Court Opinion

ID: 2969410
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:48:12.843591+00
Date Added: 2024-06-11T15:00:58.982870
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206
   ELECTRONIC CITATION: 2000 FED App. 0158P (6th Cir.)
               File Name: 00a0158p.06

UNITED STATES COURT OF APPEALS
              FOR THE SIXTH CIRCUIT
                _________________

                                  ;
                                   
SCOTTSDALE INSURANCE
                                   
COMPANY,
                                   
         Plaintiff-Appellant,
                                   
                                      No. 98-1950

                                   
           v.                       >
                                   
                                   
                                   
BEVERLY ROUMPH,

                                   
Individually and as Next
                                   
Friend of Lavina Roumph;
                                   
LAVINA ROUMPH,
        Defendants-Appellees. 
                                  1
      Appeal from the United States District Court
     for the Eastern District of Michigan at Detroit.
    No. 97-73396—Gerald E. Rosen, District Judge.
                Argued: March 8, 2000
            Decided and Filed: May 4, 2000
 Before: WELLFORD, SILER, and GILMAN, Circuit
                   Judges.

                            1
2       Scottsdale Ins. Co. v. Roumph, et al.            No. 98-1950

                       _________________
                             COUNSEL
ARGUED: Ronald S. Lederman, SULLIVAN, WARD,
BONE, TYLER & ASHER, P.C., Southfield, Michigan, for
Appellant. Mark R. Bendure, BENDURE & THOMAS,
Detroit, Michigan, for Appellees. ON BRIEF: Ronald S.
Lederman, Thomas L. Auth, Jr., SULLIVAN, WARD,
BONE, TYLER & ASHER, P.C., Southfield, Michigan, for
Appellant. Mark R. Bendure, BENDURE & THOMAS,
Detroit, Michigan, for Appellees.
                       _________________
                           OPINION
                       _________________
  HARRY W. WELLFORD, Circuit Judge. In 1995
defendant herein, Beverly Roumph, as next friend for Lavina
Roumph, filed a state tort action in the Wayne County Circuit
Court in Michigan, based upon a sexual assault upon her
young daughter. Ms. Roumph alleged that she had accepted
minor Keith Kelley, Jr., into her home as a foster child upon
placement by The Children’s Center, a Michigan social
welfare agency. Within a month, Kelley raped four-year-old
Lavina Roumph, defendant’s daughter. Roumph’s second
amended complaint in the state action alleged negligence
and/or gross negligence by The Children’s Center in failing to
disclose pertinent information regarding possible danger to
her and the foster family; failing to warn the foster family that
Kelley had been sexually abused and had a history of1
molesting other children; failing properly to review his file;
and failing to properly recommend and provide psychiatric or
psychological treatment for Kelley. Scottsdale Insurance
Company (“Scottsdale”), plaintiff in this proceeding, insured

    1
      We recite the names of the minors with considerable reluctance, but
they have been made public in prior state proceedings and in the district
court by defendant Roumph.
No. 98-1950         Scottsdale Ins. Co. v. Roumph, et al.       3

The Children’s Center and provided its defense under a
reservation of rights in the state proceeding. The Scottsdale
policy with The Children’s Center provided general liability
coverage of $3,000,000 but contained a “Sexual Misconduct
Limitation Endorsement” which limited coverage to
$100,000:
  “Sexual misconduct” means any action or behavior, or
  any physical contact or touching, which is intended to
  lead to, or which culminates in any sexual act, arising out
  of the professional treatment and care of any client,
  patient, or any other person whose care has been
  entrusted to the named insured, whether committed by,
  caused by or contributed to by failure of any insured to:
  1.     Properly train, hire or supervise any employee, or;
  2. Properly control, monitor or supervise the treatment
  and care of any client, patient, or any other person whose
  care has been entrusted to the named insured.
  In the state court proceedings the issue arose as to whether
Scottsdale’s applicable policy limits in the case were
$3,000,000 or only $100,000 under the special endorsement.
Scottsdale filed this declaratory action under 28 U.S.C.
§ 2201 in the United States District Court for the Eastern
District of Michigan on July 14, 1997, seeking a ruling on
applicable limits in the state court action.
  At the beginning of the state trial, The Children’s Center,
with Scottsdale’s consent, admitted liability, and the parties
on February 2, 1998, made the following agreement:
    One, Children’s Center will admit liability. Two, case
  will proceed against Children’s Center as to damages
  only. Three, the individual defendants, Wheeler,
  Skowronski, and Potje will be dismissed with prejudice
  without a release.
       ....
4      Scottsdale Ins. Co. v. Roumph, et al.     No. 98-1950     No. 98-1950        Scottsdale Ins. Co. v. Roumph, et al.         9

      Four, plaintiffs will not seek to enforce any judgment       breadth of leeway we have always understood it to
    against Children’s Center over and above the insurance         suggest, distinguish the declaratory judgment context
    policy limits.                                                 from other areas of the law in which concepts of
                                                                   discretion surface. . . . When all is said and done, we
      Five, defendants Wheeler, Skowronski and Potje were          have concluded, “the propriety of a declaratory relief in
    employees of the Children’s Center during their                a particular case will depend upon a circumspect sense of
    respective periods of employment and acted within the          its fitness informed by the teachings and experience
    scope of employment as to the matters in this action.          concerning the functions and extent of federal judicial
                                                                   power.” Wycoff, supra, [344 U.S.] at 243.
      ....
                                                                     ....
      That nothing contained in this agreement eviscerate
    any coverage under the existing insurance policy,                We agree, for all practical purposes, with Professor
    including any taxable costs or interest.                       Borchard, who observed half a century ago that “[t]here
                                                                   is . . . nothing automatic or obligatory about the
      ....                                                         assumption of ‘jurisdiction’ by a federal court” to hear a
                                                                   declaratory judgment action. Borchard, Declaratory
      This agreement is predicated upon the representation         Judgments, at 313. By the Declaratory Judgment Act,
    that Children’s Center has a liability policy with $3          Congress sought to place a remedial arrow in the district
    million general limit and a $100,000 sexual misconduct         court’s quiver; it created an opportunity, rather than a
    limit that is covering this occurrence and that the only       duty, to grant a new form of relief to qualifying litigants.
    claim regarding the extended coverage is that claim            Consistent with the nonobligatory nature of the remedy,
    currently stated in the pending declaratory judgment           a district court is authorized, in the sound exercise of its
    action.                                                        discretion, to stay or to dismiss an action seeking a
                                                                   declaratory judgment before trial or after all arguments
(Emphasis added.) Co-defendant Lula Belle Stewart Center,          have drawn to a close.
Inc., alleged agent of The Children’s Center, was dismissed
from the suit with prejudice and without costs per a March 20,   Wilton, 515 U.S. at 286-88 (citations and footnote omitted).
1998 order after settling with Roumph for $1,000,000, the        We believe that the district court properly considered the
amount of its separate insurance liability coverage. Due to      circumstances involved in whether to exercise its discretion
the stipulation entered in the state court, Scottsdale asserts   to issue a declaratory judgment in a dispute pending in state
that it was not necessary to offer evidence regarding the        court. It exercised its discretion not to entertain the case. In
nature and extent of negligence of the insured as “defined by    reaching that result, we cannot say that the district court did
the admitted factual and legal allegations in the First          not employ “the sound exercise of its discretion” under the
Amended Complaint filed in the state court action.”              circumstances. Wilton, 515 U.S. at 288.
  The state court jury returned an $8,000,000 verdict for          Accordingly, we AFFIRM the decision of the district court.
Roumph on February 12, 1998, and a judgment was entered
on June 12, 1998, whereby Roumph reportedly recovered the
net amount of $6,233,857.32. After entry of judgment but
while a motion for new trial and a motion for remittitur were
8      Scottsdale Ins. Co. v. Roumph, et al.         No. 98-1950    No. 98-1950           Scottsdale Ins. Co. v. Roumph, et al.              5

   This case is a close one considering the factors we have         pending, Roumph, on February 17, 1998, filed a motion for a
relied upon in cases of this kind. We see no indication of an       stay or dismissal in the district court. Scottsdale filed a
attempt to delay by the insurance carrier through the               response and, following a hearing, the district court granted
declaratory action in federal court; and a prompt declaration       Roumph’s motion and dismissed the action without prejudice
of policy coverage would surely “serve a useful purpose in          in August of 1998. The district court also dismissed, without
clarifying the legal relations at issue.” It is hard to perceive    prejudice, the parties’ cross-motions for summary judgment.
of “an alternative remedy that is better or more effective.”        Scottsdale timely filed a notice of appeal.
   The district court, however, pointed to a factor that supports     It is important to note that Scottsdale also appealed the state
its decision not to proceed--that “there are no reported            court judgment     on behalf of its insured, The Children’s
decisions in Michigan or elsewhere construing the language          Center,2 and that appeal is presently pending before the
of [the] ‘sexual misconduct’ endorsement.” The district court       Michigan Court of Appeals. Roumph has filed a declaratory
concluded from this factor that it would be inappropriate “to       judgment action in the Michigan state court seeking a ruling
preempt the right of the state court to rule on a previously        on the coverage issue, but the record does not reflect when
undetermined question of state law.” Omaha Property &               that action was filed, and the state court has not yet taken
Casualty, 923 F.2d at 448; see also American Home                   action on the case.
Assurance Co. v. Evans, 791 F.2d 61, 63 (6th Cir. 1986).
What is involved in this case is an interpretation of a special       We are presented with the issue, not a new one from
contract of insurance. Indeed, had the district court               Michigan, of whether the district court abused its discretion
undertaken the task of legal interpretation, we might be in a       in declining to entertain plaintiff Scottsdale’s declaratory
position to decide whether the policy limits should be              judgment action, which sought a ruling on the applicable
$100,000, rather than $3,000,000. Such a result might, of           policy limits for its pending state court tort action.
course, “increase the friction between our federal and state
courts.” This is not to say that a district court should always       This court reviews the district court’s exercise of discretion
turn away a declaratory judgment action when an                     under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), for
undetermined question of state law is presented, but it is an       abuse of discretion. See Wilton v. Seven Falls Co., 515 U.S.
appropriate consideration for the court to weigh in the             277, 289-90 (1995) (replacing de novo standard applied in,
exercise of its discretion.                                         e.g., Allstate Ins. Co. v. Mercier, 913 F.2d 273, 277 (6th Cir.
                                                                    1990)). Plaintiff relies upon Allstate Ins. Co. v. Green, 825
  We turn to the latest Supreme Court discussion of this issue      F.2d 1061 (6th Cir. 1987), wherein this Court held that no per
in Wilton:                                                          se rule applied to prevent district courts from exercising
                                                                    jurisdiction over declaratory actions in circumstances
       Since its inception, the Declaratory Judgment Act has        somewhat akin to this one. Under de novo review, this Court
    been understood to confer on federal courts unique and          reversed the district court’s dismissal of the declaratory action
    substantial discretion in deciding whether to declare the       because the district judge “failed to exercise any discretion,
    rights of litigants. On its face, the statute provides that a   but felt himself bound to dismiss based on our decisions in
    court “may declare the rights and other legal relations of
    any interested party seeking such declaration,” 28 U.S.C.
    § 2201(a) (1988 ed., Supp. V) (emphasis added). The                 2
                                                                         Paula Skowronski, Eveldora Wheeler, Steve Potje, and The
    statute’s textual commitment to discretion, and the             Children’s Center were named defendants in Roumph’s motion for
                                                                    abstention. However, the notice of appeal includes only the parties listed.
6      Scottsdale Ins. Co. v. Roumph, et al.      No. 98-1950      No. 98-1950        Scottsdale Ins. Co. v. Roumph, et al.          7

American Home and Manley, Bennett,” and the Court                  Omaha Property &Casualty Ins. Co. v. Johnson, 923 F.2d
remanded “to permit that court to assess the propriety of the      446, 447-48 (6th Cir. 1991); Mercier, 913 at 277; Grand
action pursuant to the general considerations, as well as the      Trunk W. R.R. v. Consolidated Rail Corp., 746 F.2d 323, 326
five-factor test.” Green, 825 F.2d at 1065, 1067 (citing           (6th Cir. 1984).
Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine
Ins. Co., 791 F.2d 460, 462 (6th Cir. 1986) (de novo review));       The district court also considered concerns about federalism
see Mercier, 913 F.2d at 277 (“When the record contains no         expressed in Wilton v. Seven Falls Co., 515 U.S. 277 (1995),
indication that the district court considered these criteria and   and added additional factors to consider including:
factors, this court has the option either to apply them on
appeal or to remand to the district court for this exercise.”).      1.   whether the underlying factual issues are important
                                                                          to an informed resolution of the case;
   Several of the cases mentioned from Michigan involved
insurance carriers seeking a declaratory judgment in federal         2.   whether the state trial court is in a better position to
court about defense and coverage when their insureds have                 evaluate those factual issues than is the federal
been sued for alleged tort liability in state court concerning            court; and
situations perceived as a “race to the courthouse,” state or
federal, for a declaratory judgment determination. In many of        3.   whether there is a close nexus between the
these cases we decided that not proceeding in the federal case            underlying factual and legal issues and state law
was the wise and rational course of action. As pointed out by             and/or public policy, or whether federal common or
the district court, we have generally considered five factors to          statutory law dictates a resolution of the declaratory
assess the propriety of the federal court’s exercise of                   judgment action.
discretion in such a situation:
                                                                     The district court emphasized the importance of a “well-
    (1) whether the judgment would settle the controversy;         developed factual record” in the state court. We believe,
                                                                   however, that this emphasis was misplaced in this case
    (2) whether the declaratory judgment action would serve        because liability was stipulated in state court, indicating a
        a useful purpose in clarifying the legal relations at      concession about the nature of the minor Kelley’s known
        issue;                                                     background and proclivity so far as the placement center was
                                                                   involved, as well as the character of his sexual offense in the
    (3) whether the declaratory remedy is being used merely        foster home. Had the district court exercised its discretion by
        for the purpose of “procedural fencing” or “to             electing to proceed, we doubt that this would have constituted
        provide an arena for a race for res judicata”;             “‘gratuitous interference with the orderly and comprehensive
                                                                   disposition of a state court litigation’” as in Grand Trunk, 746
    (4) whether the use of a declaratory action would              F.2d at 326 (quoting Brillhart v. Excess Ins. Co., 316 U.S.
        increase the friction between our federal and state        491, 495 (1942)). The defendant Roumph’s delay in seeking
        courts and improperly encroach on state jurisdiction;      declaratory judgment in state court, moreover, removed any
        and                                                        consideration of a race to the courthouse steps for a res
                                                                   judicata decision in this controversy. A declaratory decision
    (5) whether there is an alternative remedy that is better      should “settle the controversy” about the extent of insurance
        or more effective.                                         coverage, whether undertaken in state or federal court.