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Stoneledge At Lake Keowee Owners Association Inc. v. Cincinnati Insurance Co.

United States District Court, D. South Carolina

March 13, 2018

Stoneledge at Lake Keowee Owners Association, Inc., Plaintiff,
v.
Cincinnati Insurance Company and Builders Mutual Insurance Company, Defendants.

          ORDER

          MARY GORDON BAKER UNITED STATES MAGISTRATE JUDGE.

         Plaintiff Stoneledge at Lake Keowee Owners Association, Inc. (“Plaintiff” or “HOA”) filed the instant action against Defendant Cincinnati Insurance Company (“CIC”) in the Oconee County Court of Common Pleas in March of 2014; the matter was removed on May 13, 2014. (See generally Dkt. No. 1.) On December 15, 2014, the parties filed a Consent Motion to Stay, asking that the case sub judice be stayed “until such time as the underlying South Carolina State Court action Stoneledge At Lake Keowee Owners' Association Inc. v. IMK Development Company, LLC, Case No. 2009-CP-37-0652 (hereinafter ‘the underlying case')” was concluded. (Dkt. No. 23.) The parties noted that the underlying action was tried to a verdict in November of 2013, but, at the time the Consent Motion to Stay was filed, “post-trial motions, including motions to determine set-offs from settlements Plaintiff made with other underlying defendants, remain[ed] pending.” (Dkt. No. 23 at 1-2.) The Honorable Bruce Howe Hendricks granted the Consent Motion to Stay on December 16, 2014. (Dkt. No. 24.)

         On November 5, 2015, Plaintiff filed a Motion to Lift the Stay, asserting that the “underlying trial court has ruled on all post-trial motions, judgments have been entered, and the underlying defendants have appealed to the South Carolina Court of Appeals.” (Dkt. No. 26 at 1.) CIC opposed the motion because the underlying case was on appeal. (See generally Dkt. No. 27.) Judge Hendricks granted the Plaintiff's motion on June 20, 2016. (Dkt. No. 31.) On June 30, 2016, CIC filed a Motion for Reconsideration of Judge Hendricks' Order; she denied the Motion for Reconsideration on August 30, 2016. (Dkt. No. 34; Dkt. No. 38.) On September 14, 2016, Plaintiff filed a Motion to Amend its Complaint, stating that it “seeks to amend its Complaint for filing in this Court to add allegations related to the underlying litigation and to join Builders Mutual Insurance Company as an additional defendant.” (Dkt. No. 40 at 1.) Judge Hendricks granted Plaintiff's motion, and on September 16, 2016, Plaintiff filed an Amended Complaint, wherein Builders Mutual Insurance Company (“Builders”) was added as a Defendant. (See Dkt. No. 41; Dkt. No. 42.)

         Defendant CIC answered the Amended Complaint and filed a counterclaim seeking a declaratory judgment. (Dkt. No. 44.) Defendant Builders also answered the Amended Complaint and filed a counterclaim seeking a declaratory judgment. (Dkt. No. 50.)

         On April 28, 2017, Defendants filed a Motion to Stay. (Dkt. No. 66.) On April 28, 2017, Defendant Builders filed a Motion for Summary Judgment, (Dkt. No. 67), as did Plaintiff, (Dkt. No. 81). Also on April 28, 2017, Defendant CIC filed a Motion for Partial Summary Judgment. (Dkt. No. 80.) On August 18, 2017, Defendants filed a Motion to Certify Questions to the Supreme Court of South Carolina. (Dkt. No. 103.) The Motion to Stay and Motion to Certify Questions to the Supreme Court of South Carolina have been referred to the undersigned. (Dkt. No. 109.)

         On February 22, 2018, the undersigned held a hearing on the Motion to Stay and the Motion to Certify Questions to the Supreme Court of South Carolina. (Dkt. No. 114.) As allowed at the hearing, Plaintiff filed a Reply pertaining to Defendants' reformulated proposed certified questions. (Dkt. No. 118.)

         ALLEGED FACTS

         Plaintiff alleges that it “is a South Carolina non-profit corporation that manages a horizontal property regime known as Stoneledge at Lake Keowee, consisting of 80 dwelling units located on Lake Keowee in Oconee County, South Carolina.” (Am. Compl. ¶ 1.) Plaintiff further alleges that it “brought suit against Marick Home Builders, LLC (‘Marick Builders'), and against its principal and member Rick Thoennes (‘Theonnes') [sic] (referred to collectively as the ‘Insureds') . . . relating to the construction of Stoneledge at Lake Keowee (hereinafter the ‘Project') in Oconee County, South Carolina, Civil Action No. 2009-CP-37-0652 (the ‘Underlying Action').” (Am. Compl. ¶ 2.)[1]According to Plaintiff, it “is a judgment creditor of the Insureds” and “has standing to sue CIC and Builders Mutual to satisfy the judgment and stipulated damages.” (Am. Compl. ¶ 6.)

         Plaintiff alleges that CIC issued a Commercial General Liability policy to Marick Builders and that Builders Mutual issued a policy to the Insureds. (Am. Compl. ¶¶ 9-10.) According to Plaintiff, Thoennes is an insured under both policies. (Am. Compl. ¶ 11.) The insured tendered the Underlying Action to their insurance carriers “requesting that their carriers provide a defense and indemnify the Insureds in the event they incurred losses as a result of the Underlying Action.” (Am. Compl. ¶ 13.) The “Underlying Action was divided for trial into two separate actions, Phase I and Phase II.” (Am. Compl. ¶ 14.)

         As to Phase I, the jury found in favor of the HOA, and against Marick and Thoennes; “[j]judgment was entered against Marick and Thoennes, which was subsequently amended by order dated January 30, 2015, to an amount, after credit for set-offs, of $2, 144, 088.23, which is accruing interest at the statutory rate.” (Am. Compl. ¶¶ 15-16.) Plaintiff alleges that in the Underlying Action, “the HOA alleged, and the evidence establishes[, ] that as a direct and proximate result of the negligence of the Insureds, physical injury to tangible property occurred, as well as damage to the work of others, including loss of use, with such damage being caused by the continuous repeated exposure to the same general harmful conditions.” (Am. Compl. ¶ 17.) In anticipation of the Phase II trial, the HOA, Marick, Thoennes, and the Insurers “stipulated that the damages the HOA would be entitled to recover from Marick” and Thoennes was $2, 000, 000.00 “and that trial for the sole purpose of establishing the exact amount of damages was unnecessary.” (Am. Compl. ¶ 19.) Plaintiff alleges the “HOA and the Insurers agreed to proceed with a declaratory judgment action for determination of coverage for HOA's Total Phase II Damages under the policies issued by the Insurers.” (Am. Compl. ¶ 20.) Plaintiff seeks “a Declaratory Judgment that CIC and Builders Mutual are obligated to pay the Phase I Judgment and the Total Phase II Damages plus post-judgment interest.” (Am. Compl. ¶ 26.)

         DISCUSSION

         A. Motion to Stay (Dkt. No. 66)

         As noted above, on December 15, 2014, the parties filed a Consent Motion to Stay, asking that this case be stayed until the underlying state action was concluded; the parties noted that although the underlying action was tried to a verdict in November of 2013, at the time the Consent Motion to Stay was filed, “post-trial motions, including motions to determine set-offs from settlements Plaintiff made with other underlying defendants, remain[ed] pending.” (Dkt. No. 23 at 1-2.) Judge Hendricks granted the Consent Motion to Stay on December 16, 2014. (Dkt. No. 24.)

         On November 5, 2015, Plaintiff filed a Motion to Lift the Stay, asserting that the “underlying trial court has ruled on all post-trial motions, judgments have been entered, and the underlying defendants have appealed to the South Carolina Court of Appeals.” (Dkt. No. 26 at 1.) CIC opposed the motion because the underlying case was on appeal. (See generally Dkt. No. 27.) Judge Hendricks granted that motion on June 20, 2016. (Dkt. No. 31.) In that Order, Judge Hendricks stated, inter alia,

The Court recently granted a renewed motion to stay in a companion matter (Civil Action No.: 8:14-cv-293-BHH) brought by Stoneledge HOA against CIC, concerning different insured entities than those at issue here, and arising from the same judgment in the Underlying Suit. (See C/A No. 8:14-cv-293, ECF No. 70.) In that companion case, the Court found that a stay was appropriate after considering the so-called “Nautilus factors” to determine whether that federal declaratory judgment action should continue to proceed in light of the pendency of the parallel state court appeal, namely:
(1) whether the state has a strong interest in having the issues decided in its courts; (2) whether the state courts could resolve the issues more efficiently than the federal courts; (3) whether the presence of “overlapping issues of fact or law” might create unnecessary “entanglement” between the state and federal courts; and (4) whether the federal action is mere “procedural fencing, ” in the sense that the action is merely the product of forum-shopping.
Penn-Am. Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004) (citing United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493-94 (4th Cir.1998)). There, the Court found that factor three presented the clearest reason to grant a stay.
The Court has again considered the Nautilus factors, and finds that the instant case does not present the same potential for entanglement between the state and federal proceedings. Specifically, unlike the companion matter, there are no claims for bad faith refusal to settle and improper claims practices in the case sub judice. Additionally, the Court finds that a continued stay in the instant case does not offer the same potential to maximize judicial economy. In the companion case, there is an open question as to whether Stoneledge HOA's claims against defendant American Home Assurance Company regarding an umbrella policy are viable in the first instance, given the prerequisite that the applicable limits of any underlying insurance coverage must first be exhausted. Resolution of the state court appeal will assist the Court in answering that question definitively. There are no such issues in the instant case, and the utility of a continued stay is therefore diminished. The remainder of the Nautilus factors are not significantly implicated by the posture of this case. The Court finds that there is a ripe dispute between the parties and the declaratory judgment action will proceed.

(Dkt. No. 31 at 2-4.)

         On June 30, 2016, CIC filed a Motion for Reconsideration of Judge Hendricks' Order. (Dkt. No. 34.) Judge Hendricks denied that motion in the following Text Order:

TEXT ORDER denying 34 Motion for Reconsideration re 31 Order on Motion to Lift Stay. This matter is before the Court on Defendant's Motion to Reconsider the Court's June 20, 2016 Order (ECF No. 31) granting Plaintiff's motion to lift a stay that had been in place, pursuant to a consent motion of the parties (ECF No. 23), since December 16, 2014 (ECF No. 24). The stated ground for Defendant's Motion is that the factors the Court considered in ordering that the stay be lifted relate to abstention, whereas the Court should have been focused particularly on the issue of ripeness and the risk that the Court might issue an improper advisory opinion if it allowed the case to proceed. (See ECF No. 34 at 1-3.) Motions for reconsideration of interlocutory orders are not subject to the strict standards applicable to motions for reconsideration of a final judgment. Am. Canoe Assn v. Murphy Farms, Inc., 326 F.3d 505, 514 (4th Cir. 2003) (citation omitted). This is because a district court retains the power to reconsider and modify its interlocutory judgments... at any time prior to final judgment when such is warranted. Id. at 514-15 (citing Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1469 (4th Cir.1991); see also United States v. Duke Energy Corp., 218 F.R.D. 468, 473-74 (M.D. N.C. 2003) (A court may revisit interlocutory orders at any time prior to final judgment under Fed.R.Civ.P. 54(b) or its inherent authority.). Although the strict standards applicable to motions for reconsideration brought pursuant to Fed.R.Civ.P. 59 do not apply to motions for reconsideration of interlocutory orders, District courts in the Fourth Circuit look to the standards of motions under [Rule 59] for guidance. Long v. OReillys Auto. Stores, Inc., C/A No. 6:12-901-MGL, 2014 WL 2864589, at *2 (D.S.C. June 23, 2014) (citing R.E. Goodson Constr. Co., Inc. v. Int'l Paper Co., C/A No. 4:024184RBH, 2006 WL 1677136, at *1 (D.S.C. June 14, 2006); Akeva L.L.C. v. Adidas Am., Inc., 385 F.Supp.2d 559, 56566 (M.D. N.C. 2005)); see also Pure Fishing, Inc. v. Normark Corp., C/A No. 3:10-2140-CMC, 2012 WL 4009628, at *1 (D.S.C. Sept. 12, 2012) affd, 564 F.Appx. 601 (Fed. Cir. 2014) (This court finds the standard applicable to reconsideration of final orders useful, though non-binding.). As with a motion under Rule 59, appropriate reasons for granting reconsideration [of an interlocutory order] are: (1) to follow an intervening change in controlling law; (2) on account of new evidence; or (3) to correct a clear error of law or prevent manifest injustice. Long, 2014 WL 2864589 at * 2. None of the predicate reasons for granting reconsideration of the Court's Order lifting the stay are present here, and the Court declines to reconsider that ruling. Defendant insists that the issue of whether the stay should be maintained turns on the ripeness of the dispute, but makes this untenable argument while simultaneously acknowledging that the underlying tort case was tried to verdict and findings of fact were made therein. (See ECF No. 34 at 3-5.) In this context, what Defendant is really asking the Court to do is defer action on the case sub judice until the appeals in the underlying tort case are complete. See Princeton Excess & Surplus Lines Ins. Co. v. Immigration Centers of Am. -Farmville, LLC, No. 3:12-CV-895, 2013 WL 6246366, at *6 (E.D. Va. Nov. 21, 2013) ([T]he real issue in this case is not whether there is a case or controversy or whether the matter is ripe for decision, it is whether the [c]ourt should defer acting on [the plaintiff's] request for declaratory judgment until the State Litigation is concluded.). For reasons already explained in the Order, the Court does not see the same need for and benefit from a continued stay in this action as in the parallel action, Stoneledge at Lake Keowee Owners' Association, Inc. v. Cincinnati Insurance Company, et al., No. 8:14-CV-293-BHH. Accordingly, the Motion to Reconsider is denied and the case will proceed. Signed by Honorable Bruce Howe Hendricks on 8/30/16.

(Dkt. No. 38.)

         Undeterred by Judge Hendricks' previous rulings, on April 28, 2017, CIC and Builders Mutual filed the instant Motion to Stay, asking that the court “stay this action with respect to coverage for Phase I of the Stoneledge project.” (Dkt. No. 66-1 at 1.) Defendants contend that “a ruling on coverage for Phase I at this time would be improper because the evidence upon which such a ruling must be based is not yet final.” (Dkt. No. 66-1 at 1.) Defendants state, inter alia,

Marick's appeal is not yet resolved. As a result, the basis for any ruling as to the amount of coverage for Phase I does not yet exist. If the Court of Appeals rules in favor of Marick, the result could be, among other things, a new trial. (See Exh. D: Appellant's Final Brief at pp. 38-39.) Thus, the issues in this case are not ripe until the appeal is resolved and the judgment becomes final. See Ellett Bros., Inc. v. U.S. Fid. & Guar. Co., 275 F.3d 384, 388 (4th Cir. 2001) (holding that an insurer's duty to indemnify is based upon factual findings in the underlying case). Any declaration this Court issues as to the amount of coverage for Phase I is subject to becoming moot because the Phase I litigation is not yet completed.
Due consideration of the issues pending on appeal demonstrates that Marick and Thoennes' arguments have merit and a real possibility exists that the current Phase I judgments may be reversed or modified. Several of the trial judge's rulings during the Phase I trial appear to be inconsistent with current South Carolina law.

(Dkt. No. 66-1 at 3.) Defendants point to numerous particulars in which they contend the state court's rulings are erroneous. (See Dkt. No. 66-1 at 3-8.) Defendants contend that the grounds they have identified “are by no means the only potential grounds for reversal in the pending appeal of the Phase I judgments, ” but “these grounds sufficiently demonstrate that the issues Marick raised on appeal create a substantial question as to whether the existing judgments will stand.” (Dkt. No. 66-1 at 8.) Defendants assert that “[i]f the Phase I judgments are modified on appeal, it would moot any declaration this Court issues as to the amount of coverage for Phase I.” (Dkt. No. 66-1 at 8.)

         Although Judge Hendricks has already twice ruled, the issue here is whether the instant action--the insurance coverage dispute--should be stayed while the underlying case is on appeal. Defendants cited no law in support of the stay in their Memorandum in Support of Their Motion to Stay as to Phase I; the law Defendants cited therein was in their explanation of how the state court erred. In their Reply, Defendants contend their request to stay is based on the court's inherent authority as well as Rule 16 of the Federal Rules of Civil Procedure.[2] (Dkt. No. 92 at 2.)

         In previously analyzing this question, Judge Hendricks looked to the factors set forth in Nautilus Insurance Co. v. Winchester Homes, Inc., 15 F.3d 371 (4th Cir. 1994). (See Dkt. No. 31.) Courts have used the Nautilus factors in assessing whether a federal declaratory judgment action should be stayed. See Auto-Owners Ins. Co. v. Essex Homes Se., Inc., Civ. A. No. 3:14-CV-02164-MGL, 2014 WL 4748689, at *3 (D.S.C. Sept. 23, 2014); Zurich Am. Ins. Co. v. Public Storage, 697 F.Supp.2d 640 (E.D. Va. 2010). The Nautilus factors include:

(i) the strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts;
(ii) whether the issues raised in the federal action can more efficiently be resolved in the court in which the state action is pending;
(iii) whether permitting the federal action to go forward would result in unnecessary entanglement between the federal and state court systems, because of the presence of ...

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