JAMES I. COHN, District Judge.
On August 2, 2010, Bodywell filed this action against Defendant Fortress Systems, LLC ("FSI") in the Circuit Court of the Seventeenth Judicial Circuit, Broward County, Florida. See Complaint [DE 1-1 at 4-17]. Thereafter, on September 7, 2010, FSI removed the case to this Court based on diversity jurisdiction. See Notice of Removal [DE 1].
Bodywell, a sports nutrition and dietary supplement company, had retained FSI to manufacture a powder form drink, which was supposed to be soluble in liquid. However, according to the Complaint, the product was defective because the powder clumped together, turned hard, fused together, and became insoluble. The Complaint therefore asserted claims for breach of express warranty (Count I), breach of implied warranty for fitness for particular purpose (Count II), and breach of implied warranty of merchantability (Count III). FSI filed a Counterclaim [DE 38] for breach of contract, alleging that Bodywell failed to pay certain money owed under the manufacturing agreement. Finally, Bodywell filed an Amended Complaint [DE 50] to add an additional claim for negligent shipping/transport of the product by FSI's subcontractors (Count IV).
During the relevant period, FSI had a commercial general liability policy with James River, with a $5 million policy limit. James River refused to defend FSI against Bodywell's claims, denied coverage, and failed to respond when FSI forwarded Bodywell's settlement offer to James River.
Ultimately, on March 4, 2011, Bodywell and FSI entered into a settlement agreement in which they agreed that (1) they would file a stipulation of settlement and joint motion for entry of final judgment requesting that the Court enter a final judgment in Bodywell's favor only on Count IV in the amount of $10,450,000; (2) Bodywell would dismiss with prejudice its remaining claims against FSI, and FSI would dismiss its counterclaim; and (3) FSI would assign its right to pursue its claim under the James River policy to Bodywell. The settlement agreement contemplated that, if by 5:00 p.m. on March 8, 2011, James River either accepted FSI's defense and agreed to provide coverage or agreed to pay Bodywell the $5 million policy limit, then the settlement agreement would be null and void and of no legal effect. When FSI brought this information to James River's attention, James River offered to provide FSI with a defense but reserved its right to dispute coverage. As FSI informed James River, such an offer was insufficient to invalidate the settlement agreement. Accordingly, the settlement agreement was binding and final. On March 14, 2011, Bodywell and FSI filed their Settlement Agreement [DE 54] under seal, and on March 17, 2011, they filed their Stipulation of Settlement [DE 56] and Joint Motion for Entry of Final Judgment [DE 57]. On March 18, 2011, the Court entered a Final Judgment [DE 59] in accordance with the parties' filings.
Meanwhile, on March 15, 2011, James River had filed a Complaint for Declaratory
The sole matter in Judge Seltzer's Report is whether the insurance coverage dispute should be decided in proceedings supplementary in this action or in the separate Declaratory Action. The parties agree that the issues in the two proceedings are identical.
After a thorough analysis of the pending motions, related filings, and applicable law and facts, Judge Seltzer recommended that the undersigned grant James River's Motion to Strike Bodywell's Insurance-Related Motions [DE 76], strike Bodywell's Motion for Proceedings Supplementary and to Implead James River [DE 62] and Motion for Entry of Rule Nisi to Establish Liability of James River [DE 64], and decide the insurance coverage dispute in the Declaratory Action. In making his recommendation, Judge Seltzer emphasized "the paucity of cases considering the insurance coverage in proceedings supplementary" and the fact "that the insurance coverage issue was first raised in the Declaratory Judgment Action." Report at 1327.
Bodywell has filed five objections to the Report. First, Bodywell argues that Florida case law entitles a party to proceedings supplementary when that party satisfies the statutory prerequisites. However, as Judge Seltzer noted, this is not the typical case in which supplementary proceedings are invoked. See Report at 1321-22. The typical case is one in which "the judgment creditor seeks to implead a third party to whom the judgment debtor has (allegedly) transferred its assets or to implead a third party who (allegedly) is the alter ego of the judgment debtor." Id. In its Objections and its Reply, Bodywell still fails to cite any case in which proceedings supplementary were instituted against an insurance company when a declaratory judgment action regarding identical issues was already pending. As Judge Seltzer noted, and as James River emphasizes in its briefing, granting Bodywell's motions would transform coverage litigation in Florida. Id. at 1326-27.
Id. at 1327 (quoting James River's Reply in Support of Motion to Strike [DE 78] at 2).
Second, Bodywell asserts that Florida Statute § 56.29 and the Federal Rules require that James River be afforded its full due process rights during the supplementary proceedings. Bodywell makes this
Third, Bodywell asserts that although the Report expresses concern for James River's substantive and procedural due process rights, the Report neglects to express the same level of concern for Bodywell's rights. However, Bodywell will be afforded all necessary procedural and substantive due process rights in the Declaratory Action as well. As Judge Seltzer noted, "Bodywell has failed to identify any compelling reason for trying the insurance coverage issue in post-judgment proceedings supplementary rather than in the pending Declaratory Judgment Action." Report at 1326. And when a party objects to jurisdiction in the first-filed forum, that party bears the burden of proving "compelling circumstances" to warrant an exception to the first-filed rule. Manuel v. Convergys Corp., 430 F.3d 1132, 1135 (11th Cir.2005).
Although, in its fourth objection, Bodywell disputes Judge Seltzer's finding that James River presented the issue of insurance coverage first, the undersigned agrees with Judge Seltzer that the Declaratory Action was the first-filed action. Bodywell suggests that it should receive the benefit of any first-filed rule because it filed the above-captioned action seven months before James River filed its Declaratory Action. However, the instant action did not present the insurance-related claims until after judgment was entered and the case was closed. Importantly, James River presented the coverage issues in filing its Declaratory Action on March 15, 2011, and Bodywell did not raise the coverage issues until it filed the Motion for Proceedings Supplementary and Motion for Entry of Rule Nisi on April 19, 2011. As Judge Seltzer noted, "the sole issue now before the Court — insurance coverage — was first raised by James River in the Declaratory Judgment Action." Report at 1326. Judge Seltzer therefore concluded "that the Declaratory Action should be deemed the first-filed action." Id. Bodywell also argues that the Declaratory Action should not be afforded first-filed status because James River only filed its Declaratory Action to win a "race to the courthouse." The undersigned disagrees. James River filed its Declaratory Action to receive a ruling on its rights and liabilities under the insurance policy issued to FSI. See Complaint in Declaratory Judgment Action.
Finally, Bodywell suggests that, as an alternative to dismissal, the Court could stay or abate Bodywell's motions pending the adjudication of James River's liability in the Declaratory Action. James River responds that such a stay serves no practical purpose. The Court agrees.
Based on the foregoing, it is hereby
BARRY S. SELTZER, United States Magistrate Judge.
THIS CAUSE is before the Court on Bodywell's Motion for Proceedings Supplementary and to Implead James River (DE 62), Bodywell's Motion for Entry of Rule Nisi to Establish Liability of James River (DE 64), and James River's Motion to Strike Bodywell's Insurance-Related Motions (DE 76). These matters were referred to the undersigned Magistrate Judge pursuant to U.S.C. § 636 and the Magistrate Rules of the Local Rules of the United States District Court for the Southern District of Florida.
Bodywell Nutrition, LLC ("Bodywell") brought this action against Fortress Systems, LLC, d/b/a FSI Nutrition ("FSI").
Throughout the relevant period, FSI had a commercial general liability policy with James River Insurance Company ("James River") with a policy limit of $5 million. According to Bodywell, before the litigation commenced and again upon the
Subsequently, on March 4, 2011, Bodywell and FSI entered into a settlement agreement, whereby they agreed that: (1) they would file a stipulation of settlement and joint motion for entry of final judgment requesting that the Court enter a final judgment in favor of Bodywell and against FSI only on Count IV in the amount of $10,450,000; (2) Bodywell would dismiss with prejudice the claims against FSI asserted in Counts I, II, and III and FSI would dismiss its counterclaim; and (3) FSI would assign its right to pursue its claim under the James River policy to Bodywell. According to the settlement agreement, if by 5:00 p.m. on March 8, 2011, James River either accepted the defense of FSI and agreed to provide coverage or agreed to pay Bodywell the $5 million policy limits, then the settlement agreement would be null and void and of no legal effect.
The same day that the parties executed the settlement agreement, FSI informed James River of the agreement and outlined its terms; it requested that James River reevaluate its denial of coverage and agree to defend FSI in this litigation, in which case the settlement agreement would be invalidated. On March 8, 2011, James River offered to provide FSI with a defense but reserved its right to dispute coverage. On March 8, 2011, and again on March 10, 2011, FSI informed James River that its offer to provide a defense under reservation of rights was insufficient to invalidate the settlement offer (which invalidation was contingent on both defense and coverage) and that the settlement agreement, therefore, was binding and final.
On March 14, 2011, Bodywell and FSI filed their Settlement Agreement under seal. And on March 17, 2011, they filed their Stipulation of Settlement.
On March 15, 2011, James River filed a Complaint for Declaratory Relief ("Declaratory Judgment Action") against FSI and Bodywell, requesting that the Court find that based on certain exclusions contained in the policy James River has no obligation to defend or to indemnify FSI against the allegations asserted by Bodywell in this litigation. The Declaratory Judgment Action is now pending before District Judge James I. Cohn. See James River Insurance Company v. Fortress Systems, LLC and Bodywell Nutrition, LLC, Case No. 11-cv-60558-Cohn/Seltzer.
On March 18, 2011, the District Court approved Bodywell and FSI's settlement agreement and, consistent therewith, the Court dismissed with prejudice Counts I, II, and III of the Amended Complaint and FSI's Counterclaim, and it entered final judgment on Count IV (negligent shipping/transport) in favor of Bodywell and against FSI in the amount $10,450,000.
The sole issue now before the Court is whether the insurance coverage dispute should be decided in proceedings supplementary in this action or in the separate Declaratory Judgment Action filed by James River. The parties agree that the issues in the two proceedings are identical.
Bodywell seeks an order instituting proceedings supplementary in aid of execution and impleading James River, pursuant to Federal Rule of Civil Procedure 69 and Florida Statute § 56.29.
"Impleading third parties in a proceeding supplementary to execution is necessary to acquire jurisdiction over them." ABM Fin. Servs., 2011 WL 915669, at *2. "Such impleading does not in itself establish liability on the part of the impleaded third parties. Rather, it gives them an opportunity to raise their defenses and protect their interests consistent with the requirements of due process." Id.; see also Ortiz v. Santuli Corp., No. 08-20218-CIV, 2010 WL 2926517, at *1 (S.D.Fla. July 23, 2010) (Simonton, M.J.) ("Impleading those persons whose interests may be affected by the Court's rulings is necessary both to acquire jurisdiction over them and to afford due process.") (quoting Mission Bay Campland,
"Florida courts have developed two jurisdictional prerequisites for supplementary proceedings under § 56.29: (1) an unsatisfied writ of execution and (2) an affidavit averring that the writ is valid and unsatisfied along with a list of entities to be impleaded." Id. at *2 (citing Bleidt v. Lobato, 664 So.2d 1074, 1075 (Fla. 5th DCA 1995) and Wieczoreck v. H & H Builders, Inc., 450 So.2d 867, 871 (5th DCA 1984)). A judgment debtor is not required to make a prima facie showing that the third party holds assets subject to a judgment prior to impleading that party. Id. Here, Bodywell has submitted the affidavit of its counsel, Steven Pardo, who avers that Bodywell holds a judgment against FSI in the principal sum of $10,450,000, which has been recorded in the public records of Broward County, Florida and that execution has been issued, is valid, and remains outstanding and unsatisfied. Hence, Bodywell has met § 56.29's requirements for instituting proceedings supplementary.
Typically, however, (unlike the instant case), the judgment creditor seeks to implead a third party to whom the judgment debtor has (allegedly) transferred its assets or to implead a third party who (allegedly) is the alter ego of the judgment debtor. But Bodywell does cite one early Florida District Court of Appeal case that held that a court has the authority to implead a judgment debtor's liability insurance company as a third party defendant in proceedings supplementary, ruling that the insurance proceeds are property of the judgment debtor. See Gen. Guaranty Ins. Co. of Florida v. DaCosta, 190 So.2d 211, 214 (Fla. 3rd DCA 1966).
James River moves the Court to strike both Bodywell's Motion for Proceedings Supplementary and to Implead James River (DE 62) and its Motion for Entry of Rule Nisi to Establish Liability of James River (DE 64); it requests that the Court then decide the insurance coverage issue in the Declaratory Judgment Action. James River first argues that the under
Both parties contend that the first-filed rule inures to its benefit. James River argues that the Declaratory Judgment Action was filed more than 30 days before Bodywell sought to commence proceedings supplementary and, therefore, it was the first-filed action. Bodywell counters this litigation was commenced 7 months before James River filed its Declaratory Judgment Action and, hence, this is the first-filed action as proceedings supplementary are not deemed separate actions. See Mystique, Inc. v. 138 Int'l, Inc., Nos. 07-22934-CIV, 10-21421-CIV, 2010 WL 3008809, at *4 (S.D.Fla. July 28, 2010) ("Proceedings supplementary are not independent causes of action but are post judgment proceedings that permit a judgment creditor to effectuate a judgment lien that already exists."). But the sole issue now before the Court — insurance coverage — was first raised by James River in the Declaratory Judgment Action. The undersigned, therefore, believes that the Declaratory Action should be deemed the first-filed action. Bodywell has failed to identify any compelling reason for trying the insurance coverage issue in post-judgment proceedings supplementary rather than in the pending Declaratory Judgment Action.
James River next argues that Bodywell's primary reason for trying the coverage action in proceedings supplementary — efficiency — is simply an attempt to evade discovery and federal disclosures requirements.
Reply at 2 (DE 78) (citing Higgins v. State Farm Fire & Cas. Co., 894 So.2d 5, 15 (Fla.2004)). The undersigned agrees.
Accordingly, given the paucity of cases considering insurance coverage in proceedings supplementary and given that the insurance coverage issue was first raised in the Declaratory Judgment Action, the undersigned RECOMMENDS that the District Court GRANT James River's Motion to Strike Bodywell's Insurance-Related Motions (DE 76) and STRIKE Bodywell's Motion for Proceedings Supplementary and to Implead James River (DE 62) and Bodywell's Motion for Entry of Rule Nisi to Establish Liability of James River (DE 64), and decide the issue of insurance coverage in the Declaratory Judgment Action filed by James River.
The parties will have fourteen (14) days from the date of being served with a copy of this Report and Recommendation within which to file written objections, if any, with the Honorable James C. Cohn, United States District Judge. Failure to file objections timely shall bar the parties from a de novo determination by the District Judge of an issue covered in the report and shall bar the parties from attacking on appeal factual findings accepted or adopted by the District Judge except upon grounds of plain error or manifest injustice. See 28 U.S.C. § 636(b)(1); Thomas v. Arn, 474 U.S. 140, 149, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); Henley v. Johnson, 885 F.2d 790, 794 (1989).
DONE and SUBMITTED in Fort Lauderdale, Florida, this 12th day of December 2011.
Fla. Stat. 627.4136(4) (emphasis added). James River argues the non-joinder statute bars Bodywell's attempt to implead James River herein. Bodywell counters that the non joinder statute applies only "at the time a judgment is entered"; it contends that it does not seek to join James River to the judgment. As James River has summarily raised this argument in a footnote, the undersigned declines to now decide the issue.
