St. Paul Fire & Marine Ins. Co. v. F.H.

• Decision Date: 07 July 1997
• Docket Number: No. 96-35248,96-35248
• Citation: 117 F.3d 435
• Parties: 97 Cal. Daily Op. Serv. 5333, 97 Daily Journal D.A.R. 8665 ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff-Appellant, v. F.H.; K.W., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 435

117 F.3d 435

97 Cal. Daily Op. Serv. 5333, 97 Daily Journal

D.A.R. 8665

ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff-Appellant, v. F.H.; K.W., Defendants-Appellees.

No. 96-35248.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 7, 1997.

Decided July 7, 1997.

William R. Hickman, Reed McClure, Seattle, WA, for plaintiff-appellant.

Michael J. Schneider, Anchorage, AK, for defendants-appellees.

Appeal from the United States District Court for the District of Alaska; James K. Singleton, District Judge, Presiding. D.C. No. CV-90-00042-JKS.

Before: CANBY and TASHIMA, Circuit Judges, and SILVER ^*, District Judge.

CANBY, Circuit Judge.

St. Paul Fire & Marine Insurance Co. appeals the district court's judgment in favor of K.W. and his mother, F.H. The judgment declared that a professional liability insurance policy purchased by Big Brothers/Big Sisters of Juneau ("BB/BS") and written by St. Paul, covers BB/BS's former director, Kenneth McQuade, for damages resulting from his sexual abuse of K.W. The district court's judgment also awards damages and attorneys' fees to K.W. and F.H.

The district court entered the judgment on remand from our decision in St. Paul Fire & Marine Ins. Co. v. F.H., 55 F.3d 1420 (9th Cir.1995) ("St. Paul I "). On this appeal, St. Paul contends that the district court abused its discretion by choosing in the first instance to exercise its jurisdiction over this declaratory judgment action. St. Paul also argues that there have been intervening changes in Alaska law so that we should deviate from the law of the case and vacate St. Paul I. Finally, St. Paul contends that the district court erred by calculating attorneys' fees separately for K.W. and F.H. We reject each of these arguments and affirm.

BACKGROUND

The facts of this case are fully set forth in our prior decision, St. Paul I, 55 F.3d at 1421-23; we sketch them only briefly here. BB/BS purchased professional liability insurance from St. Paul. During the period from 1983 until 1986, the director of BB/BS, Kenneth McQuade, assigned himself as K.W.'s big brother, and sexually molested him.

K.W. and his mother, F.H., filed an action in Alaska Superior Court seeking damages from BB/BS and McQuade. St. Paul defended BB/BS, but refused to defend or indemnify McQuade, contending that the policy excluded coverage for BB/BS's employees' criminal acts. In 1987, K.W. and F.H. settled with BB/BS. The Alaska Superior Court also granted a partial summary judgment, holding that BB/BS was not liable in respondeat superior for McQuade's acts of sexual abuse. K.W. and F.H. also settled with McQuade. McQuade admitted to liability of over $1 million and assigned to K.W. and F.H. any rights that he had to indemnity from St. Paul.

St. Paul then filed an action in the United States District Court for the District of Alaska seeking a declaration that McQuade's acts of sexual abuse were not insured under BB/BS's professional liability policy. K.W. and F.H. filed a counterclaim, seeking monetary damages and declaratory relief. In July 1993, the district court granted St. Paul's motion for summary judgment, concluding that McQuade was not insured by BB/BS's professional liability insurance. K.W. and F.H. appealed that judgment to our court.

We reversed the summary judgment for St. Paul. St. Paul I, 55 F.3d at 1420. We held that K.W. and F.H. were entitled to a judgment that declared that BB/BS's insurance St. Paul petitioned us for rehearing, contending for the first time that the district court had abused its discretion at the outset of the case by exercising jurisdiction over the declaratory judgment action. We denied the petition.

policy covered McQuade, and remanded to the district court. Id. at 1425.

On remand, K.W. and F.H. moved the district court to enter summary judgment in their favor in light of our decision in St. Paul I. The district court granted the motion, and in January 1996 entered a judgment that declared that BB/BS's professional liability policy covered McQuade for defense and indemnity for damages arising from his sexual abuse of K.W. The judgment also awarded K.W. $1,360,464.67 in damages and $51,709.29 in attorneys' fees; it awarded F.H. $234,353.69 in damages and $18,561.22 in attorneys' fees.

St. Paul then filed in the district court a motion for relief from the judgment, contending that the district court should have exercised its discretion under the Declaratory Judgment Act to decline jurisdiction over the action. The district court denied the motion, considering factors such as the lack of any pending state action, the lack of state law issues of significant impact, and the cost and delay of dismissing the action. St. Paul then filed this appeal.

ANALYSIS

I. Discretionary Jurisdiction Under 28 U.S.C. § 2201(a).

The district court in this case derived subject matter jurisdiction from diversity of citizenship. See 28 U.S.C. § 1332 (1994). Under the Declaratory Judgment Act, the district court had discretion to decide whether to assert that jurisdiction. See 28 U.S.C. § 2201(a) (1994). We conclude that it did not abuse its discretion in deciding to do so. ¹

Under our recent precedent, the district court was required to consider the discretionary nature of its jurisdiction at the outset of the case. See Budget Rent-A-Car v. Crawford, 108 F.3d 1075, 1078 (9th Cir.1997). We have held that the district court has a duty, even though there is no state action pending at the time and the parties do not raise the issue, to determine on the record whether it should have exercised its discretionary jurisdiction. See id. at 1081. We summarized and adhered to these requirements in Government Employees Ins. Co. v. Dizol, 108 F.3d 999, 1003-11 (9th Cir.1997). Even more recently, however, we have granted rehearing en banc in Dizol, and these requirements presumably will be reexamined. See Government Employees Ins. Co. v. Dizol, 118 F.3d 661 (9th Cir. 1997) (granting rehearing en banc). We need not await that event, however, because the district court's exercise of discretion in this case was clearly within its authority because of elements, which we will explain, that were not present in Crawford, Dizol or our other recent cases reaching similar results. See Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir.1995); American Nat'l Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir.1995).

A remand, moreover, would serve no useful purpose in this case because the district court did consider the discretionary jurisdictional issue at length when, on remand from our reversal, it denied St. Paul's post-judgment motion to dismiss. The first factor it listed among those bearing on the exercise of discretion was the lack of any pending case in state court, a condition that existed when the case began and continued throughout. Other factors listed by the district court in denying the motion for relief from judgment were: the Alaska Supreme Court had refused certification, indicating that no novel issue of state law was involved; we had earlier declined the motion to rehear at the appellate level; and dismissal would entail undue cost and delay. Although these latter factors were evaluated as of the time of the motion rather than the time of initiation of the declaratory action, it was appropriate for the district court to consider them. See Crawford, 108 F.3d at 1081 (district court must consider whether state action was filed after filing of federal declaratory action). In the circumstances of this case, the first and final factors cited by the district court-lack of a pending state action and undue cost and delay-are together sufficient to sustain its exercise of discretion to retain jurisdiction over the declaratory action. The key element is the defendants' counterclaim, when combined with the absence of any state action pending or likely.

Because the defendants K.W. and F.H. filed a counterclaim for monetary damages with jurisdiction supported by diversity of citizenship, a dismissal of St. Paul's declaratory judgment action would not have saved the district court from having to adjudicate the controversy and deal with state law issues. We first dealt with such a situation in Chamberlain v. Allstate Ins. Co., 931 F.2d 1361 (9th Cir.1991), where we said:

Even if the district court had refrained from exercising its jurisdiction over Allstate's declaratory relief counterclaim, the district court still would have had to exercise its diversity jurisdiction over Chamberlain's bad faith suit. And, in order to adjudicate that bad faith suit, the district court had to determine the scope of the policy's coverage under California law. Thus, whether the district court decided the entire controversy, or refrained from deciding part of it, major issues of state law necessarily had to be decided in federal court.

Id. at 1367. In light of these considerations, we affirmed the exercise of declaratory jurisdiction. Id. at 1368. We echoed the same views in Maryland Cas. Co. v. Knight, 96 F.3d 1284, 1289 (9th Cir.1996):

The result of dismissing the declaratory relief complaint would therefore have been "piecemeal litigation: the federal court would have been left with the [counterclaim] for monetary relief, and the state court would have had to decide the declaratory relief claim." [citations omitted]. The Declaratory Judgment Act was intended to avoid, not promote, such a result.

Id. at 1289. Here, too, dismissal would totally frustrate the goal of economy for judiciary and parties alike. ² No action was pending or likely in state court to which a state declaratory judgment action could be efficiently joined. See Continental Cas. Co. v. Robsac Industries, 947 F.2d 1367, 1374 (9th Cir.1991) (proper to dismiss federal declaratory action when state court had pending related litigation between non-diverse defendants who could litigate only in state court). A dismissal of the federal action would involve...