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Liberty Insurance Underwriters, Inc. v. Labarre

United States District Court, E.D. Louisiana

August 26, 2019




         For the reasons provided below, the Court grants Defendants' Motion to Dismiss [17] pursuant to Rules 12(b)(7) and 19(b). Plaintiffs' claims are dismissed without prejudice. This case is closed.

         A. Background

         This case arises from a settlement agreement reached in a complex tort case in Louisiana state court. In 2012, a sinkhole damaged property owned by Defendants, who then filed suit against numerous parties in state court, including Texas Brine Company, LLC. Defendants alleged that an affiliate of Texas Brine was partially responsible for the sinkhole. Plaintiff provided excess liability coverage for Texas Brine's affiliate from March 1, 2012, to March 1, 2013.

         In 2017, Defendants entered into a Settlement Agreement with Plaintiff, releasing it from any obligation to them under the 2012-2013 Texas Brine insurance policy. Defendants also entered into a Tripartite Agreement with Plaintiff and Texas Brine, in which Defendants assigned certain claims to Plaintiff and agreed to pay Plaintiff a portion of any sums received in satisfaction of certain claims. Plaintiff and Texas Brine were dismissed from the state-court case pursuant to the settlement. Plaintiff later filed this lawsuit, claiming that Defendants were attempting to settle their claims against Texas Brine's other insurers without remitting payment to Plaintiff as required by the Tripartite Agreement. Specifically, Defendants sought to amend their state-court petition to seek a declaratory judgment that they are not liable for any payment to Plaintiff under the Tripartite Agreement. Plaintiff asserted a breach of contract claim, alleging that Defendants and their counsel breached the confidentiality provisions of the Settlement Agreement and Tripartite Agreement. Plaintiff also seeks a declaratory judgment in its favor regarding payment under the Tripartite Agreement. Alternatively, Plaintiff seeks reformation of the Tripartite Agreement and rescission of the Settlement Agreement.

         Of course, Defendants disagree with Plaintiff's interpretation of the Tripartite Agreement. They contend that the scope of claims assigned to Plaintiff was more limited. Defendants filed a Motion for Abstention and to Dismiss [17], which the Court now addresses.

         B. Abstention Standard of Review

         Defendants argue that the Court should abstain from exercising jurisdiction over this case because of the parallel state-court proceeding. The Court applies one of two tests when deciding whether to abstain from hearing a case because of an ongoing parallel proceeding in state court. New England Ins. Co. v. Barnett, 561 F.3d 392, 394 (5th Cir. 2009). First, “[w]hen a district court is considering abstaining from exercising jurisdiction over a declaratory judgment action, it must apply the standard derived from Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942).” Id. “However, when an action involves coercive relief, the district court must apply the abstention standard set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).” Id. at 394-95. The Brillhart standard “affords a district court broad discretion, ” id. at 394, but under Colorado River, “the district court's discretion to dismiss is ‘narrowly circumscribed' . . . .” Id. at 395.

         The Court applies Colorado River “whenever an action includes both declaratory and non-frivolous coercive claims for relief.” Id. Therefore, “[w]hen an action contains any claim for coercive relief, the Colorado River abstention doctrine is ordinarily applicable.” Id. The “only two exceptions to application of the Colorado River standard” are “if the claims for coercive relief are frivolous or if the claims for coercive relief were added as a means of defeating Brillhart.” Id. at 395-96. Defendants argue that the Brillhart standard applies because Plaintiff's claims for coercive relief are frivolous and were made to circumvent Brillhart. However, at least one claim for coercive relief - Plaintiff's breach of contract claim - is not frivolous.

         First, the Tripartite Agreement provides: “This agreement is strictly confidential.” Exhibit B to Response at 3-4, Liberty Ins. Underwriters Inc. v. Labarre, No. 2:18-CV-8612-KS-CW (E.D. La. Apr. 12, 2019), ECF No. 117-2. Next, the Settlement Agreement provides:

         This Settlement is strictly confidential, provided, however, that LIUI shall be entitled to share this Agreement with its reinsurers. In the event needed to prove exhaustion of the 2012 Policy, LIUI shall be entitled to disclose Paragraph 2, but shall require the parties to whom Paragraph 2 is disclosed to maintain confidentiality of Paragraph 2.

         Exhibit A to Motion for Partial Summary Judgment at 6, Liberty Ins. Underwriters Inc. v. Labarre, No. 2:18-CV-8612-KS-CW (E.D. La. May 1, 2019), ECF No. 119-2.

         In Count One, Plaintiff alleges that Defendants violated these provisions by publicly disclosing the existence and certain terms of each contract on the public docket in the underlying state-court case. Indeed, in Defendants' proposed Thirteenth Supplemental and Amending Petition filed on the public docket in the underlying proceeding, Defendants disclosed that they had entered into the Tripartite Agreement, and that they had assigned certain claims to Plaintiff under the agreement. Exhibit A to Consent Motion for Leave to File at 7, Liberty Ins. Underwriters, Inc. v. Labarre, No. 2:18-CV-8612-KS-CW (E.D. La. Aug. 8, 2019), ECF No. 160-3.

         Defendants argue that these disclosures do not constitute breaches of the agreements because the state-court judge had already publicly disclosed the existence of the Tripartite Agreement. Defendants also argue that Plaintiff “cannot reasonably believe that its assignment of subrogation and contribution claims to the Labarres under the Tripartite Agreement is a fact that would remain a secret.” Memorandum in Support of Motion for Abstention at 9, Liberty Ins. Underwriters, Inc. v. Labarre, No. 2:18-CV-8612-KS-CW (S.D.Miss. Oct. 29, 2018), ECF No. 19-3.

         The confidentiality provisions are quite broad. Beyond the Settlement Agreement's brief reference to coinsurers, they include no carve-outs for matters already disclosed by third parties. That being the case, regardless of the state court's actions or whether Plaintiff's expectation of confidentiality was reasonable, its claim that disclosing the existence and some terms of the agreements constitutes a breach of the confidentiality provisions is not frivolous. Defendants could have insisted on more precise language in the agreements if they wanted to more clearly define the scope of the parties' obligations. Of course, Plaintiff's breach of contract claim may ultimately have no merit, but based on what is currently before the Court it is not frivolous.

         Therefore, as Plaintiff asserted a non-frivolous claim for coercive relief, Colorado River applies, rather than Brillhart. Barnett, 561 F.3d at 394-95.

         C. Colorado River Analysis

         “A Colorado River abstention analysis begins with a heavy thumb on the scale in favor of exercising federal jurisdiction, and that presumption is overcome only by ‘exceptional circumstances.'” Aptim Corp. v. McCall, 888 F.3d 129, 135 (5th Cir. 2018) (quoting Stewart v. W. Heritage Ins. Co., 438 F.3d 488, 491 (5th Cir. 2006)). Despite its “virtually unflagging obligation” to exercise the jurisdiction it has been granted, the Court may “choose to abstain, awaiting the conclusion of state-court proceedings in a parallel case, based on principles of ‘wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.” Id. (quoting Colorado River, 424 U.S. at 817).

         The Court considers the following factors to determine whether “exceptional circumstances” are present:

(1) assumption by either court of jurisdiction over a res, (2) relative inconvenience of the forums, (3) avoidance of piecemeal litigation, (4) the order in which jurisdiction was obtained by the concurrent forums, (5) to what extent federal law provides the rules of decision on the merits, and (6) the adequacy of the state proceedings in protecting the rights of the party invoking federal jurisdiction.

Id. at 135-36 (quoting Stewart, 438 F.3d at 491). These factors are not applied as a “mechanical checklist.” Id. at 135. Rather, the Court's decision “rests ‘on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction.'” Id. (quoting Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 16, 103 S.Ct. 927, 74 L.Ed. 765 (1983)).

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