United States District Court, E.D. Tennessee, Chattanooga Division
W. Phillips United States District Judge
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.
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].
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).
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).
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).
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.”).
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.
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 ...