United States District Court, D. New Mexico
WEST AMERICAN INSURANCE COMPANY and PEERLESS INDEMNITY INSURANCE COMPANY, Plaintiffs,
HAILEY ATYANI, NICHOLE C DE BACA, BIANCA GARCIA, HANNAH JIRON, CESELLA MERRYMAN, ANDREA VARELA, WHITNEY WHITSON, JAEDA CHAVEZ, JENNA ESPINOZA, SAMANTHA HAWLEY, KRISTEN HERRERA, EMILLEE JEPHSON, GENEVIEVE REILLY, KELSI SHARP, ALLYNA BOWSHER, DENNIS BONFANTINE, JANICE BONFANTINE, D.B. KELLY, INC., d/b/a KELLY'S BREW PUB AND RESTAURANT and DB BREWERY LLC, Defendants.
MEMORANDUM OPINION AND ORDER
C. BRACK SENIOR U.S. DISTRICT JUDGE.
matter is before the Court on Defendants Dennis Bonfantine,
Janice Bonfantine, D.B. Kelly, Inc., d/b/a Kelly's Brew
Pub and Restaurant and DB Brewery LLC's (collectively,
"the Kelly's Defendants") Motion to Dismiss.
(Doc. 15.)Jurisdiction arises under 28 U.S.C. §
1332. The Kelly's Defendants and Plaintiffs West American
Insurance Company and Peerless Indemnity Insurance Company
(collectively, "Plaintiffs") dispute whether
several insurance policies require Plaintiffs to indemnify
and cover defense costs in two state court actions. These
underlying actions involve former employees who allege the
Kelly's Defendants violated the City of Albuquerque
Minimum Wage Ordinance ("MWO"). The Kelly's
Defendants urge the Court to decline to exercise its
jurisdiction here because facts relevant to the scope of
insurance coverage have yet to be developed in the pending
state court case. But Plaintiffs are not parties to the
pending state case, and the issue of insurance coverage has
not been addressed in that case. Having considered
counsel's submissions and the five Mhoon factors
laid out by the Tenth Circuit to determine when a federal
court should exercise its jurisdiction in claims for
declaratory relief, the Court will DENY the motion to
April 2016, former employees of Kelly's Brew Pub sued the
Kelly's Defendants in state court, alleging that the
defendants had been violating the MWO by withholding
servers' earned tip money, not paying servers the tipped
minimum wage, and failing to keep required payroll records.
(See Doc. 1 (Plaintiffs' Complaint) ¶¶
37, 39-45.) That case-Atyani v. Bonfantine-is
currently pending in the Second Judicial District Court,
Bernalillo County, New Mexico. See
D-202-CV-2016-02775. In February 2017, a different former
employee filed a similar suit against the Kelly's
Defendants alleging similar violations of the MWO. See
Frank v. Bonfantine, D-202-CV-2017-00852. In November
2017, the state court dismissed Frank with
prejudice. Id., Stipulated Order Granting Dismissal
with Prejudice (2nd Judicial Dist, Bernalillo Cty., N.M. Nov.
issued various insurance policies to DB Brewery LLC d/b/a
Kelly's Brew Pub, and the policies were in effect during
the period when the alleged MWO violations occurred.
(See Compl. ¶¶ 32-34.) The policies cover
bodily injury and property damage if the injury or damage
"is caused by an 'occurrence' that takes place
in the 'coverage territory.'" (Id.
¶ 36.) The policies specifically exclude bodily injury
and property damage that is "expected or intended from
the standpoint of the insured." (Id.) The
policies define an "occurrence" as an
"accident, including continuous or repeated exposure to
substantially the same general harmful conditions."
(Id.) "Property damage" is defined as
"[p]hysical injury to tangible property, including all
resulting loss of use of that property" or "[l]oss
of use of tangible property that is not physically
injured." (Id.) The Kelly's Defendants
sought defense costs and indemnity under these policies to
resolve the claims against them in Frank and
Atyani. (Id. ¶ 51; Doc. 13-1, Ex. A.)
Plaintiffs denied coverage in both cases on the basis that
the allegations of wage withholding and other MWO violations
involve neither bodily injury nor property damage and are
otherwise excluded from policy coverage. (See Compl.
¶¶ 52, 57-61.)
Kelly's Defendants argue that resolution of certain
factual disputes in Atyani-e.g., whether the alleged
tip withholding occurred at all or occurred
intentionally-could resolve so that the underlying action
would fall within the scope of the policies' property
damage coverage. (See Doc. 15 at 4-5.) The bulk of
the Kelly's Defendants' Motion to Dismiss (see
Id. at 4-6) and Reply in Support of Motion to Dismiss
(see Doc. 42 at 5-9) reiterates their argument that
this Court should decline to issue a declaratory judgment
regarding coverage before the state court case has more fully
developed the facts in dispute.
Declaratory Judgment Act vests federal courts with the power
to "declare the rights and other legal relations of any
interested party seeking such declaration." 28 U.S.C.
§ 2201. The Supreme Court has repeatedly affirmed the
discretionary and "nonobligatory nature" of
declaratory relief. See, e.g., Wilton v. Seven Falls
Co., 515 U.S. 277, 286-88 (1995) ("Since its
inception, the Declaratory Judgment Act has been understood
to confer on federal courts unique and substantial discretion
in deciding whether to declare the rights of
litigants."); Pub. Serv. Comm'n of Utah v.
Wycoff Co., 344 U.S. 237, 241 (1952) ("[The Act]
confers a discretion on the courts rather than an absolute
right upon the litigant.")
declaratory relief is clearly discretionary, the Tenth
Circuit has expressly emphasized the utility of such relief
in insurance coverage disputes. See W. Cas. & Surety
Co. v. Teel, 391 F.2d 764, 766 (10th Cir. 1968)
("[A] declaratory action by an insurer to establish
nonliability under casualty insurance [is] one of the prime
purposes of the Declaratory Judgment Act."); Farmers
All. Mut. Ins. Co. v. Jones, 570 F.2d 1384, 1386 (10th
Cir. 1978) ("We have expressly recognized that one of
the primary functions of the Act is to provide the [insurer]
such a forum." (citation omitted)).
parallel state court action might address some or all of the
coverage issues presented in a federal claim for declaratory
relief, courts in the Tenth Circuit look to the five factors
laid out in State Farm Fire & Casualty Co. v.
Mhoon to determine which forum would best settle the
controversy. See 31 F.3d 979, 983 (10th Cir. 1994). The
 whether a declaratory action would settle the
controversy;  whether it would serve a useful purpose in
clarifying the legal relations at issue;  whether the
declaratory remedy is being used merely for the purpose of
"procedural fencing" or "to provide an arena
for a race to res judicata ";  whether use
of a declaratory action would increase friction between our
federal and state courts and improperly encroach upon state
jurisdiction; and  whether there is an alternative remedy
which is better or more effective.
Id. These factors are balanced to guide the
court's analysis-no one factor is dispositive.
See United States v. City of Las Cruces,
289 F.3d 1170, 1183 (10th Cir. 2002). Here, an analysis of
the Mhoon factors suggests that the Court should
exercise its jurisdiction and deny the Kelly's
Defendants' Motion to Dismiss.
and Second Mhoon Factors: Settling the Controversy
and Clarifying Legal Relations
degree of similarity between the federal declaratory judgment
proceeding and the underlying state court proceeding is
relevant to the analysis of each Mhoon factor. The
first and second factors, in particular, "are
necessarily driven by the degree of identity of parties and
issues in the concurrent proceedings." See Id.
"[T]he likelihood a declaratory judgment will resolve
the immediate dispute between the parties may tip the scales
in favor of exercising jurisdiction[, ] . . . [while] the
existence of outstanding claims in a parallel state court
action may counsel a different conclusion."
Mid-Continent Cas. Co. v. Vill. at Deer Creek Homeowners
Ass'n, Inc.,685 F.3d 977, 982 n.3 (10th Cir. 2012).
Whether a court's analysis of these factors should focus
on just the controversy between the federal parties or
consider additional parties to the state suit ...