In the consolidated appeal of two cases from Pennsylvania and one from New Jersey, the appellate judges zeroed in on why the district courts had abstained from making declaratory judgments over whether the pandemic and its associated government-mandated closures were covered causes of the businesses' losses, ceding the federal courts' usual jurisdiction over parties from multiple states to the state courts for the first crack at deciding an unanswered issue of state law.
"What is unique here?" said Chief Judge D. Brooks Smith. "It seems to me that if we have diversity jurisdiction properly exercised, unless you or the district judge can give us a basis for a state court applying a different standard … there should be no basis for a district judge to abstain from jurisdiction."
Counsel for the businesses — INC restaurant in New Brunswick, New Jersey, and the Umami and Dianoia's Eatery restaurants in Pittsburgh — argued that the state courts should be the first to address the question of whether the virus and the government closures had caused "direct loss or damage" to their properties under their states' insurance laws.
"This is the first time in terms of businesses being shut down by government regulation like this. The state should be able to police that," said Ralph Ferrara of Ferrara Law Group, representing Mark Daniel Hospitality, the company that runs INC.
But John R. Gerstein of Clyde & Co. LLC, representing Motorists Commercial Mutual Insurance Co., said the question was merely one of contract interpretation that dozens of other federal courts had already weighed without deferring to their state counterparts. He said there had been 32 decisions on the matter by federal courts in Pennsylvania and 275 decisions nationwide.
"This is just applying the literal words of the contract … There's nothing that requires a novel interpretation by the state courts," he said.
Judge Peter J. Phipps said another factor the courts are supposed to consider when deciding whether to abstain — the presence of parallel litigation in state court — appeared to be lacking, since the cases had been removed from state to federal court and had no direct counterparts left in the state-court systems.
"The absence of parallel proceedings really hurts your case," he told the businesses.
James Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC, representing Dianoia's and Umami, said there were plenty of other insurance cases still in state court that dealt with the exact same issue, even if the parties were not all the same, creating "parallel interests" between their cases.
He argued that there needed to be uniformity among the courts' determinations on the coverage question, noting that his firm had tried and failed to get the Supreme Court of Pennsylvania to exercise its "King's Bench" jurisdiction and issue a statewide decision on the matter close to the outset of the pandemic, when some of the first cases in the current flood of insurance litigation began to trickle in.
As some of the federal cases involving his other clients moved toward their own appeals to the Third Circuit, Haggerty said he hoped to ask the appellate court to toss the cases back to the Supreme Court of Pennsylvania and certify them for a determination of the state law issues. But the current appeal, over whether the federal judges could decline jurisdiction, was outside the state justices' review, the court noted.
Gerstein also argued on behalf of the insurers that there should have been no question of whether the district courts could decline jurisdiction because the declaratory judgment cases were really just breach-of-contract cases, which the federal courts could not decline.
The judges agreed to take the arguments under advisement Wednesday.
Judges D. Brooks Smith, Peter J. Phipps and Jane R. Roth sat on the panel for the Third Circuit.
Dianoia's Eatery and Umami Pittsburgh are represented by James C. Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC, Scott B. Cooper of Schmidt Kramer PC, John P. Goodrich of Goodrich & Associates PC and Jonathan Shub of Kohn Swift & Graf PC.
Motorists Commercial Mutual Insurance Co. is represented by Matthew A. Meyers, Taylor M. Davis and Robert E. Dapper Jr. of Burns White LLC and John R. Gerstein, Patrick F. Hofer and Timothy A. Carroll of Clyde & Co. LLC.
Mark Daniel Hospitality is represented by Ralph Ferrara and Kevin Kotch of Ferrara Law Group PC.
Amguard Insurance Co. is represented by Bryce L. Friedman, Michael J. Garvey and Daniel B. Feder of Simpson Thacher & Bartlett LLP and Susan M. Leming of Brown & Connery LLP.
The cases are Dianoia's Eatery LLC v. Motorists Mutual Insurance, case number 20-2954; Umami Pittsburgh v. Motorists Commercial Mutual Insurance, case number 20-2958; and Mark Daniel Hospitality LLC v. Amguard Insurance Co., case number 20-3122, in the U.S. Court of Appeals for the Third Circuit.
--Editing by Peter Rozovsky.
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