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Star Insurance Company v. Smith

United States District Court, E.D. Kentucky, Southern Division, London

June 11, 2015




April Smith, [1] then pregnant with her child B.S., was riding as a passenger in a car driven by Christopher Smith when she was injured in a one-car auto accident. That accident gave rise to this federal declaratory judgment action, as well as a parallel state court suit. Star Insurance Company filed this action seeking a declaratory judgment as to whether its coverage extends to Christopher, April, and her minor child. April's state court action includes a bad faith claim against Star Insurance and a parallel declaratory judgment action on the issue of Star's coverage. April now moves to dismiss this action for lack of subject matter jurisdiction, chiefly on the ground that this Court should decline to exercise jurisdiction under the Federal Declaratory Judgment Act. For the reasons set forth below, the Court agrees and will GRANT April's motion.


April and Christopher Smith bought a used Ford Taurus from Family Auto Sales in 2013. On December 7, 2013, they test drove and agreed to purchase the car once certain repairs were completed. On December 23, at the dealership's request, the two provided proof of insurance from State Farm covering the vehicle. [Compl., Ex. C, R. 1-3]. After the dealership agreed to file the certificate of title and other documents on their behalf, April and Christopher took possession of the car. Title was not transferred, however, until February 25, 2014 - eight days after Smith and April, then pregnant with her child B.S., were injured in an auto accident in the Taurus. [Compl., Ex. D, R. 1-4 at 4].

April, who suffered significant injuries in the accident, filed a claim for herself and her infant child for liability coverage and Basic Reparations Benefits and Personal Injury Protection benefits with Star Insurance, Family Auto Sales' insurer. According to Star, that commercial lines policy extends liability coverage to any vehicle owned by its insured. [Compl., R. 1 at ¶ 38]. After protracted and unsuccessful negotiations, April sent a "bad faith letter" to Star on August 15, which provided notice that she intended to file a bad faith action against Star if no settlement was reached before September 5. [Def.'s Mot. to Dismiss, Ex. 4, Ridings Aff., R. 6-6; id., Redacted Ex. 14, R. 6-21 at 6]. Shortly after receiving this letter and before that notice period elapsed, Star filed this federal declaratory judgment action on August 27.[2] It requests declaratory relief as to whether it must defend and indemnify Christopher Smith, and whether it must cover BRB, PIP benefits, or Auto Medical Payments for April Smith and her child. [R. 1]. Resolution of those issues turns on whether Family Auto Sales owned the vehicle at the time of the accident.

April filed a lawsuit in Laurel Circuit Court on September 4, eight days after Star filed this declaratory judgment action. [Def.'s Mot. to Dismiss, Redacted Ex. 15, State Court Verified Complaint, R. 6-22]. For herself and on behalf of her minor child, she brings a negligence claim against Christopher Smith arising from the accident, as well as a bad faith claim against Star. Her complaint also includes a parallel state declaratory judgment action regarding the same questions of Star's coverage as to April and her child. In status updates ordered by the Court, the parties indicate that this state court action and all of its claims for relief remain pending. [R. 20, 21, 22].

April now moves to dismiss Star's complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), failure to state a claim under Rule 12(b)(6), and failure to join two indispensable parties under Rule 12(b)(7). [R. 6]. She also requests that this Court decline to exercise jurisdiction over this action under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201. [ Id. ]



As a threshold matter, the Court must determine whether it has subject matter jurisdiction over this action. Caudill v. N. Am. Media Corp., 200 F.3d 914, 916 (6th Cir. 2000). Invoking this Court's diversity jurisdiction under 28 U.S.C. § 1332(a), [3] [Compl., R. 1 at ¶ 10], Star states that the value of the object of this litigation - its defense of Christopher Smith and the limits of liability potentially owed to April and her daughter - exceeds the requisite $75, 000 amount in controversy. See Freeland v. Liberty Mut. Fire Ins. Co., 632 F.3d 250, 253 (6th Cir. 2011). April does not dispute this contention.

Diversity, however, is disputed. April and Christopher are residents of Laurel County, Kentucky. [Compl., R. 1 at ¶¶ 7-8]. Star's complaint states that it is "an insurance company organized under the laws of the State of Michigan with its principal place of business in Michigan." [ Id. at ¶ 6]. April argues that this identification is insufficient to establish diversity. At best, she argues, this definition suggests that Star is an unincorporated entity or association, for which diversity is based on the residence of its members.

"A plaintiff in federal court has the burden of pleading sufficient facts to support the existence of the court's jurisdiction." Vaughn v. Holiday Inn Cleveland Coliseum, 56 F.App'x 249, 250 (6th Cir. 2003) (citing Fed.R.Civ.P. 8). The Court agrees that Star's complaint does not demonstrate complete diversity on its face, since its vague self-description fails to unambiguously identify its corporate status. See id; Certain Interested Underwriter at Lloyd's of London v. Layne, 26 F.3d 39 (6th Cir. 1994).

Notably, however, Star states in its response brief that it is not an unincorporated association, but a corporation owned by Meadowbrook Insurance Group, Inc. [R. 7 at 7]. Facts set forth in a response to a motion to dismiss cannot amend a defective complaint. E.g., In re Porsche Cars N. Am., Inc. Plastic Coolant Tubes Prods. Liab. Litig., 880 F.Supp.2d 801, 842 (S.D. Ohio 2012) (citing Pa. ex rel. Zimmerman v. Pepsico, Inc., 836 F.2d 173, 181 (3d Cir. 1988)) ("[I]t is axiomatic that the complaint may not be amended by the briefs in opposition to a motion to dismiss.'"). Nonetheless, it is well established that a court may look to "the whole record... for the purpose of curing a defective averment of citizenship." Humphrey v. Fort Knox Transit Co., 58 F.Supp. 362, 363 (W.D. Ky. 1945), aff'd sub nom. Fort Knox Transit v. Humphrey, 151 F.2d 602 (6th Cir. 1945) (citing Sun Printing & Publishing Ass'n v. Edwards, 194 U.S. 377, 382 (1904)); see Farmer v. Fisher, 386 F.App'x 554, 557 (6th Cir. 2010) (reviewing both the complaint and the record for facts indicating citizenship). The Court is satisfied that, based on the representations in Star's response, complete diversity of citizenship exists between Star, a Michigan corporation, and defendants, residents of Kentucky. The requirements of § 1332 therefore have been met.[4]


Having found that subject matter jurisdiction exists, the Court now must determine whether it should exercise that jurisdiction under the federal Declaratory Judgment Act, 28 U.S.C. § 2201(a). Under the Declaratory Judgment Act, "the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995). As such, the exercise of jurisdiction under the Act is not mandatory. Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942); Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004). Rather, "district courts possess discretion in determining ...

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