The opinion of the court was delivered by: SPENCER WILLIAMS
On October 8, 1993, Defendant Dennis McIntosh filed a Motion asking this Court (1) to decline to exercise jurisdiction over the above-captioned case and dismiss it, or, in the alternative, (2) to stay it pending the resolution of a related state court action. Having considered all the relevant facts and law, the materials submitted by the parties, and the arguments of counsel, the Court declines to exercise jurisdiction over the above-captioned case. Accordingly, the case is DISMISSED WITHOUT PREJUDICE, and may be refiled in state court if the Plaintiff so chooses.
On January 4, 1993, Defendants Kathleen Hoenck, Carla Genoni, Lisa de la Rose and Christine Solidarios filed a Complaint in Santa Clara County Superior Court alleging, among other things, that Defendant Dennis McIntosh had sexually harassed them. Defendant McIntosh subsequently asked Plaintiff State Farm Fire and Casualty Company to defend and indemnify him pursuant to the terms of his homeowner's and personal liability umbrella policies. State Farm informed McIntosh on March 22, 1993, that it would defend him subject to a reservation of rights, pending a final judicial determination of State Farm's coverage obligations. On July 26, 1993, State Farm filed an action in this Court pursuant to the Federal Declaratory Judgments Act, 28 U.S.C. §§ 2201 and 2202, against McIntosh, Hoenck, Genoni, de la Rosa and Solidarios, seeking a determination that State Farm has no duty to defend or indemnify McIntosh in the sexual harassment suit.
On October 8, 1993, Defendant McIntosh filed a Motion with this Court asking it to (1) decline to exercise jurisdiction over State Farm's declaratory judgment action and dismiss it, or, in the alternative, (2) to stay State Farm's federal action pending the resolution of the underlying action in state court. McIntosh's Motion was heard on November 10, 1993.
The district court has the discretion to decline to exercise jurisdiction over suits brought pursuant to the Federal Declaratory Judgments Act, 28 U.S.C. §§ 2201 and 2202, where no issues of federal law are present. Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494-495, 86 L. Ed. 1620, 62 S. Ct. 1173 (1942), reh'g denied, 317 U.S. 704, 87 L. Ed. 562, 63 S. Ct. 23 (1942); Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366 (9th Cir. 1991); Zurich Ins. Co. v. Alvarez, 669 F. Supp. 307, 308 (C.D. Cal. 1987); 6A J. Moore, J. Lucas & G. Grotheer, Jr., Moore's Federal Practice, P 57.08 (2d ed. 1993). In considering whether to exercise jurisdiction, the district courts "must balance the concerns of judicial administration, comity, and fairness to the litigants." Chamberlain, 931 F.2d at 1367.
The Court declines to exercise jurisdiction over State Farm's suit for declaratory relief because (1) the exercise of jurisdiction would require the Court to determine facts which are also at issue in state court; (2) the dispute between the parties necessarily raises issues of California law which are better left for resolution by the state courts; (3) the pendency of the federal declaratory action will undermine judicial economy and improperly effect the balance of settlement negotiations between the parties. See Zurich Ins. Co. v. Alvarez, 669 F. Supp. 307 (C.D. Cal. 1987) (similar analysis and holding on very similar facts).
A. The Exercise of Jurisdiction Would Required the Court to Determine Factual issues Which Are Also at-Issue in State Court
Both State Farm's Complaint for Declaratory Relief and the underlying state action involve at least one common factual issue: whether McIntosh acted wilfully. Federal courts should be reluctant to decide factual issues which are currently at issue in state court. Mitcheson v. Harris, 955 F.2d 235, 239 (4th Cir. 1992). Where a federal court determines such a factual issue, the parties may be collaterally estopped from litigating the issue further in the underlying state action. Id.; Zurich, 669 F. Supp. at 309; Allstate Ins. Co. v. Harris, 445 F. Supp. 847, 851 (N.D. Cal. 1978). This disrupts the orderly adjudication of the underlying state case, since it forecloses the examination of some parts of the case while leaving other parts in need of resolution. Mitcheson, 955 F.2d at 239. This disruption not only effects the parties, but also adversely impacts the "interest in promoting comity between the federal and state courts." Id. Accordingly, the exercise of federal jurisdiction over State Farm's action would be inappropriate.
B. The Exercise of Jurisdiction Could Require This Court to Determine issues of State Law Which Are Better Left to the State Courts
The district court pointed out in Zurich Ins. Co. v. Alvarez, 669 F. Supp. 307, 311 (C.D. Cal. 1987), a case very similar to the one at bar, that if it should issue a declaratory judgment that Zurich had no duty to defend or indemnify its insured, complex issues of state law would arise, such as (1) what effect that decision might have on the insurer's duty to defend while the federal case was on appeal; (2) what impact, if any, the filing or initial decision in the federal action might have on the insurer's responsibilities concerning settlement offers in the state action; and (3) who pays for the insured's cost of defense of the federal action and its appeal. The Zurich court believed that it was not proper for the federal courts to decide such complex issues of state law. id.; accord United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966) ("[A] federal court should hesitate to exercise jurisdiction over state claims," since "needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of applicable law."); Continental Cas. Co. v. Robsac Industries, 947 F.2d 1367, 1371 (9th Cir. 1991) ("Where . . . the sole basis of jurisdiction is diversity of citizenship, the federal interest is at its nadir. Thus, the . . . policy of avoiding unnecessary declarations of state law [in federal declaratory relief actions] is especially strong."); Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir. 1991); Mitcheson v. Harris, 955 F.2d 235, 237 (4th Cir. 1992) ("There exists an interest in having the most authoritative voice speak on the meaning of applicable law, and that voice belongs to the state courts when state law controls the resolution of the case.").
State Farm's coverage claims are governed exclusively by state law. The exact nature of the state law issues which may arise is currently unforeseeable. However, as illustrated in Zurich, 669 F. Supp. at 311, this case may present complex state law issues of first ...