ALLIED WORLD INSURANCE COMPANY v. SCHIBELL & MENNIE LLC

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

ALLIED WORLD INSURANCE

COMPANY,

Plaintiff,

v.

Case No. 3:19-cv-19426 (BRM) (ZNQ)

SCHIBELL & MENNIE LLC f/k/a

OPINION

SCHIBELL MENNIE & KENTOS LLC,

RICHARD D. SCHIBELL, and MARY

KENTOS as Executrix of ESTATE

OF MARK D. KENTOS,

Defendants.

MARTINOTTI, DISTRICT JUDGE

Before this Court is a Motion to Dismiss filed by Defendants Schibell & Mennie LLC f/k/a

Schibell Mennie & Kentos LLC (the “Firm”), Richard D. Schibell (“Schibell”) (collectively,

“Defendants”) seeking to dismiss Plaintiff Allied World Insurance Company’s (“Plaintiff”)

Amended Complaint for Declaratory Judgment (the “Amended Complaint”) which seeks a judicial

declaration pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202 (the “DJA”) that

Plaintiff has no duty to defend or indemnify coverage to Defendants, in connection with any claim

asserted by third parties against them, including, but not limited to, the underlying lawsuit filed

against Defendants in the Superior Court of New Jersey, Monmouth County, captioned Estate of

Mark D. Kentos v. Richard D. Schibell, Esq., et al., Case No. MON-L-3180-17 (“Kentos

Lawsuit”). Defendants argue the Court should abstain from retaining jurisdiction over this action

because it pertains only to state law disputes between the parties and is presently the subject of a

parallel pending state court litigation. (ECF No. 26.) Plaintiff filed an opposition to the Motion to

Dismiss (ECF No. 32) and Defendants replied. (ECF No. 42.) Having reviewed the submissions

filed in connection with the Motion and having declined to hold oral argument pursuant to Federal

Rule of Civil Procedure 78(b), for the reasons set forth below and for good cause appearing,

Defendants’ Motion to Dismiss is GRANTED.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY1

This matter arises out of a dispute over lawyers professional liability insurance policy

indemnity and defense coverage. Plaintiff is a corporation organized and existing under the laws

of New Hampshire and maintains its principal place of business in New York, New York and

“legally transacts insurance business.”2 (Am. Compl. (ECF No. 4) ¶ 4.) The Firm is a New Jersey

limited liability company with its principal office located in Oakhurst, New Jersey (id. ¶ 5) and is

composed of two members: Schibell and John G. Mennie (“Mennie”) both of whom are citizens

of New Jersey. (Id. ¶¶ 5–6.)3 Mary Kentos, as Executrix of Estate of Mark D. Kentos (the “Kentos

Estate”), represents the interests of the late Mark D. Kentos, a former employee, member and/or

partner of the Firm who, at the time of his death, was a resident and citizen of New Jersey. (Id ¶ 7.)4

1 For the purposes of this Motion to Dismiss, the Court accepts the factual allegations in the

Amended Complaint as true and draws all inferences in the light most favorable to Plaintiff. See

Phillips v. Cty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). The Court also considers any

“document integral to or explicitly relied upon in the complaint.” In re Burlington Coat Factory

Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (quoting Shaw v. Dig. Equip. Corp., 82 F.3d 1194,

1220 (1st Cir. 1996)).

2 The Court understands the insurance policies in question specifically refer to legal malpractice

insurance policies.

3 Mennie was neither a party in the Complaint or the Amended Complaint. (See ECF Nos. 1, 4.)

4 According to the Amended Complaint, the “Kentos Estate is named as a defendant in this action

because the Kentos Estate is the plaintiff in the Kentos Lawsuit and may claim an interest in one

A. Policy Applications

Plaintiff issued four “LPL Assure Lawyers Professional Liability Insurance” policies to the

Firm for policy period: (1) July 3, 2016 to July 3, 2017 (“2016 Policy”); (2) July 3, 2017 to July

3, 2018 (“2017 Policy”); (3) July 3, 2018 to July 3, 2019 (“2018 Policy”); and (4) July 3, 2019 to

July 3, 2020 (“2019 Policy”) (collectively, “the Policies”). (Id. ¶¶ 11–14.) Subject to its terms and

conditions, each of the Policies provides a $2 million per claim and aggregate limit of liability.

(Id. ¶ 15. ) Each of the Policies states:

By acceptance of this Policy, all Insureds affirm or reaffirm as of the

Inception Date of this Policy that:

1. the statements in the Application are true and accurate and are

specifically incorporated herein, and are all Insureds’ agreements,

personal representations and warranties;

2. all such communicated information shall be deemed material to

the Insurer’s issuance of this Policy;

3. this Policy is issued in reliance upon the truth and accuracy of

such representations;

4. this Policy embodies all agreements existing between the Insureds

and the Insurer, or any of its agents, relating to this insurance; and

5. if any representation is false or misleading, this Policy shall be

void from the inception.

(Id. ¶ 16.) Plaintiff issued the 2016 Policy to the Firm in reliance upon the Firm’s answers on the

2016 insurance application dated June 7, 2016 (“2016 Application”). (Id. ¶ 18.) Specifically,

Question 11(a) of the 2016 Application asked: “Has any attorney been the subject of any bar

complaint, investigation or disciplinary proceeding within the past 5 years?” (Id. ¶ 19.) The Firm

answered “No” to Question 11(a). (Id.) Plaintiff issued the 2017 Policy to the Firm in reliance

upon the 2016 Application, as well as the Firm’s submission of a renewal insurance application,

which was signed by Schibell and dated May 9, 2017 (the “2017 Application”). (Id. ¶ 20.) Question

of the Policies to the extent that it is awarded a judgment or settlement in connection with the

Kentos Lawsuit.” (Id.); see infra Section I.A.

l0(a) of the 2017 Application asked: “Have there been any new bar complaints, investigations or

disciplinary proceedings against any attorney?” (Id. ¶ 21.) The Firm answered “No” to Question

10(a). (Id.) Plaintiff issued the 2018 Policy to the Firm in reliance upon the 2016 Application and

the 2017 Application, as well as the Firm’s submission of a renewal insurance application, which

was signed by Schibell and dated May 18, 2018 (the “2018 Application”).5 (Id. ¶ 22.)

B. Misrepresentations in Policy Applications

Plaintiff contends, unbeknownst to Plaintiff, the Firm made material misrepresentations

and omissions during the application process for the Policies. (Id. ¶ 26.)

i. Disciplinary Action against Schibell

On December 9, 2013, the Office of Attorney Ethics of the Supreme Court of New Jersey

(the “OAE”) filed a disciplinary action complaint against Schibell in the Supreme Court of New

Jersey, in the matter of Office of Attorney Ethics v. Richard D. Schibell, Esq., Docket No. XIV-

2012-0450E (the “Disciplinary Action”). (Id. ¶ 27.) The OAE alleged Schibell made false

representations to the OAE about the nature of various remittances in connection with the Firm’s

trust account, commingled funds, made false statements of material fact to disciplinary authorities

as well as engaged in conduct of dishonesty, fraud, deceit, or misrepresentation in violation of the

Rules of Professional Conduct. (Id. ¶¶ 28–30.)6 Thereafter, a disciplinary action review board

(“Disciplinary Review Board”) issued a decision in the Disciplinary Action dated March 20, 2017

(the “Decision”), and concluded that Schibell engaged in a “protracted scheme and subsequent

5 The 2016 Application, 2017 Application, and 2018 Application are collectively referred to herein

as the “Applications.”

6 The Court understands the “Rules of Professional Conduct” to refer to the New Jersey Rules of

Professional Conduct.

cover up, [and] that he knowingly made false statements to the OAE.” (Id. ¶ 41.) The Disciplinary

Review Board determined it was appropriate to impose a censure on Schibell. (Id. ¶ 42.)

ii. Kentos Lawsuit

On August 6, 2019, the Firm provided Plaintiff with notice of the Amended Complaint

filed in the Kentos Lawsuit, which is currently pending against the Firm and Schibell, and sought

defense and indemnity coverage from Plaintiff in connection with same. (Id. ¶ 43.) As alleged in

the Kentos Lawsuit brought by the Kentos Estate, Kentos applied for and was issued a life

insurance policy by Northwestern Mutual, Policy No. 18464894, with a death benefit in the amount

of $1,500,000.00 (the “Life Insurance Policy”). (See ECF No. 4-12 ¶ 14.) In the application for the

Life Insurance Policy, Schibell on behalf of the Firm, declared that certain information regarding

the Life Insurance Policy was true, including “$500,000 of the life insurance benefits was to be

used to fund a business buy/sell agreement with Kentos,” and “Kentos owned a 1% ownership

interest in Schibell, Mennie & Kentos, LLC which business had a value of $8,000,000.” (Id. ¶ 15.)

Schibell signed the application on behalf of the Firm which provided directly below the signature

line the following language: “Any person who includes any false or misleading information on

any application for an insurance policy is subject to criminal and civil penalties.” (Id. ¶ 16.) Kentos

alleged, “[a]ll or a portion of the Life Insurance Policy was intended for the benefit of Kentos and

his children.” (Id. ¶ 17.) Relatedly, stemming from divorce proceedings between Kentos and Erin

Kelly in the matter of Mark Kentos v. Erin Kentos¸ Docket No. FM-13-921-15A, a judgement of

divorce was prepared by the Firm which expressly recognized the Life Insurance Policy was for

the benefit of Kentos and his children and not for the benefit of the Firm. (Id. ¶ 22–24.)7 Following

7 In a premarital agreement dated October 22, 2012 between Kentos and Erin Kelly, Kentos listed

the Policy as his personal asset, along with another life insurance policy issued to him by

Northwestern Mutual with a similar death benefit of $1.5million. (Id. ¶ 19.)

Kentos’ death, the Life Insurance Policy proceeds were deposited into the Firm’s special escrow

account on December 22, 2016. (Id. ¶ 36.) The entire $1,500,000.00 in Life Insurance Policy

proceeds were paid directly to Schibell after Kentos’ death, at his personal residence, and no

portion of the Life Insurance Policy proceeds were paid for the benefit of Kentos’ children, as

intended. (See id. ¶¶ 38–42.)

After receiving notice of the Kentos Lawsuit, Plaintiff also independently learned of the

Disciplinary Action and obtained a copy of the Decision against Schibell. (ECF No. 4 ¶ 44.) By

way of letter to the Firm dated August 23, 2019 (the “Letter”), Plaintiff reserved its rights under

the 2018 Policy in connection with the Kentos Lawsuit (id. ¶ 45) and asked for copies of all

communications, submissions and filings made by or on behalf of Schibell and/or by or on behalf

of the Firm in connection with the Disciplinary Action, as well as copies of any communications,

submissions, filings and orders made or entered by the OAE and/or the Disciplinary Review Board

in the Disciplinary Action. (Id. ¶ 46.) In the Letter, Plaintiff also asked whether the Firm had any

record of having disclosed the Disciplinary Action to Plaintiff in connection with its underwriting

of any of the Policies. (Id. ¶ 47.) Pending receipt of the requested materials, Plaintiff agreed to

provide Defendants with a defense in the Kentos Lawsuit, subject to a full and complete reservation

of its rights. (Id. ¶ 48.) Plaintiff expressly reserved its right to withdraw from the defense and right

to recoup any and all claim expenses. (Id.) The Firm provided Plaintiff with a copy of the Decision

and confirmed it did not disclose the Disciplinary Action to Plaintiff. (Id. ¶ 49.) Despite numerous

requests, the Firm did not provide Plaintiff with a copy of the Disciplinary Action Complaint until

October 15, 2019. (Id. ¶ 50.)8 By letter to the Firm dated October 28, 2019, Plaintiff communicated

8 On October 10, 2019, Plaintiff independently obtained from the OAE a copy of the Disciplinary

Action Complaint. (Id. ¶ 51.)

its conclusion that it is entitled to rescind the Policies based on material misrepresentations made

in the Applications and that there would be no coverage for the Kentos Lawsuit. (Id. ¶ 52.) Plaintiff

subsequently clarified that its rescission of the Policies applied to the Firm, Schibell, and any other

insured who does not qualify as an “innocent insured.” (Id.)

On January 22, 2020, Plaintiff filed the one-count Amended Complaint9 against

Defendants seeking a judicial declaration by this Court that the Policies are rescinded and void ab

initio as to Defendants and any other insured who does not qualify as an “innocent insured,” and

Plaintiff, therefore, has no coverage obligations under the Policies for any claims asserted by third

parties against Defendants under the Policies, including but not limited to the Kentos Lawsuit. On

April 14, 2020, Defendants filed a Motion to Dismiss on the basis that the Court should abstain

from exercising jurisdiction over this declaratory judgment action because, among other reasons,

it only pertains to state law disputes which is the current subject of a parallel pending lawsuit filed

in the Superior Court of New Jersey, Monmouth County, Law Division, Docket No. MON-L-

1221-20 (“State Court Action”). (ECF No. 26-1 at 14–16.) On May 18, 2020, Plaintiff opposed

the Motion (ECF No. 32) and on June 4, 2020 Defendants replied. (ECF No. 42.)

II. LEGAL STANDARD

In general, the party “asserting jurisdiction[ ] bear[s] the burden of proving that jurisdiction

exists.” Castro v. United States Dep’t of Homeland Sec., 835 F.3d 422, 429 (3d Cir. 2016) (citation

marks omitted) (quoting Nuveen Mun. Trust ex rel. Nuveen High Yield Mun. Bond Fund v.

WithumSmith Brown, P.C., 692 F.3d 283, 293 (3d Cir. 2012)). However, a motion requesting that

9 Plaintiff first filed its declaratory judgment complaint in this Court on October 28, 2019 and

subsequently filed the Amended Complaint on January 22, 2020. (See ECF Nos. 1, 4.)

a district court decline to exercise jurisdiction over a DJA claim does not implicate a defect in

federal subject matter jurisdiction. Reifer v. Westport Ins. Corp., 751 F.3d 129, 133 (3d Cir. 2014).

Rather, the decision to exercise jurisdiction over DJA claims is committed to the “substantial

discretion” of the district court, as informed by a list of factors enumerated by the Third Circuit.

Id. at 137–48.10

III. DECISION

The DJA provides that a court “may declare the rights and other legal relations of any

interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). “The Supreme

Court has long held that this confers discretionary, rather than compulsory, jurisdiction upon

federal courts.” Reifer v. Westport Ins. Corp., 751 F.3d 129, 134 (3d Cir. 2014) (quoting Brillhart

v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942)). This is in stark contrast to the general rule

“federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by

Congress.” Reifer, 751 F.3d at 134 (quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716

(1996)). Nonetheless, although the DJA confers on district courts a “unique and substantial

discretion,” the exercise of that discretion must be “sound and reasoned.” Reifer, 751 F.3d at 139;

Grand Cru, LLC v. Liberty Mut. Ins. Co., Civ. A. No. 20-6878, 2020 WL 6938359, at *6 (D.N.J.

Nov. 25, 2020).

The DJA is commonly invoked by insurance companies “to seek a declaratory judgment

on a purely state law matter” in federal court based on diversity subject matter jurisdiction. Id. at

10 Based on the pleadings, the Court is satisfied the requirements of § 1332 have been met with

complete diversity among the parties and an amount in controversy exceeding $75,000. See

Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942); Muhlbaier v. Specialized Loan

Servicing LLC, Civ. A. No. 18-00125, 2018 WL 3238832, at *2 (D.N.J. July 3, 2018).

141. In response to such cases, the Third Circuit has previously observed that “[t]he desire of

insurance companies and their insureds to receive declarations in federal court on matters of purely

state law has no special call on the federal forum.” State Auto Ins. Cos. v. Summy, 234 F.3d 131,

136 (3d Cir. 2000). Consequently, it became common practice for district courts “to decline to

exercise jurisdiction over declaratory judgment actions, involving an insurance company, that are

solely brought on diversity, and have no federal question or interest.” Reifer, 751 F.3d at 142. This

principle is especially relevant because the interest of a state “in resolving its own law must not be

given short shrift simply because one party or, indeed, both parties, perceive some advantage in

the federal forum.” Summy, 234 F.3d at 136. Where state law is uncertain or undetermined, the

proper relationship between federal and state courts counsels district courts to “step back” and be

“particularly reluctant” to exercise DJA jurisdiction. Id. at 136. The fact that district courts are

limited to predicting—rather than establishing—state law requires “serious consideration” and is

“especially important in insurance coverage cases.” Id. at 135; Mattdogg, Inc. v. Philadelphia

Indem. Ins. Co., Civ. A. No. 206889, 2020 WL 6111038, at *4 (D.N.J. Oct. 16, 2020).

In Reifer, however, the Third Circuit cautioned against “declining jurisdiction per se” in

such cases, because a “wholesale, ‘revolving door’ dismissal of such cases” would evidence

neither sound nor reasoned discretion. Id. at 147 (citing Wilton v. Seven Falls Co., 515 U.S. 277,

286 (1995) and Bituminous Coal Operators’ Assoc., Inc. v. Int’l Union, United Mine Workers of

Am., 585 F.2d 586, 596 (3d Cir. 1978)) (citations omitted). The Third Circuit instructed district

courts to consider a non-exhaustive list of factors when determining whether to exercise

jurisdiction over such declaratory judgment actions, including:

(1) the likelihood that a federal court declaration will resolve the

uncertainty of obligation which gave rise to the controversy;

(2) the convenience of the parties;

(3) the public interest in settlement of the uncertainty of obligation;

(4) the availability and relative convenience of other remedies;

(5) a general policy of restraint when the same issues are pending in

a state court;

(6) avoidance of duplicative litigation;

(7) prevention of the use of the declaratory action as a method of

procedural fencing or as a means to provide another forum in a race

for res judicata; and

(8) (in the insurance context), an inherent conflict of interest

between an insurer's duty to defend in a state court and its attempt

to characterize that suit in federal court as falling within the scope

of a policy exclusion.

Reifer, 751 F.3d at 146.11 Importantly, “[t]he existence of pending parallel state proceedings

militates significantly in favor of declining jurisdiction, although it alone does not require doing

so.” Id. at 144–45. As such, when a parallel proceeding exists, a district court should decline to

exercise jurisdiction unless the district court has “rigorous[ly] ensur[ed] [itself] that the existence

of pending parallel state proceedings is outweighed by opposing factors.” Id. at 145.

A. Existence of a Parallel State Proceeding

The Third Circuit defines a parallel proceeding as “another proceeding [] pending in a state

court in which all the matters in controversy between the parties could be fully adjudicated.” Id. at

137 n.9 (quoting Brillhart, 316 U.S. at 495). The parties in the two actions need not be completely

identical in order to be parallel, but rather a “substantial identity of parties and claims” must exist.

IFC Interconsult, AG v. Safeguard Int’l Partners, LLC, 438 F.3d 298, 306 (3d Cir. 2006). In the

11 The Third Circuit has instructed district courts to give “meaningful consideration” to any

relevant factors, and that some factors may be weighed heavier than others based on the

circumstances of each case. Reifer, 751 F.3d at 146. The Third Circuit has also advised that “there

will be situations in which district courts must consult and address other relevant law or

considerations.” Id. Importantly, in the insurance coverage context, the fifth, sixth, and eighth

factors are “particularly relevant,” to the extent applicable, based on the facts of a particular case.

See Ewart v. State Farm Mutual Auto. Ins. Co., 257 F. Supp. 3d 722, 725 (E.D. Pa. 2017) (citing

State Auto Insurance Cos. v. Summy, 234 F.3d 131, 134 (3d Cir. 2000)).

context of insurance coverage actions, even when the coverage issue is not presently before the

state court, a state action will still be deemed parallel if the coverage issue “will as a matter of

logic necessarily arise before the matter is concluded in state court.” Atl. Mut. Ins. Co. v. Gula, 84

F. App’x 173, 175 (3d Cir. 2003).

Here, Defendants contend the State Court Action filed on April 9, 2020 by Defendants,

along with seven other “innocent insureds” against multiple parties including Plaintiff, and its

affiliate company, seeks damages arising out of Plaintiff’s improper rescission of the Policies and

its refusal to provide coverage in the Kentos Lawsuit. (ECF No. 26-1 at 13–14.) The claims pled

in the State Court Action include breach of contract, consumer fraud, and professional negligence.

(Id.) The relief sought on these claims includes a declaration that Plaintiff cannot rescind the

Policies, that Plaintiff must defend and indemnify Defendants in the Kentos Lawsuit, as well as

monetary damages. (Id.) Defendants therefore argue the State Court Action is parallel to the

present action “in that it encompasses the very same parties and relief sought by Plaintiff in this

matter – a declaration of the parties’ rights regarding the policies and coverage in the Kentos

claim.” (Id. at 14.) Plaintiff contends the State Court Action is “like this lawsuit” because it

concerns Plaintiff’s “decision to rescind the Policies based on material misstatements made in the

applications, and to deny coverage for the Kentos Lawsuit.” (ECF No. 32 at 11). The thrust of

Plaintiff’s argument against abstention, however, is the State Court Action is “strategic

gamesmanship,” and “an eleventh-hour attempt to forum shop,” and the Court should not reward

Defendants by granting abstention. (ECF 32 at 2–3.)

The Court finds the State Court Action clearly falls within the Third Circuit’s definition of

a parallel action. All the issues to be decided in this case are squarely before the state court through

Defendants’ complaint in the State Court Action. It is indisputable that the Superior Court of New

Jersey can fully adjudicate all the matters in controversy between the parties here through

resolution of that complaint. Just as the State Court Action can resolve Plaintiff’s pleas for

declaratory judgment regarding those of their insurance policies implicated by the Kentos Lawsuit,

so too can the State Court Action fully adjudicate Plaintiff’s claims regarding its duties under the

Policies vis-à-vis the State Court Action. Moreover, Defendants’ claims in the State Court Action

share a significant nexus of fact and law to those here, as they all involve Plaintiff’s obligations to

defend or indemnify Defendants in the Kentos Lawsuit. For these reasons, the Court finds the State

Court Action is a parallel proceeding to the present action. This finding creates a presumption

against exercising jurisdiction over the present action.

B. Other Reifer Factors

Having concluded there is a pending parallel state court proceeding, the Court must next

determine if the relevant Reifer factors outweigh the presumption the Court should decline

jurisdiction. BCB Bancorp. v. Progressive Cas. Ins. Co., Civ. A. No. 13-1261, 2014 WL 2434193,

at *6 (D.N.J. May 28, 2014).The Court finds they do not.

The first factor is whether a federal court declaration will resolve the uncertainty of the

obligation which gives rise to the controversy. While a federal court declaration could resolve

uncertainty about the parties’ rights and obligations under the Policies, a state court declaration

could do so as well. The claims here—including the request for declaratory judgment—are made

under state law, and a state forum can resolve the issues the same as a federal court. In that regard,

none of the parties assert that this action involves unsettled areas of state law. To the extent

Defendants argue the State Court Action is “more comprehensive” and “goes beyond the issues

raised,” warranting abstention (ECF No. 26-1 at 2, 25), the Court is not persuaded. The obligations

at issue here are Plaintiff's obligations to Defendants, not Plaintiff’s potential contribution

obligations to the other parties in the State Court Action. Uncertainties regarding such extraneous

obligations are inapposite to the decision to exercise jurisdiction over this case. Therefore, this

first Reifer factor is a neutral one.

The second factor is the convenience of the parties. The parties do not dispute that both the

federal and state forums are equally accessible to all parties and that neither action has proceeded

significantly past initial filings. The Court agrees. This is particularly true in light of the fact that

the state court and federal court share the same geographic region, thereby precluding any

argument there is a great geographical convenience served by keeping one case in federal court.

Sumner v. Tompkins Ins. Agencies, Inc., Civ. A. No. 16-2218, 2016 WL 3345453, at *5 (E.D. Pa.

June 15, 2016). Balancing these interests against each other, the Court finds the second Reifer

factor to be neutral.

The third factor considers the public interest in settlement of the uncertainty of obligation.

Defendants argue there is a “public interest in resolving this issue strongly favors deferring to the

state court,” because

there is no sensible argument that the federal court should be favored

in determining exclusively state court issues [as t]here is no doubt

that the availability of insurance coverage for New Jersey lawyers

and citizens is a paramount state interest of New Jersey. This case is

all about New Jersey.

(ECF No. 26-1 at 25.) Plaintiff argues “this matter does not implicate any public interest in the

settlement of the uncertainty of obligation,” and where no strong policy interest is implicated,

courts should exercise their discretion to maintain jurisdiction. (ECF No. 32 at 19.) The Court finds

the third factor to also be neutral because there is not any public interest at stake other than the

usual interests in fair adjudication, which this Court is well-equipped to address. Reifer, 751 F.3d

at 147 (providing that “federal and state courts are equally capable of applying settled state law to

a difficult set of facts”) (quoting Heritage Farms Inc. v. Solebury Twp., 671 F.2d 743, 747 (3d Cir.

1982)); see also Evanston Ins. Co. v. Neuromonitoring Techs., Inc., Civ. A. No. 18-11497, 2019

WL 1916203, at *4 (D.N.J. Apr. 30, 2019).

The fourth factor is the availability and relative convenience of other remedies. Defendants

argue the single remedy sought by Plaintiff—a declaratory judgment affirming Plaintiff’s

rescission of the Policies—is available in the State Court Action. (ECF No. 26-1 at 25.) Plaintiff

contends this Court “is practiced in applying state law to recission matters property before it,” and

should grant effective relief here. (ECF No. 32 at 20.) The fourth factor weighs against exercising

jurisdiction because the New Jersey Declaratory Judgment Act, N.J. Stat. Ann. §§ 2A:16-52–54,

allows for substantially similar relief to that provided by the DJA. See NL Indus., Inc. v. N.J. Dept.

of Envtl Prot., 936 A.2d 469, 472 (N.J. Super. Ct. App. Div. 2007) (providing that the DJA

empowers courts to “declare rights, status and other legal relations to afford litigants relief from

uncertainty and insecurity. Its purpose is to end uncertainty concerning the legal rights and

relations of parties before they have suffered ineradicable damage or injury for which only a

compensatory or coercive remedy can provide redress.”) (citations and quotations omitted).

Because the Court has determined that the State Court Action is a parallel proceeding, the

fifth and sixth factors, a general policy of restraint when the same issues are pending in a state

court and avoidance of duplicative litigation, both weigh against exercising jurisdiction.

The seventh factor seeks to prevent use of the declaratory action as a method of procedural

fencing or as a means to provide another forum in a race for res judicata. Both parties accuse the

other of forum shopping. Plaintiff argues:

It is the Schibell Defendants’ State Action - filed nearly six months

after Allied World had instituted this lawsuit and after the Schibell

Defendants had prevailed on Allied World and this Court to grant

multiple extensions of time, which were used to draft litigation to

file elsewhere - that evidences procedural maneuvering.

(ECF No. 32 at 22.) Defendants argue: “Plaintiff has filed an action in federal court that involves

a question of pure state law. In so doing, Plaintiff has dragged the federal court into a question of

New Jersey law solely because of some perceived advantage. Such obvious forum shopping should

not be approved by the Court.” (ECF No. 26-1 at 28.) The Court finds the seventh Reifer factor to

be neutral. In the Court’s view, “both sides have used the declaratory judgment device as a method

of procedural fencing.” Steadfast Ins. Co. v. Envtl. Barrier Co., LLC., Civ. A. No. 2:15-1442, 2016

WL 878122, at *6 (W.D. Pa. Mar. 8, 2016).12

Finally, as to the eighth factor, there is an inherent conflict of interest between Plaintiff’s

duty to defend Defendants in state court and its attempt to characterize that suit in federal court as

not falling within the scope of the Policies. Accordingly, this factor militates in favor declining

jurisdiction over this case. See Frederick Mut. Ins. Co. v. Target Corp., 301 F. Supp. 3d 515, 522

(E.D. Pa. 2018).

In sum, the Court concludes, after weighing all these factors, that it declines to exercise

jurisdiction. Contrary to Plaintiff’s contentions, it does not matter whether the parallel action is

pending in state or federal court; nor whether it was filed first or second. The existence of a

12 The Third Circuit addressed similar facts in Summy and concluded that it was “irrelevant that

[a] state declaratory judgment petition was filed after its counterpart in the District Court.” 234

F.3d at 136; Esurance Insurance Company v. Bowser, 710 F. App’x 110, 111–12 (3d Cir. 2018)

(noting that a “subsequently filed state court declaratory judgment action” designed to create a

parallel state proceeding is not improper). To the contrary, the Third Circuit has expressed greater

concern that “the state’s interest in resolving its own law must not be given short shrift simply

because one party or indeed, both parties, perceive some advantage in the federal forum.” Summy,

234 F.3d at 136.

pending, and more comprehensive lawsuit in New Jersey state court and the need to avoid

duplicative litigation makes it prudent to decline to exercise jurisdiction over this case.

IV. CONCLUSION

For the reasons discussed above, this Court abstains from exercising jurisdiction under the

DJA in this insurance coverage dispute, in favor of the parties proceeding in the ongoing and more

comprehensive state court litigation. Accordingly, Defendants’ Motion to Dismiss is GRANTED

and the case is CLOSED. An appropriate order follows.

Dated: December 29, 2020

/s/ Brian R. Martinotti

BRIAN R. MARTINOTTI

UNITED STATES DISTRICT JUDGE