R. BRYAN HARWELL, District Judge.
In this declaratory judgment action, Plaintiff asks this federal Court to determine whether Defendants can assert a lien under North Carolina workers' compensation law against settlement proceeds that Plaintiff received primarily from underinsured motorist coverage. Meanwhile, there is a related, ongoing state workers' compensation proceeding in North Carolina dealing with the same issues presented in this federal case.
The parties have filed cross-motions for summary judgment, but for the reasons explained herein, the Court will exercise its discretion and abstain from hearing this declaratory action. Accordingly, the Court will deny the summary judgment motions as moot and dismiss this action without prejudice.
On May 16, 2012, Plaintiff's husband died in an automobile accident in Dillon, South Carolina during the course of his employment with his North Carolina employer, Defendant K & W Cafeterias, Inc. ("K & W"), and while operating a vehicle
Id. at pp. 1-2. Under North Carolina workers' compensation law, Defendants retained the ability to assert a subrogation lien on settlement proceeds obtained by Plaintiff from the at-fault third-party. See N.C. Gen. Stat. § 97-10.2(f).
In 2014, Plaintiff filed a wrongful death and survival action against the at-fault driver in South Carolina state court, and in March 2016, she settled the lawsuit and received the following proceeds:
ECF Nos. 35-8 through 35-13. Defendants sought to enforce their $333,763 subrogation lien against Plaintiff's $962,500 settlement proceeds.
On May 2, 2016, Defendants removed the action to this Court on the basis of diversity jurisdiction under 28 U.S.C. § 1332.
On July 10, 2017, a Deputy Commissioner of the Industrial Commission issued an Opinion and Award ruling in Defendants' favor and requiring Plaintiff to apply the $962,500 to satisfy Defendants' $333,763 lien. See ECF No. 44-1. On July 20, 2017, Plaintiff appealed the Deputy Commissioner's decision to the Full Commission of the Industrial Commission. See ECF No. 46-1. That appeal remains pending in North Carolina.
On August 16, 2017, the parties filed a Joint Motion to Defer the Current Trial Deadlines wherein they agreed the Deputy Commissioner's decision "addresses all issues currently before this Court, including whether S.C. [Code] Ann. § 38-77-160 precludes Liberty Mutual from receiving the `underinsurance' settlement proceeds that Plaintiff has received; whether the NCIC has jurisdiction over this matter; and whether this Court should defer to the NCIC's adjudication." ECF No. 47. The Court granted the joint motion to continue, see ECF No. 48, and the cross-motions for summary judgment remain pending.
In their cross-motions for summary judgment, the parties dispute whether S.C. Code Ann. § 38-77-160 precludes Defendants from asserting their lien against Plaintiff's settlement proceeds, including those received from UIM coverage. However, Defendants separately argue the Court should decline to exercise its discretionary jurisdiction over this declaratory judgment action,
"The Supreme Court held in Brillhart v. Excess Insurance Co., 316 U.S. 491 (1942) and reaffirmed in Wilton v. Seven Falls Co., 515 U.S. 277 (1995) that when a plaintiff brings a declaratory judgment action,[
Generally, "a declaratory judgment action is appropriate when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996) (internal quotation marks and ellipsis omitted). However, "[w]hen a related state court proceeding is pending, . . . considerations of federalism, efficiency, and comity should inform the district court's decision whether to exercise jurisdiction over a declaratory judgment action." Coffey, 368 F.3d at 412 (internal quotation marks omitted). In light of these considerations, the Fourth Circuit has articulated four factors—commonly known as the Nautilus factors—that a district court should consider in deciding whether to hear a declaratory judgment action when a related state court proceeding exists:
New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 297 (4th Cir. 2005) (quoting United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493-94 (4th Cir. 1998), and citing Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 377 (4th Cir. 1994)). The Nautilus factors are not a "mechanical checklist," and a district court "should apply them flexibly in light of the particular circumstances of each case." VRCompliance LLC v. HomeAway, Inc., 715 F.3d 570, 573 (4th Cir. 2013).
Because there is a related state court proceeding pending before the North Carolina Industrial Commission, the Court will apply the Nautilus factors in determining whether abstention is appropriate.
A "[s]tate certainly has a strong interest in protecting its jurisprudence and an interest in deciding cases calling for application of its own law[.]" Coffey, 368 F.3d at 414. Here, Plaintiff calls upon this federal Court to decide complex and sophisticated issues of North Carolina workers' compensation law and its relationship to South Carolina insurance law. Specifically, the merits of this case turn on whether a subrogation lien arising purely by operation of the North Carolina Workers' Compensation Act can be asserted against settlement proceeds received primarily from UIM policies—plainly stated, this case pits the North Carolina subrogation statute against the South Carolina UIM statute. Compare N.C. Gen. Stat. § 97-10.2(f), with S.C. Code Ann. § 38-77-160.
"[T]he interplay between underinsured motorist awards and workers' compensation liens is an area of evolving state law, which has been the subject of recent legislation and considerable attention in the state courts" of North Carolina. Safety Nat. Cas. Ins. Corp. v. City of Burlington, 2006 WL 399675, at *6 (M.D.N.C. Feb. 17, 2006) (collecting cases); see also Anglin v. Dunbar Armored, Inc., 742 S.E.2d 205 (N.C. App. 2013) (addressing the relationship between N.C. Gen. Stat. § 97-10.2 and S.C. Code Ann. § 38-77-160); Cook v. Lowe's Home Centers, Inc., 704 S.E.2d 567 (N.C. App. 2011) (addressing the relationship between N.C. Gen. Stat. § 97-10.2 and Tennessee law). Comity favors allowing the North Carolina Industrial Commission to determine whether North Carolina workers' compensation law permits a North Carolina employer and its insurance carrier to enforce a North Carolina subrogation lien against UIM settlement proceeds that happened to be received in South Carolina, but are available under the North Carolina employer's UIM policy.
Moreover, the particular factual and procedural history of this case favor having the North Carolina courts/Industrial Commission decide the issues. As indicated above, Plaintiff applied for benefits under the North Carolina Workers' Compensation Act, thereby
Allred v. Exceptional Landscapes, Inc., 743 S.E.2d 48, 51-52 (N.C. App. 2013) (some internal citations omitted) (emphases added); see also Pearson v. C.P. Buckner Steel Erection Co., 498 S.E.2d 818, 820 (N.C. 1998) ("[T]he General Assembly intended the Commission to have continuing jurisdiction of proceedings begun before it.").
Moreover, the North Carolina Workers' Compensation Act contains a mechanism whereby employers such as K & W and insurance carriers such as Liberty Mutual can seek enforcement of their subrogation lien against a claimant's third-party settlement proceeds. See N.C. Gen. Stat. § 97-10.2(f);
In sum, Plaintiff seeks a South Carolina federal court to rule on the appropriateness of a North Carolina workers' compensation potential subrogation lien on settlement proceeds received from a North Carolina employer's UIM policy ($900k) and a smaller personal UIM policy ($12.5k) and consider S.C. Code Ann. § 38-77-160.
"As a general rule, `the first suit should have priority, absent the showing of balance of convenience in favor of the second action.'" Riley, 371 F. App'x at 403 (quoting Ellicott Mach. Corp. v. Modern Welding Co., 502 F.2d 178, 180 n.2 (4th Cir. 1974)). Here, Defendants filed their subrogation claim with the Industrial Commission before Plaintiff filed the instant declaratory judgment action (which was subsequently removed to this Court). The state proceeding is also further along than this federal action, with the Deputy Commissioner having already rendered an opinion and an appeal having been filed with the Full Commission. Any appeal of the Industrial Commission's ultimate decision would be to the North Carolina Court of Appeals, and if necessary, to the North Carolina Supreme Court—not this Court. See N.C. Gen. Stat. § 97-86; see, e.g., Easter-Rozzelle v. City of Charlotte, 807 S.E.2d 122, 123-27 (N.C. 2017) (summarizing the appellate steps of a workers' compensation case).
Also, as detailed below, the same factual and legal issues are at stake in this federal action and the pending state proceeding. Thus, Plaintiff can resolve all issues she wants this federal Court to hear in the North Carolina courts. See, e.g., Poston, 88 F.3d at 258 ("The state litigation . . . could resolve all issues, and . . . [c]oncern for efficiency and judicial economy clearly support the district court's decision [to abstain]."); Riley, 371 F. App'x at 403 ("This court's interference with the pending state court proceeding would therefore produce inefficiencies by needlessly duplicating efforts, generating piecemeal litigation, and expending limited judicial resources."). Finally, as previously mentioned, this case involves application of complex matters of North Carolina workers' compensation law—matters appropriately left to the North Carolina courts that ordinarily handle them.
"Entanglement is all the more likely where, as here, common issues `are already being litigated by the same parties in the related state court action.'" Riley, 371 F. App'x at 403 (quoting Nautilus, 15 F.3d at 379). "In such cases, there is a real risk that the state court's prior resolution of overlapping issues would entitle those issues to preclusive effect . . . ." Id. The parties in this federal case—Plaintiff, Liberty Mutual, and K & W—are all parties in the North Carolina proceeding.
The Court is mindful that "a declaratory judgment action . . . should not be used . . . to interfere with an action which has already been instituted." Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422 (4th Cir. 1998). The Court also has serious concerns about the preclusive effect of the existing decision of the Deputy Commissioner. Issuing a declaratory judgment would require the Court to adjudicate the same issues already decided and being appealed in North Carolina. An intervening declaration by this Court as to the rights and legal relations of the parties could interfere with the Industrial Commission's (and potentially the North Carolina appellate courts') decision regarding the same. Hearing this case would clearly create unnecessary entanglement between the North Carolina courts and this federal Court, and therefore the third Nautilus factor heavily supports abstention.
The final Nautilus factor requires consideration of "whether the declaratory judgment action is being used merely as a device for procedural fencing—that is, to provide another forum in a race for res judicata or to achiev[e] a federal hearing in a case otherwise not removable." Aetna, 139 F.3d 419, 422 (alteration in original) (internal quotation marks omitted). The Fourth Circuit has specified procedural fencing occurs when "a party has raced to federal court in an effort to get certain issues that are already pending before the state courts resolved first in a more favorable forum." Great Am. Ins. Co. v. Gross, 468 F.3d 199, 212 (4th Cir. 2006); see also Nexsen Pruet, LLC v. Westport Ins. Corp., No. 3:10-cv-00895-JFA, 2010 WL 3169378, at *4 (D.S.C. Aug. 5, 2010) (observing "the procedural fencing the Fourth Circuit appears concerned with . . . relate[s] to manipulation of
This declaratory action was not filed in federal court by Plaintiff but instead was removed here by Defendants, and therefore Plaintiff cannot be deemed to have forum-shopped for a federal hearing or to have "raced to federal court" to file her declaratory action.
The first, second, and third Nautilus factors confirm that federalism, efficiency, and comity caution against hearing this case. A declaratory judgment would neither clarify nor settle the legal relations at issue, and would not eliminate or provide relief from the uncertainty, insecurity, and controversy giving rise to this federal proceeding. Accordingly, the Court will abstain from exercising jurisdiction over this declaratory action, and will dismiss it without prejudice to the parties pursuing their claims before the Industrial Commission and the North Carolina appellate courts.
For the foregoing reasons, the Court
Additionally, the Court notes that although the case before the Industrial Commission is in North Carolina and the instant federal action is in the District of South Carolina, the Brillhart/Wilton abstention standard and the Nautilus factors still apply. See, e.g., New Wellington, 416 F.3d 290 (affirming the district court's decision to abstain under Brillhart/Wilton where the federal declaratory action was in the U.S. District Court for the Western District of Virginia and the related state court action was in New Jersey).
In contrast, Plaintiff argues that "regardless of Defendants' contention that the insurance contract having been entered into in North Carolina, the law of South Carolina is that the situs of the insured property prescribes the application of South Carolina law. Moreover, the policy itself provides that it must be construed to conform to South Carolina law. Section 5 of the Endorsement for South Carolina Underinsurance Motorist Coverage provides as follows: [`]This Endorsement is intended to be in
The South Carolina Supreme Court has specified that "South Carolina Code Ann. § 42-1-560
The Court suggests the parties read the following case for further guidance: Staley v. Intermodal Cargo Servs.,
Of course, the Court is aware that the Deputy Commissioner's discussion of S.C. Code § 42-1-560 was simply an alternative ruling and not the primary basis for her decision, as she determined that the North Carolina Workers' Compensation Act governed (not the South Carolina Workers' Compensation Act). See ECF No. 44-1 at p. 11. Nevertheless, the Court points out the erroneous discussion of S.C. Code §§ 38-77-160 and 42-1-560 for the parties' mutual benefit and in the interest of justice.
