Mid-Century Insurance Company v. RICK'S AUTO BODY, INC. et al

Filing 22

ORDER denying 7 Motion to Stay; denying 10 Motion to Dismiss. Signed by Judge Dana L. Christensen on 10/30/2017. (NOS)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION

FILED
OCT 3 0 2017
Cle~, l:J.S District Court
D1stnct Of Montana
Missoula

MID-CENTURY INSURANCE
COMPANY, a member company of
FARMER'S INSURANCE GROUP OF
COMPANIES,
Plaintiff,
vs.
RICK'S AUTO BODY, INC., and
AARON HALL, Individually and as
Personal Representative of the Estate of
Bruce Hall,
Defendants.
RICK'S AUTO BODY, INC.,
Counter-Claimant,
vs.
MID-CENTURY INSURANCE
COMP ANY and TRUCK
INSURANCE EXCHANGE, member
companies of FARMER'S
INSURANCE GROUP OF
COMPANIES,
Counter-Defendants.

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CV 17-63-M-DLC

ORDER

Before the Court is a motion to stay or dismiss without prejudice filed by
both Defendants, Rick's Auto Body, Inc. ("Rick's") and Aaron Hall ("Hall").
Defendants ask the Court to stay any coverage determination pending more factual
development in the Underlying Action, or in the alternative, to dismiss the
Complaint without prejudice.
Having read the parties briefs and documents presented, the Court denies
Defendants' motions for the reasons stated below.
Because the parties are familiar with the facts of this case, they will only be
recited as necessary to understand this Order.

BACKGROUND
Bruce Hall, an auto body repair worker, was injured when static electricity
ignited vapor fumes in the distillation room where he was working. He was badly
burned and died the following day. Subsequently Aaron Hall, Bruce Hall's son,
filed a complaint in the Fourth Judicial District of Montana alleging emotional
distress in his own right and seeking punitive damages against Rick's. Rick's is
insured under a Garage Policy with Mid-Century Insurance Company ("MidCentury"), which allegedly precludes coverage for any injuries also covered under
Montana's Workers' Compensation Act or any "bodily injury" to a child of an
injured employee arising from a workplace accident. Additionally, Mid-Century
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alleges that there is no coverage under the policy for punitive damages. After
Rick's received service of the complaint, it tendered the claim to Mid-Century.
Mid-Century sent Rick's a reservation of rights letter, and this action followed.
DISCUSSION

The Declaratory Judgment Act is permissive; "a federal court may declare
the rights and other legal relations of any interested party" involving a case of
"actual controversy within its jurisdiction." 28 U.S.C. § 2201(a). The United
States Supreme Court has found that the Declaratory Judgment Act is procedural
in nature, and thus "does not extend the jurisdiction of the federal courts."
Medtronic, Inc. v. Mirowski Fam. Ventures, LLC, 134 S. Ct. 843, 848 (2014)
(citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950) (internal
marks omitted); see also Aetna Life Ins. Co. ofHartford, Conn. v. Haworth, 300
U.S. 227, 240 (1937) ("[T]he operation of the Declaratory Judgment Act is
procedural only."). Rather, cases brought pursuant to the Act must satisfy "both
constitutional and prudential concerns." Government Employees Ins. Co. v. Dizol,
133 F .3d 1220, 1222 (9th Cir. 1998) (en bane). Thus, petitioners seeking
declaratory relief must satisfy the "case or controversy" clause under Article III,
section 2 of the United States Constitution, as well as statutory jurisdictional
requirements. Dizol, 133 F.3d at 1222-1223 (citations omitted).
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Here, the Court finds that both of these prerequisites under the Act are met.
First, the Ninth Circuit has "consistently held that a dispute between an insurer
and its insureds over the duties imposed by an insurance contract satisfies Article
Ill's case and controversy requirement." Id. at 1222 n.2. Second, the parties do
not dispute, and the Court agrees, that diversity subject matter jurisdiction exists in
this case because the parties are diverse and the amount in controversy exceeds
$75,000. See 28 U.S.C. § 1332.
However, even though diversity jurisdiction is not in dispute, a federal court
may decline to exercise jurisdiction under the Declaratory Judgment Act under
certain circumstances. See Snodgrass v. Provident Life and Acc. Ins. Co., 14 7
F.3d 1163, 1166 (9th Cir. 1998) ("Under the Declaratory Judgment Act, a district
court may decline to exercise jurisdiction over a declaratory action even though
subject matter jurisdiction is otherwise proper."); see also Wilton v. Seven Falls
Co., 515 U.S. 277, 288 (1995) ("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.").
These "prudential concerns" were developed more fully by the Supreme
Court, first in Brillhart v. Excess Ins. Co., then in Wilton v. Seven Falls Co., and
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their progeny. 316 U.S. 491 (1942); 515 U.S. 277 (1995). Taken together, the
two Supreme Court cases proscribe circumstances under which a federal court
should exercise its jurisdiction. While the Ninth Circuit has added additional
considerations 1, it is the three Brillhart factors that remain the "philosophic
touchstone" of the Wilton/Brillhart analysis. R.R. St. & Co. v. Transport Ins. Co. ,
656 F.3d 966, 975 (9th Cir. 2011).
The Brillhart factors instruct a district court to decline jurisdiction ( 1) to
avoid "needless determination of state law issues," (2) discourage "forum
shopping," and (3) to avoid "duplicative litigation." See Id. (citing Brillhart, 316
U.S. at 289-290). A presumption in favor of dismissal arises when the federal
action involves the same issues and parties. Dizol, 133 F.3d at 1225.
First, the Court notes that no presumption arises here as Mid-Century is not
a party in the Underlying Action. Nor does the Underlying Action raise the same
questions of policy coverage. The Underlying Action alleges only two claims
against Rick's: the emotional distress and punitive damages claims. Rick's
1

These factors include: (1) whether the state court could provide a full resolution of all
the issues; (2) whether proceeding in federal court would result in an unnecessary federal
determination of state law; (3) whether the case raises unresolved issues of state law better
decided in a state trial court from which an appeal would go to a state appellate court; (4)
whether retention of the action in federal court would encourage forum shopping; (5) whether
one court is more convenient to the parties; and (6) whether removing the case from state court
gives rise to comity concerns such that proceeding in federal court should be avoided. Dizol, 133
F.3d at 1225-1226.
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answered the claim by bringing a motion to dismiss under Montana Rule of Civil
Procedure 12(b)( 6), which the state district court granted. Though Hall has
appealed this case arguing that the Workers' Compensation exclusivity provision
violates the Montana Constitution, that issue is not before this Court.
Though no presumption arises, the Ninth Circuit has broadly interpreted
what constitutes a "parallel action." American Nat 'l Fire Ins. Co. v. Hungerford,
53 F.3d 1012, 1017 (9th Cir. 1995); Employers Reinsurance Corp. v. Karrusos, 65
F.3d 796, 800 (9th Cir. 1995), both overruled on other grounds by Dizol, 133 F.3d
1220. The Wilton/Brillhart factors are implicated when a related action rests on
the same factual circumstances. Hungerford, 53 F.3d at 1017. Here, the two cases
are undoubtably related as both involve the same operative facts: Bruce Hall's
injury sustained in the distillation room and Hall's subsequent emotional distress.
Accordingly, this Court will apply the Wilton/Brillhart factors to determine
whether the comity concerns warrant an abstention of jurisdiction.
Under the first factor, a court should decline jurisdiction when it involves a
needless determination of state law. R.R. St. & Co., 656 F.3d at 975. The Ninth
Circuit instructs that where a federal court is deciding an issue of insurance
coverage or another "routine issue of state law," it is a "rare circumstance" where

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a court should decline jurisdiction because state law supplies the law governing
the decision. Id. at 980-981.
Defendants argue that any coverage determination would constitute a
"needless determination of state law" because this determination requires the state
court to decide whether Hall's injury constitutes a "bodily injury" under Montana
law. However, the district court resolved this concern by dismissing the NIED
claim. Notwithstanding this development, Rick's claims a stay is proper because
there are still many insurance coverage issues to resolve as to the remaining
parties: Rick's lessor (Flying B) and Rick's facilities maintenance company (Temp
Rite).
The Court disagrees. The issue presented is one of insurance policy
coverage, a "routine issue[] of state law." Id. at 980-981. Should the Court, in its
analysis, need to address any auxiliary questions under the ambit of state
negligence law, such determinations would not be "needless." To answer MidCentury's question does not require the Court to consider novel issues of state
law. Rather, the Montana Supreme Court has provided appropriate guidance to
answer the questions raised. Further, any necessary factual development
concluded when the district court dismissed Hall's claim. Rick's assertion that
factual development is still required to determine the existence of liability in
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regards to the other named Defendants is not an issue before this Court.
Accordingly, the first factor does not suggest either dismissal or a stay.
The second Brillhart factor contemplates whether the court's exercise of
jurisdiction will encourage "forum shopping." R.R. St. & Co. , 656 F.3d at 975.
Forum shopping occurs when a party selects a federal court to achieve a better
outcome, or gain a tactical advantage unavailable in the state court action.
International Ass 'n ofEntrepreneurs ofAmerica v. Angojf, 58 F.3d 1266, 1270

(1995). The concern of forum shopping arises whenever a litigant instigates a
"reactive" proceeding in federal court. Dizol, 133 F.3d at 1225. Here, MidCentury's Complaint is not "reactive" as Mid-Century is not a party to the
Underlying Action, nor does the Complaint before this Court mirror the complaint
in the Underlying Action. Further, there is no evidence that Mid-Century stands to
benefit in outcome by selecting a federal court. "Although occasionally
stigmatized as forum shopping, the desire for a federal forum is assured by the
constitutional provision for diversity jurisdiction and the congressional statute
implementing Article III." First State Ins. Co. v. Callan Assocs. , 113 F.3d 161,
162 (9th Cir. 1997) (internal marks omitted). In this instance, Mid-Century has
filed this case in an appropriate, neutral forum.

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Lastly, declining jurisdiction is proper when a federal court risks duplicative
litigation. R.R. St. & Co., 656 F.3d at 975. This factor addresses the concern that
a federal and state court may reach inconsistent decisions on the same issue. Id. at
978. That concern does not arise here. The issue in the Underlying Action is
whether Rick's alleged negligence in failing to maintain a properly ventilated
workspace for employees who interact with flammable substances created the
reasonably foreseeable risk that an employee's family member would suffer
emotional distress from the allegedly negligent act. By contrast, the issue here
requires the Court to interpret language in an insurance contract under well-settled
principals of Montana law. The only impact this case will have on the Underlying
Action as it is pursued on appeal is whether there is coverage under the policy for
Hall's claims, and Mid-Century's ongoing duty to defend.
Hall urges the Court to decline jurisdiction, arguing that the question of
coverage necessitates this Court's determination that Hall's injuries are "bodily" in
nature. He argues that this is exactly the sort of "duplicative litigation" the
Wilton/Brillhart doctrine is designed to prevent. Additionally, he urges the Court

to stay because his constitutional challenge to the Workers' Compensation claim
has not been addressed by the Montana Supreme Court as an "as applied"
challenge. This Court disagrees. The district court found the existence of a
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"bodily injury" irrelevant when it dismissed the complaint as precluded by the
Workers' Compensation exclusivity provision. Because the Montana Supreme
Court has provided clear guidance on whether an independent, third party claim
for emotional distress is barred by Workers' Compensation, this Court will not
stay its decision simply because Hall has raised a challenge to existing law.
As none of the three core Wilton/Brillhart factors discourage the exercise of
jurisdiction, the Court will retain jurisdiction over the case.
Accordingly, IT IS ORDERED that Defendants' Motions to Stay or Dismiss
Without Prejudice (Docs. 7, 10) are DENIED.

.

DATED this

30

ft,

day of October, 2017.

Dana L. Christensen, Chief Judge
United States District Court

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