LIBERTY INSURANCE CORPORATION v. HIGGINBOTHAM et al
Filing
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MEMORANDUM OPINION AND ORDER granting 6 THE MOTION TO DISMISS PURSUANT TO RULE 12(b)(1) AND 12(b)(7); and granting 12 the MOTION FOR JUDICIAL NOTICE IN SUPPORT OF MOTION TO DISMISS. Signed by Judge Terrence F. McVerry on 03/24/16. (mcp)
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
LIBERTY INSURANCE CORPORATION,
Plaintiff,
v.
ERICA HIGGINBOTHAM, D. C. and P. T., as
parents and natural guardians of S.C. and E.C.,
Defendants.
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MEMORANDUM OPINION AND ORDER OF COURT
Pending before the Court is a MOTION TO DISMISS PURSUANT TO RULE 12(b)(1)
AND 12(b)(7) (ECF No. 6) filed by Defendant Erica Higginbotham along with a brief in support
(ECF No. 7). Plaintiff Liberty Insurance Corporation (“Liberty) filed a response (ECF No. 10)
and brief (ECF No. 11) in opposition, and Defendant filed a reply brief (ECF No. 13). 1
Accordingly, the motion is ripe for disposition.
I.
Background
A. The Underlying Action
A civil action is now pending in the Court of Common Pleas of Allegheny County
captioned D.C. and P.T., as parents and natural guardians of S.C. and E.C. v. David
Higginbotham, Erica Higginbotham, and Kathy Higginbotham. It arose out of the sexual assault
of S.C. and E.C. – two minor children – by David Higginbotham from 2008 through August
2013.
The underlying suit alleges intentional tort claims (assault, battery, and intentional
infliction of emotional distress) against David as well as a negligence claim against his wife
Kathy and his daughter-in-law Erica, both of whom served as the children’s occasional
1. Alongside her reply brief, Defendant also filed a MOTION FOR JUDICIAL NOTICE IN SUPPORT OF
MOTION TO DISMISS (ECF No. 12). The Court will grant the motion.
babysitter. At present, Liberty is providing a defense to Erica under two homeowners insurance
policies that it issued to her, subject to a reservation of rights.
B. The Declaratory Judgment Action(s)
On January 8, 2016, Liberty commenced this case seeking a determination, under the
Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201 et seq., that it does not have a duty to
defend or indemnify Erica for the claim asserted against her in the Underlying Action. Liberty
contends that the “Sexual Molestation Exclusion,” “Business Exclusion,” and “Home Day Care
Exclusion” each preclude coverage. In its view, the underlying action “involves the operation of
a ‘business’ in exchange for monetary or other compensation” – i.e., babysitting – triggering the
latter two exclusions. Compl. at 3.
More recently, on March 22, 2016, Erica commenced a “Complaint in Civil Action for
Declaratory Judgment” against Liberty Insurance Corporation, D.C. and P.T., as parents and
natural guardians of S.C. and E.C., Kathy Higginbotham, and David Higginbotham in the Court
of Common Pleas of Allegheny County. That action seeks a determination that Liberty has a
duty to defend the underlying action on behalf of Erica.
II.
Discussion
Erica contends that this Court should decline to exercise jurisdiction over this declaratory
judgment case. Liberty recognizes that the decision is discretionary, but argues that this Court
should opt to issue a declaration of its rights and duties, as requested.
The DJA provides, in pertinent part, that “any court of the United States . . . may declare
the rights and other legal relations of any interested party.” 28 U.S.C. § 2201 (emphasis added).
The exercise of jurisdiction under the DJA is, therefore, entirely discretionary. See Reifer v.
Westport Ins. Corp., 751 F.3d 129, 139 (3d Cir. 2014) (quoting Wilton v. Seven Falls Co., 515
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U.S. 277, 286 (1995)).
“[D]istrict courts are authorized, ‘in the sound exercise of [their]
discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all
arguments have drawn to a close.’” Id. (quoting Wilton, 515 U.S. at 288). While the “exercise
of discretion must be ‘sound,’” the scope of the district court’s discretion has been framed in
“broad terms.” Id. (citing Wilton, 515 U.S. at 287). “Rather than being subject to the ‘normal
principle that federal courts should adjudicate claims within their jurisdiction,’ district courts
exercising DJA discretion are governed by ‘considerations of practicality and wise judicial
administration.’” Id. (quoting Wilton, 515 U.S. at 288).
In Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942), the Supreme Court set
forth several factors a district court should consider before entertaining a declaratory judgment
action whenever there is “another proceeding . . . pending in a state court in which all the matters
in controversy between the parties could be fully adjudicated.” Id. at 495. “Ordinarily,” the
Supreme Court explained, “it would be uneconomical as well as vexatious for a federal court to
proceed in a declaratory judgment suit where another suit is pending in a state court presenting
the same issues, not governed by federal law, between the same parties.” Id. “Gratuitous
interference with the orderly and comprehensive disposition of [ ] state court litigation should be
avoided.” Id. Thus, before exercising jurisdiction whenever there is a pending state-court
proceeding involving the same matters, the district court must consider a non-exhaustive list of
factors, such as the scope of the state court proceeding and “whether the claims of all parties in
interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been
joined, whether such parties are amenable to process in that proceeding, etc.” Id.
Fifty years later, in Wilton, the Supreme Court addressed “virtually identical”
circumstances and reaffirmed “the Brillhart regime,” again holding that district courts “have
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substantial latitude in deciding whether to stay or to dismiss a declaratory judgment suit in light
of pending state proceedings.” Wilton, 515 U.S. at 286. The Wilton Court specifically narrowed
its holding to situations in which there is a parallel state proceeding, however, noting that it was
not attempting to “delineate the outer boundaries of that discretion in other cases, for example,
cases raising issues of federal law or cases in which there are no parallel state proceedings.” Id.
at 290.
Although the Court of Appeals for the Third Circuit has acknowledged that the DJA
gives district courts broad discretion, it has also warned that the exercise of that discretion must
be “reasoned.” Bituminous Coal Operators’ Assoc. v. Int’l Union, United Mine Workers of Am.,
585 F.2d 586, 596 (3d Cir. 1978). District courts must, therefore, address a multitude of factors
when exercising their DJA discretion. Id. There are a number of general factors that must be
considered, such as whether a declaration “will resolve the uncertainty of obligation which gave
rise to the controversy; the convenience of the parties; the public interest in settlement of the
uncertainty of obligation; and the availability and relative convenience of other remedies.”
United States v. Pa., Dep’t of Envtl. Res., 923 F.2d 1071, 1075 (3d Cir. 1991) (internal citations
omitted). The Court of Appeals has also identified several additional factors that are relevant
only in the insurance context:
(1) A general policy of restraint when the same issues are pending in a state court;
(2) An 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;
(3) Avoidance of duplicative litigation.”
State Auto Ins. Co. v. Summy, 234 F.3d 131, 134 (3d Cir. 2000) (quoting Pa., Dep’t of Envtl.
Res., 923 F.2d at 1075).
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In Reifer, the Court of Appeals for the Third Circuit held that the “the existence or nonexistence of pending parallel state proceedings is but one factor for a district court to consider” in
determining whether to exercise jurisdiction under the DJA. 751 F.3d at 144. The Reifer Court
articulated a non-exhaustive list of eight (8) other factors that must be considered in exercising
discretion as to whether or not to exercise jurisdiction under the DJA:
(1) the likelihood that a federal court declaration will resolve the uncertainty of
obligation which gave rise to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the uncertainty of obligation;
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are pending in a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a method of procedural
fencing or as a means to provide another forum in a race for res judicata; and
(8) (in the insurance context), an 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.
Reifer, 751 F.3d at 146.
Although the existence of parallel state proceedings is not dispositive, it is worthy of
“increased emphasis.” Id. (citations omitted). As the Court of Appeals explained:
the absence of pending parallel state proceedings militates significantly in favor
of exercising jurisdiction, although it alone does not require such an exercise. In
this circumstance, as part of exercising sound and reasoned discretion, district
courts declining jurisdiction should be rigorous in ensuring themselves that the
lack of pending parallel state proceedings is outweighed by opposing factors.
This same rationale applies when state proceedings do exist. The existence of
pending parallel state proceedings militates significantly in favor of declining
jurisdiction, although it alone does not require doing so. In this circumstance, as
part of exercising sound and reasoned discretion, district courts exercising
jurisdiction should be rigorous in ensuring themselves that the existence of
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pending parallel state proceedings is outweighed by opposing factors.
Reifer, 751 F.3d at 144-45.
The Court of Appeals made several additional observations in Reifer that are relevant in
this case. In particular, the Court of Appeals noted that “[t]he insurance coverage context has
been particularly fertile ground for exercising – and testing the boundaries of – DJA discretion,
especially since [the] decision in Summy.” Id. (citations omitted). Prior to Reifer, “the trend of
many District Courts in Pennsylvania” was “to decline to exercise jurisdiction over declaratory
judgment actions, involving an insurance company, that are solely brought on diversity, and have
no federal question or interest.” Reifer v. Westport Ins. Corp., 943 F. Supp. 2d 506, 508 (M.D.
Pa. 2013), aff’d, 751 F.3d 129 (internal citations omitted). This was true even in the absence of
parallel state proceedings. See, e.g., id.; Phoenix Ins. Co. v. Kellner, No. CIV. 11-1085, 2012
WL 266470, at *3 (W.D. Pa. Jan. 30, 2012). Support for this so-called “trend” was seemingly
found in the frequently quoted line from Summy that “[t]he desire of insurance companies and
their insureds to receive declarations in federal court on matters of purely state law has no special
call on the federal forum.” 234 F.3d at 136. In Reifer, the Court of Appeals called this “trend”
into question, finding it “problematic for two reasons.” 751 F.3d at 147. “First,” the Court of
Appeals explained, “there is nothing to distinguish these cases from any other declaratory
judgment action that invokes diversity jurisdiction and asks federal courts to declare the rights of
parties under settled state law.” Id. “Second, these cases implicate neither an improper use of
procedure by insurance companies nor unfairness to insureds.” Id. The Court of Appeals
acknowledged the “district courts’ apparent frustration over the volume” of declaratory judgment
actions brought by insurance companies, but made clear that there is “‘no authority for the
proposition that an insurer is barred from invoking diversity jurisdiction to bring a declaratory
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judgment action against an insured on an issue of coverage.’” Id. (quoting Gov’t Emps. Ins. Co.
v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998)). Thus, the Court of Appeals “reject[ed] any
reading of Summy that supports per se automatic declining of jurisdiction in every” case
involving an insurance coverage dispute arising under state law. Id. The Court of Appeals also
cautioned that its remarks in Summy – “that such cases have ‘no special call on the federal forum
and that even less reason for federal jurisdiction exists when state law is ‘firmly established’” –
were dicta, inasmuch as “Summy’s holding specifically turned on considerations relevant to the
pending state court suit.”
Id. at 147 (quoting Summy, 234 F.3d at 135-36).
Rather than
dismissing such actions by rote recitation of the Summy factors, the Court of Appeals
emphasized that district courts must carefully analyze the factors set forth above – starting with
the existence or non-existence of parallel state proceedings – before exercising or declining to
exercise jurisdiction. Id.
The threshold question, then, is whether there is a pending parallel state proceeding, such
that there is a presumption for or against the exercise of DJA discretion. The Brillhart Court
described a pending “parallel” proceeding as one “presenting the same issues, not governed by
federal law, between the same parties.”
Brillhart, 316 U.S. at 495.
The pending court
proceeding must, in other words, permit “all the matters in controversy between the parties” to
“be fully adjudicated.” Id. Relevant here, “[i]t is irrelevant that the state declaratory judgment
petition was filed after its counterpart in the District Court.” 234 F.3d at 136. Accord Ironshore
Specialty Ins. Co. v. Haines & Kibblehouse, Inc., 3 F. Supp. 3d 303, 309-10 & n.23 (E.D. Pa.
2014) (citations omitted) (explaining that the sequence of filing of declaratory judgment actions
is of no import). In other words, it does not matter that the Insurer won the race to this
courthouse.
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Against this backdrop, the Court concludes that the existence the March 22, 2016
“Complaint in Civil Action for Declaratory Judgment” triggers a presumption against exercise of
Declaratory Judgment jurisdiction by this Court. The state court action presents the same
coverage issues. It is between the same parties. And it is governed by state law.
The Court has also contemplated whether it would be a practical and wise use of judicial
resources to hear the declaratory judgment action in this Court under the particular facts and
circumstances of this case. The relevant factors weigh in favor of declining jurisdiction. Of
considerable weight is the duty to avoid duplicative litigation and the inherent conflict of interest
between Liberty’s duty to defend and its right to assert policy exclusion. At the same time, the
Court recognizes that a declaration in the federal lawsuit would certainly resolve the coverage
issues raised by Liberty. But a parallel lawsuit is pending in state court which addresses the
same issues, such that a general policy of restraint should apply. Ultimately, the Court concludes
that, after weighing all the relevant factors, it will decline to exercise jurisdiction.
III.
Conclusion
For the reasons hereinabove stated, the Court will grant the motion to dismiss. An
appropriate Order follows.
McVerry, S.J.
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
LIBERTY INSURANCE CORPORATION,
Plaintiff,
v.
ERICA HIGGINBOTHAM, D. C. and P. T., as
parents and natural guardians of S.C. and E.C.,
Defendants.
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) 2:16-cv-38
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ORDER OF COURT
AND NOW, this 24th day of March, 2015, in accordance with the foregoing
Memorandum Opinion, it is hereby ORDERED, ADJUDGED and DECREED that the
MOTION TO DISMISS PURSUANT TO RULE 12(b)(1) AND 12(b)(7) (ECF No. 6) and the
MOTION FOR JUDICIAL NOTICE IN SUPPORT OF MOTION TO DISMISS (ECF No. 12)
filed by Defendant Erica Higginbotham are GRANTED. The Clerk shall docket this case
CLOSED.
BY THE COURT:
s/Terrence F. McVerry
Senior United States District Judge
cc:
Patricia A. Monahan
Email: Pamonahan@mdwcg.com
William C. Foster
Email: wcfoster@mdwcg.com
Daniel P. McDyer
Email: danmcdyer@ambylaw.com
(via CM/ECF)
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