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Liberty Mutual Fire Insurance Co. v. Lumber Liquidators, Inc.

United States District Court, E.D. Virginia, Newport News Division

February 9, 2016

LIBERTY MUTUAL FIRE INSURANCE COMPANY, et al., Plaintiff,
v.
LUMBER LIQUIDATORS, INC. et al., Defendants

          For Liberty Mutual Fire Insurance Company, Liberty Insurance Corporation, Employers Insurance Company of Wausau, Wausau Business Insurance Company, Wausau Underwriters Insurance Company, Plaintiffs: Edwin Ford Stephens, LEAD ATTORNEY, Christian & Barton LLP, Richmond, VA; Amos Hugh Scott, Robert Allen Kole, Samantha Aurora Krasner, PRO HAC VICE, Choate, Hall & Stewart LLP, Boston, MA NA.

         For Lumber Liquidators, Inc., Lumber Liquidators Holdings, Inc., Defendants: Paul Keidel Stockman, LEAD ATTORNEY, PRO HAC VICE, McGuireWoods (PA-NA), Pittsburgh, PA NA; Michael Hugh Brady, McGuireWoods LLP (Richmond), Richmond, VA; Richard Joshua Cromwell, McGuireWoods LLP (Norfolk), Norfolk, VA.

         For Continental Casualty Company, Intervenor Plaintiff: Paul Alan Sheldon, PRO HAC VICE, Elenius Frost & Walsh, Chicago, IL NA; Richard Johan Conrod, Jr., Kaufman & Canoles PC, Norfolk, VA.

         For American Guarantee and Liability Insurance Company, Intervenor Plaintiff: Kelly Marie Lippincott, William J. Carter, Carr Maloney PC (DC), Washington, DC; Michael Miron Marick, PRO HAC VICE, Hinshaw & Culbertson LLP, Chicago, IL NA.

         For St. Paul Fire and Marine Insurance Company, Intervenor Plaintiff: Eric Louis Sophir, LEAD ATTORNEY, Dentons U.S. LLP (DC), Washington, DC; Daniel Feinberg, Donna J Vobornik, PRO HAC VICE, Dentons U.S. LLP, Chicago, IL NA.

         For Federal Insurance Company, Intervenor Plaintiff: Richard Alan Saunders, LEAD ATTORNEY, Furniss Davis Rashkind & Saunders PC, Norfolk, VA; David Arthur Westrup, PRO HAC VICE, von Briesen & Roper, s. c., Milwaukee, WI NA.

         MEMORANDUM OPINION AND ORDER

         Raymond A. Jackson, United states District Judge.

         Before the Court are Motions to Intervene by four insurance companies providing policies in excess of the current Plaintiffs' policies, Lumber Liquidators, Inc.'s (" Defendant's" ) Stipulation to Entry of Judgment in Plaintiffs' Favor for Count Three, and Defendant's Motion to Dismiss Amended Complaint on abstention grounds. ECF Nos. 23. 25. 29. 35. 70. 71. For the reasons stated below, I recommend that the Motions to Intervene be GRANTED, Defendant's Stipulation be GRANTED, and Defendant's Motion to Dismiss be DENIED.

         I. FACTUAL AND PROCEDURAL HISTORY

         On April 22. 2015, Liberty Mutual Fire Insurance Company, Liberty Insurance Corporation, Employers Insurance Company of Wausau, Wausau Business Insurance Company, and Wausau Underwriters Insurance Company (collectively " Plaintiffs" ) filed their three-count Complaint seeking declaratory judgment that their policies do not obligate them to defend or indemnify Defendant (Counts One and Two, respectively) and requesting reformation of the Wausau Business Insurance Company policy (Count Three). Pls.' Compl. 7-9, ECF No. 1. To date. 99 other complaints (" Underlying Lawsuits" ) have been filed against Defendant based upon their sales of flooring containing excess amounts of formaldehyde. These cases have been consolidated in a multidistrict litigation proceeding in this District before the Honorable Anthony J. Trenga. Defs.' Revised Mem. in Supp. of Mot. to Dismiss 3, ECF No. 60.

         On April 27, 2015, Defendant filed a four-count complaint in the Circuit Court for Dane County, Wisconsin (" Wisconsin Complaint" ). Defs.' Revised Mem. in Supp. of Mot. to Dismiss 4,ECF No. 60. In that suit, Defendant named the Plaintiffs and four other insurers -- American Guarantee & Liability Insurance Company, Continental Casualty Company, Federal Insurance Company, and St. Paul Fire & Marine Insurance Company (collectively " Intervening Insurers" ). Id. These four insurers have filed Motions to Intervene in this federal suit. ECF Nos. 23, 25, 29, 35.

         In the Wisconsin Complaint, Defendant alleges that the Plaintiff lnsurers breached the terms of the general liability insurance policies they issued to Defendant by refusing to defend Defendant against the underlying lawsuits consolidated in this District. Defs.' Revised Mem. in Supp. of Mot. to Dismiss 4. The Wisconsin Complaint also requests a declaratory judgment that the Plaintiff lnsurers and the four other insurers who seek to intervene in the instant federal suit are obligated to defend and indemnify Defendant. Id. Finally, the Wisconsin Complaint alleges breach of contract and bad faith claims and requests compensatory and punitive damages. Id. at 5.

         On May 22, 2015, Defendant filed a Motion to Dismiss requesting dismissal of the reformation claim in Count Three of Plaintiffs' Complaint and requesting that the Court abstain from hearing the matter because of the parallel action Defendant filed in Wisconsin state court. ECF Nos. 18, 19. On September 4, 2015, the Court granted in part and denied in part Defendant's Motion to Dismiss. ECF No. 62. In its Order the Court dismissed Plaintiffs' reformation claim without prejudice, granted Plaintiffs leave to amend their Complaint, and declined to abstain from hearing the matter. Id.

         On September 15, 2015, Plaintiffs filed their Amended Complaint. ECF No. 67. On October 2, 2015, Defendant filed a Stipulation to entry of judgment in the Plaintiffs' favor on the reformation claim in Count Three of the Amended Complaint.[1] ECF No. 70. On this same date, Defendant also filed a Motion to Dismiss Plaintiffs' Amended Complaint again requesting that the Court abstain from hearing this matter because of the parallel Wisconsin state court action. ECF Nos. 71, 72. On October 15, 2015, the Wisconsin state court held a hearing on the insurers' Motion to Dismiss in which the court deferred its decision pending a decision in this federal case. P's.' Opp. to Mot. to Dismiss 7, ECF No. 74.

         II. STANDARD OF REVIEW

         A. Motions to Intervene

         Pursuant to Rule 24 of the Federal Rules of Civil Procedure, the Court must permit a party to intervene as a matter of right or may allow a party to intervene permissively. Fed.R.Civ.P. 24. The United States Court of Appeals for the Fourth Circuit (" Fourth Circuit" ) has held, " [L]iberal intervention is desirable to dispose of as much of the controversy involving as many apparently concerned persons as is compatible with efficiency and due process." Feller v. Brock, 802 F.2d 722, 729 (4th Cir. 1986) (internal quotations omitted).

         Pursuant to Federal Rule of Civil Procedure 24(a), the Court must permit a party to intervene on timely motion as a matter of right who:

(1) is given unconditional right to intervene by federal statute; or (2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.

Fed. R. Civ. P. 24(a). Intervention as a matter of right is warranted if the party seeking intervention can demonstrate: 1) a timely request; 2) an interest in the subject matter of the action; 3) that disposition of the action without its presence would impair its ability to protect its interests; and 4) its interests are not adequately represented by the existing parties to the action. Houston Gen. Ins. Co. v. Moore, 193 F.3d 838, 839 (4th Cir. 1999); Teague v. Bakker, 931 F.2d 259, 260-61 (4th Cir. 1991). A party seeking to intervene must meet all of these tests for intervention to be appropriate as a matter of right under Rule 24(a). Com. of Va. v. Westinghouse Elec. Corp., 542 F.2d 214, 216 (4th Cir. 1976). Further, a district court is " entitled to the full range of reasonable discretion" to determine whether the requirements of intervention as a matter of right have been met. Id. (quoting Rios v. Enter. Ass'n Steamfitters Local U. # 638 of U.S., 520 F.2d 352, 355 (2d Cir. 1975)).

         Federal Rule of Civil Procedure 24(b) provides that a party may be permitted to intervene on timely motion that " (A) is given a conditional right to intervene by federal statute; or (B) has a claim or defense that shares with the main action a common question of law or fact." Fed.R.Civ.P. 24(b); Cooper Techs., Co. v. Dudas, 247 F.R.D. 510, 515 (E.D. Va. 2007). The decision to grant or deny a permissive motion to intervene lies within the sound discretion of the trial court. Hill v. W. Elec. Co., 672 F.2d 381, 385-86 (4th Cir. 1982). However, the court must consider whether the intervention will " unduly delay or prejudice the adjudication of the rights of the original parties." Allen v. Cty. Sch. Bd. of Prince Edward Cty., 28 F.R.D. 358, 363 (E.D. Va. 1961).

         B. Abstention Doctrines and the Declaratory Judgment Act

         As a general rule, federal courts have a " virtually unflagging obligation . . . to exercise the jurisdiction given them." Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). This obligation applies even when there are parallel state court proceedings. In McLaughlin, the court noted it is well-established that " [d]espite what may appear to result in a duplication of judicial resources . . . 'the pendency of an action in the state [system] is no bar to proceedings concerning the same matter in the Federal court having jurisdiction.'" M ...


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