Pacific Indemnity Co. v. McDonald

• Decision Date: 06 November 1939
• Docket Number: No. 9184.,9184.
• Citation: 107 F.2d 446
• Parties: PACIFIC INDEMNITY CO. v. McDONALD et al.
• Court: U.S. Court of Appeals — Ninth Circuit

107 F.2d 446 (1939)

PACIFIC INDEMNITY CO. v. McDONALD et al.

No. 9184.

Circuit Court of Appeals, Ninth Circuit.

November 6, 1939.

James G. Wilson and John F. Reilly, both of Portland, Or., for appellant.

Harvey S. Benson, of Portland, Or., for appellee Ted McDonald.

Butler & Jack and George L. Hibbard, all of Oregon City, Or., for appellee Evelyn Brune.

Before WILBUR, HANEY, and HEALY, Circuit Judges.

WILBUR, Circuit Judge.

On August 16, 1936, at about 10:15 p.m., the appellee, Evelyn Brune, was severely injured in an automobile accident on the Mount Hood Loop Highway in Oregon. She was riding as a guest of the appellee, Ted McDonald, who was driving the automobile on a trip to visit a friend of appellee Brune. The automobile left the highway at a turn and landed upright in a ditch. Appellee Brune was struck by a piece of timber about three feet long and rendered unconscious. McDonald was also rendered unconscious and injured, but not seriously. No one else saw the accident.

The appellant Pacific Indemnity Company had issued a policy of liability and accident insurance covering the automobile, which applied to the liability of Ted McDonald to appellee Evelyn Brune, if any.

Evelyn Brune brought suit against Ted McDonald for $27,069.70 damages alleged to have been suffered by her at the time of the accident as a result of the gross carelessness of the appellee McDonald, resulting from his intoxication at the time of the accident. Thereupon, the appellant brought this proceeding for declaratory relief in the District Court of the United States for the District of Oregon, basing federal jurisdiction upon diversity of citizenship.

The appellant claimed that it had been relieved from any liability on the policy which may have resulted from the accident because the appellees were fraudulently conspiring to procure a judgment against appellee McDonald, although because of the contributory negligence of the appellee Brune there was a good defense to the action brought by her for damages in a state court of Oregon. The appellant further alleged that the appellee McDonald had breached the conditions of his policy by false statements concerning the accident, and by a failure to cooperate with the appellant Indemnity Company in the defense of that action. The appellee McDonald answered and admitted that on August 18, 1936 he had falsely stated that his car had been forced off the road by an oncoming car, but that a week later, on August 25th, he had corrected the statement and had truly stated the facts concerning the accident to the appellant. He denied the charges of collusion and non-cooperation. Appellee Brune in her answer likewise denied the charges. Appellee Brune demanded a jury trial. This was objected to by the appellant and denied by the court. In a trial before the court without a jury the court found against the charge of fraudulent conspiracy and, declining to pass upon the other issues, ordered the proceeding dismissed. Subsequently, the court rescinded its prior order denying the motion of appellee Brune for a jury trial and ordered a trial of the other allegations of non-cooperation and false statements before a jury as "legal issues", upon which appellees were entitled to a jury trial as of right. The jury, as to the false statements which were admitted, found that the appellant was not prejudiced thereby and upon the issue of non-cooperation found that there was no failure on the part of McDonald to cooperate in the defense of the action brought by appellee Brune. Thereupon, a judgment was rendered in which the prior trial before the court was referred to as disposing of all matters "except whether or not the assured breached the conditions of the insurance policy by issuing false statement or by failure to cooperate". The verdict of the jury, answering interrogatories as above stated, was incorporated in the judgment and it was adjudged "that complainant take nothing by its complaint herein and that judgment be and the same is hereby entered herein in favor of said defendants" and for their costs.

Two points are relied upon by the appellant on this appeal. The first point is that the case should have been tried throughout on the equity side of the court, and the second, that "breaches of the conditions of the policy avoided the policy as to the accident in question".

The Right to a Jury Trial.

The nature of an action for declaratory relief is correctly stated in the appellees' brief. It "is neither legal nor equitable, but sui generis." In Borchard on Declaratory Judgments, p. 120, it is stated:

"Declaratory relief is neither strictly equitable nor legal, although, as will presently be observed, its historical sources are almost exclusively equitable."

The Federal Declaratory Judgments Act provides:

"Sec. 274D Judicial Code section * * * (3) When a declaration of right or the granting of further relief based thereon shall involve the determination of issues of fact triable by a jury, such issues may be submitted to a jury in the form of interrogatories, with proper instructions by the court, whether a general verdict be required or not." 28 U.S.C.A. ß 400(3).

The phrase of the statute "triable by a jury" must relate to a case triable as of right by a jury under the Seventh Amendment to the Federal Constitution. If this is the correct exposition of the phrase of the statute it was the intent of Congress that the mere change in the form of proceeding from a common law action to one for declaratory relief should not affect the right of the parties to a trial by jury as it existed had the action been brought at common law or in equity, as the case may be The trial court was of opinion that some issues of fact were essentially equitable in nature and others were essentially legal in nature, and disposed of the allegations of fraud and collusion upon the theory that they were equitable in nature and eventually submitted to the jury the question of false statements and failure to cooperate on the theory that these issues of fact were legal in nature. While the subject is not without difficulty (see Borchard on Declaratory Judgments, p. 119) it is clear we think that issues of fact are neither legal nor equitable but that their disposition by the court or jury, as the case may be, depends upon the setting in which the issues are framed. If the issues are raised in an action at law the right to a jury trial obtains and if raised in an action in equity it may be determined by the court without a jury, or the court may call to its aid a jury whose verdict is advisory. In the case at bar we have an appellant who has executed an insurance policy and who anticipates that an action will be brought upon that insurance policy by the person insured or by an injured person subrogated to his right. The insurance company claims that it has a just defense to this action arising out of the conduct of the insured person and also of the injured person. The issue of fraud and collusion for the purpose of obtaining a judgment by the injured person against the insured is in legal effect no more than an allegation of non-cooperation. In the absence of the insurance policy and its agreement for cooperation the insured would have a perfect right to confess judgment in favor of the injured person regardless of whether or not there was any legal liability for the injury. It follows from what we have said that we simply have a situation herein where a party who has issued a policy of insurance anticipates a suit thereon by the insured or one subrogated to his rights and to avoid delay brings the matter before the court by petition for declaratory relief. In such a proceeding, although the parties are reversed in their position before the court, that is, the defendant has become the plaintiff, and vice versa, the issues are ones which in the absence of the statute for declaratory relief would be tried at law by a court and jury. In such a case we hold that there is an absolute right to a jury trial unless a jury has been waived. This is the view of the Circuit Court of Appeals for the Fourth Circuit (?tna Casualty & Surety Co. v. Quarles, 92 F.2d 321); and the Circuit Court of Appeals for the Third Circuit (United States Fidelity & Guaranty Co. v. Koch, 102 F.2d 288).

Decisions of courts, when the right to a trial by jury has been involved in cases arising in different forms of actions, point to the same conclusion. For instance, in a decision of the Supreme Court of California (Donahue v. Meister, 88 Cal. 121, 25 P. 1096, 1098, 22 Am.St.Rep. 283) dealing with the right to a trial by jury in a statutory action to quiet title, the court made the following statement which is pertinent to the question involved in the case at bar:

"If, under these circumstances, defendant had commenced an action against plaintiff to recover possession, it would have been conceded by all that either party would have been entitled to a jury trial. But it is equally clear that plaintiff, by first bringing suit and thus inverting the parties, could not deprive defendant of his right to a jury. If it were not for the provision of the Code, plaintiff would have been compelled to wait until defendant commenced his action, and then there would have been no question about the right to a jury; but, while the legislature had the power to grant the plaintiff the privilege of himself commencing the suit, it had not the power to give him, and we think did not intend to give him, the privilege of thus depriving defendant of his constitutional right."

See, also, Reiner v. Schroeder, 146 Cal. 411, 80 P. 517; Butts v. Butts, 84 Kan. 475, 114 P. 1048; First Nat. Bank of Dickinson v. Kling, 65 N.D. 264, 257 N.W. 631. See general discussion of the principle involved in 16 R.C.L. 212, ß 29; 35 C.J. 159, ß 30.

It will be observed that we are not here concerned with the power of Congress to deprive the parties in an action for declaratory relief of the...