Unpublished Disposition, 933 F.2d 1015 (9th Cir. 1991)

MEMORANDUM^*

State Farm appeals from the district court's dismissal of the action with prejudice based on lack of subject matter jurisdiction and failure to state a claim upon which relief could be granted. State Farm claims it should have been granted leave to amend the complaint.

The district court lacked subject matter jurisdiction over the original claim seeking an order that the state court's judgment in the underlying action was void. See Atl. Coastline R.R. Co. v. Bhd. of Locomotive Eng'rs, et al., 398 U.S. 281 (1969) (lower federal courts without jurisdiction to review state court judgment); Worldwide Church of God v. McNair, 805 F.2d 888 (9th Cir. 1986) (same).

If the complaint's allegations regarding the terms of the insurance contract are true, Johnson and Holmes may have breached it by signing a separate settlement with Coates and stipulating to a judgment against themselves. If Johnson and Holmes breached the insurance contract, State Farm may have no obligation to them, or anyone to whom they have assigned their rights, under the contract. A suit for declaratory judgment on the rights and obligations of an insurance contract is a valid federal cause of action if an "actual controvery" exists regarding the contract. 28 U.S.C. 2201(a); See United States v. Transp. Indem. Co., 544 F.2d 393 (9th Cir. 1976) (allowing declaratory judgment on insurance contract).

Because Coates obtained a judgment against Johnson and Holmes and an assignment of their rights under the insurance contract, there is "a concrete case admitting of an immediate and definitive determination of the legal rights of the parties in an adversary proceeding upon the facts alleged" and a declaratory judgment is appropriate. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937). The parties are diverse in citizenship and the amount in issue exceeds the jurisdictional limit. 28 U.S.C. § 1332. Because State Farm may be able to allege facts upon which a valid federal claim for a declaratory judgment could be based, the district court would have jurisdiction to consider the merits of an amended complaint.

A declaratory judgment on the rights of State Farm, Johnson, and Holmes under the insurance contract would have no legal effect on the state court's judgment that Johnson and Holmes are responsible to Coates for the traffic accident, it, therefore, would not be an unlawful collateral attack on a state court's judgment. Since it is possible that the complaint can be amended to state a valid federal cause of action, the court erred in dismissing the action without leave to amend. See Holt Civic Club v. Tuscaloosa, 439 U.S. 60, 65-66 (1978) ("a meritorious claim will not be rejected for want of a prayer for appropriate relief"); Floyd v. Trice, 490 F.2d 1154, 1158 (8th Cir. 1974) (complaint which can state a valid cause of action should not be dismissed "even if [it] "asks for relief beyond that ordinarily permissible"); Doe v. United States Dep't of Justice, 753 F.2d 1092, 1104 (D.C. Cir. 1985) ("it need not appear that the plaintiff can obtain the specific relief demanded as long as the court can ascertain from the face of the complaint that some relief can be granted) (emphasis in original).

The district court's order dismissing the matter is VACATED. The district court's order granting sanctions against State Farm for filing the motion for reconsideration is REVERSED. The matter is REMANDED with instructions to dismiss the complaint with leave to amend.