Daniel T.M. Choy vs. Continental Casualty Company, et al.

Filing 45

ORDER ADOPTING THE MAGISTRATE JUDGE'S FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFF'S MOTION TO REMAND re 41 , 42 , 43 - Signed by JUDGE SUSAN OKI MOLLWAY on 11/25/2015. "Having reviewed the portions of the F & R objected to, the court adopts all of the Magistrate Judge's findings, as well as the recommendation that Choy's motion to remand be granted. The Clerk of Court is directed to close this case and to send a certified copy of thi s order to the Clerk of the Circuit Court of the First Circuit, State of Hawaii." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications 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
DANIEL T.M. CHOY dba
CORINTHIANS FINANCIAL
PLANNERS and CORINTHIANS
REALTY,

)
)
)
)
)
Plaintiff,
)
)
vs.
)
)
CONTINENTAL CASUALTY COMPANY; )
ARCH SPECIALTY INSURANCE
)
COMPANY; JOHN DOES 1-20; JANE )
DOES 1-20; DOE INSURANCE
)
ENTITIES 1-20,
)
)
Defendants.

CIVIL NO. 15-00281 SOM/KSC
ORDER ADOPTING THE MAGISTRATE
JUDGE’S FINDINGS AND
RECOMMENDATION TO GRANT
PLAINTIFF’S MOTION TO REMAND

ORDER ADOPTING THE MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION
TO GRANT PLAINTIFF’S MOTION TO REMAND
I.

INTRODUCTION.
Defendants Continental Casualty Company and Arch

Specialty Insurance Company object to the Magistrate Judge’s
Findings & Recommendation (“F & R”), which recommended the
granting of Plaintiff Daniel T.M. Choy’s motion to remand the
case to state circuit court.

After reviewing Defendants’

Objections to the Magistrate Judge’s F & R, the relevant law, and
the record in the case, the court overrules Defendants’
Objections and adopts the F & R in its entirety.
Pursuant to Local Rule 7.2(d), this court finds the
matter suitable for disposition without a hearing.

II.

BACKGROUND.
The court incorporates the facts set forth in the

F & R, supplementing those facts when necessary.
On January 6, 2015, Morris Morihiro, as successor
trustee of the revocable trust of Isamu Takaki, filed a complaint
against Choy in the Circuit Court of the First Circuit, State of
Hawaii.

Morihiro v. Choy, Civil No. 15-1-0016-01-JHC.

The

complaint alleges that Choy, acting as Takaki’s insurance agent,
financial planner, realtor, and property manager, caused Takaki
to suffer significant losses in certain real estate investments
and other transactions.

See ECF No. 12-2, PageID #s 284-89.

The

complaint asserts claims for 1) breach of agent’s fiduciary duty
to principal; 2) breach of agent’s fiduciary duty to principal of
full, fair, and timely disclosure; 3) negligence; 4) fraud; 5)
unjust enrichment; 6) breach of implied contract;
7) unconscionability; 8) prima facie tort; and 9) punitive
damages.

See id., PageID #s 289-99.
Choy tendered the defense of the suit to his insurers,

Continental and Arch.

See id., PageID # 279.

Continental, which

insured Choy under a Real Estate Professionals Errors and
Omissions Policy, is defending Choy in the underlying state court
action subject to a full reservation of its rights.

See id.

However, Arch, which insured Choy under a Securities
Broker/Dealer and Registered Representative Errors and Omissions
2

Policy, has denied coverage, as well as a defense in the state
court action.

See id.

Choy initiated the instant declaratory judgment action
on June 3, 2015, in the state circuit court where the Takaki
Action is being heard.

See ECF No. 12-2.

Choy is seeking a

declaration of his rights and benefits under the policies issued
by Defendants.

See id.

Arch removed the action to federal court on July 27,
2015, on the basis of diversity jurisdiction, 28 U.S.C.
§ 1332(a), and filed an Amended Notice of Removal on August 10,
2015.

See ECF No. 1.
Choy filed a motion to remand the case to state circuit

court on August 26, 2015.

See ECF No. 19.

Soon after,

Continental filed a counterclaim requesting declarations
concerning coverage and reimbursement of defense costs incurred
in defending Choy in the state court action.

See ECF No. 24.

On October 20, 2015, the Magistrate Judge issued the
Findings and Recommendation to Grant Plaintiff’s Motion to
Remand.

See ECF No. 41.

Continental filed Objections to the

Magistrate Judge’s F & R on November 3, 2015.

See ECF No. 42.

On November 6, 2015, Arch filed its joinder in Continental’s
Objections.

See ECF No. 43.

3

III.

STANDARD OF REVIEW.
Congress has empowered magistrate judges, upon referral

of dispositive pretrial motions by district judges, to conduct
hearings and issue findings and recommendations regarding
dispositive pretrial motions.

See 28 U.S.C. § 636(b)(1)(B); see

also Fed. R. Civ. P. 72(b) (promulgating rule).
A district judge reviews a magistrate judge’s findings
and recommendation prior to ruling on the motion, and may accept,
reject, or modify, in whole or in part, the findings and
recommendation made by the magistrate judge.
72(b).

Fed. R. Civ. P.

If a party timely objects to portions of the findings and

recommendation, the district judge reviews those portions of the
findings and recommendation de novo.
Local Rule 74.2.

Fed. R. Civ. P. 72(b)(3);

The district judge may consider the record

developed before the magistrate judge.

Local Rule 74.2.

The

district judge also has discretion to receive further evidence.
28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b)(3); Local Rule 74.2;
see also United States v. Raddatz, 447 U.S. 667, 676 (1980)
(district judge has wide discretion in deciding whether to allow
new evidence).

The de novo standard requires the district court

to consider a matter anew and arrive at its own independent
conclusions, but a de novo hearing is not ordinarily required.
United States v. Remsing, 874 F.2d 614, 617 (9th Cir. 1989);
United States v. Boulware, 350 F. Supp. 2d 837, 841 (D. Haw.

4

2004); Local Rule 74.2.
The district judge may accept the portions of the
findings and recommendation to which the parties have not
objected as long as it is satisfied that there is no clear error
on the face of the record.

See United States v. Bright, Civ. No.

07–00311 ACK/KSC, 2009 WL 5064355, at *3 (D. Haw. Dec. 23, 2009);
Stow v. Murashige, 288 F. Supp. 2d 1122, 1127 (D. Haw. 2003);
Fed. R. Civ. P. 72(b) advisory committee’s note.
IV.

ANALYSIS.
Defendants request that this court reject the

Magistrate Judge’s F & R and deny Choy’s motion to remand, or, in
the alternative, enter a stay pending the outcome of the Takaki
Action.

See ECF No. 42, PageID #s 1489, 1511-12.

Defendants’

Objections largely repeat the arguments rejected by the
Magistrate Judge.
A.

Defendants’ arguments remain unpersuasive.

Jurisdiction Is Not Mandatory.

Defendants argue that the Magistrate Judge erred by not
concluding that this court has mandatory jurisdiction over the
claims asserted here.

See ECF No. 42, PageID #s 1494-95.

There is no dispute that this court has subject matter
jurisdiction based on diversity of citizenship and the requisite
amount in controversy.
jurisdictional analysis.

That does not, however, end the
Choy seeks relief under the Declaratory

Judgment Act, and the “decision whether to exercise jurisdiction

5

over a declaratory action lies in the sound discretion of the
district court.”

Huth v. Hartford Ins. Co. Of the Midwest, 298

F.3d 800, 803 (9th Cir. 2002).
“[W]hen other claims are joined with an action for
declaratory relief (e.g., bad faith, breach of contract, breach
of fiduciary duty, rescission, or claims for other monetary
relief), the district court should not, as a general rule, remand
or decline to entertain the claim for declaratory relief.”

Gov’t

Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998)
(citing Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367
(9th Cir. 1991)); see also N. Pac. Seafoods, Inc. v. Nat’l Union
Fire Ins. Co. of Pittsburgh, Pa., No. C06-795RSM, 2008 WL 53180,
at *2 (W.D. Wash. Jan. 3, 2008) (“The Ninth Circuit rule is that
jurisdiction is mandatory . . . only if the non-declaratory
claims can exist independently of the declaratory claims, such
that they could survive even if the declaratory claims vanished.”
(citing United Nat’l Ins. Co. v. R & D Latex Corp., 242 F.3d
1102, 1112-13 (9th Cir. 2001)).
“[T]he proper analysis, then, must be whether the claim
for monetary relief is independent in the sense that it could be
litigated in federal court even if no declaratory claim had been
filed.”

United Nat’l, 242 F.3d at 1112.

“If the monetary claim

could have been asserted only along with the declaratory claim,
and the case is ‘primarily declaratory in nature,’ abstention may

6

be appropriate.”

Burlington Ins. Co. v. Panacorp, Inc., 758 F.

Supp. 2d 1121, 1140 (D. Haw. 2010) (quoting United Nat’l, 242
F.3d at 1112–13).
Defendants argue that Continental’s counterclaim for
reimbursement is an independent claim for unjust enrichment.
This court disagrees.1

ECF No. 42, PageID #s 1497-1500.

See

The

counterclaim seeks reimbursement “[t]o the extent the Court
determines that there is no coverage for the Takaki Action or
that coverage for the Takaki action is limited.”

ECF No. 24-1,

PageID # 1133; see id. (Continental alleging that it is “entitled
to recoup from Choy amounts advanced on his behalf in connection
with the Takaki Action or any portion of the Takaki Action that
the Court determines is not covered by the Policy, and a money
judgment against Choy in that amount”).

As the Magistrate Judge

correctly noted, Continental’s claim for reimbursement “would not
exist if the request for declaratory relief dropped from the
case.”

ECF No. 41, PageID # 1467.
Defendants point to United National as holding that a

district court has mandatory jurisdiction over a claim by an
insurer that “seek[s] reimbursement for certain defense costs
already expended in underlying litigation.”

1

ECF No. 42, PageID #

While a counterclaim is irrelevant to subject matter
jurisdiction, this court examines the counterclaim for purposes
of determining whether it should exercise its discretion to
retain jurisdiction over this declaratory action. United Nat’l,
242 F.3d at 1113 n.12.
7

1498 (citing United Nat’l, 242 F.3d at 1113).
was considered but rejected in Burlington.
1142.

This very argument

758 F. Supp. 2d at

Burlington pointed out that the holding in United National

was specific to California law, which differs in a critical
respect to Hawaii law with regard to an insurer’s right to
reimbursement.

Burlington, 758 F. Supp. 2d at 1133.

In United

National, the Ninth Circuit concluded that the reimbursement
claim could constitute an independent claim for monetary relief
because “[a]n insurance company’s right to seek reimbursement for
certain defense costs already expended in underlying litigation .
. . was declared by the California Supreme Court in Buss v.
Superior Court, 939 P.2d 766 (Cal. 1997).”
F.3d at 1113.

United Nat’l, 242

Burlington noted, however, that, “Unlike the

California courts, the Hawai’i courts have not defined the nature
or scope of an insurer’s right to reimbursement.”

Burlington,

758 F. Supp. 2d at 1133.
After a careful analysis of relevant Hawaii Supreme
Court case law, the Burlington court concluded that, “allowing an
insurer to exercise an independent right to reimbursement . . .
before it obtains a declaratory judgment would be wholly
inconsistent with, and likely constitute a breach of, its duty
under established law to undertake the defense in good faith.”
Burlington, 758 F. Supp. 2d at 1141 (citation omitted).

This

court agrees with the reasoning of the Burlington court, and

8

concludes that Continental’s request for reimbursement does not
constitute an independent claim for monetary relief that triggers
this court’s mandatory jurisdiction.
Defendants’ next contention is that Choy’s declaratory
relief claim also includes an independent claim for monetary
relief to the extent it seeks an order that Arch “pay the
benefits owed under the Arch Policies.”
1495.

See ECF No. 42, PageID #

Yet this argument is undermined by the plain language of

Choy’s request.

The very wording of the request for “benefits

owed under the Arch Policies” makes clear that it is entirely
dependent on the court’s determination that Choy is entitled to
coverage by Arch.
Defendants next urge the court to recognize Choy’s
declaratory relief claim as an independent breach of contract
claim.

A breach of contract claim requires a showing of damages.

See, e.g., Castro v. Wells Fargo Bank, N.A., No. CV 12-2393 RSWL
AGRX, 2012 WL 2077294, at *1 (C.D. Cal. June 6, 2012) (“The
elements for a breach of contract claim are: (1) the existence of
the contract; (2) performance by the plaintiff or excuse for
nonperformance; (3) breach by the defendant; and (4) damages.”
(citation omitted)).

Choy is not seeking money damages for

Arch’s failure to defend, because he has not yet suffered any
damages, given Continental’s provision of a full defense.
Continental’s provision of that defense is subject to a

9

While

reservation of its rights, Choy has not had to spend any money to
defend himself in the Takaki Action.
1411.

See ECF No. 33, PageID #

With no present damages, and Defendants contesting

coverage, Choy has elected to seek a declaration that they must
defend him in the underlying state action and indemnify him if he
is found liable for a covered claim.
279.

See ECF No. 12-2, PageID #

Choy’s claim is declaratory in nature.
Having concluded that jurisdiction is not mandatory,

the court now considers whether it should exercise its discretion
to retain jurisdiction over the instant matter.
B.

The Brillhart Factors Weigh in Favor of Remand.

Under Brillhart and its progeny, in determining whether
to retain jurisdiction over a claim for declaratory relief: (1)
the district court should avoid needless determination of state
law issues; (2) it should discourage litigants from filing
declaratory actions as a means of forum shopping; and (3) it
should avoid duplicative litigation.

See Dizol, 133 F.3d at

1225.
Defendants argue that, in applying the Brillhart
factors, the Magistrate Judge erred in concluding that remand was
proper.

See ECF No. 42, PageID # 1501.

Based on a de novo

review, this court concludes that the application of the
Brillhart factors to this case weighs in favor of abstention.

10

1.

Needless determination of state law issues.

Under the first Brillhart factor, “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).”
Burlington, 758 F. Supp. 2d at 1142 (citations and quotation
marks omitted).
a.

“Parallel Proceedings.”

“[W]hen an ongoing state proceeding involves a state
law issue that is predicated on the same factual transaction or
occurrence involved in a matter pending before a federal court,”
the actions are considered “parallel proceedings.”

Am. Nat’l

Fire Ins. Co. v. Hungerford, 53 F.3d 1012, 1017 (9th Cir. 1995);
see also Golden Eagle Ins. Co. v. Travelers Cos., 103 F.3d 750,
755 (9th Cir. 1996), overturned on other grounds by Dizol, 133
F.3d 1220 (concluding that, for actions to be considered
“parallel proceedings,” “[i]t is enough that the state
proceedings arise from the same factual circumstances” as the
federal proceedings).

When such parallel proceedings exist, “the

state court is the more suitable forum for a petitioner to bring
a related claim.”

Hungerford, 53 F.3d at 1017.

That test is satisfied here.

The state action and this

federal action arise from the same factual circumstances, i.e.,
11

Choy’s dealings with Takaki.

Indeed, “Defendants’ duty to defend

turns on whether allegations asserted in the state court action
raise any possibility of coverage under the relevant policies and
their duty to indemnify rests on factual determinations made in
the state court action.”

ECF No. 41, PageID # 1475 (citing

Catholic Foreign Mission Soc’y of Am., Inc. v. Arrowood Indem.
Co., 76 F. Supp. 3d 1148, 1157 (D. Haw. 2014)).
Defendants do not challenge the Magistrate Judge’s
finding that the federal and state actions arise from the same
factual circumstances.

They instead challenge the validity of

the “same factual circumstances” test articulated in Golden Eagle
and Hungerford and applied by the Magistrate Judge.
42, PageID # 1503.

See ECF No.

Defendants contend that Dizol overruled

Golden Eagle and Hungerford to the extent Dizol held that, “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.

See id. (quoting Dizol, 133 F.3d at 1225).

In Defendants’ view, the statement in Dizol must be
read to mean that a district court should retain jurisdiction
unless the parallel state proceedings involve the same issues and
parties pending at the time the federal declaratory action is
filed.

See ECF No. 42, PageID #s 1503-04.

Far from it.

The

statement only means that, when the federal and state proceedings

12

involve the same issues and parties, this alone creates a
presumption that the entire suit should be heard in state court.
See Dizol, 133 F.3d at 1225; see also Smith v. Lenches, 263 F.3d
972, 978 (9th Cir. 2001) (“We have interpreted that language [in
Dizol] to mean that 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 be heard in a state court.”).
Even when a federal action does not involve exactly the
same issues and parties as the underlying state action, if the
actions arise out of the same factual circumstances, the federal
and state actions may still constitute parallel proceedings that
weigh in favor of abstention.

See, e.g., Bituminous Cas. Corp.

v. Kerr Contractors, Inc., No. CV 10-78-MO, 2010 WL 2572772, at
*5 (D. Or. June 22, 2010); Catholic Mut. Relief Soc. of Am. v.
Roman Catholic Bishop of Helena, Mont., No. CV 12-189-M-DLC, 2013
WL 704486, at *3 (D. Mont. Feb. 27, 2013).

In other words, the

statement in Dizol does not circumscribe the types of actions
that constitute parallel proceedings; it simply clarifies that
only those parallel proceedings that involve the same parties and
issues will, by themselves, give rise to a presumption that the
entire suit should be heard in state court.

13

In this regard,

Dizol did not overrule the “same factual circumstances” test
articulated in Golden Eagle and Hungerford.2
The underlying state court lawsuits are sufficiently
parallel to this federal action.

This factor weighs in favor of

abstention.
b.

Whether the Federal Action Involves an
Area of Law Expressly Left to States by
Congress.

“When state law is unclear, absent 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.”

Burlington, 758 F. Supp.

2d at 1142 (brackets and quotation marks omitted) (quoting
Allstate Ins. Co. v. Davis, 430 F. Supp. 2d 1112, 1120 (D. Haw.
2006)).
It is well established that regulation of insurance is
an area of law expressly left to the states by Congress.

See,

e.g., Allstate Ins. Co. v. Tucknott Elec. Co., Inc., No.
14-CV-01804 SC, 2014 WL 5408324, at *3 (N.D. Cal. Oct. 23, 2014)

2

This test is still regularly applied by other district
courts in this jurisdiction. See, e.g., SFPP, L.P. v. Union Pac.
R. Co., No. LA CV15-01954 JAK, 2015 WL 3536881, at *11 (C.D. Cal.
June 3, 2015) (stating that “[i]t is enough that the state
proceedings arise from the same factual circumstances” (quoting
Golden Eagle, 103 F.3d at 754–55)); Lexington Ins. Co. v. Silva
Trucking, Inc., No. 2:14-CV-0015 KJM-CKD, 2014 WL 1839076, at *9
(E.D. Cal. May 7, 2014) (same); Catholic Mut. Relief Soc., 2013
WL 704486, at *2 (same).
14

(“Insurance law is an area that Congress has expressly left to
the states through the McCarran–Ferguson Act, a consideration
other courts have found compelling in declining jurisdiction.”
(citations and quotation marks omitted)).
For their part, Defendants acknowledge that “this case
presents an issue of Hawaii state law that has not been squarely
decided by the Hawaii Supreme Court—-namely, an insurer’s right
to reimbursement of defense costs incurred in connection with
uncovered claims.”

See ECF No. 42, PageID # 1488.

Because

retaining jurisdiction over the removed action would require this
court to decide this unresolved issue of state law, the better
option is to remand this case to the state court.

See Keown v.

Tudor Ins. Co., 621 F. Supp. 2d 1025, 1032 (D. Haw. 2008); see
also Bituminous Cas. Corp. v. J & L Lumber Co., 373 F.3d 807,
815–16 (6th Cir. 2004) (“Where as here, there are two potential
unresolved questions of state law concerning state regulated
insurance contracts, this consideration weighs against exercising
jurisdiction.”).
c.

Whether the Lawsuit Involves a
Compelling Federal Interest.

Third, this court agrees with the Magistrate Judge’s
conclusion that there is no compelling federal interest in this
case.

See ECF No. 41, PageID # 1476.

“Where, as in the case

before us, the sole basis of jurisdiction is diversity of
citizenship, the federal interest is at its nadir.
15

Thus, the

Brillhart policy of avoiding unnecessary declarations of state
law is especially strong here.”

Cont’l Cas. Co. v. Robsac

Indus., 947 F.2d 1367, 1371 (9th Cir. 1991), overturned on other
grounds by Dizol, 133 F.3d 1220.
2.

Discouraging Litigants from Filing
Declaratory Actions as a Means of Forum
Shopping.

The second Brillhart factor concerns discouraging
litigants from filing declaratory actions as a means of forum
shopping.

This factor is neutral given the lack of anything in

the record suggesting forum shopping.
Defendants argue that the Magistrate Judge erred by not
finding that Choy had engaged in forum shopping by artfully
pleading a breach of contract claim as one for declaratory
relief.

See ECF No. 42, PageID #s 1507-08.

Defendants rely

primarily on United National, contending that Choy’s claim is
analogous to the breach of contract claim there that the court
found to be artfully pled as a declaratory relief claim.
As discussed above, however, this court is not
persuaded that Choy’s claim for declaratory relief is a disguised
breach of contract claim.
Nor does United National support Defendants’ argument.
In that case, the insured asserted two claims for declaratory
judgment after having been subjected to separate lawsuits.
insured was denied coverage for both.

16

The

United Nat’l, 242 F.3d at

1107.

The critical circumstance in United National was that, by

the time the insured filed its claims for declaratory judgment,
only one of the underlying suits was still pending, the other
having already been settled.

Id.

Given these circumstances, the

United National court noted that an insured “would ordinarily
file [one] breach of contract claim (to remedy the breach for
which damages were known),” and one claim for declaratory relief
regarding the case that was still pending.

Id. at 1114.

The

insured’s filing of two declaratory relief claims, in the United
National court’s view, demonstrated that the insured was
attempting to circumvent mandatory federal jurisdiction through
artful pleading.

Id.

No analogous circumstance exists here.

The Takaki

Action is still pending, and any damages are at this time
speculative.

Choy was entitled to file a declaratory action

under these circumstances.

Notably, Choy was the first to file a

declaratory action and did so in the forum in which the
underlying action is being litigated.

This does not indicate

forum shopping by Choy.
This court agrees with the Magistrate Judge’s finding
that, for their part, Defendants do not appear to have engaged in
forum shopping.
Accordingly, the second Brillhart factor does not weigh
in favor of or against retaining jurisdiction.

17

3.

Avoiding Duplicative Litigation.

Under the third Brillhart factor, “duplicative
litigation may be a concern if determining [the insurers’] duties
to Defendants would require the determination of issues that the
state court will address in the underlying actions.”

See, e.g.,

Gemini Ins. Co. v. Kukui’ula Dev. Co. (Hawaii), LLC, No. CV
10-00637 LEK-BMK, 2011 WL 3490253, at *8 (D. Haw. Aug. 10, 2011);
see also Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Aero Jet
Services, LLC, No. CV-11-01212-PHX-DGC, 2011 WL 4708857, at *5
(D. Ariz. Oct. 7, 2011) (concluding that the third Brillhart
factor weighed in favor of remand because facts at issue in the
state court action had to be litigated to determine insurance
coverage in the federal action); Catholic Foreign Mission, 76 F.
Supp. 3d at 1160 (concluding this factor weighed in favor of
abstention because “the factual issues in the underlying state
lawsuits parallel the factual issues which must be resolved to
determine the insurance coverage issues”).
With respect to declaratory actions concerning
insurance coverage, “[q]uestions involving the duty to indemnify
generally raise more concern [of duplicative litigation] than do
questions involving the duty to defend.”

Bituminous, 2010 WL

2572772, at *5 (citing Am. States Ins. Co. v. Dastar Corp., 318
F.3d 881, 890 (9th Cir. 2003)).

This is because, although the

duty to defend is determined by looking to the allegations in the

18

complaint, the duty to indemnify hinges on factual determinations
that are separate from the allegations in the complaint.

Cf.

Dairy Rd. Partners v. Island Ins. Co., Ltd., 992 P.2d 93, 108-09
(Haw. 2000).
Here, the risk of duplicative litigation stems from
Choy’s assertion that Defendants owe a duty to indemnify him.
Addressing this assertion requires this court to determine facts
also at issue in the underlying state court action.

This cannot

be avoided given Defendants’ coverage positions.
The complaint in the underlying state court action
asserts claims that premise Choy’s liability on his misconduct as
both a financial planner and a realtor.
#s 1566-75.

See ECF No. 44-2, PageID

The negligence claim, for example, alleges that Choy

had a duty as Takaki’s certified financial planner to exercise
reasonable care in providing advice, but breached that duty when
he instructed Takaki to obtain a reverse mortgage on his existing
home to purchase a new investment property.
1570-71.

See id., PageID #s

As another example, the fraud claim alleges that Choy

misrepresented the risk of several financial endeavors, including
the method of procuring funding for the purchase of the new
property.

See id., PageID # 1571.

The breach of implied

contract claim alleges that,
113. Mr. Takaki entered into an implied
contract with Defendant Choy, in which
Defendant Choy would provide services,

19

including advisory financial planning
and investment management services.
. . .
117. Defendant Choy breached his contract
with Mr. Takaki by failing to provide
such advisory financial planning and
investment management services and
instead took financial advantage of Mr.
Takaki, which resulted in loss to the
Trust.
Id., PageID #s 1572-73.
Continental and Arch have taken competing coverage
positions dependent on whether Choy’s potential liability arises
out of his conduct as a financial planner or as a realtor.
Continental insured Choy under a Real Estate Errors and Omissions
Policy, but argues that the claims against Choy arose out of
Choy’s misconduct as a financial planner.

Thus, Continental’s

counterclaim alleges:
The Takaki Action therefore is based on and
arises out of Choy’s alleged operations and
activities as an insurance agent and/or
broker, investment manager, and financial
planner . . . . Continental therefore is
entitled to a declaration that, even if the
Takaki Action were a claim under the Policy,
Exclusion M would bar defense and indemnity
coverage for the Takaki Action.
ECF No. 24-1, PageID #s 1128-29.

See also id., PageID # 1131

(counterclaim requesting a “declaration that the policy does not
in any event afford defense or indemnity coverage for those
allegations against Choy d/b/a Corinthians Financial Planners or

20

those allegations not based on the rendering of professional real
estate services”).
Arch, which insured Choy under a Securities
Broker/Dealer and Registered Representative Errors and Omissions
Policy, has denied coverage based on its view that the claims
arise out of Choy’s alleged misconduct as a realtor.

In a letter

to Choy denying coverage, Arch noted:
The Complaint is based upon Choy’s alleged
recommendations to Takaki to purchase real
estate properties at above-market prices and
thereafter sell them at below-market prices
with resultant identified losses. The sale
of real estate does not qualify as
Professional Services, as defined above.
Although the Complaint references Choy as a
financial planner and insurance salesman and
that he sold Takaki a General Electric
Capital Assurance Co. long-term care
insurance policy, a Symentra Life Ins. Co.
insurance policy, a Jackson Ins. policy and
unspecified products of GWN Securities, here
are no allegations of a Wrongful Act related
to same and no alleged Loss related to same.
The Claim is not seeking Loss as a result of
any actual or alleged rendering or failing to
render Professional Services, as defined
above. As the Claim made against Choy and/or
Corinthians Financial Planners does not
involve a Wrongful Act, coverage is not
triggered under the Insuring Agreement.
ECF No. 44-3, PageID #s 1579-80.
Resolution of Defendants’ duties, if any, to indemnify
Choy thus depends on several factual issues yet to be determined
in the underlying state action.

See, e.g., State Farm Fire &

Cas. Co. v. Jenkins, No. CV 08-00220 ACK-LEK, 2009 WL 529083, at

21

*7 (D. Haw. Mar. 3, 2009) (“If the district judge finds that
there was a duty to defend, resolving the duty to indemnify may
involve issues that the state court will determine.

Even if such

issues are not readily apparent at the present time, they may
arise through discovery and further litigation in this case and
the Underlying Action.”); Bituminous, 2010 WL 2572772, at *5
(concluding that third Brillhart factor weighed in favor of
declining jurisdiction because, “when deciding plaintiffs’ duty
to indemnify, the Court would likely determine [issues central to
the state court proceeding involving various tort and contract
claims], and that factual determination would likely influence,
or conflict with, factual determinations in the state court
proceeding”).

For these reasons, the instant case raises the

risk of duplicative litigation.
This court agrees with the Magistrate Judge in
concluding that this factor weighs in favor of abstention.
C.

The Dizol Factors Weigh in Favor of Declining
Jurisdiction.

In addition to the Brillhart factors, the court may
consider a number of additional factors, including:
1) whether the declaratory action will settle
all aspects of the controversy; 2) whether
the declaratory action will serve a useful
purpose in clarifying the legal relations at
issue; 3) whether the declaratory action is
being sought merely for the purpose of
procedural fencing or to obtain a “res
judicata” advantage; or 4) whether the use of
a declaratory action will result in
22

entanglement between the federal and state
court systems. In addition, the district
court might also consider 5) the convenience
of the parties; and 6) the availability and
relative convenience of other remedies.
Dizol, 133 F.3d at 1225 n.5.
Several of these factors weigh in favor of declining
jurisdiction here.

First, the federal action for declaratory

relief will not settle all aspects of the controversy, which
includes the underlying state action consisting of various tort
and contract claims.

See e.g., Owners Ins. Co. v. Monte Vista

Hotel, No. CV 09-8095-PCT-MHM, 2010 WL 447343, at *4 (D. Ariz.
Feb. 4, 2010).

Second, although resolution of the federal action

would clarify the relationship between the insurers and Choy, any
benefit would be outweighed by the “price of clarification.”

See

Bituminous, 2010 WL 2572772, at *6 (“Any declaratory judgment
action that meets the jurisdictional requirements of Article III
will, by definition, clarify some aspect of a relationship
between the parties.

The real question is the price of that

clarification, which is calculated in terms of ‘judicial
administration, comity, and fairness to the litigants.’” (citing
Chamberlain, 931 F.2d at 1367)).

The high price of clarification

in this instance would include entanglement of the federal and
state court systems if the court were to “interject itself into
the fact finding process already under way in state court.”
Nat’l Chiropractic Mut. Ins. Co. v. Doe, 23 F. Supp. 2d 1109,

23

1123 (D. Alaska 1998).

The other factors do not weigh in favor

of or against remand.
On balance, the Dizol factors favor the court’s
declining of jurisdiction over the instant case.
D.

Remand to the State Court is Appropriate in This
Case.

Defendants argue that the F & R improperly rejected
their alternative request for a stay of this action.
42, PageID # 1511.

See ECF No.

Defendants contend they are entitled to a

stay under Burlington because a stay “‘preserves the state’s
interest in its own procedures’ while also maintaining ‘an
appropriate balance of federal-state jurisdiction’ by giving
deference to the party invoking federal diversity jurisdiction.”
See id., PageID # 1512 (citing Burlington, 758 F. Supp. 2d at
1146).
The statement in Burlington is inapplicable here, given
the differences between Burlington and the instant case.

In

Burlington, the claim for declaratory relief was originally filed
in federal court, so there was no possibility of remand.
Supp. 2d at 1127.

758 F.

Faced with the choice of whether to stay the

declaratory relief case or dismiss it, the court concluded that a
stay would “preserve the state’s own interest in its procedures”
by allowing the state court the opportunity to rule in the first
instance on any issues common to both actions, while also giving
deference to the intent of the party filing the declaratory
24

relief claim to have the case heard in the forum of its choice.
Id. at 1146.

Burlington thus did not address the issue that

Defendants cite it for, namely, whether staying the federal case
is preferable to remanding this case to the state circuit court.
Staying a case may be appropriate in certain instances,
but not in this instance.

When, as in this case, the court’s

ruling on Choy’s declaratory relief claim and Continental’s
counterclaim will necessarily involve the determination of an
important state law issue that Hawaii’s courts have not yet
addressed, it is appropriate to remand the case.

Were this court

to stay the case, it would in all likelihood have to eventually
weigh in on Defendants’ right to reimbursement.

Furthermore,

because many of the coverage questions turn on facts to be
litigated in the underlying state court action, the state court
already tasked with those findings will be the most appropriate
forum in which to adjudicate Choy’s entitlement to coverage from
Defendants.
The Magistrate Judge appropriately recommended that
this court exercise its discretion to remand Choy’s action to the
state court.
V.

CONCLUSION.
Having reviewed the portions of the F & R objected to,

the court adopts all of the Magistrate Judge’s findings, as well
as the recommendation that Choy’s motion to remand be granted.
25

The Clerk of Court is directed to close this case and
to send a certified copy of this order to the Clerk of the
Circuit Court of the First Circuit, State of Hawaii.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, November 25, 2015.

/s/ Susan Oki Mollway
Susan Oki Mollway
United States District Judge

Daniel T.M. Choy v. Continental Casualty Company, et al., Civ. No. 15 00281
SOM/KSC; ORDER ADOPTING THE MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION TO
GRANT PLAINTIFF’S MOTION TO REMAND

26