Auto-Owners Insurance Co. v. Bolt Factory Lofts Owners Association, Inc.

          ORDER ON MOTION TO DISMISS

          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.

         I. BACKGROUND

         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 May 9, 2018, the first day of the bench trial, AOIC petitioned to intervene in the lawsuit and to continue the trial in the hopes of protecting its rights under the Policy. Id. at ¶¶49-50. The district judge held a hearing on the motion that same day, but ultimately held that the Agreement was valid under Nunn v. Mid-Century Ins. Co., 244 P.3d 116 (Colo. 2010).^[1] Id. at ¶¶51, 57. Therefore, the two-day trial commenced without Sierra Glass mounting a defense. Id. at ¶¶59-62. Unsurprisingly, on May 30, 2018 the trial court ruled in favor of the Association, and entered final judgment in the amount of $2, 489, 021.91 (the “Judgment”). Id. at ¶65; see Trial Court Order, ECF No. 1-9. Then, on June 18, 2018 the Association obtained a writ of garnishment against AOIC in the Denver District Court. ECF No. 1 at ¶66; see Writ of Garnishment Order, ECF No. 1-10. AOIC removed that action to this Court on July 9, 2018. See Case Number 18-cv-1738, ECF No. 1.

         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.

         II. STANDARD OF 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 (1975)), intended “to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements, ” id. (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967)). A court assessing the ripeness of a claim must “evaluate both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration.” Utah v. U.S. Dep't of the Interior, 210 F.3d 1193, 1196 (10th Cir. 2000) (quoting Abbott Labs., 387 U.S. at 149). The ripeness doctrine is an important prudential limitation which prevents courts from deciding untimely disputes until the controversy is certain and not contingent on future events. See Gonzales, 64 F.3d at 1499. “In short, ripeness doctrine addresses a timing question: when in time is it appropriate for a court to take up the asserted claim.” Kansas Judicial Review v. Stout, 519 F.3d 1107, 1116 (10th Cir. 2008) (citation, quotation, and alternations omitted). Lastly, the ripeness rules apply with equal force to counterclaims. See Entek GRB, LLC v. Stull Ranches, LLC, No. 11-CV-01557-PAB-KLM, 2012 WL 4478808, at *2 (D. Colo. Sept. 28, 2012).

         III. ...