Everest National Insurance Company v. USAA Insurance Company

Filing 10

ORDER granting 4 defendant's Motion to Dismiss. Signed by District Judge George Caram Steeh. (1/25/18 3:00 PM motion hearing cancelled) (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

EVEREST NATIONAL
INSURANCE COMPANY,

CASE NO. 17-CV-13090
HON. GEORGE CARAM STEEH

Plaintiff,
v.
USAA CASUALTY
INSURANCE COMPANY,
Defendant.
________________________/
ORDER GRANTING DEFENDANT’S MOTION (Doc. 4)

Plaintiff Everest National Insurance Company (“Everest”) is litigating
the same issues presented here in a related state lawsuit pending in
Wayne County Circuit Court. Defendant USAA Casualty Insurance
Company (“USAA”) moves for dismissal pursuant to Federal Rule of Civil
Procedure 12(b)(1) under the Brillhart or the Colorado River abstention
doctrines. Because the same issue is pending in a previously filed state
lawsuit, interests of comity and the wise use of judicial resources require
that this court abstain and stay this lawsuit. Oral argument had been
scheduled, but upon review of the parties’ submissions, the court

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determines that oral argument is not necessary pursuant to Local Rule
7.1(f)(2).
I. Background
On October 7, 2016, the underlying insured in this action, Gregory
Graham, III, was involved in a serious motor vehicle accident when he was
the passenger in a 2003 Ford Explorer. The automobile collided with a
cement barrier on the highway resulting in severe injuries including brain
injury. The automobile was insured by Defendant USAA. Graham was the
resident relative of his mother, Lakisha Johnson, who owned an automobile
insured by Plaintiff Everest. Since Graham claimed no-fault personal injury
protection (“PIP”) benefits as a result of the accident, Everest has paid
benefits to Graham in excess of $100,000. In December, 2016, Graham’s
mother and guardian filed a lawsuit in Wayne County Circuit Court
asserting a negligence claim against the driver of the vehicle, Dontae D.
Jackson, an owner’s liability claim against the owner of the vehicle,
Stephanie Hall, and a breach of contract action against Everest for the
failure to pay first party PIP no-fault benefits. Less than a month after the
lawsuit was filed, Graham’s guardian amended the Complaint to name
USAA as a named defendant in the event that Everest is not liable to pay
first party PIP benefits. In her second amended complaint, Graham’s
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guardian also added a claim for declaratory relief seeking a determination
as to which insurance company, Everest or USAA, is obligated under
Michigan law to pay first party PIP benefits. Everest did not remove on the
basis of diversity but continued to litigate in state court.
Graham’s guardian then filed a motion for declaratory judgment in
state court seeking a determination of the priority between Everest and
USAA. In response, Everest filed a motion for summary disposition on the
basis that Johnson lied on her policy application by denying that she owned
two other uninsured vehicles, thus voiding her policy. In February, 2017,
the state court ordered Everest to pay certain medical bills and reserved on
the issue of coverage and priorities. Based on the dispute over coverage,
the state circuit court ordered that the Michigan Automobile Insurance
Placement Facility (“MAIPF”) be added as a party to the state court action
and assign an insurer to begin to pay Graham’s no-fault benefits.
Graham’s guardian did so and filed a second amended complaint on March
8, 2017. Titan Insurance Company was substituted for MAIPF on May 12,
2017.
Graham’s third party liability claims against the driver and owner of
the vehicle were dismissed by stipulation on August 3, 2017. Only the
priority dispute and related issues remain pending in the state suit. On
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September 14, 2017, Wayne County Circuit Court Judge Lita Masini
Popke, denied Everest’s motion for summary disposition. Judge Popke
also denied Everest’s motion to stay the matter pending an appeal of the
denial of its summary disposition motion. Case evaluation in the state
action is scheduled to occur in January, 2018.
Shortly after losing on its motion for summary disposition, on
September 20, 2017, Everest filed the instant diversity lawsuit seeking
declaratory judgment on the priority issue and related claims. In its original
Complaint, Count I sought a declaratory judgment that USAA stands in a
higher priority than Everest for payment of no-fault benefits to Graham
pursuant to M.C.L. § 500.3114(a); Count II sought recoupment of all
monies paid by Everest under the theory that USAA occupies the highest
priority position under the No-Fault Act; Count III sought equitable
subrogation; and Count IV sought common law indemnity. Recovery
pursuant to all counts of the Complaint requires a ruling that USAA has
higher priority under the No-Fault Act than Everest.
On October 23, 2017, USAA filed a motion to dismiss based on
Brillhart abstention, which governs declaratory judgment actions, or
Colorado River abstention, which governs abstention in the face of parallel
state proceedings. In response, on November 6, 2017, Everest filed an
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Amended Complaint deleting the declaratory judgment claim, but retaining
the recoupment, equitable subrogation, and common law indemnity claims
as pled in the original Complaint. All of the remaining claims require a
determination that USAA stands in higher priority than Everest for payment
of no-fault benefits in order for Everest to prevail. Everest filed a response
to the motion to dismiss, stating Brillhart abstention cannot apply because it
is no longer seeking declaratory judgment relief, and arguing that Colorado
River abstention does not apply because there are allegedly no parallel
proceedings.
II. Analysis
A.

Brillhart Abstention
The court first considers whether this matter should be dismissed

under the Brillhart abstention doctrine because Plaintiff seeks declaratory
judgment relief for the same matter pending in state court. Plaintiff’s
decision to delete its declaratory judgment claim in response to
Defendant’s motion to dismiss does not alter the court’s decision here as
the remaining subrogation and indemnity claims involve the same issue of
priority in coverage set forth in the declaratory judgment count. In other
words, the court’s decision on the remaining claims requires the same
analysis as the dismissed declaratory judgment claim. As such, the court
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will reject Plaintiff’s invitation to elevate form over substance, and will
consider whether Brillhart abstention is warranted here despite Plaintiff’s
attempt to use the Amended Complaint to seek to end run around that
doctrine.
The Declaratory Judgment Act provides a district court with discretion
to exercise jurisdiction over a declaratory action and provides:
(a) In a case of actual controversy within its jurisdiction . .
., any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other
legal relations of any interested party seeking such
declaration, whether or not further relief is or could be
sought. Any such declaration shall have the force and
effect of a final judgment or decree and shall be reviewable
as such.
28 U.S.C. § 2201 (emphasis added). The Supreme Court has held that it
may be appropriate for federal courts to abstain from deciding declaratory
judgment actions where the same issue is pending in state court. Brillhart
v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942). Specifically, the
Court has noted that “[o]rdinarily it would be uneconomical as well as
vexatious for a federal court to proceed in a declaratory judgment suit
where another suit is pending in a state court presenting the same issues,
not governed by federal law, between the same parties. Gratuitous
interference with the orderly and comprehensive disposition of a state court
litigation should be avoided.” Id.
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The Sixth Circuit has identified five factors for the court to consider in
determining whether Brillhart abstention is warranted:
(1) whether the declaratory action would settle the
controversy;
(2) whether the declaratory action would serve a useful
purpose in clarifying the legal relations in issue;
(3) whether the declaratory remedy is being used merely
for the purpose of “procedural fencing” or “to provide an
arena for res judicata;”
(4) whether the use of a declaratory action would increase
friction between our federal and state courts and
improperly encroach upon state jurisdiction; and
(5) whether there is an alternative remedy which is better
or more effective.
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 554 (6th Cir. 2008) (citing
Grand Trunk W. R.R. Co. v. Consol. Rail Co., 746 F.2d 323, 326 (6th Cir.
1984)). Consideration of these five factors leads to the conclusion that this
court should abstain from issuing declaratory judgment relief here.
First, consideration of the first factor, whether the declaratory action
would settle the controversy, favors abstention. Here, the question of
priority as between Everest and USAA is the identical issue now pending in
state court. In Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d
807 (2004), the Sixth Circuit addressed the question of whether the district
court should have abstained from determining whether an insurer had a
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duty to indemnify or defend its insured based on claims pending in a
personal injury action in state court. The issue was whether the underlying
lawsuit was brought by an employee of the insured which would vitiate
coverage. Id. at 813. The same issue was at stake in the underlying
personal injury suit and in a worker’s compensation proceeding, both of
which were pending in state court. Id. If the injured individual was found to
be an employee of the insured, then the insurer had no duty to defend or
indemnify the claim. Id. The Sixth Circuit found that because the same
issue was pending in two different state court proceedings, this favored
abstention, explaining, “[t]he declaratory judgment action in federal court
could serve no useful purpose. The federal court could either reach the
same conclusion as the state court, in which case the declaration would
have been unnecessary and the federal litigation a waste of judicial
resources, or the federal court could disagree with the state court, resulting
in inconsistent judgments.” Id. at 813–14. The same situation exists here.
Everest has asked this court to rule on the identical issue pending in state
court, thus, risking inconsistent rulings or duplicative rulings which are
wasteful of scarce judicial resources.
By contrast, in Flowers, the Sixth Circuit found abstention was not
warranted where adjudication of the insurance coverage question involved
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a strictly legal dispute which was not before the state court. In that case, a
patient sued a medical center and her mental health therapist in state court,
alleging that her therapist breached his professional standards by engaging
in sexual relations with her. 513 F.3d at 550. In a separate federal lawsuit,
the center’s insurer filed a declaratory judgment action seeking a
determination that it owed not duty to extend liability coverage to the
therapist on the grounds that he was acting outside the scope of his
employment when the torts occurred. Id. at 550-51. The insurer was not a
named party in the state tort suit. Thus, the court found that the first factor
favored exercising jurisdiction because the district court’s declaratory
judgment resolved all controversies between the parties and did not involve
an issue to be decided by the state court, nor did it require the district court
to consider matters developed through state court discovery. Id. at 556.
By contrast, in this case, the controversy between Everest and USAA
over which insurer has first priority to pay no-fault benefits is the same
issue pending in state court. Thus, although a resolution of the coverage
dispute pending here would settle the controversy between the parties, it
would require the court to consider the same factual dispute pending in
state court: whether the insured’s alleged material misrepresentations

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voided her policy with Everest. Accordingly, consideration of the first factor
favors abstention.
Second, the court considers whether the federal lawsuit would clarify
the legal relations at issue. As the Sixth Circuit noted in Flowers, the
second factor “is closely related to the first factor and is often considered in
connection with it.” 513 F.3d at 557. In that case, the court found that
adjudication of the coverage dispute in federal court would not confuse the
state court’s analysis of the liability issues pending there. Id. By contrast,
as mentioned above, a ruling by this court over the insurance coverage
issue pending here risks duplicative or inconsistent judgments with the
state court action. Thus, consideration of the second factors favors
abstention.
Third, the court considers whether the declaratory action was
motivated by “procedural fencing” or is likely to create a race for res
judicata. This is exactly what appears to have happened here. Rather
than removing the underlying state case on the basis of diversity
jurisdiction, Everest waited until it lost its motion for summary disposition
before filing its declaratory judgment action here seeking a determination

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on the same coverage dispute pending in state court. Thus, consideration
of the third factor favors abstention.
Fourth, the court considers whether accepting jurisdiction would
increase friction between federal and state courts. The answer is yes. As
the Flowers court opined, “The Supreme Court has cautioned that ‘where
another suit involving the same parties and presenting opportunity for
ventilation of the same state law issues is pending in state court, a district
court might be indulging in ‘[g]ratuitous interference,’ if it permitted the
federal declaratory action to proceed.’” Flowers, 513 F.3d at 559 (quoting
Wilton v. Seven Falls, Co., 515 U.S. 277, 283 (1995)). As to the fourth
factor, the Sixth Circuit has identified three sub-factors to be considered:
(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.
Id. at 560. Each of these sub-factors favors abstention. First, the factual
issue of whether Johnson made material misrepresentations in her
application for insurance with Everest which would cause the Everest policy
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to be rescinded and USAA to have higher priority, is the same issue
pending in state court. Because the issue of priority is a question of
Michigan state law, the state court is in a better position than this federal
court to determine the issue. Finally, Michigan public policy favors allowing
Michigan courts to resolve insurance coverage issues. For these reasons,
the fourth factor also favors abstention.
Finally, the court considers the availability of alternative remedies. A
district court should “deny declaratory relief if an alternative remedy is
better or more effective.” Id. at 562 (quoting Grand Trunk, 746 F.2d at
326). Here, the state court proceeding offers a better and more effective
remedy. The state court proceeding involves a question of state law, and
since that suit was filed some nine months prior to the filing of this federal
action, and extensive discovery and motion practice has already taken
place in that case, the state court proceeding is on track to resolve the
pending issues more expeditiously. In sum, consideration of all of the five
factors for abstention in declaratory judgment actions support abstention
under the circumstances presented here where the identical insurance
coverage dispute at issue in this case has already been pending for over a
year in state court.
B.

Colorado River Abstention
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In addition to holding that this court should abstain from exercising
jurisdiction over Everest’s declaratory judgment action, this court must also
abstain under the Colorado River doctrine. This court recognizes that a
federal court has a “virtually unflagging obligation” to exercise the
jurisdiction bestowed upon it. Colorado River Water Conservation Dist. v.
United States, 424 U.S. 800, 817–18 (1976). This obligation should be
avoided in only a few “extraordinary and narrow” circumstances. Id. Under
the Colorado River doctrine, the federal court may decline to exercise
jurisdiction where a parallel state matter is pending. Id.
The threshold inquiry in deciding whether to abstain in deference to
ongoing proceedings in state court is whether the actions are truly parallel.
Romine v. Compuserve Corp., 160 F.3d 337, 340 (6th Cir. 1998). To
answer that question, the court must find that the two proceedings are
“substantially similar.” Id. The parties need not be identical as long as they
are substantially similar and the two suits involve the same allegations as
to the same material facts. Id. Although the cases need not be identical,
the resolution of the state court action must provide complete relief for the
federal action. See Baskin v. Bath Twp. Bd. of Zoning Appeals, 15 F.3d
569, 572 (6th Cir. 1994); Heitmanis v. Austin, 899 F.2d 521, 528 (6th Cir.
1990). “Broadly, the relevant inquiry is whether resolution on the state
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case will resolve the contested issues in the federal action.” Cass River
Farms, LLC. v. Hausbeck Pickle Co., No. 16-cv-12269, 2016 WL 5930493,
at *2 (E.D. Mich. Oct. 12, 2016).
In this case, there is no question that the federal and state actions are
parallel. The two lawsuits involve the same insurance companies and the
identical legal issue over which insurer has priority to pay Graham no-fault
benefits. Everest argues the two suits are not parallel because Everest is
not a plaintiff in the state lawsuit and has not asserted claims against
USAA. Specifically, Everest argues that because it seeks recoupment of
benefits paid to Graham from USAA in the federal suit, but has not
asserted the same claim for recoupment in the state suit, the actions are
not parallel.
Judge Feikens addressed the nearly identical issue in Grammar, Inc.
v. Custom Foam Sys., Ltd., 482 F. Supp. 2d 853, 856–57 (E.D. Mich. 2007)
where he abstained under the Colorado River doctrine in deference to a
parallel action pending in a foreign jurisdiction. In that case, the court
found that the cases were indeed parallel despite plaintiff’s protests that he
did not seek damages, but only declaratory relief, in the underlying foreign
suit. In Grammar, defendant sued plaintiff in Ontario for breach of contract
and for negligent and intentional misrepresentations. 482 F. Supp. 2d at
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855. Plaintiff did not file a counterclaim but instead brought a new suit in
federal court seeking a declaratory judgment that it had not breached any
obligations to the defendant, and in the alternative, if there was a contract,
that defendant breached it. Id. at 856. Plaintiff argued that the actions
were not parallel because he sought damages in the federal lawsuit, but
not in the Canadian suit. Id. at 858. The court rejected the argument,
finding that plaintiff could have sought damages in the Canadian court by
filing a counterclaim, and the fact that plaintiff did not do so did not give
plaintiff the right to bring the entire proceeding into the United States court.
Id. The same situation applies here. Everest may seek recoupment of
insurance payments made to Graham in the state court proceeding which
is resolving the coverage dispute and Everest may not circumvent the state
court proceedings by re-litigating the same issue in federal court.
Everest argues that the claims are not parallel because Everest is not
obligated to assert a cross-claim against USAA in state court since
Michigan does not have a compulsory cross-claim rule. While Everest is
not required to file a cross-claim in state court, Everest cannot litigate the
same coverage dispute in federal and state court at the same time, and
then avoid dismissal under the Colorado River doctrine solely because it
seeks recoupment in one forum, and not the other.
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Having found that the federal and state actions are indeed parallel,
the court next considers the eight combined factors, the first five identified
by the Court in Colorado River, and the last three added by the Court in
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S.
1, 23-26 (1983) to determine whether it should abstain in deference to the
ongoing state court proceedings. These include:
(1) whether the state court has assumed jurisdiction over
any res or property; (2) whether the federal forum is less
convenient to the parties; (3) avoidance of piecemeal
litigation; ... (4) the order in which jurisdiction was
obtained[;]... (5) whether the source of governing law is
state or federal; (6) the adequacy of the state court action
to protect the federal plaintiff's rights; (7) the relative
progress of the state and federal proceedings; and (8) the
presence or absence of concurrent jurisdiction.
PaineWebber, Inc. v. Cohen, 276 F.3d 197, 206–07 (6th Cir. 2001) (quoting
Romine, 160 F.3d at 340–41). These factors, however, are not to be
applied mechanically and no one factor is determinative. “Rather, they
require ‘a careful balancing of the important factors as they apply in a given
case, with the balance heavily weighed in favor of the exercise of
jurisdiction.’” Baskin, 15 F.3d at 571 (quoting Moses H. Cone Mem’l Hosp.,
460 U.S. at 16).

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Consideration of the above cited favors leads to the conclusion that
this court must abstain. Only the first two factors are neutral; the remaining
six factors counsel in favor of abstention. Abstention here avoids the
genuine risk of piecemeal litigation and the undesired consequence of
duplicative judicial efforts. The identical issue of priority between Everest
and USAA is central to both cases. The state suit was filed some nine
months prior to the federal suit. Although Everest could have removed on
the basis of diversity jurisdiction, Everest waited until it lost on its motion for
summary disposition in state court to bring its federal diversity suit.
Michigan law governs the priority dispute; thus, the Michigan court is in the
better position to adjudicate the instant matter. The state court proceeding
adequately protects Everest’s rights. The state court proceeding has
advanced significantly, extensive discovery has taken place, and
dispositive motions have been briefed and decided. Finally, concurrent
jurisdiction exists. Accordingly, the court finds that on balance, the eight
factors to be considering in deciding whether Colorado River abstention
applies, require abstention under the circumstances presented here.

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III. Conclusion
Although USAA seeks dismissal, the court finds the better approach
is to stay this matter as “the Supreme Court has taught that when a federal
court abstains in favor of a state court, entering a stay in the federal action
is preferable to dismissing the action because the stay makes it easier for
the federal court to resume its jurisdiction over the case should the state
court to which it is deferring fail to decide the case for some reason.”
Wilton, 515 U.S. at 288 n.2; see Bates v. Van Buren Twp., 122 F. App’x
803, 809 (6th Cir. 2004). Accordingly, the court GRANTS USAA’s motion
(Doc. 4), but rather than dismiss, this court STAYS this matter pending
resolution of the underlying state court proceeding. The Clerk is ordered to
administratively close this matter.
IT IS SO ORDERED.
Dated: January 22, 2018
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
January 22, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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