First Financial Ins. v. Crossroads Lounge

140 F.Supp.2d 686

FIRST FINANCIAL INSURANCE COMPANY, Plaintiff, v. CROSSROADS LOUNGE, INC., a corporation and Monroe Scarbro, Defendants.

CIV. A. No. 5:00-1172.

United States District Court, S.D. West Virginia, Beckley Division.

May 21, 2001.

ORDER

CHAMBERS, District Judge.

Pending before the Court is Defendant Monroe Scarbro's February 1, 2001 supplemented motion to dismiss. For the reasons discussed below, Defendant's motion is DENIED WITHOUT PREJUDICE.

I. Statement of the Case

This case presents but a slight twist on an old, but common, theme: "An insurer, anticipating a coercive suit, sought a declaration in federal court of nonliability on an insurance policy." Wilton v. Seven Falls Co., 515 U.S. 277, 282, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (describing district court case both in Wilton and in Brillhart v. Excess Ins. Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942)). Like the district courts in Wilton and Brillhart, this Court has discretionary authority to entertain Plaintiff's declaratory judgment action. The issue here is whether, in light of Supreme Court and Fourth Circuit precedence, the Court should decline to exercise that authority.

In August 2000, Defendant Monroe Scarbro filed a complaint in the Circuit Court of Raleigh County, West Virginia. As amended, that complaint alleges that in December 1999, Scarbro was brutally beaten at the hands of certain patrons and employees of a bar owned by Defendant Crossroads Lounge, Inc. (Crossroads). See Scarbro v. Crossroads Lounge, Inc., No. 00-C-761-B (Raleigh County, W. Va. Aug. 16, 2000). Defendant Crossroads is insured under a commercial general liability insurance policy issued by Plaintiff. Plaintiff claims that certain clauses of that policy (an assault and battery exclusion and a liquor liability exclusion) exclude coverage for any damage that might have been suffered by Defendant Scarbro. Pursuant to the federal Declaratory Judgment Act (DJA), see 28 U.S.C. § 2201, Plaintiff filed the instant case on December 12, 2000, requesting that this Court declare that Plaintiff has neither a duty to defend Defendant Crossroads in the Raleigh County case nor a duty to pay any damages that might be awarded in the Raleigh County case to Defendant Scarbro against Defendant Crossroads. See also FED. R. CIV. P. 57 (providing in pertinent part that "[t]he procedure for obtaining a declaratory judgment pursuant to ... § 2201[] shall be in accordance with these rules ...."). Defendant Scarbro moves this Court to exercise its discretion and to dismiss this case in favor of resolution of the issues in the state court.

The parties do not dispute that Plaintiff, from North Carolina, and Defendants, from West Virginia, are of completely diverse citizenship, or that the amount in controversy exceeds the statutory threshold, currently $75,000. See 28 U.S.C. § 1332(a)(1). Diversity jurisdiction over this action is thus proper under § 1332.

II. The Declaratory Judgment Act

A. The Qualified Duty of Federal Courts to Exercise Their Jurisdiction

The Supreme Court has "often acknowledged that federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 821, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) ("[F]ederal courts have a `virtually unflagging obligation ... to exercise the jurisdiction given them'"). As the Quackenbush court also recognized, "[t]his duty is not, however, absolute." 517 U.S. at 716, 116 S.Ct. 1712 (citing Canada Malting Co. v. Paterson S.S., Ltd., 285 U.S. 413, 422, 52 S.Ct. 413, 76 L.Ed. 837 (1932) ("the proposition that a court having jurisdiction must exercise it, is not universally true")). The Supreme Court has allowed, and in some exceptional circumstances required, federal courts to abstain from hearing cases otherwise properly before them where, for example, federal intervention would upset the carefully crafted balance between state and federal sovereignties. See, e.g., Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) (holding that federal courts should refrain from hearing cases that would interfere with pending state criminal proceedings); Railroad Comm'n of Tex. v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941) (holding that federal courts should refrain from resolving federal constitutional questions before state court has been afforded opportunity to interpret ambiguous state law and thereby avoid constitutional difficulty); Colorado River, supra (holding that federal courts should avoid cases duplicative of state proceedings); Burford v. Sun Oil Co., 319 U.S. 315, 334, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) ("Conflicts in the interpretation of state law, dangerous to the success of state policies, are almost certain to result from the intervention of the lower federal courts.").

The DJA gives rise to one such extraordinary circumstance. The Act provides that federal courts "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C.A. § 2201 (emphasis added).¹ Thus, the authority of federal courts to entertain declaratory judgments, equitable in nature, is discretionary. See Wilton v. Seven Falls Co., 515 U.S. 277, 282, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995); Brillhart v. Excess Ins. Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942); Quackenbush, 517 U.S. at 721, 116 S.Ct. 1712 ("federal courts not only have the power to stay the action based upon abstention principles, but can also, in otherwise appropriate circumstances, decline to exercise jurisdiction altogether by either dismissing the suit or remanding it to state court." (citing Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 297, 63 S.Ct. 1070, 87 L.Ed. 1407 (1943))); Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 257 (4th Cir.1996) ("Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In 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." (quoting Wilton, 515 U.S. at 288, 115 S.Ct. 2137) (internal block quotation reformatted)); Mitcheson v. Harris, 955 F.2d 235, 237 (4th Cir.1992); Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 324 (4th Cir. 1937).

Federal courts are therefore afforded "`great latitude in determining whether to assert jurisdiction'" over such cases. United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir.1998) (quoting Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422 (4th Cir.1998)); see Wilton, 515 U.S. at 286-88, 115 S.Ct. 2137 (observing that DJA's "textual commitment to discretion, and the breadth of leeway we have always understood it to suggest, distinguish the declaratory judgment context from other areas of the law in which concepts of discretion surface" and calling DJA "remedial arrow in the district court's quiver [creating] an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants" (citing E. BORCHARD, DECLARATORY JUDGMENTS 312-314 (2d ed.1941); Borchard, Discretion to Refuse Jurisdiction of Actions for Declaratory Judgments, 26 MINN. L. REV. 677 (1942); O. FISS & D. RENDLEMAN, INJUNCTIONS 106-108 (2d ed.1984))).

B. Fourth Circuit Framework

This qualification (represented by a district court's discretion to abstain from hearing a declaratory judgment) to the ordinary rule (that a district court has a duty to exercise jurisdiction conveyed) is itself circumscribed, if but loosely. Thus, for example, "a district court may not refuse to entertain a declaratory judgment action out of `whim or personal disinclination,' [Public Affairs Assoc., Inc. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 7 L.Ed.2d 604 (1962)], but may do so only for `good reason.' [Quarles, 92 F.2d at 324]." Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994); cf. Allstate Ins. Co. v. DiGiorgi, 991 F.Supp. 767, 768 (S.D.W.Va.1998) (Haden, C.J.) (noting that Fourth Circuit framework is "[c]onsistent with Wilton"); but cf. Poston, 88 F.3d at 257-58 ("To whatever extent our previous decisions have implied further constraints on district court discretion, see, e.g., Nautilus, 15 F.3d at 375, those decisions must give way to the clear teachings of Wilton.").²

In the Fourth Circuit, "district courts are not without guidance in exercising this discretion." Kapiloff, 155 F.3d at 493. First, in Quarles, supra, the court of appeals noted that a declaratory judgment should not be used "to try a controversy by piecemeal, or to try particular issues without settling the entire controversy, or to interfere with an action which has already been instituted." Quarles, 92 F.2d at 325. To that end, the Quarles court held that a district court should normally entertain a declaratory judgment action otherwise within its jurisdiction "(1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Id. (quoting BORCHARD, supra, at 107-09). These factors also further ensure that the parties meet the Constitution's "case or controversy" requirement.³ See U.S. CONST., art. III, § 2.

Second, in Mitcheson, the court considered a case where an insurer sought declaratory judgment while⁴ underlying litigation against the insured was pending in a state court. The Mitcheson court added to the Quarles factors the considerations of comity, efficiency, and federalism. 955 F.2d at 237-40. In such a case, the M...