Argonaut Insurance Co. v. St. Francis Medical Center, No. 19-17314 (9th Cir. 2021)
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Former students sued Kamehameha Schools, alleging sexual abuse by a doctor who had practiced on SFMC’s campus. Kamehameha filed crossclaims against SFMC, which sent these crossclaims to its insurer, Argonaut. Argonaut ultimately represented SFMC subject to a reservation of rights. Neither party could determine the terms of the relevant policies from decades earlier. Argonaut sought declaratory relief in federal court under 28 U.S.C. 2201, as to what policies Argonaut had issued to SFMC during the relevant period and the terms of those policies. SFMC asked the district court to decline jurisdiction and, alternatively counterclaimed for declaratory and monetary relief.
The Ninth Circuit affirmed the district court’s order, declining to exercise jurisdiction. Generally, a district court has the discretion to decline jurisdiction over a 28 U.S.C. 2201 declaratory-relief claim, after considering the relevant factors but when a declaratory claim is joined with an independent monetary one, the court usually must retain jurisdiction over the entire action. That mandatory jurisdiction rule did not apply; parties can plead a conditional counterclaim and still preserve objections to jurisdiction. SFMC’s counterclaims were conditional. Because SFMC did not waive its threshold defense, the district court still had discretionary jurisdiction. The district court thoroughly considered and correctly concluded that each relevant factor favored declining jurisdiction, noting that the declaratory claims could be filed in state court and that deciding them would not settle all aspects of the controversy or clarify the parties’ legal relationships.
Court Description: Declaratory Relief / Jurisdiction. The panel affirmed the district court’s order declining to exercise jurisdiction over a declaratory-relief claim brought under 28 U.S.C. § 2201 and dismissing a diversity insurance coverage action. Generally, a district court has discretion to decline jurisdiction over a declaratory-relief claim brought under 28 U.S.C. § 2201, so long as it reasonably considers the relevant factors from Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942), and Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en banc). But when a declaratory claim is joined with an independent monetary one, the district court usually must retain jurisdiction over the entire action. Argonaut Insurance Company sued St. Francis Medical Center (“SFMC”) for declaratory relief, and SFMC filed an answer asking the district court to decline jurisdiction and counterclaimed for declaratory and monetary relief, but only if the district court first exercised jurisdiction over Argonaut’s claims. The panel held that Dizol’s mandatory jurisdiction rule did not apply in this case. Because parties can plead a conditional counterclaim and still preserve objections to jurisdiction, such conditionally pled counterclaims, without ARGONAUT INS. V. ST. FRANCIS MED. CTR. 3 more, did not trigger mandatory jurisdiction over declaratory claims. The panel’s conclusion was grounded in several Federal Rules of Civil Procedure, which do not require that threshold defenses always be pled by motion. Rules 12(b) and 12(h) provide that a defendant must assert its defense, absent a pre- answer motion, in a responsive pleading if one is required and that it may choose to assert a defense by answer without risking forfeiture of that defense. Here SFMC asserted a threshold defense in its answer. Rule 13 directs a defendant to assert compulsory and permissive counterclaims in its answer; and because the Rules allow threshold defenses (such as improper declaratory jurisdiction) to be pled by answer, those defenses are preserved even if coupled with counterclaims. The panel agreed with the district court that SFMC’s counterclaims were conditional. SFMC’s assertion of its counterclaims against Argonaut, together with its answer, was subject to SFMC’s threshold objections. The panel held that Argonaut’s arguments to the contrary were unpersuasive. Because SFMC did not waive its threshold defense, the district court still had discretionary jurisdiction. Having held that SFMC’s bad faith counterclaim did not invoke the district court’s mandatory jurisdiction, the panel next addressed whether the district court abused its discretion by declining jurisdiction in response to SFMC’s threshold defense. Because the district court thoroughly considered and correctly concluded that each Brillhart and Dizol factor favored declining jurisdiction and dismissing, the panel affirmed. Here, the district court properly noted that the declaratory claims could be filed in state court and that deciding them would not settle all aspects of the 4 ARGONAUT INS. V. ST. FRANCIS MED. CTR. controversy or clarify the parties’ legal relationships. The district court’s discussion of the Brillhart and Dizol factors was sufficient to allow for appellate review of its decision to dismiss rather than stay, and the court did not abuse its discretion by not separately discussing whether to dismiss or stay the case.
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