ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY v. SCHELLBERG et al

Filing 21

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MARY A. MCLAUGHLIN ON 4/22/2014. 4/23/2014 ENTERED AND COPIES E-MAILED.(sg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ALLSTATE PROPERTY AND
CASUALTY INSURANCE CO.
v.
CHRISTOPHER SCHELLBERG,
et al.

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CIVIL ACTION

NO. 13-4609

MEMORANDUM
McLaughlin, J.

April 22, 2014

This is a declaratory judgment action brought by
Allstate Property and Casualty Insurance Company (“Allstate”)
against defendants Christopher Schellberg, Donald J. Schellberg,
and Ormaly Fenelle regarding Allstate‟s duty to defend and
indemnify the defendants in an underlying state court personal
injury action.
dismiss.

Before the Court is the defendants‟ motion to

The defendants argue that the Court should decline its

discretionary jurisdiction over this matter pursuant to 28
U.S.C. § 2201.

The Court will decline to exercise its

jurisdiction over this matter at this time, and will stay this
case pending resolution of the parallel declaratory judgment
action in state court.
I.

Background
This declaratory judgment action relates to a personal

injury action filed by Vincenzo (“Vince”) and Bridget Palazzolo

(together the “Palazzolos”) in the Court of Common Pleas of
Chester County arising out of an incident that occurred on July
4, 2011.

The complaint filed by the Palazzolos alleges that,

while intoxicated, Christopher Schellberg struck Vince Palazzolo
in the head with a golf club “with such force and violence that
the blow shattered Vince‟s skull and left Vince unconscious.”
The Palazzolo‟s complaint asserts a negligent entrustment claim
against defendants Donald J. Schellberg and Ormaly Fenelle,
claiming that they negligently entrusted alcohol and golf clubs
to their son, Christopher Schellberg.

Subject to Allstate‟s

reservation of rights, Allstate is providing defense counsel for
the defendants in the personal injury action.

Compl. ¶¶ 10-11,

13.
In this action, Allstate seeks a declaration that it
does not have a duty to defend or indemnify the defendants in
the underlying personal injury action.

At the time of the

incident, Christopher Schellberg, Donald J. Schellberg, and
Ormaly Fenelle were insured persons under a homeowners insurance
policy issued by Allstate to Donald J. Schellberg.

Allstate

argues that the claims in the Palazzolo‟s complaint do not fall
within coverage of the homeowners insurance policy because they
are subject to the following exclusion:

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1. We do not cover any bodily injury or property
damage intended by, or which may reasonably be
expected to result from the intentional or criminal
acts or omissions of, any insured person. The
exclusion applies even if:
a. such insured person lacks the mental capacity to
govern his or her conduct;
b. such bodily injury or property damage is of a
different kind or degree than that reasonably intended
or expected; or
c. such bodily injury or property damage is sustained
by a different person other than intended or
reasonably expected.
This exclusion applies regardless of whether or not
such insured person is actually charged with, or
convicted of, a crime.
Id. at ¶¶ 17-18.
Allstate‟s complaint also alleges that Donald J.
Schellberg and Ormaly Fenelle are jointly obligated for the
intentional and/or criminal acts of Christopher Schellberg, and
therefore Allstate has no duty to defend or indemnify Donald J.
Schellberg and Ormaly Fenelle, pursuant to the following
provision of the homeowners insurance policy:
The terms of this policy imposes joint obligations on
persons defined as an insured person. This means that
the responsibilities, acts and failures to act of a
person defined as an insured person will be binding
upon another person defined as an insured person.
Id. at ¶¶ 22-24.

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The defendants filed the present motion to dismiss on
December 17, 2013.1

On December 18, 2013, the defendants filed a

declaratory judgment complaint in the Court of Common Pleas of
Chester County, raising the same issues raised by Allstate in
this case.

See Palazzolo, et al. v. Allstate Property & Cas.

Ins. Co., Chester Cty. Ct. Com. Pls. No. 13-12402.

Allstate has

filed preliminary objections to that complaint.
II.

Analysis
The discretion to exercise jurisdiction in a

declaratory judgment action is governed by the federal
Declaratory Judgment Act, which provides that, “[i]n 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 . . . .”
2201(a).

28 U.S.C. §

However, district courts are under no compulsion to

exercise this discretion, even when a suit otherwise satisfies
subject matter jurisdiction prerequisites.
Falls Co., 515 U.S. 277, 282, 287 (1995).

See Wilton v. Seven
A district court has

discretion to decline to exercise jurisdiction over a
1

The defendants have assigned their rights under the
homeowners insurance policy to the Palazzolos. Counsel for the
Palazzolos in the state court personal injury action has
appeared on behalf of the defendants in this action.
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declaratory judgment action in favor of a parallel state court
proceeding.

Id.

The defendants argue that the Court should decline to
exercise jurisdiction over this declaratory judgment action
because (1) there are no questions of federal law; and (2) the
defendants have instituted a state court action for declaratory
relief involving the same issues.

In response, the plaintiff

argues that the Court should exercise jurisdiction because (1)
this action does not involve unsettled questions of state law;
(2) the state court declaratory judgment action was filed after
this action and is subject to dismissal on the basis of lis
pendins; and (3) the defendants are precluded by the terms of
the insurance policy from bringing the state court declaratory
judgment action.
A district court considering whether to exercise
jurisdiction over a declaratory judgment action should consider
whether the claims at issue can be satisfactorily adjudicated in
the state court proceeding; whether all the necessary parties
have been joined; and the scope of the pending state court
proceeding and the nature of the defenses available there.

Id.

at 283 (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S.
491, 495 (1942).

The central issue is whether the questions in

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controversy can be better settled in the pending state court
proceedings.

Brillhart, 316 U.S. at 495.

In declaratory judgment actions involving insurance
coverage issues, the Third Circuit has directed district courts
to consider: (1) “[a] general policy of restraint when the same
issues are pending in a state court;” (2) “[a]n inherent
conflict of interest between an insurer‟s duty to defend in a
state court and its attempt to characterize that suit in federal
court as falling within the scope of a policy exclusion;” and
(3) “[a]voidance of duplicative litigation.”

State Auto Ins.

Cos. v. Summy, 234 F.3d 131, 134 (3d Cir. 2000)(citing United
States v. Commonwealth of Pennsylvania, Dep‟t of Envtl. Res.,
923 F.2d 1071, 1075-76 (3d Cir. 1991)).

A district court should

“decline to exercise its discretionary jurisdiction when doing
so would promote judicial economy by avoiding duplicative and
piecemeal litigation.”

Id. at 135 (citing Mitcheson v. Harris,

955 F.2d 235, 239 (4th Cir. 1992)).2

2

In Summy, which involved a declaratory judgment action
regarding an insurance coverage dispute, the Third Circuit held
that it was inappropriate for the district court to exercise
jurisdiction where the underlying personal injury action and a
separate counter-action for declaratory judgment were pending
before the same judge in state court. Summy, 234 F.2d at 13536.
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As the plaintiff points out, the Third Circuit in
Summy cautioned courts against exercising jurisdiction over
declaratory judgment actions when the state law involved is
close or unsettled.

Id. at 135.

The Third Circuit noted in

that case that the converse is also true, however:

“When the

state law is firmly established, there would seem to be even
less reason for the parties to resort to the federal courts.
Unusual circumstances may occasionally justify such action, but
declaratory judgments in such cases should be rare.”
136.3

Id. at

“[T]he state‟s interest in resolving its own law must not

be given short shrift simply because one party or, indeed, both
parties, perceive some advantage in the federal forum.”

Id.

In general, “[d]ecisions in declaratory judgment
actions must yield to „considerations of practicality and wise
judicial administration.”

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Id. (quoting Wilton, 515 U.S. at

Some courts in this district have read Summy to hold that,
“without a showing that the applicable area of state law is
unsettled, and in the absence of a parallel state-court
proceeding,” the federal declaratory judgment action does not
fall within the ambit of Summy, and have declined to stay or
dismiss the action. See, e.g., Cont‟l Cas. Co. v. Peerless
Indus. Inc., 2007 WL 2029298, at *2 (E.D. Pa. Jul. 11, 2007)
(quoting Allstate Ins. Co. v. Century Indem. Co., 2007 WL
1575012, at *2 (E.D. Pa. May 31, 2007)). Others, including this
Court, have held that the fact that a declaratory judgment
action involves well-settled questions of law does not alone
warrant the exercise of jurisdiction. See, e.g., AMA/Am. Mktg.
Assoc., Inc. v. Maple Ave. Apartments, L.P., 2007 WL 2071902, at
*4-5 (E.D. Pa. Jul. 17, 2007).
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288).

Here, there are no issues of federal law that require

this Court‟s consideration; the parties have presented no
unsettled issues under Pennsylvania law; and a parallel
declaratory judgment action has been filed in the Court of
Common Pleas of Chester County.

Additionally, there is an

inherent conflict of interest between Allstate‟s duty to defend
and indemnify in the underlying personal injury action and its
characterization of the claims in that suit in this federal
action.
Contrary to Allstate‟s assertion, the fact “that the
state declaratory judgment petition was filed after its
counterpart in the District Court” is irrelevant to the Court‟s
determination of whether to exercise discretionary jurisdiction
over this declaratory judgment action.

Summy, 234 F.2d at 136.

The Court recognizes, however, that certain defenses have been
raised in the state court declaratory judgment action that would
not apply in this federal action.
Considering all of the above factors, the Court
concludes that it would be most appropriate to decline to
exercise jurisdiction over this matter at this point, and to
stay this case pending the resolution of the state court
declaratory judgment action.
An appropriate order shall issue separately.
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