Court Opinion

ID: 3195953
Source: CourtListenerOpinion
Date Created: 2016-04-20 16:01:01.561754+00
Date Added: 2024-06-11T07:39:10.539145
License: Public Domain

Case: 15-10120   Date Filed: 04/20/2016   Page: 1 of 14

                                                        [DO NOT PUBLISH]

           IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________

                            No. 15-10120
                      ________________________

                  D.C. Docket No. 1:14-cv-22463-JLK

FIRST MERCURY INSURANCE COMPANY,
a corporation,

                                                           Plaintiff-Appellant,

                                 versus

EXCELLENT COMPUTING DISTRIBUTORS, INC.,
a corporation,
CRIME STOPPERS SECURITY & INVESTIGATION, INC.,
a corporation,

                                                        Defendants-Appellees.

                      ________________________

               Appeal from the United States District Court
                   for the Southern District of Florida
                     ________________________

                            (April 20, 2016)
                Case: 15-10120       Date Filed: 04/20/2016       Page: 2 of 14

Before MARCUS and JILL PRYOR, Circuit Judges, and RESTANI, * Judge.

PER CURIAM:

       In this insurance coverage dispute, plaintiff-insurer First Mercury Insurance

Company (“First Mercury”) sought a declaratory judgment that it had no duty to

indemnify defendant-insured Crime Stoppers Security & Investigation, Inc.

(“Crime Stoppers”) for tort claims in a state-court lawsuit brought by Excellent

Computing Distributors, Inc. (“Excellent Computing”) against Crime Stoppers.

The district court declined to exercise jurisdiction over First Mercury’s declaratory

judgment action. First Mercury appeals, contending, inter alia, that the district

court abused its discretion in declining to exercise jurisdiction over this insurance

coverage dispute. After a careful review of the record and the parties’ briefs, and

with the benefit of oral argument, we vacate and remand.

                                               I.

       Excellent Computing owned a warehouse, located within a larger

commercial complex (the “Commercial Center”), in which it stored valuable

computer equipment. Property owners within the Commercial Center were part of

a condominium association (the “Association”). The Association hired Crime

Stoppers to monitor the entire premises including Excellent Computing’s

       *
          Honorable Jane A. Restani, Judge for the United States Court of International Trade,
sitting by designation.

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warehouse. Excellent Computing also hired an alarm company to dispatch the

police if a burglary, theft, or other unusual event triggered the alarm system.

       Despite these security precautions, Excellent Computing suffered vandalism

and a significant loss of merchandise at its warehouse. According to Excellent

Computing, someone deactivated its alarm system; because the alarm company

failed to detect the deactivation, it also failed to dispatch the police when the alarm

system went off line. A police report characterized the incident as a burglary and

estimated the value of stolen property at just over $2 million.

       Excellent Computing filed a complaint in Florida state court against the

alarm company and the Association, alleging that “an unauthorized entry into the

commercial warehouse” resulted in “the theft of very valuable merchandise which

had been located inside.” Compl. at 3, ¶ 11, Excellent Computing Distribs., Inc. v.

Guardian Alarm of Fla., LLC, No. 09-32201-CA-01 [15] (Fla. Cir. Ct. Apr. 21,

2009).1 In particular, Excellent Computing alleged that the defendants had

“fail[ed] to note that in broad daylight, unknown third parties broke into the

premises[,] . . . deactivated the alarm systems, [and] stole a large amount of

computer related equipment.” Id. at 3, ¶ 13; see also id. at 4-5, ¶ 19.

       The Association then filed a third-party complaint against Crime Stoppers,

which, in turn, tendered the complaint to its insurer, First Mercury. Crime
       1
        This document is available at district court docket entry 14-1. In this opinion, citations
to “Doc.” refer to docket entries in the district court record in this case.

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Stoppers demanded coverage under its commercial general liability policy (the

“policy”), which had a general aggregate limit of $2,000,000 and a per-occurrence

limit of $1,000,000. First Mercury denied coverage, citing an exclusion in the

policy for “any claim, demand or suit alleging damages arising out of actual or

alleged theft, burglary, robbery, mysterious disappearance, inventory shortage or

inventory shrinkage whether caused, aggravated or exacerbated by . . . [a]cts

committed by known or unknown third parties.” Policy at 40 (Doc. 1-5).

      Crime Stoppers then impleaded First Mercury, requesting a declaratory

judgment that First Mercury had a duty to defend and indemnify it for any liability

arising from the disappearance of Excellent Computing’s inventory. Ultimately,

the Association prevailed in Excellent Computing’s lawsuit, rendering the

Association’s third-party complaint against Crime Stoppers moot. In turn, Crime

Stoppers voluntarily dismissed its claims against First Mercury without prejudice.

      Excellent Computing then filed an amended complaint in the Florida state

court action, naming only Crime Stoppers as a defendant. The amended complaint

downplayed the loss of property, eliminating the terms “theft” “broke into,” and

“stole.” Instead, the amended complaint alleged that “there had been an

unauthorized entry” into Excellent Computing’s warehouse during which

“unknown third parties . . . removed” the computer equipment. Second Am.

Compl. at 3-4 ¶¶ 11, 14, Excellent Computing Distribs., Inc. v. Crime Stoppers

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Sec. & Investigation, Inc., No. 09-32201-CA-01 [15] (Fla. Cir. Ct. Dec. 19, 2011)

(emphasis added).2

       Crime Stoppers tendered the amended complaint to First Mercury. This

time, First Mercury agreed to defend Crime Stoppers under the terms of the policy,

subject to a complete reservation of rights. Excellent Computing’s case against

Crime Stoppers continued in state court.3

       As Excellent Computing’s case proceeded, First Mercury filed this

declaratory judgment action against Excellent Computing and Crime Stoppers in

the United States District Court for the Southern District of Florida, seeking a

declaration that it had no duty to indemnify Crime Stoppers for any judgment in

Excellent Computing’s underlying negligence suit. In particular, First Mercury

sought a declaratory judgment that the exclusion described above—regarding

claims arising out of actual or alleged thefts, burglaries, robberies, or mysterious

disappearances—applied “under the actual facts of this case,” and thus First

Mercury had no duty to indemnify Crime Stoppers for the claims Excellent

       2
           See Compl. Ex. A (Doc. 1-4).
       3
         Excellent Computing’s case against Crime Stoppers was set for a jury trial beginning
May 2, 2016. Order, Excellent Computing Distribs., Inc. v. Crime Stoppers Sec. & Investigation,
Inc., No. 09-32201-CA-01 [15] (Fla. Cir. Ct. Feb. 6, 2016). The court recently granted a
continuance until September 2016. See Order, Excellent Computing Distribs., Inc., No. 09-
32201-CA-01 [15] (Fla. Cir. Ct. Apr. 5, 2016); Unopposed Mot. for Continuance, Excellent
Computing Distribs., Inc., No. 09-32201-CA-01 [15] (Fla. Cir. Ct. Mar. 23, 2016).

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Computing asserted against it. Compl. at 7-8 (Doc. 1). First Mercury sought no

relief regarding its duty to defend.

      Both Excellent Computing and Crime Stoppers filed motions to dismiss.

Excellent Computing urged the district court to decline to exercise its jurisdiction,

arguing, inter alia, that the declaratory judgment action depended in part on the

outcome of Excellent Computing’s underlying action, and both cases involved

overlapping issues of fact. Crime Stoppers argued that the district court lacked

diversity jurisdiction altogether because of an insufficient amount in controversy.

      The district court granted the defendants’ motions and dismissed the action

without prejudice. The court never addressed Crime Stoppers’s amount-in-

controversy argument but instead declined to exercise jurisdiction for two reasons.

First, the court explained that “[b]ecause the underlying state action [was]

unresolved, there [was] no way to know whether or to what extent Crime Stoppers

[would] ultimately be held liable for Excellent Computing’s losses.” Order at 3

(Doc. 18). The court emphasized that First Mercury sought only a declaration

regarding its duty to indemnify, not its duty to defend. And the district court

supported its conclusion by citing to another district court case stating “[i]t is

simply inappropriate to exercise jurisdiction over an action seeking a declaration of

the plaintiff’s indemnity obligations absent a determination of the insureds’

liability.” Id. (quoting Emp’rs Mut. Cas. Co. v. All Seasons Window & Door Mfg.,

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Inc., 387 F. Supp. 2d 1205, 1211-12 (S.D. Ala. 2005)). Second, the court noted

that “significant factual questions necessary for a resolution of First Mercury’s

declaratory judgment action are at issue in the state [court] action, and have yet to

be resolved.” Id. The court did not identify these factual questions.

       First Mercury filed a motion for reconsideration under Federal Rule of Civil

Procedure 60(b), arguing, in part, that the district court mistakenly concluded that

the two cases presented overlapping factual questions. The court denied First

Mercury’s Rule 60(b) motion without addressing this argument. Instead, the

district court reiterated that it declined to exercise jurisdiction to decide

“obligations as to liability that may never arise.” Order at 4 (Doc. 23). First

Mercury timely appealed.

                                          II.

       We consider whether the district court had diversity jurisdiction and, if so,

whether the court abused its discretion in declining to exercise its jurisdiction over

this action.

                                          A.

       Crime Stoppers argues that First Mercury failed to establish the threshold

“amount in controversy” required to invoke federal court jurisdiction in diversity

cases under 28 U.S.C. § 1332(a). According to Crime Stoppers, because First

Mercury believes it has no obligation under the insurance policy to indemnify

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Crime Stoppers for Excellent Computing’s claims, First Mercury’s good-faith

valuation of its declaratory judgment action must be $0. We easily reject this

argument.

       A federal court has diversity jurisdiction over an action where the amount in

controversy exceeds $75,000, exclusive of interest and costs, and the parties have

complete diversity of citizenship. 28 U.S.C. § 1332(a). In a declaratory judgment

action, “[f]or amount in controversy purposes, the value of . . . declaratory relief is

the value of the object of the litigation measured from the plaintiff’s perspective.”

Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1268 (11th Cir. 2000) (internal

quotation marks omitted). “Stated another way, the value of declaratory relief is

the monetary value of the benefit that would flow to the plaintiff if the relief he is

seeking were granted.” S. Fla. Wellness, Inc. v. Allstate Ins. Co., 745 F.3d 1312,

1316 (11th Cir. 2014) (internal quotation marks omitted and alteration adopted).

Thus, when an insurer seeks a judgment declaring the absence of liability under a

policy, the value of the declaratory relief to the plaintiff-insurer is the amount of

potential liability under its policy. See Stonewall Ins. Co. v. Lopez, 544 F.2d 198,

199 (5th Cir. 1976)4 (concluding the amount in controversy included both the

       4
         Decisions of the former Fifth Circuit rendered prior to close of business on September
30, 1981, are binding on this Court. See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th
Cir. 1981) (en banc).

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insurance company’s potential liability and attendant costs associated with

defending an underlying action against the insured).

      The amount in controversy here exceeds $75,000. In the underlying state

court action, Excellent Computing seeks to recover from Crime Stoppers for the

loss of more than $2,000,000 worth of computer equipment. First Mercury’s

policy covering Crime Stoppers during the relevant time contained a $2,000,000

aggregate limit and a $1,000,000 per-occurrence limit. Thus, if First Mercury

loses its declaratory judgment action, it may face $1,000,000 or more in coverage

liability. Put differently, the “value of the object of this litigation”—a judgment

declaring First Mercury free from any indemnification obligation under its

policy—far exceeds $75,000. First Mercury therefore satisfied § 1332(a)’s

amount-in-controversy requirement, and the district court had subject-matter

jurisdiction over the action.

                                         B.

      We next turn to whether the district court erred in declining to exercise its

jurisdiction. The Declaratory Judgment Act grants federal courts the discretion to

“declare the rights and other legal relations of any interested party seeking such

declaration.” 28 U.S.C. § 2201(a). It is well established that the Declaratory

Judgement Act “only gives the federal courts competence to make a declaration of

rights; it does not impose a duty to do so.” Ameritas Variable Life Ins. Co. v.

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Roach, 411 F.3d 1328, 1330 (11th Cir. 2005) (citing Brillhart v. Excess Ins. Co. of

Am., 316 U.S. 491, 494 (1942)). Accordingly, we review for abuse of discretion a

district court decision declining to exercise jurisdiction over a declaratory

judgment action. Id.

       Although this standard of review is deferential, the district court’s discretion

has its limits. A district court abuses its discretion when it commits a clear error of

judgment or a misapplication of the law. See id. For example, a district court can

abuse its discretion when it: (1) fails to consider a relevant factor that should have

been given significant weight, (2) considers and gives significant weight to an

irrelevant or improper factor, or (3) considers “all proper factors, and no improper

[factors] . . . but . . . , in weighing those factors, commits a clear error of

judgment.” Id. (internal quotation marks omitted). We also find abuse of

discretion “when neither the district court’s decision nor the record provide[s]

sufficient explanation to enable meaningful appellate review.” Cox Enters., Inc. v.

News-Journal Corp., 510 F.3d 1350, 1360 (11th Cir. 2007).

       In Ameritas, we provided the following non-exhaustive list of factors for

district courts to consider when deciding whether to exercise jurisdiction over a

declaratory judgement action where an underlying state court action involves some

of the same issues and parties:

       (1) the strength of the state’s interest in having the issues raised in the
       federal declaratory action decided in the state courts;

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      (2) whether the judgment in the federal declaratory action would settle
      the controversy;

      (3) whether the federal declaratory action would serve a useful
      purpose in clarifying the legal relations at issue;

      (4) whether the declaratory remedy is being used merely for the
      purpose of “procedural fencing”—that is, to provide an arena for a
      race for res judicata or to achieve a federal hearing in a case
      otherwise not removable;

      (5) whether the use of a declaratory action would increase the friction
      between our federal and state courts and improperly encroach on state
      jurisdiction;

      (6) whether there is an alternative remedy that is better or more
      effective;

      (7) whether the underlying factual issues are important to an informed
      resolution of the case;

      (8) whether the state trial court is in a better position to evaluate those
      factual issues than is the federal court; and

      (9) whether there is a close nexus between the underlying factual and
      legal issues and state law and/or public policy, or whether federal
      common or statutory law dictates a resolution of the declaratory
      judgment action.

Ameritas, 411 F.3d at 1331. We noted that not every factor will be relevant in

every case. See id.

      Although in Ameritas, we reviewed the district court’s discretionary

dismissal of a federal declaratory judgment action in the face of a parallel state

proceeding—one involving substantially the same parties and substantially the

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same issues 5—we have never held that the Ameritas factors apply only when

reviewing parallel actions. Indeed, nothing in the Declaratory Judgment Act

suggests that a district court’s discretionary authority exists only when a pending

state proceeding shares substantially the same parties and issues. Rather, the

district court must weigh all relevant factors in this case, even though the state and

federal actions were not parallel. See id.

       Here, the district court primarily rested its discretionary decision on the

possibility that Crime Stoppers’s liability to Excellent Computing—and thus First

Mercury’s coverage liability—will never arise. We acknowledge that “whether the

judgment in the federal declaratory action would settle the controversy” is one

factor that a district court can consider in deciding whether to exercise its

discretion. Id. But this factor is insufficient, standing alone, to close the

courthouse door; it must be weighed against the potential that an insurance

coverage determination could “serve a useful purpose in clarifying the legal

relations at issue.” Id.; see, e.g., Britamco Underwriters, Inc. v. Cent. Jersey Invs.,

Inc., 632 So. 2d 138, 141 (Fla. 4th DCA 1994) (recognizing the potential benefits

of a coverage determination on the duty to indemnify before the conclusion of an

underlying negligence suit, including allowing for intelligent decisionmaking

       5
         See Ambrosia Coal & Constr. Co. v. Pagés Morales, 368 F.3d 1320, 1330 (11th Cir.
2004) (explaining in the context of abstention under Colorado River Water Conservation District
v. United States, 424 U.S. 800 (1976), that a parallel proceeding is one involving substantially
the same parties and issues).

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regarding settlement). There is no indication that the district court considered any

potential benefits. We thus conclude that the district court abused its discretion by

failing to consider and weigh the potential benefits of a prompt liability

determination.

      The district court’s only remaining reason for declining to exercise

jurisdiction was that “significant factual questions” at issue in the underlying

negligence suit were necessary for the resolution of this declaratory judgment

action. Order (Doc. 18 at 3). Some factual questions in the state court action may

be “important to an informed resolution of the case.” Ameritas, 411 F.3d at 1331.

But the court failed to identify which factual questions it was considering or

explain why these questions tip the scale in favor of dismissal. Because “neither

the district court’s decision nor the record provide sufficient explanation to enable

meaningful appellate review,” Cox, 510 F.3d at 1360, we conclude that the district

court abused its discretion.

                                         III.

      The district court abused its discretion by declining to exercise jurisdiction

without considering adequately the relevant factors. We do not foreclose the

dismissal of this action without prejudice, however, if the district court clearly

delineates its basis for doing so, and its decision remains within the bounds of the

court’s broad discretion. Thus, we vacate and remand to the district court for

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consideration of the Ameritas factors and any other facts it deems relevant; we

express no opinion about whether the district court should exercise its discretion to

hear the declaratory judgment action.

      VACATED and REMANDED for further consideration.

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