Owners Insurance Company v. Monte Vista Hotel, et al, No. 3:2009cv08095 - Document 21 (D. Ariz. 2010)
Court Description: ORDER granting Defendant Rich's Motion 10 to Dismiss. FURTHER ORDERED denying as moot Plaintiff Owners Insurance Company's Motion 18 for Summary Judgment. FURTHER ORDERED denying as moot Defendant Monte Vista Hotel's Motion 16 to Compel Discovery. Judgment is entered accordingly. Signed by Judge Mary H Murguia on 2/2/10.(KMG)
Owners Insurance Company v. Monte Vista Hotel, et al 1 Doc. 21 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 16 Owners Insurance Company, a foreign) insurer licensed to do business in the State) ) of Arizona, ) ) Plaintiff, ) ) vs. ) ) Monte Vista Hotel; an Arizona company;) Jim Netteland, an individual; and Danny) ) Lee Rich, and individual, ) ) Defendants. ) ) No. CV 09-8095-PCT-MHM ORDER 17 18 Currently pending before the Court is Defendant Rich’s Motion to Dismiss (Dkt.#10), 19 Defendant Monte Vista Hotel’s Motion to Compel Discovery (Dkt.#16), and Plaintiff 20 Owners Insurance Company’s Motion for Summary Judgment (Dkt.#18). Having reviewed 21 and considered these motions as well as having heard oral argument on these matters, the 22 Court issues the following Order. 23 I. Background 24 Plaintiff Owner’s Insurance Company (“the Insurance Company”) filed this 25 declaratory action, seeking a declaration that it has no duty to defend its insured, Monte Vista 26 Hotel, under its business insurance policy (No. 034625-45370179). (Dkt.#1) Monte Vista 27 Hotel (“the Hotel”) claimed coverage after one of its employees, Jim Netteland, allegedly 28 assaulted Danny Lee Rich while acting within the course and scope of his employment by Dockets.Justia.com 1 the Hotel. Rich sued both Netteland and the Hotel (under a theories of both vicarious 2 liability and independent negligence) in a lawsuit that is currently pending in Coconino 3 County Superior Court as Rich v. Netteland, No. CV2007-0276. In this action, the Insurance 4 Company seeks a declaration that there is no coverage under its policy for any claims 5 asserted by Rich in the underlying Coconino suit (“the underlying suit”). 6 Defendant Rich filed a Motion to Dismiss (Dkt.#10) on the basis of Brillhart 7 abstention, which the Hotel joined (Dkt. #11). In essence, they argued that this Court should 8 exercise its discretion to abstain from hearing this declaratory judgment action (1) because 9 it would require this Court to needlessly determine issues of state law, (2) because Owners 10 is forum shopping by filing this “reactive” declaratory judgment litigation, (3) because this 11 declaratory judgment would be duplicative of the underlying suit in state court and would 12 waste precious judicial resources, (4) because allowing the declaratory action to move 13 forward would result in “piecemeal” litigation, and (5) because the declaratory action is 14 premature. (Dkt.#10) 15 Plaintiff Owners Insurance Company responded by arguing that the Court should 16 exercise its discretion to retain jurisdiction over this matter because (1) the underlying state 17 tort action is not truly “parallel” to this case because Owners is not a party to the state court 18 action, (2) there will be no duplicative litigation because there is no declaratory judgment 19 action pending in state court at present, (3) Owners was not forum shopping when it filed this 20 complaint (4) discovery has already closed in the state proceeding and would have to be 21 reopened if Owners were joined, and (5) the Hotel waived this argument by filing an answer 22 and asserting its own counterclaim for declaratory relief in this action. (Dkt. #11) 23 24 After an in-depth review of the cases cited by both parties, it appears that Defendants are correct, as explained below. 25 26 27 28 -2- 1 II. Discussion 2 The Federal Declaratory Judgment Act, 28 U.S.C. § 2201, by its express terms, makes 3 the exercise of federal jurisdiction over declaratory actions discretionary rather than 4 mandatory: “any court of the United States may declare the rights and other legal relations 5 of any interested party seeking such declaration.” As the Ninth Circuit explained, “The 6 Declaratory Judgment Act was an authorization, not a command. It gave the federal courts 7 competence to make a declaration of rights; it did not impose a duty to do so.” American 8 National Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir. 1995), overruled on other 9 grounds by Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1227 (9th Cir. 1998) 10 (explaining that “the Declaratory Judgement Act is ‘deliberately cast in terms of permissive, 11 rather than mandatory, authority’”) (internal citations omitted). 12 This important element of discretion was recognized by the United States Supreme 13 Court in Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942), when it noted that in the 14 declaratory judgment setting, “[District Courts were] under no compulsion to exercise [their] 15 discretion.” Id. at 494. The Court further explained that “[o]rdinarily it would be 16 uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment 17 suit where another suit is pending in a state court presenting the same issues, not governed 18 by state law, between the same parties” and that “[g]ratuitous interference with the orderly 19 and comprehensive disposition of a state court litigation should be avoided.” Id. at 495. This 20 doctrine later became known as “Brillhart abstention” and was discussed at length in the 21 Ninth Circuit decision, Continental Casualty Co. v. Robsac Indus., 947 F.2d 1367 (9th Cir. 22 1991), overruled on other grounds by Government Employees Ins. Co. v. Dizol, 133 F.3d 23 1220, 1227 (9th Cir. 1998). 24 In Robsac, the Ninth Circuit explained that “when a state court action is pending 25 presenting the same issue of state law as presented in a federal declaratory suit, ‘there exists 26 a presumption that the entire suit should be heard in state court.’” Id. at 1370-71 (internal 27 citations omitted). The Robsac Court explained that there were three principal rationales for 28 the Brillhart decision: (1) avoiding having federal courts needlessly determine issues of state -3- 1 law, (2) discouraging litigants from filing declaratory actions as a means of forum shopping, 2 and (3) avoiding duplicative litigation. Id. at 1371. Based on these factors, the Ninth Circuit 3 concluded that “[c]ourts should generally decline to assert jurisdiction in the insurance 4 coverage and other declaratory relief actions presenting only issues of state law during the 5 pendency of parallel proceedings in state court.” Id. at 1374. 6 While Robsac was later overruled on other grounds (and District Courts no longer 7 have a duty to sua sponte justify their decisions to exercise jurisdiction under the Declaratory 8 Judgment Act when the issue is raised by neither party), the three Brillhart factors mentioned 9 above continue to guide this Court’s discretion about whether to exercise its discretion in any 10 particular case. Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 11 1998) (“The Brillhart factors remain the philosophical touchstone for the district court. The 12 district court  should avoid needless determination of state law issues;  it should 13 discourage litigants from filing declaratory actions as a means of forum shopping, and  it 14 should avoid duplicative litigation.”). Similarly, the Ninth Circuit retained its earlier 15 directive that “[i]f there are parallel state proceedings involving the same issues and parties 16 pending at the time the federal declaratory action is filed, there is a presumption that the 17 entire suit should be heard in state court.” Id. at 1225. The Ninth Circuit also noted that the 18 Brillhart factors were not exhaustive, and that courts should also consider (1) “whether the 19 declaratory action will settle all aspects of the controversy;” (2) “whether the declaratory 20 action will serve a useful purpose in clarifying the legal relations at issue;” (3) “whether the 21 declaratory action is being sought merely for the purposes of procedural fencing or to obtain 22 a ‘res judicata’ advantage;” (4) “whether the use of a declaratory action will result in 23 entanglement between the federal and state court systems[;]” (5) “the convenience to the 24 parties[;]” and (6) “the availability and relative convenience of other remedies.” Id. at 1225 25 n.5. The Ninth Circuit succinctly summarized Brillhart abstention by stating that “federal 26 courts should generally decline to entertain reactive declaratory actions.” Id. at 1225. 27 28 The Court will begin its analysis with the three original Brillhart factors, then proceed to these most recent six listed in the Dizol decision. -4- 1 A. 2 The Brillhart Factors 1. Avoiding needless determination of state law issues 3 Here, the main issue presented by the declaratory action is whether the Hotel is 4 covered by the Owners Insurance policy. Insurance coverage is fundamentally a question 5 of state law and “federal courts should ‘decline to assert jurisdiction in insurance coverage 6 and other declaratory relief actions presenting only issues of state law during the pendency 7 of parallel proceedings in state court unless there are circumstances present to warrant an 8 exception to that rule.” Employers Reinsurance Corp. v. Karussos, 65 F.3d 796, 798, 799, 9 8010 (9th Cir. 1995) (reemphasizing the general rule that insurance coverage actions belong 10 in state rather than federal court and stating “the traditional rule that ‘states ha[ve] a free hand 11 in regulating the dealings between insurers and their policyholders”), overruled on other 12 grounds by Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1227 (9th Cir. 1998).1 13 Thus, this factor weighs against exercising the Court’s jurisdiction to hear this case. 2. 14 Discouraging litigants from filing declaratory actions as a means of forum shopping 15 Owners Insurance argues that it is not forum shopping, and that is not even a party to 16 the underlying state court tort proceeding. However, there is nothing in the record to suggest 17 that Owners could not have presented the same issues it brought to federal court to the state 18 court in a separate proceeding. Thus, this factor also weighs against the Court’s exercise of 19 jurisdiction over this matter. 20 21 22 23 24 25 26 1 27 28 Karussos was overruled by the Dizol court for the same reason that Robsac was; a District Court no longer has a duty to sua sponte raise this issue even if the parties do not; however, the analysis relating to the factors, once raised, remains valid. -5- 1 3. Avoiding duplicative litigation 2 Owners protests that there is no parallel litigation in the state court proceeding 3 because it is not a party to the underlying state tort suit by Rich against the Hotel and 4 Netteland (the Hotel’s employee). (Dkt.#12 at 3) It argues that the state tort claim will not 5 answer the coverage questions presented in this declaratory judgment matter such as whether 6 the exclusion applies and whether Owners waived or is estopped from denying coverage as 7 the Hotel alleges. Because the coverage case involves different factual and legal issues, 8 Owners argues that there is simply no “parallel” litigation and the Court should exercise its 9 jurisdiction over this case. 10 However, Owners never adequately addresses controlling Ninth Circuit precedent 11 cited by Defendants, such as American Nat’l Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th 12 Cir. 1995), overruled on other grounds by Government Employees Ins. Co. v. Dizol, 133 13 F.3d 1220, 1227 (9th Cir. 1998),2 which demonstrates that a declaratory judgment action can 14 be parallel to the underlying tort suit even if there are different legal issues in the two suits. 15 In Hungerford, the Ninth Circuit vacated the District Court’s adjudication of the 16 declaratory action because a related (but not identical) state court tort action was then 17 pending. Hungerford at 1019. The Court held that the District Court should not have 18 exercised discretion over the insurer’s declaratory judgment case filed in federal court, 19 explaining that while “[i]t is true that in the present case the federal declaratory judgment 20 action does not parallel a state court action arising from the same facts in the sense that 21 different legal issues are presented by the pleadings,” the District Court should not have 22 exercised jurisdiction because “ the federal action does parallel the state action in the sense 23 that the ultimate legal determination in each depends on the same facts.” Thus, in the 24 Brillhart/Robsac context, “parallel proceedings” is read broadly. Hungerford, 53 F.3d at 25 1017. 26 2 27 28 Hungerford was overruled by the Dizol court for the same reason that Robsac and Karussos were; a District Court no longer has a duty to sua sponte raise this issue even if the parties do not; however, the analysis relating to the factors, once raised, remains valid. -6- 1 Owners Insurance attempts to argue that the present case is more akin to American 2 Cas. Co. v. Krieger, 181 F.3d 1113, 1118-20 (9th Cir. 1999); however, in that case, the Ninth 3 Circuit held merely that the District Court did not abuse its discretion by exercising 4 jurisdiction over the declaratory judgment case; nowhere in the case did the Ninth Circuit 5 state (or ever imply) that the District Court would have abused its discretion had it chosen 6 to decline to exercise its jurisdiction over the case. Moreover, Krieger appears to be 7 distinguishable because the state court proceeding had already terminated by the time the 8 jurisdictional issues was raised in the federal declaratory action. In the present case, the 9 underlying state suit is still pending. In addition, the Kreiger court had an independent basis 10 for exercising jurisdiction because the defendants had filed various counterclaims, including 11 a claim for bad faith breach of contract. Here, the only counterclaim that has been filed is 12 “mirror image” claim for declaratory relief by the Hotel. (Dkt.#6) 13 The present case appears very similar to Diamond State Ins. Co. v. Fame Operating 14 Co., 917 F. Supp. 736 (D. Nev. 1996), where the underlying state court litigation involved 15 a single tort claim for assault, and the state court defendants’ insurer was not a party to the 16 state action. The Diamond court found that both actions involved common fact issues and 17 held that the two cases were parallel for the purposes of applying the Brillhart/Robsac 18 factors. 19 Both Diamond and Hungerford noted that common fact issues meant that the two 20 cases were parallel for purposes of Brillhart. At oral argument, Owners Insurance contended 21 that because the intent issues were settled in the underlying suit in state court, the state action 22 could not be considered “parallel” to this declaratory action. However, Defendants Hotel and 23 Rich made no such concession as to the settled nature of the intent issues in the underlying 24 suit at oral argument; moreover, the relevant test is whether the facts at issue overlap, not 25 whether the facts at issue are disputed. 26 Based on these cases, this factor also weighs against exercising jurisdiction over the 27 declaratory judgment action. To summarize, all of Brillhart factors weigh in favor of 28 abstention. -7- 1 B. Dizol Factors 2 The parties focused principally on the Brillhart factors; thus, the Court’s analysis of 3 the Dizol factors will be brief. 4 1. Whether the declaratory action will settle all aspects of the controversy 5 Here, a decision about coverage would not settle all aspects of the controversy. 6 Whether the intentional acts exception clause excludes coverage depends at least in part on 7 whether the employee intentionally assaulted Rich, which substantially overlaps the state law 8 tort case. However, even assuming the Court was able to resolve this issue, the damages in 9 the state tort case would remain outstanding. Because of this, if the Court retained 10 jurisdiction over this case, “piecemeal” litigation would result. Thus, this factor also weighs 11 in favor of abstention. 12 13 2. Whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue 14 Neither party appears to have briefed this issue; thus, it weighs neither in favor of nor 15 against abstention. 17 Whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a ‘res judicata' advantage 18 Owners Insurance argues that Hotel has waived this argument by filing an answer and 19 asserting its own counterclaim for declaratory relief in this action; however, as Defendants 20 point out, Owners fails to cite any precedent to support its theory of waiver. The fact that 21 Hotel asserted a counterclaim declaratory action of its own does not provide an independent 22 basis for this court’s jurisdiction (and thus is dissimilar to the independent breach of contract 23 claim in Kreiger). As such, this factor does not weigh against abstention. 16 24 3. 4. Whether the use of a declaratory action will result in entanglement between the federal and state court systems 25 Retaining jurisdiction over the declaratory judgment action would require the Court 26 to rule on certain aspects of intent that are also at issue in the state tort proceeding, which 27 28 -8- 1 raises the spectre of possible inconsistent adjudications. Thus, this factor weighs in favor of 2 abstention. 3 5. The convenience to the parties 4 Owners argues that discovery would have to be reopened in the State suit; however, 5 Owners could file an independent action in state court that was not dependent on the 6 discovery timetable in the underlying suit; thus, this factor does not weigh against abstention. 7 6. The availability and relative convenience of other remedies 8 It appears that it would be much more efficient for Owners Insurance to simply file 9 a declaratory action in state court in accordance with the Arizona Declaratory Judgment Act. 10 Thus, this factor weighs in favor of abstention. 11 C. 12 The combination of Brillhart and Dizol factors discussed above cumulatively weigh 13 strongly against this Court’s exercise of jurisdiction. It therefore appears most appropriate 14 for this Court to decline to exercise its jurisdiction over this declaratory judgment action. 15 Accordingly, Defendants’ Motion to Dismiss is granted. 16 III. Summary Pending Motions 17 Because the Court has granted the motion to dismiss, the summary judgment motion 18 filed by Plaintiff Owners Insurance (Dkt.18) on January 13, 2010 is hereby denied as moot. 19 Similarly, while Monte Vista Hotel’s Motion to Compel Discovery (Dkt.#16) appears to be 20 premature according to Federal Rule of Civil Procedure 26(d)(1), the Court will not reach 21 this issue but will simply deny the Motion to Compel as moot. 22 Accordingly, 23 IT IS HEREBY ORDERED granting Defendant Rich’s Motion to Dismiss 24 (Dkt.#10). IT IS FURTHER ORDERED denying as moot Plaintiff Owners Insurance 25 26 Company’s Motion for Summary Judgment (Dkt.#18). 27 /// 28 -9- 1 2 IT IS FURTHER ORDERED denying as moot Defendant Monte Vista Hotel’s Motion to Compel Discovery (Dkt.#16). 3 Judgment is entered accordingly. 4 DATED this 2nd day of February, 2010. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 10 -
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