Canton et al v. Prime Insurance Company et al

Filing 21

FINDINGS AND RECOMMENDATION THAT PLAINTIFFS' MOTION TO REMAND BE GRANTED re 7 - Signed by Judge BARRY M. KURREN on 6/27/13. (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic noti fications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
EVANGALINE CANTON, et al.

)
)
Plaintiffs,
)
)
vs.
)
)
PRIME INSURANCE COMPANY, )
et al.
)
)
Defendants.
)
)
_____________________________ )

CV. NO. 13-00096 SOM-BMK
FINDINGS AND
RECOMMENDATION THAT
PLAINTIFFS’ MOTION TO
REMAND BE GRANTED

FINDINGS AND RECOMMENDATION THAT PLAINTIFFS’ MOTION TO
REMAND BE GRANTED
Before the Court is Plaintiffs’ Motion to Remand (Doc. # 7.) After
careful consideration of the motion, the supporting and opposing memoranda, and
the arguments of counsel, the Court FINDS and RECOMMENDS that Plaintiffs’
motion be GRANTED.
BACKGROUND
This case arises from a jet ski accident on August 5, 2012, that
resulted in the death of Kristen Fonseca. (Compl. ¶ 10, Doc. # 1, Ex. A.)
Plaintiffs’ complaint alleges that Ms. Fonseca and other members of her family
rented jet skis from Aloha Jetski, LLC, and that Ms. Fonseca was hit by Tyson
Dagley, another Aloha Jetski customer. Plaintiffs Evangaline Canton (individually

and on behalf of the Estate of Ms. Fonseca), Mario Canton, Monique Sanchez, and
Kevin M. Fonseca, Jr. (collectively, “Plaintiffs”) filed a wrongful death suit in state
court against Dagley, Aloha Jetski, and Glenn Cohen, who is the owner of Aloha
Jetski. (Id. at ¶ 13.)
Plaintiffs subsequently filed this action in the State of Hawaii Circuit
Court of the First Circuit against Prime Insurance Company (“Prime”), the insurer
of the alleged tortfeasors, seeking declaratory judgment that Prime’s insurance
policy is invalid because it failed to comply with State of Hawaii Department of
Land and Natural Resources (“DLNR”) permitting regulations. (Doc. # 1, Ex. A.)
Plaintiffs allege that Prime’s policy violated DLNR regulations requiring: 1)
liability coverage of not less than $500,000 for personal injury when operating in
an ocean recreation management area; 2) an insurance policy that covers all
damages arising from the acts of the permittee and its employees; and 3) an
insurance policy issued by an insurer authorized to do business in Hawaii. (Compl.
¶¶ 18, 21, 22, 23, 33-35); Hawaii Administrative Rules (“HAR”) §§ 13-256-9; 13231-65(4); 13-231-65(1). Plaintiffs also claim that the policy was negligently
issued by Defendant Bruce Woods and that Defendant ORM, Inc. is vicariously
liable for Bruce Woods’ negligence. (Compl. at 15-16.) Prime removed the
declaratory judgment action to this Court, and Plaintiffs subsequently filed their
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motion to remand, asserting that the Court should decline to exercise jurisdiction
under Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942).
DISCUSSION
Although 28 U.S.C. § 2201(a) provides district courts with the
authority to hear declaratory judgment actions, the district court has the discretion
to decline jurisdiction under the factors announced in Brillhart. Brillhart requires
the Court to consider: (1) avoidance of needless determination of state law issues;
(2) discouragement of filing a declaratory judgment action as a means of forum
shopping; and (3) avoidance of duplicative litigation. Government Employees Ins.
Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998). The Court may also consider
“whether 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 purposes 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.” Id. at n.5. “Essentially, the district court ‘must balance concerns of
judicial administration, comity, and fairness to the litigants.’” American States Ins.
Co. v. Kearns, 15 F.3d 142, 144 (9th Cir. 1994) (quoting Chamberlain v. Allstate
Ins. Co., 931 F.2d 1361, 1367 (9th Cir.1991)). There is no presumption in favor of
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abstention in declaratory actions generally; however, if “there are parallel state
proceedings involving the same issues and parties pending at the time the federal
declaratory action is filed, there is a presumption that the entire suit should be
heard in state court.” Dizol, 133 F.3d at 1225. Based on the factors above, the
Court FINDS and RECOMMENDS that Plaintiff’s Motion to Remand be
GRANTED, because this case involves a needless determination of state law.
A “needless determination of state law” may involve “an ongoing
parallel state proceeding regarding the ‘precise state law issue,’ an area of law
Congress expressly reserved to the states, or a lawsuit with no compelling federal
interest (e.g., a diversity action).” Keown v. Tudor Ins. Co., 621 F. Supp.2d 1025,
1031 (D. Haw. 2008) (quoting Continental Cas. Co. v. Robsac Indus., 947 F.2d
1367, 1371-72 (9th Cir. 1991)). “The concern in this factor is with unsettled issues
of state law, not fact-finding in the specific case.” Allstate Ins. Co. v. Davis, 430
F. Supp.2d 1112, 1120 (D. Haw. 2006) (quoting National Chiropractic Mutual
Insurance Co. v. Doe, 23 F. Supp.2d 1109, 1118 (D. Alaska 1998)). “When state
law is unclear, ‘[a]bsent a strong countervailing federal interest, the federal court
should not elbow its way . . . to render what may be an ‘uncertain’ and ‘ephemeral’
interpretation of state law.’” Id. (quoting Mitcheson v. Harris, 955 F.2d 235, 238
(4th Cir. 1992)).
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This case does not involve a parallel state court proceeding involving
the same factual and legal issues. Although the state court action stems from the
same underlying transaction, this action asks the Court to declare various aspects
of Prime’s policy invalid. This would not require the Court to make overlapping
factual or legal determinations with the state court in the wrongful death action.
The remaining two factors regarding the needless determination of
state law weigh strongly in favor of remand. Insurance law is an area of law
expressly reserved to the States. Continental Cas. Co., 947 F.2d at 1371, overruled
on other grounds, Dizol, 133 F.3d at 1227. This case involves significant questions
of state insurance law that have not been answered by Hawaii Courts. Specifically,
Hawaii Courts have not determined how the DLNR permitting regulations impact
the validity of a non-conforming insurance policy or the remedy for violating those
regulations. Exercising jurisdiction over these significant undecided state law
issues would require the Court to “elbow its way” into rendering an uncertain
interpretation of state law.
Prime argues that Hawaii Courts do not have a substantial interest in
this case, because a choice of law provision in the insurance policy requires the
application of Utah law, and surplus lines insurers are allowed to use choice of law
provisions. (Doc. # 14 at 18.) Plaintiffs argue that Hawaii law applies, because
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Prime was required to be an authorized insurer under the DLNR regulations, and it
is inequitable to allow Prime to benefit from its choice of law provision. (Doc. #
15 at 10.) At this early stage of the proceedings, it is unclear whether Utah law
applies to this action. Furthermore, even if Utah insurance law applies, the action
would still involve the application of DLNR regulations to the insurance policy,
which makes Hawaii courts more suitable than federal court to resolve this dispute.
Although Prime asserts threshold defenses, it is unclear whether Prime
can avoid the merits at this stage of the proceedings. Prime argues that this is an
impermissible direct action between an injured person and an insurance company.
(Doc. # 14 at 13); See Olokele Sugar Co. v. McCabe, Hamilton & Renny Co., 487
P.2d 769, 770 (Haw. 1971) (“It is generally held that, in the absence of a
contractual or statutory provision authorizing a direct action against or the joinder
of a liability insurer, an injured person, for the lack of privity between himself and
the insurer, has no right of action at law against the insurer and cannot join the
insured and the liability insurer as parties defendant.”). However, Olokele does not
apply because this is a declaratory judgment action rather than a direct tort action.
See Allstate Ins. Co. v. Davis, 430 F. Supp.2d 1112, 1121 (D. Haw. 2006)
(“Hawaii law disfavors the joinder of an insurer in a third-party tort action absent
some contractual or statutory provision.”) (emphasis added) (citing Olokele, 487
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P.2d at 770).
Although the remaining factors are neutral,1 the needless
determination of state law without any compelling federal interest at stake is the
overriding concern in this case. Courts in this district have remanded cases solely
on the basis of the “needless determination of state law” factor, and the Court
concludes that remand is appropriate in light of the overwhelming showing on this
factor. See R.R. Street & Co. Inc. v. Transport Ins. Co., 656 F.3d 966, 975 (9th
Cir. 2011) (“In prior cases, we have recognized that needless determination of state
law issues alone may support remand.”); Keown, 621 F. Supp.2d at 1032 (holding
that “the concern for needless determination of state law issues, on its own,
provides just reason for the court to decline jurisdiction over this action”).
Moreover, federal subject matter jurisdiction exists in this case solely
because of diversity jurisdiction. When, “the sole basis of jurisdiction is diversity
of citizenship, the federal interest is at its nadir.” Keown, 621 F. Supp.2d at 1038
1

The remaining Brillhart factors are neutral or do not weigh strongly in favor of
retaining jurisdiction. Prime did not file this action “reactively” to forum shop or for some other
improper purpose. Stewart Title Co. v. Investors Funding Corp., Civ. No. 09-00455 SOM-KSC,
2010 WL 1904981, at *6 (D. Haw. May 11, 2010) (quoting Am. Casualty Co. Of Reading,
Pennsylvania v. Krieger, 181 F.3d 1113, 1119 (9th Cir.1999)). This action will not involve
duplicative litigation or excessive entanglement with the state court, because the state court
wrongful death action involves entirely different legal issues. The declaratory judgment action
will not settle all aspects of the controversy, which weighs slightly in favor of remand. Finally,
although the declaratory judgment action will clarify the legal relationship between the parties
by resolving whether Prime’s insurance policy is valid, this determination can be made in state
court upon remand.
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(quoting Continental Cas. Co., 947 F.2d at 1371). This case involves a needless
determination of state law without a significant federal interest, and the Court
therefore remands the case to state court.
CONCLUSION
Based on the foregoing, the Court FINDS and RECOMMENDS that
Plaintiffs’ motion to remand be GRANTED.
DATED: Honolulu, Hawaii, June 27, 2013.
IT IS SO FOUND AND RECOMMENDED.

/S/ Barry M. Kurren
Barry M. Kurren
United States Magistrate Judge

Canton v. Prime Insurance Co., Civ. No. 13-00096 SOM-BMK, FINDINGS AND
RECOMMENDATION THAT PLAINTIFFS’ MOTION TO REMAND BE GRANTED
8