Court Opinion

ID: 2966450
Source: CourtListenerOpinion
Date Created: 2015-09-22 00:35:28.548937+00
Date Added: 2024-06-11T09:18:25.291406
License: Public Domain

Filed:   July 15, 1996

                    UNITED STATES COURT OF APPEALS

                        FOR THE FOURTH CIRCUIT

                             No. 95-1038
                             (CA-94-505)

The Centennial Life Insurance Company,

                                              Plaintiff - Appellant,

           versus

Barbara Poston; Victor Poston,

                                             Defendants - Appellees.

                              O R D E R

    The Court amends its corrected opinion filed June 20, 1996, as

follows:
    On page 3, first full paragraph, line 17 -- the citation to

Mitcheson v. Harris is corrected to read "955 F.2d 235."

                                       For the Court - By Direction

                                           /s/ Bert M. Montague

                                                      Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

THE CENTENNIAL LIFE INSURANCE
COMPANY,
Plaintiff-Appellant,
                                       No. 95-1038
v.

BARBARA POSTON; VICTOR POSTON,
Defendants-Appellees.

Appeal from the United States District Court
for the Southern District of West Virginia, at Huntington.
Robert J. Staker, Senior District Judge.
(CA-94-505)

Argued: April 4, 1996
Decided: June 20, 1996

Before WILKINSON, Chief Judge, ERVIN, Circuit Judge, and
BUTZNER, Senior Circuit Judge.

_________________________________________________________________
Affirmed by published opinion. Judge Ervin wrote the opinion, in
which Chief Judge Wilkinson and Senior Judge Butzner joined.

_________________________________________________________________

COUNSEL

ARGUED: Eric Wayne Iskra, SPILMAN, THOMAS & BATTLE,
Charleston, West Virginia, for Appellant. John Frederick Cyrus,
GARDNER & CYRUS, Huntington, West Virginia, for Appellees.
ON BRIEF: Charles L. Woody, Neva G. Lusk, SPILMAN,
THOMAS & BATTLE, Charleston, West Virginia, for Appellant.
David M. Pancake, LEVY, TRAUTWEIN & PANCAKE, Hunting-
ton, West Virginia, for Appellees.

_________________________________________________________________

CORRECTED OPINION

ERVIN, Circuit Judge:

The district court dismissed Centennial Life Insurance Company's
declaratory judgment action. Because a pending state action will
resolve the issue raised in the federal action, along with a number
of
issues not raised here, we believe that the district court did not
abuse
its discretion. Therefore, we affirm the decision below.

I.

Soon after Centennial Life Insurance Company issued a health
insurance policy to Victor and Barbara Poston, it began to suspect
that
the insurance application contained material misrepresentations. A
hospital requested that Centennial authorize a liver transplant for
Vic-
tor Poston, and two days later the insurer rescinded the policy.
The
Postons objected to the notice of rescission.

On June 22, 1994, Centennial brought this diversity action in the
district court, seeking a declaration that the insurance policy was
void
based on the Postons' fraudulent misrepresentations. On August 12,
1994, Barbara Poston initiated a state court action seeking
enforce-
ment of the policy and damages, and asserting separate and alterna-
tive claims against the insurance agent. On the same day, Poston
moved to dismiss the federal action.

The district court found that the issues involved in Centennial's
declaratory judgment action could be resolved as efficiently in
state
court as in federal court, and had in fact been raised in the state
pro-
ceeding. The court thus concluded that "it should decline
jurisdiction
over this action in deference to the state court action."

II.

The Federal Declaratory Judgment Act provides that district courts
"may declare the rights and other legal relations of any interested
2
party seeking such declaration whether or not further relief is or
could
be sought." 28 U.S.C.A. § 2201(a). This power has consistently been
considered discretionary. See, e.g., Brillhart v. Excess Ins. Co.,
316
U.S. 491, 494 (1942); Wilton v. Seven Falls Co., 132 L. Ed. 2d 214,
225 (1995); Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 324 (4th
Cir. 1937).

The Fourth Circuit has explained that a declaratory judgment
action is appropriate "when the judgment will serve a useful
purpose
in clarifying and settling the legal relations in issue, and . . .
when it
will terminate and afford relief from the uncertainty, insecurity,
and
controversy giving rise to the proceeding." Quarles, 92 F.2d at 325
(quoting Edwin M. Borchard, Declaratory Judgments 107-09 (1934)).
It should not be used "to try a controversy by piecemeal, or to try
par-
ticular issues without settling the entire controversy, or to
interfere
with an action which has already been instituted." Quarles, 92 F.2d
at 325. The Supreme Court explained that, when a related state pro-
ceeding is underway, a court considering a declaratory judgment
action should specifically consider whether the controversy "can
bet-
ter be settled in the proceeding pending in the state court."
Brillhart,
316 U.S. at 495. This consideration should be guided by a number of
factors, including the nature and scope of the state proceeding and
"whether the claims of all parties in interest can satisfactorily
be adju-
dicated in that proceeding . . . ." Id.; see also Mitcheson v.
Harris, 955
F.2d 235 (4th Cir. 1992).

Guided by these general principles--as well as "the same consider-
ations of federalism, efficiency, and comity that traditionally
inform
a federal court's discretionary decision whether to abstain from
exer-
cising jurisdiction over state-law claims in the face of parallel
litiga-
tion in the state courts"--the Fourth Circuit has set forth a
number of
specific factors for district courts to consider. Nautilus Ins. Co.
v.
Winchester Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994). These
include:

     (i) the strength of the state's interest in having the issues
     raised in the federal declaratory action decided in the state
courts; (ii) whether the issues raised in the federal action
can
more efficiently be resolved in the court in which the state
action is pending; [ ] (iii) whether permitting the federal

                           3
     action to go forward would result in unnecessary "entangle-
     ment" between the federal and state court systems, because
     of the presence of "overlapping issues of fact or law"[; and
     (iv)] whether the declaratory judgment action is being used
     merely as a device for "procedural fencing"--that is, "to
     provide another forum in a race for res judicata" or "to
     achiev[e] a federal hearing in a case otherwise not remov-
     able."

Id. at 377.

Last year the Supreme Court addressed the standards under which
a district court's decision to stay1 a declaratory judgment action
should be made and reviewed on appeal. Wilton v. Seven Falls Co.,
132 L. Ed. 2d 214 (1995). The Court clearly reaffirmed Brillhart v.
Excess Ins. Co., 316 U.S. 491 (1942), which it described in terms
sim-
ilarly descriptive of the case before us: "An insurer, anticipating
a
coercive suit, sought a declaration in federal court of
nonliability on
an insurance policy." 132 L. Ed. 2d at 220. In Brillhart, the
district
court dismissed the action because of ongoing state litigation. The
Wilton Court understood Brillhart to stand for the proposition
that, "at
least where another suit involving the same parties and presenting
opportunities for ventilation of the same state law issues is
pending
in state court, a district court might be indulging in `gratuitous
inter-
ference,' if it permitted the federal declaratory action to
proceed." Id.
at 221 (citation omitted). The Court concluded that district courts
in
fact possess rather wide discretion in making these decisions:
     Consistent with the nonobligatory nature of the remedy, a
     district court is authorized, in the sound exercise of its
     dis-
     cretion, to stay or to dismiss an action seeking a declaratory
_________________________________________________________________

1 The Court minimized the distinction between a district court's
staying
of the action and an outright dismissal, because even when the
federal
action is stayed, a state court judgment ultimately would have
preclusive
effect. 132 L. Ed. 2d at 221. The Court also noted, however, that
"where
the basis for declining to proceed is the pendency of a state
proceeding,
a stay will often be the preferable course, insofar as 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." Id. at 224
n.2.

                                 4
       judgment before trial or after all arguments have drawn to
       a close. In the declaratory judgment context, the normal
       principle that federal courts should adjudicate claims within
       their jurisdiction yields to considerations of practicality
       and
       wise judicial administration.

Id. at 224. To whatever extent our previous decisions have implied
further constraints on district court discretion, see, e.g.,
Nautilus, 15
F.3d at 375, those decisions must give way to the clear teachings
of
Wilton.

The Wilton Court further explained that a district court's decision
to stay a declaratory judgment action is reviewed for abuse of
discre-
tion, finding that the Declaratory Judgment Act is best effectuated
if
district courts are "vest[ed] with discretion in the first
instance,
because facts bearing on the usefulness of the declaratory judgment
remedy, and the fitness of the case for resolution, are peculiarly
within their grasp." 132 L. Ed. 2d at 225.

III.

Applying these principles2 to the present case, we cannot find that
the district court abused its discretion in dismissing without
prejudice
Centennial Life's declaratory judgment action. Several of the
factors
we have endorsed for aid in making such decisions lead to no
obvious
conclusion. For instance, although only state law is at issue, the
rele-
vant state law is not problematic or difficult to apply, which
weakens
somewhat the state's interest in having these issues decided in
state
court. Also, although the federal action was filed first, we
decline to
place undue significance on the race to the courthouse door,
particu-
larly in this instance where Centennial had constructive notice of
the
Postons' intent to sue, and Barbara Poston's state filing was
under-
standably delayed by her husband's death.
_________________________________________________________________

2 Because our recent decisions in Nautilus Ins. Co. v. Winchester
Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994), and Continental Cas.
Co.
v. Fuscardo, 35 F.3d 963, 965 (4th Cir. 1994), reviewed district
courts'
decisions to decline jurisdiction to hear a declaratory judgment
under a
de novo standard, we will not discuss those cases in detail here.
                               5
One factor, however, is particularly salient here: the state court
action contains a defendant and a number of issues not present in
the
federal action. The Postons have asserted claims against Centennial
insurance agent Jack Gottlieb, based on his representations about
the
insurance policy and an alleged negligent failure to procure the
insur-
ance requested. Thus, although issuance of a declaratory judgment
would settle part of the controversy between the Postons and
Centen-
nial Life, it certainly would not settle the entire matter. The
state liti-
gation, on the other hand, could resolve all issues, and we note
that
significant discovery has already been undertaken in that action.
Con-
cern for efficiency and judicial economy clearly support the
district
court's decision.

Finding no abuse of discretion in the decision of the district
court,
we affirm.

AFFIRMED

                                6