State Farm Mutual Automobile Insurance Company v. MAURICIO

Filing 10

OPINION AND ORDER DISMISSING CASE WITHOUT PREJUDICE. Signed by District Judge David M. Lawson. (SPin)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY,
Plaintiff,
v.

Case Number 17-13305
Honorable David M. Lawson

RACHEL ELENA MAURICIO,
Defendant.
_____________________________________/
OPINION AND ORDER DISMISSING CASE WITHOUT PREJUDICE
Plaintiff State Farm Mutual Automobile Insurance Company filed the present action seeking
a declaratory judgment on whether it is obligated to defend Rachel Elena Mauricio in a lawsuit
brought by individuals who are not parties to this case under a personal automobile insurance policy
issued to Mauricio’s mother, Carmen Orozco. The complaint states that those individuals filed an
action against Mauricio and others in the Wayne County, Michigan circuit court to recover wrongful
death damages and damages for injuries the individuals suffered as a result of being struck by a
motor vehicle driven by Antonio Dwayne Foster, to whom Mauricio had entrusted her vehicle. This
Court has discretion whether to exercise jurisdiction in declaratory judgment actions, and because
all the pertinent factors relating to the exercise of that discretion were not addressed in the plaintiff’s
complaint, the Court ordered the plaintiff to show cause why the case should not be dismissed
without prejudice.
State Farm responded to the show cause order. It argued that a declaratory judgment in the
present lawsuit would not be inconsistent with any ruling issued by the state court because the issue
of Mauricio’s policy coverage is not before that court, and that this action would clarify the legal
relationship between State Farm and its insured. State Farm contends that there is no evidence the

declaratory remedy is being used for procedural fencing, retaining jurisdiction would not increase
friction between the state and federal courts, and there is no alternative remedy which is better or
more effective.
The Court sees things differently, however, because the plaintiffs in the underlying litigation
may be prejudiced by a factual determination in this case that limits State Farm’s exposure in the
event Mauricio is found liable. Because of the danger of inconsistent results, and because other
factors favor the refusal of declaratory judgment jurisdiction, the Court will dismiss the case without
prejudice.
I.
According to State Farm’s complaint, the accident occurred on March 8, 2015. Antonio
Dwayne Foster was driving Mauricio’s 2015 Nissan Pathfinder when he failed to yield to oncoming
traffic and collided with a vehicle occupied by Carnell Alexander, Jr. and Schaelin Marie Gibas.
Alexander was killed, and Gibas sustained severe injuries. At the time of the accident, the Nissan
Pathfinder was a leased, temporary substitute vehicle subject to a State Farm automobile policy
issued to Mauricio’s mother, Carmen Orozco. The ensuing wrongful death and negligence lawsuit
named Mauricio as one of the defendants, alleging that she entrusted her vehicle to Foster, despite
knowing that he was intoxicated, which proximately caused Alexander’s death and Gibas’ injuries.
The state court suit also named as defendants Foster and Ean Holdings, LLC — the owner of the
leased vehicle — seeking tort damages against them. The state court plaintiffs also named Allstate
Property and Casualty Insurance as a defendant, seeking first-party no fault benefits against it.
In this case, State Farm asks this Court to absolve it of any obligation to indemnify or defend
Mauricio because 1) the accident occurred after the policy was cancelled by State Farm, and 2) even

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if the policy had not been cancelled, the 2015 Nissan Pathfinder is not a covered automobile as
defined by the policy. The state court complaint noted that State Farm already has denied that
coverage was in place at the time of the accident. In the event judgment is entered against Mauricio,
whether Mauricio’s vehicle was covered by the policy is an issue that must be addressed in both
cases.
II.
Although the federal courts have a “virtually unflagging obligation . . . to exercise the
jurisdiction given them,” Colorado River Water Conservation Dist. v. United States, 424 U.S. 800,
817 (1976), the exercise of jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201(a),
is not mandatory, Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942), and at times the better
exercise of discretion favors abstention. “‘By the Declaratory Judgment Act, Congress sought to
place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty, to
grant a new form of relief to qualifying litigants.’” Scottsdale Ins. Co. v. Roumph, 211 F.3d 964,
969 (6th Cir. 2000) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995)). Abstaining from
that opportunity generally “rest[s] on considerations of ‘[w]ise judicial administration, giving regard
to conservation of judicial resources and comprehensive disposition of litigation.’” Colorado River,
424 U.S. at 817 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183
(1952)). Declining jurisdiction is always a sensible option to consider in declaratory judgment
actions seeking an opinion on insurance coverage that could impact litigation pending in another
court, for although there is no per se rule prohibiting such actions in federal court, see Allstate Ins.
Co. v. Green, 825 F.2d 1061, 1066 (6th Cir. 1987), “[s]uch actions . . . should normally be filed, if
at all, in the court that has jurisdiction over the litigation which gives rise to the indemnity problem.”

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Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004) (quoting
Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine Ins. Co., 791 F.2d 460, 463 (6th Cir.
1986)). The Court has discretion to decline jurisdiction over a declaratory judgment action even
where the parties are diverse and the amount in controversy meets the threshold. Omaha Property
and Cas. Ins. Co. v. Johnson, 923 F.2d 446, 447 (6th Cir. 1991) (“We have repeatedly held in these
insurance coverage diversity cases that the Declaratory Judgment Act grants the district courts a
discretion to entertain such cases . . . .”).
To assist district courts in determining whether to proceed with such actions, the Sixth
Circuit in Bituminous Casualty Corporation cataloged five factors that it drew from its earlier
precedents:
(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;
(3) whether the declaratory remedy is being used merely for the purpose of
“procedural fencing” or “to provide an arena for a race for 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.
Id. at 813 (quoting Scottsdale Ins. Co., 211 F.3d at 968 (citations omitted)); Grand Trunk W. R. Co.
v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984). Unless these factors weigh in favor of
entertaining the action, the federal court should abstain. Ibid.
A. Settle the controversy
Sixth Circuit precedent on this factor is somewhat inconsistent. Compare Travelers Indem.
Co. v. Bowling Green Prof. Assoc., PLC, 495 F.3d 266, 272 (6th Cir. 2007) (“The district court’s
decision could not settle the controversy in the underlying state court litigation; thus, the first factor
favors the court not exercising jurisdiction.”) with Northland Ins. Co. v. Stewart Title Guar. Co., 327
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F.3d 448, 454 (6th Cir. 2003) (“Considering the first and second factors, while the declaratory
judgment would not end the dispute between Cailu and Stewart, it would settle the controversy
regarding the scope of insurance coverage issued by Northland to Cailu, and whether Northland had
a duty to defend the insureds.”). Later, however, the Sixth Circuit reconciled those cases, reasoning
that “the contrary results . . . might . . . be explained by their different factual scenarios.” Scottsdale
Ins. Co. v. Flowers, 513 F.3d 546, 555 (6th Cir. 2008). This factor may favor exercising jurisdiction
when the plaintiff is not a party to the state litigation or there is a legal, and not a factual, dispute in
federal court. Id. at 556.
The Court believes that this factor favors abstention here. A decision on the coverage
question in this Court will not resolve the underlying dispute. Furthermore, in resolving this
declaratory judgment action, the Court would be required to delve into factual issues that likely will
be litigated in the state court action. The damaged claimants allege in their state court complaint that,
“upon information and belief,” Foster was driving a vehicle leased for Mauricio by State Farm as
a temporary substitute vehicle since the vehicle insured under State Farm’s policy had been stolen.
The complaint also alleges that Mauricio exercised control over the vehicle as if it were her own.
Those factual issues likely will have to be resolved in order for the state court proceeding to reach
a final conclusion. And those same questions would need to be addressed in the present case before
the Court could resolve the declaratory claims for or against State Farm. The Court believes it is
likely that the coverage question cannot be resolved fully without investigating the underlying
events and without a determination on whether Mauricio owned the vehicle. That factual dispute
also must be resolved in the state court to determine Mauricio’s liability. The possibility of
inconsistent results is obvious.

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Moreover, the damaged claimants have not been made parties to this case. Conventional
principles of merger and bar would suggest that a person who is not a party to litigation cannot be
bound by the judgment in that case. See, e.g., Bankers Trust Co. v. Old Republic Ins. Co., 697 F.
Supp. 1483, 1488 (N.D. Ill. 1988). However, under Michigan’s rather unusual rules of collateral
estoppel, an injured person who has knowledge of a declaratory judgment action against his
tortfeasor but does not intervene nonetheless is bound by the judgment. See Wilcox v. Sealey, 132
Mich. App. 38, 346 N.W.2d 889 (1984). As a result, State Farm could obtain a determination that
damages owed by Mauricio need not be paid by State Farm under a determination of facts made
without any input from the damaged parties. The first Bituminous factor favors abstention.
B. Clarifying the legal relations
The second factor “is closely related to the first factor and is often considered in connection
with it.” Flowers, 513 F.3d at 557. The relevant inquiry is whether the federal judgment will
“resolve, once and finally, the question of the insurance indemnity obligation of the insurer.” Ibid.;
see also Northland, 327 F.3d at 454; but see Travelers Indem., 495 F.3d at 272 (holding that the
second factor favored abstention because “although a declaratory judgment would clarify the legal
relationship between the insurer and the insured pursuant to the insurance contracts, the judgment
would not clarify the legal relationship between the parties in the underlying state action.”
(alterations and quotations omitted)); Bituminous Cas., 373 F.3d at 814.
A declaratory judgment would clarify the legal relationship between State Farm and
Mauricio, but it would not clarify the legal relationship between Mauricio and the damaged
claimants. The plaintiffs in the underlying lawsuit have alleged that Mauricio, despite knowing
Foster was intoxicated, gave him permission to drive her leased vehicle. Answering the question

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whether the 2015 Nissan Pathfinder was a covered vehicle under the policy will require the Court
to address any factual dispute that may arise surrounding the vehicle’s ownership at the time of the
accident. Deciding the ownership issue in separate coverage litigation only would serve to muddy
the legal relationships of the parties.
C. Procedural fencing
The courts are “reluctant to impute an improper motive to a plaintiff where there is no
evidence of such in the record.” Flowers, 513 F.3d at 558. A plaintiff who files his declaratory
judgment claim after the state proceeding has begun does not implicate the concerns of this rule.
See ibid.; Northland, 327 F.3d at 454. There is no evidence that the plaintiff has acted improperly
by choosing the present forum. The most that can be said is that State Farm preferred a federal court
to a state court, where this action also could have been filed, and where the underlying tort action
was pending when this lawsuit was commenced. There is nothing improper about that.
On the other hand, a judgment of no coverage in this case likely would bind the state court
plaintiffs, who certainly would look otherwise to Mauricio’s insurer to satisfy a judgment against
her. Bringing a lawsuit in a court where the underlying tort case is not pending, without joining all
the parties that may have an interest in the outcome, might be considered “procedural fencing.” This
factor, therefore, tends to favor abstention.
D. Friction between federal and state courts
The fourth factor asks whether exercising jurisdiction would increase friction between
federal and state courts. 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

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declaratory action to proceed.” Wilton, 515 U.S. at 283 (quoting Brillhart, 316 U.S. at 495).
However, “the mere existence of a state court proceeding is not determinative of improper federal
encroachment upon state jurisdiction.” Green, 825 F.2d at 1067. Therefore, “‘the propriety of
declaratory relief in a particular case will depend upon a circumspect sense of its fitness informed
by the teachings and experience concerning the functions and extent of federal judicial power.’”
Wilton, 515 U.S. at 287 (quoting Public Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 243
(1952)). The Sixth Circuit articulated three sub-factors to consider when determining whether the
exercise of jurisdiction would increase friction between federal and state courts. Bituminous, 373
F.3d at 814-15 (citing Scottsdale, 211 F.3d at 968). First, if the action involves resolution of factual
issues being considered by the state court, federal jurisdiction is disfavored. Flowers, 513 F.3d at
560. The second sub-factor favors abstention when issues of unsettled state law are implicated. See
Travelers, 495 F.3d at 272. The third sub-factor favors abstention when, as is the case for insurance
contracts, interpretation of law is intertwined with state policy. Flowers, 513 F.3d at 561. As the
Flowers court explained:
The liability issues being determined in the state court proceeding may well be
legally, if not factually, distinct from the issues of policy interpretation which are
central to the federal declaratory judgment action. However, sometimes resolution
of the issue raised in federal court will require making factual findings that might
conflict with similar findings made by the state court.
Flowers, 513 F.3d at 560. (internal citation and quotation marks omitted). When the latter is the
case, the exercise of jurisdiction would be inappropriate. Such is the case here.
A declaratory judgment by this Court likely would determine an issue that the state court
could decide differently in the underlying tort litigation. The complaint in the state tort case states
a negligent entrustment claim against Mauricio. That claim turns, at least in part, on whether

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Mauricio claimed ownership over the at-fault vehicle. If the Court were to exercise jurisdiction over
this action, there would be a genuine risk that the factual findings and legal conclusions reached by
this Court on that issue might conflict with those made by the state court. Therefore, the fourth
Grand Trunk factor favors abstention.
E. Alternative remedy
When state law provides an avenue for the resolution of insurance coverage, the fifth factor
favors declining jurisdiction. Flowers, 513 F.3d at 562. Michigan allows insurers to bring
declaratory judgment actions in state court. See Mich. Ct. R. 2.605; see also Rose v. State Farm
Mut. Auto. Ins. Co., 274 Mich. App. 291, 294, 732 N.W.2d 160, 162 (2006). Moreover, the question
of coverage could be determined in the pending state court lawsuit by means of a garnishment action
after a judgment in favor of the damaged claimants. See, e.g., Helder v. Sruba, 462 Mich. 92, 611
N.W.2d 309 (2000). In such an action, State Farm could raise all the defenses to coverage it might
raise here. Id. at 101–02, 611 N.W.2d at 315.
III.
The Court believes that the Grand Trunk factors favor abstention. Following the direction
of Bituminous Casualty, Manley Bennett, Grand Trunk, Roumph, and Flowers, the Court is
constrained to dismiss the present action without prejudice.
Accordingly, it is ORDERED that the case is DISMISSED WITHOUT PREJUDICE.
s/David M. Lawson
DAVID M. LAWSON
United States District Judge
Dated: January 2, 2018

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PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on January 2, 2018.
s/Susan Pinkowski
SUSAN PINKOWSKI

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