Continental Cas. Co. v. Fuscardo, 93-2556

• Decision Date: 23 September 1994
• Docket Number: No. 93-2556,93-2556
• Parties: CONTINENTAL CASUALTY COMPANY, a corporation, Plaintiff-Appellant, v. Michael F. FUSCARDO, individually; Shelly Fuscardo, individually; Michael F. Fuscardo, as the next friend of Nicole Fuscardo and Michelle Fuscardo, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 963

35 F.3d 963

63 USLW 2224

CONTINENTAL CASUALTY COMPANY, a corporation, Plaintiff-Appellant, v. Michael F. FUSCARDO, individually; Shelly Fuscardo individually; Michael F. Fuscardo, as the next friend of Nicole Fuscardo and Michelle Fuscardo, Defendants-Appellees.

No. 93-2556.

United States Court of Appeals Fourth Circuit.

Argued May 9, 1994.

Decided Sept. 23, 1994.

ARGUED: Amy Marie Smith, Steptoe & Johnson, Clarksburg, WV, for appellant. Daniel Lee McCune, Sellitti, Nogay & McCune, Weirton, WV, for appellees. ON BRIEF: J. Greg Goodykoontz, Steptoe & Johnson, Clarksburg, WV, for appellant. James J. Sellitti, Sellitti, Nogay & McCune, Weirton, WV, for appellees.

Before MURNAGHAN and NIEMEYER, Circuit Judges, and HILTON, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge HILTON concurred. Judge NIEMEYER wrote a dissenting opinion.

OPINION

MURNAGHAN, Circuit Judge:

Continental Casualty Company filed a declaratory judgment action pursuant to 28 U.S.C. Sec. 2201 in the United States District Court for the Northern District of West Virginia to resolve a dispute with members of the Fuscardo family involving potential coverage under an uninsured motorist policy. The district court declined to exercise jurisdiction over the matter and dismissed the case. Continental Casualty has appealed claiming that the court erred in dismissing the case and in declining to grant Continental Casualty's motion for summary judgment. Finding that the court properly exercised its discretion not to hear the case, we affirm the district court's decision to dismiss the declaratory judgment action.

While on patrol on the evening of November 28, 1992, Michael F. Fuscardo, a police officer for the City of Weirton, West Virginia received a report about a litterer named Samuel P. Lorello. Fuscardo drove his cruiser to a parking lot in which he knew Lorello's van had been parked for several days. Fuscardo left his car running approximately fifteen feet away from the van, exited his cruiser, and approached the van. Standing within two or three feet of the van, Fuscardo confronted Lorello about the littering. Without replying, Lorello threw a mixture of caustic liquids containing sulfuric acid, brake fluid, transmission fluid, and Liquid Drano from the passenger side window of the van into Fuscardo's face, blinding the officer. The mixture also injured Fuscardo's face and hands. Lorello moved to the driver's seat, started the van, and fled the scene.

Lorello's van was not insured. The police cruiser Fuscardo had been driving immediately preceding the incident was insured under an automobile liability policy issued by Continental Casualty to the State of West Virginia and the City of Weirton. The insurance policy at issue provided uninsured motorist coverage for incidents arising out of the ownership, maintenance or use of an uninsured vehicle.

Lorello was arrested and charged in connection with the incident. In June 1993, the Circuit Court of Hancock County found him incompetent to stand trial due to chronic, paranoid schizophrenia. The Fuscardos, in compliance with West Virginia law, notified Continental Casualty of a potential claim under the uninsured motorist endorsement. Subsequently, on December 20, 1992 the Fuscardo family filed a personal injury action against Lorello in the Circuit Court of Hancock County, West Virginia. Although Continental Casualty was not a named party in the action at the time of filing, the Fuscardos served Continental Casualty with copies of the summons and complaint in that case pursuant to W.Va.Code Sec. 33-6-31. ¹ The notice to and service on the insurance company were to preserve any uninsured motorist coverage the Fuscardos might have with respect to Lorello's actions. Continental Casualty reserved its right to dispute coverage under its uninsured motorist policy.

On January 20, 1993, in the United States District Court for the Northern District of West Virginia, Continental Casualty filed a declaratory judgment action pursuant to 28 U.S.C. Sec. 2201 against the Fuscardos. It sought a declaration that the automobile insurance policy issued to the City of Weirton did not provide uninsured or underinsured motorist benefits coverage to Fuscardo or his family. On November 8, 1993, the district court declined to exercise jurisdiction over the matter and dismissed the action relying primarily on Mitcheson v. Harris, 955 F.2d 235 (4th Cir.1992).

After the district court rendered its decision, the Fuscardos filed a motion to amend their complaint in the Circuit Court of Hancock County. When that court granted the motion, the Fuscardos amended the complaint to include a declaratory action against Continental Casualty regarding the same coverage issues the insurance company sought to have resolved in the federal district court. The state trial on the coverage issues is currently scheduled to take place on August 19, 1994.

Continental Casualty has argued that the district court abused its discretion in dismissing the action and erred in declining to grant summary judgment in favor of Continental Casualty. The Fuscardos have responded that the district court's decision should be affirmed and that the issues should be resolved in state court pursuant to the declaratory action recently filed there.

Jurisdiction

We acknowledge at the outset that the district court did have diversity jurisdiction under 28 U.S.C. Sec. 1332 to entertain the declaratory judgment action filed by Continental Casualty. The declaratory judgment action was filed pursuant to 28 U.S.C. Sec. 2201 which provides, in a case of actual controversy, that:

any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. Sec. 2201. Pursuant to that provision, federal courts have the discretion to decide whether to hear declaratory judgment actions.

Charter Federal Savings Bank v. O.T.S., 976 F.2d 203, 208 (4th Cir.1992). The statute does not impose a mandatory obligation upon the federal courts to make such declarations of rights. Nautilus Insurance Co. v. Winchester Homes, 15 F.3d 371, 375 (4th Cir.1994). The critical question before us is whether the district court should have exercised its discretion to give effect to the jurisdiction it possessed in order to entertain Continental Casualty's action. This court reviews a district court's decision to decline to entertain a declaratory action de novo. Charter Federal, 976 F.2d at 208; Nautilus, 15 F.3d at 375.

A federal court has the discretion to decline to entertain a declaratory judgment action, but, under the law of this Circuit, the court must do so only for "good reason." Aetna Casualty & Surety Co. v. Quarles, 92 F.2d 321, 324 (4th Cir.1937).

Because the remedial discretion conferred by the Declaratory Judgment Act must "be liberally exercised to effectuate the purposes of the statute," ... we have held that a federal district court should normally entertain a declaratory judgment action within its jurisdiction when it finds that the declaratory relief sought (i) " 'will serve a useful purpose in clarifying and settling the legal relations in issue,' " and (ii) " 'will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.' "

Nautilus, 15 F.3d at 375 (referencing White v. National Union Fire Ins. Co., 913 F.2d 165 (4th Cir.1990) ² and Quarles) (citations omitted).

The district court in the instant case exercised its discretion not to hear the action filed by Continental Casualty. In doing so, it relied on Mitcheson v. Harris, 955 F.2d 235 (4th Cir.1992). As Continental Casualty has pointed out, we have rendered the Nautilus opinion dealing with the declaratory judgment discretion issue since the district court entered judgment in the proceedings before it. In Nautilus, we examined and reconciled the main Fourth Circuit cases that are determinative of the appeal: Aetna Casualty & Surety Co. v. Quarles, 92 F.2d 321 (4th Cir.1937); Stout v. Grain Dealers Mut. Ins. Co., 307 F.2d 521 (4th Cir.1962); White v. National Union Fire Ins. Co., 913 F.2d 165 (4th Cir.1990); and Mitcheson. Primarily, we emphasized that Mitcheson did not change the rule set out in Quarles and followed in White, but rather allowed for the consideration of additional factors such as federalism, efficiency and comity when the circumstances require such an analysis.

Mitcheson, the most recent of our cases prior to Nautilus, addressed a situation in which the insurer came to federal court seeking a declaratory judgment on coverage issues while the underlying litigation against its insured was pending in state court. The pending state action stemmed from the same overall controversy, contained overlapping issues, and involved only nonremovable questions of state law. In Mitcheson, the court indicated that federalism, efficiency, and comity should figure into the discretionary balance when previously filed state litigation on the primary claims is pending. In that case, the court held that the district court should have exercised its discretion to decline to entertain the action. Thus, as a result of Mitcheson,

when a federal court is confronted with an insurer's request for a declaratory judgment on coverage issues during the pendency of related litigation in the state courts, its discretion must be guided not only by the criteria outlined in Quarles, which focus on the general utility of the declaratory relief sought, but also by the same considerations of federalism, efficiency, and comity that traditionally inform a federal court's discretionary...