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Sparta Insurance Co. v. Carrillo

United States District Court, D. New Mexico

November 20, 2017

SPARTA INSURANCE CO., a Connecticut Corporation, Plaintiff,


          Bobby R. Baldock United States Circuit Judge.

         The issue presented in this declaratory judgment (diversity) action is to what extent does Plaintiff Sparta Insurance Company have an obligation to satisfy a $12, 500, 000 judgment entered in favor of Defendant Ricardo Carrrillo and against its insureds-Copper Solutions and Services, its executive director George Alderete, and its employee Cecilio Medina (collectively Copper Defendants)-in New Mexico state court. Now before this Court are the Copper Defendants' and Defendant Carrillo's respective motions (Docs. 18, 35) to dismiss or, alternatively, to stay this action pending the outcome of state court proceedings aimed at resolving the question of insurance coverage. For reasons stated herein, the motions are well taken. In a sound exercise of its discretion, the Court shall dismiss Sparta's complaint for declaratory judgment without prejudice pending adjudication of the insurance coverage issue in New Mexico state court.[1]


         On November 2, 2011, Defendant Medina was driving a commercial vehicle/ semi-truck with an attached trailer, both owned by Copper Solutions and insured by Sparta, on New Mexico Highway 259. Medina rear ended a pickup truck in front of him, crossed the highway's centerline, and crashed head on into the semi-truck Defendant Carrillo was driving. Carrillo sustained serious injuries and sued the Copper Defendants and others in New Mexico state court. Carrillo v. Copper Solutions & Services, LLC, No. D-412-CV-201300509 (N.M. 4th Dist., San Miguel Co., filed December 30, 2013) (Carrillo action). Plaintiff Sparta, the Copper Defendants' insurer, was not a named party to the Carrillo action. Sparta, however, retained counsel to defend the claims against the Copper Defendants.

         Notwithstanding this fact, Plaintiff Sparta, on May 13, 2014, filed a federal complaint for declaratory judgment against its insured Defendant Copper in the Northern District of Texas (tellingly an action about which Sparta says literally nothing in this case). Sparta Ins. Co. v. Copper Solutions and Services, LLC, No. 14-CV-67 (N.D. Tex., filed May 13, 2014). Sparta's complaint in that case sought much the same relief against Defendant Copper as its complaint seeks in the present action. In its federal suit in Texas, Sparta sought a declaratory judgment “that the combined limits of liability under the Policy for the Tractor and the Trailer totals $1, 000, 000 for the single occurrence which is the basis of the New Mexico lawsuit.” In this federal suit, Sparta seeks “a judicial determination declaring that the Policy does not obligate Plaintiff Sparta to indemnify [the Copper Defendants] in excess of $1, 000, 000 for the claims at issue in the underlying lawsuit.”

         Notably, Sparta did not name Defendant Carrillo, Medina, or Alderete in its first federal suit for declaratory relief. But the docket in that case reflects that Alderete in his capacity as Copper Solutions' executive director-for reasons presently unclear-signed a waiver of service on behalf of Defendant Copper. When Copper failed to respond to the complaint, Sparta sought and obtained a default judgment against it. The Texas federal court's judgment of September 30, 2014, declares “that the subject policy unambiguously limits Sparta's liability to Copper Solutions to $1, 000, 000 per accident regardless of the number of covered autos. Sparta's liability to Copper Solutions for the New Mexico lawsuit cannot exceed a total of $1, 000, 000 in liability benefits.”

         Subsequently, in September 2016, a jury returned a verdict in favor of Carrillo in the Carrillo action. The jury awarded Carrillo $3, 500, 000 in compensatory damages and $9, 000, 000 in punitive damages against the Copper Defendants. Shortly thereafter, Carrillo filed a motion for pre-judgment interest under New Mexico state law. In a written order unfavorable to the three Copper Defendants (and Sparta), the state court awarded Carrillo prejudgment interest at the rate of 10% per year from May 1, 2014, for unreasonable and untimely settlement offers.

         On April 11, 2017, Carrillo responded to the state court's order awarding him pre-judgment interest by filing a motion to supplement the complaint and join Sparta as a defendant in the Carrillo action. Therein Carillo alleged Sparta failed to make timely and reasonable settlement offers and willfully provided claims management services in an attempt to avoid paying on the policy, all contrary to the insurer's duty under New Mexico law. Two weeks later, Sparta moved to intervene in the Carrillo action to defend against Carrillo's allegations of the insurer's wrongdoing. The next day, April 28, 2017, the Copper Defendants filed a notice of appeal to the New Mexico Court of Appeals. As of this writing, the state trial court in San Miguel County has not ruled on Carrillo's and Sparta's post-judgment motions.[2]

         On May 31, 2017, Plaintiff Sparta filed the present action for a declaratory judgment against the Copper Defendants pursuant to the federal Declaratory Judgment Act (DJA). Prior to answering Sparta's federal complaint, Defendants Copper and Alderete, on September 6, 2017, filed a separate action in Santa Fe County state court for bad faith in the proposed settlement of an insurance dispute. Alderete v. Sparta Ins. Co., No. D-101-CV-201702532 (N.M. 1st Dist., Santa Fe Co., filed September 6, 2017) (Aldrete action). The complaint against Sparta, its adjustors and agents in the Aldrete action alleges breach of contract, breach of the covenant of good faith and fair dealing, negligence, and statutory violations of the New Mexico Insurance Practices Act and Unfair Trade Practices Act. The complaint also alleges negligence and legal malpractice against the lawyers Sparta retained to represent the Copper Defendants in the Carrillo action.

         On September 25, 2017, the Copper Defendants responded to Plaintiff Sparta's second federal complaint for declaratory judgment by filing their motion to dismiss or in the alternative to stay the present proceeding pending the outcome of the insurance coverage dispute in state court. A month later, Defendant Carillo filed his own motion to dismiss or stay for substantially the same reasons set forth in the Copper Defendants' motion.


         The DJA provides that a court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201 (emphasis added). Although the Court appears to have diversity jurisdiction over this action as presently constituted, the plain language of the DJA does not compel the Court to exercise that jurisdiction and adjudicate questions of state law. Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942). The Supreme Court has “repeatedly characterized the [D]A] as ‘an enabling act, which confers a discretion on the courts rather than an absolute right upon the litigant.'” Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 241 (1952)). This is because “[i]n the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.” Id. at 288.

         Brillhart and Wilton, neither of which Plaintiff Sparta bothers to cite, are “the seminal cases dealing with discretion to dismiss or stay ‘declaratory judgment actions.'”[3] United States v. City of Las Cruces, 289 F.3d 1170, 1181 (10th Cir. 2002). In those cases, the Supreme Court addressed the propriety of federal declaratory relief under the DJA where, like here, an insurer, anticipating a state court suit, sought a declaration in federal court of limited liability on an insurance policy. Brillhart, 316 U.S. at 493 (noting that when the insurer filed its federal declaratory judgment action, it was not yet a party to state proceedings); Wilton, 515 U.S. at 280 (noting the insurer filed its federal declaratory judgment action before the insured commenced its state action). In Brillhart, the Court asked “whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in state court.”[4] Brillhart, 316 U.S. at 495. The Supreme Court explained that the answer more often than not would turn on -

the scope of the pending state court proceeding and the nature of defenses open there. The federal court may have to consider whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, ...

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