Granite State Insurance Company v. KM Tactical, LLC

Background

Granite State Insurance Company brought this action seeking a declaratory judgment—a court ruling defining the parties’ legal rights—about its obligations under commercial general liability policies issued to KM Tactical, LLC for annual policy periods from September 2018 through September 2022. Granite State argued that the policies did not require it to defend or indemnify KM Tactical in three lawsuits brought by government entities in New York. Those lawsuits concern allegations that KM Tactical intentionally sold and shipped unfinished firearm frames and receivers into New York, where they were allegedly converted into functioning firearms known as “ghost guns.” KM Tactical asserted counterclaims for breach of contract, bad-faith denial of coverage, and a declaration that Granite State owed coverage.

Granite State’s complaint was filed in the Southern District of New York on August 31, 2023. KM Tactical later filed a similar action in the Western District of Missouri against another insurer and then added Granite State as a defendant. The opinion states that the Missouri action and this case involve substantially the same claims and issues. The Missouri court stayed that action while the transfer motion was pending. The opinion also notes that related insurance coverage cases were pending in the Southern District of New York.

Motion and Legal Standards

KM Tactical moved under 28 U.S.C. § 1404(a) to transfer this action to the Western District of Missouri. That statute permits transfer when another federal district would be more convenient for the parties and witnesses and would better serve the interests of justice. The moving party must support transfer with clear and convincing evidence. Courts consider factors including the plaintiff’s choice of forum, witness and party convenience, access to documents and other proof, the location of operative facts, the ability to compel witnesses, the parties’ relative resources, familiarity with governing law, trial efficiency, and the interests of justice.

The court also applied the first-filed rule. When two federal cases involve substantially similar parties and issues, the court that received the first case generally keeps the dispute. A court may depart from that rule for special circumstances, such as manipulative forum shopping or an improper anticipatory filing, or when the balance of convenience strongly favors the later-filed case.

Court’s Analysis

The parties agreed that this action and the Missouri action were duplicative. That created a presumption in favor of Granite State’s choice of New York because this action was filed first.

The court rejected KM Tactical’s forum-shopping argument. KM Tactical relied primarily on Granite State’s delay in giving a coverage decision and argued that the delay showed Granite State was planning its choice of forum. The court found no direct evidence supporting that inference. It also concluded that New York had substantial connections to the dispute: Granite State’s principal place of business was in Manhattan, the underlying lawsuits were pending in New York, and related coverage cases were being litigated in the Southern District of New York. The court further stated that KM Tactical did not claim Granite State had misrepresented facts and that an assumed violation of an insurance-regulation notice requirement would not, by itself, establish the manipulative or deceptive conduct needed to avoid the first-filed rule.

The court also rejected KM Tactical’s argument that Granite State’s declaratory-judgment action was an improper anticipatory filing. It explained that insurers may bring declaratory-judgment actions to determine coverage and found no basis to treat Granite State’s filing as improper in these circumstances.

The court found that KM Tactical had not provided clear and convincing evidence that Missouri was more convenient. KM Tactical submitted no affidavits detailing the expected witnesses, their locations, or their testimony. The court found that its unsupported assertions about witness locations, relevant evidence, the burden of transporting evidence, and the size and operation of its business were insufficient for a meaningful factor-by-factor analysis. The court also agreed with the Missouri court’s conclusion that the balance of convenience did not favor Missouri. The parties and witnesses did not clearly favor either forum, relevant discovery would likely be in New York, and keeping related coverage lawsuits in the Southern District of New York would promote judicial efficiency. The court gave little weight to KM Tactical’s argument that Missouri law might govern, explaining that federal courts can apply another state’s law.

Disposition

The court denied KM Tactical’s motion to transfer venue. It directed the Clerk of Court to close the motion docket entry. The opinion did not decide whether Granite State ultimately owed a duty to defend or indemnify KM Tactical.