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SECURA Insurance v. Childers

United States District Court, D. Minnesota

November 7, 2019

SECURA INSURANCE, Plaintiff,
v.
CHILDERS, et al., Defendants.

          ORDER ON MOTIONS

          Nancy E. Brasel United States District Judge

         To rule on the motions before it, the Court must consider two issues of subject- matter jurisdiction. The first is whether this Court has subject-matter jurisdiction over a counterclaim brought by an injured-party defendant in an insurance declaratory action when state law prohibits direct actions by an injured party. The second is whether this Court has subject-matter jurisdiction over a third-party complaint brought by an injured- party defendant adding another insured. For the reasons below, the Court finds it does not have subject-matter jurisdiction over the counterclaim or the third-party complaint in these circumstances, and accordingly dismisses both.

         BACKGROUND

         In 2017, Esther and Jeffrey Oldenburg were involved in a car crash with Michael Hayner. Hayner had purchased his car from Terrance Childers, the owner of LAC Industries (“LAC”). At the time of the crash, the car was still listed as an insured vehicle on the Commercial Auto Policy and Commercial Umbrella Policy (together “policies”) issued by plaintiff SECURA Insurance (“SECURA”) to LAC.

         After the crash, the Oldenburgs brought a personal injury action against Childers and Hayner in Minnesota state court. [ECF No. 12-1.] LAC is not a named defendant in the state court action, but the Oldenburgs have proposed to join LAC as a party in that suit. [ECF No. 12-2.] In response to the state court action, SECURA brought this declaratory judgment action in federal court, seeking a determination of its obligations under the policies. [ECF No. 1.] SECURA names Childers and the Oldenburgs as defendants and claims that Childers is not an insured under the policies. Id. at ¶4. The Oldenburgs then filed an answer, a counterclaim, and a third-party complaint against LAC and Hayner. [ECF Nos. 9, 12.] The Oldenburgs' counterclaim against SECURA seeks (1) a declaration that SECURA provides coverage for Childers under the Commercial Auto Policy, (2) a declaration that SECURA provides coverage to Childers and LAC under the Commercial Umbrella Policy, and (3) a denial of SECURA's request for a declaration of no coverage. [ECF No. 9 at 7.] The third-party complaint against LAC and Hayner seeks a declaration that SECURA's policies cover LAC and Hayner. [ECF No. 12.] SECURA moved to dismiss the counterclaim and SECURA and LAC moved to dismiss the third-party complaint under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject-matter jurisdiction. [ECF Nos. 15, 26, 32.]

         LEGAL STANDARD

         When a party brings a challenge to the Court's subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), the Court must determine if it has the authority to decide the claims at issue. Spine Imaging MRI, LLC v. Liberty Mut. Ins. Co., 743 F.Supp.2d 1034, 1038-39 (D. Minn. 2010). A Rule 12(b)(1) motion may either challenge a complaint on its face or the “factual truthfulness” of its assertions. Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir. 1993). SECURA has made a facial challenge, so “all of the factual allegations concerning jurisdiction are presumed to be true and the motion is successful if the plaintiff fails to allege an element necessary for subject-matter jurisdiction.” Id. The burden of proving subject-matter jurisdiction falls on the party asserting jurisdiction. See V S Ltd. P'ship v. Dep't. of Hous. & Urban Dev., 235 F.3d 1109, 1112 (8th Cir. 2000). Both standing and ripeness “are requirements for Article III subject matter jurisdiction.” Kennedy v. Ferguson, 679 F.3d 998, 1001 (8th Cir. 2012). If a plaintiff lacks standing to sue, then the district court lacks subject-matter jurisdiction. ABF Freight Sys., Inc. v. Int'l Bhd. of Teamsters, 645 F.3d 954, 958 (8th Cir. 2014). If a claim is not ripe, the court also lacks subject-matter jurisdiction. See Dakota, Minn. & E. R.R. Corp. v. South Dakota, 362 F.3d 512, 520 (8th Cir. 2004).

         ANALYSIS

         I. The Court does not have subject-matter jurisdiction over the counterclaim because the Oldenburgs do not have standing.

         The Oldenburgs have the burden of demonstrating the Court's subject-matter jurisdiction over their counterclaim. See V S Ltd. P'ship, 235 F.3d at 1112. They argue that because they are joined as defendants in SECURA's complaint, they have the right to bring counterclaims. This argument is squarely foreclosed by Eighth Circuit precedent. See W. Heritage Ins. Co. v. Asphalt Wizards, 795 F.3d 832, 836 (8th Cir. 2015). In Asphalt Wizards, an insurer brought a declaratory judgment action seeking a declaration that it did not owe coverage to its insured. Id. at 835. As here, the insured counterclaimed. Id. The Eighth Circuit found there was no subject-matter jurisdiction for the counterclaim based on Missouri's prohibition on direct actions. Id. at 836. Because the plaintiffs did not have standing to sue under state law, the federal courts did not have subject-matter jurisdiction. Id.

         Minnesota, like Missouri, prohibits direct actions. See Camacho v. Todd & Leiser Homes, 706 N.W.2d 49, 56 (Minn. 2005). A direct action occurs when an injured party directly sues the defendant's insurer before obtaining a judgment as to the defendant's liability. Id. Under Minnesota law, an injured party may not preemptively seek a declaration that an insurer must cover a defendant prior to a judgment finding the defendant liable for the injury. See Id. Here, the Oldenburgs' counterclaim is a direct action, or at least has the effect of a direct action, because it requests a declaration of affirmative coverage prior to a judgment, precisely what the prohibition against direct actions does not allow. Because the counterclaim amounts to a direct action, the Oldenburgs do not have standing to pursue this claim.

         The Oldenburgs' counterclaim for an insurance declaratory judgment is barred by the state prohibition against direct actions. Consequently, this Court does not have subject-matter jurisdiction. Accordingly, the Court dismisses the counterclaim under Federal Rule of Civil Procedure 12(b)(1).[1]

         II. The Court does not have subject-matter jurisdiction over the third-party complaint because the Oldenburgs do not have standing and because their claim against LAC is not ripe.

         SECURA and LAC also filed motions to dismiss the third-party complaint filed by the Oldenburgs. Because the parties make similar arguments about the Court's subject- matter ...


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