Court Opinion

ID: 38333
Source: CourtListenerOpinion
Date Created: 2010-04-25 20:06:27+00
Date Added: 2024-06-11T17:15:58.147201
License: Public Domain

United States Court of Appeals
                                                                    Fifth Circuit
                                                                  F I L E D
                IN THE UNITED STATES COURT OF APPEALS
                        FOR THE FIFTH CIRCUIT                     April 21, 2005

                                                             Charles R. Fulbruge III
                                                                     Clerk
                             No. 04-61023
                           Summary Calendar

AMERICAN BANKERS LIFE ASSURANCE
COMPANY OF FLORIDA,

                                              Plaintiff-Appellant,

versus

JEFF OVERTON,

                                              Defendant-Appellee.

                       --------------------
           Appeal from the United States District Court
             for the Northern District of Mississippi
                         (1:04-CV-133-GHD)
                       --------------------

Before WIENER, BENAVIDES, and STEWART, Circuit Judges.

PER CURIAM:*

     Plaintiff-Appellant American Bankers Life Assurance Company of

Florida (“American Bankers”) appeals the district court’s dismissal

of its declaratory judgment action under 28 U.S.C. § 2201.                We

vacate and remand.

                       I. FACTS AND PROCEEDINGS

     In May 2000, defendant-appellee Jeffery Overton applied for

credit disability insurance under a policy (“the Policy”) from

American   Bankers   through   its   agent,   Conseco   Finance   Services

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Corporation (“Conseco”), from whom Overton obtained a loan to

refinance his home.         The Policy’s schedule states that the term of

disability benefits is 12 months, with an effective date of May 8,

2000, and an expiration date of May 8, 2001.1

     Overton became physically disabled in August 2000, three

months after the effective date of the Policy.                      He submitted a

claim for disability benefits to American Bankers, which honored

the claim.       American Bankers disbursed disability benefits from

August 11, 2000 to May 8, 2001, the expiration date of the Policy.

     Before the Policy expired, Overton asked American Bankers for

assurance that he would receive disability benefits for the entire

84 months.        In February 2004, Overton wrote American Bankers,

asserting    a    claim    for   an    additional    75    months   of   disability

benefits. He also threatened to sue American Bankers if it ignored

the deadline in the letter or denied the claim.                 American Bankers

informed    Overton       that   his   claim   was   under    review.       Overton

responded by giving American Bankers a new deadline.

     When Overton heard nothing from American Bankers by the new

deadline,    he    sued     American      Bankers    and     Beverly     Taylor   in

Mississippi state court on May 10, 2004.                   American Bankers was

served with notice of Overton’s suit the following day.

     1
       Overton alleges that he and Beverly Taylor, a Conseco
employee, agreed that Overton would obtain disability insurance for
a maximum period of 84 months, with advance payments of one year’s
premium and the right to renew the policy annually. Overton does
not dispute the Policy’s effective dates.

                                          2
     Unbeknownst to Overton, American Bankers —— in response to

Overton’s intent to sue —— had filed a declaratory action under 28

U.S.C. § 2201 in the United States District Court for the Northern

District of Mississippi on April 23, 2004.           American Bankers’s

complaint sought a declaration of its rights and obligations

pursuant to the Policy issued to Overton.        Overton was not served

with notice of American Bankers’s federal lawsuit until May 19,

2004, nine days after Overton had filed the state court lawsuit.

     In June, American Bankers timely removed Overton’s state court

suit to the United States District Court for the Southern District

of Mississippi, alleging diversity under 28 U.S.C. § 1332 and the

fraudulent joinder of Taylor.      Overton filed a motion to remand,

which the Southern District granted.

     In the Northern District, Overton filed a motion to dismiss,

transfer, or stay American Bankers’s declaratory judgment action.

In October, the Northern District granted Overton’s motion to

dismiss.   The court found that dismissal of American Bankers’s

declaratory   judgment   action   was   proper   because   (1)   Overton’s

pending state court action was most likely a nonremovable action

presenting solely state law issues,2 (2) the claims of the parties

could be satisfactorily litigated in the pending action, and (3)

piecemeal litigation would occur.       American Bankers timely filed

its notice of appeal.

     2
       The Southern District’s remand order had not yet been issued
at the time the Northern District dismissed American Banker’s suit.

                                   3
                               II. ANALYSIS

      We    review   a   district   court’s   dismissal   of   a   federal

declaratory judgment action for abuse of discretion.3

      The Federal Declaratory Judgment Act provides that “[i]n a

case of actual controversy within its jurisdiction . . . any court

of the United States . . . may declare the rights and other legal

realtions of any interested party seeking such declaration . . .

.”4   Although the permissive “may” in Section 2201(a) gives the

district court broader discretion to decline to hear a declaratory

judgment action than it has in other kinds of actions, the district

court’s discretion is not wholly unfettered.5 To determine whether

to decide or to dismiss a federal declaratory judgment action, a

district court “must determine: (1) whether the declaratory action

is justiciable; (2) whether the court has the authority to grant

declaratory relief; and (3) whether to exercise its discretion to

decide or dismiss the action.”6       We note at the outset the use of

the conjunctive “and,” requiring the district court to consider all

three factors. Here, the district court failed to consider whether

      3
      The Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 389
(5th Cir. 2003).
      4
          28 U.S.C. § 2201(a) (emphasis added).
      5
       See Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382,
390 (5th Cir. 2001); St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590
(5th Cir. 1994); Travelers Ins. Co. v. La. Farm Bureau Fed’n, Inc.,
996 F.2d 774, 778 (5th Cir. 1993).
      6
       Sherwin-Williams, 343 F.3d at 387 (citing Orix Credit
Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000)).

                                     4
American Banker’s declaratory judgment action is justiciable and

whether the court has the authority to grant relief.7

     Further, in Trejo, we outlined seven nonexclusive factors that

a district court must consider when it exercises it discretion

under Orix’s factor (3) to dismiss a declaratory judgment action:

     (1) whether there is a pending state action in which all of
     the matters in controversy may be fully litigated;
     (2) whether the plaintiff filed suit in anticipation of
     a lawsuit filed by the defendant;
     (3) whether the plaintiff engaged in forum shopping in
     bringing the suit;
     (4) whether possible inequities in allowing the
     declaratory plaintiff to gain precedence in time or to
     change forums exist;
     (5) whether the federal court is a convenient forum for
     the parties and witnesses;
     (6) whether retaining the lawsuit would serve the
     purposes of judicial economy;
     (7) whether the federal court is being called on to
     construe a state judicial decree involving the same
     parties and entered by the court before whom the parallel
     state suit between the same parties is pending.8

We have repeatedly held that these “seven Trejo factors . . . must

be considered on the record before a discretionary, nonmerits

dismissal of a declaratory judgment action occurs.”9       We have

     7
       A district court may not grant relief when: “(1) the
declaratory defendant previously filed a cause of action in state
court; (2) the state case involve[s] the same issues as those in
the federal court; and (3) the district court is prohibited from
enjoining the state proceedings under [S]ection 2283.” Sherwin-
Williams, 343 F.3d at 388 n. 1 (citing Travelers, 996 F.2d at 776).
     8
       Trejo, 39 F.3d at 590-91; see also Sherwin-Williams, 343
F.3d at 388 (same); Vulcan Materials, 238 F.3d at 390 (same); St.
Paul Ins. Co., 39 F.3d at 590-91 (same).
     9
       Vulcan Materials, 238 F.3d at 390 (emphasis in original and
added); Trejo, 39 F.3d at 590; Travelers, 996 F.2d at 777.

                                5
recognized      that    these     seven       factors   “address    three    broad

considerations —— federalism, fairness/improper forum shopping, and

efficiency.”10       When a district court fails to consider the seven

Trejo factors on the record, we have consistently made clear that

it abuses its discretion.11

      Here,    the     district    court       dismissed    American   Bankers’s

declaratory judgment action because: (1) “the pending related

action brought by [Overton] appears . . . to be a nonremovable

state court action presenting solely state law issues”; and (2)

“the claims of the parties can satisfactorily be adjudicated in the

pending relation action; both parties in this action are parties in

the relation action.”

      We hold that the district court abused its discretion when it

failed to consider the seven Trejo factors on the record.                        The

district court’s terse analysis considered only the first factor ——

whether there is a pending state action in which all of the matters

in controversy may be fully litigated. Thus, it failed to consider

on the record the other six Trejo factors.                 Indeed, the district

court’s heavy reliance on the presence of solely state law issues

in   dismissing      American     Bankers’s      action    is   contrary    to   our

precedent.     We have held more than once that when the declaratory

      10
           Sherwin-Williams, 343 F.3d at 390-91.
      11
       Vulcan Materials, 238 F.3d at 390 (quoting Trejo, 39 F.3d
at 590); Travelers, 996 F.2d at 778 (citing Rowan Cos., Inc. v.
Griffin, 876 F.2d 26, 28-29 (5th Cir. 1989)).

                                          6
judgment      action    is   properly          within     the       district   court’s

jurisdiction —— as it is here —— a district court may not dismiss

that action “‘simply because it does not involve a question of

federal law.’”12

      Further,    as    noted     above,       the    district      court    failed   to

determine whether American Bankers’s declaratory judgment action

presents a justiciable controversy and whether the court may

properly grant relief here.13           In light of the district court’s

failure to conduct the mandated analysis on the record when it

determined whether to entertain American Bankers’s action, we are

forced to hold that the court abused its discretion.                       Accordingly,

we reverse its dismissal of American Bankers’s declaratory judgment

action.14

      We are aware that we are authorized to review the facts of

this case in light of Trejo and its factors, but we decline to do

so.        Although    American    Bankers           briefed    the    Trejo   factors

comprehensively,       Overton    merely       provides        us   with   conclusional

      12
       Vulcan Materials, 238 F.3d at 390 (quoting Trejo, 39 F.3d
at 591 n. 10).
      13
           Sherwin-Williams, 343 F.3d at 387.
      14
       See United States v. Walker, 772 F.2d 1172, 1176 n. 9 (5th
Cir. 1985) (noting that the term “abuse of discretion” “does not
imply intentional wrong or bad faith, or misconduct, nor any
reflection on the judge,” but merely that “we are left with the
definite and firm conviction that the court below committed a clear
error of judgment in the conclusion it reached upon a weighing of
the relevant factors.” (citations and quotations omitted)).

                                           7
allegations that bear on each factor at the end of his brief.15

Overton’s brief concentrates mainly —— as does American Bankers’s

initial brief, to some extent —— on the “first-to-file” rule.

Overton argues       that    this   rule       should   not   apply   here   because

American Bankers filed its suit in anticipation of Overton’s state

court suit and did so in bad faith.                We find no indication from

case    law   that   the    “first-to-file”        rule   plays   a   part   in   the

circumstance that we face today —— two actions pending, but one is

in state court and the other in federal court.                As American Bankers

correctly points out in its reply brief, the “first-to-file” rule

applies only when two similar actions are pending in two federal

       15
        We also note that Overton’s motion to dismiss in the
district court provides no insight into the Trejo factors.
Overton’s district court brief merely recited the facts and
procedural history of his action —— with no legal authority
therein.

                                           8
courts,16 which is not the case have here (especially now that the

Southern District has remanded Overton’s suit to state court).

                           III. CONCLUSION

     We vacate the district court’s dismissal of American Bankers’s

declaratory judgment action and remand this matter to the district

court for proceedings not inconsistent with this opinion, viz.,

consideration of the Orix and Trejo factors on the record to

determine whether it should exercise its discretion to entertain

American Bankers’s suit.

VACATED AND REMANDED.

     16
       See, e.g., Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d
599, 603 (5th Cir. 1999) (“Under the first-to-file rule, when
related cases are pending before two federal courts, the court in
which the case was last filed may refuse to hear it if the issues
raised by the cases substantially overlap.”); Save Power Ltd. v.
Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir. 1997) (“The ‘first
to file’ rule is grounded in principles of comity and sound
judicial administration. The federal courts have long recognized
that the principle of comity requires federal district courts ——
courts of coordinate jurisdiction and equal rank —— to exercise
care to avoid interference with each other’s affairs.” (citations
and quotations omitted); Dillard v. Merril Lynch, Pierce, Fenner &
Smith, Inc., 961 F.2d 1148, 1161 n. 28 (5th Cir. 1992) (“The West
Gulf and First City cases deal with the so-called first-to-file
rule, which comes into play when a plaintiff files similar lawsuits
in two different federal districts.”); West Gulf Maritime Ass’n v.
ILA Deep Sea Local 24, 751 F.2d 721, 729 (5th Cir. 1985) (“To avoid
these ills, a district court may dismiss an action where the issues
presented can be resolved in an earlier-filed action pending in
another district.”).

                                  9