Nautilus Ins. Co. v. Otero Cnty. Hosp. Ass'n
| Decision Date | 04 November 2011 |
| Docket Number | No. 2:11-CV-00178 BRB/LAM,2:11-CV-00178 BRB/LAM |
| Parties | NAUTILUS INSURANCE COMPANY, Plaintiff, v. OTERO COUNTY HOSPITAL ASSOCIATION d/b/a GERALD CHAMPION REGIONAL MEDICAL CENTER, CHRISTIAN R. SCHLICHT, D.O., QUORUM HEALTH RESOURCES, LLC, CHS/COMMUNITY HEALTH SYSTEMS, INC. and COMMUNITY HEALTH SYSTEMS PROFESSIONAL SERVICE CORPORATION, Defendants. |
| Court | U.S. District Court — District of New Mexico |
This Matter comes before the Court on Quorum Health Resources, LLC's Motion to Stay Proceedings, (docs. 8, 9), in which Otero County Hospital Association d/b/a Gerald Champion Regional Medical Center ("GCRMC") joined, (doc. 13). The primary issues are: (i) whether the analysis in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), or Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942), governs the determination to grant a stay in this instance, and (ii) whether under the appropriate analysis, a stay should be issued. Having considered the arguments of the parties, the Court concludes that Colorado River controls this matter. Because the instant rescission action is not "parallel" to the underlying state tort actions, see Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 13 (1983), the Court denies Quorum's motion to stay the proceedings.
Since April 2010, Quorum and GCRMC have been named as defendants in over fifty lawsuits in Otero County District Court, filed by patients who underwent spinal surgeries performed by Dr. Christian R. Schlicht at GCRMC from 2007 through 2010 (the "underlying state tort actions"). The plaintiffs in these cases allege that all defendants, including Dr. Schlicht, GCRMC, and Quorum,1 engaged in both negligent and fraudulent behavior in providing services. See, e.g., Doc. 19, Ex. 2, ¶ 80; Doc. 10, Ex. B, ¶ 35.2 For example, in case number CV-2010- 149 filed on October 5, 2010 in the Twelfth Judicial District Court, the plaintiffs, Mela and Jake Herrera ("the Herreras"), allege that Dr. Schlicht was negligent and departed below the standard of care for at least eighteen reasons. Doc. 19, Ex. 2, ¶¶83(a-r). Included in this list are allegations that Dr. Schlicht negligently subjected plaintiffs to an unproven and unsafe procedure called "percutaneous disc arthroplasty,"3 misrepresented his training and education, improperly created the perception that he was properly trained to perform any of the back surgeries he performed on the patient, and failed to perform a proper investigation and work-up of the patient's neurologic complaints. Id. The Herreras also allege that defendants GCRMC and Quorum breached their duty to exercise ordinary care for at least forty reasons. Id. at ¶84 (a-nn). Included in this list are allegations that the defendants negligently credentialed Dr. Schlicht, failed to delineate whether Schlicht's "minimally invasive spine surgery" credentials includedpercotaneous disc arthroplasty, failed to investigate Dr. Schlicht's claimed academic credentials, and fraudulently concealed the experimental nature of Dr. Schlicht's surgery. Id. at ¶84.
Pursuant to two Insurance Policies issued by Nautilus to Defendant GCRMC,4 Nautilus is providing a defense in the underlying state tort actions. Doc. 19, Ex. A, ¶ 3. Nautilus filed an action in this Court on February 23, 2011, seeking rescission of the two Insurance Policies. Doc. 1, at 7-8.
In its claim for rescission, Nautilus alleges that GCRMC made a material misstatement in its application for the Insurance Policies. In order to purchase both Insurance Policies, GCRMC completed an application for insurance ("Application") which included the following question: Doc. 1, Ex. E. GCRMC's Chief Financial Officer, Morgan Hay, answered "No" to the question. Id. ¶¶ 11-12. Robert J. Heckert, listed as GCRMC's Chief Executive Officer, represented that this response was true and accurate. Id. at ¶16. Similarly, James E. Richardson, also listed as GCRMC's CEO, confirmed that no experimental surgeries were being performed at the hospital. Id. at ¶ 21. The Application did not otherwise define the term "experimental surgery."
Nautilus alleges that these statements constituted material misrepresentations in light of the surgeries being performed at the hospital. Specifically, Nautilus alleges that Dr. Christian R. Schlicht was performing experimental surgeries on patients, including percotaneous disc arthroplasty. Id. at ¶ 8. Nautilus alleges that if it had known about the experimental procedures being performed by Dr. Schlicht, it would have altered its underwriting and either not issued the Insurance Policies or charged a higher premium. Doc 1, at ¶¶ 28-29. Nautilus thus alleges thatGCRMC's material misrepresentation on the Application renders the Insurance Policies void ab initio. Id. at ¶ 20. Nautilus requests relief from this Court including (A) rescission of both Insurance Policies, (B) a judgment that the misrepresentation on the Application renders the Insurance Policies unenforceable and precludes coverage for all claims brought under the Insurance Policies, and (C) any other relief the Court deems just and equitable, including the award of attorneys' fees and costs and interest. Id. at ¶ 33.
On April 14, 2011, Quorum moved to stay the proceedings in Nautilus' rescission action. Doc. 10. Quorum argues that there is obvious factual overlap between the cases, namely the issue of whether Dr. Schlicht performed experimental surgeries on patients. Quorum thus urges this Court to stay the proceedings until the first underlying state tort action reaches a judgment regarding this factual issue.
GCRMC joined in the motion to stay (doc. 13), and filed a Supporting Memorandum. Doc. 22). It argues that a stay is appropriate to preserve judicial resources and prevent friction between the state and federal courts. Nonetheless, it concedes that the experimental surgery issue is not the same issue in the state and federal proceedings.
Nautilus responded in opposition to the motion to stay proceedings and argues that this Court must exercise jurisdiction over its rescission claim. Doc. 19.
The U.S. Supreme Court has made it clear that district courts have a "virtually unflagging obligation" to exercise jurisdiction, and may only decline to exercise or postpone this jurisdiction "in the exceptional circumstances where the order to the parties to repair to the state court would clearly serve an important countervailing interest." Colorado River, 424 U.S. at 813; Moses H. Cone, 460 U.S. at 15. In determining whether such "exceptional circumstances" are present, courts have considered a number of factors, including: (i) whether the questions before the court present difficult questions of state law, are governed by state-as opposed to federal-law, or bearon policy problems of substantial importance to the state; (ii) whether principles of wise judicial administration and economy suggest deferring to the state courts; (iii) which court first assumed jurisdiction over any property at issue; (iv) whether the federal forum is less convenient; (v) whether allowing the matter to go forward in state court would avoid piecemeal litigation; and (vi) in which order jurisdiction was obtained by the concurrent forums. See Colorado River, 424 U.S. at 814-19; Burford v. Sun Oil Co., 319 U.S. 315 (1943). Ultimately, "the task is to ascertain whether there exist 'exceptional' circumstances, the 'clearest of justifications,' that can suffice under Colorado River to justify the surrender of [federal] jurisdiction." Moses H. Cone, 460 U.S. at 25-26.
In the case of a declaratory judgment action, however, courts have greater discretion to defer to a parallel state court proceeding. The Federal Declaratory Judgment Act ("Act") provides that "in a case or actual controversy within its jurisdiction . . . 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." 28 U.S.C. § 2201(a) (emphasis added). The Act thus "gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so." Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). As a result, the U.S. Supreme Court held in Brillhart that, "[a]lthough the District Court had jurisdiction of the suit under the Federal Declaratory Judgments Act, it was under no compulsion to exercise that jurisdiction." 316 U.S. at 494; Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) (). In exercising such discretion, district courts should engage in an analysis based upon the factors enunciated in Brillhart, Wilton, and State Farm Mutual Automobile Insurance Co. v. Mhoon, 31 F.3d 979 (10th Cir. 1994). As the Tenth Circuit explained in St. Paul Fire and Marine Insurance Co. v. Runyon,a court "should not entertain a declaratory judgment action over which it has jurisdiction if the same fact-dependent issues are likely to be decided in another pending proceeding." 53 F.3d 1167, 1169 (10th Cir. 1995). The discretionary standard articulated in Brillhart is a definite limit on the district court's "virtually unflagging obligation" to exercise jurisdiction under Colorado River.
The first issue is whether Colorado River or Brillhart governs the Court's evaluation of Quorum's motion to stay Nautilus' rescission action.5 The Tenth Circuit's decision in United States v. City of Las Cruces provides guidance on this...
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