American Reliable Ins. Co. v. Stillwell

• Decision Date: 16 July 2003
• Docket Number: No. 02-1431.,No. 02-1807.,02-1431.,02-1807.
• Citation: 336 F.3d 311
• Parties: AMERICAN RELIABLE INSURANCE COMPANY; American Bankers Insurance Company Of Florida; Campbell Insurance Services, Incorporated, Plaintiffs-Appellants, v. Robert STILLWELL; Helen Stillwell, Defendants-Appellees. American Reliable Insurance Company; American Bankers Insurance Company Of Florida; Campbell Insurance Services, Incorporated, Plaintiffs-Appellees, v. Robert Stillwell; Helen Stillwell, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

336 F.3d 311

AMERICAN RELIABLE INSURANCE COMPANY; American Bankers Insurance Company Of Florida; Campbell Insurance Services, Incorporated, Plaintiffs-Appellants, v. Robert STILLWELL; Helen Stillwell, Defendants-Appellees.

American Reliable Insurance Company; American Bankers Insurance Company Of Florida; Campbell Insurance Services, Incorporated, Plaintiffs-Appellees, v. Robert Stillwell; Helen Stillwell, Defendants-Appellants.

No. 02-1431.

No. 02-1807.

United States Court of Appeals, Fourth Circuit.

Argued: February 24, 2003.

Decided: July 16, 2003.

COPYRIGHT MATERIAL OMITTED

ARGUED:

Stephan Isaiah Voudris, Jorden Burt, L.L.P., Miami, Florida, for Appellants. Thomas Clark Schultz, Wheeling, West Virginia, for Appellees.

ON BRIEF:

Markham R. Leventhal, Jorden Burt, L.L.P., Miami, Florida; John Preston Bailey, Bailey, Riley, Buch & Harman, L.C., Wheeling, West Virginia; Kevin S. Burger, Margolis Edelstein, Pittsburgh, Pennsylvania, for Appellants. Don A. Yannerella, Wheeling, West Virginia, for Appellees.

Before TRAXLER and SHEDD, Circuit Judges, and C. Arlen BEAM, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation.

Affirmed by published opinion. Judge TRAXLER wrote the opinion, in which Judge SHEDD and Senior Judge BEAM joined.

OPINION

TRAXLER, Circuit Judge:

Appellants American Reliable Insurance Company, American Bankers Insurance Company of Florida, and Campbell Insurance Services, Inc. (collectively "Appellants"), appeal the district court's dismissal of their petition to compel arbitration of claims asserted against them in West Virginia state court by Appellees Robert and Helen Stillwell. See American Reliable Ins. Co. v. Stillwell, 212 F.Supp.2d 621, 623-24 (N.D.W.Va.2002). The district court dismissed Appellants' complaint on three alternative grounds: (1) the court lacked jurisdiction pursuant to the Rooker-Feldman doctrine; (2) American Reliable and Campbell had waived the right to arbitration; and (3) abstention was appropriate under Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). On appeal, Appellants challenge all three bases offered by the district court in support of the dismissal of their action to compel arbitration.

Appellants also appeal the district court's refusal to impose Rule 11 sanctions against the Stillwells for seeking attorney's fees and litigation costs. The Stillwells cross appeal the district court's denial of their motion for attorney's fees and costs. We affirm.

I.

In February 1999, the Stillwells purchased a homeowners policy issued by American Reliable. The policy contained an arbitration clause that provided, in part, as follows:

Any and all disputes, controversies or claims of any kind and nature between you and us arising out of or in any way related to the validity, interpretation, performance or breach of any provisions of this policy, and upon which a settlement has not been reached by you and us, shall be resolved exclusively[,] by arbitration in accordance with the Federal Arbitration Act (9 U.S.C. § 1 ET SEQ).

J.A. 91. Shortly thereafter, the Stillwells' mobile home sustained damage in a wind storm. After an initial dispute about whether the loss was covered by the American Reliable policy, the parties settled the Stillwells' claim for property loss.

In February 2000, the Stillwells filed an action in state court against American Reliable and Campbell Insurance for various claims relating to the policy, alleging that American Reliable and Campbell Insurance handled their claim under the policy in bad faith and violated certain West Virginia statutory provisions regarding the handling of insurance claims.¹ American Reliable and Campbell filed an answer that included a number of affirmative defenses; however, the answer did not invoke the arbitration clause. In April 2001, the Stillwells amended the complaint to add American Bankers as a defendant and to convert the lawsuit into a class action.² For the first time, in answering the amended complaint, Appellants invoked the arbitration clause.

On May 1, 2001, after the state court proceedings had been in progress for 14 months, Appellants filed a joint motion in state court to compel arbitration and stay judicial proceedings, pursuant to the Federal Arbitration Act ("FAA"). See 9 U.S.C.A. §§ 1-16 (West 1999 & Supp. 2003). On June 11, 2001, the West Virginia state court denied Appellants' motion to compel arbitration and stay judicial proceedings, concluding that the policy was "a contract of adhesion" and that Appellants "proffered no evidence that the parties to this contract knowingly bargained for an arbitration clause." J.A. 121-22.

On May 18, 2001, while Appellants' motion to compel arbitration was pending in state court, Appellants filed, but did not serve, this action in federal court seeking to compel arbitration of the Stillwells' state law claims — the same issue that Appellants had raised and ultimately lost in state court. Appellants completed service of the federal complaint only after the state court denied their motion to compel arbitration three weeks later. Moreover, almost immediately after the state court issued its decision, Appellants filed a motion in district court to compel arbitration of the Stillwells' state law claims. Appellants argued that "the state court issued an erroneous ruling which failed to follow Federal law under the FAA and which denied the motion to compel arbitration" and urged the district court to rectify the situation by "enforc[ing] Federal law under the FAA and ... enter[ing] an Order compelling the parties' dispute to arbitration." American Reliable, 212 F.Supp.2d at 625. In response, the Stillwells filed a motion to dismiss the federal action on numerous grounds, including the Rooker-Feldman doctrine, the Younger abstention doctrine, and principles of res judicata and collateral estoppel.

While awaiting a decision from the district court, Appellants attempted to obtain review of the state trial court's denial of arbitration in the West Virginia appellate courts. First, Appellants moved unsuccessfully in the state trial court for an order certifying the arbitration question for interlocutory appeal to the West Virginia Supreme Court of Appeals. Next, Appellants petitioned the West Virginia Supreme Court for a Writ of Prohibition against the enforcement of the trial court's order denying arbitration, which the supreme court refused to grant. Then, Appellants filed a petition seeking permission to appeal the state trial court's rejection of arbitration to the West Virginia Supreme Court, which was also denied. Ultimately, Appellants unsuccessfully sought review of the denial of the petition for appeal in the United States Supreme Court. See American Reliable Ins. Co. v. Stillwell, 537 U.S. 824, 123 S.Ct. 112, 154 L.Ed.2d 35 (2002).

The district court concluded that Appellants' federal lawsuit was the "`functional equivalent' of an appeal from the June 11, 2001 state court decision" denying arbitration — clearly demonstrated, the district court reasoned, by Appellants' "failure to actively pursue their complaint and petition to compel arbitration until after the state court ruling." American Reliable, 212 F.Supp.2d at 627. Based on that conclusion, the district court held that it was precluded by the Rooker-Feldman doctrine from considering an identical motion to compel arbitration and dismissed the action for lack of subject matter jurisdiction.

Alternatively, the court found that Appellants, having "litigate[d] the state court case for a period of 14 months before they even mentioned that they wished to enforce the arbitration provision in the contract," waived the right to invoke the arbitration clause. Id. at 628.³ Additionally, the district court determined that even if the Rooker-Feldman and waiver doctrines did not apply, federal court abstention was appropriate under the Colorado River doctrine of abstention because the federal "action was not filed until more than 14 months after the state court case was filed, the defendants are challenging the validity of the arbitration clause, which implicates state law, the state court forum is adequate to protect the federal plaintiffs' rights, and the state court has already ruled on the issue before this Court." Id. at 631.

On appeal, Appellants challenge each of the bases identified by the district court in support of its order of dismissal. Because we agree that the district court properly applied the Rooker-Feldman doctrine, we do not reach Appellants' additional arguments.

II.

A.

Under the Rooker-Feldman doctrine, a "party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in a United States district court." Johnson v. DeGrandy, 512 U.S. 997, 1005-06, 114 S.Ct. 2647, 129 L.Ed.2d 775 (1994). We regard the doctrine as jurisdictional. See Friedman's, Inc. v. Dunlap, 290 F.3d 191, 196 (4th Cir.2002) ("Because the Rooker-Feldman doctrine is jurisdictional, we are obliged to address it before proceeding further in our analysis."); Plyler v. Moore, 129 F.3d 728, 731 (4th Cir.1997) ("Under the Rooker-Feldman doctrine, lower federal courts do not have jurisdiction to review state-court decisions."); Jordahl v. Democratic Party of Va., 122 F.3d 192, 197 n. 5 (4th Cir.1997) (noting that the Rooker-Feldman doctrine is a jurisdictional matter that a court is empowered to raise sua sponte). The notion that Rooker-Feldman is jurisdictional "rests on two basic propositions of federal jurisdiction." Brown & Root, Inc. v. Breckenridge, 211 F.3d 194, 198 (4th Cir. 2000). One is that "Congress ... vested the authority to review state court judgments in the United States Supreme Court alone" under 28 U.S.C. § 1257(a). Id. at 198-99. The other is that "Congress has empowered the federal district courts to exercise only original jurisdiction."...