Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_06-cv-01458/USCOURTS-caed-1_06-cv-01458-0/pdf.json

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

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The Complaint was filed in the United States District Court 1

for the Central District of California. The action was transferred

to the Eastern District of California upon the granting of

Defendants’ Motion to Transfer Venue.

1

IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

EMPIRE FIRE AND MARINE )

INSURANCE COMPANY, )

)

)

)

Plaintiff, )

)

vs. )

)

)

MARGARET ROSENBAUM, et al., )

)

)

Defendant. )

)

)

No. CV-F-06-1458 OWW/WMW

ORDER GRANTING DEFENDANTS

ROSENBAUM'S MOTION FOR STAY

OF ACTION (Doc. 7) AND

GRANTING DEFENDANTS

ROSENBAUM’S MOTION TO STRIKE

SUR-REPLY (Doc. 21)

Plaintiff Empire Fire and Marine Insurance Company

(“Empire”) filed a Complaint for Declaratory Relief pursuant to

28 U.S.C. § 2202 against Margaret Rosenbaum, Michael Rosenbaum,

and Lanier Oakley. The Complaint was filed on May 12, 2006.1

Empire prays for a declaration that it owes no obligation to

provide coverage under a Supplemental Liability Protection

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insurance policy (“SLP Policy”) issued to Margaret Rosenbaum in

connection with her rental of an Enterprise Rent-A-Car 15

passenger van.

It is asserted by the parties that Michael Rosenbaum

recruited sales people in Modesto for Excel. Excel scheduled a

sales event in Dallas, Texas for September 1, 2004. By

telephone, Michael arranged to rent six 15-passenger vans from

Enterprise to attend the sales event. However, when Michael and

his associates arrived at Enterprise, Enterprise refused to rent

the vans to the person who first attempted to do so because the

renters were under the age of 25. The initial renters, including

Michael, contacted their parents or friends, who came in and

signed the rental agreements. The Rosenbaums contend that it

was, or should have been clear, to Enterprise that the

individuals who were actually going to be driving the vans were

the children, not the parents or friends who signed the rental

agreements. On August 31, 2004, the van was first driven by

Margaret’s son, 21 year old Michael Rosenbaum, and then by Lanier

Oakley, who was then under the age of 25. While Oakley was

driving the van, a solo rollover accident occurred, resulting in

the deaths of three of the passengers and in injuries to nine

other passengers. 

Defendants Rosenbaum move for stay of this declaratory

relief action on the ground that factual issues that need to be

determined turn on facts to be litigated in the already pending

state court actions against the Rosenbaums for wrongful death

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On March 20, 2007, Empire filed a Request for Leave to File 2

Sur-Reply and Sur-Reply in Opposition to Motion for Stay. (Doc.

20). On March 22, 2007, Defendants moved to strike the sur-reply.

(Doc. 21). Absent prior authorization, a sur-reply brief is not

permitted by Rule 78-230, Local Rules of Practice for the Eastern

District of California. Because Empire failed obtain advance

authorization, Empire’s Sur-Reply is stricken. 

3

and/or personal injury. In one of the state court actions, the

Rosenbaums have filed a Cross-Complaint against Enterprise RentA-Car Company of Sacramento alleging causes of action for

negligence, negligent misrepresentation, fraud and deceit, false

promise, breach of contract, reformation of the rental contract

between Enterprise Rent-A-Car and Margaret Rosenbaum to reflect

that Michael Rosenbaum and Lanier Oakley were authorized drivers

and for declaratory relief to that effect. In addition, the

Rosenbaums’ automobile insurer, Farmers Insurance Exchange, has

filed a declaratory relief action in Stanislaus County Superior

Court, seeking a declaration that Farmers owes no coverage

because Michael Rosenbaum and Lanier Oakley did not have

permission to drive the van, and the trip was a business trip. 

This state court declaratory relief action has been stayed under

California law.2

In G.E.I.C.O. v. Dizol, 133 F.3d 1220 (9 Cir.1998), the th

Ninth Circuit explained that a district court must be satisfied

that a declaratory relief action over which it has subject matter

jurisdiction is appropriate. Id. at 1223. “This determination

is discretionary, for the Declaratory Judgment Act is

‘deliberately cast in terms of permissive, rather than mandatory,

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authority.’” Id. Prudential guidance for the exercise of this

discretion in found in Brillhart v. Excess Ins. Co. of America,

316 U.S. 491 (1942) and its progeny. Id. The Ninth Circuit

explained:

The Brillhart factors remain the

philosophical touchstone for the district

court. The district court should avoid

needless determination of state law issues;

it should discourage litigants from filing

declaratory relief actions as a means of

forum shopping; and it should avoid

duplicative litigation ... If 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 ... The pendency of a

state court action does not, of itself,

require a district court to refuse federal

declaratory relief ... Nonetheless, federal

courts should generally decline to entertain

reactive declaratory actions.

However, there is no presumption in favor of

abstention in declaratory actions generally,

nor in insurance coverage cases specifically. 

‘We know of no authority for the proposition

that an insurer is barred from invoking

diversity jurisdiction to bring a declaratory

judgment action against an insured on an

issue of coverage.’ ... Indeed, when other

claims are joined with an action for

declaratory relief (e.g., bad faith, breach

of contract, breach of fiduciary duty,

rescission, or claims for other nonmonetary

relief), the district court should not, as a

general rule, remand or decline to entertain

the claim for declaratory relief ... If a

federal court is required to determine major

issues of state law because of the existence

of non-discretionary claims, the declaratory

action should be retained to avoid piece-meal

litigation ....

But these are considerations for the district

court, which is in the best position to

assess how judicial economy, comity and

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federalism are affected in a given case.

Id. at 1225-1226. The Ninth Circuit further noted that the

Brillhart factors are not exhaustive and that the Ninth Circuit 

has suggested other considerations

such as ‘whether 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.” ....

Id. at 1225 n.5. 

The Brillhart factors, as amplified by Dizol, weigh in favor

of granting the requested stay.

1. Needless Determination of State Law Issues.

This factor weighs in favor of a stay. The state court

actions described above all raise the question raised by Empire

in the Complaint, whether Michael Rosenbaum and/or Lanier Oakley

had permission and/or were authorized to drive the van. Because

the state court actions have been proceeding for some time,

proceeding with Empire’s action to decide the identical issues

will result in a needless federal court examination of the same

issues. The state court tort actions allege negligent

entrustment on the Rosenbaums’ part under an agency theory for

the acts of Lanier Oakley; the negligent entrustment and agency

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theories of liability turn on whether Michael Rosenbaum and/or

Lanier Oakley were authorized or had permission from Enterprise

to drive the van. The Rosenbaums’ cross-complaint against

Enterprise seeks reformation of the rental agreement and a

declaration that Michael Rosenbaum and Lanier Oakley were

authorized drivers by Enterprise. 

Empire responds that the state court actions are not

parallel actions with this action. The state court actions are

personal injury actions against the Rosenbaums in tort while 

Empire seeks a declaration of its obligations under the SLP

Policy. 

Empire relies on Empire Fire and Marine Ins. Co. v. Broom,

2005 WL 3081233 (E.D.Cal.2005).

In Broom, Defendant Mark Broom rented a vehicle from

Enterprise. In conjunction with the vehicle rental, Mark

purchased a SLP Policy from Empire. While driving the vehicle,

Mark was involved in a single vehicle accident in which Karen

Bloom suffered injuries. Karen brought a personal injury action

against Mark and Enterprise in state court. Empire filed a

declaratory relief action in the District Court, seeking a

declaration that, regardless of the outcome of Karen’ state court

action, Mark is not entitled to indemnity under the SLP Policy

because the SLP Policy excludes injury to the renter’s family

members. Karen argued that the pending state court action is

parallel to Empire’s declaratory relief action and, therefore,

there is a presumption that the state court should hear the

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entire matter, citing Huth v. Hartford, 298 F.3d 800 (9th

Cir.2002), cert. denied, 537 U.S. 1233 (2003). Judge England

ruled in pertinent part:

The action and the state court action do not

represent parallel actions with identical

parties and issues. Here, the state court

action is a personal injury suit for damages

between Mark and Karen, while Empire seeks a

declaration of its obligations under the

insurance contract. The issue of liability

under tort law is not identical to the issue

of an obligation under a contract. Further,

Empire is not a party to the state court

action, nor can it join the action under

California law. The California Evidence Code

prohibits the admission of evidence of

liability insurance. Cal. Evid. § 1155 ...

Moreover, the California Supreme Court has

construed § 1155 to prohibit an action

against both the insured and the insurer. 

Moradi-Shalal v. Fireman’s Fund Ins. Co., 46

Cal.3d 287, 311 ... (1988); Royal Globe Ins.

Co. v. Superior Ct., 23 Cal.3d 880, 891 ...

(1979).

Because there is no parallel state court

action with issues identical to those raised

in this proceeding, the Court finds no need

to presume that the entire matter should be

heard in state court. Thus, the decision to

exercise jurisdiction in this case is solely

within the Court’s sound discretion.

Broom is not binding authority governing the resolution of

the Rosenbaums’ motion to stay. See Cactus Corner, LLC v. U.S.

Dept. of Agriculture, 346 F.Supp.2d 1075, 1105 (E.D.Cal.2004),

aff’d, 450 F.3d 428 (9 Cir.2006). Furthermore, the issues in th

Empire’s declaratory relief action are parallel to the issues

already raised in the state court actions, especially in

connection with the Rosenbaums’ cross-complaint against

Enterprise for reformation of the rental agreement which directly

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affects the insurance coverage as does the stayed declaratory

relief action brought against the Rosenbaums by Farmers Insurance

Exchange under a separate policy. No federal issues are raised

by Empire’s declaratory relief complaint; no federal expertise is

necessary. 

2. Discourage Forum Shopping.

An inference of forum shopping is drawn from the fact that

Empire filed in federal district court despite the pendency of

five state court actions in the Stanislaus Superior Court and the

fact that the Farmers Insurance Exchange declaratory relief

action has been stayed by the state court. 

In Continental Cas. Co. v. Robsac Industries, 947 F.2d 1367,

1371 (9 Cir.1991), overruled on other grounds, G.E.I.C.O. v. th

Dizol, supra, 133 F.3d 1220), the Ninth Circuit, citing

Transamerica Occidental Life Ins. Co. v. DiGregorio, 811 F.2d

1249, 1254 n.4 (9 Cir.1987), described this factor as “relating th

to ‘the “defensive” or “reactive” nature of a federal declaratory

judgment suit,’ and stated that if a declaratory judgment suit is

defensive or reactive, that would justify a court’s decision not

to exercise jurisdiction.” Robsac Industries holds in pertinent

part:

A declaratory judgment action by an insurance

company against its insured during the

pendency of a non-removable state court

action presenting the same issues of state

law is an archtype of what we have termed

‘reactive’ litigation.

947 F.2d at 1372.

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Empire, noting that it is not a party to the state court

actions and contending that it cannot join those actions, argues

that denying the Rosenbaums’ motion to stay will not encourage

forum shopping.

Although Empire cannot join as a party to the personal

injury/wrongful death actions pending in state court, it appears

that Empire may intervene in the Rosenbaums’ cross-complaint

against Enterprise pursuant to California Code of Civil Procedure

§ 387. Therefore, the filing of Empire’s declaratory relief

action in federal court as opposed to state court implies forum

shopping. 

3. Avoid Duplicative Litigation.

The state court actions raise issues that overlap with those

raised in Empire’s Complaint, particularly with regard to the

Rosenbaums’ state court cross-complaint against Enterprise, which

seeks a declaration that Michael Rosenbaum and Lanier Oakley were

authorized drivers or had permission from Enterprise to drive the

van. 

Empire argues that this factor weighs against the stay

because a ruling in the Rosenbaums’ favor on the cross-complaint

against Enterprise will not bind Empire because Empire is not a

party to the cross-complaint.

However, pursuant to paragraph 8 of Empire’s Complaint and 

Philadelphia Indem. Ins. Co. v. Montes-Harris, 40 Cal.4th 151

(2006), Empire will be bound by the state court judgment on the

Rosenbaums’ cross-complaint against Enterprise because Enterprise

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was Empire’s agent for purposes of the SLP Policy issued to

Margaret Rosenbaum. Enterprise is a defendant and crosscomplainant in the state court actions and is the defendant in

the Rosenbaums’ cross-complaint. Even though Empire is not a

party to any of these lawsuits, Empire’s agent, Enterprise, is

participating. As Empire’s agent, Empire can be bound by the

decision on their state court cross-complaint against Enterprise

pursuant to collateral estoppel. 

The “full faith and credit” statute compels federal courts

to give collateral estoppel and res judicata effects to the

judgments of state courts. Se. Res. Recovery Facility Auth. v.

Montenay Int’l Corp., 973 F.2d 711, 712 (9 Cir.1992); 28 U.S.C. th

§ 1738. Collateral estoppel applies not only against the actual

parties to prior litigation, but also against a party that is in

privity to a party in previous litigation. Shaw v. Hahn, 56 F.3d

1128, 1131 (9 Cir.), cert. denied, 516 U.S. 964 (1995). th

Furthermore, as explained in Montana v. United States, 440 U.S.

147, 154-155 (1979):

Under collateral estoppel, once an issue is

actually and necessarily determined by a

court of competent jurisdiction, that

determination is conclusive in subsequent

suits based on a different cause of action

involving a party to the prior litigation ...

to preclude parties from contesting matters

that they have had a full and fair

opportunity to litigate protects their

adversaries from the expense and vexation

attending multiple lawsuits, conserves

judicial resources, and fosters reliance of

judicial action by minimizing the possibility

of inconsistent decisions.

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These interests are similarly implicated when

nonparties assume control over litigation in

which they have direct financial or

proprietary interest and then seek to

redetermine issues previously resolved. As

this Court observed in Souffront v. Compagnie

des Sucreries, 217 U.S. 475, 486-487 ...

(1910), the persons from whose benefit and at

whose direction a cause of action is

litigated cannot be said to be ‘strangers to

the cause .... [O]ne who prosecutes or

defends a suit in the name of another to

establish and protect his own right, or who

assists in the prosecution or defense of an

action in aid of some interest of his own is

as much bound ... as he would be if he had

been a party of record.’ ... Preclusion of

such nonparties falls under the rubric of

collateral estoppel rather than res judicata

because the latter doctrine presupposes

identity between causes of action. And the

cause of action which a nonparty has

vicariously asserted differs by definition

from that which he subsequently seeks to

litigate in his own right. 

Enterprise, as Empire’s agent for purposes of the insurance at

issue, is arguably in privity with Empire. Furthermore, Empire

is aware of the Rosenbaums’ cross-complaint against Enterprise

and has a direct financial interest in obtaining a decision in

favor of Enterprise on the issues of reformation of the rental

contract and declaratory relief that Michael Rosenbaum and Lanier

Oakley were authorized drivers. As noted, Empire may move to

intervene in the Rosenbaums’ cross-complaint.

4. Settle All Issues or Clarify Legal Relations at Issue.

The issue raised in Empire’s Complaint has already been

raised and is being addressed in the state court actions. 

Notions of comity weigh in favor of staying this action. See

discussion supra. In addition, Enterprise is not a party to

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Empire’s declaratory relief action and Empire may intervene in

the Rosenbaums’ cross-complaint against Enterprise.

5. Procedural Fencing.

The record establishes that Empire filed this declaratory

relief action in federal court in an attempt to avoid the stay

that would otherwise have been imposed had the action been filed

in state court. In Montrose Chemical Corporation v. Superior

Court, 6 Cal.4th 287, 301-302 (1993), the California Supreme

Court explained:

To 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 the facts to be litigated

in the underlying action ... For example,

when the third party seeks damages on account

of the insured’s negligence, and the insurer

seeks to avoid providing a defense by arguing

that its insured harmed the third party by

intentional conduct, the potential that the

insurer’s proof will prejudice its insured in

the underlying litigation is obvious. This

is the classic situation in which the

declaratory relief action should be stayed. 

By contrast, when the coverage question is

logically unrelated to the issues of

consequence in the underlying case, the

declaratory relief action may properly

proceed to judgment.

Furthermore, as explained in Haskel, Inc. v. Superior Court, 33

Cal.App.4th 963, 979 (1995):

There are three concerns which the courts

have about the trial of coverage issues which

necessarily turn upon the facts to be

litigated in the underlying action. First,

the insurer, who is supposed to be on the

side of the insured and with whom there is a

special relationship, effectively attacks its

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insured and thus gives aid and comfort to the

claimant in the underlying suit; second, such

a circumstance requires the insured to fight

a two-front war, litigating not only with the

underlying claimant, but also expending

precious resources fighting an insurer over

coverage questions - this effectively

undercuts one of the primary reasons for

purchasing liability insurance; and third,

there is a real risk that, if the declaratory

relief action proceeds to judgment before the

underlying action is resolved, the insured

could be collaterally estopped to contest

issues in the latter by the results of the

former. It is only where there is no

potential conflict between the trial of the

coverage dispute and the underlying action

that an insurer can obtain an early trial

date and resolution of its claim that

coverage does not exist. ....

Empire is attempting to engage its potential insured in the twofront war condemned by the California courts.

6. Entanglement Between State and Federal Court Systems.

For the reasons already discussed, allowing Empire’s

declaratory relief action to proceed will result in the

adjudication in both federal court and state court of the issue

whether Michael Rosenbaum and Lanier Oakley were authorized

drivers under the Enterprise rental contract. Because this issue

was first raised in the state court actions, entanglement between

the federal and state court systems will result because of the

potential for inconsistent rulings on various issues, including

application of the parol evidence rule, reformation of the SLP

Policy, and coverage. 

7. Convenience of Witnesses and Availability of Other

Remedies.

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The convenience of witnesses favors a stay. Empire’s action

is the only action filed in federal court, all of the other

actions having been filed in the Stanislaus County Superior Court

in Modesto, where the majority of the parties and witnesses

reside. Requiring the parties and witnesses to engage in

overlapping discovery also will be inconvenient. 

With regard to the availability of other remedies, the

Rosenbaums’ motion seeks a stay, not dismissal, of Empire’s

action. Wilton v. Seven Falls Company, 515 U.S. 277, 288 n.2

(1995) states that “where the basis for declining to proceed is

the pendency of a state proceeding, a stay will often be the

preferable course, because it assures that the federal action can

proceed without risk of a time bar if the state case, for any

reason, fails to resolve the matter in controversy”.

ACCORDINGLY, as set forth above:

1. Defendants’ Motion for Stay of Action is GRANTED;

2. Defendants’ Motion to Strike Sur-Reply is GRANTED.

IT IS SO ORDERED.

Dated: March 28, 2007 /s/ Oliver W. Wanger 

668554 UNITED STATES DISTRICT JUDGE

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