Farm Bureau Prop. & Cas. Ins. Co. v. Gomez

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FARM BUREAU PROPERTY & CASUALTY INSURANCE CO., Plaintiff, v. CHRISTOPHER GOMEZ and IDA ORNELAS, Defendants.

No. 21-CV-527-BRB-GJF

United States District Court, D. New Mexico

October 4, 2021

ORDER DENYING DEFENDANT ORNELAS'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, MOTION TO STAY

Bobby R. Baldock, United States Circuit Judge Sitting by Designation

In June 2021, Plaintiff Farm Bureau Property & Casualty Co. (“Plaintiff”), filed a complaint in this Court seeking a declaration clarifying its obligations to its alleged insured, Christopher Gomez. (Doc. 1). Specifically Plaintiff asks the Court to declare that it owes neither a duty to defend nor a duty to indemnify Gomez in an underlying lawsuit pending in New Mexico state court. Gomez has been served but has not answered Plaintiff's complaint. The plaintiff in the underlying state action, Defendant Ida Ornelas (“Defendant Ornelas”), however, has answered Plaintiff's complaint and filed a motion to dismiss or, in the alternative, stay this action pending the outcome of the state court proceedings. (Docs. 5, 6). The Court now considers this motion. For the reasons stated herein and in a sound exercise of its discretion, the Court shall deny Defendant Ornelas's motion and retain jurisdiction over this action.^[1]

I.

The historical facts of this case, as articulated in the underlying state complaint, appear undisputed. On April 8, 2019, Defendant Ida Ornelas was at her grandmother's home in Artesia, New Mexico, when Defendant Christopher Gomez broke in and attacked her. Ornelas and Gomez had been in a three-year relationship and have a child together. Gomez is a recovering drug addict who was physically and emotionally abusive to Ornelas. Ornelas ended her relationship with Gomez and obtained a restraining order against him. Ornelas subsequently entered a new relationship and went to Artesia General Hospital to have a pregnancy test confirmed. The results of that pregnancy test were conveyed to Gomez without Ornelas's permission and in apparent violation of the Health Insurance Portability and Accountability Act (HIPAA).

A few days after that disclosure, Gomez arrived at Ornelas's grandmother's home and broke in. Ornelas hid in a closet with her child and Gomez's other child from a previous relationship, who was also staying at the house. Gomez dragged Ornelas out of the closet and proceeded to beat and stab her. The police arrived and deployed a taser on Gomez, ending the attack. Ornelas suffered severe injuries and had to be airlifted to a hospital in Lubbock, Texas to receive treatment.

In April 2019, Ornelas filed the underlying lawsuit in New Mexico state court against Gomez, Artesia General Hospital, and the nurse who allegedly disclosed the results of Ornelas's pregnancy test to Gomez. Ornelas v. Artesia Gen. Hosp., No. D-503-CV-201900713 (N.M. 5th Dist., Eddy Co., filed April 25, 2019) (“Ornelas action”). The Ornelas action seeks damages for negligence, respondeat superior, assault, battery, intentional infliction of emotional distress, negligent infliction of emotional distress, and loss of consortium. Plaintiff is not a party to the Ornelas action and was not notified about Defendant Ornelas's claim against Gomez until February 2021. Plaintiff agreed to defend Gomez pursuant to an insurance policy held by his father, Lawrence Gomez, but subjected that defense to a complete reservation of rights.

Plaintiff subsequently filed this suit pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 seeking a declaration that it does not owe Gomez a duty to defend or indemnify in the Ornelas action. Plaintiff's complaint sets forth five arguments explaining why it should not be obligated to defend or indemnify Gomez. First, Plaintiff alleges that Gomez's failure to notify it of the Ornelas action in a timely manner absolves it of any duties under the policy. Second, Plaintiff claims that Gomez is not actually covered by the policy at all because he is not a named insured and is not part of the “household” as defined by the policy. Third, Plaintiff asserts that the claims in the Ornelas action fall within the policy's “Molestation or Abuse exclusion, ” eliminating any duty to defend or indemnify.

Fourth, Plaintiff argues that the policy's “Intentional Acts exclusion” covers the acts alleged in the Ornelas action and precludes coverage. Finally, Plaintiff alleges the policy does not cover the Ornelas action's claim for exemplary and punitive damages.

Defendant Ornelas has filed a motion to dismiss, arguing the Court should exercise its discretion to decline jurisdiction in this case.^[2] Alternatively, Defendant Ornelas asks the court to stay the action until the state proceedings are completed. Plaintiff opposes this motion and argues the Court should exercise jurisdiction over the case.

II.

The Declaratory Judgment Act provides that a court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). The Supreme Court has “repeatedly characterized the Declaratory Judgment Act as ‘an enabling act, which confers a discretion on the courts rather than an absolute right upon the litigant.'” Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm'n v. Wycoff Co, 344 U.S. 237, 241 (1952)); see also Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942) (holding that although a district court with proper jurisdiction could have resolved a declaratory action, “it was under no compulsion” to do so.).

Brillhart and Wilton are “the seminal cases dealing with discretion to dismiss or stay ‘declaratory judgment actions.'” United States v. City of Las Cruces, 289 F.3d 1170, 1181 (10th Cir. 2002). In Brillhart, the Court detailed certain factors that courts should consider when addressing this issue, including “the scope of the pending state court proceeding and . . . . whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding.” 316 U.S. at 495. The Court further cautioned against “[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation.” Id.

In Wilton, the Supreme Court reaffirmed “the Brillhart regime, under which district courts have substantial latitude in deciding whether to stay or dismiss a declaratory judgment suit in light of pending proceedings.” 515 U.S. at 286. Wilton further reiterated that, “[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. The Court emphasized, however, that it was addressing the question of which line of cases “governs a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings.” Id. at 279 (emphasis added). Because Wilton addressed a case where both the underlying state action and the federal declaratory action “encompassed the same coverage issues, ” the Court expressly limited the applicability of its holding to parallel proceedings. Id. at 280; see Id. at 290 (“Like the Court of Appeals, we conclude only that the District Court acted within its bounds in staying this action for declaratory relief where parallel proceedings, presenting opportunity for ventilation of the same state law issues were underway in the state court.”).

In sum, these cases establish a district court's discretion to retain or dispose of declaratory actions, while cautioning against unnecessary interference in ongoing parallel state proceedings. The Declaratory Judgment Act would serve little purpose, however, if Brillhart and its progeny are mechanically read to require the dismissal or stay of a declaratory action in all but the most unusual of circumstances.

III.

The Tenth Circuit has also expounded upon the principles laid out in Brillhart and Wilton. Like the Supreme Court, the Tenth Circuit has afforded district courts substantial discretion and deference in their handling of declaratory actions. See, e.g., Kunkel v. Continental Cas. Co., 866 F.2d 1269 (10th Cir. 1989); State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979 (10th Cir. 1994) (White, J., sitting by designation); St. Paul Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167 (10th Cir. 1995). Nevertheless, the Tenth Circuit has provided “substantial guidance” to district courts considering the appropriateness of jurisdiction in a declaratory action. Mhoon, 31 F.3d at 983.

For example, in Kunkel v. Continental Casualty Company, the Tenth Circuit addressed a case “where the existence of coverage remain[ed] dependent upon” the determination of facts at issue in underlying or collateral actions. 866 F.2d at 1271. The Kunkel Court cautioned that “[a] federal court generally should not entertain a declaratory judgment action over which it has jurisdiction if the same fact-dependent issues are likely to be decided in another pending proceeding.” Id. at 1276 (citing Brillhart, 316 U.S. at 495). Nonetheless, the Kunkel Court was careful to carve out the caveat that “nothing in the Declaratory Judgment Act prohibits a court from deciding a purely legal question of contract interpretation which arises in the context of a justiciable controversy presenting other factual issues.” Id. (emphasis added).

Later the Tenth Circuit issued what is, in many respects, the key authority on whether a district court should retain jurisdiction over a declaratory action. In State Farm Fire & Casualty Company v. Mhoon, the Tenth Circuit considered an instance where the district court had not only retained jurisdiction over the action but had rendered judgment on the merits in favor of the insurance company as...