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Hanover Insurance Co. v. Castle Hill Studios, LLC

United States District Court, W.D. Virginia, Charlottesville Division

January 23, 2019

Hanover Insurance Co., Plaintiff,
v.
Castle Hill Studios, LLC, ET AL., Defendant.

          MEMORANDUM OPINION

          NORMAN K. MOON, SENIOR UNITED STATES DISTRICT JUDGE.

         This matter is before the Court upon a motion to dismiss or, in the alternative, stay filed by Defendants Castle Hill Studios, LLC, Castle Hill Holding, LLC, and Ironworks Development, LLC (collectively, “Castle Hill”). (Dkt. 27). Plaintiff Hanover Insurance Company (“Hanover”) filed an action for declaratory judgment pursuant to 28 U.S.C. § 2201 to resolve questions in controversy regarding Hanover's obligations under insurance policies issued by Hanover to Castle Hill. Castle Hill moved to dismiss under Fed.R.Civ.P. 12(b)(1), arguing that this case is not yet ripe for adjudication under Article III because an underlying action remains pending in the Northern District of Oklahoma. In the alternative, Castle Hill seeks an order staying or dismissing this case without prejudice pending resolution of the underlying action. The parties have subsequently agreed to stay all issues in this case except one: whether Hanover must indemnify Castle Hill under three primary businessowners policies or whether exclusions for “personal and advertising injuries” apply.

         The Court concludes that the question of Hanover's duty to indemnify Castle Hill under the businessowners policies is ripe for adjudication. Castle Hill's motion to dismiss will thus be denied. Finding no good cause to do so, the Court will further deny Castle Hill's request to stay this issue or dismiss the case without prejudice pending resolution of the underlying action.

         I. Legal Standard & Declaratory Judgment Act

         The Court first outlines the applicable standard of review and summarizes relevant portions of the Declaratory Judgment Act.

         A. Standard of Review

         A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) tests a district court's subject matter jurisdiction. “The doctrine of constitutional standing arises from the case or controversy requirement of Article III, and is a jurisdictional inquiry regarding the power of the courts to adjudicate a litigant's claim.” L-3 Communications Corp. v. Serco, Inc., 673 Fed.Appx. 284, 288 (4th Cir. 2016) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 559 (1992)). The doctrine of ripeness is a component of Article III's case or controversy requirement. A case is generally ripe and “fit for judicial decision when the issues are purely legal and when the action in controversy is final and not dependent on future uncertainties.” Doe v. Va. Dep't of State Police, 713 F.3d 745, 758 (4th Cir. 2013). A claim should generally be dismissed for lack of ripeness “if the plaintiff has not yet suffered injury and any future impact remains wholly speculative.” Id.

         B. Declaratory Judgment Act

         The Declaratory Judgment Act provides that in cases within a district court's jurisdiction, the court “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). Federal courts can exercise jurisdiction in declaratory actions “when three essentials are met: (1) the complaint alleges an actual controversy between the parties of sufficient immediacy and reality to warrant issuance of a declaratory judgment; (2) the court possesses an independent basis for jurisdiction over the parties (e.g., federal question or diversity jurisdiction); and (3) the court does not abuse its discretion in its exercise of jurisdiction.”[1] Volvo Const. Equipment N. Am., Inc. v. CLM Equipment Co., Inc., 386 F.3d 581, 592 (4th Cir. 2004) (internal quotations omitted). However, even if a district court possesses jurisdiction, “it may nonetheless, in the exercise of its discretion, decline to entertain the action.” Id. at 594. See also Hopeman Bros., Inc. v. Cont'l Cas. Co., 307 F.Supp.3d 433, 441 (E.D. Va. 2018) (noting that district courts have “unique and substantial discretion in deciding whether to declare the rights of litigants” in declaratory suits). But a district court may only refuse to entertain a declaratory judgment action “for good cause.” Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994).

         In considering whether to issue a declaratory judgment, a district court should consider (1) whether “the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, ” and (2) whether the judgment “will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Travelers Indem. Co. v. Miller Bldg. Corp., 221 Fed.Appx. 265, 267 (4th Cir. 2007) (quoting Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996)). A declaratory judgment is generally not warranted “where it is used to try a controversy by piecemeal, or to try particular issues without settling the entire controversy.” Centennial Life Ins. Co., 88 F.3d at 256. “It is well established that a declaration of parties' rights under an insurance policy is an appropriate use of the declaratory judgment mechanism.” United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 494 (4th Cir. 1998).

         Declaratory actions must satisfy Article III's ripeness requirement. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). A declaratory action is ripe if the dispute it presents is “definite and concrete, touching the legal relations of parties having adverse legal interests.” Id. “[T]he 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.

         II. Facts As Alleged

         From 2014 to 2017, Hanover Insurance issued various insurance policies to Castle Hill, a company that designs and sells slot games to Native American tribal casinos across the United States. (Complaint ¶ 9). Under these policies, [2] Hanover insured Castle Hill via primary businessowners policies with collective coverage limits of $3, 000, 000 and, starting in 2015, via umbrella policies with collective coverage limits of $3, 000, 000. (Id. ¶ 9(a)-(d); dkt. 28 at 3).

         In August 2017, Video Gaming Technologies, a competitor of Castle Hill, sued Castle Hill in the Northern District of Oklahoma for, among other claims, trademark and trade dress infringement[3] stemming from “class II bingo-based games” developed by Castle Hill with features closely resembling games produced by Video Game Technologies. (Complaint ¶¶ 10- 15). Castle Hill tendered this action (hereinafter, the “Underlying Action”) to Hanover for defense and indemnity. Hanover Insurance is defending Castle Hill in the Underlying Action under a reservation of rights but believes “that the losses alleged in the Underlying Action are excluded under the [b]usinessowners liability coverage.” (Id. ΒΆ 16). Since the Underlying Action remains pending, Hanover's obligations to indemnify Castle Hill have not been, and may never be, triggered. However, Hanover alleges ...


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