Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02238/USCOURTS-caed-2_05-cv-02238-1/pdf.json

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

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

RLI INSURANCE COMPANY,

CASE NO. S-05-2238 WBS GGH

Plaintiff,

v. MEMORANDUM AND ORDER RE: 

MOTION TO DISMISS OR STAY 

R & L BROSAMER, INC., a

California Corporation, DRILL

TECH DRILLING & SHORING, INC.,

a California Corporation, and

DOES 1 through 50, inclusive,

Defendants.

----oo0oo----

In the midst of a dispute over insurance coverage,

plaintiff, RLI Insurance Company, filed this action pursuant to

the Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201, asking

the court to adjudicate its rights and obligations under the

terms of plaintiff’s insurance policy. Defendant, R & L

Brosamer, Inc. (“Brosamer”), filed suit a few days later in state

court based on the same dispute. Brosamer now moves this court

to dismiss or stay this action, pursuant to Federal Rules of

Civil Procedure 12(b)(1), (4), and (6) and its discretionary

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authority to abstain from hearing cases involving the DJA.

I. Factual and Procedural Background

On December 3, 2003, Brosamer “entered into a contract

with the California Department of Transportation (‘CalTrans’) to

construct improvements in the interchange between Interstate 80

at Douglas Boulevard and Sunrise Avenue in Roseville, California

(‘the [p]roject’).” (First Am. Compl. ¶ 11.) The project plans

called for the excavation of a tunnel, which involved the

construction of temporary structures to shore up the walls until

permanent supports could be introduced. (Id. ¶ 12.) To assist

in the construction of temporary supports, Brosamer subcontracted

with defendant Drill Tech. (Id. ¶ 13.) It also, prior to the

start of the project, purchased a Builders Risk insurance policy

from plaintiff. (Id. ¶ 10.) 

Defendants began work on the tunnel portion of the

project on August 16, 2005. (Id. ¶ 14.) Using steel nails

inserted into the earth and lightweight concrete to support the

tunnel walls, defendants achieved a depth of 25 to 30 feet

without incident. (Id.) However, in late September, 2004, the

retaining walls began to fail. (Id. ¶¶ 15-16.) Despite measures

taken to reinforce these structures, defendants were unable to

stabilize the soil and experienced multiple cave-ins as work

progressed. (Id. ¶¶ 15-20.) Eventually, the shifting earth in

the tunnel started to take a toll on the initial construction of

the related overpass, with some structures sinking and others

cracking. (Id. ¶ 21.) 

To cover the losses related to defendants’ unsuccessful

attempts to secure the tunnel walls, Brosamer submitted a

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The reasons for denying the claim, explained in detail 1

in the complaint, are not relevant to the instant motion.

The original complaint was amended on December 19, 2005 2

to include claims against Drill Tech Inc., who is a defendant,

along with plaintiff here, in Brosamer’s state court action. 

However, because the amended complaint did not resolve the

grounds for defendant Brosamer’s motion to dismiss, the court may

still consider the motion. Fitzgerald v. State, No. Civ.

96-2077, 1997 WL 579193, at *3 (D. Ariz. July 9, 1997)

(explaining that although an amended complaint typically moots

all pending motions, “the [c]ourt may exercise its discretion to

consider a motion to dismiss the original complaint where the

amended complaint fails to cure the defects of the original

complaint.”); see also Datastorm Techs., Inc. v. Excalibur

3

Property Loss Notice to plaintiff on November 15, 2004, pursuant

to the Builders Risk insurance policy. (Id. ¶¶ 10, 22.) 

Subsequently, plaintiff undertook an investigation into the

incident to determine whether the losses incurred were actually

covered by the policy. (Id. ¶ 23.) Based on the results of that

investigation, conducted by Geotechnical Consultants Inc.

(“GCI”), plaintiff “determined that its policy did not afford

coverage for the reported loss.” (Id. ¶ 25.) 1

In response, Brosamer employed its own expert, Earth

Support Systems, Inc. (“ESS”), to assess the validity of its

claims and to rebut plaintiff’s grounds for rejecting them. 

(Def.’s Mot. to Dismiss or Stay 4.) ESS disagreed with several

of GCI’s findings and based on these points of contention,

Brosamer urged plaintiff to reconsider its denial of Brosamer’s

claim. (Id. at 5.) Brosamer asserts that plaintiff led it to

believe that a favorable resolution was forthcoming, but then,

without giving Brosamer prior notice, plaintiff filed this suit

on November 3, 2004, seeking declaratory judgment in federal

court. (Id. at 7.) 2

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Commc’ns, Inc., 888 F. Supp. 112, 114 (N.D. Cal. 1995); Roessert

v. Health Net, 929 F. Supp. 343, 347 (N.D. Cal. 1996). 

Assuming that parties must fit a motion to dismiss 3

based on abstention doctrines into the rubric of Rule 12(b),

courts that have faced this issue have found that abstention

arguments get at the plaintiff’s “failure to state a claim upon

which relief can be granted,” which is the proper subject matter

of a Rule 12(b)(6) motion. Jonathan Club v. City of Los Angeles,

680 F. Supp. 1405, 1408-09 (C.D. Cal. 1988) (“[Abstention

challenges are] properly raised in a motion to dismiss for

failure to state a claim upon which relief can be granted.”); see

also Carter v. Doyle, 95 F. Supp. 2d 851, 856 n.8 (N.D. Ill.

2000) (same). Logically, this makes sense, because when

abstention is warranted, the court cannot grant the relief sought

without abusing its discretion. See also Centro Medico del

Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir.

4

Brosamer further contends that plaintiff’s suit was

responsive to its own threats to initiate a lawsuit to resolve

its disputed insurance claim. (Id.) Indeed, the parties do not

contest that Brosamer warned plaintiff’s attorneys that it would

take such action if plaintiff “did not change its position on

coverage for the loss by November 4, 2005.” (Id.) Brosamer did

file suit in state court on November 14, 2005, alleging breach of

contract and bad faith. (Id. at 8; Brosamer Decl. Ex. A

(Complaint, R & L Brosamer, Inc. v. RLI Ins. Co., No. C 05-2337

(Cal. Super. Ct. filed Nov. 14, 2005)).)

With suits essentially involving the same dispute

pending in both state and federal court, Brosamer now requests

that this court dismiss, or at least stay, this federal

proceeding while the state court case runs its course. Brosamer

captioned this motion as one pursuant to Federal Rule of Civil

Procedure 12(b)(1), (4) and (6); however, because Brosamer’s

motion is based on the judicially created doctrine of abstention,

only Rule 12(b)(6) applies. Accordingly, the court will consider 3

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2005) (“[I]t is sometimes permissible to grant a motion to

dismiss based on an affirmative defense . . . .”); Ghartey v. St.

John’s Queens Hosp., 869 F.2d 160, 162 (2d Cir. 1989) (“[A]

defendant may raise [an] affirmative defense in a pre-answer

motion to dismiss.”).

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Brosamer’s abstention arguments in light of the constraints of

that Rule.

II. Discussion

A. Legal Standards

On a motion to dismiss, the court must accept the

allegations in the complaint as true and draw all reasonable

inferences in favor of the pleader. Scheuer v. Rhodes, 416 U.S.

232, 236 (1974); Cruz v. Beto, 405 U.S. 319 (1972). In general,

the court may not consider material other than the facts alleged

in the complaint, however, reliance on matters of public record

is allowed. Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir.

1996) (noting that a district court cannot rely on “materials

outside the pleadings in support or opposition to [a] motion [to

dismiss]”); Mack v. S. Bay Beer Distribs., 798 F.2d 1279, 1282

(9th Cir. 1986)(recognizing that matters of public record can be

relied upon when deciding a Rule 12(b)(6) motion), abrogated on

other grounds by Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501

U.S. 104 (1991). Therefore, because Brosamer’s state court

complaint has been filed in the Contra Costa County Superior

Court, it is a matter of public record, and the court can rely on

it in deciding whether to abstain from deciding the instant

motion. See Kent v. Daimlerchrysler Corp., 200 F. Supp. 2d 1208,

1219 (N.D. Cal. 2002) (“[A] legal memorandum filed in a state

court action . . . is a public record.”).

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These factors are identified and applied to the facts 4

of this case in Part II.C.

6

Regarding abstention, “there is no presumption in favor

of [it] in declaratory actions generally, nor in insurance

coverage cases specifically.” Gov’t Employees Ins. Co. v. Dizol,

133 F.3d 1220, 1225 (9th Cir. 1998) (en banc). However, because

the grant of a declaratory judgment is a discretionary act, a

court may decline to entertain such actions even when

jurisdiction over the subject matter of the claim is otherwise

proper. 28 U.S.C. § 2201(a); Dizol, 133 F.3d at 1223 (“[T]he

Declaratory Judgment Act is ‘deliberately cast in terms of

permissive, rather than mandatory, authority.’” (quoting Pub.

Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 250 (1952)

(Reed, J., concurring))). In other words, when a declaratory

judgment is at issue, “the normal principle that federal courts

should adjudicate claims within their jurisdiction yields to

considerations of practicality and wise judicial administration.” 

Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995).

Still, a court cannot yield jurisdiction on a “whim or

personal disinclination,” but instead must assess whether the

federal declaratory action will or will not satisfy a set of

eight factors, most clearly laid out in Government Employees

Insurance Co. v. Dizol. 133 F.3d at 1223 (quoting Pub. Affairs 4

Assocs. v. Rickover, 369 U.S. 111, 112 (1962)). Additionally,

the court’s discretion is further constrained by the presence of

“claims in the case that exist independent of any request for

purely declaratory relief, that is, claims that would continue to

exist if the request for a declaration simply dropped from the

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case.” Snodgrass v. Provident Life & Accident Ins. Co., 147 F.3d

1163, 1167-68 (9th Cir. 1998) (emphasis added). Such claims “are

not subject to the Declaratory Judgment Act’s discretionary

jurisdictional rule . . . [and] invoke the ‘virtually unflagging’

obligation of the district court to hear jurisdictionally

sufficient claims.” Id. at 1167 (citations omitted). Their

presence and impact should be considered first before undertaking

an analysis of the eight factors. Supermicro Computer Inc. v.

Digitechnic, S.A., 145 F. Supp. 2d 1147, 1150 (N.D. Cal. 2001).

B. Impact of Independent Claims on the Court’s DJA

Discretion

In the instant action, plaintiff argues that

independent claims, the compulsory counterclaims that Brosamer

will, allegedly, have to file if this federal action goes

forward, preclude dismissal pursuant to the DJA’s discretionary

jurisdiction rule. Indeed, under Federal Rule of Civil Procedure

13(a), Brosamer would seemingly be required to state as a

counterclaim any claim it has against plaintiff that “arises out

of the transaction or occurrence that is the subject matter of

[plaintiff’s] claim” and was not already, “the subject of another

pending action” when the federal action commenced. 

However, the court is not convinced that a defendant’s

anticipated compulsory counterclaims can rob the court of its

discretion where, as here, a federal action is brought consisting

entirely of a declaratory judgment claim aimed at preempting the

possibility of a state court action. First and foremost,

Brosamer’s “compulsory” counterclaims may never actually be

raised in federal court. The only consequence Brosamer will face

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if it does not raise these claims now is a waiver of the right to

do so in federal court. Its ability to simultaneously pursue

these claims in state court will not be impaired by failure to

raise them in this action because “a federal court [cannot]

enjoin[] a party from proceeding in state court on a claim that

should have been pleaded as a compulsory counterclaim in a prior

federal suit.” Seattle Totems Hockey Club, Inc. v. Nat’l Hockey

League, 652 F.2d 852, 855 n.5 (9th Cir. 1981) (citing the Federal

Anti-Injunction Act, 28 U.S.C. § 2283). 

Second, Snodgrass, the case relied on by plaintiff for

the proposition that independent counterclaims interfere with the

court’s discretion to refuse to hear suits seeking declaratory

relief, involved independent claims brought by the plaintiff. 

1147 F.3d at 1167. Compulsory counterclaims were not at issue. 

Significantly, cases in which the Ninth Circuit has held that

counterclaims obligated the district court to entertain claims

for declaratory relief have not involved parallel state

proceedings and the counterclaims were already in play. United

Nat’l Ins. Co. v. R&D Latex Corp., 242 F.3d 1102 (9th Cir. 2001)

(motion to remand); Am. Cas. Co. v. Krieger, 181 F.3d 1113 (9th

Cir. 1999) (state court action dismissed by federal defendant

after counterclaims filed in answer); Snodgrass, 147 F.3d at 1166

(motion to remand); Allstate Ins. Co. v. Kaneshiro, 152 F.3d 923

(9th Cir. 1998) (motion to remand); Md. Cas. Co. v. Knight, 96

F.3d 1284 (9th Cir. 1996). This court doubts that the Ninth

Circuit would further broaden the independent claim bar to cover

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The Ninth Circuit has cautioned that substantive 5

counterclaims properly within the court’s jurisdiction, once

raised, cannot be dismissed pursuant to the court’s discretion

under the DJA. Knight, 96 F.3d at 1289 (“The district court did

not have discretion to dismiss the counterclaim pursuant to 28

U.S.C. § 2201.”).

9

hypothetical counterclaims that merely duplicate pending state 5

claims. Such an extension would run headfirst into another Ninth

Circuit rule, which counsels that “the primary instance in which

a district court should exercise its discretion to dismiss a case

is presented when there exists a parallel proceeding in state

court.” Knight, 96 F.3d at 1288.

Finally, the court doubts that the Ninth Circuit would 

adopt an approach to actions for declaratory relief that would

allow plaintiffs to force defendants to litigate their

unremovable state case in federal court. (Pl.’s Mem. of P. & A.

in Opp’n to Def.’s Mot. to Dismiss or Stay 7 (recognizing that

Brosamer’s state court action is not removable).) This circuit

has long frowned upon reactive lawsuits, specifically declaratory

actions filed in anticipation of an opponent’s plans to initiate

litigation. A “federal case is still deemed ‘reactive’ to the

state case” even when the state case is filed second, if the

federal action was hastily commenced “in hopes of preempting any

state court proceeding.” Id. at 1289 (citations and quotations

omitted); see also Ven-Fuel, Inc. v. Dep’t of the Treasury, 673

F.2d 1194, 1195 (11th Cir. 1982) (equitable considerations

require courts to consider “whether the declaratory judgment was

filed in apparent anticipation of the other pending proceeding”).

///

///

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C. Application of Factors Governing DJA Discretion

Consequently, the court must consider the eight factors

identified in Dizol that govern its discretion to stay or dismiss

the instant action. The relevant considerations include whether

federal declaratory action will or will not: (1) result in a

needless determination of state law issues, (2) encourage forum

shopping, (3) lead to duplicative litigation, (4) settle all

aspects of the controversy, (5) clarify the legal relations at

issue, (6) serve only as a procedural fence, (7) result in

entanglement between the federal and state court systems, and (8)

inconvenience the parties or witnesses. Dizol, 133 F.3d at at

1225 & n.5 (describing the relevant factors governing discretion

as provided in Brillhart v. Excess Insurance Company of America,

316 U.S. 491, 495 (1942), and other factors added by the Ninth

Circuit to the non-exhaustive Brillhart list).

First, retaining jurisdiction over this action would

result in a needless determination of state law issues. The

federal courts routinely, in diversity and other cases, determine

issues of state law. There is nothing “needless” about it; it is

an important part of our duties. However, the Ninth Circuit has

held that when parallel state proceedings are pending, federal

declarations on state law issues are unnecessary. Id. at 1371;

see also Smith v. Lenches, 263 F.3d 972, 978 (9th Cir. 2001)

(“For the federal court to retain jurisdiction to give

declaratory judgment on the same claims [pending in a state court

action] would result in a needless determination of state law.”).

This case is substantially no different from

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

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(9th Cir. 1991), overruled on other grounds by Dizol, 133 F.3d at

1227, in which the Ninth Circuit reversed the district court’s

decision to exercise jurisdiction in a declaratory relief action

brought by an insurer, pointing out that the federal court could

have avoided a needless determination of state law by not

exercising its jurisdiction. See also Am. Nat. Fire Ins. Co. V.

Hungerford, 53 F.3d 1012 (9th Cir. 1995).

Second, retention of jurisdiction might encourage forum

shopping. Arguably, parties inclined to forum shop will do so

whether this court abstains or not. But if federal courts

abstain from accepting jurisdiction in this type of case, it

would certainly tend to discourage insurers from filing parallel

declaratory relief actions where state court actions are either

pending or immanent. If that is what the Ninth Circuit wants the

district courts to discourage, then this factor favors abstention

here. 

When a federal declaratory judgment suit is reactive, a

court should not exercise jurisdiction. Robsac Indus., 947 F.2d

at 1371; see also id. at 1372-73 (“Whether the federal

declaratory judgment action regarding insurance coverage is filed

first or second, it is reactive . . . .”). Here, plaintiff

admits that in light of Brosamer’s “coercive threats [to litigate

this matter],” it filed suit in federal court “to assure a fair

resolution of [the] coverage suit.” (Pl.’s Mem. of P. & A. in

Opp’n to Def.’s Mot. to Dismiss or Stay 7.) Plaintiff’s

motivations for this federal action are clear: it wanted to

control where Brosamer could litigate its coverage claims and it

used the DJA to accomplish that end. Ninth Circuit precedent

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The court notes however, that while the Ninth Circuit’s 6

“reactive suit” approach to deciding the forum shopping factor

favors defendant’s stance, both parties are guilty of forum

shopping here. Plaintiff and defendant both admitted at oral

argument that their respective forum preferences are based upon

strategic considerations.

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counsels against this court’s consideration of what can only be

defined as preemptive litigation.6

Third, retention of jurisdiction may lead to

duplicative litigation. The court is informed that the Contra

Costa County Superior Court has agreed to hold its case in

abeyance pending this court’s determination whether to abstain. 

But there is no assurance that it will continue to do so

indefinitely. If for any reason the state court is persuaded to

lift its stay, this court will be powerless to prevent that court

from going forward, and the very same factual and legal issues

involved here will be subject to litigation there.

Fourth, from what has been shown, it appears that

retention of jurisdiction in this case will resolve all aspects

of both the state and federal lawsuits. It appears that the

state court claims can be raised as counterclaims and crossclaims in this action.

Fifth, for the same reasons, retention of jurisdiction

over this case will clarify the legal relations at issue in both

the state and federal lawsuits.

Sixth, it is unclear exactly what the Ninth Circuit

means by a “procedural fence,” but plaintiff did not file a

federal declaratory relief action in hopes of creating a

procedural bar to pending state litigation; rather, it simply

brought suit in federal court to secure a federal forum. The

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Sixth factor is not concerned with such tactics.

Seventh, retention of jurisdiction might result in an

entanglement between the federal and state court systems. As

discussed above, although the state court has agreed to hold its

case in abeyance pending this court’s determination whether to

abstain, there is no assurance that it will continue to do so

indefinitely. If that court should lift its stay at any time

before the conclusion of these proceedings, the proceedings in

this court may well become entangled with the proceedings there.

Eighth, the inconvenience to parties and witnesses will

not be noticeably different depending on which action--federal,

state, or both--goes forward. The Contra Costa County Superior

Court is located in Martinez, which is merely a one or two hour

drive from the courthouse where this action will be heard in

Sacramento. There is very little significant difference in the

distance of each court from available airports. 

III. Conclusion 

Ultimately, whether this court should retain

jurisdiction or abstain is a question for the Ninth Circuit to

determine. See Robsac Indus., 947 F.2d at 1370 (“[w]e review de

novo the district court’s decision to exercise its jurisdiction

under the Declaratory Judgments Act when a state action is

pending.”) All this court can do is to apply the factors

identified in Dizol and Brillhart to the facts as made known to

it. Applying those factors to the facts here, the court

concludes that it should exercise its discretion to abstain from

accepting jurisdiction over this action.

///

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IT IS THEREFORE ORDERED that defendant Brosamer’s

motion to dismiss this action be, and the same hereby is,

GRANTED.

DATED: January 17, 2006

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