Principal Life Ins. Co. v. Robinson

• Decision Date: 06 January 2005
• Docket Number: No. 03-35376.,03-35376.
• Citation: 394 F.3d 665
• Parties: PRINCIPAL LIFE INSURANCE CO., an Iowa corporation; Petula Associates Ltd., an Iowa corporation; Equity FC Ltd., an Iowa corporation, Plaintiffs-Appellants, v. Constance A. ROBINSON; Chester L. Robinson, individually and as trustee of the Chester Robinson Trust; Lynn Robinson; Kay Bell; Thea Wood; Dee Hanson, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

394 F.3d 665

PRINCIPAL LIFE INSURANCE CO., an Iowa corporation; Petula Associates Ltd., an Iowa corporation; Equity FC Ltd., an Iowa corporation, Plaintiffs-Appellants, v. Constance A. ROBINSON; Chester L. Robinson, individually and as trustee of the Chester Robinson Trust; Lynn Robinson; Kay Bell; Thea Wood; Dee Hanson, Defendants-Appellees.

No. 03-35376.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 3, 2004.

Filed January 6, 2005.

COPYRIGHT MATERIAL OMITTED

G. Frank Hammond, Cable Huston Benedict Haagensen & Lloyd LLP, Portland, OR, for the plaintiffs-appellants.

Lainie Block, Larkins Vacura LLP, Portland, OR, for the defendants-appellees.

Appeal from the United States District Court for the District of Oregon; Anna J. Brown, District Judge, Presiding. D.C. No. CV-00-01345-BR.

Before TROTT, KLEINFELD, Circuit Judges, and POLLAK,^* Senior Judge.

TROTT, Circuit Judge:

Principal Life Insurance Company, Equity FC Ltd., and Petula Associates Ltd., a subsidiary of Principal, (collectively "Principal") appeal the district court's dismissal of Principal's action for declaratory relief relating to a material dispute over a rent recalculation provision in a ground lease. The district court concluded that the case was not ripe for adjudication and thus that it lacked subject-matter jurisdiction. Because the district court arrived at this conclusion by mistakenly applying a ripeness standard derived from cases involving administrative agencies, we reverse the district court's jurisdictional determination.

This case presents an actual controversy, between parties having adverse legal interests, and with sufficient immediacy ordinarily to warrant the issuance of a declaratory judgment. Nevertheless, the district court had discretion to accept jurisdiction or not depending on an application of the Brillhart factors. Brillhart v. Excess Ins. Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). Because the district court did not articulate reasons for its provisional declination to exercise jurisdiction pursuant to Brillhart and its progeny, we remand to allow the district court to address the relevant factors and then to exercise its discretion. Consequently, we vacate also the award of fees and costs.

BACKGROUND

The Chester Robinson Trust, Kay Bell, Thea Wood, Dee Hanson, and Constance, Chester, and Lynn Robinson (collectively, "the Robinsons") own property in Washington County, Oregon. In 1978, they entered into a ninety-nine-year ground lease agreement with MTR Company, which assigned its interest in the ground lease to Koll Interreal a year later. During lease renegotiations between Koll Interreal and the Robinsons in 1985, it became apparent to both parties that they disagreed as to the interpretation of Section 2.1 of the ground lease, which is a pivotal rent recalculation provision.

Section 2.1 of the ground lease provides for rent adjustment in the thirty-first year (2008) and sixty-first year of the lease term. The Robinsons contended that two critical variables affecting the amount of rent will change when the rent is recalculated in the thirty-first and sixty-first years: (1) the base property value of the land and (2) the ratio for recalculating the rental amount. Koll Interreal, on the other hand, claimed that only the ratio variable would change. This dispute affects not only the amount of rent, but also the commercial value of the lease.

Unable to resolve the dispute in 1985, Koll Interreal and the Robinsons agreed to preserve their respective positions and resolve it in the future. The dispute was memorialized in a lease amendment. With full knowledge of the existence of this dispute, a subsidiary of Principal purchased a portion of Koll Interreal's interest in the ground lease in 1986.

Principal attempted to sell its entire interest in the ground lease for the first and only time in 1998, creating a portfolio of properties that included it. Two investors, Transwestern and PS Business Parks, made offers on the leasehold interest. Principal pursued the Transwestern offer because it was significantly higher and offered a "smoother closing." During those sale negotiations, Transwestern sought a reduction in price because of the unresolved lease dispute with the Robinsons and attempted also to resolve the dispute with the Robinsons. These attempts at resolving the contract dispute proved fruitless, and Transwestern withdrew its offer. Principal has made no other attempts to sell the interest.

Without a definitive way to calculate the value of the lease, Principal found itself unable to make a reasonable business decision as to what to do with it, i.e., sell it, develop the property, or purchase the property. Accordingly, Principal sought a declaratory judgment, asking the district court to resolve the controversy and to declare that Principal's interpretation of section 2.1 is correct.

The district court determined that a "substantial controversy" exists between the parties, but it determined nevertheless that it lacked subject-matter jurisdiction because Principal had failed to prove that it would suffer "a direct and immediate hardship that is more than possible financial loss." Moreover, the district court noted that it would decline to exercise jurisdiction even if it had it because "[d]iscretionary access to judicial resources should be reserved for those controversies that parties do not invite."

Principal moved the district court to reconsider, arguing that this "hardship" standard derived from cases involving administrative agencies and was inappropriate in an insular private party contract action. The district court maintained its original position regarding ripeness, and again asserted that even if the case were ripe, the court would decline to exercise jurisdiction, citing its earlier statement regarding "controversies that parties do not invite."

DISCUSSION

The Declaratory Judgment Act states, "In a case of actual controversy within its jurisdiction ... any court of the United States... may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). Consequently, we have long held that the district court must first inquire whether there is an actual case or controversy within its jurisdiction. American States Ins. Co. v. Kearns, 15 F.3d 142, 143 (9th Cir.1994). Second, if the court finds that an actual case or controversy exists, the court must decide whether to exercise its jurisdiction by analyzing the factors set out in Brillhart v. Excess Ins. Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), and its progeny. Kearns, 15 F.3d at 143-44.

A. Standard of Review

We review de novo the first prong of the Kearns inquiry, i.e., the question of ripeness and subject-matter jurisdiction. Laub v. United States Dep't of the Interior, 342 F.3d 1080, 1084 (9th Cir.2003); Kearns, 15 F.3d at 143. Beyond the threshold jurisdictional question, we review discretionary decisions about the propriety of hearing declaratory judgment actions for abuse of discretion. Wilton v. Seven Falls Co., 515 U.S. 277, 289-90, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). However, if the district court does not provide reasoning under the discretionary prong of the inquiry, we must remand the case to allow the district court to properly exercise its discretion. Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir.1998) (en banc) ("If on appeal the record is devoid of reasoning ... the case must be remanded to the district court to record its reasoning in a manner sufficient to permit the `proper application of the abuse of discretion standard on appellate review.'" (citation omitted)).

B. Appropriate Standard for Determining Ripeness

The requirement that a case or controversy exist under the Declaratory Judgment Act is "identical to Article III's constitutional case or controversy requirement." Kearns, 15 F.3d at 143. If a case is not ripe for review, then there is no case or controversy, and the court lacks subject-matter jurisdiction. Id. Consequently, the first question we must answer is what standard should be applied to determine whether this private contract dispute is ripe.

The district court applied a standard unique to cases involving administrative agencies and, as a result, found that it lacked subject-matter jurisdiction. In the context of administrative actions, the prudential aspect of the ripeness doctrine is well-settled: whether administrative action is ripe requires the court to evaluate (1) the fitness of the issues for judicial decision; and (2) the hardship to the parties of withholding court consideration. Abbott Labs. v. Gardner, 387 U.S. 136, 148-49, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), overruled on other grounds by Califano v. Sanders, 430 U.S. 99, 105, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977). We further announced in Western Oil & Gas Ass'n v. Sonoma County, 905 F.2d 1287, 1291 (9th Cir.1990), reh'g denied, that the hardship element of the Abbott Labs standard is not met unless a litigant shows that "withholding review would result in `direct and immediate' hardship and would entail more than possible financial loss."

The Abbott Labs and Western Oil standards find their roots in cases involving administrative agencies and recognize that judicial action should be restrained when other political branches have acted or will act. See, e.g., United States v. Braren, 338 F.3d 971, 975 (2003) (listing administrative cases applying the Abbott Labs standard); Village of Gambell v. Babbitt, 999 F.2d 403 (9th Cir.1993) (applying the Western Oil financial loss standard to a case involving an administrative agency); Wright & Miller, Federal Practice and Procedure, § 3532.1 (2d ed. 1984 & Supp.2004) ("The values of avoiding unnecessary constitutional determinations and establishing proper relationships between the judiciary and other branches of the federal government lie at the core of ripeness...