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Bits & Pieces

Mayflower Transit v. Troutt

United States District Court,

W.D. Texas,

El Paso Division.

MAYFLOWER TRANSIT, L.L.C., Plaintiff,

v.

Eric TROUTT and Amy Troutt, Defendants.

Aug. 19, 2004.

ORDER GRANTING PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT

MARTINEZ, District J.

On this day, the Court considered Plaintiff Mayflower Transit L.L .C.’s (“Mayflower”) “Motion for Default Judgment Against Eric Troutt and Amy Troutt and Brief in Support Thereof” (“Motion”) and Mayflower’s “Request for Entry of Default Judgment and Memorandum in Support” (“Request”) filed on March 25, 2004 and June 7, 2004, respectively, in the above-captioned cause. As of the date of this order, Defendants Eric Troutt and Amy Troutt (“Defendants” or “the Troutts”) have neither responded to the Motion nor have they filed a motion to set aside the entry of their default.

After careful consideration, the Court is of the opinion that Mayflower’s Motion should be granted and that default judgment should be entered in its favor, for the reasons set forth below.

I. FACTUAL AND PROCEDURAL BACKGROUND

On January 28, 2004, Mayflower, a Missouri corporation and interstate motor carrier of household goods, filed its “Complaint for Declaratory Judgment” (“Complaint”) in this Court. With its Complaint, Mayflower requests that the Court enter a declaratory judgment in its favor essentially stating that it has no duty to deliver certain office furniture to the Troutts, a husband and wife who formerly resided in El Paso, Texas and now reside in Mt. Vernon, Illinois.

Mayflower claims that, at some time in November 2002, the Troutts “contacted Mayflower’s agent, Valley Moving & Storage (“Valley”), to provide an estimate for the transportation of their household goods from El Paso, Texas to Mt. Vernon, Illinois.” Complaint ¶ 8. Allegedly, Eric Troutt requested that Valley provide two cost estimates, one for the cost of shipping various household possessions and another estimate for the cost of shipping other office furniture located outside the Troutts’ El Paso home. Id. According to Mayflower, Valley provided the Troutts with both estimates, but Eric Troutt stated that “the estimate for moving the office furniture exceeded the amount that [he] had been allowed by a third party who was purportedly reimbursing [him] for his move.” Id. Apparently, Eric Troutt never requested Mayflower to move the office furniture to Illinois. Id.

Mayflower states that the Troutts tendered various household goods to Mayflower on or about January 30, 2003 for transport to Illinois. Id. ¶ 9. Mayflower next claims that, on February 13, 2003, the Troutts executed a Bill of Lading relating to their shipment. Id. ¶ 10. Thereafter, the Troutts’ household items were shipped and delivered to the Troutts in Illinois. [FN1] Id. ¶ 11. Mayflower claims that, after delivery was complete, it received an April 23, 2003 letter from the Troutts, in which the Troutts stated that they were still awaiting the arrival of their office furniture. Id. Mayflower states that the Troutts never arranged for the delivery of their office furniture; nevertheless, it informed the Troutts that it could arrange for the delivery of the office furniture in exchange for proper payment. Id. On January 14, 2004, Mayflower apparently received a demand from the Troutts, in which the Troutts asserted various common law claims against Mayflower [FN2] and demanded $75,000 [FN3] in damages. Id.

FN1. Mayflower’s Complaint states that Troutts executed the Bill of Lading on February 13, 2003, and that they also received their household items that same day. Id. ¶ ¶ 10-11. The Court believes that the Bill of Lading may have been executed prior to receipt and that one of these dates may be incorrect. Regardless, any error is of no consequence to Mayflower’s Motion.

FN2. Based on the record, the only claims that the Troutts asserted were claims related to the loss of, or damage to, their office furniture. Nothing in Mayflower’s Complaint shows that the Troutts raised an issue relating to their household items.

FN3. A demand of exactly $75,000 would be insufficient for purposes of diversity jurisdiction.

In further support of its Complaint, Mayflower points out that Valley prepared a Table of Measurements detailing the specific goods that were to be moved, and that the Table of Measurements did not include any of the Troutts’ office furniture. Id. ¶ 14. Additionally, Eric Troutt allegedly signed a Household Goods Descriptive Inventory, acknowledging the contents shipped and received. Id. ¶ 15. The Troutts “declared no exceptions to the Household Goods Delivery Inventory at origin or destination” of carriage. Id. Finally, Mayflower notes that the Bill of Lading provides that any claim that the Troutts had relating to the loss of, or damage to, their property had to be filed with Mayflower no later than nine months after delivery, but the Troutts have not submitted a properly prepared claim. Id. ¶ 16. Thus, it argues, the Troutts are time-barred from pursing a claim relating to Mayflower’s shipment of their possessions. Id.

Mayflower seeks a declaratory judgment which would declare (1) that “any alleged claims of Defendants for breach of contract, loss of use, fraud and property damage are preempted by the Carmack Amendment,” (2) that “Mayflower is not liable to Defendants for delay or property damage,” and (3) that “Mayflower is not obligated to transport Defendants’ office furniture until Defendants pay the applicable interstate tariff charges for such a shipment.” Id. at 5-6.

II. ANALYSIS

In order to properly resolve Mayflower’s Motion, the Court must conduct two primary inquiries and assess (1) whether default judgment is procedurally proper and (2) whether declaratory relief is appropriate.

A. Is Default Judgment Procedurally Proper?

Federal Rule of Civil Procedure 55 [FN4] sets forth certain conditions under which default may be entered against a party, as well as the procedure by which a party may seek the entry of default judgment. If a party “against whom a judgment for affirmative relief is sought” fails to “plead or otherwise defend” a case, and “that fact is made to appear by affidavit or otherwise, the clerk [of court] shall enter the party’s default.” FED. R. CIV. P. 55(a). Once a default is entered, “the party entitled to a judgment by default” may move the Court for entry of default judgment. FED. R. CIV. P. 55(b). The Fifth Circuit has concisely summarized the steps leading up to default judgment.

FN4. Any citation of a “Rule” in this Order is a citation to the Federal Rules of Civil Procedure.

A default occurs when a defendant has failed to plead or otherwise respond to the complaint within the time required by the Federal Rules. An entry of default is what the clerk enters when the default is established by affidavit or otherwise … After defendant’s default has been entered, plaintiff may apply for a judgment based on such default. This is a default judgment.

New York Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir.1996) (citation omitted).

“Default judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations.” Sun Bank of Ocala v. Pelican Homestead and Sav. Ass’n, 874 F.2d 274, 276 (5th Cir.1989) (citations omitted). In accord with that policy, “[a] party is not entitled to a default judgment as a matter of right, even where the defendant is technically in default.” Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir.1996). Rather, a default judgment is normally committed to the discretion of the district court. Mason v. Lister, 562 F.2d 343, 345 (5th Cir.1977).

The procedural background of this case establishes that the Troutts did default and that the District Clerk’s entry of their default was proper. Mayflower filed its Complaint on January 26, 2004. Shortly thereafter, it proceeded to serve the Troutts through the Texas Secretary of State. [FN5] Although the Troutts were served with Mayflower’s Complaint, they defaulted by failing to timely “plead or otherwise defend.” On March 25, 2004, the District Clerk properly entered their default, pursuant to Rule 55(a).

FN5. The Secretary of State received Mayflower’s Summons and Complaint on February 2, 2004, and forwarded those documents to both of the Troutts individually on February 6, 2004 via certified mail, return receipt requested. See Cert. Serv. The Secretary of State received both return receipts on February 9, 2004. Id.

On March 26, 2004, the Troutts faxed a document entitled “Entry of Appearance and Request for Enlargement of Time to Further Plead or Answer” (“Entry of Appearance”) directly to the undersigned judge’s chambers, without obtaining permission to do so. [FN6] Because the Troutts were appearing pro se, the Court entered an order stating that it would permit their Entry of Appearance to be filed despite the fact that they had not submitted it in accordance with the Court’s local rules or procedure. [FN7] The Court also granted the Troutts an extension of time (until April 14, 2004) to file a motion to set aside entry of default. In no uncertain terms, the Court pointed out to the Troutts that because default had been entered, they were required to file a motion to set aside entry of default, succeed on that motion, and only then would they be permitted to file a responsive pleading or motion. The Troutts failed to timely respond to the Court’s March 30, 2004 order.

FN6. All documents presented for filing in the El Paso Division of the Western District of Texas must be submitted to the District Clerk’s office, not directly to a judge’s chambers.

FN7. Although Eric Troutt represented that he is an attorney, the Court was unaware of his prior experience in this courthouse. The Court has learned that Eric Troutt has filed at least two civil actions on his own behalf with the El Paso Division: (1) Troutt v. Transcontinental Adjustment Co., EP-02-CV-181, a suit filed under the Fair Debt Collection Act (“FDCA”) (dismissed against Troutt for failure to prosecute) and (2) Troutt v. Bank Regions, EP-02-CV-305, another FDCA suit (dismissed by Troutt himself). The Court sees no reason justifying Troutt’s inability to comply with this Court’s local rules; he is an attorney with past experience with this Division.

On May 17, 2004, the Court entered an Order to Show Cause why Mayflower’s Motion should not be granted in light of the Troutts’ failure to move to set aside entry of default. On June 1, 2004, the Troutts disregarded the Court’s local rules and its March 30, 2004 order by faxing another document directly to chambers. The District Clerk’s office returned this document to the Troutts with clear instructions to properly re-file the document. To date, the Court has yet to receive a motion to set aside entry of default from the Troutts, and it can only conclude that the Troutts do not oppose the entry of default judgment. [FN8]

FN8. Western District of Texas Local Rule CV-7 provides that the Court may treat a motion as unopposed when a party fails to properly oppose it.

Finally, Rule 55(b) specifically restricts the availability of default judgments, but none of its restrictions apply in this case. This case does not involve “an infant or incompetent person,” see FED. R. CIV. P. 55(b)(2), nor does it involve a default against the United States, see FED. R. CIV. P. 55(e). Further, neither of the Troutts is in military service. See 50 U.S.C. Appx. § 501, et seq.; FED. R. CIV. P. 55, Adv. Comm. Notes; Mot. ¶ 5. Additionally, Rule 55(b)(2) requires that notice be provided to a party facing entry of default judgment, but only if that defaulting party has appeared in the action. FED. R. CIV. P. 55(b)(2). Here, the Troutts have received notice of Mayflower’s Complaint, Mayflower’s Motion, and Mayflower’s Request; thus, the requirement of Rule 55(b)(2) has been satisfied.

Accordingly, all procedural prerequisites for entry of default judgment have been met, and default judgment is procedurally warranted in this matter.

B. Is Declaratory Relief Appropriate?

With the procedural requirements for default judgment satisfied, the Court must next evaluate Mayflower’s Complaint and satisfy itself that “[t]here [is] a sufficient basis in the pleadings for the judgment.” Nishimatsu Const. Co., Ltd. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir.1975). That said, by virtue of its default, the Troutts have “admit[ted] [Mayflower’s] well-pleaded allegations of fact.” Id. See also Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir.1977) (stating “[t]he general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true”). Thus, only if Mayflower’s Complaint provides a sufficient basis for the relief it seeks can the Court grant default judgment, and issue declaratory relief, in Mayflower’s favor. Because Mayflower seeks a declaratory judgment, certain specific considerations must be addressed.

1. Does The Court Have Subject Matter Jurisdiction?

The Declaratory Judgment Act (“DJA”) does not provide an independent source of federal jurisdiction; rather, it provides a federal remedy that may be invoked when jurisdiction otherwise properly exists. See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72 (1950); TTEA v. Ysleta del Sur Pueblo, 181 F.3d 676, 681 (5th Cir.1999). “If there is an underlying ground for federal court jurisdiction, the [DJA] ‘allow[s] parties to precipitate suits that otherwise might need to wait for the declaratory relief defendant to bring a coercive action.” Household Bank v. JFS Group, 320 F.3d 1249, 1253 (11th Cir.2003) (citation omitted). “[A] federal district court has subject matter jurisdiction over a declaratory judgment action if … a plaintiff’s well-pleaded complaint alleges facts demonstrating the defendant could file a coercive action arising under federal law.” Id. at 1259.

The Carmack Amendment to the Interstate Commerce Act is codified at 49 U.S.C. § 14706, and it affords interstate shippers a statutory right to recover actual losses to property caused by interstate carriers. Am. Nat’l Fire Ins. Co. v. Yellow Freight Sys., Inc., 325 F.3d 924, 928-29 (7th Cir.2003). In other words, it sets forth “a comprehensive remedial scheme whereby a shipper whose cargo is lost or damaged by a carrier may recover damages for that loss.” Glass v. Crimins Transfer Co., 299 F.Supp.2d 878, 884 (C.D.Ill.2004).

Carmack Amendment claims may be pursued in either state or federal court, see 49 U.S.C. § 14706(d); Hoskins v. Bekins Van Lines, 343 F.3d 769, 778 n. 7 (5th Cir.2003), and federal district courts have original jurisdiction over Carmack Amendment claims “only if the matter in controversy for each receipt or bill of lading exceeds $10,000, exclusive of interest and costs,” 28 U.S.C. § 1337(a).

The Fifth Circuit recently held that the Carmack Amendment completely preempts state and common law claims arising from the loss of, or damage to, goods shipped in interstate commerce. Hoskins, 343 F.3d at 778. As a general rule, federal preemption of state law is a defense that does not serve as a basis for federal subject matter jurisdiction. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392-93 (1987) (discussing “well-pleaded complaint” rule and notion that federal preemption of state law does not permit removal of state claims) (citation omitted). However, “[o]nce an area of state law has been completely preempted, any claim purportedly based on that preempted state law is considered, from its inception, a federal claim, and therefore arises under federal law.” Id. at 393 (citation omitted) (emphasis added). Because the Carmack Amendment provides the exclusive cause of action for claims arising from the loss of, or damage to, goods shipped in interstate commerce, and preempts state and common law causes of action based on such conduct, a plaintiff cannot “plead around” the Carmack Amendment. Any claim based on the loss of, or damage to, goods shipped in interstate commerce and within the reach of the Carmack Amendment arises under federal law. See, e.g., Stephenson v. Wheaton Van Lines, Inc., 240 F.Supp.2d 1161, 1166 (D.Kan.2002) (finding breach of contract and negligence claims were preempted by Carmack Amendment and preemption “converted” those state law claims into claims arising under federal law); Stein Jewelry Co. v. United Parcel Serv., 228 F.Supp.2d 304, 307 (S.D.N.Y.2002) (stating gravamen of complaint was failure to properly ship goods and claims arose under Carmack Amendment in light of artful-pleading doctrine).

Based on the allegations in Mayflower’s Complaint, if the Troutts pursued a coercive action relating to any loss of, or damage to, their office furniture, their claim would fall directly within the reach of the Carmack Amendment and would, therefore, raise an issue of federal law. [FN9] Any state or common law claims pursued by the Troutts in connection with the loss of, or damage to, their office furniture would be preempted by the Carmack Amendment. See Hoskins, 343 F.3d at 778. Accordingly, federal subject matter jurisdiction would exist over those preempted claims, which means that this Court has subject matter jurisdiction over Mayflower’s request for declaratory relief.

FN9. Beyond that, a federal district court would have original jurisdiction over the Troutts’ claims because they allegedly suffered $75,000 in damages-far in excess of the Carmack Amendment’s $10,000 original jurisdiction requirement.

2. Is Declaratory Relief Appropriate Under The DJA?

The DJA, codified at 28 U.S.C. § 2201(a), states that, subject to certain exceptions,

In a case of actual controversy within its jurisdiction, … any court of the United States, upon the filing of an appropriate pleading, 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. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

One of the purposes of the DJA is to “resolve outstanding controversies without forcing a putative defendant to wait to see if it will be subjected to suit.” Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 398 n. 8 (5th Cir.2003). It serves to “minimize the danger of avoidable loss and the unnecessary accrual of damages and afford one threatened with liability an early adjudication without waiting until an adversary should see fit to begin an action.” Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216, 219 n. 11 (5th Cir.1998) (citation omitted).

The DJA is an ” ‘enabling Act, which confers a discretion on courts rather than an absolute right upon the litigant.” ‘ Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (citation omitted). “District courts have a broad, but not unfettered, measure of discretion in deciding whether to entertain an action for a declaratory judgment.” Dow Agrosciences v. Bates, 332 F.3d 323, 327 (5th Cir.2003) (citations omitted). “In the exercise of their sound discretion to entertain declaratory actions the district courts may not decline on the basis of whim or personal disinclination.” Hollis v. Itawamba County Loans, 657 F.2d 746, 750 (5th Cir.1981).

“When considering a declaratory judgment action, a district court must engage in a three-step inquiry. First, the court must determine whether the declaratory action is justiciable.” Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir.2000). In other words, the Court must be satisfied that the declaratory judgment suit presents an actual “controversy.” Id. (citation omitted). “Second, if it has jurisdiction, then the district court must resolve whether it has the ‘authority’ to grant declaratory relief in the case presented.” Id. (citation omitted). “Third, the court has to determine how to exercise its broad discretion to decide or dismiss a declaratory judgment action.” Id. (citation omitted).

a. Is Mayflower’s Suit Justiciable?

“A declaratory judgment action is ripe for adjudication only where an ‘actual controversy’ exists.” Orix Credit Alliance, 212 F.3d at 896 (citations omitted). “As a general rule, an actual controversy exists where ‘a substantial controversy of sufficient immediacy and reality [exists] between parties having adverse legal interests.” Id. (citations omitted). Simply put, “in order to achieve the status of a case or controversy, a dispute must exist between two parties having adverse legal interests.” S. Jackson & Son, Inc. v. Coffee, Sugar, & Cocoa Exchange, Inc., 24 F.3d 427, 431 (2d Cir.1994) (citation omitted). “Whether particular facts are sufficiently immediate to establish an actual controversy is a question that must be addressed on a case-by-case basis.” Orix Credit Alliance, 212 F.3d at 896. (citations omitted).

With their default, the Troutts have admitted all of Mayflower’s well-pleaded factual allegations as true, and those factual allegations establish that the Troutts believe that Mayflower has a duty to deliver their office furniture to them in Illinois and that Mayflower is liable to them in connection with that duty. This is clearly evidenced by the fact that the Troutts (1) submitted written notice to Mayflower that they were still awaiting their office furniture and (2) followed that notice with written allegations of liability (e.g., breach of contract, fraud, property damage) and a claim for $75,000 in damages. Mayflower, on the other hand, contends that the Troutts never contracted with it or Valley for the transport of the office furniture in the first place. Thus, Mayflower seeks a declaration that it has no duty to deliver any of the Troutt’s office furniture unless and until the Troutts properly arrange for that transport and pay the proper tariff.

Based on these allegations, which the Troutts admitted as true by default, the Court concludes that the case or controversy requirement is satisfied because there is a clear, actual dispute between the parties that is neither hypothetical nor conjectural. A declaratory judgment in this case would not serve as a mere advisory opinion; rather, it would adjudicate the rights, duties, and liabilities of Mayflower and the Troutts in relation to their disparate positions over the shipping contract. Further, it would assist the parties in guiding their future conduct (i.e., if Mayflower has a duty to deliver any office furniture, a declaratory judgment stating such would clarify its duty to do so). Thus, the issues raised may be properly resolved via declaratory relief. [FN10] By failing to respond to Mayflower’s Motion, the Troutts offer nothing to the Court suggesting otherwise.

FN10. See FED. R. CIV. P. 57, Adv. Comm. Notes (stating “[w]ritten instruments … may be construed before or after breach at the petition of a properly interested party”).

b. Does The Court Have The Requisite Authority?

“Under the second element of the Orix Credit Alliance test, a district court does not have authority to consider the merits of a declaratory judgment action when: (1) the declaratory defendant previously filed a cause of action in state court; (2) the state case involved the same issues as those in federal court; and (3) the district court is prohibited from enjoining the state proceedings under [28 U.S.C. § ] 2283.” Sherwin-Williams, 343 F.3d at 388 n. 1 (citations omitted). This second step essentially requires the Court to assess whether competing state and federal proceedings exist, and whether the district court is prohibited from intruding in the state action under the Anti-Injunction Act.

Nothing in the record before the Court establishes the existence of a similar, parallel state court action relating to the Troutt’s claims against Mayflower. Further, Mayflower’s Motion suggests that no parallel action exists. See Mot. ¶ 5. Despite proper notice and an extension of time, the Troutts have failed to take proper steps to litigate this dispute, and they have provided nothing to the Court that would justify denying Mayflower’s Motion. With no evidence of a similar pending state court action, the Court has the authority to grant declaratory relief under the guidelines set forth in Orix Credit Alliance.

c. Should The Court Issue Declaratory Relief?

Under the third step set forth in Orix Credit Alliance, a district court faced with a declaratory relief action must determine whether to exercise or decline jurisdiction. The Fifth Circuit has stated that, when determining whether to exercise or decline jurisdiction over a declaratory judgment action, a district court should consider several important factors, namely: (1) whether a state action is pending in which all of the matters in controversy may be fully litigated; (2) whether the plaintiff filed the declaratory action suit in anticipation of a suit by the defendant; (3) whether the plaintiff engaged in forum shopping in bringing the suit; (4) whether possible inequities exist by allowing the declaratory plaintiff to gain precedence in time or to change forums; (5) whether the federal court is convenient for the parties and witnesses; (6) whether retaining the case in federal court will serve judicial economy; and (7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending. Sherwin-Williams, 343 F.3d at 388 (citing St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir.1994)). A district court’s failure to consider or balance these relevant factors constitutes an abuse of discretion. Travelers Ins. Co. v. Louisiana Farm Bureau Federation, Inc., 966 F.2d 774, 778 (5th Cir.1993) (citations omitted).

In Sherwin-Williams, the Fifth Circuit analyzed the factors set forth in Trejo and divided them into three different categories: (1) factors relating to federalism and comity (which include the first and seventh Trejo factors); (2) factors relating to fairness (which include the second, third, and fourth Trejo factors); and (3) factors relating to efficiency (which include the fifth and sixth Trejo factors). 343 F.3d at 390-91.

(1) Federalism Concerns

In connection with the first Trejo factor, “[t]he absence of any pending related state litigation strengthens the argument against dismissal of [a] federal declaratory judgment action.” Id . at 394. The Court has no evidence before it demonstrating the existence of a parallel state court action, and, therefore, this factor favors retaining Mayflower’s request for declaratory relief. Furthermore, based on the allegations in Mayflower’s Complaint (which the Troutts admitted by default), the dispute between the Troutts and Mayflower implicates federal law, which also favors retaining jurisdiction.

The final Trejo factor is inapplicable here because Mayflower is not asking this Court to construe a state judicial decree of any kind.

Based on the record before it, the Court believes that Mayflower’s Complaint raises no serious federalism or comity concerns, that these factors favor adjudicating Mayflower’s request for declaratory relief, and that the Troutts have failed to provide the Court with any reason to come to an opposite conclusion.

(2) Fairness Concerns

With regard to the second Trejo factor, Mayflower obviously filed this declaratory action in anticipation of a suit by the Troutts. Nevertheless, “[t]he mere fact that a declaratory judgment action is brought in anticipation of other suits does not require dismissal of the declaratory judgment action by the federal court.” Sherwin-Williams, 343 F.3d at 397. Mayflower brought its suit with a legitimate purpose in mind, namely the clarification of its duty to the Troutts so that it need not wait until the Troutts see fit to bring an action related to their office furniture.

The third Trejo factor requires the Court to examine whether Mayflower engaged in “forum shopping” by bringing its suit in the Western District of Texas. The allegations of Mayflower’s Complaint suggest that the Troutts’ office furniture was never tendered to Mayflower or Valley at all, and the Western District of Texas appears to be a proper venue for any coercive Carmack Amendment action filed by the Troutts. Additionally, the Western District of Texas has a substantial connection to this suit. The initial estimates and discussions between Valley and the Troutts occurred in El Paso, and the shipment of the Troutts household goods commenced here. [FN11] Furthermore, because the Carmack Amendment would govern any coercive suit filed by the Troutts in connection with their lost or damaged office furniture, it is evident that Mayflower is not attempting to avail itself of a more desirable body of law. Mayflower gains no choice of law advantage by filing suit in the Western District of Texas, because the Carmack Amendment would govern the Troutts’ claims regardless if those claims were filed in another federal court or pursued in a state court.

Canal Insurance Co. v. Underwriters at Lloyds’

United States District Court,

E.D. Pennsylvania.

CANAL INSURANCE CO., Plaintiff,

v.

UNDERWRITERS AT LLOYD’S LONDON, Defendant.

Aug. 25, 2004.

MEMORANDUM

ROBRENO, J.

I. INTRODUCTION

This declaratory action arises out of a coverage dispute between two insurance companies. The subject of the dispute involves a 1996 Kenworth tractor, serial no. 1XKAD69XOTJ682926 (hereinafter the “Tractor”), owned by Sukhjit Singh (“Mr.Singh”). During the relevant period, Mr. Singh was an independent trucker who leased his vehicle to BIR Transport Co. (“BIR”), a motor carrier, pursuant to a leasing agreement.

One of the insurance companies involved in the dispute, plaintiff Canal Insurance Co. (“Canal”), issued a “Business Auto Policy” naming BIR as an insured and the Tractor as a covered vehicle. The other insurance company, defendant Underwriters at Lloyd’s London (“Underwriters”), issued a “Non-trucking Liability Insurance Policy” naming Mr. Singh as the insured and also listing the Tractor as a covered vehicle.

While both policies were in effect, the Tractor was involved in an automobile accident, which gave rise to a lawsuit in state court where BIR, Mr. Singh, and the driver of the Tractor at the time of the accident were named as defendants. Canal settled the state action for $58,500 in exchange for a release in favor of BIR, Mr. Singh, and the driver. Underwriters refused to defend the defendants in the state action and refused to indemnify Canal. Canal now seeks indemnification from Underwriters in this action for the monies it spent defending and indemnifying defendants in the state action.

The issue before the Court is whether the Underwriters policy provides coverage for the liability caused by the accident involving the Tractor. If so, Canal is entitled to indemnification from Underwriters. Canal has brought this declaratory judgment action and the parties, after discovery, have filed cross-motions for summary judgment. [FN1]

FN1. When confronted with cross-motions for summary judgment “the court must rule on each party’s motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard.” 10A Charles A. Wright, Arthur R. Miller & Mary Kane, Federal Practice and Procedure § 2720 (1998). Thus, with respect to each party, summary judgment is proper when the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-52, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986). An issue is genuine only if the evidence is such that a reasonable jury could find for the non-moving party. Id. at 251-52. In making this determination, a court must draw all reasonable inferences in favor of the non-movant. See Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. denied, 465 U.S. 1091, 79 L.Ed.2d 910, 104 S.Ct. 2144 (1984). Thus, summary judgment should be granted only if no reasonable trier of fact could find for the non-moving party. See id.; Radich v. Goode, 886 F.2d 1391, 1395 (3d Cir.1989).

II. FACTS AND DISCUSSION

A. Facts Surrounding the Accident. [FN2]

FN2. These facts are undisputed.

On or about April 23, 2000, Mr. Singh instructed one of his associates to drive the Tractor from Harrisburg, Pennsylvania to a dealership in Chester, Pennsylvania for the purpose of selling the Tractor or trading it in for a new tractor. Mr. Singh’s intention was to trade in the Tractor and get a new one, [FN3] and then try to get a load in the area for delivery on behalf of BIR. BIR was made aware of the plans to go to Chester, but it is undisputed that BIR did not dispatch the Tractor from Harrisburg to Chester. However, in case a dispatch were to become available in the Chester area, Mr. Singh directed that an empty trailer be attached to the Tractor as it traveled to Chester. While en route to Chester, the Tractor was involved in the automobile accident which gave rise to the lawsuit in state court. Ultimately, Canal paid out $85,959.42 in fees, litigation costs, and settlement amounts.

FN3. In his deposition, Mr. Singh stated that he wanted to trade in or sell the Tractor,

because this truck required too much repair on it. Spending–spent too much money on the engine. So, I don’t want to spend anymore. Buy a new one. Dep. Tr., at 12.

B. Underwriters’ Motion for Summary Judgment.

The Underwriters policy names Mr. Singh as the insured and lists the Tractor as a covered vehicle under the policy. However, the policy excludes from coverage certain “[b]usiness use[s].” Specifically, exclusion 8 of the policy provides that the insurance does not cover:

[a] covered automobile while it is engaged in Business Use, such as proceeding to any location, pursuant to the request, direction, control and/or dispatch, of any person or entity other than the Insured, or complying with any term of a presently effective, written lease with a motor carrier.

Resp. Mot. Sum. Judg., at Exhibit D. Further, in a section entitled “Definitions,” the policy provides as follows:

“Business Use” includes, but is not limited to, any use of the auto that promotes the business purposes of the Insured or the purposes of a written, permanent lease that the Insured has signed with a motor carrier such as hauling a load for the motor carrier, being under the request, direction, control and/or dispatch to haul a load for the motor carrier or the pick-up a load, laying over on the road to await pick-up of a load or traveling for the purposes of repairing or maintaining the covered auto. The foregoing examples of “Business Use” are illustrative and not exhaustive.

Id. (emphasis added).

Therefore, if at the time of the accident, the insured’s (Mr. Singh’s) listed vehicle (the Tractor) was engaged in activity that “promote[d] the business purposes of the Insured,” the exclusion applies and coverage was properly denied by Underwriters. Reduced to its essence, the Court must answer, based upon the undisputed facts, three questions:

1. Who is the insured?

2. What is the business of the insured?; and

3. Did the trip from Harrisburg, Pennsylvania to Chester, Pennsylvania “promote the business purposes of the [i]nsured”?

To answer these questions, the Court turns to the Canal policy itself.

The parties agree that Pennsylvania law governs consideration of the Canal policy. Where an insurer relies on a policy exclusion as the basis for its denial of coverage and refusal to defend, the insurer has asserted an affirmative defense and, accordingly, bears the burden of proving such defense. Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100, 106 (1999). As noted by the Pennsylvania Supreme Court in Madison, the principles of insurance contract interpretation are well-settled:

The task of interpreting an insurance contract is generally performed by a court rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument. Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language. Contractual language is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. This is not a question to be resolved in a vacuum. Rather, contractual terms are ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts. [A court] will not, however, distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity.

735 A.2d at 106 (internal citations and quotations omitted).

One, under the Canal policy, Mr. Singh is the named insured. Although BIR is apparently an affiliated entity, and the release from the state action ran to BIR as well as Mr. Singh, under the plain language of the policy, Mr. Singh is the named insured and BIR is not.

Two, the record shows that Mr. Singh is an independent trucker in the business of leasing his tractors to BIR. By contrast, BIR operates as a “motor carrier.” See Prestige Casualty Co. v. Michigan Mutual Ins. Co., 99 F.3d 1340, 1342- 1343 (6th Cir.1996) (summarizing that “motor carriers,” who commonly lease equipment from independent contractors, are persons engaged in the transportation of property as a common or contract carrier). Since Mr. Singh is the named insured under the Canal policy, the business of the insured under the policy is Mr. Singh’s truck leasing business, and not BIR’s motor carrier business.

Three, the trip from Harrisburg, Pennsylvania to Chester, Pennsylvania “promote[d]” Mr. Singh’s truck leasing business. “Words of common usage in an insurance policy are to be construed in their natural, plain, and ordinary sense … [and the court may] inform [its] understanding of these terms by considering their dictionary definitions.” Madison, 735 A.2d at 108. The term “promotes” is defined in Webster’s Ninth Collegiate Dictionary (1990) as “to contribute to the growth or prosperity of” or “furthers.” It is beyond argument that trading up one tractor for another (or attempting to do so) “further[ed]” or “contribute[d] to the growth or prosperity of” Mr. Singh’s truck leasing business.

Since Mr. Singh is the insured, engaged in the business of leasing tractors, and further since the act of traveling from Harrisburg to Chester “contribute [d] to the growth or prosperity of” or “further[ed]” i.e., “promote[d]” the business purposes of Mr. Singh’s leasing business, the losses resulting from the accident fall within the exclusion of the Underwriters policy. Under the undisputed facts, Underwriters is entitled to summary judgment. [FN4]

FN4. In addition to the argument that coverage was properly denied under exclusion 8 of its policy, Underwriters argues that coverage was also properly denied because Mr. Singh, as the insured, failed to procure an “effective” lease agreement with BIR for the Tractor, a condition precedent to coverage Underwriters’ view. Underwriters further argues that coverage under its policy was secondary to coverage under Canal’s policy. Because the Court finds that coverage was properly denied under the “Business Use” exclusion of Underwriters’ policy, the Court need not address these issues.

C. Canal’s Motion for Summary Judgment.

Rather than offering a reasonable alternative interpretation, Canal argues that the phrase “promotes the business purposes of the Insured” is ambiguous and unclear as demonstrated by the uncertainty in coverage presented by the following hypothetical: if the Tractor were being driven to the grocery store with an empty trailer in tow, and on a whim, the driver decided to trade it in or sell it at a dealership or buy a quart of oil for the Tractor, Lloyd could deny coverage under its business use exclusion because the Tractor was used to promote the business purposes of the insured. The Court shall construe this hypothetical as an argument that the sweep of the exclusion renders it ambiguous.

In Madison, an insured made a similar argument before the Supreme Court of Pennsylvania with regard to an exclusion clause in a general commercial liability policy. 735 A.2d at 100. At issue there was whether the term “pollutants” in an exclusion, which provided that the policy did not provide coverage for bodily injury caused by the “discharge, dispersal, seepage, migration, release or escape of pollutants,” was ambiguous. Id. at 102-03. The insured argued that the term was ambiguous because, as summarized by the court, the term “is so broad that virtually any substance, including many useful and necessary products, could be said to come within its ambit.” Id. at 107.

The Supreme Court of Pennsylvania rejected this approach teaching instead that a court’s inquiry into the matter should be “guided by the principle that ambiguity (or the lack thereof) is to be determined by reference to a particular set of facts.” Id. (emphasis added). Applying these teachings, the Pennsylvania Supreme Court in Madison found that, under the particular facts of the case (and not by reference to some general hypothetical), the exclusion at issue applied to the substance in question. Id. at 108.

Similarly here, the issue is not whether under certain facts hypothesized by plaintiff the exclusion may or may not apply. The issue is whether under the specific facts of this case the insurer has met its burden of establishing that the exclusion applies. Madison precludes plaintiff’s argument that, because under some extreme facts the applicability of the exclusion is less than certain, the exclusion should be deemed categorically ambiguous.

Canal also argues that Underwriter’s position is precluded by the doctrine of “reasonable expectations of the insured” as that doctrine has developed under Pennsylvania law. The Court disagrees. The Supreme Court of Pennsylvania has held that the “polestar” for determining the parties’ intent is the language of the policy itself. Madison, 735 A.2d at 106. To that end, the Superior Court of Pennsylvania has noted that, “generally, courts cannot invoke the reasonable expectation doctrine to create an ambiguity where the policy itself is unambiguous.” Matcon Diamond v. Pennsylvania Nat’l Ins. Co., 2003 Pa.Super. 22, 815 A.2d 1109, 1114 (2003) (citing Williams v. Nationwide Mut. Ins. Co., 2000 Pa.Super. 110, 750 A.2d 881, 886 (2000)). As recognized by the Matcon court, the highest court in Pennsylvania has limited the argument that the reasonable expectations of the insured trump the clear and unambiguous language of a policy to two occasions: (1) protecting non-commercial insureds from policy terms which are not readily apparent; and (2) protecting non-commercial insureds from deception by insurance agents. Id. (citing Madison, 735 A.2d at 109 n. 8).

In the instant case, plaintiff has advanced no argument that Underwriters’ policy terms were not readily apparent or that there was deception by the insurance agents. Given that none of the recognized exceptions to the general principles of insurance policy interpretation has been invoked by Canal, the Court declines to look beyond the plain and unambiguous language of the policy in order to scrutinize what Mr. Singh’s expectations may have been regarding coverage. [FN5]

FN5. Plaintiff also argues that public policy supports its argument that the phrase is ambiguous. For this proposition, plaintiff cites Lincoln General Ins. v. Liberty Mut. Ins. Co., 2002 Pa.Super. 208, 804 A.2d 661 (Pa.Super.2002) and Connecticut Indemnity Co. v. Stringfellow, 956 F.Supp. 553 (M.D.Pa.1997). The Court will assume that indeed there is a public policy to ensure a source of compensation for injured parties when a lease agreement, common in the trucking industry, might create confusion over who would be responsible for accidents. However, there are statutory and regulatory mandates, such as those discussed in Prestige Casualty, 99 F.3d at 1342 and Carolina Casualty Ins. Co. v. Ins. Co. Of North America, 595 F.2d 128, 134-35 (3d Cir.1979) in place in recognition of this policy. Moreover, given that the injured parties in this case have already been compensated, the public policy favoring compensation has been vindicated.

Finding that there are no genuine issues of material fact, and that exclusion 8 of the Underwriters policy applies to the incident involving the Tractor, the Court concludes that coverage was properly denied by Underwriters. Therefore, Canal’s motion for summary judgment is denied.

III. CONCLUSION

Based on the foregoing, defendant Underwriters’ motion for summary judgment is granted. Plaintiff Canal’s cross motion for summary judgment is denied.

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