Unpublished Disposition, 881 F.2d 1084 (9th Cir. 1989)

MEMORANDUM^* 

Appellant Safeco Insurance Company ("Safeco") filed this action in federal district court seeking a declaration that it did not have a duty to defend Federated Capital Corporation, Federated Construction Company, and Michael Thomas (collectively, "the Insureds"), in various civil actions brought against them in both state and federal courts. Named in the complaint along with the Insureds is their primary insurer, Constitution State Insurance Company. The district court declined to exercise diversity jurisdiction over Safeco's claim, brought under the Federal Declaratory Judgments Act, 28 U.S.C. § 2201-2202 (1982), reasoning that, as in its prior decision of Zurich Insurance Co. v. Alvarez, 669 F. Supp. 307 (C.D. Cal. 1987), it was better to allow the issues raised by Safeco to be resolved in the context of the underlying actions. Safeco filed a timely notice of appeal following the district court's entry of its order, and we have jurisdiction under 28 U.S.C. § 1291 (1982).

Even though the Insureds have voluntarily withdrawn their tender of defenses since the filing of this appeal, we conclude that the case is not moot because the Insured's have expressly reserved the right to reassert their claims at a later time. See United States v. W.T. Grant Co., 345 U.S. 629, 632-33 (1953) (case rendered moot by voluntary cessation of allegedly illegal conduct only if there can be no reasonable expectation that the wrong will be repeated). We are thus presented with the question of whether the district court erroneously declined to exercise jurisdiction over Safeco's declaratory judgment action.

We begin by noting that a party does not have an absolute right to a legal determination of its claim under the Declaratory Judgment Act. See United States v. Washington, 759 F.2d 1353, 1356 (9th Cir.) (en banc) (per curiam), cert. denied, 474 U.S. 994 (1985). The decision to grant declaratory relief is a matter of discretion, not compulsion. See Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942). Ordinarily a matter committed to the discretion of a trial court is accorded substantial deference upon appellate review. Here, however, " [t]he court of appeals must exercise its own sound discretion to determine the propriety of the district court's ... denial of declaratory relief." United States v. Washington, 759 F.2d at 1356-57.

Declaratory relief should be denied when "prudential considerations counsel against its use," or when the relief requested "will neither serve a useful purpose in clarifying and settling the legal relations in issue nor terminate the proceedings and afford relief from the uncertainty and controversy faced by the parties." Id. at 1357. These concerns, in large measure, mirror "concerns similar to those underlying the case and controversy limitation of Article III." Id. Under the circumstances of this case, these concerns counsel against holding that the district court erred by declining to exercise diversity jurisdiction. Because the Insureds have withdrawn their tender of defenses pending potentially successful settlement negotiations, the district court's consideration of the merits of Safeco's claim would be premature and therefore would not serve any useful purpose. Cf. Community for Creative Nonviolence v. Hess, 745 F.2d 697, 700 (D.C. Cir. 1984) (even though voluntary acts of defendant may not moot claim, same considerations inherent in Article III may counsel against exercising jurisdiction over declaratory relief action).

Also favoring the district court's exercise of its discretion are considerations of comity. "Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Brillhart, 316 U.S. at 495. The district court previously addressed similar concerns in its opinion, Zurich Insurance Co. v. Alvarez, 669 F. Supp. 307 (C.D. Cal. 1987), stating that, even though state proceedings may involve different parties, a federal forum may still be inappropriate if the court has to decide facts also at issue in the pending state proceedings and if the issues presented are complex and of first impression. The district court followed this rationale in deciding against exercising jurisdiction over Safeco's claim.

Safeco argues on appeal that the district court misapplied Zurich because, first, many of the underlying actions are lodged in federal court as well as state court; second, the underlying actions do not involve common issues of fact; third, the issues are neither complex nor of first impression; and fourth, unlike in Zurich, its complaint for declaratory relief is not an inappropriate use of a federal forum. It may be, as Safeco suggests, that the district court's reasons for declining jurisdiction in Zurich do not fit perfectly to the situation here. Nonetheless, the concerns expressed in Zurich are no less important to the circumstances of this case.

Nearly 100 actions are pending against the Insureds; only 12 are pending in federal court and each of those has a companion state case. State courts, then, are overwhelmingly the chosen forum for waging the legal battles against the Insureds. Moreover, as suggested by the Insureds, the question of their insured status under the disputed policies issued by Safeco may require a determination of the extent of their work at certain Nevada construction sites--assertedly a critical issue to the outcome of the underlying actions. Although the issues may not be difficult or complex, deciding them in a federal forum may intrude unnecessarily on the settlement process currently underway in the state proceedings. These considerations, combined with the concerns reflected in Article III, militate in favor of affirming the district court's decision.

AFFIRMED.