NATURAL POLYMER INTERNATIONAL CORPORATION v. FEDEX FREIGHT, INC.

 

Civil Action No. 4:16-CV-00359

 

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS, SHERMAN DIVISION

 

2017 U.S. Dist. LEXIS 131023

 

 

August 17, 2017, Decided

August 17, 2017, Filed

 

 

COUNSEL:  [*1] For National Polymer International Corporation, Plaintiff: John Matthew Hafen, LEAD ATTORNEY, Hanshaw Kennedy, LLP, Frisco, TX.

 

For FedEx Freight, Inc., Defendant: Mark D Smith, Eric Thomas Green, Ramirez & Associates, PC, Dallas, TX.

 

JUDGES: AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE.

 

OPINION BY: AMOS L. MAZZANT

 

OPINION

 

MEMORANDUM OPINION AND ORDER

Pending before the Court is Plaintiff Natural Polymer International Corporation’s Motion for Summary Judgment (Dkt. #19) and Defendant FedEx Freight, Inc.’s Motion for Summary Judgment (Dkt. #20). After reviewing the relevant pleadings and motions, the Court finds Plaintiff’s motion should be granted and Defendant’s motion should be denied.

 

BACKGROUND

Natural Polymer International Corporation (“Polymer”) manufactures pet products in Plano, Texas. In 2014, Polymer ordered six machines from AZCO Corporation (“AZCO”), an equipment manufacturer in Fairfield, New Jersey. After a failed attempt to ship the machines with another carrier, AZCO used FedEx Freight Inc. (“FedEx”) as the carrier under Polymer’s FedEx Freight account number. In July 2015, FedEx arrived at AZCO’s facility to load and ship the machines. The machines had a total value of $81,796.1 The machines were destroyed [*2]  during transit to Polymer’s Plano facility.

 

1   FedEx has already paid $30,000 of this amount. Although Polymer claims $81,796 in its complaint, it only asserts $48,966 in its motion for summary judgment.

At the time of shipping, AZCO presented the FedEx driver with its standard bill of lading (“BOL”). A BOL is a contract between a shipper and a carrier. Like any contract, it conveys the parties’ information, the subject matter, and the contract price. Here, the BOL contains a provision that states that the BOL is “subject to the classifications and lawfully filed tariffs in effect on the date of issue of this Bill of Lading” and that “all or any of said property that any service to be performed hereunder shall be subject to . . . the applicable motor carrier classification or tariff” (Dkt. #23, Exhibit 1). Further, the BOL states that the “[s]hipper hereby certifies that he is familiar with all the terms . . . set forth in the classifications or tariff” and those terms are “hereby agreed to by the shipper and accepted for himself and his assigns” (Dkt. #23, Exhibit 1). FedEx maintains a “FedEx 100-M Rules Tariff” (“Rules Tariff”) on its website.

The Rules Tariff was published and in effect throughout the transaction. A tariff outlines the terms and conditions that govern shipment. For example, a tariff may proscribe restrictions on certain cargo such [*3]  as alcoholic beverages or firearms, or promulgate limitations on legal action such as a choice of law provision. Here, the relevant tariff provision establishes a liability limitation (Dkt. #23, Exhibit 1). Per Rule 420 of the Rules Tariff, FedEx asserts its liability is limited to $30,000.

It is undisputed that the parties are subject to the BOL and that the Rules Tariff, if applicable, limits FedEx’s liability. However, the dispute involves the connection between the two documents. FedEx contends that the BOL, by reference to “lawfully filed tariffs,” incorporated its Rules Tariff, thus limiting its liability. Polymer, by contrast, asserts that the tariff reference is insufficient to limit FedEx’s liability under 49 U.S.C. § 14706 (the “Carmack Amendment”). Therefore, Polymer seeks the full amount of damages.

On April 18, 2016, Polymer filed suit in state court under the Carmack Amendment alleging $81,796 in damages for the destroyed equipment (Dkt. #3). On May 27, 2016, FedEx removed the case to federal court and asserted that its liability is limited to $30,000 under the BOL and other related documents (Dkt. #1; Dkt. #5).

On January 26, 2017, Polymer filed its Motion for Summary Judgment (Dkt. #19). On March 1, 2017, FedEx filed a response [*4]  (Dkt. #24). On March 8, 2017, Polymer filed a reply (Dkt. #25). On March 15, 2017, FedEx filed a surreply (Dkt. #27).

Also on January 26, 2017, FedEx filed its Motion for Summary Judgment (Dkt. #20). On March 1, 2017, Polymer filed a response (Dkt. #23). On March 8, 2017, FedEx filed a reply (Dkt. #26).

 

LEGAL STANDARD

Summary Judgment is proper when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Substantive law identifies which facts are material. Id. The moving party bears the initial burden of identifying the basis for its motion and identifying “depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of material fact. Fed. R. Civ. P. 56(c)(1)(A); Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015). If the moving party satisfies its burden, the nonmovant must present affirmative evidence showing that there is a genuine issue for trial. Anderson, 477 U.S. at 257; Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Mere denials of [*5]  material facts, unsworn allegations, or arguments and assertions in briefs will not suffice to carry this burden. The Court must consider all of the evidence in the light most favorable to the nonmovant, with all reasonable inferences from the evidence made in favor of the nonmovant. Nola Spice, 783 F.3d at 536. However, the Court must “refrain from making any credibility determinations or weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).

 

ANALYSIS

FedEx agrees that the Carmack Amendment applies to this dispute and that it is liable to Polymer. FedEx argues, however, that it limited its liability under the Carmack Amendment’s liability limitation provision.

Under the Carmack Amendment a carrier may limit its liability “to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation.” 49 U.S.C. § 14706(a), (c); Excel, Inc. v. S. Refrigerated Transp., Inc., 807 F.3d 140, 148 (6th Cir. 2015); Certain Underwriters at Interest at Lloyd’s of London v. UPS of Am., Inc., 762 F.3d 332, 335 (3d Cir. 2014); ABB Inc. v. CSX Transp., Inc., 721 F.3d 135, 141 (4th Cir. 2013). The leading case interpreting this provision is Hughes v. United Van Lines, 829 F.2d 1407 (7th Cir. 1987). Under Hughes, a carrier must show that it (1) maintained a tariff with the Interstate Commerce Commission (now the Surface Transportation Board); (2) that it gave the shipper a reasonable opportunity to choose between two or more levels of liability; (3) that it obtained the shipper’s agreement [*6]  as to its choice of liability; and (4) that it issued a receipt or BOL before moving the shipment. Hughes, 829 F.3d at 1416. Following the enactment of the Trucking Industry Regulatory Reform Act of 1994 and the Interstate Commerce Commission Termination Act of 1995, the first part of the Hughes test is no longer applicable. Nipponkoa Ins. Co. v. Atlas Van Lines, Inc., 687 F.3d 780, 782 (7th Cir. 2012). However, the carrier must provide to the shipper, “on request of the shipper, a written or electronic copy of the rate, classification, rules, and practices upon which any rate applicable to a shipment, or agreed to between the shipper and the carrier, is based.” 49 U.S.C. § 14706(c)(1)(B).

The limited liability subsection is a very narrow exception to the general rule of full liability. Excel, 807 F.3d at 150. It is the carrier’s burden to prove that the parties had a written agreement to limit the carrier’s liability. ABB, 721 F.3d at 145. The risk of error falls on the carrier. Id.

Polymer does not dispute the first or fourth elements. Instead, Polymer focuses on the second and third elements, specifically whether Polymer incorporated FedEx’s Rules Tariff into the BOL. The Court finds that Polymer did not incorporate FedEx’s Rules Tariff into the BOL and thus FedEx did not obtain Polymer’s agreement to limit FedEx’s liability.

A BOL is construed using [*7]  contract principles. Mich. Cent. R.R. Co. v. Mark Owen & Co., 256 U.S. 427, 430, 41 S. Ct. 554, 65 L. Ed. 1032 (1921). When construing a contract, the primary goal is to determine the parties’ intent as expressed in the terms of the contract. Chrysler Ins. Co. v. Greenspoint Dodge of Hous., Inc., 297 S.W.3d 248, 252 (Tex. 2009). The first step a court must take is to determine if the contract is unambiguous. Whether a contract is unambiguous is a question of law that must be decided by examining the contract as a whole in light of the circumstances present when the contract was entered. David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex. 2008); Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996). A contract is ambiguous when it is subject to two or more reasonable interpretations. Columbia Gas, 940 S.W.2d at 589 (citing Glover v. Nat’l Ins. Underwriters, 545 S.W2d 755, 761 (Tex. 1977)). When a contract is unambiguous, the court determines the parties’ intent from the terms of the written contract, without reference to parol evidence. David J. Sacks, P.C., 266 S.W.3d at 450. When a contract is ambiguous, the meaning of the terms is a question of fact. Id. However, when there is no dispute as to the circumstances, the construction is still a matter of law for the court. In re Hite, 700 S.W.2d 713, 718 (Tex. App.–Corpus Christi 1985, writ ref’d n.r.e.) (citing Brown v. Payne, 142 Tex. 102, 176 S.W.2d 306, 308 (Tex. 1943)). Here, the dispute centers on whether Polymer, through its agent AZCO, incorporated the FedEx Rules Tariff .

Unsigned documents may be incorporated into and become part of a contract if the contract “plainly refers” to the unsigned document. In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (orig. proceeding) (per curiam); Owen v. Hendricks, 433 S.W.2d 164, 167 (Tex. 1968). Incorporation by reference requires more [*8]  than merely mentioning the document. Bob Montgomery Chevrolet, Inc. v. Dent Zone Cos., 409 S.W.3d 181, 189 (Tex. App.–Dallas 2013, no pet.) (citation omitted). The language in the signed document must show the parties intended for the unsigned document to become part of the agreement. Id.; see also One Beacon Ins. Co. v. Crowley Marine Serves., Inc., 648 F.3d 258, 268 (5th Cir. 2011) (citing 11 Williston on Contracts § 30:25 (4th ed. 1999) (“[I]n order to uphold the validity of terms incorporated by reference, it must be clear that the parties to the agreement had knowledge of and assented to the incorporated terms.”)).

FedEx argues that the BOL incorporated the Rules Tariff and therefore incorporated the limitation on liability. FedEx argues that the BOL should be interpreted against Polymer because Polymer’s agent, AZCO, drafted the BOL. FedEx argues that AZCO, as an agent for the shipper Polymer, declared in writing that the Rules Tariff would govern this shipment when it referenced “lawfully filed tariffs in effect on the date of issue of this Bill of Lading.” FedEx argues that the Eleventh Circuit deviated from Hughes when it considered the fact that the shipper, rather than the carrier, drafted the BOL. Siren, Inc. v. Estes Express Lines, 249 F.3d 1268 (11th Cir. 2001). FedEx argues that Siren created a bright-line rule that when a shipper drafts the BOL, the shipper is charged with constructive knowledge of any limitations contained in [*9]  the documents that are incorporated into the BOL because “court[s] do not deem it proper or necessary to protect shippers from themselves” (Dkt. #20 at p. 20). FedEx argues that Siren is analogous to the present case because a sophisticated shipper, who was familiar with FedEx, drafted the BOL.

Polymer distinguishes Siren and argues that even if AZCO had authority to act on Polymer’s behalf in completing the shipment, AZCO’s outdated, generic reference to a tariff does not constitute a meaningful choice in limitation of liability by the shipper. Polymer also argues that FedEx did not meet its burden to show an agreement to limit liability between the shipper and carrier.

The Court finds that Polymer did not include the Rules Tariff because the use of an antiquated reference to a sixty-seven page document did not “plainly refer” to Rule 420 therein.

First, Siren is distinguishable. In Siren, the shipper drafted a BOL that contained very little information. 249 F.3d at 1269. However, the shipper indicated twice that the commodities would travel under “Class 85.” Id. “Class 85” was understood throughout the trucking industry to mean that the carrier’s liability would be limited to $11.87 per pound, regardless of any further [*10]  limitation provided by a carrier. Id. at 1269 n.2. The shipper received, and knew it received, a discount from the full freight rate and knew that the carrier would use “Class 85” to determine the rate. Id. The shipper never asked for the carrier’s tariff. Id.

The Eleventh Circuit held that the issue of whether the BOL incorporated the carrier’s tariff was irrelevant. Id. at 1270-71. Rather, the Eleventh Circuit held that the shipper and carrier were only required to agree in writing to a reasonable value, above which the carrier would not be liable. Id. at 1271. Although the Eleventh Circuit did rely in part on the shipper drafting the BOL, the court emphasized that its decision was based on the fact that the limitation was clear on the face of the BOL. See id. at 1269-70. The Eleventh Circuit did not find it necessary to hold that the tariff was incorporated into the BOL. Id. at 1274 n.5. The Eleventh Circuit ultimately reasoned that an experienced party that wrote the BOL to include terms generally known in the industry to limit liability, and who received a discount for including such terms, should be charged with knowledge of the effect of those terms. Id. at 1273.

The Court disagrees with FedEx in its claim that Siren created a bright-line rule because the [*11]  Eleventh Circuit in Siren considered many factors besides the fact that the shipper drafted the BOL. Id. at 1274. Of utmost importance was the use of “Class 85.” Because the parties here did not use a term similar to “Class 85,” this case is distinguishable from Siren.2

 

2   Additionally, the Eleventh Circuit did not rely on the shipper incorporating the carrier’s BOL. Id. at 1274 n.5.

Here, the shipper drafted the BOL, which stated:

 

RECEIVED, subject to the classifications and lawfully filed tariffs in effect on the date of issue of this Bill of Lading . . . any service to be performed hereunder shall be subject to all the terms and conditions of the Uniform Domestic Straight Bill of Lading set forth . . . in the applicable motor carrier classification or tariff.

 

 

(Dkt. #23, Exhibit 1). Later, the rate authority box where the shipper could declare the value of property was left blank.

In Siren, the reference to “Class 85” was well-known throughout the industry to give a maximum amount of liability and the shipper received a discount for including this in their BOLs. Siren, 249 F.3d at 1269. Here, the reference to a purported liability limitation is outdated and generic. It refers to pre-1995 law that required carriers to file their tariffs with the Interstate Commerce Commission. This was eliminated by the ICC Termination Act of 1995. [*12]  ICC Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803 (1995); Nipponkoa Ins. Co. v. Atlas Van Lines, Inc., 687 F.3d 780, 782 (7th Cir. 2012). Despite this, the purported reference to a tariff does not point to any identifiable rate or tariff created by the parties or known in the industry.

The facts here are similar to those in ABB. In ABB, the BOL stated that the product value was $1,384,000, but it did not include a price for the shipment or indicate the level of liability assumed by the carrier. 721 F.3d at 140. The space labeled “rate authority” was left blank. Id. Finally, the BOL stated that “every service to be performed hereunder shall be subject to all the terms and conditions the Uniform Domestic Straight Bill of Lading set forth . . . in Uniform Freight Classification in effect on the date hereof.” Id. The carrier argued that this reference incorporated its “Price List 4605,” a privately held list that provides a price that the shipper must use to negotiate a rate directly with the carrier. Id. at 141, 143. However, the shipper had never shipped cargo under Price List 4605. Id. at 143. The Fourth Circuit rejected the carrier’s argument and held that the Carmack Amendment imposed full liability because the BOL did not reference an identifiable classification, rate authority code, price list, or any other indication that the carrier assumed [*13]  only limited liability. Id. at 142-43. Similarly, here, there is no reference to an identifiable classification, code, list, or other indication of a limitation on liability; the “rate authority” box is blank; and Polymer had never shipped with FedEx Freight or under the Rules Tariff.

Further, the fact that the tariff in this case is available online rather than a private list as in ABB is not dispositive. The Fifth Circuit has not found that a shipper agreed to limit liability on the basis of constructive knowledge alone. See, e.g., Hoskins v. Bekins Van Lines, 343 F.3d 769, 778-79 (5th Cir. 2003) (holding that the shipper clearly agreed to limited liability because she was handed the carrier’s “Interstate Order for Service” and changed the level of liability on the day of shipping). While Polymer could have found the Rules Tariff, Polymer has shown that it did not read the Rules Tariff and did not take any actions indicating that it knew about one or more levels of liability.

Neither Polymer, nor AZCO, had previously done business with FedEx Freight. The BOL was not the result of any negotiations; it was presented to FedEx for the first time when the shipment was loaded into the truck. Finally, there is no evidence that the rate was any different than it would [*14]  be for a different liability level. Therefore, FedEx has not shown that the shipper had knowledge of or chose a limitation on liability. Without such knowledge, the Court finds that Polymer did not incorporate the Rules Tariff into the BOL. One Beacon Ins. Co. v. Crowley Marine Serves., Inc., 648 F.3d at 268, 267 (5th Cir. 2011) (quoting 11 Williston on Contracts § 30:25 (4th ed. 1999)).

Under certain circumstances, FedEx would be able to rely on the shipper’s generic reference. For instance, if FedEx and the shipper actively negotiated a contract or FedEx had knowledge that the shipper knew of FedEx’s tariff, then FedEx would be able to prove mutual assent. Similarly, if FedEx had many prior dealings with a shipper, it would be able to prove that the shipper had knowledge of and assented to its terms. This is not one of those situations.

FedEx also argues that when the shipper drafts a BOL, the shipper’s choice of liability should control, and any ambiguity should be construed against the shipper. The Court disagrees. The Carmack Amendment unambiguously imposes the risk of error on one particular party, the carrier, to the exclusion of the other party, the shipper. See 49 U.S.C. § 14706(c); ABB, 721 F.3d at 145. Thus, the general contract principle that any ambiguity should be construed against the drafter has been preempted by the Carmack Amendment.

Polymer [*15]  has shown, as a matter of law, that the BOL’s vague, antiquated reference to a sixty-seven page document did not “plainly refer” to Rule 420 of the Rules Tariff. Thus, FedEx has not met its burden to establish the limitation of liability provision in the Carmack Amendment and is therefore liable for the full amount of damages.

 

CONCLUSION

It is therefore ORDERED that Natural Polymer International Corporation’s Motion for Summary Judgment (Dkt. #19) is hereby GRANTED.

The Court finds FedEx failed to properly limit its liability under the Carmack Amendment. As a result, FedEx is liable for the full amount of damages.

It is further ORDERED that FedEx Freight, Inc.’s Motion for Summary Judgment (Dkt. #20) is hereby DENIED.

It is further ORDERED that Plaintiff Natural Polymer International Corporation file a proposed final judgment within five (5) days of this order.

SIGNED this 17th day of August 17, 2017.

/s/ Amos L. Mazzant

AMOS L. MAZZANT

UNITED STATES DISTRICT JUDGE

UNITED FINANCIAL CASUALTY COMPANY, Plaintiff, vs. NORTHERN GRAVEL & TRUCKING, LLC and ALAN OSBORN BAXTER, Defendants.

 

3:16-CV-00291 JWS

 

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ALASKA

 

2017 U.S. Dist. LEXIS 133720

 

 

August 20, 2017, Decided

August 20, 2017, Filed

 

 

COUNSEL:  [*1] For United Financial Casualty Company, Plaintiff: Gary A. Zipkin, Kristin E. Bryant, LEAD ATTORNEYS, Guess & Rudd P.C., Anchorage, AK.

 

For Northern Gravel & Trucking, LLC, Defendant: Elliott T. Dennis, LEAD ATTORNEY, Law Offices of Elliott T. Dennis, Anchorage, AK.

 

Alan Osborn Baxter, Defendant, Pro se, Anchorage, AK.

 

For Northern Gravel & Trucking, LLC, Counter Claimant: Elliott T. Dennis, LEAD ATTORNEY, Law Offices of Elliott T. Dennis, Anchorage, AK.

 

For United Financial Casualty Company, Counter Defendant: Gary A. Zipkin, Kristin E. Bryant, LEAD ATTORNEYS, Guess & Rudd P.C., Anchorage, AK.

 

JUDGES: JOHN W. SEDWICK, SENIOR UNITED STATES DISTRICT JUDGE.

 

OPINION BY: JOHN W. SEDWICK

 

OPINION

 

ORDER AND OPINION

[Re: Motion at docket 23]

 

1. MOTION PRESENTED

At docket 23, Defendant Northern Gravel & Trucking, LLC (NGT) filed a motion to stay the declaratory judgment action brought by Plaintiff United Financial Casualty Company (UFCC). UFCC filed a response in opposition to the stay at docket 37. NGT filed its reply at docket 44. Oral argument was not requested and would not be of assistance to the court.

 

1. BACKGROUND

NGT is a trucking company based in Anchorage, Alaska, that provides, among other things, hauling services to its [*2]  customers. NGT contracted with Quality Asphalt Paving (QAP) to perform hauling services for QAP’s 2014 road construction project on the Parks Highway. On September 9, 2014, NGT employee Wes Byers drove a load of hot asphalt to the construction site with a NGT truck that was insured under NGT’s vehicle insurance policy with UFCC (the Policy). After dumping the asphalt, Byers drove to the end of the job site in order to turn the truck around. Byers had to back his truck onto a side road where QAP employee David Ferns (Ferns) was performing surveying tasks for the construction project. Ferns believed that Byers drove the truck too close to him during the turn and confronted Byers about his driving. Byers got out of the truck. Ferns was upset, and a verbal confrontation ensued. After a short amount of time, Byers returned to the truck. Meanwhile, another NGT truck driver, Alan Baxter (Baxter), happened to be driving a different NGT truck along the Parks Highway past the construction site on a job unrelated to QAP’s construction project. He observed the interaction between Byers and Ferns and saw Ferns follow Byers to the truck wielding a hammer and, at one point, step up onto the steps [*3]  of the truck’s cab. Baxter then pulled off the side of the road and got out of his truck to see if he could break up the dispute. According to NGT’s Answer and Counterclaim, as Baxter approached Byers’ truck, he lost his right shoe and tripped and fell into the back of Ferns. Ferns was knocked to the ground and sustained substantial injuries. NGT admits that “Baxter’s decision to approach the confrontation was completely unrelated to his employment duties with NGT and he was acting [sic] outside the scope of his employment.”1

 

1   Doc. 16 at p. 11.

The State of Alaska prosecuted Baxter for assault.2 On May 13, 2016, Baxter was found guilty and convicted under AS 11.41.230(a)(1) for recklessly causing physical injury to another person. Baxter has appealed his conviction, and the appeal is currently pending.

 

2   State v. Baxter, 4NE-14-00150CR.

Ferns subsequently filed a tort complaint in Anchorage Superior Court against Baxter and NGT. His claim against Baxter is for negligent and reckless assault, and his claim against NGT is based on its vicarious liability for Baxter’s conduct. NGT tendered Fern’s claims to UFCC asking for a defense and for indemnification. UFCC responded with a reservation-of-rights letter offering to provide [*4]  defense counsel for both NGT and Baxter as to the tort action. UFCC then filed this federal action against NGT and Baxter asking that the court issue a declaratory judgment confirming that UFCC is not obligated to defend or indemnify NGT and Baxter under the Policy.

 

III. STANDARD OF REVIEW

The Declaratory Judgment Act requires that a declaratory judgment action present an actual case or controversy under Article III of the Constitution and be consistent with statutes governing the jurisdiction of federal courts.3 “If the suit passes constitutional and statutory muster, the district court must also be satisfied that entertaining the action is appropriate.”4 Such a determination is discretionary. A court determining whether to exercise its discretion to move forward with a declaratory judgment action should first consider the non-exclusive factors set out in Brillhart v. Excess Insurance Co. of America5 and its progeny.6 The Brillhart factors include: (1) avoiding needless determination of state law issues; (2) discouraging litigants from filing declaratory actions as a means of forum shopping; and (3) avoiding duplicative litigation.7 Other relevant factors include resolving all aspects of the controversy in a single proceeding [*5]  if possible; avoiding intervention unless the declaratory action will serve a useful purpose in clarifying the legal relations at issue; avoiding procedural fencing or permitting one party to obtain an unjust res judicata advantage at the expense of the other; avoiding entanglement between the federal and state court systems; and avoiding jeopardizing the convenience of the parties.8 “If there are parallel state proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court[,]” but “[t]he pendency of a state court action does not, of itself, require a district court to refuse federal declaratory relief.”9

 

3   Government Emples. Ins. Co. v. Dizol, 133 F.3d 1220, 1222-23 (9th Cir. 1998).

4   Id. at 1223.

5   316 U.S. 491, 62 S. Ct. 1173, 86 L. Ed. 1620 (1942).

6   Dizol, 133 F.3d at 1223, 1225.

7   Id. at 1225.

8   Id. at 1225 n.5; see also Nat’l Chiropractic Mut. Ins. Co. v. Doe, 23 F. Supp. 2d 1109, 1115 (D. Alaska 1998).

9   Nat’l Chiropractic, 23 F. Supp. 2d at 1116 (internal quotations omitted).

 

1. DISCUSSION

For this declaratory judgment action, there is no parallel state proceeding with the same parties and issues and therefore no presumption of abstention applies here. Indeed, NGT does not ask the court to dismiss the action, but rather requests a stay pending the resolution of the state court action. As to the three primary Brillhart factors, NGT concedes that there are no state law issues to resolve here and no forum shopping on the part of UFCC, [*6]  but it argues that a stay is warranted given the duplicative factual issues that could arise in the event this case were to proceed in tandem with the state tort case. It also contends that a stay is warranted because the state case will settle all aspects of this controversy and because a stay will prevent prejudicial collateral estoppel.

 

1. Duplicative litigation

The resolution of this federal declaratory judgment action will require the court to determine if there is at least one cause of action in Ferns’ state complaint against NGT and Baxter for which there is a possibility of coverage under the policy or, if the allegations in the complaint do not fall within the policy’s coverage, the “true facts” of the incident at issue are nonetheless within, or potentially within, the policy’s coverage and are known or reasonably ascertainable by UFCC.10 The issues raised on the face of Ferns’ state complaint are: 1) whether Baxter negligently or recklessly caused him injury; and 2) whether NGT is vicariously liable for Baxter’s actions; that is, whether Baxter was acting within the scope of his employment. UFCC’s complaint in this case asserts that there is no possibility of coverage with respect [*7]  to Ferns’ state court complaint, providing three reasons in support: 1) the injuries and damages allegedly sustained by Ferns did not arise out of the ownership, maintenance, or use of an insured vehicle as required under the Policy; 2) Baxter is not an insured under the Policy because the injuries claimed by Ferns did not arise out of Baxter’s permissive use of an insured vehicle; and 3) the underlying tort suit does not involve an accident and expected or intended injuries are excluded from coverage.

 

10   Alaska Pac. Assur. Co. v. Collins, 794 P.2d 936, 945 (Alaska 1990); see also Makarka ex rel. Makarka v. Great Am. Ins. Co., 14 P.3d 964 (Alaska 2000) (“The potential for coverage may be shown either on the face of the complaint or through facts the insurer knew or could have reasonably ascertained that would bring an otherwise uncovered complaint within the policy’s coverage.”).

The court will first turn to UFCC’s third basis for this declaratory judgment action: the Policy’s expected and intended injuries exclusion. Normally, the court’s determination as to whether the exclusion applies would require the court to focus on Baxter’s conduct and whether it was intentional or accidental. The state court action will have this same focus. Such an overlapping issue would typically provide a basis for staying the coverage determination.11 However, a prior assault conviction is present here. A jury convicted Baxter of fourth degree assault for the same events at issue in the underlying tort case. Recklessness is an essential element of that conviction. Baxter [*8]  is therefore precluded from arguing that his actions were accidental and not reckless.12 The pending appeal does not affect the preclusive effect of the conviction.13 The court will therefore not be addressing the nature of Baxter’s conduct in this declaratory judgment action.

 

11   See Nat’l Chiropractic, 23 F. Supp. 2d at 1122.

12   Lamb v. Anderson, 147 P.3d 736, 739 (Alaska 2006) (noting that a criminal conviction resulting from a jury can be introduced as “conclusive proof” “of the facts necessarily determined”).

13   Pedersen v. Blythe, 292 P.3d 182, 185 (Alaska 2012) (quoting Wyatt v. Wyatt, 65 P.3d 825, 831 (Alaska 2003)).

The second Policy matter at issue in this action is whether Baxter was an insured under the Policy’s terms. Whether Baxter was acting within his scope of employment when he approached Byers’ truck on September 9, 2014, is relevant to this determination. The state court action also deals with this issue in relation to NGT’s vicarious liability. However, here, NGT has already admitted in its answer and counterclaim that Baxter was in fact not acting within the scope of his employment.14 That is, the parties do not have a dispute as to Baxter’s scope of employment, and the court will simply apply this undisputed fact to determine whether Baxter was an “insured” under the Policy at the time of the relevant incident. Therefore, there is no risk of this court duplicating the state court’s efforts when it analyzes Baxter’s coverage under the Policy.

 

14   Doc. 16 at p. 6 (Affirmative Defense No. 4); Doc. 16 at p. 11 (¶ 14).

Lastly, the court’s decision in this declaratory judgment action will address [*9]  whether Ferns’ alleged injuries were caused by the use of an insured automobile as required for coverage under the Policy. The requisite causal connection between the injury and the vehicle is something less than proximate cause in the legal sense, but something more than the vehicle being the location of the incident causing injuries.15 There are three general factors to consider: 1) the extent of causation between the automobile and the injury; 2) whether an act of independent significance occurred, breaking the causal link between the use of the vehicle and the injuries inflicted; and 3) the type of use of the vehicle involved.16 Applying the first factor requires the court to look at whether the vehicle was an active accessory to the incident.17 The fact that a collision occurred and then caused the parties to fight, which then led to injuries, does not make the vehicles involved in the initial collision active accessories.18 As to the third factor, coverage only applies to injuries resulting from a vehicle being used for its inherent transportation purpose.19

 

15   Shaw v. State Farm Mut. Auto. Ins. Cos., 19 P.3d 588, 591 (Alaska 2001).

16   Id. at 592.

17   Kalenka v. Infinity Ins. Cos., 262 P.3d 602, 609 (Alaska 2011).

18   Id.

19   Id.

Baxter’s conduct, which is the primary subject of the underlying tort case, will not be an issue in this court’s vehicle use [*10]  analysis. Regardless of whether Baxter acted intentionally or accidentally, it is undisputed that his truck was not adequately connected to the injuries Ferns sustained. Indeed, NGT is basing its coverage argument on the fact that Byers’ truck was central to the underlying incident, and the court will be making determinations as to that truck’s role in causing the alleged injuries under the applicable three-part test. The state case is not focused on Byers’ truck’s role in the incident. Therefore, no overlap will occur.

NGT argues that there could be litigation overlap because the state case is broad enough to include Byers’ conduct as a basis for NGT’s liability. Even assuming that is true, this court will not be making a determination about Byers’ negligence, only about the role his truck played in relation to the injuries sustained by Fern and Baxter’s conduct. NGT argues in its reply that there are still unknown facts to be discovered surrounding Byers’ conduct and use of his truck that could arise in state court and potentially bring the state case within the policy’s coverage and cause overlapping litigation and verdicts. The court disagrees that there are relevant undiscovered [*11]  facts about Byers’ role in the incident that could expand the scope of the underlying lawsuit to reach Byers’ conduct and create overlapping litigation about his potential negligence. All the relevant witnesses testified in the state criminal proceeding, and there is nothing in their testimony to suggest that Byers drove the truck away while Ferns was standing on it, as NGT suggests. NGT relies on the fact that Baxter’s original statement to the investigating trooper was that he did not touch Ferns. However, during trial he admitted his original statement was not the truth, and that he did knock Ferns from behind, as other witnesses described, albeit unintentionally.20 NGT also argues that Ferns does not remember getting hit and so it leaves open the possibility that Byers caused the fall by putting the truck in gear. That is not an accurate assessment of Ferns’ testimony. He stated multiple times that he was struck from behind.21 Thus, the court does not see the possibility of duplicative litigation surrounding Byers’ conduct.

 

20   Doc. 37-3 at pp. 19-20 (Baxter testimony at pp. 281-85).

21   Doc. 37-2 at pp. 11, 13 (Ferns testimony at pp. 196, 197, 204, 205).

 

1. Settling all aspects of the controversy

NGT argues that state court proceedings will be more likely to lead to a full resolution of this controversy because the [*12]  state court case, with additional fact-finding as to Byers’ conduct, will resolve the tort claims, which could lead to settlement on the coverage issue. This court, on the other hand, can only resolve the coverage aspects of the controversy. Again, the court concludes that no additional fact-finding is likely needed. All relevant witnesses have already testified as to the events at issue, and nothing suggests that there are some unknown facts regarding Byers’ conduct that could end up settling the coverage issues. Therefore, the court sees no efficiency in waiting for the state case to conclude to move forward on the coverage issues.

 

1. Collateral estoppel issues

NGT argues that this court’s decision regarding UFCC’s duty in relation to Ferns’ tort suit against NGT and Baxter would cause unjust collateral estoppel issues for it in state court. NGT points to the issue of Baxter’s scope of employment, arguing that if the court were to conclude Baxter was acting within the scope of his employment during the incident, Ferns could employ the offensive use of collateral estoppel against it in state court. However, here, it is undisputed that Baxter was not acting within the scope of his employment, [*13]  and thus there will not be a contrary finding here. NGT also points to the issue of Byers’ conduct and notes that it will have to take inconsistent positions about this issue in the two cases–minimizing Byers’ role in the incident in state court and maximizing his connection to the incident here to bring the scope of the complaint within the Policy’s coverage–which could have a preclusive effect. Again, the court notes that Byers’ conduct is not at issue in the underlying complaint, and this declaratory judgment action will not determine whether Byers engaged in tortious conduct as part of its coverage determination. Moreover, the court’s application of the Policy’s vehicle use provision does not require a determination of proximate cause. Rather, the court simply looks at whether Byers’ truck was an active accessory to Ferns’ injuries, which, as noted above, is something less than proximate cause. Since the issue is not identical, the court’s decision as to the Policy’s vehicle use provision will not have a preclusive effect on the underlying tort case.22

 

22   Latham v. Palin, 251 P.3d 341, 344 (Alaska 2011).

 

1. CONCLUSION

Based on the preceding discussion, NGT’s motion for a stay at docket 23 is DENIED.

DATED this 20th day of August 2017. [*14]

/s/ JOHN W. SEDWICK

SENIOR JUDGE, UNITED STATES DISTRICT COURT