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MEDMARC INSURANCE COMPANY v. BERKELEY PROPERTIES

United States District Court, Northern District of California


April 28, 2003

MEDMARC INSURANCE COMPANY, PLAINTIFF,
v.
BERKELEY PROPERTIES, INC., A CALIFORNIA CORPORATION AND DOES 1 THROUGH 100, DEFENDANTS.

The opinion of the court was delivered by: Maxine M. Chesney, United States District Judge.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
Before the Court is defendant Berkeley Properties, Inc's ("Berkeley") Motion to Dismiss Case, Stay Matter or Strike Causes of Action, filed February 14, 2003. Plaintiff Medmarc Insurance Company ("Medmarc") has filed opposition, to which Berkeley has replied. Berkeley has also filed a supplement to its reply, to which Medmarc has neither objected nor responded. Having considered the above-referenced papers filed in support of and in opposition to the motion, the Court finds the matter appropriate for decision on the papers, VACATES the hearing scheduled for April 4, 2003, and rules as follows.

BACKGROUND

The following facts are taken from Medmarc's First Amended Complaint ("FAC").

Medmarc issued to Andros Incorporated ("Andros") a commercial general liability insurance policy ("Policy"), and at Andros' request, issued to Andros' lessor, Berkeley, an "Additional Insured Endorsement — Managers or Lessors of Premises," which endorsement covered certain premises leased by Berkeley to a subsidiary of Andros. (See FAC ¶ 5, 6.) On May 21, 2000, a fire occurred at those premises, allegedly causing damage to nearby structures and the contents of such structures. (See id. ¶ 8.) On June 25, 2002, and July 17, 2002, respectively, Andros and Berkeley were named as defendants in two separate lawsuits filed in Alameda County Superior Court, each asserting claims for damage to the surrounding structures.*fn1 (See id.) Andros and Berkeley tendered the complaints and cross-complaints to Medmarc for defense under the Policy; Medmarc accepted the tender without reserving any right to disclaim coverage. (See id. ¶ 9, 10.)

At Medmarc's suggestion, Berkeley, through an attorney, William C. Reeves ("Reeves"), met with Genese Dopson Smith ("Smith"), an attorney who had been "retained as defense counsel" for Andros on or about May 23, 2000,*fn2 in order "to determine whether she could jointly represent both defendants." (See id., ¶ 8, 11.) On or about August 28, 2002, Reeves "represented to Ms. Smith that she could appropriately represent both entities in the context of providing a joint defense." (See id. ¶ 11.) On August 30, 2002, Smith filed a cross-complaint in the state tort action on behalf of both Andros and Berkeley against the other defendants. (See Reeves Decl. Ex. H).*fn3 In addition, on September 5 and September 18, 2002, Smith sent documents to Berkeley and Reeves, wherein Smith "memorialized much of her work product, i.e., her observations, the investigation undertaken by the experts she had retained . . . and, in substance, her `game-plan' for defending the claims in the [state] actions." (See FAC ¶ 12, 14.)

On October 1, 2002, Berkeley, for the first time, notified Medmarc of a conflict between Berkeley and Andros, and of Berkeley's intent to assert affirmative claims against Andros. (See id. ¶ 17.) Medmarc "agreed to appoint new, separate defense counsel for Berkeley," but Berkeley, through Reeves, refused to execute the documents permitting new defense counsel to substitute into the case. (See id. ¶ 18.) On February 7, 2003, Berkeley filed a First Amended Cross-Complaint against Andros for indemnification, contribution, breach of contract, negligence, strict liability and declaratory relief. (See Reeves Decl. Ex. J.)

On January 17, 2003, Medmarc filed the instant action on the basis of diversity jurisdiction, asserting three claims for declaratory relief pursuant to the Declaratory Judgment Act. On February 14, 2003, Medmarc filed its FAC. In its First Cause of Action, Medmarc seeks a declaration from this court that Berkeley, by refusing to cooperate with Medmarc, has "voided its rights" under the Policy. (See id. ¶ 19-24.) In its Second Cause of Action, Medmarc seeks a declaration that Medmarc is not obligated to pay for independent counsel selected by Berkeley. (See id., ¶ 25-31.) In its Third Cause of Action, Medmarc seeks a declaration that Mr. Reeves and his law firm, Morales & Gary, are precluded from representing Berkeley because of their improper receipt of work-product from Smith. (See id. ¶ 32-40.)

On February 14, 2003, Berkeley filed the instant motion, arguing that the Court should decline to exercise jurisdiction over the action under the Declaratory Judgment Act.*fn4 Alternatively, Berkeley seeks an order staying the first cause of action as premature and an order striking the third cause of action for lack of standing.

On April 3, 2003, one day before the scheduled hearing on the instant motion, Medmarc filed a declaratory relief action in Alameda County Superior Court, wherein it raises against Berkeley the identical three claims for declaratory relief raised herein. (See Suppl. to Berkeley Properties' Reply, Ex. P.)*fn5

DISCUSSION

A. Legal Standard

The Declaratory Judgment Act, codified at 28 U.S.C. § 2201, et seq., provides, in pertinent part:

In 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 a declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C.A. § 2201(a).*fn6 Under the Declaratory Judgment Act, a federal court has substantial discretion to decline to exercise jurisdiction over a declaratory action. See Wilton v. Seven Falls Co., 515 U.S. 277, 286-87 (1995). "The question for a district court presented with a suit under the Declaratory Judgment Act . . . is whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in the state court." Id. (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)).

B. Jurisdiction under the Declaratory Judgment Act

Brillhart sets forth the primary factors for consideration by district courts in the exercise of their discretion under the Declaratory Judgment Act. See Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800, 803 (9th Cir. 2002). Under Brillhart, a district court should (1) avoid needless determination of state law issues; (2) discourage litigants from filing declaratory relief actions as a means of forum shopping; and (3) avoid duplicative litigation. See id.

The Ninth Circuit has held that "[i]f there are parallel state proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court." Govemment Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998); see also Employers Reinsurance Corp. v. Karussos, 65 F.3d 796, 798 (9th Cir. 1995) (noting "general rule" that federal courts should "decline to assert jurisdiction in insurance coverage and other declaratory relief actions presenting only issues of state law during the pendency of parallel proceedings in state court unless there are circumstances present to warrant an exception to that rule") (internal quotation and citations omitted) (overruled on other grounds by Dizol, 133 F.3d 1220 (9th Cir. 1998). The fact that a federal and state action do not involve identical parties or issues is not dispositive, however. Rather, there only need be an "overlap of factual questions between the two actions" and an available "procedural vehicle" in state court by which the federal plaintiff, even if not a party in the state action, may resolve the issues raised in the federal action. See Polido v. State Farm Mutual Automobile Insurance Company, 110 F.3d 1418, 1423 (9th Cir. 1997) (citing Karussos, 65 F.3d at 800; American Nat'l Fire Insurance Co. v. Hungerford, 53 F.3d 1012, 1016-17) (overruled on other grounds by Dizol, 133 F.3d 1220).

Here, the three Brillhart factors — avoiding needless determination of state law issues, discouraging litigants from filing declaratory relief actions as a means of forum shopping, and avoiding duplicative litigation — weigh heavily against the Court's exercising jurisdiction over the instant action. The claims presented herein raise questions exclusively of state law. Moreover, as noted, Medmarc has filed a complaint in state court seeking the identical declaratory relief, which action, albeit filed subsequent to the instant action, may be considered in the Court's analysis under Brillhart. See Wilton, 515 U.S. at 290 (holding district court did not abuse its discretion in staying federal action for declaratory relief in favor of state action filed several weeks after federal action); Huth, 298 F.3d at 803 ("In Wilton, the Court suggested that the order of filing is legally insignificant. . . ."); Polido, 110 F.3d at 1423 (citing Wilton for the proposition that "a district court may consider the circumstances as they exist at the time it rules on a request for a declaration.")

In its opposition, Medmarc argues that the federal action will lead to a "prompt" and "expeditious" resolution of the conflict of interest issues and that raising the instant causes of action in state court would serve to "add a complication" to those proceedings. (See Opp. at 8, 18-19).*fn7 In light of Medmarc's subsequent filing of an identical action in state court, it is unclear whether Medmarc continues to pursue this line of reasoning. In any event, the argument is not persuasive as Medmarc offers no explanation as to why a resolution in federal court would be any more "prompt" than a resolution in state court or why the state court would not provide the better forum for resolving the question of conflict, given that court's familiarity with the facts and issues of the underlying case. Moreover, the state court has had the conflict question before it for some time. On March 6, 2003, Andros filed in the state tort action a motion to disqualify Reeves, raising substantially identical issues to those raised by Medmarc's Third Cause of Action herein.

Consequently, having considered the Brillhart factors and other matters bearing on the Court's exercise of jurisdiction, the Court finds the questions in controversy between the parties herein "can better be settled in the proceeding pending in the state court." See Wilton, 515 U.S. at 282 (quoting Brillhart, 316 U.S. at 495).

The Court has discretion to either stay or dismiss. See Wilton, 515 U.S. at 288. Given the pendency of an identical state court action, the Court deems dismissal the more appropriate of the two alternatives.

CONCLUSION

For the reasons stated, the Court declines to exercise jurisdiction over the instant action.

Accordingly, Berkeley's Motion to Dismiss is hereby GRANTED and the instant action is hereby DISMISSED.

This order closes Docket No. 8.

The Clerk shall close the file.

IT IS SO ORDERED.


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