State Farm Fire & Cas. Co. v. Kirby

• Decision Date: 22 March 1996
• Docket Number: Civil Action No. 1:95-CV-42.
• Court: U.S. District Court — Northern District of West Virginia
• Parties: STATE FARM FIRE & CASUALTY COMPANY, an Illinois Corporation, Plaintiff, v. Stewart R. KIRBY and Elizabeth Ann Kirby, Defendants.

919 F. Supp. 939

STATE FARM FIRE & CASUALTY COMPANY, an Illinois Corporation, Plaintiff, v. Stewart R. KIRBY and Elizabeth Ann Kirby, Defendants.

Civil Action No. 1:95-CV-42.

United States District Court, N.D. West Virginia.

March 22, 1996.

Robert G. Steele, Amy M. Smith, Steptoe & Johnson, Clarksburg, WV, for Plaintiff.

David J. Romano, Clarksburg, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

KEELEY, District Judge.

This matter comes before the Court on the motion of defendants Stewart R. Kirby and Elizabeth Ann Kirby (the "Kirbys") to dismiss or stay further proceedings. The issues underlying this motion have been fully briefed in accordance with Local Rule 2.07, and are ripe for review. For the reasons that follow, the Court GRANTS the defendants' Motion to Dismiss.

I. BACKGROUND

On August 31, 1994, an explosive force of water from a construction site at the top of a hill directly across the street from their home impacted the Kirbys' home with such force that it pushed in a front foundation wall and tore a basement door from its steel casing. The water had been retained and channeled by Huffman Construction Company ("Huffman"), contractor of the development site.

The Kirbys are named insureds on a homeowners insurance policy issued by State Farm Fire and Casualty Company ("State Farm"). Immediately following the occurrence, the Kirbys notified State Farm of the loss. On the next day, September 1, 1994, State Farm notified the Kirbys in writing that it was denying coverage for their loss because it was excluded from coverage by the "Water Damage" and "Earth Movement" paragraphs of the "Losses Not Insured" section of their homeowners policy. State Farm included a copy of the policy in its letter, and also in a letter it later sent to the Kirbys' attorney, David J. Romano ("Romano"), on September 16, 1994.

On December 7, 1994, Romano wrote to State Farm disputing its denial of coverage. In his letter he argued that specific portions of the Kirbys' policy covered this loss, and demanded that State Farm immediately adjust the claim and compensate his clients for the full amount of their property damage, as well as consequential damages, and for their loss of income and attorney's fee. Romano also stated that Huffman was primarily liable for the damages to the Kirbys' home, and that he would be willing to preserve State Farm's subrogation rights to any amount paid on the claim from any subsequent recovery the Kirbys obtained from Huffman.

State Farm wrote to Romano on December 20, 1994 and March 2, 1995, indicating that, although it was not withdrawing its previous denial of coverage, it would reexamine the coverage issue. Thereafter, on April 10, 1995, State Farm filed this suit pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., seeking a declaration that the Kirbys are not entitled to insurance coverage for their loss. In a letter dated April 13, 1995, State Farm informed Romano that it had filed this action.

Also on April 13, the Kirbys filed suit against both Huffman and State Farm in the Circuit Court of Harrison County, West Virginia. In that suit, they seek damages both from Huffman, on the underlying tort claim, and also from State Farm, under West Virginia's Unfair Trade Practices Act, W.Va.Code §§ 33-11-1, et seq., and common law, for its refusal to adjust the claim. After the parties agreed, the circuit court, by order dated September 19, 1995, bifurcated the proceedings before it, allowing the suit against Huffman to proceed but staying the action against State Farm pending the outcome of this case.

II. ANALYSIS

The Kirbys have moved to dismiss this action. Alternatively, they seek a stay pending the outcome of the state court action. As grounds for their motion, they contend that their state action involves the same parties, claims and issues as the present case. They argue that a substantial waste of judicial resources would result if both actions are allowed to proceed. They also argue that this Court should defer to the proceedings in state court because all the claims arising from the damage to the Kirby home, including the non-removable underlying tort claims against Huffman, can be decided there, while this Court may only decide the coverage dispute between them and State Farm. They further point out that deference to the state court proceeding will foster the principles of comity and federalism by recognizing that state law, not federal law, governs the rights and liabilities of the various parties to this action, that the Circuit Court of Harrison County has processed this action more fully, and that State Farm's rights will be adequately protected in the state court litigation.

State Farm argues that this action should be allowed to proceed because it involves issues of coverage that will not be taken up in the state proceeding. It also contends that any interest in fostering the principles of comity and federalism is outweighed by the federal interest in deciding controversies between citizens of different states and preventing local prejudice from favoring local parties.

A. Federal Jurisdiction Under the Declaratory Judgment Act.

Normally, federal district courts are obliged to fully exercise the jurisdiction given to them by Congress. In Colorado River Water Conservation District v. U.S., 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the United States Supreme Court reiterated the axiom "that federal courts have a `virtually unflagging obligation ... to exercise the jurisdiction given them ,'" id. at 817, 96 S.Ct. at 1246 (citing Cohens v. Virginia, 19 U.S. (6 Wheat) 264, 5 L.Ed. 257 (1821)), and held that the pendency of a parallel state court action is not proper grounds for refusal to hear a case. The Court declared that a district court may only decline to exercise its jurisdiction in "exceptional circumstances." Colorado River, 424 U.S. at 813, 96 S.Ct. at 1244.

In Wilton v. Seven Falls Co., ___ U.S. ___, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), however, the Supreme Court recognized an exception to this general rule for situations in which a district court exercises jurisdiction over a case pursuant to the Declaratory Judgment Act. Wilton directs a district court to apply the guidelines enunciated in Brillhart v. Excess Insurance Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), and not the "exceptional circumstances" test of Colorado River, when deciding whether to dismiss or stay a declaratory judgment action while parallel state court proceedings are pending. Wilton, ___ U.S. at ___, 115 S.Ct. at 2143.

According to Brillhart, district courts should decline to exercise jurisdiction over declaratory judgment actions "where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Brillhart, 316 U.S. at 495, 62 S.Ct. at 1176. Wilton broadens that holding by recognizing that actions brought under the Declaratory Judgment Act have "distinct features" which "justify a standard vesting district courts with greater discretion than that permitted under the `exceptional circumstances' test of Colorado River." Wilton, ___ U.S. at ___, 115 S.Ct. at 2142. Accordingly, the decision to assume jurisdiction over a declaratory judgment action is discretionary, not obligatory or automatic. Id. at ___, 115 S.Ct. at 2140.

A district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.

Id. at ___, 115 S.Ct. at 2143.

B. The Fourth Circuit's Framework.

The holding in Wilton significantly impacts this Court's analysis of whether to dismiss a declaratory judgment action in deference to correlative state court proceedings involving the same issues and parties. Even before Wilton, however, the Fourth Circuit had established a framework within which district courts were to analyze whether to stay or dismiss a pending declaratory judgment action. That precedent comports with Wilton's observation that district courts should have great latitude in deciding whether to assert jurisdiction over declaratory judgment actions. In Aetna v. Quarles, 92 F.2d 321 (4th Cir.1937), for example, the Fourth Circuit stated:

The federal Declaratory Judgment Act citation omitted is not one which adds to the jurisdiction of the court, but is a procedural statute which provides an additional remedy for use in those cases and controversies of which the federal courts already have jurisdiction. citations omitted This being true, there is no ground for applying the settled rule, citation omitted that the courts may not decline the exercise of jurisdiction conferred upon them.

Id. at 323 — 324.

Quarles discussed in detail the proper circumstances under which a district court should exercise jurisdiction over a declaratory judgment action:

The discretion to grant or refuse the declaratory relief `is a judicial discretion, and must find its basis in good reason,' ... We think that this discretion should be liberally exercised to effectuate the purposes of the statute and thereby afford relief from uncertainty and insecurity with respect to rights, status and other legal relations, but it should not be exercised for the purpose of trying issues involved in cases already pending, especially where they can be tried with equal facility in such cases, or for anticipating the trial of an issue in a court of co-ordinate jurisdiction.

Id. at 324 (emphasis added). Quarles also states that the remedy of declaratory judgment

should not be accorded ... to try particular issues without settling the entire controversy, or to interfere with an action which has already been instituted.

Id. at...