United States District Court, E.D. Pennsylvania
January 15, 2015
STATE NATIONAL INSURANCE CO., INC., Plaintiff,
DALE LANDIS and JOHN LANDIS, as Administrators and Persons Representing the ESTATE OF CHARLES L. LANDIS, DUSTON LEWIS, VINCENT MASTNDREA, JUNE JOHNSON, KEVIN JOHNSON, WILLIAM JOHNSON, and J & B HOTEL, INC., Defendants.
EDWARD G. SMITH, District Judge.
This case is of a common variety: an insurance company seeks a declaration that it owes neither a duty to defend nor a duty to indemnify a business entity and certain individuals in an underlying state court action. Before any proceedings of substance on the merits have taken place, the court sua sponte raises the question of whether the court should decline to exercise jurisdiction under the Declaratory Judgment Act ("DJA"), 28 U.S.C. §§ 2201-2202. In response, the parties agree that this case raises purely state-law issues, although they disagree about the impact of the state court action on the instant matter. While these observations, standing alone, help frame the mechanism of resolution, they do not exhaust it. For what ultimately is required is a synthesis of these observations, among others, within the context of understanding the scope of federal power. Undertaking such a synthesis, the court applies recent Third Circuit precedent to conclude that the court should indeed decline to exercise jurisdiction over this matter and dismiss the complaint.
I. ALLEGATIONS AND PROCEDURAL HISTORY
On January 27, 2014, the plaintiff, State National Insurance Co., Inc., filed a complaint against the defendants, Dale Landis and John Landis, as administrators and persons representing the estate of Charles L. Landis, Duston Lewis, Vincent Mastandrea, June Johnson, Kevin Johnson, William Johnson, and J & B Hotel, Inc., in which it advances a single claim for declaratory relief in connection with an action currently pending in the Court of Common Pleas of Lancaster County. Compl. at ¶¶ 16, 25-27, Doc. No. 1. That action, commenced on October 4, 2012, and docketed at CI-12-14795, involves allegations that the defendant, Duston Lewis ("Lewis"), struck, and eventually ran over, Charles Landis ("Landis") with his car while intoxicated. Id. at Ex. A, Am. Compl. After receiving treatment at Lancaster General Hospital, Landis died on January 5, 2012. Id. The controlling complaint in state court asserts various state statutory and common law claims against Le\vis, the corporation operating the establishment at which Lewis consumed alcoholic beverages, namely J & B Hotel, Inc., and numerous purported agents of that corporation, including Vincent Mastandrea, Kevin Johnson, William Johnson, and June Johnson, and seeks compensation for Landis's death. Id.
As is common in the insurance industry, the plaintiff filed the instant complaint in federal court for the sole purpose of obtaining a declaration pursuant to the DJA that it does not owe a duty to either defend or indemnify the defendants, Vincent Mastandrea, Kevin Johnson, William Johnson, June Johnson, and J & B Hotel, Inc., in the underlying state court litigation under an insurance policy issued to J & B Hotel, Inc. for the policy period of May 2, 2011, to May 2, 2012. Compl. at ¶¶ 15, 20, 25-27. More specifically, the plaintiff contends that it owes no such duties because the allegations surrounding the state court action fall squarely within the confines of two policy exclusions, namely a liquor liability exclusion and an assault and battery exclusion. Id. at ¶¶ 21-23.
After the plaintiff effectuated service,  the defendants, Vincent Mastandrea, Kevin Johnson, William Johnson, and J & B Hotel, Inc. (the "Hotel Defendants"), filed an answer to the complaint on February 26, 2014. Answer of the Defs. Vincent Mastandrea, Kevin Johnson, William Johnson, and J & B Hotel, Inc., Doc. No. 4. The defendants, Dale Landis and John Landis, as administrators and persons representing the estate of Charles L. Landis (the "Estate Defendants"), filed an answer to the complaint shortly thereafter. Answer and Affirmative Defenses of Defs. Dale Landis and John Landis as Adm'rs and Perss. Representing the Estate of Charles L. Landis to Compl. for Declaratory J., Doc. No. 5. Chief Judge Petrese B. Tucker transferred this matter from the Honorable Lawrence F. Stengel to the undersigned on May 2, 2014. Order, Doc. No. 7.
On June 27, 2014, and after conducting a review of the complaint, the court issued an order to show cause inviting the parties to brief the question of whether the court should decline to exercise jurisdiction over this matter given both the discretionary nature of the DJA and the recent holding of Reifer v. Westport Ins. Corp., 751 F.3d 129 (3d Cir. 2014). Order to Show Cause, Doc. No. 9. The court set a briefing schedule and scheduled oral argument to occur in conjunction with the initial pretrial conference on August 12, 2014. Id.
The plaintiff filed its response on July 9, 2014, in which it argues that the court should exercise jurisdiction over this matter in part because the underlying state court action does not constitute a parallel state proceeding. Pl.'s Resp. to June 27, 2014; Order to Show Cause ("Pl.'s Resp.") at 4-5, Doc. No. 10. Employing substantially similar reasoning, both sets of defendants filed responses on July 24, 2014, in which they separately request that the court decline to exercise jurisdiction over this case. Answer of the Defs. Vincent Mastandrea, Kevin Johnson, William Johnson, and J & B Hotel, Inc. to Rule to Show Cause ("Answer of Hotel Defendants"), Doc. No. 11; Defs.' Br. in Opp'n to Pl.'s Resp. to Order to Show Cause ("Answer of Estate Defendants"), Doc. No. 12. Though the response of the Estate Defendants covers more ground in breadth and depth than that of the Hotel Defendants, neither response directly challenges the plaintiffs characterization of the underlying state court action as something other than a parallel proceeding. Answer of Hotel Defendants at 2-4; Answer of Estate Defendants at 7-9.
The court held oral argument on August 12, 2014, and the jurisdictional issue is ripe for disposition.
A. Governing Analytical Framework
The DJA provides that a jurisdictionally-competent federal court "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a) (emphasis added). Through the vehicle of establishing a remedy, Congress textually carved out a sphere of discretion into an otherwise "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976) (citations omitted). In other words, the "statute's textual commitment to discretion" vests federal courts with "unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) (citations omitted). While "the Supreme Court has... framed DJA discretion in broad terms, " it has also made the point that a court's exercise of that discretion "is bounded and reviewable." Reifer, 751 F.3d at 139-40. Determining the precise boundaries of DJA discretion, then, has been a lively topic of judicial inquiry for, at minimum, the last seventy years.
Although undergirded by the common theme that a court's exercise of DJA discretion must be "sound and reasoned, " the controlling standard to be applied has evolved over time and has recently culminated into a rebuttable presumption analysis informed by a multi-factor balance test. See id. at 139-40, 146 (observing this theme, but taking it through various rhetorical iterations). Beginning with Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942), a case involving pending state garnishment proceedings, the Supreme Court described the district court's duty under the circumstances presented as an ascertainment of "whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in the state court." Id. at 495. The Court described this duty against the theoretical backdrop of avoiding "[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation." Id. In implementing this duty, the Court instructed that lower courts may be required to survey "the scope of the pending state court proceeding and the nature of defenses open there, " including "whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, whether such parties are amenable to process in that proceeding, etc." Id. The Court cautioned, however, that its holding could not be read to foreclose the possibility that a court may be required to consider additional, or possibly wholly different, factors in the exercise of its DJA discretion in other cases. See id. (noting that the holding was not an attempt to comprehensively enumerate the factors bearing on a court's exercise of DJA discretion).
Approximately fifty years later, the Court confirmed the vitality of "the Brillhart standard to the Brillhart facts" in Wilton v. Seven Falls Co., 515 U.S. 277 (1995), and, in doing so, drew out the essence of DJA discretion in rather capacious terms. Id. at 286; see Reifer, 751 F.3d at 139 (stating that the Supreme Court has generally "framed DJA discretion in broad terms" (citation omitted)). After analyzing the facts of Brillhart and the development of abstention post-Brillhart, the Court reaffirmed that "[d]istinct features of the Declaratory Judgment Act... justify a standard vesting district courts with greater discretion in declaratory judgment actions than" in actions potentially amenable to abstention. Wilton, 515 U.S. at 286. The propriety of declaratory relief in any given case, the Court went on, is to be "informed by the teachings and experience concerning the functions and extent of federal judicial power." Id. at 287 (internal quotation marks and citation omitted). And again, "[i]n the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Id. at 288. Against this broad language, and as with Brillhart, the Court was careful to limit its holding, leaving for another day a delineation of the "outer boundaries of [DJA] discretion in other cases, for example, cases raising issues of federal law or cases in which there are no parallel state proceedings." Id. at 290.
That day arrived, albeit not at the Court, when the Third Circuit decided Reifer v. Westport Ins. Corp., 751 F.3d 129 (3d Cir. 2014), and clarified the contours of DJA discretion by providing district courts with a uniform and comprehensive approach to resolving questions of jurisdiction when litigants request the remedy of a declaratory judgment. See id. at 137, 146 (stating the court's intent to "clarify this area of the law" and provide "a uniform approach" for addressing this issue). Reifer picked up where Brillhart and Wilton left off in terms of framing the issue presented as one that required the court to address the "outer boundar[y] of a district court's discretion under the DJA, specifically whether a district court may decline jurisdiction over a declaratory judgment action when there are no parallel state proceedings." Id. at 137 (internal quotation marks and citation omitted). The court tackled this question, and through it reaffirmed the Supreme Court's teachings as to the core cases of DJA discretion-namely cases involving the presence of parallel state proceedings-by establishing a framework, comprised of two, interlocking parts, for trial courts to apply to core and outer boundary cases alike. See id. at 143 (breaking down its analysis into a resolution of two issues: "(1) the effect on a district court's DJA discretion of the absence of pending parallel state proceedings, and (2) assuming the district court maintains discretion in such circumstances, the scope of that discretion").
The first part of the analysis takes the form of a rebuttable presumption scheme, with the presence or absence of parallel state proceedings serving as the fulcrum. See, e.g., 1100 Adams St. Condo. Ass'n, Inc. v. Mt. Hawley Ins. Co., No. 14-2203 SDW, 2014 WL 5285466, at *7 (D.N.J. Oct. 15, 2014) (suggesting that the presence of a parallel state action triggers a "presumption" against jurisdiction); Owen v. Hartford Ins. Co., No. 14-924 RBK/JS, 2014 WL 2737842, at *7 (D.N.J. June 17, 2014) (citation omitted) (same). As stated in pure form:
[T]he absence of pending parallel state proceedings militates significantly in favor of exercising jurisdiction, although it alone does not require such an exercise. In this circumstance, as part of exercising sound and reasoned discretion, district courts declining jurisdiction should be rigorous in ensuring themselves that the lack of pending parallel state proceedings is outweighed by opposing factors. This same rationale applies when state proceedings do exist. The existence of pending parallel state proceedings militates significantly in favor of declining jurisdiction, although it alone does not require doing so. In this circumstance, as part of exercising sound and reasoned discretion, district courts exercising jurisdiction should be rigorous in ensuring themselves that the existence of pending parallel state proceedings is outweighed by opposing factors.
Reifer, 751 F.3d at 144-45. In other words, the absence of pending parallel state proceedings creates a rebuttable presumption in favor of jurisdiction unless good reasons exist for overriding this presumption. In converse, the presence of pending parallel state proceedings creates a rebuttable presumption against jurisdiction unless, again, good reasons exist for overriding this presumption.
The second part of the Reifer analysis, in turn, is devoted to guiding a court's discretion in determining whether to override the applicable presumption. See id. at 145-47 (laying out factors to guide a district court's discretion when considering whether the presumption should be given dispositive weight (footnotes and citations omitted)). This part of the analysis takes the form of a multi-factor balance test, the application of which "should be articulated in a record sufficient to enable" effective appellate review. Id. at 147. In addition to considering the Brillhart standard (articulated above), courts should begin this part of the analysis by considering the following factors, to the extent relevant:
(1) the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the uncertainty of obligation;
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are pending in a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata; and
(8) (in the insurance context), 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 falling within the scope of a policy exclusion.
Id. at 146. As the circumstances dictate, courts may also be required to consult additional guideposts, such as whether federal interests would be served by hearing the matter in federal court and whether a state forum is better suited to deal with any state-law issues.
3. Parallel State Proceedings
Of critical importance to the Reifer analysis, then, is a determination of whether an underlying state court action constitutes a "parallel state proceeding" capable of triggering a rebuttable presumption against jurisdiction. See id. at 144 (agreeing with other circuit courts that "the existence or non-existence of pending parallel state proceedings" deserves "increased emphasis" (citations omitted)). Although the text of the DJA does not answer this question, both Brillhart and Wilton provide some initial insight. In Brillhart, the Court classified the pending state garnishment proceeding as a proceeding "pending in a state court in which all the matters in controversy between the parties could be fully adjudicated." Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942) (emphasis added). In determining whether the issues presented in the federal suit "can better be settled in the proceeding pending in the state court, " the Court emphasized that the district court should have considered whether some aspect of state procedural or substantive law foreclosed the ability to vet those issues in the state proceeding. See id. at 495-96 (observing that the district court "did not consider whether, under applicable local law, the claims sought to be adjudicated by the respondent in this suit for a declaratory judgment had either been foreclosed by Missouri law or could adequately be tested in the garnishment proceeding pending in the Missouri state court"). In a similar vein, Wilton characterized the pending state court action as "parallel proceedings, presenting opportunity for ventilation of the same state law issues." Wilton v. Seven Falls Co., 515 U.S. 277, 290 (1995) (emphasis added). Taken together, Brillhart and Wilton, with their focus on potentiality as opposed to present circumstance, appear to give the term "parallel state proceedings" a broad sweep, presumably to ensure that federalism concerns are not trumped by a race to the courthouse.
The Third Circuit has also suggested such a broad sweep. In Atlantic Mutual Insurance Co. v. Gula, 84 F.App'x 173 (3d Cir. 2003), the court reviewed a district court's declination of jurisdiction over a declaratory judgment action filed by an insurance company, an action in which the company sought a declaration of non-coverage with respect to claims presented in underlying state tort actions. See id. at 174. The insurance company argued that the district court had erred, in part, because the related state court action did not "expressly deal with the issue of coverage" that was raised in the federal action. Id. at 175. The court disagreed that this asymmetry counseled in favor of retaining jurisdiction because "even if the coverage issue is not currently pending, it will as a matter of logic necessarily arise before the matter is concluded in state court." Id. Although the court admittedly did not write this language in direct response to the question of whether the underlying state tort action constituted a "parallel state proceeding, " the court did write this language in concluding that the first Summy factor had been met, namely "[a] general policy of restraint when the same issues are pending in state court." Id. at 174-75 (emphasis added) (citation omitted).
Read in tandem, Gula squares nicely with Brillhart and Wilton in understanding a "parallel state proceeding" for purposes of DJA discretion as a currently-engaged state court action that is competent as a matter of state procedural and substantive law to allow full adjudication of all matters raised in the federal action. As Brillhart itself stated, courts "may have to consider whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, whether such parties are amenable to process in that proceeding, etc." Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942). In making this determination, courts will have to consult applicable state law. See id. at 495-97 (asserting that the district court should have consulted Missouri law to answer the above questions). Viewed in this way, Gula's import might best be viewed as a statement that garnishment proceedings typically provide an adequate opportunity under Pennsylvania law to test coverage issues surrounding underlying tort actions that are likely to be raised in federal declaratory judgment actions. See Scottsdale Ins. Co. v. Broaddus, No. 08-3241, 2009 WL 349697, at *5 (E.D. Pa. Feb. 11, 2009) (effectively reading Gula for this proposition).
Situated within the context of the above discussion, a proper analysis of this case may begin, but cannot end, with considering the parties' respective positions. For the most part, the parties hit the main talking points. While the plaintiff places great stock in the fact that the underlying Lancaster County action does not, in its view, constitute a parallel proceeding, both sets of defendants point to the nature of the decisional law to explain why this fact does not necessarily mandate the retention of jurisdiction. Pl.'s Resp. at 3-5; Answer of Hotel Defendants at 2-3; Answer of Estate Defendants at 8-11. All parties suggest that a ruling in their favor best serves the interests of judicial economy and party convenience. Pl.'s Resp. at 5; Answer of Hotel Defendants at 3-4; Answer of Estate Defendants at 10-11. The parties' analyses do not, however, manage to explain how these points fit together to come to any sort of principled conclusion as to how the court is to exercise DJA discretion. A full appreciation of Reifer, on the other hand, provides the tools necessary to understand how these points do fit together and, further, what a principled conclusion entails.
In coming to that conclusion, the court must first determine whether the underlying action currently pending in Lancaster County constitutes a parallel proceeding. As best as the court can discern, the plaintiff argues that the underlying state action does not constitute a parallel proceeding because the coverage issues have not been raised in state court and certain defendants in this action have opposed the plaintiffs request to intervene in the state court action. Pl.'s Resp. at 4-5. There is no indication that either set of defendants disagrees with this proposition. Answer of Hotel Defendants at 2-4; Answer of Estate Defendants at 8-10. The court, unfortunately, must respectfully disagree.
As seen above, the operative inquiry is whether Pennsylvania law renders the Lancaster County action procedurally and substantively competent to adjudicate the coverage issues raised in the instant action. As Gula suggests, the answer to this question is that it does. To conclude that the Lancaster County action is not a parallel proceeding for the reasoning advanced by the plaintiff would stand to eviscerate Brillhart and Wilton's undeniable focus on the potentiality of the state action. See, e.g., 1100 Adams St. Condo. Ass'n, Inc. v. Mt. Hawley Ins. Co., No. 14-2203 SDW, 2014 WL 5285466, at *5 (D.N.J. Oct. 15, 2014) (stating that "the state court action and the declaratory judgment action need not be strictly parallel (i.e., presenting identical claims and involving identical parties) in order for a district court to find that abstention under the DJA is warranted" (citation omitted)); Owen v. Hartford Ins. Co., No. 14-924 RBK/JS, 2014 WL 2737842, at *6 (D.N.J. June 17, 2014) (stating that "even where a coverage issue is not yet pending in an underlying litigation, and an insurance carrier is not presently a party there, abstention is appropriate where the coverage issue will as a matter of logic necessarily arise at some point in the state proceeding" (internal quotation marks and citation omitted)). As those cases teach, it is the potentiality of the state court proceeding, rather than its present composition, that allows the court to avoid "[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation." Brillhart, 316 U.S. at 495. Because the Lancaster County action has the potential to encompass the issues currently raised in this action, it is a parallel proceeding and the court, therefore, employs the applicable Reifer presumption in favor of declining jurisdiction.
Turning to the second part of the Reifer analysis, the court finds that the rebuttable presumption against jurisdiction is conclusive because there are no countervailing factors present capable of overriding it. At this point, the plaintiff is left to argue that the court should exercise jurisdiction because "[i]t is beyond reasonable dispute that [a] federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy, that there is a public interest in settlement of the uncertainty of obligation and that there will be no meaningful inconvenience to the parties if the declaratory judgment action is heard in federal court." Pl.'s Resp. at 5. Even assuming these statements to be true, the court finds that they are not enough to rebut the presumption against jurisdiction. For one thing, they must be weighed against the fact that the coverage issues are restricted to state law. For another, the force of these factors, in the form presented by the plaintiff, does not approach the type of force necessary to overcome the controlling presumption. The plaintiff points to no other factor that would warrant such an override and the court can locate none. The controlling presumption thus stands and the court declines jurisdiction.
Contrary to the parties' arguments, this case does not require the court to reach the outer boundaries of DJA discretion. Rather, this case presents classic circumstances for employing sound and reasoned discretion to decline jurisdiction and lends credence to the notion that "[t]he desire of insurance companies and their insureds to receive declarations in federal court on matters of purely state law has no special call on the federal forum." State Auto Ins. Cos. v. Summy, 234 F.3d 131, 136 (3d Cir. 2000). Accordingly, the court declines to exercise jurisdiction under the DJA and dismisses this matter without prejudice.
An appropriate order follows.
AND NOW, this 15th day of January, 2015, the court having issued an order to show cause on June 27, 2014, in which the court sua sponte raised the issue of declining jurisdiction over this insurance coverage matter under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, and invited the parties to brief this issue (Doc. No. 9); and the court having considered the parties' responses to the order to show cause laying out their respective positions (Doc. Nos. 10-12); and the court having heard argument on this jurisdictional issue on August 12, 2014; accordingly, for the reasons set forth in the accompanying memorandum opinion and in the sound and reasoned exercise of the court's discretion, it is hereby ORDERED as follows:
1. The complaint (Doc. No. 1) is DISMISSED WITHOUT PREJUDICE; and
2. The clerk of court is DIRECTED to mark this matter as CLOSED.