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FIRST STATE INS. CO. v. CALLAN ASSOCS.

February 2, 1996

First State Insurance Co., a corporation, Plaintiff,
v.
Callan Associates, Inc., a corporation, and Does 1 through 20, inclusive, Defendants.



The opinion of the court was delivered by: BRAZIL

 INTRODUCTION

 Earlier this year, Callan Associates, Inc. (hereafter Callan) filed a motion asking District Judge Weigel to decline to exercise jurisdiction over the declaratory relief action that First State Insurance Company (hereafter First State) had filed some nine months earlier. In April Judge Weigel decided to decline jurisdiction over two of the bases on which First State based its claim that it had no liability under the subject insurance policy, but decided to exercise his discretion to retain jurisdiction over the third basis for First State's position, namely that Callan allegedly had "failed to disclose the possibility of litigation on its application for the Policy *fn1" and that Callan failed to give timely notice *fn2" to First State regarding the KPERS litigation." Memorandum and Order, filed April 13, 1995, at 7.

 The result of Judge Weigel's decision is to send two of the three possible bases for a finding that First State has no liability to another forum - presumably the Superior Court for the City and County of San Francisco. *fn3" If First State were to prevail on the claim that would remain here under Judge Weigel's ruling there would be no need to litigate the remaining two possible bases for the relief First State pursues, but if Callan were to prevail here, First State would be constrained to proceed in a separate action in a California state court. Since I have no idea which party is likely to prevail on the merits of the "failure to disclose" theory, I must assume that there is a fifty-fifty chance that retaining jurisdiction here over that claim will result in First State and Callan having to litigate the other two possible bases for a finding of no-liability in a California court. Thus, by retaining jurisdiction here over the "failure to disclose" claim, I would create a non-de minimis risk that Callan would be forced to litigate matters related to the underlying claim in three different courts. One way to frame the issue I address in this opinion is to ask whether exposing Callan to that risk is justified.

 WHAT IS THE APPLICABLE TEST?

 The principal reason that I am addressing these matters at all is that three relevant appellate court opinions were published after Judge Weigel issued his rulings in April. One of those opinions was issued by the Supreme Court of the United States, Wilton v. Seven Falls Co., 132 L. Ed. 2d 214, U.S. , 115 S. Ct. 2137 (June 12, 1995). The United States Court of Appeals for the Ninth Circuit is the source of the other two pertinent opinions, one of which preceded Wilton by about six weeks, American National Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir. April 27, 1995), and the other of which followed Wilton by about three months, Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir. September 13, 1995). Judge Weigel did not have an opportunity to consider the implications of these clearly relevant cases. It is to that task that I now turn.

 The relationships between these three cases are complicated, but a full explication of those relationships is not necessary here. It is necessary to decide, however, whether Karussos, the most recent of these pronouncements, articulates the law that I must apply here. First State contends that Karussos is irreconcilable with Wilton and that I must follow Wilton, which was decided by the highest court. Without trying to reconcile these two opinions, Callan contends that I am required to apply the test announced in Karussos.

 For two reasons, one of which is compelling, I have decided that I must apply the Karussos test. That compelling reason is that I would threaten the reality of law itself if I were to take it upon myself to determine whether the Karussos court had correctly understood Wilton and, if I concluded that it had not, were then to strike out on some doctrinal path that I felt was more in keeping with Wilton than the path chosen by the Court of Appeals for the Ninth Circuit. I sit as a trial court. I am duty bound to apply the law as the court that sits above me declares the law to be - even if I vehemently disagree with it. If every trial court felt free to determine whether clear pronouncements of the law by the court of appeals above it were "incorrect" (meaning, here, irreconcilable with earlier pronouncements by the Supreme Court), we would be faced with the prospect of complete doctrinal disarray. We would be working, in essence, in a lawless system, a system of men, not laws. My oath of office requires that I follow Karussos.

 I hasten to emphasize that it is indisputable that the Karussos court was fully aware of Wilton. The Karussos opinion discusses Wilton in three separate places. Obviously, the unanimous panel of Ninth Circuit judges who decided Karussos believed that the doctrine they announced there was consistent with Wilton. Since they are my doctrinal bosses, it is not my place to second guess them - or at least to use such a second guess to justify not applying the law they have articulated.

 A second, much less firm basis for my decision to apply the Karussos test here is that I am not positive that it is irreconcilable with Wilton. At least at one level, there appears to be tension between the two opinions. Wilton appears to hold that when district courts are called upon to decide whether to retain jurisdiction over claims brought under the Declaratory Judgment Act they should do so in a straightforward exercise of discretion, whereas Karussos creates, at least with respect to actions brought by insurance companies, a substantial presumption against retaining jurisdiction under the Act, at least in some circumstances. Under Karussos, in other words, the district court's exercise of discretion is not straightforward, but is cabined or skewed substantially by the presumption against retaining jurisdiction.

 A closer examination of Wilton, however, suggests that there might not be as much tension between the two opinions as there at first appears to be. The thrust of Wilton was not against a presumption in favor of declining jurisdiction, but against a presumption in favor of keeping jurisdiction. In other words, the Wilton court wanted to make it clear that district courts were much freer to reject jurisdiction under the Act than some trial courts had felt in the past. The "exceptional circumstances" test that the Supreme Court attacked in Wilton had created pressures on district courts to retain jurisdiction over declaratory relief actions; some courts of appeal had held that trial courts could decline jurisdiction over such cases only if "exceptional circumstances" justified the declination. Rooting its decision in Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 86 L. Ed. 1620, 62 S. Ct. 1173 (1942), the Wilton court made it clear that no such presumption in favor of retaining jurisdiction over such matters was appropriate.

 For all these reasons, but principally the first stated, above, I hold that I am bound to ...


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