LEONARD et al v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
REPORT AND RECOMMENDATION re 6 MOTION to Dismiss filed by STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY be granted. Objections to R&R due by 9/21/2009. Signed by Chief U.S. Magistrate Judge Amy Reynolds Hay on 9/2/2009. (Attachments: # 1 Appendix) (dgg)
IN THE UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF PENNSYLVANIA
J A N E T LEONARD; TOM LEONARD, p a re n ts of Melissa Leonard; MELISSA LE O N A R D , individually, P l a i n t i ffs ,
) ) ) ) ) vs. ) ) ) S T A T E FARM MUTUAL AUTOMOBILE ) IN S U R A N C E COMPANY, ) D e fe n d a n t . )
Civil Action No. 08-1451 Chief Judge Donetta W. Ambrose/ Chief Magistrate Judge Amy Reynolds Hay
R E P O R T AND RECOMMENDATION I. R ec o m m e n d a tio n T h e Court considers a Motion to Dismiss or to Strike (Doc. 6) filed by State Farm Mutual A u to m o b ile Association ("State Farm" or "the Defendant"). This Motion is directed to the A m e n d e d Complaint (Doc. 5) filed by Tom and Janet Leonard ("the Leonards"), and their d a u gh te r, Melissa, (collectively, "the Plaintiffs"), in connection with benefits alleged to be due a n d payable under two State Farm automobile policies held by the Leonards at the time of a 2000 a c c id e n t. The Amended Complaint contains five counts: 1) breach of contract; 2) bad faith in v io la tio n of the Pennsylvania Motor Vehicle Financial Responsibility Law ("MVFRL"), 42 Pa. C o n s . Stat. Ann. § 8731; 3) violation of MVFRL sections 1797(b)( 4) and 1794(b)(6); 4) e n title m e n t to declaratory relief; and 5) entitlement to injunctive relief. State Farm contends that p o rtio n s of the Amended Complaint should be dismissed or struck because the Plaintiffs: 1) a s s e rt entitlement to class relief, but do not allege mandatory prerequisites to class certification; 2 ) cannot establish irreparable harm essential to their claim for injunctive relief; 3) are barred by
state law from asserting a bad faith claim for denial of first party benefits; 4) are not entitled to d e c la ra to ry relief due to pendency of state court proceedings; and 5) cannot assert an independent c la im for breach of fiduciary duty. T h e Court considers only the Defendant's argument directed at Count Four of the A m e n d e d Complaint. This claim for declaratory relief - which turns on the scope of coverage u n d e r State Farm policies - is at the heart of each of the claims raised in the Amended Complaint. The coverage issues raised here are currently the subject of litigation between the same parties in tw o matters now before the Court of Common Pleas of Westmoreland County. The Declaratory J u d gm e n t Act, 28 U.S.C. § 2201 et seq., ("the Act"), establishes that the district courts are vested w ith discretion to decline jurisdiction over declaratory judgment actions. Case law interpreting th e Act also establishes that a declaratory claim and other claims dependent upon it may be d is m is s e d in favor of parallel state court proceedings. In reliance upon this authority, the Court re c o m m e n d s that the Defendant's Motion to Dismiss be granted with respect to all claims. II. R ep o rt A . Background T h is diversity action originated in a motor vehicle accident that occurred on October 16, 2 0 0 0 . While Melissa, who was thirteen, and her twelve year old sister waited for a school bus in H e m p fie ld Township, Pennsylvania, Melissa watched her sister walk or run onto the road where s h e was struck and fatally injured by a passing vehicle. (Doc. 6 Ex. C at 2). In 2002, the Leonards, individually, and as administrators of the estate of their deceased d a u gh te r, filed suit against the driver of the vehicle and her husband in state court. They also a s s e rte d a claim on behalf of Melissa for negligent infliction of emotional distress. The couple's in s u re r offered to settle the suit for $300,000, the policy limit, allocating $260,000 to the
decedent's estate and the remainder to Melissa's claim. The settlement was approved by the C o u rt of Common Pleas of Westmoreland County. T h e Leonards also asserted similar claims on behalf of their deceased daughter's estate a n d Melissa under two State Farm policies issued to the Leonards and in effect at the time of the a c c id e n t. Each of these policies had coverage limits of $50,000 in underinsured motorist b e n e fits , and $100,000 per accident. These policies permitted stacking, doubling the coverage lim its . (Doc. 6 Ex. A). State Farm offered to settle the claim made by the estate for the policy lim it of $100,000, but declined to make payment on Melissa's claim. According to State Farm M e lis s a had not suffered a "bodily injury" within the meaning of the policies. It also argued that h e r claim fell within and was subject to the $100,000 "each person" policy limit. The portion of th e settlement allocable to the estate was approved by the Court of Common Pleas. On February 15, 2005, the Leonards demanded arbitration of Melissa's uninsured m o to ris t claim. The arbitration proceeding was bifurcated as to liability and damages. On F e b ru a ry 12, 2008, a divided arbitration panel found that the State Farm policies covered M e lis s a 's claim for emotional distress. (Doc. 5 Ex. C). T h e Plaintiffs filed this federal action on October 14, 2008. The original Complaint (D o c .1 ) contained three Counts. In Count I, premised on breach of contract, the Plaintiffs stated th a t State Farm was obligated by the MVRFL to pay Melissa first party benefits "believed to be $ 1 0 ,0 0 0 for each policy." (Doc 1 ¶ 4). In Count II, the Plaintiffs alleged that State Farm acted in b a d faith in violation of Pa. Cons. Stat Ann. § 8371, in evaluating Melissa's claims, and in failing to award the benefits requested. In Count III, the Plaintiffs maintained that State Farm's failure to pay first party benefits violated the terms of the MVFRL. O n November 3, 2008, State Farm filed a Complaint for Declaratory Relief against the
Plaintiffs in the Court of Common Pleas of Westmoreland County, asking the Court to declare th a t State Farm was not obligated under the terms of the relevant policies to provide Melissa with c o v e ra ge for first party benefits.1 Before the damages potion of the arbitration proceeding began, State Farm authorized e n try of an award of $100,000, the policy limit, in favor of Melissa. It was stipulated, however, th a t this award would not prejudice State Farm's right to appeal the issue of coverage. T h e Plaintiffs filed an Amended Complaint (Doc. 5) in this Court on December 1, 2008, th re e days prior to the arbitration panel's damage award. Most significant for purposes of the p e n d in g Motion was the Plaintiffs' request at Count Four that the Court enter an order declaring th a t State Farm was required to pay first party benefits to Melissa. O n December 24, 2008, State Farm filed in the state court a Petition to Correct or Modify A rb itra tio n Award, seeking dismissal of Melissa's underinsured motorist claim based on lack of c o v e ra ge . (Doc. 6 Ex. A). That Petition has yet to be resolved. In January 2009, State Farm file d an Amended Complaint in Declaratory Judgment in state court.2 B . Discussion Although State Farm bases its Motion to Dismiss on several grounds, the Court addresses o n ly one - the relationship between this matter and concurrent state court proceedings. State F a rm argues that the declaratory judgment count in the Amended Complaint should be dismissed
Copies of documents filed in the state court declaratory judgment proceedings were not included in the Record. Attorneys for the parties were contacted, and copies of the state court Complaint and Amended Complaint were emailed/faxed to the Court on August 27, 2009. A copy of each is attached to this Report and Recommendation. It appears that the sole difference in the Complaint as amended was the attachment of a copy of the Leonards' policy.
in light of the those proceedings, citing the Supreme Court's decision in Colorado River Water C o n s e rv a tio n Dist. v. United States, 424 U.S. 800 (1976). This argument is misplaced. 1 . The "Colorado River" Doctrine The federal courts have a "virtually unflagging obligation. . . to exercise the jurisdiction giv e n them" by Congress. Id. at 814. This obligation is not diminished where there is concurrent litiga tio n in a state court. "[T]he pendency of an action in the state court is no bar to proceedings c o n c e rn in g the same matter in the Federal court having jurisdiction. . . ." Id. (quoting McClellan v . Carland, 217 U.S. 268, 282 (1910)). "The general rule regarding simultaneous litigation of s im ila r issues in both state and federal courts is that both actions may proceed until one has come to judgment, at which point that judgment may create a res judicata or collateral estoppel effect o n the other action." Univ. of Md. at Baltimore v. Peat Marwick Main & Co., 923 F.2d 265, 276 (3 d Cir. 1991). T h e Colorado River exception to this rule is exceedingly narrow. "Abdication of the o b liga tio n to decide cases can be justified . . . only in the exceptional circumstances where the o rd e r to the parties to repair to the state court would clearly serve an important countervailing in te re s t" w h ic h "evidence[s] a strong federal policy that all claims should be tried in the state c o u rts ." Ryan v. Johnson, 115 F. 3d 193, 198 (3d Cir. 1997). See also Spring City Corp. v. Am. B ld gs Co., 193 F.3d 165, 172 (3d. Cir.1999). The facts of this case do not implicate federal p o lic y. Both the state and federal suits turn on interpretation of an insurance contract under P e n n s ylv a n ia law. "The presence of garden-variety state law issues has not, in this Circuit, been c o n s id e re d sufficient evidence of a congressional policy to consolidate [overlapping] lawsuits for u n ifie d resolution in the state courts." McMurray v. DeVink, No. 01-1346, 2002 WL 13793, at * 4 (3d Cir. Jan. 3, 2002) (quoting Ryan,115 F.3d at 198)).
The Court's option to grant a stay is similarly restricted. In Moses H. Cone Mem'l Hosp. v . Mercury Const., 460 U.S. 1 (1983), the Supreme Court considered a district court's entry of a s ta y of federal proceedings in favor of parallel state litigation. Concluding that there is no p ra c tic a l difference between a stay and abstention, the Supreme Court held that the District Court e rre d in entering the stay. "[A] stay of the federal suit meant that there would be no further litiga tio n in the federal forum; the state court's judgment on the issue would be res judicata." Id. 4 6 0 U.S. at 10. See also McMurray, 2002 WL 13793, at * 2. By granting the stay, the District C o u rt effectively relinquished the jurisdiction that it was obliged to exercise. 2 . The "Wilton" Doctrine Although Colorado River does not control disposition of State Farm's Motion, principles u n d e rlyin g a second doctrine, sometimes termed "Wilton abstention," authorize a District Court to exercise discretion to dismiss a declaratory judgment action where a parallel action is pending in state court. Because neither party mentions the Wilton doctrine, the Court traces its origin and a p p lic a tio n . The Declaratory Judgment Act does not obligate federal courts to assume jurisdiction o v e r declaratory judgment actions. Rather, the Act provides: In a case of actual controversy within its jurisdiction, . . . any court o f the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested p a rty seeking such declaration, whether or not further relief is or c o u ld be sought. 2 8 U.S.C. § 2201(a) (emphasis added). In its decision in Marshall v. Lauriault, 372 F.3d 175 (3d C ir. 2004), the Court of Appeals for the Third Circuit addressed the Supreme Court's in te rp re ta tio n of this provision: D e s p ite the strong antipathy to abstention, the Supreme
Court acknowledged a specific situation that allows federal c o u rts greater deference in deciding whether abstention is a p p ro p ria te . In Brillhart v. Excess Ins. Co. of America, 316 U .S . 491, 494-95,(1942), the Court held that when a federal s u it . . . brought under the Federal Declaratory Judgment A c t . . . present[s] only questions of local laws, the court is u n d e r "no compulsion to exercise[ ] jurisdiction" if a p a ra lle l state court proceeding would address the matters in c o n tro v e rs y between the parties. In Wilton v. Seven Falls, 5 1 5 U.S. 277 (1995), the Court reaffirmed the district c o u rts ' broad discretion for abstention when entertaining c la im s for declaratory judgment. "Since its inception, the D e c la ra to ry Judgment Act has been understood to confer on fe d e ra l courts unique and substantial discretion in deciding w h e th e r to declare the rights of litigants." Id. at 286. Thus, c o u rts are permitted to avoid gratuitous interference with s ta te court matters by abstaining from claims for declaratory judgment, specifically if the state court p ro c e e d in gs would address "the same issues, not governed b y federal law, between the same parties." Id. at 282 (citing B rillh a rt, 316 U.S. at 495). Id . at 182-83. District courts must be afforded substantial discretion to exercise jurisdiction "in th e first instance, because facts bearing on the usefulness of the declaratory judgment remedy, a n d fitness of the case for resolution, are peculiarly within their grasp." Wilton 515 U.S. at 289. T h e Court of Appeals for the Third Circuit has identified three factors to be evaluating d e c id in g whether to exercise jurisdiction over declaratory judgment actions involving issues of in s u ra n c e coverage. These include: 1) a general policy of restraint when the same issues are p e n d in g in a state court; 2) recognition that there is an inherent conflict of interest between an in s u re r's duty to defend in a state court and its attempt to characterize that suit in federal court as fa llin g within the scope of a policy exclusion; and 3) avoidance of duplicative litigation. See The S c u lly Com. v. OneBeacon Ins. Co., No Civ. A. 03-6032, 2004 WL 1166594, at * 2 (E.D. Pa. M a y 24, 2004) (citing State Auto Ins. Co. v. Summy, 234 F.3d 131, 134 (3d Cir. 2000)). In Count Four of the Amended Complaint, the Plaintiffs ask the Court "to enter an order
declaring that defendant . . . is required to provide coverage for first party benefits to the plaintiff M e lis s a Leonard with respect to the claims . . . arising out of the accident of October 16, 2000." (Doc. 5 ¶ 46.). The Plaintiffs describe the Defendant's request for declaratory relief in state c o u rt as follows: "State Farm's complaint is based on the same facts as the Amended Complaint in this case, but . . . the only relief it seeks is a declaratory judgment to the effect that State Farm is not required to provide first-party benefits to Melissa Leonard in connection with the injuries s u ffe re d by her as a result of witnessing her sister's death." (Doc. 13 at 19). State Farm's Motion to Modify or Correct the award of the arbitration panel in favor of Melissa Leonard also turns on th e issue of coverage. Were the Court to consider Count Four alone, it would be a simple matter to conclude that it should defer to the state tribunal. The two matters would be parallel, there is n o federal issue involved, and the parties do not assert that the state forum is inadequate in any re s p e c t. Furthermore, the policies of restraint and avoidance of duplicative litigation would fa v o r dismissal. See West Motor Freight of Pa. v. K-Mart Corp., No 1:CV-06-1062, 2006 WL 2 3 7 6 2 3 9 (M.D. Pa. Aug. 15, 2006) (dismissing federal action based on similar factors). T h e Court, however, must confront here the dilemma posed where the Plaintiffs' A m e n d e d Complaint contains not only a count for declaratory relief, but also seeks coercive r e l i e f. 3 . Applying the Competing Doctrines T h e Court of Appeals for the Third Circuit has not addressed whether actions containing c o e rc iv e and declaratory claims are to be approached under the strict Colorado River doctrine or th e more liberal Wilton doctrine. Other Courts of Appeals considering the issue have taken d iv e rge n t positions. The Court of Appeals for the Fifth Circuit has adhered strictly to Colorado R iv e r abstention principles: "[W]hen an action contains any claim for coercive relief, the
Colorado River abstention doctrine is ordinarily applicable." Kelly Inv., Inc. v. Cont'l Common C o rp ., 315 F. 3d 494, 497 n.4 (5th Cir. 2002). The Court of Appeals for the Fourth Circuit has ta k e n a similar approach. When a declaratory judgment claim is paired with non-declaratory c la im s , the Wilton doctrine does not apply. See Great Am. Ins. Co. v. Gross, 468 F.3d 199, 211 (4 th Cir. 2006).3 Courts of Appeals for the Seventh and Ninth Circuits have held that jurisdiction must be re ta in e d by the district court (subject only to Colorado River guidelines) if the nondeclaratory c la im s are independent of the declaratory claims. See R.R. Street & Co., Inc., 569 F.3d at 7161 7 ; United Nat'l Ind. Co. v. R& D Latex Corp., 242 F. 3d 1102, 1112-13 (9th Cir. 2001). A third approach - closely related to the second - has been adopted by the Court of A p p e a ls for the Eighth Circuit. In Royal Indem.Co. v. Apex Oil Co., 511 F.3d 788, 793 (8th Cir. 2 0 0 8 ), the Court embraced an "essence of the lawsuit" test, finding that a federal court need not a p p ly the restrictive Colorado River test in all cases where coercive and declaratory claims are p a ire d . Instead, a district court may rely on Wilton to abstain from considering even the nond e c la ra to ry claims so long as the grant of declaratory relief is necessary to the other relief sought. A number of district courts in the Third Circuit have relied on a similar principle - linking the tre a tm e n t of coercive claims to the nature of the claim for declaratory relief. The analytical fra m e w o rk is illustrated in ITT Indus., Inc. v. Pac. Employers Ins. Co., (E.D. Pa. 2006), where
W h e th e r a district court retains discretion to abstain from hearing the declaratory claim in these c irc u m sta n c e s has been described as "unclear." See R.R. Street & Co., Inc. v. Vulcan Materials Co., 569 F .3 d 711, 715 n.4 (7th Cir. 2009) (comparing Chase Brexton Health Servs., Inc. v. Maryland, 411 F.3d 4 5 7 , 466-67 (4th Cir. 2005) (interest in judicial economy is not served by dismissing declaratory claims a n d considering others) with Myles Lumber Co. v. CNA Fin. Corp., 233 F.3d 821, 824 (4th Cir. 2000) (w h e re case involves declaratory and non-declaratory claims, it is abuse of discretion to remand declaratory c la im under Wilton)).
the Court found that determining its "obligation to exercise to exercise jurisdiction over an a c tio n [was best] served by [a] fact-driven `heart of the matter' approach than . . . a bright line ru le ." Id. at 557. "To apply the Colorado River standard to actions concerning both declaratory a n d coercive claims without an analysis of the facts at hand would be to ignore the Supreme C o u rt's specific recognition that declaratory judgment actions necessitate a different treatment th a n other types of cases." Id. T h e Court then "[cut] through the rhetorical fog of the pleadings," concluding that each of th e issues before it turned on the scope of insurance coverage. Id. In order to determine whether it was obligated to exercise jurisdiction over the declaratory judgment claim because bad faith a n d breach of contract claims were also part of the suit, the Court looked to the issue underlying th e request for declaratory judgment. Because "the outcome of the bad faith and breach of c o n tra c t claims depend[ed] on the resolution of the declaratory judgment claims," the Court fo u n d that "[a]t its heart, th[e] dispute [was] a declaratory judgment action." Id. In all essential respects, this case is similar to the one before the District Court in ITT In d u s ., Inc. 4 The parties to the federal proceeding are the sole parties to the state suits. In a d d itio n , "the same issues of insurance policy construction . . . lie at the heart of both the present a c tio n and the . . . state actions." Id. at 558. The Court in ITT Indus., Inc. found that the a d d itio n a l claims raised in the federal matter did not preclude application of the Wilton doctrine: " T h e critical question here is not whether the claims are exactly the same in the federal and the s ta te action, but whether the issues the courts will need to analyze are substantially identical." Id. The outcome of Plaintiffs' coercive claims is largely, if not totally, dependent on the scope of the
T h e Plaintiffs concede that the coverage issues are the crux of both state and federal proceedings a n d "will have a direct impact on [their] claim for bad faith and breach of contract." (Doc. 13 at 7).
State Farm policies. This "action [is], at heart, a declaratory judgment action, and the d is c re tio n a ry standard of Wilton applie[s]." Id. at 557 (citing Coltec Indus., Inc. v. Cont'l Ins. C o ., No. Civ. A. 04-5718, 2005 WL 1126951, at *3 (May 11, 2005)). "It would be the tail w a ggin g the dog if the presence of a subordinate claim were sufficient to require a federal court to hear primary claims that it has determined are better resolved elsewhere." Franklin Commons E a s t P'ship v. Abex Corp., 997 F. Supp. 585, 592 (D. N.J. 1998). See also Gen. Nutrition Corp. v . Charter Oak Fire Ins. Co., No 07-0262, 2007 WL 2998443 (W.D. Pa. Oct. 11, 2007) (invoking W ilto n to decline jurisdiction where breach of contract claims and third-party claims in federal c o u rt hinged on interpretation of insurance policy - an issue which was pending in state court). H e re , no aspect of the dispute before the Court is governed by federal law, and no federal in te re s ts are at stake. The two proceedings in state court involve the same parties and the same c o re claims. Should the Court entertain the Plaintiffs' claims in this suit, there is certain to be d u p lic a tio n of effort and there is a reasonable likelihood of inconsistent results. The Plaintiffs h a v e not explained why they are unable to litigate all of their claims in the state court p ro c e e d in gs , and have not provided the Court with any justification for extending the dispute b e tw e e n the parties to the federal front. This is especially true where the state court declaratory ju d gm e n t action is, like this matter, in an early stage.5 The Court is convinced that this is a case in which "the normal principle that federal courts should adjudicate claims within their ju ris d ic tio n yields to considerations of practicality and wise judicial administration." Wilton, 515 U .S . at 288.
T h e date on which the actions were commenced is irrelevant." ITT Indus., Inc., 427 F. Supp.2d a t 562 (citing Summy, 234 F.3d at 135). This matter, in reality, began in state court, and the central issue a s well as the additional questions - are ones of state law and should be resolved there.
C o n c lu s io n F o r the reasons set out above, the Court recommends that the Motion to Dismiss (Doc. 6)
b e granted. In accordance with the Magistrates Act, 28 U.S.C. § 636(b)(1)(B) & (C), and Local Rule 7 2 .1 .4 B, the parties are permitted to file written objections and responses thereto in accordance w ith the schedule established in the docket entry reflecting the filing of this Report and R e c o m m e n d a tio n . Failure to timely file objections may constitute waiver of any appellate rights.
In accordance with the Magistrates Act, 28 U.S.C. § 636(b)(1)(B) & (C), and Local Rule 72.D.2., the parties are permitted to file written objections and responses thereto in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation and the Court's Order on Motions Practice. Failure to timely file objections may constitute waiver of any appellate rights.
Respectfully submitted, /s/ Amy Reynolds Hay Chief United States Magistrate Judge Dated: 2 September, 2009
H o n . Donetta W. Ambrose Chief United States District Judge C o u n sel of Record via CM-ECF
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