R. Brooke Jackson, United States District Judge.
This matter is before the Court on plaintiff and counterclaim defendant Auto-Owners Insurance Co.'s ("AOIC") motion to dismiss. ECF No. 23. For the reasons stated below, the motion is GRANTED.
This insurance dispute stems from a civil lawsuit filed in the Denver District Court (the "underlying lawsuit"). Complaint, ECF No. 1 at ¶8. In the underlying lawsuit, defendant Bolt Factory Lofts Owners Association, Inc. ("Association") asserted construction defect claims against six contractors for alleged defects at one of its Denver condominium developments. Id. at ¶12. Two of those six contractors then asserted third-party claims against subcontractors, including defendant Sierra Glass Co., Inc. ("Sierra Glass"). Id. at ¶13. Following a series of settlements, the only claims that proceeded to trial were the claims that the Association, as assignee of the two contractors, asserted against Sierra Glass. Id. at ¶17.
AOIC issued seven insurance policies (the "Policy") to Sierra Glass, and as part of the Policy, defended Sierra Glass in the underlying lawsuit under a reservation of rights. Id. at ¶¶17, 22. On or about May 4, 2018 the Association presented a settlement demand to Sierra Glass for $1.9 million. Id. at ¶39. Sierra Glass asked AOIC to settle the case for that amount, but AOIC declined. Id. at ¶42. This prompted Sierra Glass, in an effort to protect its own financial interests, to strike a deal with the Association. As part of the written "Agreement," Sierra Glass agreed to refrain from offering a defense at trial in exchange for the Association's express promise that it would not pursue any recovery against Sierra Glass. Id. at ¶25; see also the Agreement, ECF No. 1-4. Moreover, Sierra Glass agreed to assign any bad faith claims it may have against AOIC to the Association. ECF No. 1 at ¶26. Because of the Agreement, the trial court reduced the 15-day jury trial to a two-day bench trial set to commence on May 9, 2018. Id. at ¶24.
Sierra Glass signed the Agreement without AOIC's knowledge or consent. Id. at ¶¶33-34. In fact, the first time AOIC learned of the Agreement was at the pretrial conference held on May 4, the Friday before the 15-day trial was originally set to begin. Id. at ¶24. According to AOIC, the Policy afforded AOIC the right to defend Sierra Glass, and it required Sierra Glass to cooperate in the defense of the legal action. Id. at ¶¶30-31. And, AOIC alleges that it had been providing a full defense under a reservation of rights with the intent to defend until final judgment. Id. at ¶¶37-38.
On July 6, 2018 AOIC filed this declaratory judgment action against the Association and Sierra Glass. AOIC seeks a declaration from this Court that it does not owe any obligations or payments to defendants under the Policy, ECF No. 1 at ¶98, a declaration that Sierra Glass breached the Policy by failing to cooperate with AOIC, id. at ¶99, and a declaration that the state court Judgment obtained by the Association in the Underlying Lawsuit is not enforceable against AOIC, id. at 17.
Shortly after filing this action, on July 27, 2018, AOIC timely appealed the trial court's Judgment. AOIC asked the Colorado Court of Appeals to reverse the trial court's denial of its motion to intervene and asked the appellate court to vacate the Judgment. See AOIC's Opening Brief, ECF No. 28-1. Meanwhile, the Association and Sierra Glass, in concert, answered the complaint in the present case and asserted counterclaims for breach of contract and third-party statutory and common law bad faith claims. See Answer and Counterclaims, ECF No. 20.
AOIC moves to dismiss the counterclaims under Fed. R. Civ. P. 12(b)(1) for want of subject matter jurisdiction, arguing that the counterclaims are not ripe for review. ECF No. 23. Sierra Glass and the Association responded in opposition, ECF No. 28, and AOIC replied, ECF No. 32. The motion is ripe for review.
"The question of whether a claim is ripe for review bears on a court's subject matter jurisdiction under the case or controversy clause of Article III of the United States Constitution." New Mexicans for Bill Richardson v. Gonzales, 64 F.3d 1495, 1498-99 (10th Cir. 1995). Thus, a ripeness challenge is properly analyzed under Fed. R. Civ. P. 12(b)(1), which empowers a court to dismiss a complaint for "lack of subject-matter jurisdiction." The party asserting jurisdiction bears the burden of establishing subject matter jurisdiction. Pueblo of Jemez v. United States, 790 F.3d 1143, 1151 (10th Cir. 2015). As such, defendants bear the burden to establish jurisdiction over the counterclaims they asserted against AOIC.
"[R]ipeness is peculiarly a question of timing," Gonzales, 64 F.3d at 1499 (quoting Regional Rail Reorganization Act Cases, 419 U.S. 102, 140, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974)), intended "to prevent the courts, through avoidance of premature adjudication, from entangling
Defendants assert three counterclaims against AOIC: (1) breach of contract; (2) statutory unreasonable denial of payment of a benefit; and (3) common law bad faith. ECF No. 20 at ¶¶34-53. Defendants' breach of contract claim complains that AOIC "has refused to indemnify Sierra Glass for the Judgment," that AOIC's "refusal to indemnify Sierra Glass for the judgment is a breach of the contracts," and that AOIC's "breach of the [AOIC] Policies has caused Sierra Glass damages in the amount of the unjustified Judgment, namely $2,489,021.91, plus interest and costs." Id. at ¶¶36, 37, 39. Defendants' statutory denial claim asserts that "[t]he benefits owed by [AOIC] to Sierra Glass under the [AOIC] Policies include the payment of the unsatisfied Judgment entered against Sierra Glass in the Underlying Action," and that AOIC's failure to pay violates the statute. Id. at ¶¶41-44. Finally, defendants' bad faith claim principally alleges that AOIC "owes to Sierra Glass the duty to indemnify it for the unsatisfied Judgment entered against Sierra Glass in the Underlying Action," a duty that it has failed to perform, and that AOIC "failed in its duty to meaningfully participate in settlement negotiations in an effort to allow Sierra Glass to avoid a significant exposure to a judgment in excess of the limits of the AO[IC] Policies." Id. at ¶¶46-48.
AOIC argues that defendants' counterclaims are contingent on the outcome of the appeal in the Underlying Lawsuit, and thus, the counterclaims must be dismissed because they are not ripe. ECF No. 23 at 5. AOIC relies heavily on the decision in Kuzava v. United Fire & Casualty Co., No. 17-CV-02673-CMA-NYW, 2018 WL 3633558 (D. Colo. July 31, 2018). In Kuzava, the plaintiffs were injured in a car collision with Eric Kubby, who, at the time of the accident, was driving a truck owned by Lyon Trucking, Inc. Id. at *1. Defendant United Fire insured both Mr. Kubby and Lyon Trucking (the "Insureds"). Id. After plaintiffs sued the Insureds in state court, United Fire, per its insurance policy, represented the Insureds. Shortly before the trial, the Insureds entered into a Nunn-type agreement (the "Nunn-Agreement") where the Insureds agreed to assign the plaintiffs the rights and interests in any claims under the Policy against United Fire in exchange for the assurance from the plaintiffs that they would not execute or enforce any judgment against the Insureds. Id. Also, as part of the Nunn-Agreement, the parties agreed to arbitrate the claims. Id.
United Fire moved to intervene in the underlying action, sought to enjoin the
The plaintiffs, as assignees of the Insureds, then filed a lawsuit in state court where they asserted breach of contract and bad faith claims against United Fire. Id. United Fire removed the action to federal court, and shortly thereafter, filed a Rule 12(b)(1) motion to dismiss. Id. United Fire argued that the claims were not ripe for review because United Fire's appeal remained pending. Id.
Adopting the magistrate judge's recommendation, the court agreed with United Fire that the claims were unripe. Id. at *6. The court ruled that the bad faith claim was unripe because "the excess judgment and the outcome of the Underlying Action [were] not yet final as a result of Defendant's pending appeal." Id. at *5. For the same reasons, the court also determined that the breach of contract claim for failure to indemnify was unripe because the appellate court could reverse the underlying judgment thus voiding the harm alleged. Id. at *6. In short, the court determined that the plaintiffs' claims were premature and speculative because of United Fire's pending appeal. Id. at *5.
In reaching this decision, the court relied on Vanderloop v. Progressive Cas. Ins. Co., 769 F.Supp. 1172, 1173 (D. Colo. 1991). In Vanderloop, the insured filed a negligence and bad faith action against his insurance company for failing to settle a negligence action asserted against him, thereby exposing him to an excess liability judgment. Id. at 1173. The insurance company moved for summary judgment, arguing that the insured's claims were barred by the statute of limitations. Id. The "key question" that the court addressed on summary judgment was when did the bad faith claim ripen into a viable cause of action. Id. at 1174. The insurer argued that the claim accrued on the day the trial court entered judgment, whereas the insured argued that the bad faith claim accrued the day the Colorado Court of Appeals rendered final judgment on appeal. Id. The court agreed with the insured, finding that the limitations period begins to run only after the judgment on appeal becomes final. Id. at 1175. The court ruled,
Id.
Here, in response to AOIC's argument, defendants argue that the "cases upon which [AOIC's] motion relies do not support the relief requested." ECF No. 28 at 9. Curiously, however, they make no mention of the Kuzava decision in this section.
Defendants also argue, without citation, that "a claim is ripe when once there is an injury; the judgment here established the injury." ECF No. 28 at 9. But beyond this unsupported position, defendants sidestep the issue of ripeness almost entirely. Instead, their arguments focus on issues that are largely unrelated and irrelevant to the issue of ripeness, including (1) that the garnishment action should not be stayed,
Defendants' focus is misplaced. First, the related but independent garnishment action has no bearing on the issue of ripeness of the counterclaims. The same is true of defendants' third and fourth arguments. Whether the Agreement is valid, and whether AOIC is likely to succeed on appeal, is not at issue in this motion. Second, I disagree with defendants that AOIC is precluded from arguing that defendants' bad faith failure to settle and related claims are now unripe after appealing the trial court's Judgment. A final judgment for the purposes of appeal is "one that ends the particular action in which it is entered, leaving nothing further for the court pronouncing it to do in order to completely determine the rights of the parties involved in the proceedings." State ex rel. Suthers v. CB Servs. Corp., 252 P.3d 7, 10 (Colo. App. 2010) (quoting People v. Guatney, 214 P.3d 1049, 1051 (Colo. 2009)). Here, it is true that the court pronouncing the Judgment—the state trial court—has nothing further to do in the Underlying Lawsuit. The Judgment is therefore final for purposes of appeal. But this is different from the ripeness issue presented in this motion. The ripeness doctrine asks whether a controversy is certain and not contingent on future events. Here, as I explain more thoroughly below, the grounds for defendants' counterclaims is
Having considered the relevant caselaw and AOIC's motion, which is relatively unopposed on the issue of ripeness, I find that defendants' counterclaims are unripe. The injury that forms all three counterclaims derives from the Judgment that is currently on appeal. Thus, if overturned on appeal, the grounds for defendants' counterclaims are no longer present. It follows that defendants have yet to suffer a concrete and non-appealable injury, which is the final imposition of an excess judgment.
But that's not all. "Federal courts `have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party,' and thus a court may sua sponte raise the question of whether there is subject matter jurisdiction `at any stage in the litigation.'" Image Software, Inc. v. Reynolds & Reynolds Co., 459 F.3d 1044, 1048 (10th Cir. 2006) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006)). Here, the counterclaims are not the only claims that rely on the trial court's Judgment in the Underlying Lawsuit. AOIC's declaratory action also relies, in large part, on that Judgment. Specifically, AOIC asks this Court to declare that it does not owe any coverage obligations or payments to defendants under the Policy because Sierra Glass allegedly breached its duty to cooperate. ECF No. at ¶¶98-99. It also seeks a declaration that "the judgment obtained by the Association in the Underlying Lawsuit is not enforceable as against AOI[C]." Id. at 17. As such, if AOIC prevails on appeal by successfully vacating the Judgment, part of the declaratory relief it requests will no longer be necessary. Accordingly, I find that the rationale supporting my ruling on the ripeness of defendants' counterclaims applies with equal force to AOIC's declaratory judgment action, and that claim must be dismissed for want of jurisdiction.
Finally, I note that AOIC's dual attack on the Judgment is inconsistent. In its appeal, it asks the Colorado Court of Appeals to vacate the Judgment and reverse the trial court's decision denying its motion to intervene so that it may defend itself and Sierra Glass in the Underlying Lawsuit. Here, however, AOIC seeks a declaration that it does not owe any obligations to defendants under the Policy. Thus, if I rule in AOIC's favor on that request, and the appellate court subsequently reverses the trial court's denial, that would create a
Defendants Bolt Factory Lofts Owners Association, Inc. and Sierra Glass Co., Inc.'s counterclaims are dismissed without prejudice. Furthermore, Auto-Owners Insurance Co.'s claim for declaratory relief is also dismissed without prejudice.