Nationwide Mut. Ins. Co. v. Burke

• Citation: 897 F.2d 734
• Decision Date: 05 March 1990
• Docket Number: Nos. 89-2016,89-2171,s. 89-2016
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Haskell BURKE, Defendant-Appellant, Walter E. Hamilton; Joan A. Hamilton, Appellants. NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Haskell BURKE, Defendant-Appellee, Walter E. Hamilton; Joan A. Hamilton, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 734

897 F.2d 734

NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. Haskell BURKE, Defendant-Appellant, Walter E. Hamilton; Joan A. Hamilton, Appellants.

NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Haskell BURKE, Defendant-Appellee, Walter E. Hamilton; Joan A. Hamilton, Appellees.

Nos. 89-2016, 89-2171.

United States Court of Appeals, Fourth Circuit.

Argued Dec. 6, 1989.

Decided March 5, 1990.

John Frederick Cyrus, Lockwood, Egnor, Gardner & Cyrus (argued), Menis E. Ketchum, Greene, Ketchum, Bailey & Tweel, on briefs, Huntington, W.Va., for appellants.

Mary Hylton Sanders, Huddleston, Bolen, Beatty, Porter & Copen, Charleston, W.Va., for appellee.

Before RUSSELL, PHILLIPS and MURNAGHAN, Circuit Judges.

PHILLIPS, Circuit Judge:

These are consolidated appeals arising from a declaratory judgment action by Nationwide Mutual Insurance Company (Nationwide) seeking a declaration of non-coverage with respect to a tort action brought in West Virginia state court against Nationwide's insured, Haskell Burke, by Joan A. Hamilton and the executor of the estate of David L. Hamilton (the Hamiltons). Burke appeals the district court's declaratory judgment that Nationwide was not liable to defend or to indemnify him in connection with the state court action. Nationwide appeals the district court's denial of its post-judgment motion to stay state court proceedings to enforce an agreement settling the state tort action during pendency of the federal declaratory judgment action, and the denial of its motion for Rule 11 and contempt sanctions against the Hamiltons' attorney. The Hamiltons appeal the district court's denial of their motion to intervene in the federal declaratory judgment action.

We affirm the district court's refusal to stay the state court proceedings to enforce the settlement agreement and its denial of Rule 11 and contempt sanctions. Concluding that the declaratory judgment action and the related motions to intervene are now moot, we remand the action for dismissal without prejudice.

I

Haskell Burke was a passenger in an automobile owned and operated by John Harper when the automobile collided with the Hamiltons' automobile, instantly killing Mr. Hamilton and severely injuring Mrs Hamilton. The Hamiltons sued Burke in a West Virginia state court, alleging Burke's liability as a passenger under Price v. Halstead, 355 S.E.2d 380 (W.Va.1987), which established passenger liability for injuries to third parties where the passenger's conduct substantially encouraged or assisted the driver's alcohol or drug impairment and where such impairment caused the injury to the third party. Evidence showed that Burke had been instrumental in Harper's marijuana and alcohol intoxication.

Although Burke was judgment-proof, he was insured under a Nationwide insurance policy which provided coverage for, inter alia, personal injuries arising from Burke's "use" of another person's motor vehicle. Nationwide brought this federal declaratory judgment action against Burke seeking a declaration that, because Burke was a passenger, the accident did not arise from Burke's "use" of Harper's automobile, and that therefore, by the terms of the contract, Nationwide was required neither to defend nor indemnify Burke in the underlying state tort action between Burke and the Hamiltons. The district court denied the Hamiltons' motion to intervene under Fed.R.Civ.P. 19 in the federal declaratory judgment action.

Settlement negotiations during the pendency of the state tort action and the federal declaratory judgment action culminated in the following offer by Nationwide: Nationwide would pay the Hamiltons $100,000 and dismiss the federal declaratory judgment action against Burke, in return for which the Hamiltons would dismiss their state claims against Burke. While the Nationwide offer was being considered by the Hamiltons and before any acceptance had been communicated, the district court entered judgment in favor of Nationwide, declaring it not liable to defend or indemnify Burke. By some means that remain disputed the Hamiltons' attorney, John Cyrus, learned of the judgment's entry either just before or after it occurred. Quickly notifying his clients of this development, Cyrus obtained authorization to communicate their acceptance of the Nationwide offer. This he proceeded to do on the same day the judgment was entered, without advising Nationwide's attorney, who was unaware of the fact, that the judgment had been entered. Upon soon learning of this development, Nationwide advised the Hamiltons that it considered the offer automatically revoked by entry of the declaratory judgment so that their "acceptance" was without legal effect. The Hamiltons then moved in the state tort action for enforcement of the agreement. Following a hearing which, for unclear reasons, Nationwide's attorney declined to attend, the state court ruled that the agreement was valid and enforceable despite the Hamiltons' acceptance only after entry of the federal court order and accordingly granted the Hamiltons' motion. In response, Nationwide moved in the federal declaratory judgment action for a "stay of" and "protective order" against state court enforcement of the settlement agreement, for Rule 11 and contempt sanctions against Cyrus, and for a declaration that the settlement offer was void. The district court, holding that it lacked jurisdiction to grant any of the requested relief, denied Nationwide's various motions.

These appeals and cross appeals followed. ¹

II

We first consider Nationwide's challenge to the district court's conclusion that it lacked jurisdiction to stay or otherwise interfere with the state court proceedings for enforcement of the settlement agreement. Nationwide's argument for federal jurisdiction appears to have three prongs: first, that the district court, and now this court, may directly review the state court's failure to give the proper preclusive effect to the federal declaratory judgment; second that the federal district court had power to stay the state court proceeding to enforce the settlement agreement under the relitigation exception to the Anti-Injunction Act, 28 U.S.C. Sec. 2283; ² third, that because the state court lacked jurisdiction over Nationwide in adjudicating the settlement agreement, the resulting denial of due process gives rise to federal jurisdiction to invalidate the state order.

A

To the extent that Nationwide has sought, either from this court or from the district court, direct appellate review of the state court's failure to apply collateral estoppel in ruling on enforceability of the settlement agreement, both this court and the district court simply lack jurisdiction to do so. See Atlantic Coast Line R.R. v. Brotherhood of Locomotive Eng'rs, 398 U.S. 281, 296, 90 S.Ct. 1739, 1748, 26 L.Ed.2d 234 (1969) ("lower federal courts possess no power whatever to sit in direct review of state court decisions"). Cf. Rooker v. Fidelity Trust, 263 U.S. 413, 416, 44 S.Ct. 149, 150, 68 L.Ed. 362 (1923) (a district court cannot sit as an appellate tribunal to reverse or modify a state court judgment). Correction by appellate review of any erroneous state court application of collateral estoppel principles must be sought from the courts of West Virginia. ³

B

Nationwide's specific contention that the district court had jurisdiction, under Sec. 2283's relitigation exception, to entertain its claims for relief against the state court enforcement proceedings is equally unavailing.

Before a federal court may enjoin a state court proceeding, the injunction must be based upon one of Sec. 2283's three narrow exceptions. See Atlantic Coast Line, 398 U.S. at 286, 90 S.Ct. at 1742. Notions of comity require that these exceptions not be enlarged by loose statutory construction. See id. Section 2283's relitigation exception allows federal courts, as an exercise of their discretion, to enjoin state court proceedings in order to protect the res judicata effects of federal judgments. See Golden v. Pacific Maritime Ass'n, 786 F.2d 1425, 1427 (9th Cir.1986). The relitigation exception applies, not only when the federal judgment is claim preclusive but also when collateral estoppel or issue preclusion applies. See Samuel C. Ennis & Co. v. Woodmar Realty, 542 F.2d 45, 49 (7th Cir.1976). Nevertheless, the federal court must actually have decided the claims or issues which the federal injunction would insulate from state proceedings. See Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 108 S.Ct. 1684, 1690, 100 L.Ed.2d 127 (1988). A complainant who seeks to invoke Sec. 2283's relitigation exception must make a " 'strong and unequivocal showing' of relitigation of the same issue." Bluefield Community Hosp. v. Anziulewicz, 737 F.2d 405, 408 (4th Cir.1984) (quoting Regional Properties v. Financial and Real Estate Consulting Co., 678 F.2d 552, 566 (5th Cir.1982).

Nationwide contends that the federal declaratory judgment, which found Nationwide not liable to defend or indemnify under Burke's insurance policy, precluded state court adjudication of the issue of the settlement agreement's validity. Accordingly, argues Nationwide, in refusing to apply Sec. 2283's relitigation exception to enjoin the state proceeding enforcing the settlement the district court abused its discretion by failing to give the proper preclusive effect to the issue of Nationwide's liability to Burke.

Nationwide's "same issue" argument is confusing, but appears to run as follows. The only way Nationwide could be liable to pay a tort judgment for the Hamiltons would be for the federal declaratory judgment to have held Nationwide liable on Burke's policy. The federal declaratory judgment held Nationwide not liable on Burke's policy. Therefore, state court enforcement of the settlement agreement requiring Nationwide to pay the Hamiltons was tantamount to a holding that Nationwide was liable on Burke's policy--a holding in direct...