Fletch's Sandblasting and Painting, Inc. v. Colony Insurance Company

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Fletch’s Sandblasting and Painting, Inc.
v.
Colony Insurance Company
Civil No. 15-cv-490-PB
Colony Insurance Company
v.
Thick Tech Systems, Inc.
REPORT AND RECOMMENDATION
Fletch’s Sandblasting and Painting Company, Inc., brought
this declaratory judgment action against Colony Insurance
Company in state court, seeking a determination that it was
entitled to coverage under a commercial general liability
insurance policy (the “policy”) issued by Colony. Doc. no. 1-1.
Colony removed the case to this court and filed a third-party
action against Thick Tech Systems, Inc., seeking a declaration
that the policy did not provide coverage for claims brought by
Thick Tech against Fletch’s in another jurisdiction. Doc. no.
5. The district judge granted summary judgment in favor of
Colony on Fletch’s declaratory judgment action, concluding that
Fletch’s was not entitled to coverage under the policy. See
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2017 DNH 097 (doc. no. 19). Colony now moves for an entry of
default against Thick Tech on its third-party action (doc. no.
22) and for declaratory relief against both Thick Tech and
Fletch’s on the coverage issue (doc. no. 23). These motions
have been referred to the undersigned magistrate judge for
report and recommendation. For the reasons that follow, the
court recommends that the district judge (1) deny Colony’s
motion for declaratory judgment as to Fletch’s for want of
standing or, alternatively, as moot; (2) deny Colony’s motion
for declaratory judgment as to Thick Tech as moot; (3) deny
Colony’s motion for default as moot; and (4) dismiss Colony’s
third-party action.
I. BACKGROUND
Fletch’s filed its declaratory judgment action (the “first-
party action”) against Colony in Rockingham County Superior
Court, seeking a defense and indemnification with respect to a
liability action Thick Tech filed against Fletch’s (among
others) in the United States District Court for the District of
Maine (the “Maine action”). See Thick Tech Systems, Inc. v.
Methuen Construction Co., No. 2:15-cv-00076-DBH (D. Me.).
Colony removed the first-party action here, invoking this
court’s diversity jurisdiction under 28 U.S.C. § 1332 (doc. no.
1), and thereafter filed a “Third-Party Complaint for
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Declaratory Judgment” against Thick Tech (the “third-party
action”) (doc. no. 5). Though this complaint prayed for
declaratory relief against both Thick Tech and Fletch’s, it was
filed solely against Thick Tech and only named Thick Tech as a
respondent. Id. at 1, 4. The summons prepared by Colony with
respect to the third-party action similarly only named Thick
Tech as a third-party defendant. Doc. no. 6. Colony never
filed a separate counterclaim for declaratory relief against
Fletch’s.
Colony moved for summary judgment on the first-party
action, contending that Thick Tech’s claims against Fletch’s in
the Maine action were not covered by the policy. Doc. no. 16.
On June 6, 2017, the district judge granted that motion over
Fletch’s objection, concluding that Thick Tech’s claims did not
constitute “occurrences” under the policy and were subject to
the policy’s “your work” exclusion. See 2017 DNH 097.
At the time the summary judgment order issued, there was no
docket entry indicating that Colony had served Thick Tech with
the third-party action. The undersigned therefore issued an
endorsed order directing Colony to show cause why the third-
party action should not be dismissed for failure to serve or,
alternatively, as derivative of the first-party action, which
was resolved on the merits in the summary judgment order. See
June 13, 2017 Endorsed Order. In response, Colony filed an
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affidavit of service indicating that its third-party action had
been served upon Thick Tech as of January 8, 2016. Doc. no. 20.
Four days later, Colony filed a written response, conceding that
the summary judgment order “fully resolve[d] the issues in the
case, including the issues raised in Colony’s third-party action
against Thick Tech,” but nonetheless arguing that dismissal was
not warranted and that the court should instead issue a
declaratory judgment against both Fletch’s and Thick Tech. Doc.
no. 21 ¶ 15. Colony subsequently filed a motion for default as
to Thick Tech and a motion for declaratory judgment as to Thick
Tech and Fletch’s, which are currently before the undersigned
for report and recommendation. See doc. nos. 22, 23.
II. DISCUSSION
A. Motion for Declaratory Judgment
Colony asks the court to enter a declaratory judgment in
its favor against both Thick Tech and Fletch’s. Colony
specifically seeks a declaration that the policy provides no
coverage for the dispute between Thick Tech and Fletch’s in the
Maine action and that, accordingly, Colony is under no
obligation to defend Fletch’s in that lawsuit or indemnify
Fletch’s in the event of a judgment or settlement in that case.
The court will first consider this motion as it pertains to
Fletch’s.
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1. Fletch’s
Colony’s request for a declaratory judgment against
Fletch’s suffers from a fatal infirmity: Colony does not have
standing, at this point in the case, to seek such relief. The
Declaratory Judgment Act specifies that, “[i]n a case of actual
controversy within its jurisdiction, . . . any court of the
United States . . . may declare the rights and other legal
relations of any interested party seeking such declaration
. . . .” 28 U.S.C. § 2201(a) (emphasis added).1 The “case of
actual controversy” requirement “refers to the type of ‘Cases’
and ‘Controversies’ that are justiciable under Article III.”
Sevigny v. United States, No. 13-cv-401-PB, 2014 WL 3573566, at
*4 (D.N.H. July 21, 2014) (quoting MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118, 127 (2007)). To establish standing under
the Act, the dispute must be “definite and concrete, touching
the legal relations of parties having adverse legal interests;
and must be real and substantial and admit of specific relief
1 As Colony invoked the federal declaratory judgment statute
in its third-party complaint (doc. no. 5 ¶ 3), the court assumes
that this is also the statute under which Colony seeks
injunctive relief against Fletch’s. But even if this request
were made under the New Hampshire declaratory judgment
provision, N.H. Rev. Stat. Ann. (“RSA”) § 491:22, Colony would
be subject to standing requirements not met here for essentially
the same reasons discussed below. See Duncan v. State, 166 N.H.
630, 645 (2014) (discussing the standing requirements under RSA
491:22).
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through a decree of conclusive character . . . .” Id. (brackets
and internal quotation marks omitted) (quoting MedImmune, 549
U.S. at 127). “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.” Id. (brackets omitted)
(quoting MedImmune, 549 U.S. at 127).
Here, Colony never formally sought declaratory relief
against Fletch’s until after the district judge resolved the
underlying controversy between Fletch’s and Colony in the
summary judgment order. As noted, Colony never filed a
counterclaim for declaratory relief against Fletch’s. Though
Colony did seek a declaration with respect to Fletch’s in the
prayer for relief in its third-party complaint (doc. no. 5 at
4), that pleading was presented as a “Third-Party Complaint for
Declaratory Judgment against Thick Tech Systems, Inc.,” id. at 1
(emphasis added) and named only Thick Tech as a defendant to
that claim, id. ¶ 2. By the same token, the request for summons
prepared by Colony in conjunction with the third-party complaint
named only Thick Tech as a defendant (doc. no. 6), and the
affidavit of service ultimately submitted by Colony solely
referenced Thick Tech (doc. no. 20). And even if Colony had
named Fletch’s as a defendant in the third-party complaint, this
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likely would have run afoul of the Federal Rules of Civil
Procedure, which only contemplate third-party practice against
“a nonparty,” see Fed. R. Civ. P. 14(a)(1), with a separate
protocol for bringing a claim against “an opposing party,” as
Fletch’s was here, see Fed. R. Civ. P. 13.
It is also telling that Colony never sought any relief
against Fletch’s in the course of litigating summary judgment
beyond the dismissal of Fletch’s first-party action. Though
Colony did argue in the conclusion of its summary judgment
motion that it was “entitled to summary judgment declaring that
Fletch’s is not entitled to a defense or indemnity” under the
policy, this argument was plainly raised in reference to
Fletch’s claims against Colony, and not as a request for relief
under any action brought against Fletch’s by Colony. See doc.
no. 16-1. To this end, Colony notably did not ask the district
judge to clarify or reconsider his summary judgment order on the
basis that Colony was entitled to some affirmative declaratory
relief that the order did not provide.
Based on these facts, the court concludes that Colony never
formally sought a declaratory judgment against Fletch’s until
after the summary judgment order issued. At that time, there
was no longer any “actual controversy” pending between Colony
and Fletch’s. Colony accordingly lacked standing to seek such
relief.
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While the above is dispositive, the court would further
note that even if Colony had brought a claim against Fletch’s
prior to the summary judgment order, any such claim would now be
moot in light of that order. “A case becomes moot — and
therefore no longer a ‘Case’ or ‘Controversy’ for the purposes
of Article III — when the issues presented are no longer ‘live’
or the parties lack a legally cognizable interest in the
outcome.” Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013)
(some internal quotation marks omitted) (quoting Murphy v. Hunt,
455 U.S. 478, 481 (1982)). “No matter how vehemently the
parties continue to dispute the lawfulness of the conduct that
precipitated the lawsuit, the case is moot if the dispute ‘is no
longer embedded in any actual controversy about the plaintiffs’
particular legal rights.’” Id. (quoting Alvarez v. Smith, 558
U.S. 87, 93 (2009)).
Here, Colony concedes that the summary judgment order
“fully resolved the issues in the case.” Doc. no. 21 ¶ 15.
Thus, no case or controversy remained at the time Colony filed
its motion. Colony’s request for a declaratory judgment is
accordingly moot. Cf. Harvey v. Machigonne Benefits
Administrators, 128 F. Supp. 2d 51, 55 (D. Me. 2001) (“[B]ecause
the Court already has decided the merits of this case in its
prior Order . . . . Defendant’s request for declaratory judgment
is now moot.” (internal citations omitted)).
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Though Colony makes no argument to this effect, the court
notes that certain other courts have either stricken or
dismissed counterclaims for declaratory relief as redundant when
the declaration of rights sought raised factual and legal issues
identical to those raised in the primary claim in the case.
See, e.g., Zurich Am. Ins. Co. v. Watts Regulator Co., 796 F.
Supp. 2d 240, 245-46 (D. Mass. 2011); Spine Imaging MRI, L.L.C.
v. Liberty Mut. Ins. Co., 818 F. Supp. 2d 1133, 1138–39 (D.
Minn. 2011). While this might explain why Colony never filed a
counterclaim against Fletch’s here, it does not support the
conclusion that any active controversy remains between Colony
and Fletch’s at this juncture. Indeed, the contrary is true: to
the extent Colony’s counterclaim would have been redundant of
Fletch’s first-party claim here, then so, too, would any relief
Colony could receive under that counterclaim. In other words,
by prevailing on summary judgment on Fletch’s declaratory
judgment action against it, Colony has already received the
precise relief it presently seeks: a determination by the court
that the policy does not provide coverage for Fletch’s dispute
with Thick Tech in the Maine action. See Matosantos Commercial
Corp. v. SCA Tissue of N. Am., LLC, No. 02-2661 (JAG), 2004 WL
1778279, at *4 (D.P.R. June 21, 2004) (citation omitted) (“In
cases when the request for declaratory relief brings into
question issues that already have been presented in plaintiff’s
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complaint and defendant’s answer to the original claim, a party
may challenge the counterclaim on the ground that it is
redundant and a decision on the merits of plaintiff’s claim will
render the request for declaratory judgment moot.” (emphasis
added)).
In sum, the controversy upon which Colony bases its motion
has already been fully resolved in Colony’s favor in the summary
judgment order. The court accordingly recommends, for the
above-stated reasons, that the district judge deny Colony’s
motion for declaratory judgment, as brought against Fletch’s,
for lack of standing or, alternatively, as moot.
2. Thick Tech
Colony’s motion for declaratory judgment should also be
denied as moot as to Thick Tech largely for the same reasons
discussed above. Though Colony did formally seek declaratory
relief against Thick Tech by way of the third-party complaint,
the Supreme Court has made clear that “an ‘actual controversy’
must exist not only at the time the complaint is filed, but
through all stages of the litigation.” Already, 568 U.S. at 90–
91 (some internal quotation marks and citations omitted). As a
general matter, a third-party action generally becomes moot when
the first-party claims upon which it is based are fully resolved
on summary judgment. See, e.g., Faser v. Sears, Roebuck & Co.,
674 F.2d 856, 860 (11th Cir. 1982) (“Impleader, or third party
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practice, is only available when the third party defendant’s
liability is secondary to, or derivative of, the original
defendant’s liability on the original plaintiff’s
claim. . . . Therefore, the third and fourth party complaints in
this case necessary became moot when summary judgment was
granted in favor of [the defendant], and the district court then
lost jurisdiction to rule on these claims.” (internal citations
omitted)). Here, Colony admits that the summary judgment order
resolved the issues raised in its third-party action against
Thick Tech. Doc. no. 21 ¶ 15. As such, no controversy remains
pending between Colony and Thick Tech.
Colony appears to contend that declaratory relief against
Thick Tech is necessary to protect against Thick Tech attempting
to collect from Colony any settlement or judgment Thick Tech
receives against Fletch’s in the Maine action. This argument is
misplaced for several reasons. Most fundamentally, the summary
judgment order in this case likely estops Thick Tech from
recovering against Colony, as it fully resolved in Colony’s
favor the only basis upon which such recovery might be sought
(i.e., whether Thick Tech’s claims against Fletch’s are covered
under the policy). But even if there were no estoppel, Colony’s
request for declaratory relief against Thick Tech is premature.
For one, the very pendency of this action suggests that Fletch’s
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never assigned its rights under the policy to Thick Tech.2
Moreover, it is well established under New Hampshire law that an
insurer may not be sued directly for its insured’s actions until
the insured is found liable and is unable or unwilling to
satisfy the judgment. Bunker v. Midstate Mut. Ins. Co., No. 14-
cv-274-PB, 2014 WL 3891296, at *4 (D.N.H. Aug. 7, 2014) (citing
Burke v. Fireman’s Fund Ins. Co., 120 N.H. 365, 366-67 (1980)).
As such, any argument that Thick Tech might at some point in the
future seek recovery against Colony, should it recover in the
Maine action, is wholly speculative.
For these reasons, the court recommends that the district
judge deny Colony’s motion for declaratory judgment as moot to
the extent brought against Thick Tech.
B. Motion for Default
Colony’s motion for default against Thick Tech should also
be denied as moot for the reasons stated above. The court would
merely add that Colony had ample opportunity in this case to
file an affidavit of service, as required by Federal Rule of
Civil Procedure 4(l)(1), and to move for an entry of default
against Thick Tech while an actual controversy remained pending
in this action. Indeed, nearly seventeen months passed between
2 Again, rights that the summary judgment order
unequivocally concluded did not extend to Thick Tech’s claims
against Fletch’s.
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the date Colony served process on Thick Tech and the date of the
summary judgment order, and that order was not issued until more
than fourteen months3 after the date Thick Tech’s answer to the
third-party action was due. Yet Colony did not move for a
default until more than a month after the summary judgment order
resolved any controversy in this action. Thus, that motion,
too, was untimely.
III. CONCLUSION
In sum, the court recommends that the district judge (1)
deny Colony’s motion for declaratory judgment (doc. no. 23) for
lack of standing or, alternatively, as moot, to the extent it is
brought against Fletch’s; (2) deny that motion as moot to the
extent brought against Thick Tech; and (3) deny Colony’s motion
for default (doc. no. 22) as moot. As the summary judgment
order resolved any remaining controversy in this case, the court
also recommends that the district judge dismiss Colony’s third-
party action against Thick Tech.
Any objections to this Report and Recommendation must be
filed within fourteen days of receipt of this notice. See Fed.
R. Civ. P. 72(b)(2). The fourteen-day period may be extended
3 Colony indicates in its affidavit of service that it
agreed to extend the deadline by which Thick Tech was required
to answer the third-party complaint by thirty days. See doc.
no. 20 ¶ 6.
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upon motion. Failure to file specific written objections to the
Report and Recommendation within the specified time waives the
right to appeal the district court’s order. See Santos-Santos
v. Torres-Centeno, 842 F.3d 163, 168 (1st Cir. 2016); Fed. R.
Civ. P. 72(b)(2).
__________________________
Andrea K. Johnstone
United States Magistrate Judge
November 6, 2017
cc: Michael H. Darling, Esq.
William L. Boesch, Esq.
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