United States District Court, E.D. Virginia, Norfolk Division
Raymond A. Jackson, United States District Judge.
the Court is Minnesota Lawyers Mutual Insurance Company
("MLM"), Kevin B. Rack, and Rack & Moccia,
P.C.'s ("R&M") Joint Motion to Stay. ECF
No. 33. This Order explains the Court's denial of the
motion from the bench on September 26, 2019.
January 20, 2019, MLM filed a declaratory judgment action
against Rack, R&M, Benjamin C. Banks, and Carol Duval to
determine whether MLM has a duty to defend Rack and R&M
in an underlying suit before the Virginia Beach Circuit
Court. ECF No. 1. The underlying suit styled Kevin B.
Rack, Co-Trustee of the Benjamin O. Colonna, Jr. Child's
Trust v. Carol C. DuVal, Individually and as Co-Trustee of
the Benjamin O. Colonna, Jr. Child's Trust and Benjamin
C. Banks, Case No. CL17-4254, involves breach of
fiduciary duty and breach of trust claims. Id. at
¶ ¶ 2, 10. The Virginia Beach Circuit Court
continued the case from August 2019 to December 16-18, 2019,
to occur after the trial in this case scheduled for October
29, 2019. See ECF No. 37 at 3.
Rack, and R&M filed the instant motion on August 8, 2019.
ECF Nos. 33-34. Banks opposed the motion on August 15, 2019.
ECF No. 37. MLM, Rack, and R&M replied to Banks'
opposition on August 21, 2019. ECF No. 40.
district court has "wide discretion" in deciding
whether to stay a declaratory suit pending resolution of an
underlying action. Centennial Life Ins. Co. v.
Poston, 88 F.3d 255, 257 (4th Cir. 1996). In deciding
whether to grant a motion to stay, courts consider various
factors such as:
(i) the strength of the state's interest in having the
issues raised in the federal declaratory action decided in
the state courts...; (ii) whether the issues raised in the
federal action can more efficiently be resolved in the court
in which the state action is pending...; (iii) whether
permitting the federal action to go forward would result in
unnecessary "entanglement" between the federal and
state court systems, because of the presence of
"overlapping issues of fact or law"...; and (iv)
whether the declaratory judgment action is being used merely
as a device for "procedural fencing[.]"
Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d
371, 377 (4th Cir. 1994) (citations omitted). Courts have
frequently approved the use of federal declaratory judgment
actions to resolve disputes over liability insurance
coverage, even in advance of a judgment against the insured
on the underlying claim for which coverage is sought.
Id at 375; see also Stout v. Grain Dealers Mut.
Ins. Co., 307 F.2d 521 (4th Cir. 1962); Farm Bureau
Mut. Auto Ins. Co. v. Daniel, 92 F.2d 838 (4th Cir.
1937). In these cases, courts have also considered whether
necessary facts will remain in dispute as to the duty to
indemnify until the underlying litigation is resolved.
Hanover In. Co. v. Castle Hill Studios, LLC, No.
3:18-cv-00072, 2019 U.S. Dist. LEXIS 11132, at *11 (W.D. VA.,
January 23, 2019) (citations omitted). Practicality and wise
judicial administration, and the need to "prevent
piecemeal litigation" are also important in the
court's determination. Id. "[I]f, upon
balancing the competing interests, the court determines that
the moving party has justified the stay request by clear and
convincing circumstances outweighing potential harm to the
party and against whom it is operative, " a district
court may stay the proceeding. Id. at *12.
balancing all the aforementioned factors, the Court finds
that MLM, Rack, and R&M fail to justify its request for a
stay by clear and convincing circumstances. MLM, Rack, and
R&M request a stay pending resolution in the underlying
state court action claiming that if Rack prevails in the
underlying action, then the question of whether they have to
defend becomes moot. ECF No. 37 at 3- 4. However, the
underlying state court action and the matter before the
Court, revolve around two different legal issues. Whereas the
state court action involves breach of fiduciary duty claims,
the declaratory judgment action before the Court involves
whether MLM is required to defend. See ECF No. 1.
The answer to this question impacts the underlying state
court action and any potential settlement negotiations.
issues raised in the federal declaratory action need not be
decided in state court, and there is no indication that the
issues in the declaratory judgment will more efficiently be
resolved in state court. The Virginia Beach Circuit Court
specifically stayed its case pending resolution of the
declaratory judgment action before this Court. ECF No. 37 at
3. Now, MLM, Rack, and R&M seek a stay in the declaratory
judgment action pending resolution in the state court action
which will only delay resolution of the issues in the case
and create a circular and ongoing process of litigation. Due
to the differences in the two actions, permitting the
declaratory judgment action to go forward will not result in
any unnecessary "entanglement" between the federal
and state court systems, because of the presence of
"overlapping issues of fact or law." See
Nautilus Ins. Co., 15 F.3d at 371. Since the issue of
whether MLM is required to defend is essential to the overall
litigation, the declaratory judgment action is not being used
for "procedural fencing." Id.
the Court finds that there are no necessary facts that will
remain in dispute as to the duty to indemnify until the
underlying litigation is resolved. See Hanover In.
Co., 2019 U.S. Dist. LEXIS 11132, at *11. Therefore, the
Court does not need to wait until the ultimate factual
findings in the underlying case to determine whether MLM owes
a duty to defend Rack and R&M. Because the determination
of whether MLM will be required to defend will assist the
parties in preparing for the underlying state court action
and any settlement negotiations, it is practical for the
declaratory judgment action to proceed in advance of the
litigation to prevent piecemeal litigation.
after balancing the competing interests, the Court finds that
MLM, Rack, and R&M failed to justify the request for a
stay by clear and convincing circumstances that outweigh
potential harm against Banks and Duval. Therefore, MLM, Rack,
and R&M's Joint Motion to Stay is
Clerk is DIRECTED to send a copy of this
Memorandum Order to counsel for the parties.