Countryway Insurance Company v. Pittman et al
Filing
15
MEMORANDUM AND OPINION by Senior Judge Thomas B. Russell on 1/31/2013; re 4 MOTION to Dismiss Motion to Dismiss Petition for Declaration of Rights filed by Danny I. Pittman, Patsy Carol Pittman ; an appropriate order shall issuecc:counsel (KJA)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PADUCAH DIVISION
CIVIL ACTION NO. 5:12-CV-00146-TBR
COUNTRYWAY INSURANCE COMPANY
Plaintiff
v.
DANNY I. PITTMAN, JR., and
PATSY CAROL PITTMAN
Defendants
MEMORANDUM OPINION
This matter is before the Court upon Defendants Danny I. Pittman, Jr., and Patsy
Carol Pittman’s (Mrs. Pittman) (collectively the “Pittmans”) Motion to Dismiss Plaintiff
Countryway Insurance Company’s (Countryway) Petition for Declaration of Rights.
(Docket No. 4.) Countryway has responded, (Docket No. 5), and the Pittmans have
replied, (Docket No. 12). This matter is now ripe for adjudication.
The Pittmans ask the Court to decline to exercise its discretion in this
declaratory judgment action and dismiss this case. The Sixth Circuit has laid out five
factors a district court should consider in deciding whether to exercise jurisdiction under
the Declaratory Judgment Act, 28 U.S.C. § 2201(a). See Bituminous Cas. Corp. v. J&L
Lumber Co., Inc., 373 F.3d 807, 813 (6th Cir. 2004). Because the Court finds these
factors weigh in favor of dismissal, the Pittmans’ Motion to Dismiss, (Docket No. 4),
will be GRANTED.
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BACKGROUND
On May 6, 2012, Danny Irvan Pittman, Sr. (Mr. Pittman), now deceased, and
Mrs. Pittman were involved in a traffic accident with another vehicle driven by James
Sasse. Mr. Pittman died at the accident scene, and Mrs. Pittman was seriously injured.
Counsel for the Pittmans thereafter determined that Sasse did not have insurance
coverage at the time of the accident and, thus, appeared to be an uninsured motorist.
The Pittmans retained an expert to calculate the economic loss to the estate of Mr.
Pittman.
That expert calculated the loss at over $1.6 million, exclusive of other
damages such as Mrs. Pittman’s loss of consortium or her own personal injuries.
Mr. Pittman had previously purchased an insurance policy from Countryway
that provided benefits for both uninsured and underinsured motorist coverage. The
policy covered 17 vehicles owned by Mr. Pittman, and the uninsured motorist coverage
applicable to each vehicle was $60,000. Counsel for the Pittmans thereafter obtained
underwriting information from Countryway to determine how the premium on the
policy was calculated. The parties disagree whether that underwriting information
indicates that the premium was calculated based on the number of vehicles covered,
which is the issue at the heart of Countryway’s Petition for Declaration of Rights.
According to the Pittmans, their counsel submitted a demand to Countryway on
August 30, 2012, demanding the policy limits for the death of Mr. Pittman in the
amount of $1,020,000. In that demand, the Pittmans argued that the coverage was
calculated based on the fact that 17 vehicles were covered and that the premium was
charged based on this number. In short, the Pittmans argued that the $60,000 coverage
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for each of the 17 vehicles should be “stacked.” Countryway disagreed, asserting that
coverage was limited to $60,000 and that stacking was not appropriate. Counsel for the
Pittmans responded on September 27, 2012, notifying Countryway that the Pittmans
would file suit within 20 days if Countryway refused to pay the benefits that the
Pittmans maintained were due. Countryway then initiated this action for declaratory
judgment 18 days later on October 15, 2012. (See Docket No. 1.) Shortly thereafter,
the Pittmans filed suit in Calloway Circuit Court against Sasse and Countryway. (See
Docket No. 4-6.)
In the Pittmans’ state court complaint, they seek compensatory
damages against Sasse, the alleged tortfeasor. The Pittmans also state causes of action
against Countryway for uninsured motorist benefits coverage, violations of the
Kentucky Consumer Protection Act and Kentucky Unfair Claims Settlement Practices
Act, and common law bad faith.
STANDARD
District courts have discretion whether to exercise jurisdiction over an action
brought under the Declaratory Judgment Act where a simultaneous state court action is
pending. See 28 U.S.C. § 2201(a); Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995).
The Sixth Circuit has long cautioned district courts not to exercise jurisdiction over a
declaratory judgment action “unless it serves a useful, practical purpose.” Panhandle E.
Pipe Line Co. v. Mich. Consol. Gas Co., 177 F.2d 942, 944 (6th Cir. 1949). When
determining whether to exercise jurisdiction, the Court must consider five factors:
(1) whether the judgment would settle the controversy;
(2) whether the declaratory judgment action would serve a useful
purpose in clarifying the legal relations at issue;
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(3) whether the declaratory remedy is being used merely for the
purposes of “procedural fencing” or “to provide an arena for a
race to res judicata”;
(4) whether the use of a declaratory action would increase the
friction between our federal and state courts and improperly
encroach on state jurisdiction; and
(5) whether there is an alternative remedy that is better or more
effective.
Bituminous, 373 F.3d at 813 (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968
(6th Cir. 2000).
DISCUSSION
Considering these criteria, the Court finds that the balance of these factors
weighs against the exercise of jurisdiction. For this reason and those discussed more
fully below, the Court will dismiss Countryway’s declaratory judgment action.
I.
Settling the Controversy and Clarifying the Legal Relations at Issue
Because the first two factors are closely related, Courts often consider them
together. See, e.g., Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 557 (6th Cir. 2008);
Motorists Mut. Ins. Co. v. Thacker Mem’l Inc., 679 F. Supp.2d 802, 808 (E.D. Ky.
2010). A declaratory judgment by this Court would not settle the entire controversy
between the Pittmans and Countryway. At best, it would clarify the legal relations as to
the stacking issue.
Countryway argues that since it tendered payment of $60,000 to the Pittmans on
October 26, 2012, a declaratory judgment that the policy does not allow for stacking
would settle the Pittmans’ claims of bad faith and violations of the Kentucky Consumer
Protection Act because Countryway’s liability would be discharged by that payment.
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However, contrary to Countryway’s position, a decision that the policy does not allow
for stacking would not resolve all of those state law claims. On this point, Countryway
confuses discharging its obligation to pay with having no obligation to pay.
A
declaratory judgment as to the latter would arguably defeat a state law claim of bad
faith. See Wittmer v. Jones, 864 S.W.2d 864, 890 (Ky. 1993) (identifying the first
element to maintain a claim of bad faith as “the insurer must be obligated to pay the
claim under the terms of the policy”). But a decision that Countryway has paid what it
is obligated under the policy does not necessarily resolve the Pittmans’ bad faith claims
and would not end the controversy whether the Pittmans are entitled to additional relief
against Countryway. As a result, the Calloway Circuit Court would still have to hear
and resolve at least one of the Pittmans’ remaining claims against Countryway.
Therefore, the Court finds these two factors do not weigh in favor of exercising
jurisdiction.
II.
Procedural Fencing / A Race of Res Judicata
The third factor—whether the declaratory remedy is being used merely for the
purposes of “procedural fencing” or “to provide an arena for a race to res judicata”—is
meant to prevent parties from improperly using federal jurisdiction merely to gain a
more favorable forum. See Flowers, 513 F.3d at 558; Motorists Mut. Ins. Co., 679 F.
Supp. 2d at 809. “The question is . . . whether the declaratory plaintiff has filed first in
an attempt to get [its] choice of forum by filing first.” AmSouth Bank v. Dale, 386 F.3d
763, 789 (6th Cir. 2004). Generally, the Sixth Circuit has advised that courts should be
“reluctant to impute an improper motive to a [declaratory judgment] plaintiff where
there is no evidence of such in the record.” Flowers, 513 F.3d at 558 (citing, e.g.,
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Travelers Indem. Co. v. Bowling Green Prof’l Assoc., PLC, 495 F.3d 266, 272 (6th Cir.
2007)). In that vein, the court of appeals has given a declaratory judgment plaintiff the
benefit of the doubt that no improper motive fueled the filing of its action where that
action was filed “after the state court litigation has begun.” Id. (citing Bituminous, 373
F.3d at 814; Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448, 454 (6th Cir.
2003)).
The Pittmans claim that Countryway’s motivation is clear in that Countryway
filed this action in hopes of obtaining a more favorable decision in federal court than it
would in state court. They point to the fact that Countryway filed this action after
receiving notice that they intended to file suit and that Countryway did so within the
twenty-day window the Pittmans left open in their final demand letter on September 27,
2012. Countryway does not directly refute this allegation in response.
In accordance with the Sixth Circuit’s guidance, this Court is reluctant to impute
an improper motive to Countryway’s decision to initiate the instant declaratory
judgment action. Still, the fact that Countryway filed suit first when there remains a
colorable claim to coverage raises a viable argument that Countryway “has filed in an
attempt to get [its] choice of forum by filing first.” See AmSouth 386 F.3d at 789. The
Court questions why else Countryway would have filed this action at the time it did and
insist on bifurcating this matter between state and federal courts if not to use federal
jurisdiction to gain what it perceives as a more favorable forum. Thus, to the extent this
factor leans either way, the Court must conclude it does not weigh in favor of exercising
jurisdiction.
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III.
Increased Friction Between Federal and State Courts
The U.S. Supreme Court has warned that “a district court might be indulging in
‘gratuitous interference,’ if it permitted the federal declaratory action to proceed” where
a suit involving the same parties and dealing with the same state law issues is
simultaneously pending in state court. Wilton, 515 U.S. at 283 (internal alteration and
citation omitted). Accordingly, a district court must consider three additional subfactors
to determine whether its exercise of jurisdiction would increase friction with state
courts:
(1) whether the underlying factual issues are important to an
informed resolution of the case;
(2) whether the state trial court is in a better position to evaluate
those factual issues than is the federal court; and
(3) whether there is a close nexus between underlying factual and
legal issues and state law and/or public policy, or whether
federal common or statutory law dictates a resolution of the
declaratory judgment action.
Flowers, 513 F.3d at 560 (citing Bituminous, 373 F.3d at 814-15; Roumph, 211 F.3d at
968).
The first subfactor focuses on whether the district court’s resolution of the
declaratory judgment depends upon the state court’s resolution of the underlying factual
issues. See Flowers, 513 F.3d at 560. The question of the interpretation and scope of
the Pittmans’ insurance policy appears to present purely a question of law that does not
necessarily require factual findings by the state court.
subfactors seem to favor exercising jurisdiction.
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Thus, the first and second
The third subfactor focuses on whether the legal issues implicate important state
policies. The Sixth Circuit has recognized on numerous occasions that state courts are
in a better position to resolve insurance disputes because they are more familiar with
state law and that because states regulate insurers, they are best situated to identify and
enforce the state public policies underlying those regulations.
E.g., id. at 561;
Bituminous, 373 F.3d at 815; accord Motorists Mut. Ins. Co., 679 F. Supp. 2d at 810. In
Scottsdale Ins. Co. v. Flowers, the Sixth Circuit expressly stated: “Interpretation of
Kentucky insurance contracts is guided by state public policy.” 513 F.3d at 561. As
both parties acknowledge, this case does not present a novel issue of state law as
Kentucky courts have previously addressed the issue of benefits stacking in a number of
cases. Still, while district courts are not unfit to consider questions of state insurance
law, the presence of this important state issue causes the third subfactor to weigh against
exercising jurisdiction.
In sum, one of the three subfactors weighs against exercising jurisdiction while
the other two weigh in favor. Thus, although the Court accords considerable importance
to the third subfactor, it cannot conclude that the “friction between federal and state
courts” factor conclusively weighs either for or against exercising jurisdiction here.
IV.
Availability of an Alternative Remedy
The fifth and final factor to be considered is whether an alternative remedy is
available to the declaratory action plaintiff. Here, Kentucky law clearly provides an
alternative remedy to declaratory judgment in federal court by way of the Kentucky
Declaratory Judgment Act, Ky. Rev. Stat. § 418.040.
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Countryway argues that the
alternative of litigating this matter in Calloway Circuit Court would be no better than
doing so here. The Court, however, disagrees and finds that the state court remedy
would be better insofar as it would be both more efficient and more complete. Unlike
this Court, which is limited to deciding the issue of stacking, the Calloway Circuit Court
can address all of the issues in this case. This would avoid the “confusing problems of
scheduling” and res judicata were this matter to proceed simultaneously in two different
courts. See Bituminous, 373 F.3d at 812; Motorists, 679 F. Supp. 2d at 810. The state
court’s ability to decide all the issues in this case would also provide a more complete
remedy than this Court’s limited ability to decide only the stacking issue under the
policy. Accordingly, the Court finds this factor weighs against exercising jurisdiction.
V.
Balancing the Factors
In balancing these factors, the Court must rely on the “unique and substantial
discretion” conferred on it by the Declaratory Judgment Act. See Wilton, 515 U.S. at
286; Flowers, 513 F.3d at 563; Motorists, F. Supp. 2d at 811. The Court finds the
aggregate of the several factors weighs conclusively against exercising jurisdiction in
this instance. Allowing the parties to resolve all disputes in one court “promotes
efficiency, builds trust in the legal system, and allows parties to preserve resources.”
Motorists, 679 F. Supp. 2d at 811. While the stacking issue could be decided by this
Court, other issues would remain unresolved and would still need to be dealt with by the
state court. Exercising jurisdiction would require the parties to litigate this dispute in
two forums and, thus, expend extra resources and incur unnecessary expense. There is
also some indication that Countryway may have engaged in “procedural fencing” or a
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“race for res judicata,” which even if it does not weigh against, certainly does not weigh
in favor of, exercising jurisdiction. Moreover, by refusing to exercise its jurisdiction,
the Court does not rob Countryway of its only available remedy; rather, Countryway has
an adequate and, in fact, better remedy in a Kentucky state declaratory judgment action
before the Calloway Circuit Court. Accordingly, the Court finds these factors weigh
against exercising its jurisdiction and in favor of dismissal.
CONCLUSION
For these reasons, the Court, in its discretion, declines to exercise its jurisdiction
under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, and will GRANT
Defendants’ Motion to Dismiss, (Docket No. 4).
An appropriate Order of dismissal shall issue separately with this Opinion.
Date:
cc:
January 31, 2013
Counsel
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