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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

FORT WORTH DIVISION

EVANSTON INSURANCE COMPANY, §

§

 Plaintiff, §

§

v. § Civil Action No. 4:22-cv-00720-O

§

NEXGEN PHARMACEUTICALS, 

LLC,

§

§

§

 Defendant. §

MEMORANDUM OPINION & ORDER

Before the Court are Plaintiff’s Motion to Dismiss Amended Counterclaim to First 

Amended Complaint (ECF No. 24), filed on May 18, 2023; Defendant’s Response (ECF No. 25) 

and Appendix (ECF No. 26), filed on May 22, 2023; and Plaintiff’s Reply (ECF No. 27), filed on 

June 5, 2023. Having considered the briefing and applicable law, the Court GRANTS Plaintiff’s 

Motion and DISMISSES without prejudice Defendant’s counterclaims.

I. BACKGROUND1

This insurance coverage action arises out of settlement negotiations in an underlying 

lawsuit. The facts are not disputed. Evanston Insurance Company (“Evanston”) issued a liability 

insurance policy (the “Policy”) to Absolute Veterinary Compounding Pharmacy LLC (“Absolute 

Vet”), which subsequently merged into NexGen Pharmaceuticals, LLC (“NexGen”). Under the 

Policy, Evanston must defend a covered claim. At the same time, the Policy sets forth several bars 

to—and limitations on—coverage.

1 All undisputed facts are drawn from Plaintiff’s First Amended Complaint (ECF No. 20) and Plaintiff’s 

Motion to Dismiss (ECF No. 24), unless otherwise specified. At the 12(b)(6) stage, these facts are taken as 

true and viewed in the light most favorable to Defendant. Sonnier v. State Farm Mut. Auto. Ins., 509 F.3d 

673, 675 (5th Cir. 2007).

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Absolute Vet and NexGen are currently named defendants in a separate state court tort 

action (the “Jones Action”). In the Jones Action, the claimants brought a variety of claims against 

Absolute Vet—and its successor, NexGen—stemming from the allegation that Absolute Vet 

incorrectly filled a prescription that was fatal to claimants’ horses. The parties to the Jones Action 

have engaged in settlement negotiations. Relevant here, the claimants in the Jones Action seek 

recovery of their attorneys’ fees. These settlement negotiations have been frustrated by the 

claimants’ insistence on recovering attorneys’ fees, prompting a coverage dispute between 

NexGen and Evanston. Although Evanston offered to pay more than the value of the deceased 

horses, the claimants in the Jones Action responded to that offer by demanding over $400,000 in 

attorneys’ fees. NexGen argues that it is entitled to coverage in the Jones Action as a successorin-interest to an insured. As such, NexGen contends that Evanston must settle the Jones Action by 

paying an amount allocable to the alleged attorneys’ fees. The Jones Action remains pending and 

unsettled.

Due to the coverage dispute, Evanston commenced this lawsuit on August 18, 2022. 

Evanston seeks judicial declarations that NexGen is not entitled to any coverage under the Policy

and that the Policy provides no coverage for the underlying claimants’ attorneys’ fees. NexGen 

responded by asserting two counterclaims: one for declaratory relief and a second for failure to 

settle in good faith under the Texas Insurance Code. Since the filing of NexGen’s counterclaims, 

the parties have agreed that the Texas Insurance Code counterclaim should be dismissed without 

prejudice due to ripeness.2 As such, the Court need only evaluate whether NexGen’s declaratory 

judgment counterclaim should be dismissed.

2

See Def.’s Resp. to Mot. to Dismiss Am. Countercl. to First Am. Compl. 6, ECF No. 25 (“NexGen agrees 

with Evanston that this claim is not yet ripe, as the third party claims have not yet been resolved by judgment 

or settlement.”); see also Pl.’s Mot. to Dismiss Am. Countercl. to First Am. Compl. 15, ECF No. 24 (“[T]he 

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II. LEGAL STANDARD

A. Rule 12(b)(6)

Federal Rule of Civil Procedure 8 requires that a complaint contain “a short and plain 

statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). The 

Rule “does not require ‘detailed factual allegations,’ but it demands more than an unadorned, thedefendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). If a plaintiff fails to satisfy this 

standard, the defendant may file a motion to dismiss under Rule 12(b)(6) for “failure to state a 

claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6). 

To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must plead “enough facts 

to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. A claim is facially 

plausible when the plaintiff pleads factual content that allows the court to reasonably infer that the 

defendant is liable for the alleged misconduct. Iqbal, 556 U.S. at 678. Unlike a “probability 

requirement,” the plausibility standard instead demands “more than a sheer possibility that a 

defendant has acted unlawfully.” Id. Where a complaint contains facts that are “merely consistent 

with a defendant’s liability, it stops short of the line between possibility and plausibility of 

entitlement to relief.” Id. (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted).

In reviewing a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts in the 

complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm 

Mut. Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007). However, the Court is not bound to accept 

legal conclusions as true. Iqbal, 556 U.S. at 678–79. To avoid dismissal, pleadings must show 

specific, well-pleaded facts rather than conclusory allegations. Guidry v. Bank of LaPlace, 954 

Court should dismiss [NexGen’s] counterclaim for violation of . . . the Texas Insurance Code” and 

“Evanston agrees that dismissal without prejudice is the correct result”).

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F.2d 278, 281 (5th Cir. 1992). “When there are well-pleaded factual allegations, a court should 

assume their veracity and then determine whether they plausibly give rise to an entitlement to 

relief.” Iqbal, 556 U.S. at 679. A court ruling on a motion to dismiss “may rely on the complaint, 

its proper attachments, documents incorporated into the complaint by reference, and matters of 

which a court may take judicial notice.” Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 

763 (5th Cir. 2011) (citations and internal quotation marks omitted).

B. Declaratory Judgment

Under the Declaratory Judgment Act (“DJA”), a federal court “may declare the rights and 

other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). The 

DJA “is an enabling act, which confers discretion on the courts rather than an absolute right upon 

a litigant.” Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995). As such, federal courts have 

“unique and substantial discretion in deciding whether to declare the rights of litigants.” Id. at 286. 

This includes “discretion in determining whether and when to entertain an action under the [DJA], 

even when the suit otherwise satisfies subject matter jurisdictional prerequisites.” Id. at 283. When 

deciding whether to dismiss a declaratory judgment action, a court must follow a three-step inquiry 

to determine whether (1) the declaratory action is justiciable, (2) the court has authority to grant 

declaratory relief, and (3) to exercise broad discretion. Orix Credit All., Inc. v. Wolfe, 212 F.3d 

891, 895 (5th Cir. 2000).

3 When there is only the question of how to exercise discretion, courts 

generally dismiss mirror-image counterclaims for declaratory relief that add nothing to the action. 

3 The first two steps are justiciability and authority to grant declaratory relief. Sherwin-Williams Co. v. 

Holmes Cnty., 343 F.3d 383, 387 (5th Cir. 2003). Evanston does not challenge NexGen’s declaratory 

judgment counterclaim on these grounds. Pl.’s Mot. to Dismiss Am. Countercl. to First Am. Compl. 8 n.4, 

ECF No. 24. Indeed, Evanston agrees that there is an actual controversy between the parties and 

acknowledges the Court’s authority to grant declaratory relief due to diversity jurisdiction and the absence 

of a pending state court action regarding this coverage dispute. Id.

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See, e.g., Liberty Ins. Corp. v. Arch Ins. Co., No. 4:20-CV-098-A, 2020 WL 3065523, at *3–4 

(N.D. Tex. June 8, 2020) (dismissing mirror-image counterclaim for declaratory relief).

III. ANALYSIS

Evanston argues that NexGen’s counterclaim for declaratory judgment should be 

dismissed4 because it is duplicative of Evanston’s own claim for declaratory judgment and merely 

seeks a determination that affirmative defenses are meritorious.

5 The Court agrees.

Applying the required three-step inquiry here, there is no dispute that the first two prongs

are satisfied.

6 First, there is an actual controversy between the parties—namely, whether Evanston 

had a duty to defend and indemnify in the underlying lawsuit. Indeed, both parties seek 

declarations to this effect.7 Second, the Court has authority to grant declaratory relief in this case 

because diversity jurisdiction is satisfied and neither party has identified a state court action 

regarding this particular coverage dispute. Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 

387–88 & n.1 (5th Cir. 2003). As a result, the inquiry centers on the third prong concerning 

whether the Court should use its discretion to dismiss NexGen’s declaratory judgment 

counterclaim. After reviewing each declaratory judgment claim, the Court exercises its discretion 

to dismiss NexGen’s counterclaim. Evanston’s existing declaratory judgment claim will 

accomplish the same as NexGen’s counterclaim.

4 Evanston also objects to NexGen’s revised counterclaim as an impermissible amendment without leave 

of court because it seeks “to unilaterally reopen briefing on the Initial Motion to Dismiss.” Pl.’s Mot. to 

Dismiss Am. Countercl. to First Am. Compl. 1 n.1, ECF No. 24. According to Evanston, “NexGen amended 

its Counterclaim to add legal authority in support of gratuitous legal arguments” first asserted in response 

to the initial motion to dismiss. Id. The Court need not address Evanston’s objection because it is mooted 

by the Court’s dismissal of NexGen’s counterclaims. 

5 Pl.’s Mot. to Dismiss Am. Countercl. to First Am. Compl. 8, ECF No. 24.

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See id. at 8 n.4 (“Evanston does not move for dismissal on the basis of the first and second steps: 

justiciability and the Court’s authority to grant declaratory relief.”). 

7 NexGen only seeks a declaration regarding Evanston’s duty to defend—not indemnification. See Def.’s 

Ans. & Countercl. to First Am. Compl. 9, ECF No. 22 (arguing that Evanston’s claim for an indemnity 

determination is not yet ripe); see also Pl.’s Mot. to Dismiss Am. Countercl. to First Am. Compl. 8, ECF 

No. 24 (characterizing NexGen’s requested relief as limited only to the duty to defend).

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Evanston’s claim “seeks a declaration . . . that it has no duty to defend or indemnify 

NexGen against any claims that have or could be brought in the underlying Jones Action.”8

According to Evanston, (1) NexGen is not an insured as defined by the Policy, (2) Absolute Vet 

failed to comply with the Policy’s provision concerning change in control of named insured, and 

(3) the Policy prohibits an assignment of interest without consent by Evanston’s endorsement.9In 

the alternative, Evanston seeks a judicial declaration that even if NexGen were entitled to insured 

status, “there is no coverage” for attorneys’ fees for a party other than an insured under the Policy

given NexGen’s assumption of Absolute Vet’s liability via the merger.10

NexGen’s counterclaim seeks a similar declaration. According to NexGen, it “is entitled 

to defense by Evanston in the Jones Action as . . . the successor” of Absolute Vet and because “the 

claim arose during the Policy period.”11 Alternatively, NexGen seeks a declaration that it “is 

entitled to defense based on waiver or estoppel.”12 However, unlike Evanston’s declaratory 

judgment claim, NexGen argues that “[t]here is no jurisdiction to consider the question of 

indemnity for any claims arising from the Jones Action, as there has been neither any settlement 

nor judgment as to those claims.”13 In other words, NexGen’s declaratory judgment claim is 

narrower since it focuses only on the duty to defend.

Although the declaratory relief NexGen seeks is narrower than Evanston’s desired 

declarations, there is still complete overlap regarding the duty to defend. In this sense, NexGen’s 

counterclaim is essentially the mirror-image of Evanston’s claim—both seek a declaration 

regarding whether Evanston has a duty to defend NexGen in the Jones Action. On the one hand,

8 Pl.’s Am. Compl. 9, ECF No. 20 (emphasis omitted).

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Id. at 9–10.

10 Id. at 11–12.

11 Def.’s Ans. & Countercl. to First Am. Compl. 6, ECF No. 22 (emphasis omitted).

12 Id. at 8.

13 Id. (emphasis omitted).

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NexGen asks the Court to declare that Evanston has a duty to defend Absolute Vet and, therefore,

NexGen.

14 On the other hand, Evanston asks the Court to declare that it does not owe such a duty 

at all.15 Because these claims are two sides of the same coin, they are functionally mirror images 

of the same declaratory relief. Therefore, NexGen’s counterclaim is duplicative.

NexGen’s argument that its counterclaim is “not just a ‘mirror image’ of Evanston’s 

declaratory claim” is unavailing.

16 According to NexGen, its counterclaim is more than an 

affirmative defense because it “affirmatively seek[s] relief that Evanston is required to continue 

representing NexGen in the underlying horse case—not merely seeking to ‘defend’ against 

Evanston’s claim for a determination that it is not so obliged.”17 Although affirmative relief is a 

proper subject for a counterclaim because such a counterclaim could stand independently on its 

own, Evanston’s declaratory judgment claim includes the exact affirmative relief that NexGen 

seeks: a declaration regarding Evanston’s duty to defend. Should the Court later determine on the 

merits that Evanston has a duty to defend NexGen in the Jones Action, that duty would require 

continued representation during the life of that underlying case. There is no need for duplicative 

claims seeking the same relief.

NexGen next contends that it is also “entitled to a continued defense in the underlying 

horse case, based . . . on waiver and estoppel,” which “present[] additional issues.”

18 Once again, 

any such entitlement based on waiver or estoppel is subsumed by Evanston’s declaratory judgment 

claim. And the Court will consider these affirmative defenses when evaluating whether Evanston 

14 Id. at 3–4; see also Def.’s Ans. & Countercl. to First Am. Compl. 6, ECF No. 22 (“NexGen is entitled to 

coverage under the Policy for claims that arose during the Policy period as the successor owner.”).

15 Pl.’s Mot. to Dismiss Am. Countercl. to First Am. Compl. 8, ECF No. 24; see also Pl.’s Am. Compl. 10, 

11, ECF No. 20 (“Evanston is entitled to a judgment that there is no coverage, defense[,] or indemnity[] for 

NexGen.”).

16 Def.’s Resp. to Mot. to Dismiss Am. Countercl. to First Am. Compl. 2, ECF No. 25 (emphasis in original).

17 Id. at 3 (emphasis in original).

18 Id. (emphases omitted).

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has a duty to defend NexGen. Any such arguments regarding the impact of affirmative defenses 

on coverage—alongside arguments regarding the entitlement to coverage as a successor-ininterest, and the impact of merger liability and alleged lack of notice on coverage—can still be 

raised by NexGen despite dismissal of its duplicative counterclaim. For these reasons, the Court 

exercises its discretion to dismiss NexGen’s declaratory judgment counterclaim because 

Evanston’s existing claim will accomplish the same relief sought by NexGen.

IV. CONCLUSION

Accordingly, it is ORDERED that Plaintiff’s Motion to Dismiss (ECF No. 24) should be 

and, is hereby, GRANTED in its entirety. Defendant’s counterclaim regarding the Texas 

Insurance Code is DISMISSED without prejudice for lack of ripeness. And Defendant’s 

counterclaim seeking declaratory relief is DISMISSED without prejudice as duplicative of 

Plaintiff’s pending declaratory judgment claim.

SO ORDERED on this 15th day of November, 2023.

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