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Auto-Owners Insurance Co. v. Davidson

United States District Court, E.D. Tennessee, Chattanooga Division

November 1, 2017



          Thomas W. Phillips United States District Judge

         This matter is before the Court on Plaintiff's Motion for Default Judgment [doc. 16], Defendants Justin Anthony Gallagher and Melissa Marie Gallagher's Response in Opposition [doc. 18], and Plaintiff's Reply [doc. 19]. For the reasons herein, the Court will deny the motion.

         I. Background

         An insurer, Plaintiff Auto-Owners Insurance Company (“Auto-Owners”) alleges that it entered into a pair of commercial insurance policies with Defendants Lance Davidson, Davidson Contractors, LLC, and John Mason (“Defendants”), whom Defendants Justin Gallagher and Melissa Gallagher (“the Gallaghers”) allegedly hired to build a home. [Compl., doc. 1, ¶¶ 25-32; State Am. Compl, doc. 1-1, ¶¶ 8-9]. After the home's completion, and within six weeks of moving into the home, the Gallaghers claim that they discovered multiple defects, including cracks in the drywall and foundation, and mold in the basement. [State Am. Compl. ¶¶ 33-48, 53, 59]. These alleged problems with the home prompted the Gallaghers to bring a multi-claim state lawsuit against Defendants in Hamilton County, Tennessee. [Id. ¶¶ 62-115].

         Now, Auto-Owners brings suit in this Court under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, asking the Court to declare that its insurance policies do not require it to insure, defend, or indemnify Defendants against damages that they incur in the Gallaghers' state suit. [Compl. at 24-25]. The Gallaghers-whom Auto-Owners includes in this declaratory judgment action as defendants-filed an Answer [doc. 6] in response to Auto-Owners' Complaint for Declaratory Judgment. Defendants, however, did not file an answer or seek dismissal under Federal Rule of Civil Procedure 12(b). As a result, Auto-Owners petitioned the Clerk of Court for entries of default against Defendants under Federal Rule of Civil Procedure 55(a), [see Appls. Default, docs. 10-12]. Having received these entries of default, Auto-Owners moves the Court for default judgments under Federal Rule of Civil Procedure 55(b)(2).

         II. Legal Standard

         Rule 55(b)(2) permits the Court, in its discretion, to award a default judgment to a plaintiff after the Clerk enters a default under Rule 55(a). See Fed. R. Civ. P. 55(b)(2) (providing that a court “may” enter a default judgment). Once the Clerk enters a default, the Court must accept all well-pleaded allegations as true. See Thomas v. Miller, 489 F.3d 293, 299 (6th Cir. 2007) (stating that a clerk's entry of default “conclusively establishes every factual predicate of a claim for relief” (citations omitted)); see also Fed. R. Civ. P. 8(b)(6) (“An allegation-other than one relating to the amount of damages-is admitted if a responsive pleading is required and the allegation is not denied.”). The Court “must then ‘examine the sufficiency of plaintiff's allegations to determine whether the plaintiff is entitled to' a default judgment.” Fifth Third Bank v. Canfield, No. 3:14-CV-00300-CRS, 2014 WL 3853464, at *2 (W.D. Ky. Aug. 5, 2014) (quotation omitted).

         III. Analysis

         The Declaratory Judgment Act states that “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, 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.” 28 U.S.C. § 2201(a). For parties “not certain of” their contractual rights, the Declaratory Judgment Act allows them to “avoid accrual of avoidable damages” through “early adjudication, ” so that they do not have to “wait[] until [an] adversary should see fit to begin suit.” Blakely v. United States, 276 F.3d 853, 872 (6th Cir. 2002) (quotation omitted); see Ragen v. Hancor, Inc., 920 F.Supp.2d 810, 843 (N.D. Ohio 2013) (observing that the Declaratory Judgment Act is “a means for clarifying contractual obligations”). When a court issues a declaratory judgment under the Declaratory Judgment Act, it “ha[s] the force and effect of a final judgment.” 28 U.S.C. § 2201(a).

         1. Federal Jurisdiction

         The Declaratory Judgment Act is an anomaly because although it is a federal law, it does not create an independent basis for federal jurisdiction. Heydon v. MediaOne of Se. Mich., Inc., 327 F.3d 466, 470 (6th Cir. 2003). Before “invoking the Act, ” a plaintiff must therefore establish that a court “ha[s] jurisdiction already, ” id., whether the jurisdictional basis comes from a federal question under 28 U.S.C. § 1331 or diversity of citizenship under 18 U.S.C. § 1332(a), id. at 469-70; see Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 672-73 (1950). The Court's initial task is therefore to decide whether an independent basis exists for jurisdiction. See Bhd. Mut. Ins. Co. v. United Apostolic Lighthouse, Inc., 200 F.Supp.2d 689, 691 (E.D. Ky. 2002) (“[T]he plaintiff must establish that the district court has either diversity jurisdiction or federal question jurisdiction before the Court will entertain a declaratory action.”).

         Auto-Owners maintains that the Court's independent basis for jurisdiction arises under § 1332(a), [Compl. ¶ 15], which of course requires complete diversity between each plaintiff and defendant and an amount in controversy that exceeds $75, 000 exclusive of interest and costs. 28 U.S.C. § 1332(a); Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir. 1999). Alleging that the amount at issue is greater than $75, 000 because the insurance policies' limits are $1, 000, 000, [Compl. ¶¶ 21-23], Auto-Owners meets the amount-in-controversy requirement, see generally Basicomputer Corp. v. Scott, 973 F.2d 507, 510 (6th Cir. 1992) (“A court must not dismiss an action for failure to meet the amount in controversy requirement unless it appears ‘to a legal certainty that the claim is really for less than the jurisdictional amount.'” (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938))). Auto-Owners is also successful in establishing the existence of complete diversity. First, it pleads that it is incorporated in Michigan and has its principal place of business in Michigan. [Compl. ¶ 1]; see Vaughn v. Holiday Inn Cleveland Coliseum, 56 F. App'x 249, 250 (6th Cir. 2003) (recognizing that a corporation is a citizen of its place of incorporation and its principal place of business). Second, it pleads that Defendants Lance Davidson, John Mason, and Davidson Contractors, LLC's individual members are citizens of Georgia. [Compl. ¶¶ 2-3, 5]; see Homfeld II, L.L.C. v. Comair Holdings, Inc., 53 F. App'x 731, 732 (6th Cir. 2002) (stating that when a limited liability company is a party to a suit, a showing of complete diversity requires a pleading to contain the individual states of citizenship of each member). And lastly, Auto-Owners pleads that the Gallaghers are citizens of Tennessee. [Compl. ¶ 4]. Auto-Owners therefore provides the Court with allegations from which it is able to substantiate that Auto-Owners is of diverse citizenship from each defendant, see Vaughn, 56 F. App'x at 250 (requiring a pleading to contain facts from which “complete diversity can be confirmed” (quotation omitted)), leaving the Court with no incertitude about its diversity jurisdiction.

         2. Judicial Discretion

         Having concluded that subject matter jurisdiction exists over this action, the Court now must consider whether to apply the Declaratory Judgment Act at all. See United Apostolic Lighthouse, 200 F.Supp.2d at 692 (“Once the Court has determined that subject matter jurisdiction exists, it must evaluate whether this case is appropriate for declaratory judgment pursuant to the Declaratory Judgment Act.” (citing 28 U.S.C. § 2201; Wilton v. Seven Falls Co., 515 U.S. 277, 282-83 (1995))). The Court “posses[es] discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites.” Wilton, 515 U.S. at 282; see Am. Home Assurance, 791 F.2d at 64 (“[The] Declaratory Judgment Act confers discretion on courts, not right on litigants[.]” (citing Green v. Mansour, 474 U.S. 64, 72 (1985))); see also 28 U.S.C. § 2201(a) (stating that courts “may declare the ...

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