Diane Mauriello v. Great Am. E & S Ins. Co.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0086n.06
No. 13-5469 FILED
Jan 30, 2014
UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT
DIANE MAURIELLO, )
)
Plaintiff-Appellant, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE EASTERN
) DISTRICT OF TENNESSEE
GREAT AMERICAN E AND S INSURANCE )
COMPANY, )
)
Defendant-Appellee. )
)
BEFORE: BATCHELDER, Chief Judge, and GRIFFIN, Circuit Judges; and BELL, District Judge.*
GRIFFIN, Circuit Judge.
In general, before the adjudication of liability, Tennessee law does not permit a tort victim
to directly sue an alleged tortfeasor’s insurer. The sole issue in this case is whether there is an
exception to Tennessee’s general prohibition against such so-called “direct actions” where the
putative tortfeasor enters bankruptcy proceedings while the tort victim’s lawsuit against it is
pending, thereby triggering the automatic stay before the tort victim obtains a judgment. We hold
that there is not. Because there remains an adequate remedy notwithstanding the automatic stay to
procure a judgment against an alleged tortfeasor who enters bankruptcy, there is no need for us to
craft out of whole cloth a Tennessee state law exception to its well-established doctrine precluding
*
The Honorable Robert Holmes Bell, United States District Judge for the Western District
of Michigan, sitting by designation.
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direct actions. The magistrate judge1 was correct to enter summary judgment in defendant’s favor.
I.
The germane facts are not disputed. In 2005, Diane Mauriello purchased title to certain real
property from Villages at Norris Lake, LLC (“Villages”), an affiliate of Land Resource Companies,
LLC (“LRC”). After discovering certain inadequacies related to the sale of the property, Mauriello
sued Villages and LRC in federal district court, alleging various theories of fraud. Before the
lawsuit was resolved, however, Villages and LRC filed for bankruptcy protection, triggering an
automatic stay of Mauriello’s pending lawsuit.
Mauriello subsequently filed a motion in the bankruptcy court, requesting relief from the
automatic stay to allow her to pursue her fraud action against Villages and LRC. The trustee
objected to Mauriello’s motion, but the bankruptcy court granted the motion in part and allowed
Mauriello to proceed in her fraud action, but “only if there is available insurance.” The bankruptcy
court further directed that Mauriello “shall not obtain in personam relief against the debtor [Villages
and LRC] but rather shall only obtain in rem relief against the Debtor to the extent of available
insurance.” See In re Land Resource, LLC, 6:08-bk-10159-ABB (Bankr. M.D. Fla. Jan. 26, 2010)
(emphasis added).
1
The parties consented to the exercise of jurisdiction by a magistrate judge, pursuant to 28
U.S.C. § 636(c).
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Mauriello v. Great Am. E & S Ins. Co.
Mauriello subsequently discovered evidence that defendant Great American E & S Insurance
Company (“Great American”) insured Villages and LRC during the pertinent time period with
various professional liability insurance policies but had not defended either entity against
Mauriello’s fraud lawsuit. However, Mauriello voluntarily dismissed her fraud action against
Villages and LRC in March 2011, without having obtained a judgment against either of them.
Several months later, Mauriello filed suit against Great American in Tennessee state court, alleging
that she was “an intended third party beneficiary to the insurance contracts” between Great
American and Villages and LRC. Mauriello demanded a declaration that Great American had a duty
to defend and indemnify Villages and LRC for the claims that Mauriello had asserted against them
in the now-dismissed fraud suit and sought damages from Great American on the underlying claims.
Great American removed Mauriello’s state court action to the federal district court on the
basis of diversity jurisdiction and filed a motion for summary judgment. Ultimately, the presiding
magistrate judge agreed with Great American that, under Tennessee law, Mauriello was not an
intended third-party beneficiary to the insurance contracts. The magistrate judge further noted that,
even if Mauriello was an intended third-party beneficiary and thus could maintain a direct action
against Great American, she could not succeed on the merits of her action as a matter of law. After
all, the pertinent insurance policies required coverage only if the insured was “legally obligated” to
pay damages and Mauriello had not yet obtained any judgment against Villages or LRC. Thereafter,
the magistrate judge entered summary judgment in favor of Great American. Mauriello appeals.
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II.
Mauriello concedes on appeal (1) that, in general, Tennessee law does not permit direct
actions by tort victims against an alleged tortfeasor’s insurer, and (2) that she never obtained a
judgment against either Villages or LRC, which would ordinarily preclude her recovery in any such
direct action, even if she was permitted to bring one. See Ferguson v. Nationwide Prop. & Cas. Ins.
Co., 218 S.W.3d 42, 52–58 (Tenn. Ct. App. 2006). Nevertheless, she asserts that we should
recognize a Tennessee state law exception to both of these defects in her position in order to
accommodate the unique exigencies of the bankruptcy process and the automatic stay. Mauriello
therefore contends that the magistrate judge erred in ruling that her claim against Great American
was barred as a matter of law.
Reviewing the lower court’s summary judgment determination de novo, see Keith v. Cnty.
of Oakland, 703 F.3d 918, 923 (6th Cir. 2013), we disagree with Mauriello’s position that, as a
matter of Tennessee law, an alleged tortfeasor’s pre-judgment bankruptcy filing permits a tort victim
to dispense with the need to procure a judgment against the alleged tortfeasor before pursuing
remedies against the putative tortfeasor’s insurer. Tellingly, Mauriello cites no Tennessee authority
in support of her position.
And although Mauriello asserts that the automatic stay “robbed” her of the chance to procure
a judgment in her federal fraud suit against Villages or LRC, it is clear that the bankruptcy
proceedings did no such thing. Mauriello’s circumstances are not unique, and parties in her situation
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typically request relief from the automatic stay to the extent of available insurance and proceed
against the debtor as a nominal defendant for the purpose of establishing the debtor’s liability. See,
e.g., Sosebee v. Steadfast Ins. Co., 701 F.3d 1012, 1024 (5th Cir. 2012); Matter of Fernstrom
Storage & Van Co., 938 F.2d 731, 735 (7th Cir. 1991); In re Charter Co., 876 F.2d 861, 864 (11th
Cir. 1989); In re Jet Florida Sys., Inc., 883 F.2d 970, 975 (11th Cir. 1989); In re White Motor
Credit, 761 F.2d 270, 273 (6th Cir. 1985); Matter of Holtkamp, 669 F.2d 505, 508 (7th Cir. 1982).
Further, it is “well settled” that a tort victim may sue a debtor as a nominal defendant after the debtor
is discharged from bankruptcy, as long as the suit is purposed solely to establish the debtor’s liability
in order to effect recovery from an insurer. In re Rodgers, 266 B.R. 834, 836 (Bankr. W.D. Tenn.
2001) (citing cases). This approach is grounded in the rationale that “it makes no sense to allow an
insurer to escape coverage for injuries caused by its insured merely because the insured receives a
bankruptcy discharge.” Matter of Edgeworth, 993 F.2d 51, 54 (5th Cir. 1993). See also In re Paul,
534 F.3d 1303, 1307 (10th Cir. 2008); Waterson v. Hall, 515 F.3d 852, 856 (8th Cir. 2008); Matter
of Hendrix, 986 F.2d 195, 197 (7th Cir. 1993); Green v. Welsh, 956 F.2d 30, 33–35 (2d Cir. 1992);
In re Jet Florida Sys., Inc., 883 F.2d at 976.
In other words, Mauriello is incorrect to assert that she was entirely precluded from obtaining
a judgment against Villages and LRC solely by virtue of the fact that they filed for bankruptcy
protection. In fact, the bankruptcy court in this case expressly granted Mauriello’s motion and lifted
the automatic stay to permit her to obtain relief against Villages and LRC “to the extent of available
insurance.” If Mauriello believed that the bankruptcy court’s order improperly denied the full extent
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of the relief she sought by limiting her to in rem relief as opposed to in personam relief, she could
have appealed the denial of her motion. See In re Dixie Broad., Inc., 871 F.2d 1023, 1026 (11th Cir.
1989) (noting that denial of a motion for relief from the automatic stay is a final, appealable order);
see also In re Elliott, 214 B.R. 148, 149 (B.A.P. 6th Cir. 1997) (same). But instead of appealing the
bankruptcy court’s order, Mauriello now attempts to circumvent it collaterally by asking this court
to rewrite Tennessee state law. We decline to do so.
III.
For these reasons, we affirm the judgment of the district court.
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