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The Humane Society of United States v. National Union Fire Insurance Company of Pittsburgh, P.A.

United States District Court, D. Maryland, Southern Division

October 6, 2017



          Paul W. Grimm, United States District Judge.

         In Humane Society v. National Union Fire Insurance Co., No. DKC-13-1822 (D. Md.) (“Humane Society I”), the Humane Society of the United States (“Humane Society” or “HSUS”) and two of its attorneys sued their insurer, National Union Fire Insurance Company of Pittsburgh, P.A. (“National Union”), for coverage under a claims-made insurance policy. They sought to recover defense costs relating to a lawsuit filed against them in the United States District Court for the District of Columbia. Although the lawsuit was filed during 2007, the policy under which they sought coverage required that claims first be made against them during 2009-2010 (“2009-2010 Policy”). Judge Chasanow granted partial summary judgment to National Union with respect to Humane Society's 2009-2010 Policy coverage claims, but denied National Union's other requests for summary judgment as to the individual plaintiffs. Before Humane Society I concluded, Humane Society filed this suit, seeking to recover the same damages it sought in Humane Society I, pursuant to two different insurance policies. Compl., ECF No. 1.[1] National Union moved to dismiss or to stay pending resolution of Humane Society I, ECF No. 9, and then the parties jointly moved to stay this litigation on the same basis, ECF No. 15. I granted the joint motion, staying this case while Humane Society I concluded, and reopened this case upon entry of final judgment in Humane Society I. ECF No. 16. Now, because res judicata bars this action, I will grant National Union's motion and dismiss this case.


         In 2007, Feld Entertainment, Inc. (“Feld”) filed suit in the United States District Court for the District of Columbia against the Fund for Animals, an affiliate of Humane Society. Feld amended its complaint in 2010 to name Humane Society and two of its in-house counsel as additional defendants. July 30, 2015 Mem. Op. 1-3, ECF No. 84 in Humane Society I. Humane Society sought to recover its litigation costs by providing notice on March 1, 2010 under insurance policies (the 2009-2010 Policy and the “Employed Lawyer Policy”) that it held through National Union.[3] See Id. at 3-4; Compl. ¶ 24. The 2009-2010 Policy provided coverage for “claim[s] first made against the Organization [which was defined to include Humane Society as the policy holder, as well as its affiliates] during the Policy Period, ” that is, from June 1, 2009 to June 1, 2010. July 30, 2015 Mem. Op. 17, 21 in Humane Society I.

         When National Union refused to pay under the 2009-2010 Policy (having not yet determined whether it would provide coverage on the other claim), Humane Society (as well as two individual plaintiffs, Humane Society's in-house counsel) filed suit based on that denial. Compl., ECF No. 2 in Humane Society I. Litigation began in the Circuit Court for Montgomery County on June 21, 2013, where Humane Society alleged breach of contract and sought a declaratory judgment. Id. National Union removed the case to this Court, where it was assigned to Judge Chasanow. ECF No. 1 in Humane Society I. Judge Chasanow issued a scheduling order that set the deadline for seeking leave to amend the pleadings as August 15, 2013, ECF No. 11 in Humane Society I; Humane Society never requested an extension of that deadline.

         National Union denied coverage under the Employed Lawyers Policy on April 13, 2015, Compl. ¶ 26, but Humane Society did not seek leave at that time to amend its complaint in Humane Society I to add a claim under that policy. On summary judgment after the close of discovery in Humane Society I, Judge Chasanow concluded that “no coverage is available for HSUS under the 2009-2010 Policy” because Feld filed suit against Humane Society's affiliate “in 2007, outside the 2009-2010 coverage period.” July 30, 2015 Mem. Op. 22, 25 in Humane Society I. The Court entered judgment in National Union's favor on Humane Society's claims on July 30, 2015; the individual plaintiffs' claims remained pending. July 30, 2015 Order, ECF No. 85 in Humane Society I; see also July 11, 2016 Mem. Op., ECF No. 98 in Humane Society I (summarizing procedural history); Jt. Ex. 4, ECF No. 10-2 (timeline).

         Thereafter, on August 24, 2015, Humane Society “made a claim . . . for National Union to provide coverage under the 2007-2008 D&O Policy” (“2007-2008 Policy”)[4] and on September 8, 2015, it sought leave to amend its complaint in Humane Society I, inter alia, to add breach of contract and declaratory judgment claims under that policy and the Employed Lawyers Policy, alleging that National Union had rejected its claim under the Employed Lawyers Policy on April 13, 2015 and was “anticipated to breach its coverage under the 2007-2008 . . . Policy.” ECF Nos. 87, 90, 90-2 in Humane Society I. National Union did indeed deny the claim on October 28, 2015. The Court denied the motion to amend on July 11, 2016, because Humane Society failed to establish good cause for the untimely amendment or show due diligence in pursuing these claims, and the proposed amendment, almost a year after discovery closed and about two months after the summary judgment ruling, would prejudice National Union. ECF Nos. 98, 99 in Humane Society I.[5]

         One month before Judge Chasanow denied leave to amend and while the individual plaintiffs' claims (which they assigned to Humane Society) remained pending, Humane Society filed this suit on June 10, 2016, [6] bringing claims under the 2007-2008 Policy and the Employed Lawyers Policy that are identical to the claims they sought to bring in Humane Society I. National Union moved to dismiss or stay the claims in this case based on res judicata and principles of comity. ECF No. 9. The parties fully briefed the motion, ECF Nos. 9-1, 10, 11, and then filed a consent motion to stay the case pending resolution of Humane Society I, ECF No. 15. I granted the consent motion, administratively closed the case, and struck the motion, without prejudice to reinstatement when the case reopened. ECF No. 16.

         In Humane Society I, the parties stipulated to the dismissal of the individual plaintiffs with prejudice, which the Court approved. ECF No. 110, 111. On August 2, 2017, the parties stipulated to the dismissal of the remaining claim and entry of judgment in National Union's favor. ECF No. 156. The Court approved the stipulation, ECF No. 157, and entered an order dismissing any remaining claims and closing the case, ECF No. 158.

         The parties filed a status report, informing me of the dismissal and agreeing that it resolved Humane Society's claims in this case under the Employed Lawyers Policy, such that only the claims under the 2007-2008 Policy remain. Jt. Status Rep. 1-2, ECF No. 18. I reopened this case and reinstated National Union's motion to dismiss or stay. In light of the resolution of Humane Society I, insofar as National Union sought to stay the case or to dismiss the claims under the Employed Lawyers Policy, the motion is moot. With regard to dismissal of the claims under the 2007-2008 Policy, the motion is ripe for resolution, and a hearing is not necessary. See Loc. R. 105.6. Because res judicata bars the remaining claims, I will grant the motion and dismiss the claims.


         National Union moves to dismiss pursuant to Rule 12(b)(6), under which Humane Society's pleadings are subject to dismissal if they “fail[ ] to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), and must state “a plausible claim for relief, ” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). “A claim has facial plausibility when the [claimant] pleads factual content that allows the court to draw the reasonable inference that the [opposing party] is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Rule 12(b)(6)'s purpose “is to test the sufficiency of a [claim] and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Velencia v. Drezhlo, No. RDB-12-237, 2012 WL 6562764, at *4 (D. Md. Dec. 13, 2012) (quoting Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006)). If an affirmative defense “clearly appears on the face of the [pleading], ” however, the Court may rule on that defense when considering a motion to dismiss. Kalos v. Centennial Sur. Assocs., No. CCB-12-1532, 2012 WL 6210117, at *2 (D. Md. Dec. 12, 2012) (quoting Andrews v. Daw, 201 F.3d 521, 524 n.1 (4th Cir. 2000) (citation and quotation marks omitted)). One such affirmative defense is res judicata, or claim preclusion.


         Preliminarily, I must determine whether to apply state or federal law to decide what preclusive effects the rulings in Humane Society I have. Humane Society insists that “federal res judicata law . . . applies here, ” Pl.'s Opp'n 14, whereas National Union argues that “substantive Maryland law [is] controlling here, ” Def.'s Reply 1; see also Id. at 2-3. It is true that when a party raises the defense of res judicata in federal court with regard to a prior judgment issued by a federal court, federal common law governs the preclusive effect of the prior federal court judgment. Taylor v. Sturgell, 553 U.S. 880, 891 (2008). But, when the federal court that issued the prior judgment did so while exercising diversity jurisdiction, federal common law adopts the preclusion rule of the state in which that court was located. Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001); see also Taylor, 553 U.S. at 891 n.4 (“For judgments in diversity cases, federal law incorporates the rules of preclusion applied by the State in which the rendering court sits.” (citing Semtek). Thus, where, as here, a federal court in Maryland exercises diversity jurisdiction to hear a case and issue a judgment, Maryland claim preclusion law applies. See Taylor, 553 U.S. at 891 n.4; Semtek, 531 U.S. at 508.

         Under Maryland law, res judicata provides grounds for dismissal if a defendant establishes that “(1) the present parties are the same or in privity with the parties to the earlier dispute, (2) the claim presented is identical to the one determined in the prior adjudication, and (3) there has been a final judgment on the merits.” Capel v. Countrywide Home Loans, Inc., No. WDQ-09-2374, 2010 WL 457534, at *3 (D. Md. Feb. 3, 2010) (citing Anne Arundel County Bd. of Educ. v. Norville, 887 A.2d 1029, 1037 (Md. 2005)). Maryland law employs the “transaction test” to determine whether the claims are identical. See Kent Cty. Bd. of Educ. v. Bilbrough, 525 A.2d 232, 238 (Md. 1987). “Under the transaction test, a ‘claim' includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the claim arose.” Boyd v. Bowen, 806 A.2d 314, 325 (Md. Ct. Spec. App. 2002) (citing FWB Bank v. Rickman, 731 A.2d 916, 928 (Md. 1999)). Res judicata bars not only claims from the original litigation, but also other claims that could have been brought in the original litigation. Id. (citing Gertz v. Anne Arundel Cty., 661 A.2d 1157, 1161 (Md. 1995)).


         National Union contends that the parties are the same as in Humane Society I and that Humane Society “advance[s] the exact same claims” that it sought to bring in its motion for leave to amend its complaint in Humane Society I, which “Judge Chasanow has already rejected, ” and “an order denying leave to amend has res judicata effect on the rejected claims.” Def.'s Mem. 1-2, 3. Additionally, it insists that the denial of leave to amend did not have to be on the merits under these circumstances because “res judicata applies to denials based on mere timeliness.” Id. at 4. In support of its position, National Union cites a single Maryland case, Gonsalves v. Bingle, 5 A.3d 768 (Md. Ct. Spec. App.), cert. denied, 10 A.3d 1181 (Md. 2010) (Table); federal case law; and treatises.

         Humane Society concedes that the parties are the same, but counters that its claims are not “de facto identical to the claims in Humane Society I simply because HSUS unsuccessfully sought to add the same claims by way of amendment in Humane Society I.” Pl.'s Opp'n 11, 13. Humane Society also argues that “National Union's insurance coverage obligations to HSUS under each policy are independent of its obligations under each other policy, ” such that the policies are not all part of the same transaction. Id. at 11-12. And, in Humane Society's view, there was no judgment on the merits of these claims. Id. at 2. Plaintiff cites federal case law and differentiates Gonsalves on the basis that the claims at issue in that case were “virtually identical to prior claims, so that the final resolution of the prior claim necessarily resolved the merits of the subsequent claims as well.” Id. at 11.

         For the first time in its Reply, National Union argues that the claims under the 2007-2008 Policy and the Employed Lawyers Policy are the same as the claim under the 2009-2010 Policy for res judicata purposes because, as Judge Chasanow found, Humane Society “could have filed suit under the two policies [at issue in this case] ¶ 2012 because their causes of action had already arisen by 2012.” Def.'s Reply 11. Although typically “courts should not consider new arguments or new evidence raised for the first time in reply briefs, ” courts may consider new arguments when, as here, they are “offered to rebut arguments specifically raised in an opposition.” Sprint Nextel Corp. v. Simple Cell Inc., 248 F.Supp.3d 663 (D. Md. 2017) (citing Clawson v. FedEx Ground Package Sys., Inc., 451 F.Supp.2d 731, 734 (D. Md. 2006); Allen v.

         Enabling Techs. Corp., 2016 WL 4240074, at *4, 11-13 (D. Md. Aug. 11, 2016). Moreover, given that this Court may dismiss an action sua sponte under the doctrine of res judicata if it “is on notice that the issues presented in a suit have been previously decided, ” Roberts v. Thrasher, No. ELH-15-1906, 2015 WL 4485477, at *2 (D. Md. July 20, 2015) (quoting Arizona v. California,530 U.S. 392, 413 (2000) (citation and citation marks omitted)), and I am aware of Judge Chasanow's decision, it is appropriate to consider this argument. See Innocent v. Bank of New York Mellon, ...

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