POTOMAC INSURANCE CO. v. PELLA CORPORATION

DALE E. SAFFELS, U.S. District Judge

This matter is before the court on defendant Pella Corporation's ("Pella") Motion to Dismiss (Doc. 51) and defendant Cincinnati Insurance Companies' ("Cincinnati") Motion for Judgment on the Pleadings Or, in the Alternative, for Dismissal with Prejudice (Doc. 49). Plaintiff has filed responses (Docs. 57 and 55) to both motions. Cincinnati has filed a reply (Doc. 60), and Pella has filed a Supplemental Memorandum in Support (Doc. 78). The court is now prepared to rule on both motions.

I. FACTUAL BACKGROUND

A full discussion of the facts of this case is not required for the disposition of the current motions, so the court will only briefly recount the factual record.

On January 28, 2000, plaintiff filed a Petition for Declaratory Judgment (Doc. 1) in this matter. Plaintiff seeks declaratory relief pursuant to 28 U.S.C. § 2201 regarding its liability on an insurance contract. The facts of this case ostensibly arise from the parties' relationship with construction work performed on the home of Jonson and Rebekah Huang. The Huangs were originally named defendants in this case, yet by its October 6, 2000, Order (Doc. 54), the court dismissed both Jonson and Rebekah.

The Huangs hired Dean Construction and Engineering, Inc. ("Dean") to act as general contractor for the construction of their home in Topeka, Kansas. Dean was also originally a named defendant, but on November 16, 2000, the court issued an Order (Doc. 63) dismissing Dean from the case. Dean apparently purchased Pella windows for the Huangs' home from defendant Ray Anderson Company, Inc. ("Ray Anderson"). Ray Anderson is an authorized distributor of Pella windows, which are of course manufactured by defendant Pella.

Approximately six months after the windows were installed, the Huangs complained to Dean that their windows were leaking. Ray Anderson was notified of the complaints, and in February 1996, Ray Anderson began attempting to correct the leaks. Apparently, the repair of the windows was unsuccessful because in the summer of 1996, Ray Anderson began replacing the existing windows with new Pella windows. However, the situation was not finalized because on September 27, 1997, the Huangs filed suit in state court against Pella and Ray Anderson. The lawsuit was subsequently settled and a release was executed by the parties.

Defendant Cincinnati was Ray Anderson's insurer from October 1, 1995, through October 1, 1997. Plaintiff subsequently became Ray Anderson's insurer on October 1, 1997, continuing through October 1, 1998. The policy between plaintiff and Ray Anderson was renewed for a one year period from October 1, 1998, through October 1, 1999. The present action involves the question of plaintiff's duty to defend and/or indemnify Ray Anderson for a claim Ray Anderson made to plaintiff. The $80,000 claim allegedly concerns the window repairs Ray Anderson undertook at the Huang residence.

II. PELLA'S MOTION TO DISMISS

Pella brings its motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

A. Rule 12(b)(6) Standard

When deciding a motion to dismiss under Rule 12(b)(6), a court must accept as true all well-pleaded factual allegations of the complaint and must draw all inferences in favor of the pleader. See City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493 (1986). Dismissal is proper only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In order to avoid dismissal, plaintiff must do more than plead mere conclusory allegations or legal conclusions masquerading as factual conclusions. See generally Dunn v. White, 880 F.2d 1188, 1197 (10th Cir. 1989). Pella asserts that it is not a proper party to this declaratory action under 28 U.S.C. § 2201 and should be dismissed.

B. Declaratory Judgment Standard

Plaintiff requests declaratory relief pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. The statute states:

In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201.

In Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937), the Supreme Court held the required controversy in declaratory actions must be definite and concrete. The controversy must touch the legal relations of parties having adverse legal interests, and the controversy must demand specific relief through a conclusive decree. This general rule must be applied on a case-by-case basis. Basically, the question in each case is whether the facts alleged, under all the circumstances, show there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. See ANR Pipeline Co. v. Corporation Comm'n, 860 F.2d 1571, 1576 (10th Cir. 1988) (citing Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941)). See generally Lewis v. Continental Bank Corp., 494 U.S. 472, 477 (1990). Admittedly, the line between impermissible advisory opinions and justiciable controversies is elusive. See Maryland Cas., 312 U.S. at 273 ("The difference between an abstract question and a `controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy.").

C. Discussion

In the present case, there exists, without question, a genuine controversy as between plaintiff, the insurer, and Ray Anderson, the insured. Declaratory judgments are routinely sought to decide questions of coverage between insurance providers and their customers. Plaintiff has, however, also joined Pella, a party with which plaintiff has no contractual relationship. Pella requests that it be dismissed as a party-defendant because no controversy exists between itself and plaintiff.

Plaintiff argues that Pella is an "interested party" to this declaratory action because Pella and Ray Anderson have agreed to share the costs of rectifying the situation at the Huang's residence. Plaintiff, therefore, appears to be making the argument that if Ray Anderson indeed has no coverage for the outlays, then Pella's liability will somehow be affected. Additionally, plaintiff asserts that Pella is interested because Ray Anderson may have a duty to indemnify Pella per their distributorship agreement. The question becomes, therefore, once an identified controversy exists in a case, what additional defendants may be properly joined in the action.

As a preliminary matter, the court would note § 2201's use of the phrase "interested party" may not be relied upon by plaintiff in this context. The statute's reference to an "interested party" relates to possible plaintiffs not defendants. Therefore, the language of § 2201 offers no support for the joinder of Pella. See Reardon v. Pennsylvania-New York Cent. Transp. Co., 323 F. Supp. 598, 599 (N.D.Ohio. 1971) (noting also that the reference to "interested party" relates only to possible plaintiffs).

The Tenth Circuit, however, has stated: "We recognize that all interested parties should be joined in a declaratory judgment action whenever possible and that a declaratory judgment should not be entered unless it disposes of a controversy and serves a useful purpose." State Farm Mut. Auto. Ins. Co. v. Mid-Continent Cas. Co., 518 F.2d 292, 296 (10th Cir. 1975) (emphasis added). In State Farm, the Tenth Circuit was considering whether all conditionally necessary and indispensable parties were joined in accordance with Rule 19 of the Federal Rules of Civil Procedure. See id. In the present case, the court is faced with a substantially different procedural challenge. This challenge is more akin to the issue of permissive joinder as established in Rule 20 of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 20 ("All persons . . . may be joined in one action as defendants if there is asserted against them . . . any right to relief in respect of or arising out of the same transaction. . . .").

The court is persuaded, upon reflection on the historical purpose of declaratory judgments, that only those parties directly involved with the case's controversy should be joined as defendants. See, e.g., Normandy Pointe Assocs. v. Federal Emergency Management Agency, 105 F. Supp.2d 822, 830-31 (S.D.Ohio 2000) (dismissing a party-defendant in a declaratory action because no "case or controversy" existed between the defendant and plaintiff); Aetna Cas. Sur. Co. v. Rasa Mgmt. Co., 621 F. Supp. 892, 893 (D.Nev. 1985) (same); Reardon, 323 F. Supp. at 599 (same). Cf. Franklin Life Ins. Co. v. Johnson, 157 F.2d 653, 658 (10th Cir. 1946) (holding contingent beneficiary of insurance contract was proper party to declaratory judgment action because beneficiary's rights flowed from the contract). In any cause of action there will be untold scores of individuals who will have peripheral interest in the action's outcome. However, as the court's power to grant declaratory relief directly flows from § 2201, the court is bound to restrict its action in accordance with the statute's directives. At the core of § 2201 lies a requirement that any relief granted will directly impact and/or resolve an existing conflict between the parties. If a party's interest is not directly intertwined with the controversy, then any relief will only be advisory at best.

"The purpose of the declaratory judgment action is to settle actual controversies before they have ripened into violations of law or legal duty or breach of contractual obligations." Franklin Life Ins. Co. v. Johnson, 157 F.2d 653, 658 (10th Cir. 1946).

Plaintiff has simply offered no dispute, claim, or adverse legal interest between itself and Pella, nor has plaintiff demonstrated how Pella's rights directly flow from the contract executed by plaintiff and Ray Anderson. While Pella may be interested to learn whether Ray Anderson has coverage, this determination does not create a controversy as between itself and plaintiff. As such, the court will grant Pella's motion.

III. CINCINNATI'S MOTION FOR JUDGMENT ON THE PLEADINGS OR MOTION TO DISMISS

Cincinnati brings its motion pursuant to either Rule 12(c) or Rule 12(b)(6) of the Federal Rules of Civil Procedure. Both theories of relief seek similar results.

A. Appropriate Standard

Whether the court addresses Cincinnati's request under Rule 12(c) or Rule 12(b)(6) does not alter the general standards by which the court considers the motion. See, e.g., Gallardo v. Board of County Comm'rs, 857 F. Supp. 783, 785 (D.Kan. 1994). In light of the court's previous discussion, the court will construe this motion as seeking dismissal under Rule 12(b)(6).

B. Discussion

The arguments presented by Cincinnati are generally equivalent to those asserted by Pella, i.e., plaintiff has failed to allege any controversy as existing between itself and Cincinnati. Plaintiff argues that Cincinnati is a proper party-defendant because both insurance providers disclaim coverage to Ray Anderson. In sum, plaintiff asserts that "a declaratory judgment action will clarify the legal issues and settle the controversy as the Court will decide whether or not Potomac's or Cincinnati's policy, if either, applies to Ray Anderson's claim." (Pl.'s Mem. at 3).

Cincinnati, however, argues that there is no controversy regarding which policy Ray Anderson may or may not have coverage under. In fact, it is presented to the court that neither the Huangs, Ray Anderson, or any entity involved in this matter have filed a claim with Cincinnati. Plaintiff asserts that "Cincinnati is an interested party in the present matter as Cincinnati's policy of insurance is at issue." (Pl.'s Mem. at 5). However, Cincinnati is correct in pointing out that the counts in plaintiff's complaint are solely concerned with plaintiff's policy not the existence of alternative coverage under Cincinnati's policy.

This is not a case wherein independent polices overlap due to the multiplicity of coverage or insured individuals. See, e.g., Security Ins. Co. v. Alliance Mut. Ins. Co., 408 F.2d 878 (10th Cir. 1969); Maryland Cas. Co. v. National Mut. Cas. Co., 170 F.2d 759 (10th Cir. 1948). This action is squarely focused on the question of plaintiff's duty under its own policy with Ray Anderson. Plaintiff has offered no evidence of how the court's ruling would impact or resolve any dispute or controversy as between itself and Cincinnati. With no claim being asserted against Cincinnati, the court is unable to find how Cincinnati's legal interests, rights, or liabilities intersect with plaintiff's. As Cincinnati asserts, it "simply does not care whether Potomac's policy provides coverage in this matter." (Cincinnati's Reply Mem. at 5). In accordance with the court's earlier recitation of the applicable law, the court finds it appropriate to grant Cincinnati's motion.

IT IS THEREFORE BY THIS COURT ORDERED that Pella Corporation's Motion to Dismiss (Doc. 51) and defendant Cincinnati Insurance Companies' Motion for Judgment on the Pleadings, Or, in the Alternative, for Dismissal with Prejudice (Doc. 49) are granted.

Dated this ___ day of April, 2001, at Topeka, Kansas.