Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01966/USCOURTS-cand-3_07-cv-01966-1/pdf.json

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

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CLARENDON AMERICA INSURANCE

COMPANY,

Plaintiff,

 v.

SORG CORPORATION; PARKER E. SORG;

AND COMERICA BANK-CALIFORNIA,

Defendants. 

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Case No. 07-1966 SC

ORDER GRANTING

DEFENDANTS' MOTION TO

DISMISS OR STAY

I. INTRODUCTION

On April 6, 2007, Plaintiff Clarendon America Insurance

Company ("Plaintiff" or "Clarendon") filed a complaint against

Defendants Sorg Corporation, Parker E. Sorg (collectively "Sorg"),

and Comerica Bank-California (collectively with Sorg,

"Defendants"). See Docket No. 1. Presently before the Court is

Defendants' Motion to Dismiss for lack of subject matter

jurisdiction or, in the alternative, to stay the action pending

resolution of a related state court action. See Docket No. 11. 

Plaintiff opposed the motion and Defendants filed a reply. See

Docket Nos. 24, 25.

For the reasons discussed herein, the Court GRANTS

Defendants' motion and STAYS the case pending resolution of the

related state court action.

Case 3:07-cv-01966-SC Document 28 Filed 06/29/07 Page 1 of 5
United States District Court

For the Northern District of California

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II. BACKGROUND

On December 11, 2006, a complaint was filed in the Superior

Court of California, County of Contra Costa, a case titled

Comerica Bank-California v. Parker E. Sorg, et al., Case No. C-06-

02434 (the "Comerica Bank action"). In April of 2007, crosscomplaints were filed between Sorg and R. V. Stich Construction. 

The complaint and cross-complaints comprise the "Underlying

Action" at issue in this case. Sorg tendered the defense of the

Comerica Bank action to Clarendon, which accepted under an express

reservation of rights. Sorg also tendered the defense of a crosscomplaint to Clarendon, which has not accepted defense. Clarendon

contends that it is not responsible for defense of Sorg because

Comerica Bank seeks purely economic financial damages rather than

damages arising from physical injury to property. Clarendon filed

the instant action in federal court seeking declaratory relief and

contending that it does not owe a duty to provide either defense

or indemnity to Sorg in the Underlying Action.

III. LEGAL STANDARD

This Court has the authority to grant declaratory relief as a

remedy, and it is often sought by insurers in federal court to

determine coverage. See 28 U.S.C. § 2201; see e.g., United States

v. Transp. Indem. Co., 544 F.2d 393 (9th Cir. 1976). 

In Brillhart v. Excess Ins. Co., 316 U.S. 491, 495 (1942),

the Supreme Court discussed the factors for the district court to

consider in deciding whether to accept or decline jurisdiction

over a declaratory relief action. 

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United States District Court

For the Northern District of California

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The Brillhart factors remain the philosophic touchstone for

the district court. The district court should avoid needless

determination of state law issues; it should discourage

litigants from filing declaratory actions as a means of forum

shopping; and it should avoid duplicative litigation." 

Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir.

1998) ("Dizol"). 

IV. DISCUSSION

Federal courts have "unique and substantial discretion in

deciding whether to declare the rights of litigants." Wilton v.

Seven Falls Co., 515 U.S. 277, 286 (1995). In deciding whether to

dismiss or stay this declaratory relief action, the three

Brillhart factors guide the Court's decision. 

Plaintiff's argument that Brillhart and Dizol do not apply

fails. In Dizol, the court stated, "[i]f there are parallel state

proceedings involving the same issues and parties pending at the

time the federal declaratory action is filed, there is a

presumption that the entire suit should be heard in state court." 

133 F.3d at 1225. Plaintiff argues that since it is not a party

to the Underlying Action, the state court action does not involve

the same parties and thus the Brillhart factors should be given

little weight, if any. See Opp'n at 5. Contrary to Plaintiff's

assertion, the Ninth Circuit has found that state court actions

not involving the insurance carrier were sufficiently parallel to

the declaratory relief action to merit consideration and dismissal

under Brillhart. See Employers Reinsurance Corp. v. Karussos, 65

F.3d 796 (9th Cir. 1995), overruled, in part, on other grounds,

Dizol, 133 F.3d 1220; Golden Eagle Ins. Co. v. Travelers Cos., 103

Case 3:07-cv-01966-SC Document 28 Filed 06/29/07 Page 3 of 5
United States District Court

For the Northern District of California

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F.3d 750 (9th Cir 1996), overruled, in part, on other grounds,

Dizol, 133 F.3d 1220. Thus, the Court will consider the Brillhart

factors.

Having reviewed the submissions by the parties and relevant

case law, the Court will exercise its discretion to stay the case. 

A stay will satisfy the first Brillhart factor by avoiding the

needless determination of state law issues. This case involves a

determination of insurance coverage under California state law. 

Traditionally, "states ha[ve] a free hand in regulating the

dealings between insurers and their policyholders." SEC v. Nat'l

Sec., Inc., 393 U.S. 453, 459 (1969). Moreover, the California

Supreme Court has stated, "[t]o eliminate the risk of inconsistent

factual determinations that could prejudice the insured, a stay of

the declaratory relief action pending resolution of the third

party suit is appropriate when the coverage question turns on

facts to be litigated in the underlying action." Montrose Chem.

Corp. v. Superior Court, 861 P.2d 1153, 1162 (Cal. 1993). Were

this Court to decide Plaintiff's declaratory relief action now, it

would be forced to determine state law issues more easily resolved

in state court in the Underlying Action.

The second Brillhart factor, avoiding forum shopping, also

favors a stay. The state court is eminently capable of

determining the insurance coverage issue in the Underlying Action. 

The Court sees no need to provide Clarendon with an alternate

forum while the Underlying Action is pending.

Finally, the third Brillhart factor, avoiding duplicative

litigation, also favors Defendants' position. The key factor is

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United States District Court

For the Northern District of California

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that the Underlying Action involves the same factual issues as

this case. Specifically, the coverage issue presented by

Clarendon arises from an identical question of fact regarding the

nature and extent of Comerica's damages arising from property

damage. The answer to this and other questions pending before the

state court will determine the scope of Clarendon's duty to defend

and indemnify Sorg. See Reply, 3.

Consideration of the three Brillhart factors weighs in favor

of allowing the state court to resolve the issues posed in the

Underlying Action.

V. CONCLUSION

For the reasons discussed herein, the Court GRANTS

Defendants' Motion and STAYS the case pending resolution of the

Underlying Action in state court.

IT IS SO ORDERED.

Dated: June 29, 2007 

UNITED STATES DISTRICT JUDGE

Case 3:07-cv-01966-SC Document 28 Filed 06/29/07 Page 5 of 5