Farm Bureau Property & Casualty Insurance Company v. Quartieri, et al.

Filing 28

MEMORANDUM OPINION AND ORDER by Sr. District Judge Robert C. Brack GRANTING 14 MOTION to Dismiss Complaint For Declaratory Judgment Relief or in the Alternative, Motion To Stay and Authorities in Support. GRANTING 15 MOTION to Dismiss or in the Alternative Motion to Stay. (yc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
FARM BUREAU PROPERTY &
CASUALTY INSURANCE COMPANY,
Plaintiff,
v.

No: 1:17-cv-01213-RB-KBM

DANIEL G. QUARTIERI, SHELLY C.
QUARTIERI, and JERAMIAH GOUIN,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff Farm Bureau Property & Casualty Insurance Company (Farm Bureau) presses
this Court to decide the insurance coverage dispute underlying this case, despite a parallel state
proceeding that involves the same coverage issue. According to Farm Bureau, the defendants do
not have standing to sue Farm Bureau in state court, and state proceedings may be unduly
delayed by extraneous parties and issues. The defendants counter that parties crucial to the
correct disposition of the insurance dispute are present in the state action but absent from this
one, that pressing forward may fragment the state court litigation, and that the state court should
adjudicate the coverage dispute, which centers entirely on state law. After considering the five
Mhoon factors articulated by the Tenth Circuit in deciding whether to exercise jurisdiction in a
case such as this, the Court determines that the problems with pressing forward outweigh any
benefit gained in doing so, at least for now. Accordingly, the practical and prudent move at this
time is to stay the proceedings and see how the litigation unfolds in the state court.
BACKGROUND
Defendant Jeramiah Gouin was just 17 years old when he was trampled by a bull and left
paralyzed for life. (Doc. 1 at 2.) At the time of his injury, Mr. Gouin was attending “Riding on

Faith Bull Riding School and Church Camp,” a Christian bull-riding camp run by Defendants
Daniel Quartieri and Shelly Quartieri. (Doc. 1 at 2.) The Quartieris had insurance coverage
provided by Farm Bureau. (Doc. 20 at 2.) When Farm Bureau found out about Mr. Gouin’s
injury, it retained counsel to defend the Quartieris under a reservation of rights. (Id. at 3.) At the
time, no lawsuit had been filed against the Quartieris, and Farm Bureau urged the parties to
mediate their differences. (Id.)
Months later, with no mediation in sight, Farm Bureau filed a declaratory judgment
action in this Court, arguing that the incident at the camp was not covered by the Quartieris’
insurance policy, so it should be absolved of any responsibility to the Quartieris or Mr. Gouin
arising from the incident. (Doc. 1 at 11–13.) After Farm Bureau’s declaratory judgment action
was filed, the parties scheduled mediation. (Doc. 20 at 3.) With mediation set, Farm Bureau
agreed to slow the progress of its lawsuit, consenting to several extensions for the defendants to
answer the lawsuit. (Id.)
But just days before the scheduled mediation, Mr. Gouin canceled the meeting. (Id. at 3.)
Mr. Gouin then filed suit in New Mexico’s Fourth Judicial District Court, asserting various legal
theories against Riding on Faith Camp, the Quartieris, and Farm Bureau, among others. (Doc. 20
at 3–4.) Mr. Gouin’s state claims against Farm Bureau are for breach of contract and declaratory
judgment. (Id. at 4.)
In addition to facing claims from Mr. Gouin, Farm Bureau also faces claims from the
Quartieris in state court. The Quartieris, co-defendants with Farm Bureau in the state court
action, cross-claimed against Farm Bureau for declaratory relief. (Doc. 25 at 1.) Thus, both the
Quartieris and Mr. Gouin have claims for declaratory relief against Farm Bureau pending in state
court.

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Arguing that this Court should defer to the state court action, Mr. Gouin and the
Quartieris have filed motions to dismiss or stay the proceedings here. (Docs. 14 at 1, 15 at 1.)
DISCUSSION
The statutory basis for Farm Bureau’s request for relief is the Declaratory Judgment Act,
which provides that a court with jurisdiction “may declare the rights and other legal relations of
any interested party seeking such declaration . . . .” 28 U.S.C. § 2201. The Supreme Court has
“repeatedly characterized the Declaratory Judgment Act as ‘an enabling Act, which confers . . .
discretion on the courts rather than an absolute right upon the litigant.’” Wilton v. Seven Falls
Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237,
241 (1952)). “Consistent with the nonobligatory nature of the remedy, a district court is
authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a
declaratory judgment . . . .” Id. at 288.
To guide district courts in exercising their discretion over whether to abstain from a
declaratory judgment case, the Tenth Circuit in State Farm Fire & Casualty Co. v. Mhoon laid
out five factors to consider:
(1) whether a declaratory action would settle the controversy;
(2) whether it 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 to res judicata”;
(4) whether 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.

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See id., 31 F.3d 979, 983 (10th Cir. 1994). With these five Mhoon factors in mind, the Court
turns to the present dispute.
First and Second Mhoon Factors: Settling the Controversy or Clarifying Legal Relations
The first two Mhoon factors are “designed to shed light on the overall question of
whether the controversy would be better settled in state court,” and, in deciding which forum is
better suited to settle, a court should consider the degree of similarity between the federal and
state actions. First Mercury Ins. Co. v. MRCO, Inc., No. CV 12-1057 JP/CEG, 2013 WL
12170302, at *3 (D.N.M. Mar. 21, 2013) (quoting United States v. City of Las Cruces, 289 F.3d
1170, 1187 (10th Cir. 2002)). The more similar the federal and state actions, the more likely a
federal declaratory action will settle or clarify the controversy. See id.
If the Court follows Farm Bureau’s recommendation and looks only at the conflicts
between Farm Bureau and the Quartieris or Farm Bureau and Mr. Gouin, (Doc. 20 at 9), then
there is a high degree of similarity between the federal and state actions. The focus of the state
charges against Farm Bureau center on the extent of Farm Bureau’s obligations to the Quartieris
and Mr. Gouin—in other words, the state claims against Farm Bureau turn largely on the issue of
insurance coverage for the accident at the camp. And the issue of insurance coverage and the
delineation of Farm Bureau’s obligations is precisely what the declaratory judgment action here
seeks to solve. (Doc. 1 at 11.)
But Farm Bureau cites no binding precedent that requires the Court to only look at the
parties named in the federal lawsuit, (see Doc. 20 at 9), and the Tenth Circuit declined to
implement such a stringent rule when given an opportunity to do so. See Mid-Continent Cas. Co.
v. Vill. at Deer Creek Homeowners Ass’n, Inc., 685 F.3d 977, 983 (10th Cir. 2012) (assuming
without deciding that the district court could abuse its discretion by being overly concerned with
nonparties, but declining to adopt rule that consideration of nonparties automatically constitutes
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abuse of discretion). Because the state action incorporates more parties and more legal issues,
including negligence claims by Mr. Gouin against the Quartieris, (see Doc. 14 at 4–5), the state
and federal actions are considerably different and thus a declaratory judgment here would not
resolve the broader disputes before the state court.
Assuming the Court should focus on the parties to the federal lawsuit—but keeping in
mind that a broader perspective may be possible and would produce a broader result—the Court
finds that the first two factors lean in favor of retaining jurisdiction.
Third Mhoon Factor: Procedural Fencing
Mr. Gouin asserts that Farm Bureau disingenuously suggested mediation to prevent the
defendants from initiating a state court action and to buy itself time to race to federal court. (See
Doc. 14 at 5–6.) But the facts of the case do not support Mr. Gouin’s theory. Farm Bureau waited
months after suggesting mediation before filing its federal action. The complaint it filed in this
Court contained basic facts, a reproduction of large sections of the Quartieris’ policy, and a few
points of law. (See Doc. 1.) Surely Farm Bureau would not have taken months to file the
complaint if it intended to race to federal court. Also, racing to federal court would have had
limited utility since the first-to-file rule applies when two federal—not state—district courts have
concurrent jurisdiction, Farmers Ins. Co. of Arizona v. Komis, No. 1:17-CV-00703 WJ/JHR,
2017 WL 6372663, at *2 (D.N.M. Dec. 12, 2017), and Farm Bureau did not even invoke the
first-to-file rule, (Doc. 20 at 10). Rather than push for the resolution of the coverage issue before
a parallel state proceeding could commence, Farm Bureau consented to several extensions for
defendants. This factor leans in favor of retaining jurisdiction.

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Fourth and Fifth Mhoon Factors: Friction between State and Federal Courts, Encroaching
on State Courts’ Domain, and Better or More Effective Alternative Remedies
Farm Bureau argues that the federal forum is the only one that can properly adjudicate
the coverage dispute because Mr. Gouin, as a third-party claimant with no judgment in hand and
no express statutory right to sue, cannot assert a declaratory judgment action against it in state
court. (Doc. 21 at 4.) Mr. Gouin, of course, disputes Farm Bureau’s claim about his ability to
maintain a state declaratory judgment action. (Doc. 25 at 4–7.) But even if Farm Bureau were
right, the fact remains that the Quartieris—who are not third-party claimants and have
unchallenged standing to sue Farm Bureau—have brought a cross-claim against Farm Bureau to
clarify the scope of their insurance plan. (Doc. 25 at 2–3.) So, the state court can decide the
coverage issue irrespective of Mr. Gouin’s standing.
Not only did the Quartieris bring suit against Farm Bureau, they also sued Farm Bureau’s
insurance agents. The suit alleges that the insurance agents misrepresented the scope of the
coverage the Quartieris purchased, and an insurer can be bound by the actions of its insurance
agents. (Doc. 26 at 3–4.) If Farm Bureau’s insurance agents lied to the Quartieris, then the
Quartieris may still have cognizable claims against the insurance agents in state court even if this
Court were to rule in Farm Bureau’s favor on the coverage issue. On the other hand, a state court
resolution, because it involves more relevant parties, could offer more complete relief. “[F]ederal
courts should generally decline jurisdiction over declaratory judgment actions if ‘[a] final
judgment in state court will necessarily resolve all issues before [the district court] and the other
issues arising out of the same transactions thus allowing comprehensive disposition of
litigation.’” Mid-Continent, 685 F.3d at 984 (citing State Farm Mut. Auto. Ins. Co. v. Scholes,
601 F.2d 1151, 1155 (10th Cir.1979)).

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Further, if the Court rules in Farm Bureau’s favor here, what would happen if the state
court, in exploring the Quartieris’ claims against the insurance agents, finds that the agents did
indeed misrepresent the coverage of the Quartieris’ insurance policy? Such a finding might result
in friction with this Court’s ruling given the Quartieris’ assertion that insurers can be bound by
their agents. And to the extent that what the insurance agents told the Quartieris is relevant to
determining coverage and is in dispute, this Court “should not entertain a declaratory judgment
action . . . if the same fact-dependent issues are likely to be decided in another pending
proceeding.” St. Paul Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1170 (10th Cir. 1995)
(quoting Kunkel v. Cont’l Cas. Co., 866 F.2d 1269, 1276 (10th Cir.1989)).
The gravamen of Farm Bureau’s argument appears to be that this Court can more quickly
resolve the coverage dispute, and that insurers deserve quick notice of their obligations. (See
Doc. 20 at 16.) But there are stronger countervailing considerations: the present suit may lack
interconnected parties and claims, increasing the risk of friction with the state court and throwing
into question this Court’s ability to correctly decide the coverage issue; the present suit leads to
expensive and messy piecemeal litigation, at least for the Quartieris and Mr. Gouin, because it
does not adjudicate all the claims of all the parties in the state action; and New Mexico has a
strong interest in shaping its own law of insurance coverage. See N.M. Stat. Ann. § 59A-16-2
(showing that the New Mexico legislature regulates the insurance business). The fourth and fifth
factors strongly favor declining to decide the coverage issue at this juncture.
Given the discussion above, the Court would face a difficult decision if it were forced to
choose between the extremes of dismissing the case or deciding the case at this time.
Fortunately, the Court is not limited to those two options as it may also stay the proceedings as
the state case unfolds. See Wilton, 515 U.S. at 288 (explaining that a stay is often preferable

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when a Court is uncomfortable proceeding given the pendency of a parallel state action, since the
federal court may resume jurisdiction “if the state case, for any reason, fails to resolve the matter
in controversy”). Since this federal action may be missing important parties, since fact
development is better done at the state court, since the state action promises a more
comprehensive resolution, since the dispute centers on state law, and since there is a high risk of
conflict with state proceedings, the Court declines to confront the coverage dispute at this time
and will stay the case.
If subsequent developments in state proceedings render impossible the resolution of the
coverage issue—for example, if the state court decides that Mr. Gouin cannot maintain a claim
against Farm Bureau and that the Quartieris cannot file a third-party complaint or otherwise
assert their claims against Farm Bureau—then Farm Bureau may petition the Court to lift the
stay. Otherwise, the proceedings here will be stayed until the underlying state action is resolved.
CONCLUSION
For the reasons described, the Court grants the Quartieris’ and Mr. Gouin’s motion to
stay. Farm Bureau may seek to lift the stay if subsequent developments in state court make it
clear that the coverage dispute cannot be resolved in the state forum. Otherwise, the stay will last
until the resolution of the state court case, at which time the Quartieris and Mr. Gouin shall file a
notice alerting this Court.

___________________________________
ROBERT C. BRACK
SENIOR U.S. DISTRICT JUDGE

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