Reifer v. Westport Ins. Corp.

• Decision Date: 29 April 2014
• Docket Number: No. 13–2880.,13–2880.
• Citation: 751 F.3d 129
• Parties: Rox–Ann REIFER, assignee of Donald Russo, Esquire v. WESTPORT INSURANCE CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

751 F.3d 129

Rox–Ann REIFER, assignee of Donald Russo, Esquire

v.WESTPORT INSURANCE CORPORATION, Appellant.

No. 13–2880.

United States Court of Appeals, Third Circuit.

Argued March 25, 2014.

Filed: April 29, 2014.

Robert P. Conlon, Esq., Christopher A. Wadley, Esq., [argued], Walker Wilcox Matousek, Chicago, IL, Mark T. Sheridan, Esq., Margolis Edelstein, Scranton, PA, Counsel for Appellant.

Deborah J. Dewart, Esq., Swansboro, NC Chester F. Dudick, Jr., Esq., Forty Fort, PA David W. Knauer, Esq., [argued], Knauer & Associates Colorado Springs, CO, Counsel for Appellee.

Before: FUENTES, GREENBERG and VAN ANTWERPEN, Circuit Judges.

OPINION

VAN ANTWERPEN, Circuit Judge.

Appellant Westport Insurance Corporation (“Westport”) appeals the District Court for the Middle District of Pennsylvania's decision declining to exercise jurisdiction over the instant case and its Order dismissing the case without prejudice and remanding it to the Court of Common Pleas of Lackawanna County, Pennsylvania. Reifer v. Westport Ins. Corp., 943 F.Supp.2d 506, 512 (M.D.Pa.2013). It also appeals the District Court's denial of its motion for reconsideration. Reifer v. Westport Ins. Corp., No. 4:12–CV–0533, 2013 WL 2650275, at *1 (M.D.Pa. June 12, 2013). For the reasons that follow, we will affirm the decisions of the District Court declining jurisdiction and denying reconsideration.

I. BACKGROUND

Rox–Ann Reifer's (“Reifer”) Complaint avers the following: Reifer suffered a worker's compensation injury during the course of her employment at Intermediate Unit–20 (IU–20) where she provided special education to students. Her injuries prevented her from returning to work, and she retained Donald P. Russo, Esquire (“Russo”) out of concern that IU–20 may bring disciplinary proceedings against her. At the time she retained Russo, he carried legal malpractice insurance with Westport and was in full compliance with the Pennsylvania Rules of Professional Conduct as they pertained to insurance coverage. When IU–20 initiated disciplinary proceedings against Reifer, Russo failed to appear at the hearing. When IU–20 terminated her in accord with the hearing master's recommendation, Russo also failed to appeal. Russo then filed a federal lawsuit alleging violation of Reifer's employment rights, which he lost for failure to exhaust her state remedies. Finally, when Reifer sought alternate employment, she asked Russo how to answer an employment application question as to whether she had ever been terminated. Russo advised her to answer in the negative. Reifer was terminated and subjected to public discipline for falsely answering the employment application.

On March 18, 2008, Reifer commenced a malpractice claim against Russo in state court by Praecipe for Writ of Summons,¹ which was served upon him. At the time of service, Russo carried a “claims-made” policy with Westport, which only covered losses claimed by him during the policy period or within 60 days of the policy's expiration. Despite this, Russo failed to inform Westport of the action. That August, Russo's policy lapsed and he failed to secure a replacement policy. Four months later, on December 29, 2008, Reifer filed a Complaint that was served upon Russo. Russo only then notified Westport of the claim against him.

Westport refused to defend Russo. Eventually, Russo admitted liability but the issue of damages was tried in state court. The jury awarded Reifer a judgment of $4,251,516.00 plus delay damages. Russo assigned to Reifer any rights he might have had under his legal malpractice insurance policy with Westport. On March 1, 2012, Reifer, as Russo's assignee, filed the instant action against Westport for a declaratory judgment pursuant to Pennsylvania's Declaratory Judgments Act, 42 Pa.C.S.A. § 7531, et seq. in the Court of Common Pleas of Lackawanna County, Pennsylvania.

In her declaratory judgment Complaint, Reifer argued that, under Pennsylvania case law and Pennsylvania Rule of Professional Conduct 1.4(c), Westport was required to show it was prejudiced by Russo's failure to notify it of her claim. Because Westport did not do so, Reifer argued it owed Russo a duty to defend and indemnify and requested a declaratory judgment that Westport “must pay” her judgment. (Compl.¶¶ 36–59.)

Reifer also filed another suit by Praecipe for Writ of Summons under a different case number. The summons was served but no complaint was filed.

On March 23, 2012, Westport removed the cases to federal court; no proceedings remained in state court. Westport moved to dismiss Reifer's action on the merits. Reifer opposed the motion and Westport replied. In response, Reifer moved to amend her Complaint, which Westport opposed. Neither party argued that the District Court should decline its discretionary jurisdiction under the Declaratory Judgment Act (“DJA”), 28 U.S.C. §§ 2201–2202. On October 12, 2012, a United States Magistrate Judge considered the case on its merits and filed a 39–page report and recommendation advising that Reifer's Motion to Amend should be denied and Westport's Motion to Dismiss should be granted. Reifer v. Westport Ins. Corp., No. 4:CV–12–0533, 2012 WL 7998229, at *20 (M.D.Pa. Oct. 12, 2012). Reifer objected and Westport responded.

On May 1, 2012, the District Court sua sponte declined to exercise jurisdiction over the matter. Reifer, 943 F.Supp.2d at 508. It rejected the Magistrate's report and recommendation, dismissed the case without prejudice, and remanded it to the Court of Common Pleas of Lackawanna County, Pennsylvania. Id. Westport filed a Motion for Reconsideration, which the District Court denied. Reifer, 2013 WL 2650275, at *1. Westport appeals both decisions.

II. JURISDICTION

The District Court had jurisdiction pursuant to 28 U.S.C. § 1332(a). Although it is uncontested by the parties, we have an independent obligation to assure ourselves of our jurisdiction. E.g., Kendall v. Daily News Publ'g Co., 716 F.3d 82, 86 (3d Cir.2013).

We have jurisdiction to review “final decisions” of district courts under 28 U.S.C. § 1291. Whether a district court's discretionary remand under the DJA is an appealable “final decision” under § 1291 is a matter of first impression.² We believe that a remand order entered pursuant to the DJA is an appealable final decision because it is functionally indistinguishable from the remand order found appealable in Quackenbush v. Allstate Insurance Co., 517 U.S. 706, 713–15, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996). See Snodgrass v. Provident Life & Accident Ins. Co., 147 F.3d 1163, 1165–66 (9th Cir.1998).

As a threshold matter, we note that a remand under the DJA implicates neither a lack of subject matter jurisdiction nor a defect in removal procedure. Thus, 28 U.S.C. § 1447(d) does not preclude our review. See Quackenbush, 517 U.S. at 712, 116 S.Ct. 1712 (holding that, because § 1447(d) must be read in pari materia with § 1447(c), its proscription against appellate review is limited to those circumstances implicated by § 1447(c)); see also In re U.S. Healthcare, 159 F.3d 142, 146 (3d Cir.1998).

In Quackenbush, the Supreme Court held that an appeal is the appropriate procedural mechanism to review a remand order made pursuant to Burford abstention where the circumstances satisfy either of the alternate holdings of Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Quackenbush, 517 U.S. at 712–15, 116 S.Ct. 1712. First, a remand order is appealable where it effectively puts the litigants out of court so that “its effect is ‘precisely to surrender jurisdiction of a federal suit to a state court.’ ” Id. at 714, 116 S.Ct. 1712 (quoting Moses H. Cone, 460 U.S. at 10 n. 11, 103 S.Ct. 927). This effect is acutely felt in the context of remand orders whereby “the district court disassociates itself from the case entirely, retaining nothing of the matter on [its] docket.” Id.

Second, a remand order under the Burford abstention doctrine is appealable pursuantto the collateral order doctrine because it “conclusively determines an issue that is separate from the merits, namely, the question whether the federal court should decline to exercise its jurisdiction in the interest of comity and federalism.” Id. Additionally, such an order is “sufficiently important” to justify immediate appeal. Id. This importance arises, in part, from the fact that a remand order is otherwise effectively unreviewable. Id.

In Snodgrass, the Ninth Circuit held that a remand pursuant to the DJA satisfied both of these tests and was “functionally indistinguishable” from the remand order addressed in Quackenbush. 147 F.3d at 1167. We agree. The District Court's remand order surrenders to the state court jurisdiction to declare whether Westport's policy covered Reifer's legal malpractice claim against Russo. It denies Reifer and Westport access to the federal forum, placing them “effectively out of court.” Quackenbush, 517 U.S. at 714, 116 S.Ct. 1712 (quoting Moses H. Cone, 460 U.S. at 10 n. 11, 103 S.Ct. 927). Additionally, it “conclusively determines an issue that is separate from the merits,” namely, whether the District Court should decline to exercise jurisdiction over Reifer's declaratory judgment action. Id. This decision is not reviewable on appeal from any final judgment eventually entered by the state court. Finally, we agree with our sister circuit that the propriety of a district court's discretionary decision to decline to exercise jurisdiction under the DJA “is too important to be denied review.” Snodgrass, 147 F.3d at 1166;see, e.g., State Auto Ins. Cos. v. Summy, 234 F.3d 131, 136 (3d Cir.2000) (emphasizing the duties of district courts in deciding whether to exercise jurisdiction over insurance coverage cases under the DJA). Because it is “functionally indistinguishable” from the remand order found appealable in Quackenbush, we hold that a remand order pursuant to a decision to decline jurisdiction under the...