Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-06555/USCOURTS-cand-4_06-cv-06555-2/pdf.json

Parties Involved:
Indian Harbor Insurance Company
Plaintiff
Thomas J. Kearney
Defendant
Meridian Commercial, Inc.
Defendant

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

INDIAN HARBOR INSURANCE

COMPANY,

 Plaintiff.

 v.

MERIDIAN COMMERCIAL, INC.

and THOMAS J. KEARNEY,

 Defendants.

_____________________________/

No. C 06-6555 WDB

ORDER GRANTING MOTION TO

DISMISS

On January 5, 2007, defendants filed their Motion to Dismiss or in the

Alternative Stay Proceedings Pending Resolution of the Underlying Lawsuit

("Motion). On February 13, 2007, the Court conducted a hearing in connection with

defendants' Motion. At that time the Court requested supplemental briefing with

respect to several issues. See, Order, filed February 14, 2007.

The parties submitted their supplemental briefing, and on March 15, 2007, the

matter was deemed submitted. The Court RULES as follows.

Plaintiff's action arises under the Declaratory Judgment Act. 28 U.S.C. §2201. 

"The exercise of jurisdiction under the Federal Declaratory Judgment Act . . . is

committed to the sound discretion of the federal district courts." Huth v. The

Hartford Ins . Co. of the Midwest, 298 F.3d 800 (9th Cir. 2002). Pursuant to Brillhart

v. Excess Ins. Co., 316 U.S. 491 (1942), and its progeny, the Court must consider,

inter alia, the following factors: (1) avoiding needless determination of state law

Case 4:06-cv-06555-WDB Document 30 Filed 03/27/07 Page 1 of 5
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issues, (2) discouraging the filing of declaratory relief actions as a means of forum

shopping, and (3) avoiding duplicative litigation. Huth, 298 F.3d at 803. 

"Essentially, the district court must balance concerns of judicial administration,

comity, and fairness to the litigants." American States Ins., Co., v. Kearns, 15 F.3d

142 (9th Cir. 1994) quoting Chamberlain v. Allstate Ins., Co., 931 F.2d 1361 (9th

Cir. 1990).

The Court ABSTAINS from exercising its jurisdiction over plaintiff's action

and GRANTS defendants' Motion to Dismiss.

We think abstaining is appropriate to avoid the needless determination of state

law issues. The parties' supplemental papers are well done. The arguments presented

by plaintiff with respect to how to construe the 'prior knowledge' provision at issue

are well framed and have substantial persuasive power. However, in our view, the

question of whether an objective or subjective test applies to this kind of 'prior

knowledge' provision has not been clearly settled by California courts.

The Court and parties have located only one decision from a California

appellate court directly on point. American Int.'l Specialty Lines Ins. Co. v.

Continental Casualty Ins. Co., 142 Cal. App. 4th 1342 (2nd Dist. 2006). Although

American Int.'l clearly applies an objective standard, it does so with limited

reasoning. We simply cannot find that one appellate decision containing limited

reasoning establishes an issue as "settled." 

Plaintiff cites a variety of cases from jurisdictions other than California that

apply an objective standard and identifies several bases for distinguishing those cases

from courts outside California that appear to apply a subjective standard. While cases

from jurisdictions other than California might improve the likelihood that we would

predict accurately what rule the California Supreme Court ultimately would

announce, at this juncture we consider only the threshold question of whether the

issue is "settled" in California. That we and the parties feel constrained to look to

other jurisdictions to determine how California might rule is itself support for the

conclusion that the issue is unsettled within California.

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The appropriate place for interpreting the policy language at issue is the

California state court. The remedy of declaratory relief is available to plaintiff under

California law. State courts are presumptively more familiar with state law than are

federal courts -- and only state courts can authoritatively resolve issues of state law. 

The state court also would be better able to determine whether to coordinate

plaintiff's action with the underlying litigation already pending there and would be in

a superior position to coordinate the two actions in the event that need arises. 

There is an additional consideration that is rooted in notions of comity and in

uncertainty about what the relevant law is that supports our decision to exercise our

discretion to dismiss plaintiff’s complaint. Defendants assert that to present a full and

fair defense in this action for declaratory relief they would be compelled to disclose

confidential advice they received from their attorney before the inception of the

insurance policy at issue here. These otherwise protected communications apparently

relate to the likelihood that defendants would be sued by other unsuccessful bidders. 

Defendants point out that the privilege they would be waiving in that circumstance is

a privilege given them by California law. It would be most appropriate, they argue, to

permit California courts to determine the scope of any waiver of this privilege that

would be occasioned by the limited disclosures defendants say they would need to

make to defend the declaratory relief action. 

It is not clear whether, as plaintiff contends, a federal court that exercises

jurisdiction over this kind of action would have the power, in these circumstances, to

bind a state court to follow the federal court’s judgment about the scope of the waiver

of a state law privilege. If we decline jurisdiction in this case, thereby permitting the

state court to decide the scope of the waiver of the state privilege, that uncertainty

becomes irrelevant – and we eliminate the risk of creating tension between the state

and federal judiciary that might well ensue if this federal court were to purport to

dictate to a state court how that court must resolve issues that arise in state court

proceedings about the scope of the waiver of a state law privilege. 

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It is against these considerations that we weigh any competing interests that

might support a decision to retain jurisdiction here. To cut to the chase, there are

precious few such interests – and those that plaintiff has identified carry relatively

little weight. When we asked counsel for plaintiff to tell us why plaintiff wanted this

matter to proceed in federal court, the answer was quite thin: the lawyers in our

office, counsel said, are familiar with federal court, our client prefers federal court

(for no specified reason), and the electronic filing system in federal court is easy to

use. See, Transcript February 13, 2007, hearing. Plaintiff pointed to no unfairness

and no extra burden that it would suffer if this matter were to proceed in state court. 

Nor did plaintiff identify any harm to any substantial interest it might have outside

the litigation that would be threatened if this court declined to exercise jurisdiction. 

In its Supplemental Opposition plaintiff also argued that this Court should

retain jurisdiction because plaintiff has asserted what it believes is an independent

basis for the relief it seeks and that if we grant summary judgment for plaintiff on that

basis we will not be required to address the arguably unsettled question of state law

about whether to use an objective or a subjective test in litigating the ‘prior

knowledge’ provision. This allegedly independent basis for the relief plaintiff seeks

also is rooted in state law – and the parties have not fully briefed whether the legal

principles we would need to apply in addressing this claim are “settled.” Moreover,

we obviously cannot know in advance how we might rule on this allegedly

independent basis for relief. If we were to follow the procedural course that plaintiff

urges, but then to decide, after appropriate development of an evidentiary record, the

submission of briefs and oral argument, that plaintiff was not entitled to summary

judgment on this second ground, we would have invested substantial judicial

resources that would need to be re-invested by the state court. Thus, following the

course plaintiff urges creates a significant risk of wasting judicial resources and/or of

piecemeal litigation. There simply is no compelling reason to take these risks. 

//

//

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Assessing all the pertinent considerations, it is clear that the factors that

support a decision to defer these proceedings to a state court substantially outweigh

the interests that support retaining jurisdiction. We therefore GRANT

DEFENDANTS’ MOTION TO DISMISS – without purporting to suggest any views

about the merits of the parties’ underlying positions.

IT IS SO ORDERED.

Dated: March 27, 2007 

WAYNE D. BRAZIL

United States Magistrate Judge

Copies to:

Parties, WDB, 

Clerk of the Court, stats

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