American Home Assur. Co. v. Evans

• Decision Date: 27 May 1986
• Docket Number: 84-1700,Nos. 84-1671,s. 84-1671
• Citation: 791 F.2d 61
• Parties: AMERICAN HOME ASSURANCE COMPANY, Plaintiff-Appellant, Cross-Appellee, v. William S. EVANS; Katherine D. Evans, and NBD Ann Arbor, National Assoc. as Independent Personal Representative of the Estate of Dr. Charles Merle Dixon, deceased, Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 61

791 F.2d 61

AMERICAN HOME ASSURANCE COMPANY, Plaintiff-Appellant, Cross-Appellee, v. William S. EVANS; Katherine D. Evans, and NBD Ann Arbor National Assoc. as Independent Personal Representative of the Estate of Dr. Charles Merle Dixon, deceased Defendants-Appellees, Cross-Appellants.

Nos. 84-1671, 84-1700.

United States Court of Appeals Sixth Circuit.

Argued April 14, 1986.

Decided May 27, 1986.

John P. Jacobs (argued), Stanley A. Prokop, Plunkett, Cooney, Rutt, Watters, Stanczyk, & Pedersen, P.C., Detroit, Mich., for plaintiff-appellant, cross-appellee.

Robert J. Harris (argued), Charles W. Borgsdorf, Hooper, Hathway, Price, Beuche and Wallace, Ann Arbor, Mich., for defendants-appellees, cross-appellants.

Before LIVELY, Chief Judge, MERRITT and JONES, Circuit Judges.

MERRITT, Circuit Judge.

This declaratory judgment action, seeking a jury trial on disputed factual issues as well as a determination of legal issues, arises from a prior state court action against a lawyer, William S. Evans, alleging malpractice and dishonest conduct of a client's affairs. Because we find that declaratory judgment was improvidently granted, we dismiss.

Shortly before the state malpractice trial was to begin, Evans' insurer, American Home Assurance, filed the instant declaratory judgment action, seeking a declaration that Evans' conduct, the same conduct under litigation in state court, fell within the policy's "dishonesty" exclusion to coverage.

The complaint in the state action was filed on July 1, 1981. At that time American Home took the position, based on the allegations in the complaint, that there was no coverage and hence refused to defend. In February of 1982, however, the complaint was amended to include allegations of negligence. American Home then notified Evans' personal counsel that it had hired a firm to conduct the defense, subject to a reservation of American Home's right to withdraw at a later date should it determine that there was no coverage. After receiving this information Evans' personal counsel obtained an eight-month adjournment of the trial date until November 8, 1982. The counsel provided by American Home then took over Evans' state court defense.

In October of 1982, shortly before the state court trial was to commence, American Home filed this declaratory judgment action in federal court rather than the state court and petitioned the state court to have the malpractice action stayed pending a determination of the coverage issue. That motion was denied and the state court action commenced, producing a judgment for the plaintiff in the amount of $698,981.00 plus interest.

After the state court judgment was entered this case came before the District Court on motions for partial summary judgment as to American Home's right to invoke the dishonesty exclusion and pecuniary limits of the policy, and as to the calculation of interest, costs, etc. Judge Joiner granted some of these motions and denied others, 589 F.Supp. 1276, declaring American Home to be liable in part for indemnity and declaring damages to be $300,000 plus applicable interest and costs, for a total of $423,164. Because we believe this case to be an inappropriate one for declaratory judgment ¹ we reverse and dismiss the case.

In Grand Trunk Western Railroad v. Consolidated Rail Corp., 746 F.2d 323 (6th Cir.1984), this court discussed the purpose of the Declaratory Judgment Act, 28 U.S.C. Sec. 2201 et seq., ² and the standard of review applicable to a District Court's decision to render a declaratory judgment. In that opinion, we held that entertainment of a declaratory judgment action is discretionary with the trial court, but that that discretion is reviewable on a de novo basis by the Court of Appeals, so that "if we disagree with the District Court's reasons for rendering a declaratory judgment ... we should decline to advise the parties as to the law and refuse to decide the issues presented." 746 F.2d at 325-26. In deciding whether a case is appropriate for declaratory judgment, the principal criteria are (1) whether the judgment would settle the controversy; (2) whether the declaratory action would serve a useful purpose in clarifying the legal relations at issue; (3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata"; (4) whether the use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and (5) whether there is an alternative remedy that is better or more effective. 746 F.2d at 326.

In Grand Trunk the defendant in an Illinois state court action filed a declaratory judgment action seeking a declaration against a codefendant that the codefendant must defend and indemnify Grand Trunk under an indemnification agreement. Although the District Court gave a ruling on the issue, we reviewed de novo the question of suitability for declaratory relief. We...