Myles Lumber Co. v. CNA Fin. Corp.

• Decision Date: 30 October 2000
• Docket Number: No. 00-1318,00-1318
• Citation: 233 F.3d 821
• Parties: (4th Cir. 2000) MYLES LUMBER COMPANY, Plaintiff-Appellee, v. CNA FINANCIAL CORPORATION; CONTINENTAL INSURANCE COMPANY, a non-resident insurance corporation; BOSTON OLD COLONY INSURANCE COMPANY, a non-resident insurance corporation, Defendants-Appellants. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 821

233 F.3d 821 (4th Cir. 2000)

MYLES LUMBER COMPANY, Plaintiff-Appellee, v. CNA FINANCIAL CORPORATION; CONTINENTAL INSURANCE COMPANY, a non-resident insurance corporation; BOSTON OLD COLONY INSURANCE COMPANY, a non-resident insurance corporation, Defendants-Appellants.

No. 00-1318.

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: October 30, 2000.

Decided: December 5, 2000.

Appeal from the United States District Court for the Northern District of West Virginia, at Elkins.

Robert Earl Maxwell, Senior District Judge. (CA-99-121-2) COUNSEL ARGUED: Amy Marie Smith, STEPTOE & JOHNSON, Clarksburg, West Virginia, for Appellants. Jodi K. Douglas, COOPER & PRESTON, Parsons, West Virginia, for Appellee. ON BRIEF: Daniel C. Cooper, STEPTOE & JOHNSON, Clarksburg, West Virginia, for Appellants. John W. Cooper, COOPER & PRESTON, Parsons, West Virginia, for Appellee.

Before WILKINS and KING, Circuit Judges, and Frank J. MAGILL, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation.

Vacated and remanded by published opinion. Judge Wilkins wrote the opinion, in which Judge King and Senior Judge Magill joined.

OPINION

WILKINS, Circuit Judge:

Myles Lumber Company (Myles Lumber) filed suit in state court against CNA Financial Corporation, Boston Old Colony Insurance Company, and Continental Insurance Company (collectively, "Boston Old Colony") seeking coverage under an insurance policy. Boston Old Colony removed the action to federal district court based on diversity jurisdiction. See 28 U.S.C.A.§ 1332 (West 1993 & Supp. 2000); 28 U.S.C.A. § 1441 (West 1994). The district court abstained from exercising jurisdiction and remanded. Boston Old Colony appeals. For the reasons set forth below, we vacate the order of the district court and remand for further proceedings.

I.

At all times relevant to this appeal, Boston Old Colony insured Myles Lumber under a commercial general liability insurance policy. Myles Lumber was sued in West Virginia state court by a group of individuals who contended that they were the rightful owners of property on which Myles Lumber had cut timber ("the Hyre lawsuit" or "the underlying action"). Boston Old Colony defended Myles Lumber in the underlying action under a full reservation of rights, believing that if the trees on the disputed property had not belonged to Myles Lumber, certain policy exceptions would apply which would preclude coverage. Myles Lumber lost the Hyre lawsuit and paid a judgment of over $300,000, plus related fees and costs.

Myles Lumber's request for insurance coverage was denied because Boston Old Colony believed that certain exclusions applied. Myles Lumber disputed this and filed a three-count complaint in West Virginia state court. In the first count, Myles Lumber sought a decla ration of its rights under the insurance contract as well as attorneys' fees and consequential damages incurred as a result of suing for coverage. See W. Va. Code Ann. §§ 55-13-1 to 55-13-16 (Michie 1994) (Uniform Declaratory Judgments Act). In the second count, Myles Lumber alleged breach of contract, and in the third count, it sought relief under the state Unfair Trade Practices Act, see W. Va. Code Ann. § 33-11-4(9)(a) (Michie 1996).

Boston Old Colony removed the action to federal district court based on diversity of citizenship, see 28 U.S.C.A. §§ 1332, 1441, and Myles Lumber moved to remand based on principles of abstention. The district court held a hearing at which it granted the remand motion. It noted that this court has established certain factors to be considered in deciding whether to abstain from hearing a declaratory judgment action, see Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 257 (4th Cir. 1996), and concluded that consideration of those factors favored abstention. In particular, the district court noted that the case would require application of state law and emphasized its determination that the suit could be more efficiently resolved by the state court because the state court was already familiar with the facts of the underlying action.

Boston Old Colony appeals, arguing that the district court lacked authority to abstain. Boston Old Colony alternatively argues that even if the district court possessed discretion to abstain, it was an abuse of discretion to abstain here. We agree that the district court lacked authority to abstain from exercising jurisdiction over the claims for breach of contract and unfair trade practices because those claims plainly seek damages. We further conclude that even if the district court had discretion to abstain from exercising jurisdiction over the declaratory judgment claim, under these circumstances it would be an abuse of discretion to remand that single claim.

II.

District courts ordinarily have a strict duty to exercise the jurisdiction that is conferred on them by Congress. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). However, when a suit involves equitable or discretionary relief, a district court may either stay the suit in favor of state court action or"decline to exercise juris diction altogether by . . . dismissing the suit or remanding it to state court." Id. at 721. In contrast, a district court may stay an action seeking damages but generally may not subject it to"outright dismissal or remand." Id. Thus, a threshold requirement that must be satisfied for a case to be subject to remand is that the complaint seek either equitable or otherwise discretionary relief. Whether a case satisfies the basic requirements of abstention is a legal question subject to de novo review.¹ See Garamendi v. Allstate Ins. Co., 47 F.3d 350, 354 (9th Cir. 1995), aff'd sub nom. Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996); see also United States v. Smith, 115 F.3d 241, 244 (4th Cir. 1997) (stating that questions of law are reviewed de novo).

Counts Two and Three of Myles Lumber's complaint--for breach of contract and unfair trade practices--plainly seek damages and thus, under Quackenbush, were not subject to remand. The question then becomes whether, assuming that the district court possessed discretion to remand the declaratory judgment claim,² it would be proper to remand that claim alone. We conclude that remanding would be an abuse of discretion. See United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir. 1998).

A court must consider four factors in deciding whether to exercise its discretion to hear a declaratory judgment action:

(i) the strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts; (ii) whether the issues raised in the federal action can more efficiently be resolved in the court in which the state action is pending; [ ](iii) whether permitting the federal action to go forward would result in unnecessary"entangle ment" between the federal and state court systems, because of the presence of "overlapping issues of fact or law"[; and (iv)] whether the declaratory judgment action is being used merely as a device for "procedural fencing" . . . .

Centennial Life Ins., 88 F.3d at 257 (quoting Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 377 (4th Cir. 1994)) (alterations in original).

Comity concerns do not weigh heavily in favor of the exercise of jurisdiction. Although this case will involve the application of state law, there is nothing that would give West Virginia courts a particularly strong interest in deciding it. See id. at 258 (noting that interest of state in deciding matter of state law is lessened when state law issue is not problematic or difficult); cf. Johnson v. Collins Entm't Co., 199 F.3d 710, 719-21 (4th Cir. 1999) (noting that state had strong interest in deciding issues that involved"a most basic problem of [state] public policy" and "the...