American Nat. Fire Ins. Co. v. Hungerford
| Decision Date | 27 April 1995 |
| Docket Number | No. 92-17081,92-17081 |
| Citation | 53 F.3d 1012 |
| Parties | AMERICAN NATIONAL FIRE INSURANCE COMPANY, Plaintiff-Counter-defendant-Appellant, v. Mark C. HUNGERFORD; W. Douglass Smith; Allen V. Hirsch; Robert N. Tidball; Steven L. Pease; Herbert D. Montgomery; Robert S. Leichtner; Robert W. Laversin, Defendants-Counter-claimants-Appellees, and Shirley B. Daniels, and Barney and Rachel Milione, Defendants-Appellees, and Great American Insurance Company, Counter-defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Leonard S. Surdyk, Peterson & Ross, Chicago, IL, Carol G. Perry, St. Peter & Cooper, San Francisco, CA, for plaintiff-counter-defendant-appellant and counter-defendant-appellant.
Barron L. Weinstein, Meredith & Weinstein, Larkspur, CA, George F. Bishop, Furth, Fahrner & Mason, San Francisco, CA, for defendants-counter-claimants-appellees.
Appeal from the United States District Court for the Northern District of California.
Before: REINHARDT and LEAVY, Circuit Judges, and McLAUGHLIN, * District Judge.
This appeal arises out of the district court's entry of summary judgment in favor of the insured in a declaratory judgment action brought by the insurer. Because we conclude that the district court improperly exercised its discretionary jurisdiction, we vacate the judgment and remand with instructions to dismiss the case.
Mark Hungerford ("Hungerford") founded and served as Chairman of the Board and Chief Executive Officer of PLM Companies, Inc. ("PLMC"), a Delaware corporation with its principal place of business in California. Great American Insurance Company ("Great America") issued a Directors and Officers Liability Insurance Policy ("Policy") to PLMC that provided coverage to Hungerford in his capacity as an officer and director of PLMC. Pursuant to an endorsement to the Policy, American National Fire Insurance Company ("American National") subsequently assumed the coverage for PLMC's officers and directors.
PLMC was the sole owner of the outstanding stock of PLM Financial Services, Inc. ("FSI"); PLM Railcar Management Services, Inc. ("RMSI"); and PLM Transportation Equipment Management, Inc. ("TEMI"). FSI in turn was the sole owner of the outstanding stock of three other companies, 1 and served as the general partner of some twenty-three limited partnerships. In May of 1987, PLMC formed PLM International, Inc. ("PLMI") for the purpose of consolidating the equipment and leasing activities of the limited partnerships in which FSI served as general partner. A majority of the limited partners voted to approve the consolidation, which went into effect on February 1, 1988. As its contribution, PLMC transferred all of its stock in FSI, RMSI and TEMI to PLMI. In exchange, PLMC--which now became Transcisco Industries, Inc. ("Transisco")--acquired 36% of the outstanding shares of PLMI stock and $18 million in cash.
Disgruntled investors (i.e., the minority of limited partners who had voted against the consolidation) brought a class action in California state court against Transcisco, PLMI, FSI, Hungerford, and 50 Doe defendants, as well as others not relevant to this appeal. Daniels v. PLM Int'l, Inc., Case No. 884634, Superior Court of California, City and County of San Francisco (Filed November 27, 1987) ("Daniels" ). The only claims that survived demurrer involved allegations that all of the defendants had breached their fiduciary duties, and the individual defendants had aided and abetted in those alleged breaches.
After the filing of the complaint in Daniels, some of Transcisco's creditors filed an involuntary Chapter 7 bankruptcy petition against it. Transcisco successfully moved to convert the action from a Chapter 7 liquidation to a Chapter 11 reorganization, then filed an adversary proceeding against American National, seeking a declaration of coverage under the Policy for any liability in the Daniels action. 2 American National filed a counterclaim for a declaration of no coverage, and both parties subsequently filed motions for summary judgment. The bankruptcy court ruled that this was a non-core proceeding and issued Proposed Findings of Fact and Conclusions of Law in favor of American National.
During the pendency of the adversary proceeding, American National brought a separate action in federal district court against Hungerford, seeking a declaration of non-coverage in the Daniels action. 3 Hungerford filed an answer and counterclaim seeking, inter alia, a declaration of coverage under the Policy. Both parties later moved for summary judgment. Meanwhile, Transcisco filed in the district court its objections to the bankruptcy court's Proposed Findings of Fact and Conclusions of Law. The district court treated this filing as a related case to the pending declaratory judgment action.
The central issue in both the district court declaratory judgment action and the bankruptcy court proceeding was whether two exclusions in the Policy served to deny coverage for Hungerford. Exclusions 5 and 9 provide, respectively:
It is understood and agreed that the Insurer shall not be liable to make any payment for Loss based upon or attributable to or resulting from the offering of shares, management and/or operation and control of limited partnerships.
* * * * * *
It is understood and agreed that the Insurer shall not be liable to make any payment for Loss based upon or attributable to or arising out of the Directors, Officers or the Company acting as a General Partner of any Limited Partnership.
Hungerford argued that these provisions did not apply to exclude him from coverage in the Daniels case, while American National argued that they did. The district court ruled in favor of Hungerford, and American National has timely appealed.
We note at the outset that the district court did not refer to the discretionary nature of its jurisdiction under the Declaratory Judgment Act, 28 U.S.C. Sec. 2201, but accepted the allegations in the Daniels complaint as true. See Underwriters Ins. Co. v. Purdie, 145 Cal.App.3d 57, 64, 193 Cal.Rptr. 248, 252 (1983). The court held that, as some of the loss might be independent of the individual defendants' actions as FSI, such loss would not be excluded by the Policy, and any breach of a fiduciary duty would be a concurrent cause of the loss. The court then granted the individual defendants' motion for summary judgment on the basis that the Policy could provide coverage for the claims alleged in Daniels. The court also declared that the Policy could provide coverage if the facts as alleged in the complaint were proven at trial, reasoning that the applicability of the exclusions depended on whether a fiduciary relationship existed between the limited partners and Hungerford, independent of the fiduciary relationship between the limited partners and FSI. It cautioned, however, that it was not finding that such an independent fiduciary relationship actually existed.
The district court went on to note that it was deciding both the declaratory judgment action and the objections to the bankruptcy court's proposed decision, because that was what the parties had agreed to, and that they would not seek a separate hearing in connection with Transcisco's objections. However, the district court only entered a final order in the declaratory judgment action, noting that it had not conducted a de novo review of the bankruptcy court's proposed decision. The court then invited the individual defendants to file an appropriate motion disposing of the bankruptcy appeal. It does not appear that any such motion was filed, and the district court did not enter a final order in Transcisco's objections to the bankruptcy court's proposed decision.
The notice of appeal in the case before us lists only the declaratory judgment. Therefore, the only issue before us involves the appeal from the district court's ruling in the declaratory judgment action filed by American National against Hungerford, not against Transcisco. Accordingly, Transcisco is not a party to this appeal, and the court did not exercise its jurisdiction over this case under 28 U.S.C. Sec. 158(a).
Finally, we note that, although the Daniels action was still pending when the district court made the above ruling, the parties subsequently entered into a settlement funded by American National. American National also reserved its rights under California law to seek reimbursement from Hungerford, should it be determined that American National's Policy did not cover this dispute.
The Declaratory Judgment Act provides that, "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. Sec. 2201.
The Declaratory Judgment Act was an authorization, not a command. It gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so. Of course a District Court cannot decline to entertain an action as a matter of whim or personal disinclination. A declaratory judgment, like other forms of equitable relief, should be granted only as a matter of judicial discretion, exercised in the public interest.
Public Affairs Assocs. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 582, 7 L.Ed.2d 604 (1962) (per curiam) (internal citations and quotation omitted).
The record does not indicate why the district court decided to exercise its jurisdiction. This, however, does not prevent us from considering the issue. As we have previously stated, "[W]e review de novo the district court's decision to exercise its jurisdiction under the Declaratory Judgments Act when a state action is pending." Continental Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1370 (9th Cir.1991) (quoting Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366 (9th...
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