Alaska Employment Law

Judge Burgess dismisses Allstate’s dec action for lack of subject-matter jurisdiction

Allstate’s aggressive use of a declaratory judgment action to litigate its potential bad faith was rejected by Judge Timothy Burgess in Allstate v. Fielder, et al., Case No. 3:04-cv-00246-TMB. 

Allstate brought that action claiming that Robert Libbey (an Anchorage plaintiff’s attorney), the personal representative of the Estate of Julie Menerey, was going to confess judgment and assign claims against Allstate.  Allstate sought declaratory relief claiming that the confession and assignment would “deprive Allstate of the right to defend the [E]state and would eliminate the opportunity for a jury to determine the liability and damage issues in the context of the tort complaint.”   

The court dismissed Allstate’s complaint finding that because Allstate could not show that the Estate had ever “made such an accusation or brought such a claim” (for bad faith), Allstate failed to establish that a “substantial controversy” existed to warrant the issuance of a declaratory judgment. 

The court’s decision is important for three reasons.  First, it addressed Allstate’s hyper-active use of the declaratory judgment procedure to pull potential claims of bad faith into Federal court.  In this instance, the court rejected Allstate’s mere suspicion that a bad faith action might be brought.  It wasn’t enough to support the DEC action. 

Second, this decision is worth reading because of Judge Burgess’ decision to set aside an earlier decision in the same matter made by Judge Sedwick.  In 2005, Judge Sedwick had ruled that there was subject matter jurisdiction over Allstate’s declaratory judgment action.  In 2006, the case was reassigned for administrative purposes to Judge Burgess. 

The Estate then filed a motion to dismiss, renewing its claim that the court lacked subject-matter jurisdiction because the declaratory judgment action was never ripe for review.  Allstate opposed the motion claiming that the “Law-of-the-Case Doctrine” and the “twin policies of comity and orderly administration” barred the challenge to jurisdiction, pointing to the earlier ruling by Judge Sedwick.  Judge Burgess handily found that those doctrines were neither an “inexorable command” nor a “limit [on] the court’s power.”  Given  FRCP 12(h)(3)’s command that courts must dismiss an action where subject matter is lacking, he had no difficulty in reviewing the issue of subject matter jurisdiction and ultimately concluding that the lack of a “substantial controversy” supported dismissal of Allstate’s declaratory judgment action.

Third, Judge Burgess’ decision addressed Allstate’s hyper-active use of the declaratory judgment proceeding – filing a lawsuit in federal court on the mere suspicion or worry that its conduct might give rise to a claim of bad faith.   A search in the ECF system under Allstate’s counsel’s name produces 13 declaratory judgment actions that he alone has filed on behalf of Allstate over insurance issues between 2001-2006.    The willingness of the federal court to accept these insurance DEC actions to litigate actual or possible claims of insurance bad faith must have appeared as a “green light” for Allstate, the nation’s second largest insurance company with profits of $5B in 2006. 

Judge Burgess’ dismissal of this action as well as his recent dismissal in Allstate v. Scheidecker, Case No. 1:06-cv-00012-TMB, another DEC action regarding insurance, reflect that there may be more control exerted by the judiciary over DEC traffic at the federal court in Anchorage.  While nothing stops Allstate from continuing to use the federal courts to aggressively challenge actual or potential bad faith claims, it is hoped that the “green light” Allstate so clearly saw shining in the federal court house in Anchorage has now turned amber.

Allstate Indemnity Co. v. Fielder, Case No. 3:06-cv-00246 (Order of Oct. 15, 2007).

Alfred Clayton, Jr., of Bliss, Wilkins & Clayton represented Allstate.   Dennis Mestas represented Sally Fielder.  Eric Sanders of Feldman, Orlansky & Feldman represented Robert Libbey and the Estate of Julie Menery. 

Allstate v. Fielder, Pt. I; Allstate v. Fielder, Pt. II