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Scottsdale Indemnity Co. v. Downie

United States District Court, D. Arizona

March 29, 2019

Scottsdale Indemnity Company, Plaintiff,
v.
Lynda Faye Downie, Defendant.

          ORDER

          Honorable John J. Tuchi United States District Judge.

         At issue is Defendant Lynda Faye Downie's Motion to Dismiss (Doc. 14, Mot.), to which Plaintiff Scottsdale Indemnity Company (“SIC”) filed a Response (Doc. 16, Resp.), and Defendant filed a Reply (Doc. 17, Reply).

         I. BACKGROUND

         On May 31, 2015, Travis Wade O'Conner, a bouncer at The Lodge Sports Bar and Grill in Pinetop, Arizona, used force to escort Lynda Faye Downie out of the bar after Downie got into a physical altercation with other patrons. As O'Conner tried to remove Downie from the bar, Downie fell and sustained injuries. On January 26, 2016, Downie filed suit against O'Conner and Epic Developments, the bar's owner, in Navajo County Superior Court. On February 24, 2016, SIC, the bar's insurer, agreed to defend O'Conner and Epic under a limited Reservation of Rights, in which SIC reserved its right to refuse to indemnify for any amount above a $25, 000 assault and battery liability limit in the policy.

         In August 2017, O'Conner and Epic entered into a Morris Agreement[1] with Downie in which O'Conner and Epic stipulated to a $400, 000 judgment and assigned their rights against SIC under the Policy to Downie, and Downie agreed not to execute the stipulated judgment against O'Conner and Epic. After SIC intervened, in June 2018, the Superior Court held a three-day evidentiary hearing in Holbrook, Arizona to determine the reasonableness of the stipulated judgment amount. On June 12, 2018, the Superior Court issued a ruling that a reasonable judgment amount is $275, 000, and the next day the Superior Court entered judgment for Downie and a writ of garnishment in the amount of $275, 000.

         SIC filed the present action against Downie in this Court on June 13, 2018, raising two counts under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. SIC asks the Court to declare that insurance coverage for Downie's injury is limited to $25, 000 and that no coverage for punitive or exemplary damages applies under the policy. On June 29, 2018, SIC answered the writ of garnishment in the Superior Court matter by denying liability above the $25, 000 limit, and SIC moved to stay the garnishment proceeding pending this Court's resolution of the present matter, which motion the Superior Court granted.

         Downie now asks this Court to exercise its discretion under the Declaratory Judgment Act and dismiss this action in favor of the pending state court proceedings involving the same parties and issues.

         II. LEGAL STANDARD

         Under the Declaratory Judgment Act, district courts have the “unique and substantial discretion” to decide whether to issue a declaratory judgment. Wilton v. Seven Falls Co., 515 U.S. 277 (1995). The Declaratory Judgment Act states that “courts may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). Accordingly, a district court is under no compulsion to exercise jurisdiction. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942).

         Where parallel state proceedings exist, “there is a presumption that the entire suit should be heard in state court.” Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (citation omitted). Federal courts should avoid gratuitous interference, and a federal court's decision to proceed with a declaratory judgment action where parallel state proceedings exist may be uneconomical and vexatious. Wilton, 515 U.S. at 282-83 (citation omitted). However, the existence of a pendent state action does not automatically bar a request for federal declaratory relief. Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir. 1991).

         Courts consider a number of factors in determining whether to exercise jurisdiction or dismiss or stay the declaratory judgment proceeding. These factors include the need to: (1) avoid unnecessary determination of state law issues; (2) discourage litigants from filing declaratory actions in an attempt to forum shop; and (3) avoid duplicative litigation. Dizol, 133 F.3d at 1225; Chamberlain, 931 F.2d at 1367. In addition to the foregoing factors, the Ninth Circuit has adopted the following additional considerations:

[W]hether the declaratory action will settle all aspects of the controversy; whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a “res judicata” advantage; or whether the use of a declaratory action will result in entanglement between the federal and state court systems. In addition, the district court might also consider the convenience of the parties and the availability and relative convenience of other remedies.

Dizol, 133 F.3d at 1225 n.5 (citation omitted).

         When declining to exercise jurisdiction, the district court is “authorized . . . to stay or dismiss” ...


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