Maryland Cas. Co. v. Knight
| Decision Date | 26 September 1996 |
| Docket Number | No. 95-55300,95-55300 |
| Citation | 96 F.3d 1284 |
| Parties | 45 Fed. R. Evid. Serv. 793, 96 Cal. Daily Op. Serv. 7186, 96 Daily Journal D.A.R. 11,807 MARYLAND CASUALTY COMPANY, a Maryland Corporation, Plaintiff-counter-defendant-Appellee, v. Jenner KNIGHT, an individual, Defendant-counter-claimant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Steven A. McKinley, San Diego, CA, for defendant-appellant.
John E. Feeley, A. Brooks Gresham, Sedgwick, Detert, Moran & Arnold, Irvine, CA, John P. McCormick, McCormick & Mitchell, San Diego, CA, for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of California, Irma E. Gonzalez, District Judge, Presiding. D.C. No. CV-92-343-IEG.
Before: WIGGINS and TROTT, Circuit Judges, BREWSTER, District Judge. 1
STATEMENT OF THE CASE
This is an appeal from a summary judgment on appellee's complaint for declaratory judgment, and an adverse jury verdict and judgment on appellant's counterclaim for tortious breach of contract. In addition to the issues raised on appeal, we consider whether the district court abused its discretion by exercising jurisdiction over the case.
Appellant Jenner Knight (hereinafter Knight) obtained a policy of fire insurance from appellee Maryland Casualty Company (hereinafter Maryland) on a commercial building he owned in San Diego. It was under partial lease to San Diego Indoor Range (hereinafter SDIR). SDIR installed gun range equipment in its leasehold to operate an indoor target shooting range.
On May 1, 1991, the building was heavily damaged by fire. Thereafter, SDIR vacated its leasehold, removed the gun range equipment from the building, and made no further payments under the lease.
At the time of the fire, the only encumbrance on the building was a first deed of trust securing a refinanced $1.35 million loan by Great American Bank. 2 The Bank was included on the Maryland policy as a "loss payee."
The day after the fire, Knight notified Maryland of the fire damage to his building, and on June 19, 1991, Knight submitted a partial proof of loss requesting an immediate advance of $170,000 to enable him to clean up the site, cover costs, and make up the loss of income to date. On July 8, 1991, Maryland made a partial advance payment of $170,000 on the building loss claim. As provided by the terms of the policy, the Bank was also named on the payment draft. The Bank refused to endorse the draft to Knight, but rather deposited the funds into an escrow account. Knight was unable to access the funds to make repairs.
On November 12, 1991, Knight submitted his sworn statement of loss on the entire claim. In addition to the property fire loss claim, he submitted additional claims for vandalism to the building, a claim for SDIR's indoor gun range equipment, and a business interruption claim.
After investigation, Maryland informed Knight that it was willing to pay for a portion of his property claim (i.e., the fire loss or the cost to repair or replace the fire damage to the building if Knight rebuilt), but would deny a portion of his claim, including his claim for SDIR's gun range equipment. 3 On Nov. 21, 1991, Maryland made payment of $401,126.35, which together with the advance payment of $170,000 represented Maryland's calculation of the actual fire loss to the building minus the $500 deductible. Maryland also paid the full policy limit of $113,400 for Knight's business income loss. Maryland later recalculated. By late January, 1992, Maryland had made a total payment of $622,000 on Knight's fire loss claim, and $133,400 on his business income loss claim. Knight had not commenced any repair or replacement.
On February 3, 1992, the Bank commenced foreclosure proceedings on the property because Knight had not met his monthly payments. Knight filed for Chapter 11 bankruptcy to preclude the foreclosure. Knight and the Bank then came to a settlement whereby Knight released claims to the $622,000 fire loss payment by Maryland in exchange for forgiveness of the loan secured by the first deed of trust.
Knight then demanded an appraisal of the actual property cash value and the cost to replace his building pursuant to his policy's contractual appraisal provision. On December 23, 1992, after a six-day hearing, a three-person appraisal panel determined that the actual cash value of the building after the fire was $620,000 and the cost to replace the building would be $752,872.90.
On March 3, 1992, Maryland filed its complaint in district court against Knight for declaratory judgment to resolve all of the parties' disputes under the policy. In turn, Knight on June 26, 1992, filed a counterclaim against Maryland for tortious breach of contract and emotional distress (hereinafter the "counterclaim").
On December 4, 1992, the district court granted partial summary adjudication on Maryland's claim that SDIR's gun range was not covered under the policy. On September 16, 1993, the court granted partial summary adjudication on Maryland's claims that it had no duty to indemnify Knight for replacement cost until Knight actually repaired or replaced his building, and that Maryland's limit of liability in that event was the lesser of either the appraisal amount of $752,872.90 or the actual cost of replacement. The court entered summary judgment, since these adjudications concluded all issues in the complaint. Knight's counterclaim was preserved for trial.
After having suffered summary judgment on the complaint, and over nineteen months after the complaint was filed, Knight on October 25, 1993 filed an action in the San Diego County Superior Court, captioned Jenner Knight v. San Diego Indoor Range, et al., Court No. 670089. Maryland was not a party to that action. The state court complaint alleged SDIR breached its lease agreement by, among other things, "willfully removing without [Knight's] consent alterations made to the premises by [SDIR]" [i.e. the gun range equipment].
Thereafter, on Dec. 6, 1994, trial proceeded in the district court on Knight's counterclaim. The court denied Knight's motion in limine to exclude evidence of Knight's settlement with the Bank, finding the settlement relevant to Knight's emotional distress claim. The jury concluded that Maryland had acted unreasonably in handling Knight's claim, but also concluded that Maryland's negligence was not a cause of injury to Knight. No damages were awarded. The district court entered judgment for Maryland on January 11, 1995.
Knight timely filed his notice of appeal on February 2, 1996, seeking review of: (1) the district court's finding that the gun range equipment was not covered by the Maryland policy; (2) the district court's denial of Knight's motion to revise the summary judgment order; (3) the district court's conclusions that Knight was required to actually replace the building before collecting the replacement cost, and that the appraisal price was the maximum potential payment; and (4) the district court's decision at trial to admit evidence of Knight's settlement with a third party. The parties were requested also to brief the threshold issue of the district court's exercise of jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We conclude that the district court properly exercised jurisdiction over this matter, and we affirm as to all other issues raised on the appeal.
The Declaratory Judgment Act (hereinafter the "Act") does not itself confer federal subject matter jurisdiction; rather, it vests a district court with discretion to proceed with respect to a certain type of case already "within its jurisdiction." 28 U.S.C. § 2201(a). 4 Thus, when a district court with subject matter jurisdiction chooses to hear an action brought under the Act, the issue raised is not a "jurisdictional" question, but a "legal" one: given that federal subject matter jurisdiction exists, did the district court nevertheless abuse its discretion by choosing to exercise this jurisdiction? See, e.g., Wilton v. Seven Falls Co., 515 U.S. 277, ----, 115 S.Ct. 2137, 2140, 132 L.Ed.2d 214 (1995) ().
The primary instance in which a district court should exercise its discretion to dismiss a case is presented when there exists a parallel proceeding in state court. The decision not to exercise jurisdiction is appropriate under such circumstances, because "[o]rdinarily 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." Brillhart v. Excess Ins. Co., 316 U.S. 491, 495, 62 S.Ct. 1173, 1175-76, 86 L.Ed. 1620 (1942). In this circuit we have held that federal courts should:
decline to assert jurisdiction in insurance coverage and other declaratory relief actions presenting only issues of state law during the pendency of parallel proceedings in state court unless there are circumstances present to warrant an exception to that rule.
Employers Reinsurance Corp. v. Karussos, 65 F.3d 796, 798 (9th Cir.1995) (internal quotations omitted); American National Fire Insurance Company v. Hungerford, 53 F.3d 1012, 1019 (9th Cir.1995). This rule is intended to serve several purposes, including: "the conservation of judicial resources, the avoidance of duplicative litigation, [and] the avoidance of the needless resolution of state law questions in federal court...." Karussos, 65 F.3d at 800.
We have similarly indicated that a district court should exercise its...
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