratory judgment actions would bring about a complete termination of the parties' disputes without piecemeal litigation.” DiAnoia's Eatery, 10 F4th at 206. Accordingly, this Court agrees that this factor does not weigh in favor of remand, and respectfully recommends that conclusion with respect to this factor.
2. Factor 2: “the convenience of the parties”
Once again, AEO does not dispute that this factor, “the convenience of the parties,” does not weigh in favor of remand. AEO's Br. (ECF No. 9) at 6. Because the state forum is located in “the same county in which this Court sits,” neither party will be inconvenienced. NORCAL, 2022 WL 1308109, at *7. Thus, this Court agrees that this factor does not weigh in favor of remand, and respectfully recommends that conclusion with respect to this factor.
3. Factor 3: “the public interest in settlement of the uncertainty of obligation” and Summy
In Dianoia's Eatery, the Third Circuit considered the Summy factors along with the third Riefer factor, and this Court will do the same. See Dianoia's Eatery, 10 F4th at 207-211.
In Dianoia's Eatery, the Third Circuit stated that “[w]hile we have suggested that district courts should be reluctant to exercise DJA jurisdiction where state law is uncertain or undetermined, we have instructed district courts exercising discretion under the DJA to squarely address the alleged novelty of ... state law claims.” 10 F4th at 207. In this case, AEO contends that the novel issue at hand
is whether “physical loss or damage” requires a tangible, physical alteration of property above and beyond that pled in AEO's complaint. This “physical loss or damage” requirement is a prerequisite to a number of coverages under the Policy's Time Element coverage. The Policy itself does not answer this question. No Pennsylvania appellate court has answered this question, much less the Supreme Court.AEO's Br. (ECF No. 9) at 6-7; see also id. at 7 (stating that issue is the “legal meaning of the Policy's ‘physical loss or damage' requirement in the context of a contagious disease”). AEO also asserts a second “novel issue.” Id. at 7. According to AEO, “this action also involves the interpretation of a policy exclusion - the contamination exclusion.” Id. It is Zurich's position that interpretation of an insurance contract, including its exclusions, does not rise to the level of a novel legal issue. Zurich's Br. (ECF No. 10) at 7-9.
The Third Circuit's decision in Dianoia's Eatery changed the landscape for motions to remand in COVID-19 insurance coverage cases. Prior to DiAnoia's Eatery, courts in this district and circuit were split on the issue of remand. A review of Commercial Office Furniture Company, Inc. v. Charter Oak Fire Insurance Company, 2021 WL 1837412 (E.D. Pa. May 7, 2021) opinion vacated on reconsideration, 2022 WL 874950 (E.D. Pa. Mar. 23, 2022), filed in the Eastern District of Pennsylvania, provides such an example.
On September 25, 2020, defendant Charter Oak removed the COVID-19 insurance coverage matter filed by plaintiff Commercial Office to the Eastern District of Pennsylvania. Commercial Office then filed a motion to remand because it was seeking declaratory relief that depended upon “unsettled and novel issues of state law which should be decided in the first instance by the state courts.” Com. Off. Furniture Co., Inc., 2021 WL 1837412, at *2 (E.D. Pa. May 7, 2021). On May 7, 2021, the district court granted Commercial Office's motion motion relying, in part, on other cases where the district courts held that remand was appropriate because Pennsylvania courts should be the first decide the novel issues presented in this and other cases. See Greg Prosmushkin, P.C. v. Hanover Ins. Grp., 479 F.Supp.3d 143 (E.D. Pa. 2020); Venezie Sporting Goods, LLC v. Allied Ins. Co. of Am., 2020 WL 5651598 (W.D. Pa. 2020).
Charter Oak then filed a motion with the district court requesting a stay pending the Third Circuit's decision on Dianoia's Eatery, which was argued on April 28, 2021. Dianoia's Eatery was decided on August 18, 2021, and on March 23, 2022, the district court entered a memorandum opinion granting Charter Oak's motion for reconsideration. The district court specifically stated the following.
[T]he COVID-19 pandemic is unprecedented.” Tumi, Inc. v. Factory Mut. Ins. Co., Civ. A. No. 21-2752, 2021 WL 4170051, at *3 (D.N.J. Sept. 14, 2021). Nonetheless, “as the Third Circuit has stated, that does not mean that the relevant issues of insurance law are so unsettled” that we must remand cases involving these issues to the state court. Id. (citing DiAnoia's Eatery, 10 F.4th at 207-08); see also Greenwood Racing Inc. v. Am. Guarantee & Liab. Ins. Co., Civ. A. No. 21-1682, 2021 WL 4902343, at *3 (E.D. Pa. Oct. 20, 2021) (“The guiding principles of Pennsylvania insurance law are well settled.” (citing Kurach v. Truck Ins. Exch., 235 A.3d 1106, 1116 (Pa. 2020); Gallagher v. GEICO Indem. Co., 201 A.3d 131, 137 (Pa. 2019); 401 Fourth St., Inc. v. Invs. Ins. Grp., 879 A.2d 166, 171 (Pa. 2005))). “Any court deciding this case will be applying familiar principles of insurance law to the language of the insurance policy at issue.” Id. (citing DiAnoia's Eatery, 10 F.4th at 208). “The issues at the heart of this lawsuit” like the issues in DiAnoia's Eatery and many other COVID-19 business insurance cases “are whether losses related to the COVID-19 pandemic and related government orders caused ‘physical loss or damage' to plaintiffs' business and are the cause of Plaintiff's losses. Id. (See also Compl. ¶¶ 20-25.) Thus, “[t]his is not a situation where there is ‘such a paucity of authority from any Pennsylvania court ... that predicting state law would be impossible.'” Id. (alteration in original) (quoting DiAnoia's Eatery, 10 F.4th at 206). In accordance with the holding of DiAnioa's Eatery, that the issues raised in this case may be decided pursuant to well settled principles of Pennsylvania insurance law, we grant the Motion for Reconsideration, vacate our prior Order remanding this action to the Philadelphia County Court of Common Pleas, and deny the Motion to Remand.Com. Off. Furniture Co., Inc. v. Charter Oak Fire Ins. Co., 2022 WL 874950, at *3 (E.D. Pa. Mar.23, 2022).
The undersigned has found no case in the Third Circuit granting remand under these circumstances since the Third Circuit's decision DiAnoia's Eatery. Moreover, the undersigned notes that the Third Circuit has gone even further by consolidating a series of appeals “involving insurance coverage for business-interruption losses caused by the COVID-19 pandemic.” Order, Wilson v. USI Insurance Services LLC, 20-3124, at (ECF No. 43). That case, which may address the substantive issues in these insurance cases, is scheduled for oral argument on September 22, 2022. Id. at (ECF No. 112).
With respect to the three cases that were consolidated in DiAnoia's Eatery, two are stayed pending the outcome in Wilson, supra. In the third case, the trial court entered an order denying the motion for remand and granting defendant's motion to dismiss. Plaintiff filed an appeal to the Third Circuit in that matter. See Mark Daniel Hosp. LLC v. Amguard Ins. Co., 2022 WL 2168245, at *1 (D.N.J. June 16, 2022).
Here, AEO attempts to couch its issues regarding this insurance policy as novel. However, similar to every other case considered, a district court “deciding this case will be applying familiar principles of insurance law to the language of the insurance policy at issue.” Tumi, Inc., 2021 WL 4170051, at *3 (citing DiAnoia's Eatery, 10 F.4th at 208). Based on the foregoing, this Court concludes that both Factor 3 and the Summy Factors weigh against remand. AEO has not demonstrated that the issues in this case are any more novel than any other insurance issue or exclusion presented in any other COVID-19 insurance case. Accordingly, this Court respectfully recommends that this factor does not weigh in favor of remand.
4. Factor 4: “the availability and relative convenience of other remedies”
AEO does not dispute that this factor, “the availability and relative convenience of other remedies,” does not weigh in favor of remand. AEO's Br. (ECF No. 9) at 6. AEO points out that “there is no concern about the availability and relative convenience of other remedies.” Id. at 16. Thus, this Court agrees that this factor does not weigh in favor of remand, and respectfully recommends that conclusion with respect to this factor.
5. Factor 5: “a general policy of restraint when the same issues are pending in a state court”
AEO does not dispute that this factor, “a general policy of restraint when the same issues are pending in a state court,” does not weigh in favor of remand. AEO's Br. (ECF No. 9) at 6. Notably, “the same issues are not pending in state court between Zurich and AEO.” Id. at 16. Thus, this Court agrees that this factor does not weigh in favor of remand, and respectfully recommends that conclusion with respect to this factor.
6. Factors 6 and 7: “avoidance of duplicative litigation”and “prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata”
According to AEO, “[c]ontinued exercise of diversity jurisdiction prevents this development of state law, increasing the uncertainty on these issues and promoting duplicative litigation - litigation that will undoubtably play out in federal court.” AEO's Br. (ECF No. 9) at 13-14. Thus, it is AEO's position that Factor 6 weighs in favor of remand. Similarly, AEO contends that “[a] race is afoot between appellate decisions at the federal and state levels.” Id. at 14. AEO contends that “[i]f insurers received favorable decisions at the federal appellate level, it locks in those issues for all district courts in that Circuit unless or until the state supreme court has the opportunity to weigh in.” Id. Accordingly, AEO argues that Factor 7 weighs in favor of remand.
While there are no cases on this issue pending before the Pennsylvania Supreme Court, the Pennsylvania Superior Court heard similar cases en banc, but has not yet issued an opinion. See Ungarean v. CNA, 490 WDA 2021 (Pa. Super.); MacMiles, LLC v. Erie Ins. Exch., 1100 WDA 2021 (Pa. Super.).
However, as Zurich points out, it is well-settled that these factors only apply in cases where there is a parallel state action or other litigation involving the parties. See Tumi, Inc. v. Factory Mut. Ins. Co., 2021 WL 4170051, at *5 (D.N.J. Sept. 14, 2021) (finding factors 6 and 7 neutral where “no party claims that there is a parallel state action and thus there is no risk of duplicative litigation or a ruling that would have a preclusive effect here”); Jul-Bur Assocs., Inc. v. Selective Ins. Co. of Am., 2021 WL 515484, at *5 (E.D. Pa. Feb. 11, 2021) (same). Accordingly, this court respectfully recommends that these factors do not weigh in favor of remand.
7. Factor 8: “an inherent conflict of interest between an insurer's duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion”
AEO does not dispute that this factor, regarding the duty to defend, does not weigh in favor of remand. AEO's Br. (ECF No. 9) at 6. As AEO points out, “[t]he duty to defend is not relevant to this matter.” Id. at 16. Thus, this Court agrees that this factor does not weigh in favor of remand, and respectfully recommends that conclusion with respect to this factor.
d. Conclusion
Because there are no parallel state court proceedings between these parties, and the factors considered do not weigh in favor of remand, it is respectfully recommended that AEO's motion to remand be denied.
Therefore, pursuant to 28 U.S.C. § 636(b)(1)(B) and (C), Federal Rule of Civil Procedure 72, and the Local Rules for Magistrates, the parties have until September 13, 2022, to file objections to this report and recommendation. Unless Ordered otherwise by the District Judge, responses to objections are due September 27, 2022. Failure to file timely objections will constitute a waiver of any appellate rights. Brightwell v. Lehman, 637 F.3d 187, 193 n. 7 (3d Cir. 2011). Counsel of record via CM/ECF electronic filing