Shell Oil Company v. Frusetta

• Decision Date: 24 May 1961
• Docket Number: No. 17022.,17022.
• Citation: 290 F.2d 689
• Parties: SHELL OIL COMPANY, a corporation, Appellant, v. George FRUSETTA et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

290 F.2d 689 (1961)

SHELL OIL COMPANY, a corporation, Appellant, v. George FRUSETTA et al., Appellees.

No. 17022.

United States Court of Appeals Ninth Circuit.

May 24, 1961.

Walker Lowry and McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for appellant.

Law Offices of C. Ray Robinson, C. Ray Robinson, Frederick S. Wyle and Duane W. Dresser, San Francisco, Cal., Ray J. Scott, and Wyckoff, Parker, Boyle & Pope, Watsonville, Cal., J. T. Harrington, Salinas, Cal., for appellees.

Before ORR, BARNES, and JERTBERG, Circuit Judges.

ORR, Circuit Judge.

In 1951 appellant Shell Oil Co., hereafter Shell, leased from appellees certain lands situate in San Benito County, California, for oil and gas exploration. The leases contain a warranty by appellees that they own the lands in fee simple and will defend the title against any adverse claims and hold Shell harmless therefrom. There is also a provision stating that if appellees own a smaller interest than a fee simple their royalties will be reduced accordingly, and a provision that if any action shall be brought challenging appellees' interest in the lands appellant may deposit the royalties accruing to the lands so challenged in a special bank account pending the final determination of said action. Shell entered into possession under the leases and was successful in producing oil and gas.

In 1957 a group of people filed six actions in the Superior Court of San Benito County, California, seeking judgments declaring them to be the owners of an interest in part of the leased lands. Shell and appellees were made defendants in the said suits. A dispute then arose between Shell and appellees as to whether the written leases accurately record their oral agreements with respect to the above-mentioned provisions, appellees claiming that Shell orally promised to be responsible for any imperfections in the title. Despite this disagreement the parties entered into a written agreement not to file cross-claims against each other in the state court actions, and for some three years Shell and appellees stood shoulder to shoulder in defending said actions. However, on March 3, 1960, appellees gave notice in open court that they were going to move in the state court to be relieved from the written agreement and to be permitted to file cross-complaints so that the parties' dispute could be resolved in the pending state actions. Said motions were filed on March 21, 1960, were heard on April 7th of that year, and were granted on April 11th, whereupon cross-complaints were promptly filed. However, before any of this could be accomplished Shell on March 18, 1960, filed in the United States District Court for the Northern District of California, Southern Division, an action praying for a declaratory judgment on these same matters in dispute between it and appellees. It is agreed between the parties that the same identical issues are raised in Shell's complaint for declaratory judgment as appear in the thirteen cross-complaints filed by the appellees in the state court. Appellees in their cross-complaints included as a cross-defendant the Western Title Insurance Co., a California corporation which sold Shell vast amounts of insurance on the title received from appellees and hence has a financial interest in the outcome of the litigation between the parties. Shell did not include Western in its complaint for declaratory judgment, since that would have destroyed the diversity of citizenship on which Shell bases its claim of federal jurisdiction.

Upon motion the district court dismissed the declaratory judgment action. In ruling on the motion to dismiss the court said it felt this action was nothing more than an attempt to use the Declaratory Judgment Act, 28 U.S.C.A. § 2201 et seq., as a device to remove a nonremovable dispute from the state courts, and that granting such declaratory judgments "would in many respects evade the purpose and intent of the Removal Act 28 U.S.C.A. § 1441 et seq.." The court also stated that it felt the substantive questions raised were so clearly connected with the pending state litigation that the state court was the most satisfactory forum in which to hear the matter. Shell asserts that in so dismissing this action the district court abused the discretion vested in it. Thus is presented the question we are called upon to determine.

We believe the district court acted with sound discretion in dismissing the action. It is well established that even though jurisdiction may exist under the Declaratory Judgment Act the granting of declaratory judgments is at the discretion of the district court. Brillhart v. Excess Insurance Co., 1942, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620; Maryland Casualty Co. v. Boyle Construction Co., 4 Cir., 1941, 123 F.2d 558. Said discretion is to be exercised in accordance with sound judicial principles and the purposes of the Declaratory Judgment Act. The mere fact that Shell succeeded in filing its complaint in the federal court three days before appellees filed their motions in the state court does not automatically entitle Shell to a federal declaratory judgment hearing. Kerotest Mfg. Co. v. C-O-Two Co., 1951, 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200. It is not the purpose of the Declaratory Judgment Act to encourage a race to the courthouse for the purpose of transferring litigation to the federal courts from the state courts. The purpose of the Declaratory Judgment Act is to afford an added remedy to one who is uncertain of his rights and who desires an early adjudication thereof without having to wait until his adversary should decide to bring suit, and to act at his peril in the interim. Aetna Casualty & Surety Co. v. Quarles, 4 Cir., 1937, 92 F.2d 321; Berlitz School of Languages v. Donnelly & Suess, D.C. E.D.Pa.1949., 84 F.Supp. 75. Shell was in no such situation. Its adversary had announced in open court that it was going to bring these same issues before the state court, which it promptly proceeded to do. This occurred in a state court proceeding in which the parties were each a defendant, and the issues raised are related to those involved in the state suits in that they involved the duty to defend said suits and the proper handling of royalties being claimed by both appellees and the state court plaintiffs. It is not the purpose of the Declaratory Judgment Act to allow disputes arising in the course of state court litigation to be argued in the federal courts instead. "The object of the statute is to afford a new form of relief where needed, not to furnish a new choice of tribunals or to draw into the federal courts the adjudication of causes properly cognizable by courts of the states." Aetna Casualty & Surety Co. v. Quarles, 4 Cir., 1937, 92 F.2d 321, 324; National Cancer Hospital of America v. Webster, 2 Cir., 1958, 251 F.2d 466, 468. See also American Telephone & Telegraph Co. v. Henderson, D.C.N.D. Ga.1945, 63 F.Supp. 347.

Shell attempts to place itself outside the rule stated above by arguing that it is an abuse of discretion to deny declaratory judgment when one of the issues raised is who must defend pending state court litigation. The cases with which Shell attempts to establish this proposition are not in point here. Most of them involve situations where a company which is not a party to pending state court litigation seeks a declaratory judgment as to whether it must defend such litigation as one party to the litigation is claiming — a situation where the company seeking declaratory relief would have to act at its peril if declaratory judgment were not allowed. None of the cases cited by Shell involve situations where the two parties to the declaratory judgment action were already parties to related state court actions and where the declaratory judgment defendant had previously declared during the state court proceeding that it was going to bring the same issues before the state court, which it promptly proceeded to do. Far more closely in point is the case of Thompson v. Moore, 8 Cir., 1940, 109 F.2d 372. In that case the...