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Reifer v. Westport Insurance Corp.

United States District Court, Third Circuit

May 1, 2013

ROX-ANN REIFER, assignee of Donald Russo, Esquire, Plaintiff,
v.
WESTPORT INSURANCE CORPORATION, Defendant.

MEMORANDUM

MATTHEW W. BRANN, District Judge.

I. BACKGROUND:

On March 1, 2012, plaintiff, Rox-Ann Reifer (hereinafter "Reifer"), as assignee of Donald Russo, Esquire, filed a complaint in the Court of Common Pleas of Lackawanna County, Pennsylvania. On March 23, 2012, defendant, Westport Insurance Corporation (hereinafter "Westport") removed the case to the District Court for the Middle District of Pennsylvania. Def.'s Notice of Removal, ECF No. 1.

On March 30, 2012, Westport filed a Motion to Dismiss. Def.'s Mot. to Dismiss, ECF No. 5. On May 20, 2012, Reifer filed a Motion to Amend/Correct the Notice of Removal. Pl.'s Mot. To Amend/Correct Notice of Removal, ECF. No. 20. On October 12, 2012, Magistrate Judge Thomas M. Blewitt considered the case on its merits and filed a forty-one-page Report and Recommendation recommending that Reifer's Motion to Amend be denied and Westport's Motion to Dismiss be granted. Report and Recommendation, ECF No. 24.

Reifer and Westport both filed objections to the report and recommendation. Pl.'s Objections, November 21, 2012, ECF No. 27 and Def.'s Resp., December 5, 2012, ECF No. 28. When objections are filed to the report and recommendation of a magistrate judge, the district court makes "a de novo determination of those portions of the report or specified proposed findings or recommendations to which objections are made." 28 U.S.C. § 636(b)(1)(C); United States v Raddatz, 447 U.S. 667, 674-75; 100 S.Ct. 2406; 65 L.Ed.2d 424 (1980). The court may accept, reject or modify, in whole or in part, the magistrate judge's findings or recommendations. Id. Although the standard of review is de novo, 28 U.S.C. § 636(b)(1) permits whatever reliance the district court, in the exercise of sound discretion, chooses to place on a magistrate judge's proposed findings and recommendations. Raddatz, 447 U.S. at 675; see also Mathews v Weber, 423 U.S. 261, 275 (1976); Goney v. Clark, 749 F.2d 5, 7 (3d Cir. 1984).

II. DISCUSSION:

Although Magistrate Judge Blewitt wrote a through Report and Recommendation on the merits, the undersigned is unable to adopt it because the court will decline to exercise jurisdiction over the matter, and it will be remanded to state court.

The court does adopt the facts as recited by Magistrate Judge Blewitt, and they are as follows. Reifer was a client of Donald P. Russo, Esquire (hereinafter "Russo"). Russo admitted liability in an underlying legal malpractice suit brought by Reifer against him, and the two went to trial in the Court of Common Pleas of NorThampton County, Pennsylvania[1] on the issue of damages only. The jury awarded Reifer a judgment in the amount of $4, 251, 516.00. Russo assigned any rights he may have had under his legal malpractice insurance policy with Westport to Reifer. Reifer then filed the instant action in the Court of Common Pleas of Lackawanna County, Pennsylvania for a Declaratory Judgment against Westport pursuant to Pennsylvania's Declaratory Judgments Act, 42 Pa.C.S.A. §§ 7531, et. seq. Westport then removed the case to the District Court for the Middle District of Pennsylvania and filed a Motion to Dismiss Reifer's action on the merits.

Increasingly, the practice of the District Courts sitting in Pennsylvania is to decline to exercise jurisdiction over declaratory judgment actions, involving an insurance company, that are solely brought on diversity, and have no federal question or interest. As discussed below, this is certainly not settled law. It does, however, appear to be the trend of many District Courts in Pennsylvania, and as such, one which the undersigned will follow.

In the leading case on this issue, State Auto Ins. Cos. v. Summy, 234 F.3d 131 (3d Cir. 2000), the Third Circuit Court of Appeals held that a District Court should have declined to exercise jurisdiction over a suit brought pursuant to the federal Declaratory Judgments Act, 28 U.S.C. §§ 2201-2202. In Summy, the parents of Bryant Dixon, brought suit against their landlords on behalf of their son who was poisoned by lead paint in his home. Id. at 131. State Auto Insurance Company ("hereinafter State Auto") notified the insured landlord that coverage was excluded under the policy. Id. at 132. State Auto sought a declaratory judgment in the Eastern District of Pennsylvania. Id. The landlords filed both a motion to dismiss, arguing that the federal court should decline to exercise jurisdiction, and also filed its own suit for declaratory judgment in state court. Id. The district court denied the landlord's motion to dismiss. Id.

Because the interpretation of the insurance policy clause was not settled law in Pennsylvania, and also because of the concurrent pending state court declaratory judgment litigation, and because the jurisdiction conferred by the federal Declaratory Judgments Act is discretionary, the Third Circuit vacated the decision of the District Court and remanded with directions to dismiss the complaint. Summy, 234 F.3d at 136. The Third Circuit explained that "[i]n order to maintain the proper relationship between federal and state courts, it is important that district courts "step back" and allow the state courts the opportunity to resolve unsettled state law matters." Id. "It follows that the state's interest in resolving its own law must not be given short shrift simply because one party or, indeed, both parties, perceive some advantage in the federal forum." Id.

The Third Circuit cited to its own prior precedent and explained that District Courts do "not have open-ended discretion to decline jurisdiction over a declaratory judgment action when the issues include[] federal statutory interpretation, the government's choice of a federal forum, an issue of sovereign immunity, or inadequacy of the state proceeding." Summy, 234 F.3d at 134. The Summy Court set forth a tripartite test to determine when District Courts must decide to hear declaratory judgment actions in involving insurance coverage issues restricted to state law, as follows:

1. A general policy of restraint when the same issues are pending in a state court;
2. An inherent conflict of interest between an insurer's duty to defend in a state court and its attempt to characterize that suit in federal court as ...

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