Penn-America Ins. Co. v. Coffey

• Citation: 368 F.3d 409
• Decision Date: 20 May 2004
• Docket Number: No. 03-1137.,03-1137.
• Parties: PENN-AMERICA INSURANCE COMPANY, Plaintiff-Appellant, v. Gregory COFFEY; Steven Simons; A.J.Z., Incorporated, t/a A.J. Gators Grille & Sports Bar; State Farm Mutual Automobile Insurance Company; James A. Sizemore, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

368 F.3d 409

PENN-AMERICA INSURANCE COMPANY, Plaintiff-Appellant, v. Gregory COFFEY; Steven Simons; A.J.Z., Incorporated, t/a A.J. Gators Grille & Sports Bar; State Farm Mutual Automobile Insurance Company; James A. Sizemore, Defendants-Appellees.

No. 03-1137.

United States Court of Appeals, Fourth Circuit.

Argued: February 26, 2004.

Decided: May 20, 2004.

ARGUED: Geoffrey Martin Bohn, Cunningham & Associates, Arlington, Virginia, for Appellant. Richard Cunningham, Appellate Litigation Clinic, Georgetown University Law Center, Washington, D.C., for Appellees. ON BRIEF: Steven H. Goldblatt, Director, Cary Berkeley Kaye, Supervising Attorney, James M. Sullivan, Appellate Litigation Clinic, Georgetown University Law Center, Washington, D.C., for Appellees.

Before NIEMEYER and MICHAEL, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Reversed and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHEAL and Senior Judge HAMILTON joined.

NIEMEYER, Circuit Judge:

Penn-America Insurance Company commenced this action to obtain a declaratory judgment that it had no duty to defend or to indemnify its insured, A.J. Gators Grille & Sports Bar ("A.J. Gators"), with respect to a tort action filed against A.J. Gators by James Sizemore in the Circuit Court of the City of Chesapeake, Virginia. Sizemore's suit seeks damages for injuries he sustained in the A.J. Gators parking lot when he was struck by an automobile driven by another customer of A.J. Gators. The district court dismissed the declaratory judgment action, concluding that exercising jurisdiction would require resolution in this case of the same factual issues in dispute in the state tort action. For the reasons that follow, we disagree. Accordingly, we reverse the district court's dismissal order and remand for further proceedings.

I

On April 5, 2001, while patronizing A.J. Gators in Chesapeake, Virginia, Gregory Coffey and Steven Simons became aggressive and hostile toward other customers and toward A.J. Gators employees. When several employees confronted Coffey and Simons, "insults, threats and blows were exchanged," and Coffey and Simons either left or were removed from the premises. The A.J. Gators employees pursued Coffey and Simons into the parking lot where "a protracted and violent fight erupted" between Coffey and Simons and the employees. As Coffey and Simons drove away in Coffey's automobile, the A.J. Gators employees struck both the automobile and the occupants "with fists and metal pipes," leading Coffey to lose control of his vehicle and strike James Sizemore, a bystander in the parking lot who had just left the bar.

Sizemore filed a personal injury action in state court against Coffey and Simons, as well as A.J.Z., Inc. ("A.J.Z."), the owner of A.J. Gators, alleging (1) negligence by A.J. Gators and its employees; (2) negligence by Coffey and Simons; (3) intentional, malicious, and reckless action by A.J. Gators supervisors who directed employees to pursue and assault Coffey and Simons despite knowing patrons would likely be injured; and (4) intentional, malicious, and reckless action by, and agreement between, Coffey and Simons to use a vehicle to strike one or more A.J. Gators employees, for whom they mistook Sizemore. That action is still pending.

Shortly after the state court action was commenced, Penn-America, A.J.Z.'s insurer, commenced this action, invoking diversity jurisdiction under 28 U.S.C. § 1332 and seeking a declaratory judgment that the claims filed by Sizemore against A.J.Z. in state court were excluded from the coverage of the Penn-America liability policy issued to A.J.Z. because of an "Assault and Battery Exclusion." In particular, the policy excludes from coverage claims "resulting from assault and battery or physical altercations," regardless of whether the claimant's injuries were caused by A.J.Z., its employees, or its patrons. Penn-America named as defendants all of the parties to the state court action, as well as State Farm Mutual Automobile Insurance Company, Sizemore's automobile insurer, because Sizemore's policy included coverage for uninsured and underinsured motorists such as Coffey and Simons.

Sizemore filed a motion to dismiss this action, urging the district court not to adjudicate the coverage question while the state court case was pending. The district court granted Sizemore's motion to dismiss and, sua sponte, dismissed the action as to all defendants. The district court concluded that to decide whether Penn-America was obligated to defend and indemnify A.J.Z. would require resolution of the same factual issues of causation raised in Sizemore's underlying state court action — i.e., whether Sizemore's injuries resulted from assault and battery. The court also noted that the Commonwealth of Virginia has an inherent interest in deciding matters of state law.

Penn-America filed this appeal, and only Coffey and Simons have filed a brief and presented oral argument in opposition — principally because we appointed counsel for them to protect their interests on appeal. Neither Sizemore nor A.J.Z. elected to file a brief or appear at oral argument.

II

Under the Declaratory Judgment Act, a district court, in a case or controversy otherwise within its jurisdiction, " 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 Supreme Court has "repeatedly characterized the Declaratory Judgment Act as `an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant.'" Wilton v. Seven Falls Co., 515 U.S. 277, 287, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241, 73 S.Ct. 236, 97 L.Ed. 291 (1952)). Thus we review for abuse of discretion a district court's decision whether to hear a federal declaratory judgment action. Id. at 289-90, 115 S.Ct. 2137.

As an initial matter, "a declaratory judgment action is appropriate `when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and ... when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.'" Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir.1996) (quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir.1937)). When a related state court proceeding is pending, however, "`considerations of federalism, efficiency, and comity'" should inform the district court's decision whether to exercise jurisdiction over a declaratory judgment action. See id. at 257 (quoting Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 376 (4th Cir.1994)). As the Supreme Court stated in Wilton,

where another suit involving the same parties and presenting opportunity for ventilation of the same state law issues is pending in state court, a district court might be indulging in "[g]ratuitous interference" ... if it permitted the federal declaratory action to proceed.

Wilton, 515 U.S. at 283, 115 S.Ct. 2137 (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942)).

To determine whether to proceed with a federal declaratory judgment action when a parallel state action is pending, we have focused on four factors for guiding the analysis:

(1) whether the state has a strong interest in having the issues decided in its courts; (2) whether the state courts could resolve the issues more efficiently than the federal courts; (3) whether the presence of "overlapping issues of fact or law" might create unnecessary "entanglement" between the state and federal courts; and (4) whether the federal action is mere "procedural fencing," in the sense that the action is merely the product of forum-shopping.

United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493-94 (4th Cir.1998) (quoting Nautilus Ins., 15 F.3d at 377) (the "Nautilus factors").

To make its decision, the district court focused principally on the third Nautilus factor, concluding that "[i]n determining whether the [assault and battery] exclusion applies, this court must resolve the factual issues surrounding the altercation and the injury to Sizemore to determine whether Sizemore's injuries `result [ed] from assault and battery.'" Because "[t]hese issues of causation are the very issues that must be litigated in the state court case as well," the district court concluded that there were "overlapping issues of fact or law that would cause entanglement between the state and federal court systems." Thus,...