Budget Rent-A-Car v. Crawford, RENT-A-CA

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: ALARCON; SCHROEDER
• Citation: Budget Rent-A-Car v. Crawford, 108 F.3d 1075 (9th Cir. 1997)
• Decision Date: 06 March 1997
• Docket Number: RENT-A-CA,No. 94-17085,P,94-17085
• Parties: , 97 Cal. Daily Op. Serv. 1681, 97 Daily Journal D.A.R. 3153 BUDGETlaintiff-Appellee, v. Robert CRAWFORD, Defendant, and Evangeline Perry, Defendant-Appellant.

Page 1075

108 F.3d 1075

65 USLW 2604, 97 Cal. Daily Op. Serv. 1681,

97 Daily Journal D.A.R. 3153

BUDGET RENT-A-CAR, Plaintiff-Appellee, v. Robert CRAWFORD, Defendant and Evangeline Perry, Defendant-Appellant.

No. 94-17085.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 8, 1996.

Decided March 6, 1997.

Gary W.K. Au Young and Glenn J. Stanford (on the briefs), Law Offices of Glenn J. Stanford, Honolulu, Hawai'i, for the defendant-appellant.

Carleton B. Reid and John T. Hassler (on the briefs), Reid, Richards & Miyagi, Honolulu, Hawai'i, for the plaintiff-appellee.

Appeal from the United States District Court for the District of Hawai'i, Harold M. Fong, District Judge, Presiding. D.C. No. CV-94-00059-HMF.

Before: WALLACE, SCHROEDER, and ALARCON, Circuit Judges.

ALARCON, Circuit Judge:

Budget Rent-A-Car Systems, Inc. ("Budget") filed this diversity action in the district court for a declaration regarding inter alia Evangeline Perry's duty to indemnify Budget for any amount that Budget may be required to pay to Ray Ines and Jeffrey Hobar to settle their claim for damages for the injuries they suffered in a collision with a vehicle Budget rented to Perry.

The district court issued a decision on the merits of Budget's claim pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, without making any reference to the discretionary nature of its jurisdiction.

We review a district court's exercise of its discretion to grant a declaration for abuse of discretion. We must decide whether we should vacate the district court's decision on the merits because we cannot determine if it considered the relevant factors that inform the exercise of the discretionary jurisdiction to issue a declaration. We conclude that we must vacate the district court's decision on the merits and remand with directions to reconsider the exercise of its discretionary jurisdiction. The record does not disclose if the district court considered whether this action was filed in reaction to the injured persons' demand for compensation for the negligent operation of a vehicle rented to Perry by Budget, and whether the novel state law issues raised by Budget could have been resolved in an action in a Hawaii court for indemnification or for declaratory relief. Consistent with established precedent, such factors must be weighed by the district court in the first instance so that we will have a complete record to review in determining whether it abused its discretion in reaching the merits of Budget's claim.

I

Budget rented an automobile to Evangeline Perry on October 29, 1992. Perry permitted Robert Crawford to drive the rental car on November 3, 1992. On that date, while Crawford was driving the vehicle, a collision occurred with a vehicle driven by Ines. Ines and Hobar, his passenger, were injured. Ines and Hobar demanded that Crawford compensate them for their injuries. Crawford then requested indemnification from Budget. Budget filed this diversity action ¹ seeking a declaration inter alia that it had a right to indemnification from Perry because she had permitted an unauthorized person to drive the rental car. After Budget initiated this action in federal court, Ines and Hobar settled their dispute with Crawford without filing a court action. Budget paid the amount agreed to in the settlement.

In its motion for a summary judgment, Budget did not discuss the discretionary nature of the court's jurisdiction, nor did it point to any circumstances that would warrant the issuance of a declaration. ² Perry also failed to refer to this issue in her opposition to Budget's motion for a summary judgment.

In explaining the basis for its decision on the merits of Budget's state law claim, the district court did not discuss the circumstances that it relied upon in concluding that this was a proper case in which to issue a declaration. In their briefs before this court, the parties did not refer to the duty of the district court to consider the interests of comity, sound judicial administration, and the national policy against forum shopping before issuing a decision on the merits in an action filed pursuant to the Declaratory Judgment Act.

On November 1, 1996, we directed the parties to "be prepared to address at oral argument ... the propriety of the district court's exercise of jurisdiction over this declaratory judgment action, and the applicability, if any, of Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir.1995); American Nat'l Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir.1995); Continental Casualty Co. v. Robsac Indus., 947 F.2d 1367, 1369 (9th Cir.1991)."

During oral argument, Perry pointed to several unrelated cases pending in the Hawaii courts that present the same legal issues as those presented here, in support of her contention that the district court should have declined to issue a decision on the merits of Budget's claim. Budget urged us to affirm because no related state court proceeding was pending when this declaratory judgment action was filed. Budget also maintained that this action is not reactive to an anticipated state court proceeding "because nothing was filed" in state court. Budget acknowledged, however, that it sought resolution of these issues in anticipation that the claims of Ines and Hobar might ripen into a lawsuit.

II

Our initial duty, in reviewing an order granting declaratory relief in a diversity action involving questions of state law, is to determine whether the district court abused its discretion in determining that the relevant factors justified the exercise of its jurisdiction. Wilton v. Seven Falls Co., 515 U.S. 277, ----, 115 S.Ct. 2137, 2144, 132 L.Ed.2d 214 (1995). Prior to exercising its discretionary jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201, a district court must consider the impact on sound judicial administration, and federalism concerns against forum shopping that may result from the issuance of a declaration regarding unresolved issues of state law in a diversity action. Brillhart v. Excess Ins. Co., 316 U.S. 491, 495-98, 62 S.Ct. 1173, 1175-77, 86 L.Ed. 1620 (1942); Robsac, 947 F.2d at 1371.

In Brillhart, the Supreme Court ruled that, before declining to exercise its discretionary jurisdiction to issue a declaration, a district court must expressly indicate that it has considered whether existing remedies and procedures would permit the plaintiff to obtain a resolution of the issues set forth in the complaint in state court. Brillhart, 316 U.S. at 495-96, 62 S.Ct. at 1175-76. The Court vacated the reversal by the Tenth Circuit of the district court's dismissal of an action for declaratory relief. The Court held that the district court must determine in the first instance whether the plaintiff could have presented its claims in a proceeding that was pending in state court at the time the federal action was filed. Id. at 497-98, 62 S.Ct. at 1176-77. The court expressed its rationale in the following words: "Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Id. at 495, 62 S.Ct. at 1175-76.

Where the record does not disclose with certainty that the district court's exercise of jurisdiction was improper, "the Supreme Court's decision in Wilton compels us to remand this matter to the district court" to exercise its discretion in the first instance. Government Employees Ins. Co. v. Dizol, 108 F.3d 999, 1008 (9th Cir.1997) (citing Golden Eagle Ins. Co. v. Travelers Cos., 95 F.3d 807, 810-11 (9th Cir.1996)); Karussos, 65 F.3d at 799-800 n. 1 (remand appropriate "[w]here the record reveals facts and circumstances that could justify a district court's discretionary decision to exercise its jurisdiction....").

III

Budget initiated this action in federal court seeking a declaration that it had a right to indemnification from Perry, because she had permitted an unauthorized person to drive the rental vehicle. On the date Budget's claim for declaratory relief was filed, no related state court proceeding was pending. Ines and Hobar, the persons injured in a collision with a Budget rental car, informed Crawford, the driver, of their demand that he compensate them for their injuries. Ines and Hobar settled their dispute with Crawford without filing an action in state court.

We must decide whether a district court is relieved of its duty under Brillhart to determine, in the first instance, whether it should exercise its discretionary jurisdiction to resolve state law questions in a claim filed pursuant to the Declaratory Judgment Act where there is no state court proceeding pending on the date the federal action is filed. This issue has not been squarely presented in this circuit.

The factual scenario presented to the Supreme Court in Wilton presents us with a sturdy foundation for our analysis of this novel question. In Wilton, a group of insurance companies filed an action under the Declaratory Judgment Act in reaction to a dispute between itself and its insured that had not yet resulted in the filing of a state court action. 515 U.S. at ---- - ----, 115 S.Ct. at 2139-40. Earlier, in October 1992, in an action arising out of a dispute over property, a jury verdict was rendered against the insureds ("the Hill Group") for one hundred million dollars. Prior to the commencement of the property litigation, the Hill Group had been denied coverage by its insurers. The Hill Group notified its insurers of the verdict in late November 1992. The insurers filed their declaratory relief action on December 9, 1992.

In the federal declaratory relief action, Leslie Wilton, on behalf of himself, and as representative of certain underwriters at Lloyd's of London, and other insurers, ("the London Underwriters") sought a declaration regarding their...