count in the state court action is simply "procedural fencing" by the Johnmans which the court should not tolerate.
Finally, Nationwide loosely relies on the general framework outlined in Terra Nova. First, the issues are not the same - if the federal declaratory judgment action is compared only to the underlying liability claim in the state court. Second, if we decide the declaratory judgment action, it will resolve the uncertainty of obligation which gave rise to the action. Third, the considerations set forth in the second factor are at most neutral here. Either court would serve the convenience of the parties since the federal and state courts are in the same city, and there is no public interest because Wiley has already settled an insurer's obligation in these circumstances. The plaintiff is silent on the fourth Brillhart factor, the availability of other remedies.
We agree with the Johnmans' analysis. In addition to the other factors they rely on, an unsettled issue of state law has always been a decisive factor in declining to exercise jurisdiction in a declaratory judgment action. For example, in United States Fidelity and Guaranty Co. v. Murphy Oil USA, Inc., 21 F.3d 259 (8th Cir. 1994), the insurance company filed a federal declaratory judgment action against its insured seeking a declaratory judgment that its policy did not cover four environmental claims. A few months later, the insured filed for a declaratory judgment in state court naming the company and its other insurers as well. The district court stayed the action on motion of the insured. On appeal, the Eighth Circuit affirmed. Among other factors for refusing to hear the case, the court noted that it involved difficult questions of state law. See also Monticello Insurance Co. v. Baecher, 857 F. Supp. 1145, 1994 WL 391441 (E.D. Va. 1994) (court refused to entertain declaratory judgment action when it would be forced to decide unsettled issues of Virginia law concerning the scope of a pollution exclusion clause and the existence of an occurrence under the policy triggering coverage); Aetna Casualty & Surety Co. v. Pellecchia, 1991 WL 101457, at *2 (E.D. Pa.) (refusing to entertain a declaratory judgment action attacking a state court arbitration award when, in part, the "insurance coverage question at issue forms part of a complex, uncertain, and rapidly developing area of Pennsylvania state law which state courts have a vested interest in addressing.").
We note here that the state law issue presented in this case is not the same as the issue in Wiley. In the latter action, the question was whether there was coverage when the insured denied a specific intent to harm the minor or denied having the mental capacity to form that intent. In the instant case, the question is whether there is coverage when the insured negligently failed to obtain treatment for his pedophilia. Nevertheless, Wiley is relevant here because plaintiff asserts that the Johnmans' claim, phrased in terms of negligence, is an attempt to evade that decision and that Wiley controls the coverage issue here. In any event, we believe the claim that Cassel negligently failed to seek treatment is itself a novel, and hence, unsettled issue of state law which the state courts should address.
Nationwide's opposition arguments are not persuasive, and we address them in the order presented above. First, while it is generally true that a federal court can reach the merits of a declaratory judgment action even though the underlying claim is being litigated in state court, the general rule should not apply when unsettled issues of state law are present.
Second, it is not true that an unsettled issue of state law is an insufficient reason to refuse to entertain a declaratory judgment action. The sole case cited by plaintiff in support of this contention, Peerless Wall Paper, was an action by the insureds to recover the proceeds of some insurance policies, not a declaratory judgment action. Because the Act gives a federal court discretion to refuse to entertain the latter type of action, see Terra Nova, supra, 887 F.2d at 1222, our usual "unflagging obligation . . . to exercise the jurisdiction given us is absent. Id. (quoted case omitted).
Third, this action does not have priority just because it was filed first. Rather, we must take into account the relative progress of each litigation. See United States Fidelity and Guaranty Co., supra, 21 F.3d at 263. Thus, even though this case was filed some two months before the state court action, because the two actions are relatively equal at this point in being able to address the plaintiff's claim, we will defer to the state action for the reasons stated above. We also note that the cases cited by plaintiff in its support are distinguishable. The first two, Brotherhood of Locomotive Firemen v. Reading Co., 279 F. Supp. 948 (E.D. Pa. 1968), and Mays v. Oxford Paper Co., 195 F. Supp. 414 (E.D. Pa. 1961), both involved parallel actions in two federal courts, and in any event, Brotherhood of Locomotive Firemen recognized that the "first filed" rule should not be mechanically applied. The third, Metropolitan International, Inc. v. Alco Standard Corp., 657 F. Supp. 627 (M.D. Pa. 1986), involved a state court action that did not present the same claims as the federal one.
Fourth, while the declaratory judgment count in the state court complaint may be procedural fencing by the Johnmans, their motive is irrelevant because, regardless of their reason for seeking a state forum, this case nevertheless belongs in state court because of the unsettled state law issue involved. In any event, any ulterior motive on the part of the defendants has been matched by Nationwide which obviously sought this federal forum to take advantage of the Wiley ruling for res judicata purposes, an improper reason under Terra Nova.
Turning to the plaintiff's argument based on the general framework in Terra Nova, we reject the first argument that the cases are not identical. This argument conveniently ignores the declaratory judgment count in the state action. The cases do in fact present the same controversy. We also disagree with Nationwide's contention that the convenience of the parties is a neutral factor here. If we leave the matter to the state court, all the claims, including those against the alleged perpetrator, can be resolved in one forum. In this regard, Nationwide does not assert that there are any impediments to state court adjudication of its claim. See Brillhart, supra. We also cannot agree with the plaintiff that the public-interest factor is neutral here, at least for the reason it gives, which is that Wiley resolved the state law issue. To the contrary, Wiley was just a prediction of state law.
Even if the general framework in Terra Nova indicated that we should entertain the declaratory judgment action, because this case involves an issue of state law, we should also consider whether elements of federalism, efficiency and comity indicate that we should not rule on the merits of plaintiff's claim. See Nautilus Insurance Co. v. Winchester Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994). All three of these factors indicate we should not; federalism, because "there exists an interest in having the most authoritative voice speak on the meaning of applicable law, and that voice belongs to the state courts when state law controls the resolution of the case," Mitcheson v. Harris, 955 F.2d 235, 237 (4th Cir. 1992) (brackets added); efficiency, because the presence of the declaratory judgment count in the state court complaint means that all the issues can be decided in one forum; comity, because our consideration of the declaratory judgment action would interfere with the state court proceedings on the same issue.
These three factors, strongly indicating that we should not exercise jurisdiction, are rendered decisive when the unsettled nature of the state law issue is considered. As we noted above, state courts should be allowed to determine the substance of state law. They cannot do so if litigants are dragged into federal court, where they can obtain only a prediction of how the state's highest court would rule. In this regard, we concur with the following comment:
State courts have a particularly compelling interest in deciding issues raised in a declaratory judgment action if the action is governed solely by state law. Mitcheson v. Harris, 955 F.2d 235, 238 (4th Cir. 1992). Not only do federal courts lack a compelling interest in deciding issues of state law, the federal courts' role in shaping state law is one which some judges have advocated should be limited. Federal courts' unnecessary forays into state law erode the "state courts' sovereign right and duty to develop state law." Delores K. Sloviter, A Federal Judge Views Diversity Jurisdiction Through the Lens of Federalism, 78 Va. L. Rev. 1671 (1992).
McDowell Oil Service v. Interstate Fire and Casualty Co., 817 F. Supp. 538, 545 (M.D. Pa. 1993) (McClure, J.).
We will issue an appropriate order. In doing so, we will dispose of the Johnmans' motion for appointment of an attorney for the Cassels, which has been rendered moot by our decision not to exercise jurisdiction.
William W. Caldwell
United States District Judge
Date: September 27, 1994
AND NOW, this 27th day of September, 1994, it is ordered that:
1. The Johnman defendants' motion to dismiss is granted and this action is hereby dismissed.