Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_10-cv-00233/USCOURTS-cand-3_10-cv-00233-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

COUNTRYWIDE HOME LOANS, INC., ET

AL.,

Plaintiffs,

 v.

MORTGAGE GUARANTY INSURANCE

CORPORATION,

Defendant. /

No. C 10-00233 JSW

ORDER DENYING

DEFENDANT’S MOTION TO

STAY ORDER OF REMAND

PENDING APPEAL

Now before the Court is the motion to stay order of remand pending appeal filed by

defendant, Mortgage Guaranty Insurance Corporation (“MGIC” or “Defendant”). The Court

finds that this matter is appropriate for disposition without oral argument and the matter is

deemed submitted. See N.D. Civ. L.R. 7-1(b). Having carefully reviewed the parties’ papers

and considering their arguments and the relevant authority, and good cause appearing, the Court

hereby DENIES MGIC’s motion to stay order of remand pending appeal.

BACKGROUND

Plaintiffs Countrywide Home Loans, Inc. and BAC Home Loans Servicing, LP

(collectively “Countrywide”) filed a complaint for declaratory relief on December 17, 2009 in

the Superior Court of the State of California for the City and County of San Francisco. The

complaint contains a single cause of action seeking declaratory judgment, under California law,

interpreting the rights and obligations of the parties under a standard “flow” mortgage insurance

policy (“Flow Policy”) issued by defendant MGIC. The complaint alleges that MGIC denies 

Case 3:10-cv-00233-JSW Document 47 Filed 05/04/10 Page 1 of 5
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

mortgage insurance claims submitted by Countrywide, based on unreasonable interpretations of

the language contained in the standard mortgage insurance policy. Countrywide filed their

complaint in state court to obtain a judicial interpretation of the policy language. MGIC

removed the case to federal court pursuant to 28 U.S.C. § 1441(b). 

Countrywide filed a motion to remand based on the premise that federal courts may

exercise broad discretion under the Declaratory Judgment Act to abstain from exercising its

jurisdiction where (1) resolution of the issues raised turn entirely on the application of state law;

(2) the case involves no additional claims over which the Court is unable to decline jurisdiction;

and (3) an available and preferable forum exists in the California state court.

MGIC argued that the standard Flow Policy contains an arbitration clause which

provides that “all controversies, disputes or other assertions of liability or rights arising out of

or relating to this Policy, including breach, interpretation or construction thereof, shall be

settled by arbitration.” (Complaint, Ex. A, Flow Policy § 7.6(a).) A narrow exception to this

arbitration clause was limited to seeking declaratory relief on “matters of interpretation of the

Policy.” (Id.) MGIC moves to stay this action pending resolution of the arbitration it has

initiated to resolve Countrywide’s claims for insurance coverage.

In its opposition to the motion to remand, MGIC argued that the most appropriate relief

under the Declaratory Judgment Act was a stay of judicial proceedings pending resolution of

the parties’ disputes in arbitration. MGIC also affirmatively filed a motion to stay this action

pending resolution of arbitration. Defendant argued that the strong federal interest in enforcing

arbitration agreements mandated a stay pursuant to the Federal Arbitration Act (“FAA”). The

Court denied Defendant MGIC’s motion without prejudice on the basis that the Court denied to

exercise jurisdiction over the merits of the motion. The Court found that issues regarding

contract interpretation and adjudication of the arbitration issue could be re-filed in state court.

On March 30, 2010, the Court issued an order granting Countrywide’s motion to remand

on the basis that: (1) the action was removed from state court and the entirety of the legal claims

raised by the complaint involve state law issues and by abstaining from exercising its

discretionary declaratory jurisdiction, the Court avoids making a needless determination of state

Case 3:10-cv-00233-JSW Document 47 Filed 05/04/10 Page 2 of 5
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

law; and (2) the complaint contains no other non-discretionary claims which the Court may not

decline to hear and thus, piecemeal or duplicative litigation of discretionary and nondiscretionary claims is not a concern here. See Order at 2-4 (citing Brillhart v. Excess Ins. Co.,

316 U.S. 491, 495 (1942); Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th

Cir. 1998)).

On March 31, 2010, MGIC filed a motion to stay the Court’s order of remand pending

appeal of that order.

On April 27, 2010, MGIC filed a notice of appeal to the United States Court of Appeals

for the Ninth Circuit of this Court’s order granting Plaintiffs’ motion to remand.

The Court will address additional specific facts as required in the analysis. 

ANALYSIS

The Court finds its own order to remand is indeed appealable. An order of remand

predicated on the Court’s discretionary power to decline to exercise jurisdiction under the

Declaratory Judgment Act is appealable. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706,

713 (1996); Huth v. Hartford Ins. Co., 298 F.3d 800, 802 (9th Cir. 2002). 

In Golden Gate Restaurant Ass’n v. City and County of San Francisco, the Ninth Circuit

set forth the factors regulating issuance of a stay pending appeal: “(1) whether the stay

applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the

applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will

substantially injure the other parties interested in the proceeding; and (4) where the public

interest lies.” 512 F.3d 1112, 1115 (9th Cir. 2008) (citing Hilton v. Braunskill, 481 U.S. 770,

776 (1987)). In ruling on a motion to stay pending appeal, the Ninth Circuit employs “two

interrelated legal tests that ‘represent the outer reaches of a single continuum. At one end of the

continuum, the moving party is required to show both a probability of success on the merits and

the possibility of irreparable injury. ... At the other end of the continuum, the moving party must

demonstrate that serious legal questions are raised and that the balance of hardships tips sharply

in its favor.” Golden Gate Restaurant Ass’n, 512 F.3d at 1115-16 (citations omitted). 

Case 3:10-cv-00233-JSW Document 47 Filed 05/04/10 Page 3 of 5
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

MGIC has not demonstrated that it is likely to prevail on the merits. As this Court found

in its order granting remand, district courts have broad discretion whether to exercise their

jurisdiction pursuant to the Declaratory Judgment Act. See Gov’t Employees Ins. Co. v. Dizol,

133 F.3d 1220, 1223 (9th Cir. 1998); see also Huth, 298 F.3d at 802-03. In its order, the Court

set forth its analysis of the oeprative Brillhart factors and their application to the facts

presented. See Order at 2-4. The Court is not persuaded that its decision would be reversed

under the abuse of discretion standard. 

In addition, the Court does not find that MGIC will likely suffer irreparable injury as a

result of the remand to state court. MGIC is entitled to pursue its claim for a stay pending

arbitration in state court as this Court’s denial of the motion was without prejudice and was

based only on this Court’s denial to exercise its jurisdiction over the substance of the matter. 

The Court is not persuaded that MGIC is entitled to a right to have its motion to stay pending

arbitration decided in a federal, instead of a state, forum. Just as the Court found in its order

granting remand, the FAA provides no independent basis for federal jurisdiction. See Southland

Corp. v. Keating, 465 U.S. 1, 15 (1984). Indeed, the power to enforce an arbitration clause is

vested in both the state and federal courts and may only be enforced by the federal court when

federal jurisdiction is otherwise established. Id. Indeed, California courts share the strong

policy favoring arbitration as a method to resolve disputes. See, e.g., Armendariz v. Foundation

Health Psychcare Services, Inc., 24 Cal. 4th 83, 97, 99 (2000 (“California law, like federal law,

favors enforcement of valid arbitration agreements”). 

The Court abides by its earlier decision that whether the parties’ disputes in this matter

arises under the arbitration clause or its exception is more properly addressed by the state court. 

Defendant’s motion to stay pending resolution of arbitration was denied without prejudice to

refiling in state court and may be heard there without MGIC incurring any prejudice as a result.

On the scale of important legal interests and balance of hardships, because the Court did

not decide MGIC’s motion to stay pending resolution of arbitration on the merits, its claims of

important legal interests are unpersuasive. The Court merely decided that any claim that issues

raised by the complaint should be resolved in arbitration can be heard and decided by the state

Case 3:10-cv-00233-JSW Document 47 Filed 05/04/10 Page 4 of 5
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

court, the more suitable jurisdiction to hear the matter in its entirety. Because the state and

federal courts have concurrent jurisdiction to enforce any arbitration provisions in the parties’

contract, the Court finds there is no important legal interest at stake in its order to remand. 

Again, because there is an available forum to resolve the arbitrability issue, the Court finds

there is no particular hardship endured by MGIC that favors a stay.

CONCLUSION

For the foregoing reasons, MGIC’s motion to stay the order of remand is DENIED. For

the same reasons outlined above, the Court DENIES MGIC alternative request for entry of a

temporary stay to permit MGIC to seek a stay from the Ninth Circuit.

IT IS SO ORDERED.

Dated: May 4, 2010 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

Case 3:10-cv-00233-JSW Document 47 Filed 05/04/10 Page 5 of 5