United Financial Casualty Company v. Kansas E3, LLC et al

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION
UNITED FINANCIAL CASUALTY COMPANY
V. 	CASE NO. 5:24-CV-5094
KANSAS E3, LLC; RED LINE
CONTRACTORS, LLC; FIDEL RUA;
JASON FLYNN; and AMANDA FLYNN
OPINION AND ORDER
PLAINTIFF
DEFENDANTS
Now before the Court are Separate Defendants Kansas E3 , LLC, Red 	Line
Contractors, LLC, and 	Fidel Rua's (collectively "State-Court Defendants") Motion to
Dismiss (Doc. 25) , State-Court Defendants' Memorandum Brief in Support (Doc. 26) ,
Plaintiff United Financial Casualty Company's Response in Opposition (Doc. 28) , and
United 's supporting 	memorandum 	brief (Doc. 29). State-Court Defendants move to
dismiss for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(1). On July 9,
2024 , the Court held a Case Management Hearing and heard oral arguments on the
Motion . For the reasons below, the Motion to Dismiss is DENIED.
This case was brought by United pursuant to the Declaratory Judgment Act. In
August 2020 , while driving a Mack truck, Fidel Rua allegedly rear ended a car owned by
Amanda and Jason Flynn1 that was being driven by Ms. Flynn . (Doc. 2, p. 9) . On January
10, 2022 , the Flynns sued Mr. Rua and Red Line in state court, alleging that Mr. Rua was
1 Amanda Flynn and Jason Flynn failed to answer or otherwise respond to United's
Complaint. Thus , on June 7, 2024 , United filed an Affidavit in Support of Default (Doc.
20) . On June 10 , 2024, the Clerk made an Entry of Default against Amanda Flynn and
Jason Flynn (Doc. 21).
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driving a 2016 Mack dump truck in the scope of his work for Red Line at the time of the
accident (the "Underlying Suit"). Id. at pp. 9-10 ; Doc. 2-3, pp. 1- 2. The Flynns filed a First
Amended State-Court Complaint on May 8, 2023 , to allege that Mr. Rua was actually
driving a 2010 Mack dump truck, and they filed a Second Amended State-Court Complaint
on May 31 , 2023 , to include Kansas E3 as a defendant. (Doc. 2, p. 10; Doc. 2-4, p. 1;
Doc. 2-5, pp. 1- 2). According to the Complaint in this case, the 2010 Mack truck was
owned by Kansas E3 and leased by Red Line , and the 2016 Mack truck was owned by
Red Line. (Doc. 2, pp. 3, 9) . Whether Mr. Rua was driving the 2010 or 2016 Mack truck
is critical because the 2010 Mack truck was insured by United at the time of the accident
and the 2016 Mack truck was not. See id. at pp. 3, 12 ; Doc. 2-1 , p. 2.
Following the accident, Kansas E3-the named policy holder with United-and Mr.
Rua filed a claim under the United policy. See Doc. 28-3 (reservation of rights letter sent
from United to Kansas E3 and Mr. Rua on September 25, 2020).2 United agreed to
provide a defense under a reservation of rights but flagged that the 2016 Mack truck was
not listed on the applicable policy. Id. at p. 1; see also Doc. 2, p. 10 . The parties continue
to dispute which truck was involved in the accident.
2 The policy lists Kansas E3 as the named insured , and the reservation of rights letter was
addressed to Kansas E3 and Mr. Rua. United has also provided several emails regarding
coverage with insurance adjusters at Progressive-which the Court understands to be
the same as United within the context of this case based on the policy and reservation of
rights letter-and Nationwide. See Doc. 28-2. The emails with Nationwide discuss "Red
[ L]ine's claims" and whether the insurer will be providing a "defense under Red Line. " Id.
at pp. 1-2 . It is not clear from the current record whether Red Line made any insurance
claims or how Nationwide fits into the facts . The Court does note that in the Complaint at
bar, United seeks a declaration that it "is not required to provide a defense or indemnity"
to Kansas E3 , Mr. Rua, or Red Line. See Doc. 2, p. 12.
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As United describes, the Underlying Suit was set to go to trial in early May 2024.
(Doc. 29 , p. 3). However, after a failed mediation in April 2024 and after United brought
this declaratory action , the Flynns voluntarily nonsuited the Underlying Suit, which was
dismissed without prejudice on May 3, 2024. Id. at p. 3; see also Doc. 15-1, p. 1. The
Flynns have one year from that dismissal to refile . State-Court Defendants continue to
assert that there is coverage under the policy, and there is no indication that Kansas E3
and Mr. Rua have withdrawn their demand for United to defend and indemnify them or
that they have released United from any obligations under the policy. (Doc. 15, p. 3
(denying paragraph 36 of United's Complaint, which seeks a declaration that United has
no duty to defend or indemnify Red Line, Kansas E3 , or Rua)) . Because the Underlying
Suit was dismissed , State-Court Defendants argue that there is no longer a justiciable
case or controversy as required by Article Ill , and , therefore , that this case should be
dismissed under Rule 12(b)(1) for lack of jurisdiction.
Both Article Ill , Section 2, of the Constitution and the Declaratory Judgment Act
require that a case or controversy exist for a federal court to have jurisdiction . See 28
U.S.C. § 2201 (a) (requiring "a case of actual controversy") .
The 	difference 	between 	an 	abstract 	question 	and 	a 	"controversy"
contemplated 	by the 	Declaratory Judgment Act 	is necessarily one 	of
degree, and it would be difficult, if it would be possible, to fashion a precise
test for determining in every case whether there is such a controversy.
Basically, 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.
Maryland Gas . Co. v. Pac. Coal & Oil Co ., 312 U.S. 270 , 273 (1941) . The Supreme Court
has further clarified that the language of the Declaratory Judgment Act "limits federal court
action to justiciable cases ." Pub. Water Supply Dist. No. 10 of Cass Cnty , Mo . v. City of
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Peculiar, Mo ., 345 F.3d 570,572 (8th Cir. 2003) (citing Aetna Life Ins. Co. v. Haworth , 300
U.S. 227, 239-40 (1937)) . Thus, 	the 	Eighth Circuit instructs courts to assess "the
traditional justiciability requirement of ripeness" in these cases-a doctrine which "flows
both from the Article Ill 'cases' and 'controversies' limitations and also from prudential
considerations for refusing to exercise jurisdiction ." Id. (quoting Neb. Pub. Power Dist. v.
MidAmerican Energy Co., 234 F.3d 1032, 1037 (8th Cir. 2000)) .
In determining whether a case is ripe , courts look to "the fitness of the issues for
judicial decision and the hardship to the parties of withholding court consideration. " Id. at
572-73 (citation omitted) . Under Eighth Circuit precedent, a plaintiff "must necessarily
satisfy both prongs to at least a minimal degree ." Id. at 573 (quoting Neb. Pub. Power
Dist. , 234 F.3d at 1039). "Whether a case is 'fit' depends on whether it would benefit from
further factual development ," and therefore , a "case is more likely to be ripe if it poses a
purely legal question and is not contingent on future possibilities. " Id. To satisfy the
hardship prong , "[i]t must be alleged that the plaintiff has sustained or is immediately in
danger of sustaining some direct injury"- 	"[a]bstract injury is not enough ." Id. (second
alteration in original). An injury must be "certainly impending ," but a plaintiff need not wait
until such injury actually occurs. Id.
The Eighth Circuit has found that a live justiciable controversy exists in the
declaratory judgment context where, although an underlying liability suit has not yet been
filed , the insured has made a demand for defense and indemnification and the insurer
has disputed such coverage . Aetna Ca. & Sur. Co. v. Gen. Dynamics Corp. , 968 F.2d 707 ,
711 	(8th 	Cir. 	1992). The 	Eighth 	Circuit continues to 	favorably cite 	Aetna for this
proposition. See, e.g., Clarendon Nat'I Ins. Co. v. United Fire & Gas. Co ., 571 F.3d 749 ,
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752 (8th Cir. 2009) ; Scottsdale Ins. Co . v. Universal Crop. Prat. Alliance, 620 F.3d 926 ,
934 (8th Cir. 2010) .
The parties primarily rely on two insurance cases out of the Western District of
Missouri to support their respective arguments: State-Court Defendants argue that Acuity
v. Exceptional Professionals, Inc ., 2010 WL 11508580 (W.D. Mo. Feb . 3, 2010) , is most
on-point ,3 whi le United counters that GEICO Casualty Co . v. Hollandsworth , 2018 WL
3546238 (W.D. Mo. July 23 , 2018) , is most persuasive here. The Court agrees with United
that Acuity is distinguishable and that GEICO is more instructive.
In Acuity, the court found that there was no justiciable controversy because the
underlying case had been dismissed , the defendants (the insureds) had released the
plaintiff (the insurer) from any obligation to defend the underlying suit, and the defendants
had withdrawn their demand for a defense. 2010 WL 11508580, at *1. Thus , "With no
pending underlying lawsuit, no immediate request for a defense, and no present threat of
3 State-Court Defendants also cite Marine Equipment Management Company v. United
States, 4 F.3d 643 (8th Cir. 1993) to argue there is no case or controversy in the
declaratory judgment action at bar. Marine Equipment, however, is not on-point. There,
the court was asked to declare that a sunken barge had been "abandoned" and thus the
duty to remove it shifted from the owner of the barge to the United States and to declare
that the original owners of the barge were not liable to unknown future litigants who may
claim damage from the barge.
In finding that there was no controversy as to abandonment, the court reasoned that
"[w]hile [the owners] were at one time asked to mark and remove their sunken barge, they
face[d] no compulsion at [the time of the action]. " Id. at 646 . And in finding there was no
jurisdiction to declare that the owners were not liable to future litigants, the court noted
that no one had made any claims of damage from the barge and such claims were unlikely
due to the barge likely having sunk beneath the river bed , so it could not "be said that
there [was] even a substantial probability that such claims [would] ever be made ." Id. at
647. 	In 	contrast, here 	Kansas 	E3 	and 	Mr. 	Rua's 	demand 	for 	coverage 	remains
outstanding and there has been no factual development in the case that makes the
Flynns' refiling of the Underlying Suit unlikely.
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litigation , there [was] no longer a substantial controversy of 'sufficient immediacy and
reality to warrant the issuance of a declaratory judgment. "' Id. (quoting Marine Equip.
Mgmt. Co. v. United States, 4 F.3d 643, 646 (8th Cir. 1993)).
In GE/CO, the court ultimately found that there was a justiciable controversy
sufficient to establish jurisdiction in the declaratory judgment action despite the underlying
suit having 	been dismissed without prejudice. 2018 WL 3546238 , at *1 . The court
reasoned that the fitness prong was satisfied because the declaratory judgment action
presented "purely a question of law"-whether there was coverage under the policy. Id.
at *2. And the hardship prong was met because "the dispute between the Defendants
[was] not resolved ," the underlying plaintiff had not released the insured or GEICO from
liability, and the insured "had not withdrawn her claim against GEICO" or "stated she
[would] not pursue coverage under the GEICO policy. " Id. The court distinguished these
facts from Acuity, where the insureds "were no longer pursuing their claims against the
insurance company ." Id. (citing Acuity, 2010 WL 11508580, at *1). The Court finds GE/CO
more persuasive than Acuity in that the insureds in this case continue to argue that there
is coverage and have not withdrawn their demand for a defense or indemnification. Not
only does this finding acknowledge the greater factual similarities between the instant
case and GEICO, it is also most consistent with Eighth Circuit precedent such as Aetna.
Here, though the Underlying Suit has been dismissed , Kansas E3 and Mr. Rua
have not withdrawn their request for defense or indemnification , United and State-Court
Defendants continue to dispute whether coverage exists, and the Flynns may refile their
suit so long as they do so in the allotted timeframe. This case turns on the legal question
of coverage and is not contingent on future possibilities. Thus, the Court finds that United
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has met the fitness prong. Additionally, United has met the hardship prong . From what
the Court can tell, Kansas E3 and Mr. Rua continue to demand coverage and, considering
the underlying dispute remains unresolved and the Flynns have already filed suit once,
the injury to United is impending . "[H]ardship would beset" United were it "forced to wait
until" the Flynns refile the Underlying Suit "to determine its duty to defend , as the duty
arises when there is a potential or possible liability to pay based on the facts at the outset
of the case. " Am. Strategic Ins. Corp. v. Goodell, 662 F. Supp. 3d 1012, 1019-20 (W.D.
Mo. 2023) .
Therefore , because 	the 	Court 	finds 	there 	exists 	a 	"substantial 	controversy,
between parties having adverse legal interests, of sufficient immediacy" to establish
jurisdiction , see Maryland Gas. Co ., 312 U.S. at 273, IT IS HEREBY ORDERED that
State-Court Defendants' Motion to Dismiss is DENIED .
IT IS SO ORDERED on this ~ 	ay of July, 2024.
TJUDGE
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