Markel Service Incorporated v. Atain Specialty Insurance Company

Filing 37

Order by Hon. Lucy H. Koh denying 15 Motion to Remand.(lhklc3, COURT STAFF) (Filed on 11/10/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
Northern District of California

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MARKEL SERVICE INCORPORATED,
Plaintiff,

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ORDER DENYING MOTION TO
REMAND

v.

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Case No. 16-CV-04304-LHK

Re: Dkt. No. 15
ATAIN SPECIALTY INSURANCE
COMPANY,
Defendant.

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Plaintiff Markel Service Incorporated (“Plaintiff”) brings this insurance coverage action

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against Defendant Atain Specialty Insurance Company (“Defendant”) seeking declaratory relief.

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ECF No. 34 (First Amended Complaint, or “FAC”). Before the Court is Plaintiff’s motion to

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remand the instant case to state court. ECF No. 15 (“Pl. Mot.”). Defendant opposes the motion.

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ECF No. 18 (“Def. Resp.”). The Court finds this matter appropriate for determination without oral

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argument and hereby VACATES the hearing set for November 17, 2016. See Civil L.R. 7-1(b).

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Having reviewed the parties’ submissions and the relevant law, the Court DENIES Plaintiff’s

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motion to remand.

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I.

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BACKGROUND
A. Factual Background
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Case No. 16-CV-04304-LHK
ORDER DENYING MOTION TO REMAND

Plaintiff is a Virginia corporation that provides insurance. FAC, at ¶ 13. Defendant is a

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Michigan corporation that also provides insurance. Id. ¶ 12. Plaintiff and Defendant both insure

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Norcal Motor Escort, LLC (“Norcal”), a motorcycle escort business. ECF No. 1, Ex. A

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(“Compl.”), at 7. Specifically, Norcal has an automobile insurance policy with Plaintiff, and

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Norcal has a general liability coverage policy with Defendant. Id.
The instant dispute arises out of an automobile collision that involved Norcal. FAC, at ¶ 3.

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On November 2, 2012, Norcal employees Mario Hernandez (“Hernandez”) and Robert Keyarts

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(“Keyarts”) were serving as motorcycle escorts for a funeral procession in San Jose, California.

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Id. at ¶¶ 2–3. Hernandez approached an intersection and began directing traffic and pedestrians
through the intersection. Id. at ¶ 3. A pedestrian, Brittany Cohen (“Cohen”), entered the

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United States District Court
Northern District of California

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intersection on a bicycle. Id. Keyarts, moving from the back of the funeral procession towards the

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intersection, attempted to break his motorcycle but “fell and slid into Cohen and Hernandez.” Id.
On October 31, 2014, Cohen sued Norcal, Hernandez, and Keyarts for negligence causes

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of action in the Superior Court of Santa Clara County. Id. ¶¶ 4–6.
On June 24, 2015, pursuant to the Commercial General Liability Policy that Norcal held

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with Defendant, Plaintiff tendered to Defendant the defense and indemnity of Norcal and

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Hernandez. Id. ¶ 7. On August 25, 2015, Defendant declined Plaintiff’s tender and refused to

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provide a defense or indemnity to Norcal, arguing that the funeral-procession collision was

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excluded from Defendant’s Commercial General Liability Policy under an “Auto Exclusion.” Id.

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¶ 8.

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Upon Defendant’s denial of the tender of defense and indemnity, Plaintiff “provided a

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defense and indemnified [Norcal] by paying $105,000.00 to Cohen for bodily injury damages.”

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Id. ¶ 10.

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B. Procedural History

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On May 13, 2016, Plaintiff sued Defendant in the Superior Court in Santa Clara County.

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Plaintiff alleged causes of action for subrogation and indebtedness and demanded monetary

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damages in the sum of $105,000. Compl. at 7–8.

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Case No. 16-CV-04304-LHK
ORDER DENYING MOTION TO REMAND

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On July 29, 2016, Defendant filed a notice of removal and removed this action to the U.S.

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District Court for the Northern District of California on the basis of diversity jurisdiction. ECF

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No. 1, at 1.

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On August 25, 2016, Plaintiff filed a motion to remand this action to state court. Pl. Mot.

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at 1. Plaintiff argued that this “is a classic insurance coverage dispute subject to state law and

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should be remanded.” Id. Plaintiff asserted that this Court “should exercise its broad discretion”

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under the Declaratory Judgment Act, 28 U.S.C. § 2201, and the “Abstention Doctrine” to “remand

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this action” to state court. Id. at 3.

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On August 29, 2016, Defendant filed a motion to dismiss Plaintiff’s Complaint under
Federal Rule of Civil Procedure 12(b)(6), asserting that Plaintiff had failed to state a claim for

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United States District Court
Northern District of California

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subrogation or indebtedness under California law. ECF No. 17.

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On September 8, 2016, Defendant filed a response in opposition to Plaintiff’s motion to

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remand. Def. Resp. at 1. Defendant asserted that Plaintiff’s state-court complaint did not seek

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declaratory relief; to the contrary, the Complaint requested solely monetary damages in the

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amount of $105,000. Id. at 3. Defendant asserted that, because this Court undoubtedly had

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subject-matter jurisdiction over the Complaint, and because the Complaint sought monetary relief,

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Plaintiff’s motion to remand should be denied. Id. at 3–4.

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On October 4, 2016, Plaintiff filed an opposition to Defendant’s motion to dismiss. ECF

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No. 23. Plaintiff asserted that its Complaint “adequately state[d] a cause of action for subrogation

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or declaratory relief” and that it “w[ould] move to amend its complaint to clarify the bases for its

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claim(s) for relief, including a request for declaratory relief.” Id. at 4.

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Plaintiff filed a First Amended Complaint (“FAC”) on October 12, 2016. FAC. Plaintiff’s

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FAC stated that “[t]his is an action for declaratory judgment pursuant to the Federal Declaratory

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Judgment Act, 28 U.S.C. § 2201.” Id. at 1. Plaintiff alleged four causes of action: duty to defend,

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duty to indemnify, declaratory judgment that defendant owed Norcal a duty to defend, and

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declaratory judgment that Defendant owed Norcal a duty to indemnify. Id. at ¶¶ 18–31. The FAC

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seeks only declaratory relief that “Defendant owes a duty to defend” Norcal, that “Defendant owes

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ORDER DENYING MOTION TO REMAND

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a duty to indemnify” Norcal, and that Defendant reimburse Plaintiff for the cost of providing a

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defense and indemnifying Norcal. Id. at 9.
Given the Plaintiff’s FAC, the Court denied Defendant’s motion to dismiss as moot on

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October 12, 2016. ECF No. 33. On October 25, 2016, Defendant answered the FAC. ECF No.

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36.

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II.

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LEGAL STANDARD
“Except as otherwise expressly provided by Act of Congress, any civil action brought in a

State court of which the district courts of the United States have original jurisdiction, may be

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removed by the defendant . . . to the district court of the United States for the district and division

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embracing the place where such action is pending.” 28 U.S.C. § 1441(a). Diversity of citizenship

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United States District Court
Northern District of California

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of the parties under 28 U.S.C. § 1332(a) vests a district court with original subject matter

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jurisdiction over a case, and thus represents a basis for removal. See 28 U.S.C. § 1441(b).

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Even when parties are diverse, however, a district court is not always required to assert

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jurisdiction over a case once it is removed to federal court. The Federal Declaratory Judgment Act

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provides that, “[i]n a case of actual controversy within its jurisdiction . . . any court of the United

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States, upon the filing of an appropriate pleading, may declare the rights and other legal relations

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of any interested party seeking such a declaration, whether or not further relief is or could be

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sought.” 28 U.S.C. § 2201(a) (emphasis added). Though “a District Court cannot decline to

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entertain such an action as a matter of whim or personal disinclination,” Pub. Affairs Assocs., Inc.

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v. Rickover, 369 U.S. 111, 112 (1962) (per curium), “[t]he exercise of jurisdiction under the

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Federal Declaratory Judgment Act, 28 U.S.C. § 2201(a), is committed to the sound discretion of

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the federal courts.” Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800, 802 (9th Cir. 2002)

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(citation omitted). Thus, if a court determines that its discretion is best exercised by declining to

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assert jurisdiction over a declaratory judgment case removed from state court on the basis of

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diversity of citizenship, it may remand the matter back to state court. See, e.g., Huth, 298 F.3d at

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802, 804 (affirming a district court’s order to remand a declaratory judgment action that had been

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removed under § 1332 back to state court after declining to exercise jurisdiction over the case).

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Case No. 16-CV-04304-LHK
ORDER DENYING MOTION TO REMAND

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In Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942), the United States Supreme

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Court “set[] forth the primary factors” that a district court should consider in exercising its

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discretion under Section 2201(a) of the Federal Declaratory Judgment Act.” Huth, 298 F.3d at

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803. “The district court should avoid needless determination of state law issues; it should

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discourage litigants from filing declaratory actions as a means of forum shopping; and it should

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avoid duplicative litigation.” Gov’t Emps. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (en

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banc). In conducting an analysis under Brillhart, district courts “[e]essentially . . . ‘must balance

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concerns of judicial administration, comity, and fairness to the litigants.’” Am. States Ins. Co. v.

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Kearns, 15 F.3d 142, 144 (9th Cir. 1994) (quoting Chamberlain v. Allstate Ins. Co., 931 F.2d

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United States District Court
Northern District of California

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1361, 1367 (9th Cir. 1991)).
Although the Brillhart factors “remain the philosophic touchstone for the district court,”

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Dizol, 133 F.3d at 1225, they “are not necessarily exhaustive,” Huth, 298 F.3d at 803 (citing

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Kearns, 15 F.3d at 145 (Garth, J., concurring)). Additional factors that courts have considered

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include:

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[W]hether the declaratory action will settle all aspects of the controversy; whether
the declaratory action will serve a useful purpose in clarifying the legal relations at
issue; whether the declaratory action is being sought merely for the purpose of
procedural fencing or to obtain a ‘res judicata’ advantage’ or whether the use of a
declaratory action will result in entanglement between the federal and state court
systems. In addition, the district court might also consider the convenience of the
parties, and the availability and relative convenience of other remedies.

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Dizol, 135 F.3d at 1225 n.5 (quoting Kearns, 15 F.3d at 145 (Garth, J., concurring)). None of

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these considerations or the Brillhart factors is necessarily dispositive. See Huth, 298 F.3d at 802–

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03 (rejecting the argument that, because there was no pending state action, a federal district court

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was precluded from exercising its discretion to decline jurisdiction over a declaratory action,
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because “there are other balancing factors the district court must weigh”).
Additionally, although 28 U.S.C. § 1447(d) usually bars appellate review of an order

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remanding a case to state court, an order remanding a case to state court under the Declaratory

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Judgment Act is reviewable on appeal. Snodgrass v. Provident Life & Acc. Ins. Co., 147 F.3d

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Case No. 16-CV-04304-LHK
ORDER DENYING MOTION TO REMAND

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1163, 1165 (9th Cir. 1998) (“Section 1447(d) poses no obstacle to our review of a remand under

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the Declaratory Judgment Act.”). Thus, although district courts have “substantial discretion in

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deciding whether to declare the rights of the litigants,” Wilton, 515 U.S. at 286, a district court

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“must make a sufficient record of its reasoning to enable appropriate appellate review.” Dizol,

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133 F.3d at 1225.

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III.

The parties do not dispute that this Court has subject-matter jurisdiction over this action

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United States District Court
Northern District of California

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because the parties are diverse and the amount-in-controversy requirement is satisfied. See FAC,
at 6; Def. Mot. at 2–3. Accordingly, the only issue is whether the Court should exercise its
discretion to remand Plaintiff’s claims for declaratory relief under the Declaratory Judgment Act.1
Thus, the Court considers each of the Brillhart factors in turn.
A. Avoiding Needless Determination of State Law Issues

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The first factor under the Brillhart analysis asks whether a remand will “avoid needless

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DISCUSSION

determination of state law issues.” Dizol, 133 F.3d at 1225. “A needless determination of state
law may involve an ongoing parallel state proceeding regarding the precise state law at issue, an
area of law Congress expressly reserves to the states, or a lawsuit with no compelling federal
interest (e.g., a diversity action).” Maryland Cas. Co. v. Witherspoon, 993 F. Supp. 2d 1178, 1183

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The parties do not address whether the Court should consider the FAC in ruling on
Plaintiff’s motion to remand, or whether the Court should consider only Plaintiff’s Complaint that
was filed in state court. However, the Ninth Circuit “encourage[s] district courts assessing
discretionary jurisdiction to take note of all existing circumstances internal to the lawsuit in front
of them that bear on the jurisdictional issue,” including events that occur after the time that a
Complaint is filed. United Nat. Ins. Co. v. R&D Latex Corp., 242 F.3d 1102, 1111 (9th Cir.
2001).
Moreover, even if the Court were to consider only Plaintiff’s Complaint, the outcome here
would be the same. Specifically, if the Court were to consider only Plaintiff’s state-court
complaint, the Court would deny Plaintiff’s motion to remand because Plaintiff’s Complaint
sought only monetary damages and “[a] district court does not have the same discretion to decline
to entertain a claim for damages as it does over a claim for declaratory relief.” Madren v. Belden,
Inc., 2012 WL 2572040, at *3 (N.D. Cal. July 2, 2012). Thus, the Court’s consideration of the
FAC makes no difference to the outcome of the instant motion because, for the reasons discussed
below, the Court concludes here that Plaintiff’s motion to remand should be denied under the
Brillhart factors applicable to declaratory relief claims.
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ORDER DENYING MOTION TO REMAND

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(C.D. Cal. 2014) (internal quotation marks omitted).

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Here, this case was removed on the basis of diversity jurisdiction and “[t]he issues

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presented in the instant case center solely on disputes over California insurance law.” State Farm

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Mut. Auto. Ins. Co. v. Marentes, 2015 WL 6955012, at *4 (N.D. Cal. Nov. 10, 2015). Thus, “the

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federal interest in this matter is at its nadir.” Witherspoon, 993 F. Supp. 2d at 1183. Accordingly,

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because this case involves solely California law, the Court finds that the first Brillhart factor

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weighs in favor of remand to state court. Id.
B. Discouraging Litigants From Forum Shopping

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The second factor under the Brillhart analysis “usually is understood to favor discouraging

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an insurer from forum shopping, i.e., filing a federal declaratory action to see if it might fare better

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United States District Court
Northern District of California

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in federal court at the same time the insurer is engaged in a state court action.” Am. Cas. Co. of

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Reading, Penn. v. Krieger, 181 F.3d 1113, 1119 (9th Cir. 1999). The Ninth Circuit has “also

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described this factor as relating to the defensive or reactive nature of a federal declaratory

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judgment suit.” Continental Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1371 (9th Cir. 1991)

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(internal quotation marks omitted), overruled on other grounds by Dizol, 133 F.3d at 1223.

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The Ninth Circuit has found that the second Brillhart factor is implicated by a litigant’s

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“artful pleading” of declaratory claims. United Nat. Ins. Co. v. R&D Latex Corp., 242 F.3d 1102,

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1114 (9th Cir. 2001). In R&D Latex, a plaintiff “artfully pleaded its state-court complaint as one

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for declaratory relief alone,” even though “one of its causes of action [was] not far removed from a

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claim for breach of contract.” Id. In bringing only claims for declaratory relief, the plaintiff in

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R&D Latex “avoid[ed] the mandatory federal jurisdiction that would have attached to the breach

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of contract claim upon removal by [defendant].” Id. The Ninth Circuit recognized that “[f]orum

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shopping through the filing of declaratory judgment actions is no more appropriate when it favors

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state over federal jurisdiction than when it favors the reverse.” Id. Accordingly, the Ninth Circuit

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“regard[ed] the form of [plaintiff’s] pleading as a consideration favoring retention of federal

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jurisdiction.” Id. at 1114–15.

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The Ninth Circuit’s decision in R&D Latex is instructive. Here, Plaintiff’s state-court
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Case No. 16-CV-04304-LHK
ORDER DENYING MOTION TO REMAND

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complaint sought monetary damages in the amount of $105,000 and asserted claims for

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subrogation and indebtedness. ECF No. 1, at 7–8. After Defendant removed the case, Plaintiff

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filed a First Amended Complaint seeking only declaratory relief. FAC at 9. Accordingly, like the

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plaintiff in R&D Latex, there is reason to believe that Plaintiff here has “artfully pleaded” its

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declaratory claims in an effort to remain in state court. R&D Latex, 242 F.3d at 1114. Thus, like

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the Ninth Circuit in R&D Latex, this Court “regard[s] the form of [Plaintiff’s] pleading as a

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consideration favoring retention of federal jurisdiction.” Id. at 1115; see also Madren, 2012 WL

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2572040, at *4–5 (noting that “plaintiff’s briefing implies that monetary relief is his central

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purpose in bringing this litigation” even though plaintiff styled his complaint as one for only
declaratory relief, which “counsel[ed] strongly against remand”); APMC Hotel Mgmt., LLC v. Fid.

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United States District Court
Northern District of California

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& Deposit Co. of Md., 2010 WL 2683469, at *2 (D. Nev. June 24, 2010) (applying R&D Latex to

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hold that a plaintiff’s forum shopping in artfully pleading his complaint as one for declaratory

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relief “weighed in favor of retaining jurisdiction”).

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Accordingly, the Court finds that the second Brillhart factor weighs in favor of retaining
jurisdiction and against remanding this case to state court.

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C. Avoiding Duplicative Litigation

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The third Brillhart factor considers “the policy of avoidance of duplicative litigation.”

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Robsac Indus., 947 F.2d at 1373. “[T]he existence of a parallel state proceeding” is “a major

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factor in the district court’s consideration of” whether to remand. Golden Eagle Ins. Co. v.

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Travelers Companies, 103 F.3d 750, 754 (9th Cir. 1996), overruled on other grounds by Dizol,

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133 F.3d at 1223; see also Reifer v. Westport Ins. Corp., 751 F.3d 129, 144–45 (3d Cir. 2014)

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(citing Golden Eagle and noting that “the absence of pending parallel state proceedings militates

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significantly in favor of exercising federal jurisdiction). However, “the absence of a parallel state

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proceeding is not necessarily dispositive.” Golden Eagle Ins. Co., 103 F.3d at 754.

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Here, the parties are not involved in a parallel state proceeding. See Def. Op. at 4.

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Although Norcal was involved in the state tort case that underlies this insurance dispute, that case

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has been resolved against Norcal and did not involve the instant parties. See id. Accordingly, this

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Case No. 16-CV-04304-LHK
ORDER DENYING MOTION TO REMAND

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is not a case where a “federal declaratory suit is virtually the mirror image of” a parallel state court

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action, and thus litigation in federal court would not be duplicative here. See Robsac Indus., 947

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F.2d at 1373. Accordingly, the Court finds that the third Brillhart factor weighs in favor of

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retaining jurisdiction.

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D. Additional Factors

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The Brillhart factors represent the primary considerations that the Court must weigh in

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determining whether to remand an action. Dizol, 133 F.3d at 1225. However, the Brillhart factors

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“are not necessarily exhaustive.” Huth, 298 F.3d at 803. Additional factors that a district court

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may consider include, as discussed above, “[w]hether the declaratory action will settle all aspects
of the controversy;” “whether the declaratory action is being sought merely for the purposes of

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United States District Court
Northern District of California

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procedural fencing . . . ; whether the use of a declaratory action will result in entanglement

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between the federal and state court systems” and, additionally, “the convenience of the parties, and

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the availability and relative convenience of other remedies.” Dizol, 133 F.3d at 1225 n.5.

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Here, as discussed above, there is no underlying related state-court case, and thus there is a

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lower risk of “entanglement between the federal and state court systems.” See Dizol, 133 F.3d at

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1225 n.5; see also Advent v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2013 WL 3483742, at *8

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(N.D. Cal. July 8, 2013) (finding “entanglement” to be “at least conceivable” where there was “an

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underlying related state court case” in addition to state-law claims). Further, Plaintiff’s FAC

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suggests that Plaintiff is seeking declaratory relief, in part, due to “procedural fencing” in order to

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return to state court. Dizol, 133 F.3d at 1225 n.5; R&D Latex, 242 F.3d at 1114. Lastly, the

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parties have not presented, and the Court is not aware, of any reasons why proceeding in the U.S.

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District Court for the Northern District of California, as opposed to California state court, would

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be less convenient to the parties, both of whom are out-of-state corporations. See Dizol, 133 F.3d

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at 1225 n.5. Thus, the Court finds that additional factors weigh in favor of retaining jurisdiction in

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this case.

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E. Summary

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In sum, the Court finds that the first Brillhart factor weighs in favor of remand. At the

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ORDER DENYING MOTION TO REMAND

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same time, the second and third Brillhart factors weigh against remand and in favor of retaining

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jurisdiction. Lastly, the Court finds that the additional factors that this Court may consider weigh

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in favor of retaining jurisdiction in this case. Thus, in light of these factors, the Court declines to

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exercise its discretion to remand this action to California state court.

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IV.

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CONCLUSION
For the foregoing reasons, Plaintiff’s motion to remand is DENIED.

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IT IS SO ORDERED.

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Dated: November 10, 2016
______________________________________
LUCY H. KOH
United States District Judge

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United States District Court
Northern District of California

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