United States District Court, E.D. North Carolina,

Southern Division.

Terry Davis ARMWOOD, Jr.; Terry Davis Armwood, Sr.; Ramona Armwood, Plaintiffs,

v.

NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, INC., Defendant.

 

No. 7:11–CV–201–BO.

April 24, 2012.

 

Frank A. Cassiano, Jr., The Law Offices of Frank Cassiano, Greenville, NC, for Plaintiffs.

 

Glenn C. Raynor, Young, Moore & Henderson, Raleigh, NC, for Defendant.

 

ORDER

TERRENCE W. BOYLE, District Judge.

This matter is before the Court on Defendant’s Motion to Dismiss [DE 9] and Motion to Strike [DE 13]. The motions are ripe for adjudication. Because Plaintiffs’ claims are barred by res judicata, Defendant’s Motion to Dismiss is GRANTED and its Motion to Strike is DENIED AS MOOT.

 

BACKGROUND

On June 4, 2001, Defendant Farm Bureau issued a policy of motor vehicle liability to Mr. Jimmy Lee Best for coverage on a 1974 passenger bus, with effective policy dates of June 4, 2001 to June 4, 2002. The bus had a seating capacity of 30 passengers, including the driver. Mr. Best used the bus to transport passengers for a fee. A bus of this seating capacity is classified as a commercial motor vehicle “designed or used to transport more than 8 passengers (including the driver) for compensation.” As such, it is required by both federal and state law to have a minimum liability coverage of $5 million per person, per accident before operation. Farm Bureau sold Mr. Best a policy with liability limits of $50,000 per person and $100,000 per accident for bodily injury.

 

On October 7, 2001, Mr. Best negligently offloaded an eight-year-old passenger, Plaintiff Terry Armwood, Jr., and directed him to run across five lanes of undivided, active highway to reach his home. As a direct result of Mr. Best’s negligence, Terry Armwood, Jr. was seriously injured when he stepped in front of Mr. Best’s bus and was struck by a passing vehicle. Terry Armwood, Jr.’s parents incurred medical expenses in excess of $200,000 for Terry’s medical care.

 

Plaintiffs bring this claim pursuant to the Federal Motor Carrier Safety Act, 49 U.S.C. § 31138, seeking payment of a consent judgment against Defendant Farm Bureau’s insured, Jimmy Lee Best, in the amount of $525,000. Mr. Best was credited with $100,000 paid by the liability policy of the passing vehicle which struck Plaintiff Terry Davis Armwood, Jr., and with previous payments made by Defendant Farm Bureau in the amount of $50,000. Farm Bureau refuses to pay the balance of the judgment. Plaintiffs seek an order compelling Farm Bureau to pay the remaining $375,000 to satisfy the consent judgment.

 

Farm Bureau seeks to dismiss Plaintiffs’ complaint for failure to state a claim upon which relief can be granted by application of res judicata. Farm Bureau asserts that all claims in the instant case were fully and finally adjudicated by the North Carolina Supreme Court in N.C. Farm Bureau Mut. Ins. Co. v. Armwood, 653 S.E.2d 392 (N.C.2007). In that action, the Armwoods alleged that the minimum financial limits required by state and federal law mandated that the policy provide coverage of not less than $5 million. The trial court denied Farm Bureau’s motion for summary judgment and granted the Armwoods’ motion for summary judgment in part, declaring that the Farm Bureau policy afforded liability coverage limits of $750,000 for bodily injury damages on the date of the accident. Farm Bureau appealed the decision and the North Carolina Court of Appeals affirmed. N.C. Farm Bureau Mut. Ins. Co. v. Armwood, 638 S.E.2d 922 (N.C.Ct.App.2007). On appeal to the North Carolina Supreme Court, the decision was reversed and a consent judgment was entered on remand, which entered summary judgment for Farm Bureau and declared that the policy afforded “liability insurance coverage for the defendant Jimmy Best, subject to liability limits of $50,000 .00 per person and $100,000.00 per accident for bodily injury.”

 

On March 8, 2010, the Armwoods, Farm Bureau, and Jimmy Lee Best entered into a Settlement Agreement and Limited Covenant Not to Enforce Judgment to resolve damage claims arising out of the accident [DE 10–1]. They agreed that Jimmy Lee Best consented to entry of judgment against him in the amount of $525,000, that the payment of $ 100,000 paid by the passing driver’s liability would be credited against that judgment, and they acknowledged the dispute among the parties about the scope of coverage of the Farm Bureau policy.

 

DISCUSSION

Standard of Review

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) will succeed if a plaintiff fails to establish a “plausible” claim for relief.   Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009). In analyzing a motion to dismiss, the complaint is construed in the light most favorable to the plaintiff and its allegations are taken as true. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992).

 

I. Litigation Of The Scope Of Coverage Is Barred By Res Judicata

Although this case addresses a tragic set of facts, this Court is not in a position to grant any additional relief to the Armwoods. The North Carolina Supreme Court finally resolved the issue of the scope of coverage afforded by the Farm Bureau policy in the declaratory judgment action in N.C. Farm Bureau Mut. Ins. Co. v. Armwood, 653 S.E.2d 392 (N.C.2007). When a federal court determines the preclusive effect of a state court judgment, it is required by the Full Faith and Credit Act, 28 U.S.C. § 1738, to give the state court judgment the same preclusive effect as would the courts of the state rendering the judgment. Brooks v. Arthur, 626 F.3d 194, 200 (4th Cir.2010) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 293 (2005)). In this case, this court is bound by North Carolina’s application of res judicata principles.

 

The North Carolina courts have held that, “[i]n order to successfully assert the doctrine of res judicata, a litigant must prove the following essential elements: (1) a final judgment on the merits in an earlier suit, (2) an identity of the cause of action in both the earlier and later suits, and (3) an identity of the parties or their privies in the two suits.” Moody v. Able Outdoor, Inc., 609 S.E.2d 259, 261 (N.C.Ct.App.2005)

 

A. Final Judgment On The Merits

A final judgment on the merits was entered on September 2, 2008, when the Wake County Superior Court entered a Consent Judgment Pursuant To The Ruling of North Carolina Supreme Court, noting that the Farm Bureau policy at issue affords liability coverage subject to limits of $50,000 per person and $100,000 per accident for bodily injury [DE 12–3 at 3]. See N.C. Farm Bureau Mut. Ins. Co. v. Armwood, 653 S.E.2d 392, 393 (N.C.2007). Although the Armwoods assert that their cause of action was “dormant” until they acquired a judgment, and therefore no court has yet finally adjudged this claim, they misapprehend the purpose and function of the Act. The Armwoods claim that “federal law requires amendment of liability amount of policies to the federally mandated minimums” [DE 15 at 13]. However, the language of the Act requires only “minimum levels of financial responsibility sufficient to satisfy liability amounts established by the Secretary covering public liability and property damage for the transportation of passengers for compensation by motor vehicle.” 49 U.S.C. § 31138(a)(1). Financial responsibility, as required by the statute, may be established by evidence of (1) insurance, including high self-retention; (2) a guarantee; or (3) a surety bond issued by a bonding company authorized to do business in the United States. Importantly, it is the motor carrier’s responsibility to ensure that it has complied with the financial responsibility regulations, not the insurer’s. Canal Ins. Co. v. Barker, No. 3:07CV339, 2007 WL 3551508, at(E.D.Va. Nov. 15, 2007). When a motor carrier opts not to use an insurance policy to meet its financial responsibility requirements, then the regulations do not require the carrier to maintain a minimum of $750,000 in insurance. See Bray v.. Ins. Co. Of State of Pennsylvania, 917 F.2d 130, 132 (4th Cir.1990). In other words, the federal statute and the MCS– 90 operate in conjunction with the policy negotiated between the insurer and the insured. See Canal Ins. Co. v. Barker, 358 F. App’x 470, 472 (4th Cir.2009) (“even though [the insured] was required by federal regulations to show a financial responsibility of $750,000 … [the insured] was not required to carry insurance and could opt to meet the financial responsibility through one of several ways”). The endorsement has no automatic effect isolated from the terms of the policy and the overall coverage status of the insured.

 

The Armwoods argue that they could not have raised the issue of the MCS– 90 endorsement until they had received an entry of judgment on their tort claims. However, courts have adjudicated these issues prior to entering a judgment or settlement—in conjunction with the scope of the insurance policy.   Hamm v. Canal Ins. Co., 10 F.Supp.2d 539 (M.D.N.C.1998); Canal Ins. Co. v. Distribution Servs., Inc., 320 F.3d 488, 491 (4th Cir.2003); Canal Ins. Co. v.. Barker, No. 3:07CV339, 2007 WL 3551508 (E.D.Va. Nov. 15, 2007), aff’d 358 F. App’x 470, 2009 WL 5175590 (4th Cir.2009). Further, the North Carolina appellate courts directly addressed a parallel issue under state law, determining whether North Carolina’s statutory minimums required reformation of the insurance policy. Armwood, 653 S.E.2d at 393. Finally, the Armwoods did raise the issue of application of the federal regulations in their motion for summary judgment before the Wake County Superior Court and in the brief they filed with the North Carolina Supreme Court [DE 11–2 at 30, DE 11–8 at 8]. This lawsuit seeks amendment of the liability amount for which Farm Bureau would be responsible, an issue that was fully and finally adjudicated in the North Carolina courts. Because there was no obstacle to the Armwoods litigating the MCS– 90 issue in the prior declaratory judgment action, res judicata principles preclude them from litigating it now.

 

B. Identity Of The Causes Of Action In Both Suits

Although the Armwoods construe this action as seeking relief under 49 U.S.C. § 31138 to enforce a consent judgment entered in state court, the relief they seek is actually a declaration as to the scope of coverage afforded by the Farm Bureau policy. In other words, Plaintiffs are pursuing a declaratory judgment action pursuant to Federal Rule of Civil Procedure 57 and 28 U.S.C. § 2201.

 

The Armwoods could have, should have, and in some respects did litigate the issue of whether an MCS– 90 endorsement compels coverage over and above the stated limits of the Farm Bureau policy in their state court declaratory judgment action. In this case and in the prior declaratory judgment action, the Armwoods sought a determination that Farm Bureau’s contract provides coverage in excess of its stated policy limits for the Armwoods’ damages arising out of the accident of October 7, 2001. Because the Armwoods raise a claim that is based on the same contract and raise the same issues of amount of coverage afforded under the contract, there is an identity of the causes of action that satisfies the second prong of res judicata as applied by North Carolina courts. In the prior declaratory judgment action, Farm Bureau sought “a declaration regarding insurance coverage limits under [the Farm Bureau policy] for damages arising out of a motor vehicle accident resulting in injuries to Terry Davis Armwood, Jr., a pedestrian” [DE 10–2 at 13]. In the instant action, the Armwoods seek to require Farm Bureau to pay the remainder of the final state court judgment recovered against Mr. Best because they believe it is liable for the additional amount as a result of the Motor Carrier Act of 1980.

 

Therefore, the Armwoods seek an alteration of the liability coverage provided by the Farm Bureau policy. However, as noted above, liability coverage is dictated by the policy and not by the federal statute alone. McGirt v. Gulf Ins. Co., 207 F. App’x 305, at(4th Cir.2006). In McGirt, the Fourth Circuit noted that because “federal law seeks to protect the public by guaranteeing some proof of financial responsibility by motor carriers, not by mandating a minimum payment to the injured, we are bound by the terms of the contract between [the motor carrier] and its insurers.” Id. Therefore, the scope of coverage of the contract between Farm Bureau and Mr. Best necessarily encompassed any arguments the Armwoods may have wanted to assert as to application of federal law. Because the scope of coverage has already been fully and fairly litigated in the North Carolina courts, res judicata bars this Court’s review of those claims.

 

C. Identity Of the Parties Or Their Privies In The Two Suits

In the declaratory judgment action pursued in the North Carolina courts, Farm Bureau was the plaintiff and the Armwoods, Jimmy Lee Best, and Stella H. Bostic were the defendants. The Armwoods do not contest that both they and Farm Bureau were parties to the North Carolina declaratory judgment action. Therefore, the third prong of North Carolina’s standard for application of res judicata is satisfied.

 

CONCLUSION

For the foregoing reasons, Defendant’s Motion to Dismiss is GRANTED. Defendant’s Motion to Strike [DE 13] is DENIED AS MOOT.

 

SO ORDERED. 

United States Court of Appeals,

Sixth Circuit.

Mai ROQUEMORE, Plaintiff–Appellant,

v.

E.R. EXPRESS; Pavel Karkhu, Defendants,

American Bridge Manufacturing; Sherman Brothers Trucking; Trans/Mid–America Inc., Defendants–Appellees.

 

No. 10–1757.

Argued: Oct. 6, 2011.

Decided and Filed: May 14, 2012.

 

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 08–12025—Denise Page Hood, District Judge.ARGUED:Sima Girish Patel, Fieger, Fieger, Kenney, Johnson & Giroux, P.C., Southfield, Michigan, for Appellant. Megan K. Cavanagh, Garan Lucow Miller, P.C., Detroit, Michigan, Ernest R. Bazzana, Plunkett Cooney, Detroit, Michigan, for Appellees. ON BRIEF:Michael R. Dezsi, Fieger, Fieger, Kenney, Johnson & Giroux, P.C., Southfield, Michigan, for Appellant. Megan K. Cavanagh, John J. Gillooly, Garan Lucow Miller, P.C., Detroit, Michigan, Ernest R. Bazzana, Plunkett Cooney, Detroit, Michigan, for Appellees.

 

Before BOGGS and STRANCH, Circuit Judges; and CARR, District Judge. FN*

 

OPINION

BOGGS, Circuit Judge.

Nickie Donald died when an oversized twenty-eight-ton beam struck an overpass, fell off the back of the trailer transporting it, and crushed the cab of his truck, which was on the highway behind the trailer carrying the beam. Mai Roquemore, representing the estate of the decedent, brought a diversity wrongful death action. The district court granted motions for summary judgment in favor of three defendants—the companies who were responsible for loading the beam on the trailer, hiring the trucking company, and obtaining permits. The court construed Michigan Compiled Laws § 257.719(1) as forbidding recovery from anyone other than the “owner of a vehicle that collides with a lawfully established bridge.” We reverse, as the district court erred in construing Michigan law to preclude liability against the three defendants.

 

I

Pavel Karkhu, an employee of E.R. Express, was driving the trailer carrying the beam from Oregon to Michigan. American Bridge Manufacturing loaded the beam onto the trailer in Oregon. American Bridge had hired Sherman Brothers Trucking to arrange for a carrier to transport the beam to Michigan. Sherman Brothers, in turn, hired E.R. Express, and contracted with Trans/Mid–America to obtain the requisite permits to haul the beam to Michigan. American Bridge recorded that the height of the load, with the beam on the trailer, was 13 feet, 9 inches, and provided that information to Trans/MidAmerica. It was, in fact, greater than 13 feet, 10.5 inches—too tall to pass under the Warren Avenue Bridge on I–94 in Michigan.

 

When Karkhu came to the overpass, the beam struck the bridge and dislodged it from the trailer. The beam hurtled towards Donald’s trailer and smashed his cab. Donald was trapped with no chance of rescue. He bled until he lost consciousness, and then died. A special crane was needed to remove the beam and recover Donald’s body.

 

Mai Roquemore, personal representative of Donald’s estate, filed a diversity action against American Bridge (who loaded the beam on the trailer), Sherman Brothers (who hired E.R. Express and Trans/Mid–America), Trans/Mid–America (who obtained state transportation permits), Karkhu (the driver), and E.R. Express (Karkhu’s employer). On September 28, 2009, the district court granted summary judgment for three defendants: American Bridge, Sherman Brothers, and Trans/Mid–America. On December 17, 2009, the district court approved a settlement between plaintiff and the two remaining defendants, Karkhu and E.R. Express. The district court’s opinion, relying on Farmer v. Christensen, 229 Mich. Ct.App. 417, 229 Mich.App. 417, 581 N.W.2d 807 (1998), held that plaintiffs could only bring suit against the “owner of a vehicle that collides with a lawfully established bridge,” Mich. Comp. Laws § 257.719(1), thus precluding any action against American Bridge, Sherman Brothers, and Trans/Mid–America. Plaintiff now appeals the district court’s order granting summary judgment for these three defendants.

 

We review an order granting a motion for summary judgment de novo.   Cavin v. Honda of America, 346 F.3d 713 (6th Cir.2003).

 

II

This case turns on the construction of Mich. Comp. Laws § 257.719(1), which provides that

 

A vehicle unloaded or with load shall not exceed a height of 13 feet 6 inches. The owner of a vehicle that collides with a lawfully established bridge or viaduct is liable for all damage and injury resulting from a collision caused by the height of the vehicle, whether the clearance of the bridge or viaduct is posted or not.

 

The “seminal case interpreting this statutory language” is Farmer v. Christensen. District Ct. Op. at 5 (citing 229 Mich.App. 417, 581 N.W.2d 807 (1998)). In Farmer, Christensen, the driver and owner of a truck, was hauling a large gravel hopper, when it struck an overpass. The hopper fell off the back of the truck, and struck plaintiff’s car. Plaintiffs brought a common-law negligence suit against Christensen and the Michigan Department of Transportation (“MDOT”). After MDOT reached a consent judgment with plaintiffs, it filed a cross-claim against Christensen for indemnification. The trial court granted a summary disposition for Christensen. The issue on appeal in Farmer was whether MDOT could seek indemnification under § 719(1) from Christensen, as the owner of the vehicle.

 

The Farmer court began by breaking down the statute. “The first sentence of § 719(1) establishes the mandatory duty of care, i .e., a vehicle’s height must not exceed 13 feet, 6 inches.” Id. at 420, 581 N.W.2d 807. The “violation of the statutory duty of care, standing alone, would be enough to establish a prima facie case of negligence .” Ibid. Next, the court turns to the second part of the statute, which “does not merely create a presumption of negligence, but rather … allows for a finding of absolute liability.” Id. at 420–21, 581 N.W.2d 807. MDOT argued that the owner of the vehicle is “absolutely liable for all damage and injury resulting from his truck’s collision with the overpass.” Id. at 421, 581 N.W.2d 807.

 

Pursuant to M.C.L. § 257.725, Christensen was required to, but “failed to apply for” a “special-use permit from the MDOT.” Id . at 425, 581 N.W.2d 807. Had Christensen in fact obtained a permit, it would have contained a “hold harmless” clause, agreeing to “indemnify and save harmless” MDOT. Ibid. Weighing the equities, the court found that “a contract [between MDOT and Christensen] should be implied in law and its indemnification clause enforced.” Id. at 425–26, 581 N.W.2d 807. The court held “that the MDOT is entitled to indemnification on the basis of an implied contract.” Ibid. The court held that MDOT “established a basic right to indemnification” based on the assignment of absolute liability under § 719 and Christensen “was absolutely liable for all damage and injury resulting from the collision of his overheight vehicle with the overpass.” Id. at 424, 581 N.W.2d 807. Thus, as between Christensen and MDOT, the operation of § 719(1) ran to the benefit of MDOT, resulting in the owner, Christensen, bearing all liability, including the liability that initially attached to MDOT by the consent judgment. See Klinke v. Mitsubishi Motors Corp., 458 Mich. 582, 581 N.W.2d 272, 281 n. 8 (Mich.1998) (Kelly, J., dissenting) (observing that the Court of Appeals in Farmer applied § 719(1) to the benefit of MDOT).

 

III

In this case, the defendants argue that application of § 719(1) and Farmer bars the plaintiff from proceeding against them in this common-law negligence action and that the plaintiff’s only recourse is against the truck owner, E.R. Express. The defendants rely on Farmer, which broadly construed Flint & P.M.R. Co. v. Lull, 28 Mich. 510, 1874 WL 6343 (Mich.1874), remarking that “[w]here a regulatory statute establishes a mandatory duty and imposes absolute liability for a breach of that duty, the common-law defense of comparative negligence is not available.” Farmer, 229 Mich.App. at 423–24, 581 N.W.2d 807. This dictum does not control this case.

 

The party for whose benefit the statute runs, MDOT, is not a named defendant in this case. Farmer does not fix absolute liability on the vehicle owner to the complete exclusion of any concurrent or intervening cause that may be proved or to the complete exclusion of comparative negligence or joint and several liability. Lull concerned a cause of action brought directly under an absolute-liability statute, so in that case the Michigan Supreme Court held that the common-law defense of contributory negligence did not apply. 28 Mich. 510, 1874 WL 6343, at * 1. The court explained, however, that “[w]ere this a common-law action it is clear that such contributory negligence would be a defense.” Id at *3.

 

The plaintiff did not bring this lawsuit directly under § 719(1). The case before us, like Farmer, is a common-law negligence action to which Lull, by its express language, has no application. Because this is a common-law negligence case, all of the ordinary Michigan principles concerning common-law liability and defenses apply. Section 719(1) and Farmer do not provide the defendants with a complete defense to the claim of common-law negligence.

 

In sum, Defendants argue that Farmer compels a result where only the owner of the vehicle can be liable for all damages, and no liability can fall on any other party. However, Farmer, at most, implies that others who pay-by settlement, judgment, or grace—may be able to shift their liability to an owner, not that they can have no liability in the first instance. The mere fact that liability for “all damages and injury” is “fixed” on the owner of the vehicle “even where concurrent or intervening acts of negligence precipitate” the accident, does not imply that the tortfeasors responsible for those “concurrent or intervening acts” cannot also be liable. Simply finding that one party is “absolutely liable” for “all damages” does not require that no other parties can be liable.

 

Otherwise, a plaintiff injured by the joint negligence of an owner and others would receive nothing if the owner is judgment-proof, cannot be reached, or cannot be found. This alternate construction should not be presumed without the clearest indication in the statute. Nothing in the words of the statute, or any plausible policy argument, precludes American Bridge, Sherman Brothers, or Trans/Mid–America from being found liable for a portion of the damages resulting from the accident.

 

The district court erred in holding that Defendants American Bridge, Sherman Brothers, and Trans/Mid–America could not be held liable under § 719(1).

 

* * *

The judgment of the district court is REVERSED and the case is REMANDED for further proceedings consistent with this opinion.

 

FN* The Honorable James G. Carr, Senior United States District Judge for the Northern District of Ohio, sitting by designation.