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Westfield Insurance Co. v. Estate of McMahan

United States District Court, W.D. Kentucky, Louisville Division

September 6, 2017

WESTFIELD INSURANCE COMPANY PLAINTIFF
v.
ESTATE OF ARTHUR GENE MCMAHAN, JR., et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          Thomas B. Russell, Senior Judge

         A tragic boating accident claimed the lives of Arthur and Melissa McMahan and Anthony and Tammy Reece. Arthur, the boat's operator, was insured by Westfield Insurance Company. Westfield brought this action, seeking a declaration that it has no obligation to pay under the policies. The Reece estates then filed a wrongful death suit against Arthur's estate in state court. Melissa's estate later filed its own claims against Arthur's estate.

         All Defendants in this action moved to dismiss, arguing that the Court should decline jurisdiction based upon Grand Truck Western Railroad Co. v. Consolidated Rail Co., 746 F.2d 323, 326 (6th Cir. 1984). The Court granted their motion, holding that “four of the five Grand Truck factors weigh against the Court's exercise of jurisdiction in this case, and the fifth is neutral.” Westfield Ins. Co. v. Estate of McMahan, No. 3:16-CV-00809-TBR, 2017 WL 1658952, at *5 (W.D. Ky. May 1, 2017). Westfield proceeded to intervene in the state court action.

         Shortly thereafter, the estates settled their claims in state court. Westfield now moves under Rule 60(b) to vacate this Court's judgment dismissing the declaratory judgment action, contending that Defendants manufactured the state court litigation in order to deprive Westfield of federal jurisdiction. [DN 49.] Defendants responded, [DN 50; DN 51], and Westfield replied, [DN 52]. Fully briefed, Westfield's motion is ripe for adjudication. For the following reasons, that motion is DENIED.

         I. Facts and Procedural History

         Two Kentucky couples, the McMahans and the Reeces, were boating on Lake Lanier, Georgia on July 15, 2016.[1] [DN 9 at 3.] While traveling down the lake, Arthur McMahan's Skater powerboat overturned, ejecting and killing its four occupants. [Id.] The McMahans held several policies with Westfield, an Ohio insurance company. After learning of the Reece estates' claims, Westfield filed this declaratory judgment action on December 16, 2016, claiming that several policy provisions exclude coverage for the accident. [Id. at 6.]

         The Reece estates proceeded to file a wrongful death suit against Arthur McMahan's estate in Bullitt County, Kentucky Circuit Court on January 30, 2017. [DN 35-2 at 6.] Just over a month later, on March 5, Arthur's estate moved to dismiss this action, and the Reece estates soon joined. [DN 35; DN 40.] Arthur's estate argued that “[b]ecause the wrongful death claim is pending in state court, this court's involvement in a declaratory judgment action would not settle the ultimate controversy.” [DN 35-1 at 8.] Further, it contended that any “attempt to clarify the legal relations” between the parties in this action “would prove cumbersome and futile since it would involve factual determinations that will be part of the discovery process and ultimate resolution of the state court action.” [Id.] In the estate's view, “Westfield's arguments for non-coverage . . . rest largely on facts that will be developed at the state court level.” [Id. at 9.]

         The Court agreed. In the Court's view, the same factual issues existed in both the state and federal cases. Westfield Ins. Co., 2017 WL 1658952 at *3. Because “the state court's inquiry is broader than an insurance coverage dispute, ” the Court recognized that the state court was “in a better position to evaluate these factual issues than” the federal court. Id. at *4. The Court dismissed Westfield's complaint without prejudice on May 1, and Westfield moved to intervene in the state action on May 8.

         On June 12, the estates participated in a mediation of the state claims. Arthur's estate had previously declined Westfield's offer to defend it under a reservation of rights, see [DN 49-2], so Westfield was not represented. The mediation resulted in a total settlement of $7.5 million, with each of Melissa's, Anthony's, and Tammy's estates receiving a third. [DN 50-5.] Westfield moved to set aside the resulting agreed judgments in Bullitt Circuit Court, and then moved to vacate this Court's judgment under Rule 60(b).

         As grounds for its motion, Westfield alleges that “Defendants' state court litigation was filed merely for the purpose of procedural posturing and to manipulate forum selection in favor of state court.” [DN 49-1 at 1.] Westfield points to email communications suggesting settlement negotiations began on or about March 30, when counsel for the Reece estates first communicated the possibility to counsel for Arthur's estate. [DN 50-6 at 3.] Despite knowing settlement was imminent, Westfield says, Arthur's estate filed a brief in this Court that “continued to stress that ‘th[e] factual overlap counsels against the exercise of federal jurisdiction.'” [DN 52 at 4.] According to Westfield, “the facts and circumstances surrounding this litigation gives rise to a prima facie case that a misrepresentation, whether willful or blindly, occurred in this case, ” necessitating the vacation of the Court's judgment. For their part, the estates deny Westfield's allegations.

         II. Discussion

         Westfield moves for relief from the Court's judgment under Rule 60(b)(3) and (6). The Court will examine each subsection in turn.

         Rule 60(b)(3) provides that “the court may relieve a party . . . from a final judgment” on the basis of “fraud . . ., misrepresentation, or misconduct by an opposing party.” Fed.R.Civ.P. 60(b)-(b)(3). In the Sixth Circuit, fraud under Rule 60(b)(3) “refers to an opposing party's ‘knowing misrepresentation of a material fact, or concealment of the same when there is a duty to disclose, done to induce another to act to his or her detriment.'” Travelers Cas. & Sur. Co. of Am. v. J.O.A. Const. Co., 479 F.App'x 684, 693 (6th Cir. 2012) (quoting Info-Hold, Inc. v. Sound Merch., Inc., 538 F.3d 448, 456 (6th Cir. 2008)). To prove that fraud has been committed upon the Court, the moving party must show “conduct (1) on the part of an officer of the court, (2) that is directed to the ‘judicial machinery' itself, (3) that is intentionally false, wilfully blind to the truth, or is in reckless disregard for the truth, (4) that is a positive averment or is concealment when one is under a duty to disclose, and (5) that deceives the court.” Workman v. Bell, 245 F.3d 849, 852 (6th Cir. 2001) (citing Demjanjuk v. Petrovsky, 10 F.3d 338, 348 (6th Cir. 1993)). The moving party must demonstrate “by clear and convincing evidence[] that one or more of the three kinds of misbehavior referred to in [Rule 60(b)(3)] occurred.” Lester v. Wow Car Co., 675 F.App'x 588, 591 (6th Cir. 2017) (quoting Jordan v. Paccar, 97 F.3d 1452, 1996 WL 528950, at *9 (6th Cir. 1996) (per curiam)). If so, prejudice is presumed, and the burden “shifts to the non-moving party to prove by clear and convincing evidence that its misbehavior did not have a prejudicial effect on the outcome of the litigation.” Id. (citation omitted).

         To succeed under Rule 60(b)(3), then, Westfield is “obliged to show by clear and convincing evidence that defendants deliberately engaged in some act of fraud, misrepresentation or other misconduct that adversely affected the fairness of the proceedings.” Thurmond v. Wayne Cty. Sheriff Dep't, 564 F.App'x 823, 827 (6th Cir. 2014) (citation omitted). It has not done so. Westfield's motion rests upon its allegation that Defendants, who are ...


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