Heins et al v. Commerce and Industry Insurance Company et al

Filing 30

REPORT AND RECOMMENDATIONS: (1) 7 MOTION to Remand to State Court filed by Peter H. Heins be granted; (2) The case be remanded to the Clerk of Court, Darke County Court of Common Pleas; and (3) The case be terminated on the docket of this Court. Objections to R&R due by 11/7/2017. Signed by Magistrate Judge Sharon L. Ovington on 10-24-17. (mcm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
PETER H. HEINS, et al.,
Plaintiffs,
vs.
COMMERCE AND INDUSTRY
INSURANC COMPANY, et al.,
Defendants.

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Case No. 3:17-cv-00110
District Judge Walter H. Rice
Magistrate Judge Sharon L. Ovington

REPORT AND RECOMMENDATIONS1
I.

Introduction
The facts in this case involve an airplane crash, the total destruction of the aircraft,

the deaths of Clayton Michael Heins and Jacob Andrew Turner, and an aircraft insurance
policy. Clayton’s father, Peter H. Heins, owned the destroyed aircraft. After the crash, a
dispute arose concerning insurance coverage, leading Peter H. Heins to file the present
case in the Darke County, Ohio Court of Common Pleas. Defendants Commerce and
Industry Insurance Company and AIG Aerospace Adjustment Services, Inc. removed the
case to this Court asserting diversity jurisdiction under 28 U.S.C. § 1332.
The parties do not dispute that the diversity-jurisdiction requirements are satisfied
and that, consequently, removal of the case from state court was legally justified. Their
dispute instead presents choice between alternatives: (1) whether this Court should

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Attached is a NOTICE to the parties regarding objections to this Report and Recommendations.

decline to exercise its discretionary declaratory-judgment jurisdiction and remand the
case to state court—as Plaintiff2 asks (Doc. #s 7, 15); or (2) whether this Court should
exercise its discretionary declaratory-judgment jurisdiction and retain the case here—as
Defendants ask (Doc. #11).
II.

Background
The airplane crash leading in the present case also generated a wrongful-death

case filed by the Administrator of Jacob Turner’s Estate in the Darke County Court of
Common Pleas (the Turner case). Peter Heins is the defendant in the Turner case both
individually and as Administrator of his son Clayton’s Estate. (Doc. #7, Exh. A). It
appears that the Turner case remains presently pending in Darke County.
Returning to the instant case, Plaintiff Heins purchased an aircraft insurance policy
from Defendant Commerce and Industry Insurance. His purchase occurred before the
airplane crash happened. The subject of the insurance policy was the aircraft destroyed
in the crash. The insurance policy was in effect at the time of the crash. See Doc. #9,
PageID #s 172-73. Plaintiff Heins asserts in his Complaint that the insurance policy
provided coverage for property damage to the aircraft and other losses. He further
alleges that the policy required Commerce and Industry Insurance to “‘…defend and
settle any suit or claim covered by this insurance….’” (Doc. #3, PageID #69, ¶5)
(quoting, apparently, the aircraft insurance policy).

2

For simplicity sake, Plaintiff Peter Heins is referred to herein in the singular “Plaintiff Heins” even though he
brings claims on behalf of himself, individually, and as Administrator of Clayton Michael Heins’s Estate.

2

After the crash occurred, Plaintiff Heins asked Commerce and Industry Insurance
to “provide Plaintiff (individually) with a defense to any and all claims which might be
asserted by the next of kin, survivors, or estate of Mr. Jake Turner….” Id. at ¶7. In
September 2016, AIG Aerospace (as Commerce and Industry Insurance’s agent) wrote a
letter informing Plaintiff Heins that it planned to investigate the circumstances
surrounding the crash. Id., PageID at ¶9; see Exh. B.
A few months later, in January 2017, the Turner case was filed in the Darke
County Court of Common Pleas. The Turner Complaint alleges that Clayton was the
pilot of the aircraft involved in the crash and that Jacob was the passenger. It further
alleges Clayton “possessed only a student pilot certificate and was not a licensed,
qualified pilot.” (Doc. #7, Exh. A, PageID #142, ¶14). The Sixth Cause of Action in the
Turner Complaint asserts that Peter H. Heins negligently and recklessly entrusted Clayton
with the aircraft, or permitted him to access the aircraft, “which conduct directly and
proximately caused the aircraft to crash … resulting in personal injuries and death to
Jacob Andrew Turner.” Id. at ¶s 45-46.
Facing potential individual liability in the Turner case, Plaintiff Heins might have
been somewhat relieved when Commerce and Industry Insurance informed him (on
January 24, 2017) that AIG would “accept defense of the matter and retain defense
counsel to represent … [him] under the terms of the …” aircraft insurance policy. (Doc.
#3, PageID #70, ¶12). The representation was limited to the Sixth Cause of Action in the
Turner Complaint. Id. He might have been further relieved when Commerce and

3

Industry Insurance’s counsel soon filed an Answer on his behalf contesting the
allegations in the Turner Complaint’s Sixth Cause of Action. Id. at ¶13.
Whatever relief Plaintiff Heins might have felt was fleeting because Commerce
and Industry Insurance soon changed its mind. It notified “Plaintiff (individually) that it
was rejecting the claim of physical damage to the aircraft; it was not providing coverage
for the bodily injury and death of Jacob Turner; and, it was not providing Plaintiff
(individually) with a defense in to the claim against him made [in the Turner case].” Id.
at ¶14. In response, Plaintiff Heins filed the present case in the Darke County Court of
Common Pleas and, as noted above, removal to this Court followed.
He seeks a permanent injunction requiring Commerce and Industry Insurance to
provide him with a defense to the Sixth Cause of Action in the Turner case or,
alternatively, to reimburse him for the reasonable costs of attorney fees and expenses
incurred in the Turner case. He further seeks to recover the maximum monetary amounts
available under the aircraft insurance policy for indemnification, damages related to the
destroyed aircraft, and punitive damages.
Plaintiff Heins’s Complaint is notably silent on the Declaratory Judgment Act.
Claim One asserts theories of waiver and estoppel against Commerce and Industry
Insurance. He ties these theories to the allegations that Commerce and Industry
Insurance initially reserved its right to investigate, obtained counsel to represent him,
filed an Answer in the Turner case but declined (shortly thereafter) to provide him with
coverage in connection with the Turner case. Claim Two relies on these same allegations

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and asserts that Commerce and Industry Insurance denied coverage under the aircraft
insurance policy in bad faith.
Plaintiff Heins’s Third Claim alleges, “Under the terms of The Policy, The
Company is required to defend and pay the claims alleged in the [Turner case].” Id.,
PageID #72, ¶20. Claim Four frames additional theories of estoppel and bad faith as
follows:
Because The Aircraft had been the object of a wrongful deprivation
of the Aircraft without claim or color of right and with an
unreasonable risk of permanent loss to Plaintiff … immediately
prior to its impacting with the earth, The Company is estopped and
precluded from denying coverages and its duty to Defendant
Plaintiff against the claims in the [Turner case].
The Company’s rejection of the claim for physical damage to the
[A]ircraft, refusal to provide coverage for the bodily injury and
death of Jacob Andrew Turner, and its withdrawal from defendant
Plaintiff (individually) the claim made against him [in the Turner
case] were actions made in bad faith.
(Doc. #3, PageID #72, ¶s 22-23).
Bad faith emerges again in Plaintiff Heins’s Fifth Claim—“The Company has
rejected the claim for the total physical loss of the aircraft contrary to the terms of the
policy and in bad faith”—and in his Sixth Claim—asserting bad faith denial of funeral
and burial expenses. Id., PageID #73, ¶s 25, 27.
III.

Discussion
Plaintiff Heins does not argue that this Court lacks diversity jurisdiction or that

removal was improper. For good reason: There appears no doubt that complete diversity
of citizenship exists between the parties and the amount in controversy exceeds $75,000.
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See Doc. #28, PageID #s 4-8; see also Gray v. Bush, 628 F.3d 779, 783 (6th Cir. 2010).
The presence of diversity jurisdiction is a salient point that Defendants emphasize in their
fight against an Order remanding this case to state court. But before reaching this, more
needs to be said about the Declaratory Judgment Act and the parties’ declaratoryjudgment arguments.
The Declaratory Judgment Act provides that district courts “may declare the rights
and other legal relations of any interested party seeking such declaration, whether or not
further relief is or could be brought.” 28 U.S.C. § 2201(a). “‘[D]istrict courts possess
discretion in determining whether and when to entertain an action under the Declaratory
Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional
prerequisites.’” Adrian Energy Assocs. v. Michigan Pub. Serv. Comm'n, 481 F.3d 414,
421 (6th Cir. 2007) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995)).
The parties first disagree over whether this case actually is a declaratory-judgment
action. Plaintiff Heins maintains that this case “is essentially a declaratory judgment
action” because he seeks to determine, in part, whether the aircraft insurance policy
imposes certain obligations upon Defendant Commerce and Industry Insurance. (Doc.
#7, PageID #133). He argues that Commerce and Industry Insurance is obliged:
1. to provide him (individually) with a defense in the Turner case;
2. to indemnify him for damages up to the limits of the aircraft insurance policy
($100,000);
3. to pay the stated value of the destroyed aircraft ($55,000); and
4. to pay him (as Administrator of his son’s Estate) up to $10,000 in funeral and
burial expenses.
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Id.
From Defendants’ viewpoint, Plaintiff Heins’s characterization of this case as
“essentially a declaratory judgment” constitutes a “post-removal re-characterization of
his Complaint as a declaratory judgment action.” (Doc. #11, PageID #191). Defendants
urge the Court not to accept this re-characterization because the Complaint does not
contain the term “declaratory” in any of its claims or in the multiple forms of relief it
seeks and because the vast majority of its claims are for bad faith, waiver, and estoppel.
Defendants are correct that Plaintiff Heins’s Complaint neither uses the term
“declaratory” nor specifically seeks declaratory judgment as a remedy. These omissions,
however, hold little import because a merits determination concerning most of Plaintiff
Heins’s claims will depend upon the rights and duties of the parties under the aircraft
insurance policy. This is seen, for instance, in the need for declaratory judgment that
springs from Plaintiff Heins’s Third Claim, which states, “Under the terms of the Policy,
The Company is required to defend and pay the claim alleged in the SIXTH cause of
action …” in the Turner case. (Doc. #3, PageID #72, ¶20). The merit or lack of merit in
this claim will require the determination of whether the aircraft insurance policy imposed
these duties upon Defendant Commerce and Industry Insurance. This is declaratoryjudgment stuff, even though Plaintiff Heins did not specifically call it that in his
Complaint. See, e.g., Mid-Continent Ins. Co. v. Coder, 563 F. App’x 422, 423 (6th Cir.
2014) (declaratory-judgment action involving insurer’s potential duty to defend).

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It is, moreover, rather momentous to point out that under Ohio law, “[a]n insurer
may be liable in tort when (1) without a lawful basis, it intentionally refuses to satisfy an
insured’s claim....” Werner v. Progressive Preferred Ins. Co., 310 F. App’x 766, 769
(6th Cir.2009) (citing Mid-Am. Fire & Cas. Co. v. Broughton, 154 Ohio App.3d 728, 735
(2003)). Although this type of bad-faith claim sounds in tort, its resolution involves a
determination of the parties’ contractual rights and duties “because it alleges that the
insurer had no lawful basis to deny coverage.” Broughton, 154 Ohio App.3d at 735.
Success here “is dependent on proving the underlying contract claim….” Id.; see Lynde
v. Blue Cross & Blue Shield Mut. of Ohio, No. 93-4267, 1995 WL 242003, at *6 (6th Cir.
1995) (“Ohio’s cause of action for bad faith is … rooted in Ohio’s tort and contract
law.”). This is rather momentous because nearly all of the Plaintiff Heins’s claims assert
that Defendant Commerce and Industry Insurance acted in bad faith. Consequently,
declaratory judgment, the primary mechanism needed to resolve his bad-faith Claims (2,
4-6) and his breach-of-contract Claim (3), is well imbedded in the Complaint.
Turning to Plaintiff Heins’s main assertion that a remand to state court is
warranted, he presents an analysis of 5 factors drawn from Brillhart v. Excess Ins. Co. of
America, 316 U.S. 491, 495 (1942). At the core of his reasoning is what he sees as the
potential conflict between this Court and the state court in which the Turner case is
presently pending. He explains that the same issue—whether his son and Jacob Turner
were involved in a theft offense at the time of the airplane crash—is present in both this

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case and the Turner case. This creates the potential federal/state-court conflict, as
Plaintiff Heins sees it.3
Defendants present competing reasons under each applicable factor and conclude
that the factors all weigh in favor of this Court maintaining its jurisdiction over any of
Plaintiff Heins’s declaratory-judgment claims.
“[T]here is no per se rule against a district court’s entertaining a declaratory
judgment action to determine an insurer’s liability when a tort action is pending against
its insured in a state court.” Allstate Ins. Co. v. Mercier, 913 F.2d 273, 277 (6th Cir.
1990) abrogated on other grounds by Travelers Indem. Co. v. Bowling Green Prof’l
Assocs., PLC, 495 F.3d 266, 272 (6th Cir. 2007). “In determining the propriety of
entertaining a declaratory judgment action, competing state and federal interests weigh in
the balance, with courts particularly reluctant to entertain federal declaratory judgment
actions premised on diversity jurisdiction in the face of a previously-filed state-court
action.” Adrian Energy, 481 F.3d at 421.
The Supreme Court in Brillhart, as the Sixth Circuit has recognized, “warned
district courts against ‘[g]ratuitous interference with the orderly and comprehensive
disposition of a state court litigation’ and directed them to exercise discretion in deciding
whether or not to proceed.” Id. at 421 (quoting, in part, Brillhart, 316 U.S at 495).
The required analysis considers 5 factors:
(1) whether the judgment would settle the controversy;
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Plaintiff maintains that if his son and Jacob Turner did not commit a theft offense, Commerce and
Industry Insurance cannot deny coverage under the aircraft insurance policy.

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(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.
Adrian Energy, 481 F.3d at 422 (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968
(6th Cir. 2000)).
The discretionary nature of this inquiry has led the Sixth Circuit to carefully
examine, on a case-by-case basis, the applicable factors. This has created a body of work
in which a given case is more helpful for its thinking as to each applicable factor than for
any particular discretionary decision to exercise, or not, declaratory-judgment
jurisdiction. See U.S. Fire Ins. Co. v. Albex Aluminum, Inc., 161 F. App’x 562, 564, 2006
WL 41185, at *2 (6th Cir. 2006) (“Although the factual circumstances of Northland4 bear
some similarity to those in this case, Northland does not therefore mandate a reversal in
this case but merely illuminates the broad discretion a district court enjoys under the
Declaratory Judgment Act.”). This body of work is well fed . E.g., Western World Ins.
Co. v. Hoey, 773 F.3d 755, 759-61 (6th Cir. 2014); Travelers, 495 F.3d at 272; AmSouth
Bank v. Dale, 386 F.3d 763, 784-91 (6th Cir. 2004); Bituminous Cas. Corp. v. J & L

4

Referring to Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448 (6th Cir. 2004).

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Lumber Co., Inc., 373 F.3d 807, 813-17 (6th Cir. 2004); Scottsdale, 211 F.3d at 968-69;
West American Ins. Co. v. Prewitt, 208 F. App’x 393, 397 (6th Cir. 2006).

Factors 1 and 2
Declaratory judgment in the present case would settle the insurance-coverage
controversies between Plaintiff Heins and Defendants and would clarify their legal
relations concerning coverage or non-coverage under the terms of the aircraft insurance
policy. But so would a remand of this case to state court. The present case would not
settle the wrongful-death claim at issue in the Turner case or clarify the legal relations of
the parties involved in the Turner case. See Travelers, 495 F.3d at 272. Defendants point
out that Defendant AIG Aerospace is not a party in the Turner case, that there are no
claims for insurance coverage in the Turner case, and that the cases share very few
factual or legal issues. But, there is more in common between the cases than Defendants
acknowledge. The central factual issues in both cases will likely concern the
circumstances surrounding how Plaintiff Heins’s son and Jacob Turner gained access to
the aircraft on the day of the crash. These issues will be pertinent to whether they were
involved in a theft offense at the time the aircraft crashed—a possibility that needs to be
explored and resolved in the both the present case and the Turner case. This similarity
weighs against this Court’s exercise of its discretionary jurisdiction to issue a declaratory
judgment because the theft-related evidence and issues will be resolved in the Turner
case. See Travelers, 495 F.3d at 272 (“Granting the declaratory relief … settles the
scope of insurance coverage under the respective policies and clarifies their obligation to
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defend Bowling Green in the state court action, but it does nothing to settle the
controversy or ‘clarify the legal relationship’ between the other parties.”); cf. Prewitt, 208
F. App’x at 397 (factor one favored exercising declaratory-judgment jurisdiction when
the federal court’s finding about the applicability of an insurance-exclusion provision
involved a question not before the state court). The first and second factors therefore
weigh against this Court’s exercise of declaratory-judgment jurisdiction.

Factor 3
There is no indication that Commerce and Industry Insurance engaged in
procedural fencing or attempted to race Plaintiff Heins to a federal forum by removing
the case to this Court after it was filed in state court while the Turner case was pending.
“Although no improper motive prompted this action, this factor is neutral.” Travelers,
495 F.3d at 272.

Factor 4
Several ingredients make up factor 4’s consideration of the potential for a federal
declaratory judgment to create friction between the federal and state courts: “whether the
underlying factual issues are important to an informed resolution of the case;… whether
the state trial court is in a better position to evaluate those factual issues than is the
federal court; and… whether there is a close nexus between the 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.” Scottsdale, 211 F.3d at
968.
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The fourth factor weighs heavily against exercising discretionary declaratoryjudgment jurisdiction due to the high potential for federal/state-court friction and federal
encroachment into an issue central to the Turner case. The underlying factual matters in
the Turner case concern the circumstances leading to the aircraft crash. These factual
matters will likewise arise in the present case as the parties debate whether the theftexclusion provision in the aircraft insurance policy applies. Nailing down the facts
shared by these cases carries the significant potential for inconsistent conclusions, a
problem that weighs against this Court’s exercise of declaratory-judgment jurisdiction.
See Scottsdale, 513 F.3d at 560 (“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.”). The state court, moreover, has at least a slight advantage in resolving the
present insurance-coverage case due to the greater frequency its tort- and contract-law
claims arise there under Ohio law. Undeniably, the present insurance-coverage dispute is
within the particular concern of Ohio insurance law and policy. “‘[S]tates regulate
insurance companies for the protection of their residents, and state courts are best situated
to identify and enforce the public policies that form the foundation of such regulation.’”
Bituminous, 373 F.3d at 815 (quoting Mercier, 913 F.2d at 279); see also Travelers, 495
F.3d at 272 (“because Kentucky law is controlling, we conclude that Kentucky courts are
in the better position to apply and interpret its law on these [insurance terms and
exclusion] issues.”). And the present case does not have significant federal implications.
It does not involve federal common law or federal statutory law. Indeed, it does not
involve a federal question at all. This weighs against the exercise of discretionary
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jurisdiction. See Prewitt, 208 F. App’x at 400 (“In this case, the state court is a better
forum because there is no federal interest triggered by this litigation.”).
In addition, if discovery disputes arise in the present case, any resulting order by
this Court carries the potential to differ from discovery orders in the Turner case.
Federal/state-court friction would result. No such friction would arise from a remand of
this case to state court. It is far more practical for a single judge in the Darke County
Court of Common Pleas to consistently manage both the Turner case and the present
case. A single judge will be in a much better position to resolve discovery disputes with
consistent decisions, to minimize duplication of discovery work, to keep an eye on the
costs of litigating the present case and the Turner case, and to issue uniform decisions at
every stage of the cases, including the summary-judgment stage.
In light of these considerations, factor 4 weighs heavily against the exercise of
discretionary jurisdiction.

Factor 5
The fifth factor—whether there exists an alternative remedy that is better or more
effective—shines a bright light on Ohio’s Declaratory Judgment statutes, Ohio Rev. Code
§ 2721.01, et seq. In general, “Ohio’s declaratory judgment statutes are broad in scope
but not without limitation.” Cummin v. North, 2:15cv1043, 2017 WL 4386809, at *8
(S.D. Ohio, 2017). Neither party has pointed to facts or law that would limit the power of
the Ohio courts to issue a declaratory judgment under Ohio Rev. Code § 2721.02 in this
case. Because of this, the fifth factor weighs against the discretionary exercise of
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jurisdiction to issue a federal declaratory judgment. See Scottsdale, 513 F.3d at 562
(same remedies available in state court weighed against federal discretionary
jurisdiction).
In sum, the applicable considerations—when examined individually and
contemplated together (including neutral factor 3)—weigh against the exercise of
declaratory-judgment jurisdiction in the present case.
* * *
Defendants contend that decisions by Sixth Circuit and its district courts hold,
“when a plaintiff has claims in addition to declaratory judgment claims, such as
injunctive relief, monetary damages, and bad faith claims…, the district court must
exercise jurisdiction over those claims if the subject matter jurisdictional requirements
are otherwise satisfied, and not remand the claims to state court.” (Doc. #11, PageID
#193). In support of this, Defendants rely on the following statement from Adrian
Energy:
When a plaintiff seeks relief in addition to a declaratory judgment,
such as damages or injunctive relief, both of which a court must
address, then the entire benefit derived from exercising discretion not
to grant declaratory relief is frustrated, and a stay or dismissal would
not save any judicial resources.
481 F.3d at 422 (emphasis in original). There is a crucial distinction between the claim
the district court was required to address (“must address”) in Adrian and the diversityjurisdiction claims in the present case. The plaintiff’s claims in Adrian, included a claim
under the Federal Power Act. 481 F.3d at 418. The district court had “exclusive
jurisdiction” over that claim. See 16 U.S.C. § 825p (“The District Courts of the United
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States…, shall have exclusive jurisdiction of violations of this chapter…, and of all suits
in equity and actions at law brought to enforce any liability or duty created by, or to
enjoin any violation of, this chapter or any rule, regulation, or order thereunder.”). This
exclusive jurisdiction meant mandatory federal judicial review (“must address”) because
no state court had the power to adjudicate the federal claim. Consequently, in the
passage Defendants quote, the Sixth Circuit was saying that when a plaintiff seeks relief
on a federal claim over which the district court has exclusive jurisdiction and “must
address, then denying the entire benefit derived from exercising discretion not to grant
declaratory relief is frustrated….” Id. Because this passage concerns exclusive,
mandatory federal-court jurisdiction, it is distinguished from the present case in which
both this Court and the state court have jurisdiction over Plaintiff Heins’s state-law
claims. Additionally, the benefits of having the leeway to decline declaratory-judgment
jurisdiction are apparent here—the main benefit being to eliminate any possibility of
friction and inconsistent rulings created by proceeding with this case while the Turner
case continues.
Hold on, Defendants say, this Court has mandatory jurisdiction to adjudicate
Plaintiff Heins’s state-law claims under its undisputed diversity jurisdiction and given
Defendants’ proper removal of the case from state court. Defendants contend that
because this Court has mandatory jurisdiction over Plaintiff Heins’s state-law claims, it
must hear those claims and the issue of whether this Court should exercise its
discretionary declaratory-judgment jurisdiction does not presently arise. To support this,
Defendants harken to Adrian’s “must address” language and to its close cousin,
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Knowlton Const. Co. v. Liberty Mut. Ins. Co., No. 2:07cv748, 2007 WL 4365690 (S.D.
Ohio 2007), Report and Recommendation adopted, id. at *1 (Dec. 13, 2007).
As explained above, Defendants’ reliance on the “must address” language in
Adrian is misplaced. As for Knowlton, it has more in line with the present case.
Knowlton is a case arising under federal diversity jurisdiction over claims (breach
of contract and bad faith) under Ohio law. The plaintiff in Knowlton sought declaratory
judgment concerning the defendant insurance company’s possible duty to defend or
indemnity under the terms of an insurance policy. The insurance company properly
removed the case to federal court based on diversity jurisdiction. Relying on four cases
from the Ninth Circuit Court of Appeals, the district court in Knowlton observed, “The
exercise of jurisdiction over damage claims is mandatory and not discretionary as it is for
the declaratory judgment claim.” 2007 WL 4365690, at *3 (citing and quoting
parenthetically, United Nat’l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102 (9th Cir.
2001) (quoting Snodgrass v. Provident Life and Acc. Ins. Co., 147 F.3d 1163, 1167-68
(9th Cir. 1998)); Gov’t Empls. Ins. Co. v. Dizol, 133 F.3d 1220, 1225-26 n. 6 (9th Cir.
1998); Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23 F.3d 948, 951 (5th Cir.
1994)). The district court then reasoned and held, “the Court is faced with a request to
remand an entire case to state court when the removal was proper, and where the Court
has a mandatory obligation to exercise jurisdiction over two of the three claims in the
complaint. Such remand is simply improper.” Id. The district court declined to address
the issue of whether it should exercise its declaratory-judgment jurisdiction “because that
determination is irrelevant to the question of remand.” Id. The district court also did not
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explain its conclusion that it had “a mandatory obligation to exercise…” its diversity
jurisdiction. See id.
Several problems arise. First, Knowlton never reached the Sixth Circuit Court of
Appeals, and it consequently lacks the precedential gravitas of a Sixth Circuit decision.
Second, Knowlton cites to Ninth Circuit cases, none of which are controlling in the
present case. Third, those Ninth Circuit cases invoke the familiar refrain that a federal
court has a “virtually unflagging obligation” to exercise its diversity jurisdiction. See
Dizol, 133 F.3d at 1225-26 n. 6. This refrain is unassailable given it lineage. Colorado
River Water Consv. Dist. v. United States, 424 U.S. 800, 817 (1976) (federal courts have
“the virtually unflagging obligation … to exercise the jurisdiction given them.”).
Knowlton, however, does not adhere closely to the “virtually unflagging
obligation” language. “Virtually unflagging” does not mean district courts have an
absolutely unflagging duty to exercise jurisdiction. See Gray, 628 F.3d at 783 (“However
strict, even ‘unflagging,’ this duty might be, it is not absolute.”).5 A “virtually
unflagging” duty is also not a “mandatory” duty to exercise jurisdiction, as Knowlton
incorrectly characterized it. See Knowlton, 2007 WL 4365690, at *3 (“the Court has a
mandatory obligation to exercise [diversity] jurisdiction….”).
Even more significantly, Knowlton’s faith in “mandatory” jurisdiction runs afoul
of the Declaratory Judgment Act. The Supreme Court explains, “district courts possess

5

Although the limit of the court’s unflagging duty to exercise its jurisdiction is often tested in abstention
cases, Gray points to other types of cases that district courts have the discretion to dismiss—including
declaratory judgment actions. Id. at 784 (citing Wilton, 515 U.S. at 282).

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discretion in determining whether and when to entertain an action under the Declaratory
Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional
prerequisites.” Wilton, 515 U.S. at 282 (emphasis added). Consequently, although
diversity jurisdiction is not disputed and “otherwise satisfies” subject matter jurisdiction
in this case, the Declaratory Judgment Act grants this Court discretion to determine
whether it should exercise its declaratory-judgment jurisdiction. Having done so above,
an Order remanding the case to state court is warranted.
Accordingly, Plaintiff Heins’s Motion to Remand is well taken.
IT IS THEREFORE RECOMMENDED THAT:
1.

Plaintiff Heins’s Motion to Remand (Doc. #7) be granted;

2.

The case be remanded to the Clerk of Court, Darke County Court of
Common Pleas; and

3.

The case be terminated on the docket of this Court.

October 24, 2017

s/Sharon L. Ovington
Sharon L. Ovington
United States Magistrate Judge

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NOTICE REGARDING OBJECTIONS
Pursuant to Fed. R. Civ. P. 72(b), any party may serve and file specific, written
objections to the proposed findings and recommendations within FOURTEEN days after
being served with this Report and Recommendations. Such objections shall specify the
portions of the Report objected to and shall be accompanied by a memorandum of law in
support of the objections. If the Report and Recommendation is based in whole or in part
upon matters occurring of record at an oral hearing, the objecting party shall promptly
arrange for the transcription of the record, or such portions of it as all parties may agree
upon or the Magistrate Judge deems sufficient, unless the assigned District Judge
otherwise directs. A party may respond to another party’s objections within
FOURTEEN days after being served with a copy thereof.
Failure to make objections in accordance with this procedure may forfeit rights on
appeal. See Thomas v. Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947,
949-50 (6th Cir. 1981).

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