Summary
In Courtney, the insurer sought a declaration that its policy did not provide coverage for its insured, a pharmacist who pleaded guilty to charges that he diluted prescription medications before dispensing them to patients.
Summary of this case from Travelers Indem. Co. v. SarchettOpinion
Case No. 02-0242-CV-W-ODS
February 4, 2003
ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS OR, IN THE ALTERNATIVE, TO STAY
In this declaratory judgment action, Plaintiff alleges that it is not required to provide coverage or a defense to its insured, Robert Courtney. Courtney has pleaded guilty to charges alleging that, generally speaking, he diluted various drugs before selling them to his customers. Many of Courtney's customers have filed civil suits against him. Plaintiff originally named Courtney and all of his customers as defendants. Many of those defendants filed motions to dismiss. Plaintiff eventually filed an Amended Complaint that sought to certify a class of Courtney's customers. The many motions to dismiss or to stay are identical, and subsequent to the filing of the Amended Complaint the briefing process has been completed by the named customer/defendants. After considering the parties' arguments and reviewing the law on the subject, all the motions to dismiss or, in the alternative, to stay are denied.
Unless the context indicates otherwise, all references to "Courtney" include references to his pharmacy.
There are in excess of 350 lawsuits pending in state court against Courtney, one of which has gone to trial. Although the jury rendered a verdict against Courtney, that case is apparently not yet final. The prevailing plaintiff initiated a garnishment action against Plaintiff herein; as of November 26, 2002, process had not been served.
"[D]istrict courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites." Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995) (discussing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942)). The key inquiry is whether there are parallel proceedings in state court that present an opportunity for the same issues to be addressed. See Horne v. Firemen's Retirement Sys. of St. Louis, 69 F.3d 233, 236 (8th Cir. 1995). This discretion is not without bounds; as the Eighth Circuit has held, "only in exceptional circumstances should a district court stay or dismiss a declaratory judgment action subject to parallel state litigation, even if diversity of citizenship is the only jurisdictional foundation." BASF Corp. v. Symington, 50 F.3d 555, 557 (8th Cir. 1995).
Throughout their briefs, Defendants have posited two state proceedings as justifying a stay or dismissal. The first is the underlying tort cases against Courtney. The Court concludes these cases are not parallel proceedings because although they appear to raise the same issues involved in this case, they do not allow Plaintiff an opportunity to litigate the issues. An insurer has no right to intervene in its insured's case, and any decision made in that case has no preclusive effect upon the insurer's denial of coverage. Estate of Langhorn v. Laws, 905 S.W.2d 908, 910-11 (Mo.Ct.App. 1995); see also James v. Paul, 49 S.W.3d 678 (Mo. 2001) (en banc) (holding that underlying civil case does not have preclusive effect on the insurer's denial of coverage, but a criminal conviction does have preclusive effect). Thus, even if Courtney's customers litigated the very issues that are germane to determining coverage, Plaintiff is not bound by the jury's determination.
Defendants suggest that Plaintiff could have presented its coverage claim in state court. They cite cases from other jurisdictions, but as these cases suggest Missouri law would not have allowed Plaintiff to proceed in the underlying tort claims. Defendants also rely on American Family Mutual Insurance Co. v. Pacchetti for the proposition that it is "for the jury" to decide the critical questions about Courtney's intent. This is true; however, the question is which jury. Defendants imply that it is a question that must be decided by the jury in the tort case, but the cases cited by the Court above suggest otherwise. Moreover, Pacchetti suggests otherwise; Pacchetti itself was a declaratory judgment action, and the Missouri Supreme Court declared that the insured's intent was a question of fact in the declaratory judgment action. 808 S.W.2d 369, 371 (Mo. 1991) (en banc). Pacchetti does not hold that the issue must be decided by the jury in the underlying tort case.
The second state court proceeding Defendants point to is the garnishment action. They conclude the Eighth Circuit's decision in Capitol Indemnity Corp. v. Haverfield mandates that this case be dismissed or stayed in favor of that action. The Court disagrees. In Haverfield, after a suit was filed against its insureds, Capitol Indemnity Corp. filed a declaratory judgment action in federal court contending that the claims against the insureds were excluded from coverage. While the declaratory judgment action was pending, the state court entered a judgment against the insureds, and the state court plaintiffs filed a garnishment action against Capitol Indemnity — who then added those plaintiffs as defendants in the federal case. The state court plaintiffs sought to stay or dismiss the federal suit, but their motion was denied. Summary judgment motions were filed in both courts; the state court ruled first, determining that coverage existed. Apparently unaware of the state court's decision, the federal district court issued a ruling declaring that there was no coverage. 218 F.3d 872, 873-74 (8th Cir. 2000). In declaring that the district court abused its discretion, the Court of Appeals explained:
Under Brillhart, the district court must consider the scope and nature of the pending state court proceeding to ascertain whether the issues in controversy between the parties to the federal action, not foreclosed under applicable substantive law, can be better settled by the state court. See Brillhart, 316 U.S. at 495; Wilton, 515 U.S. at 282. If so, the district court must dismiss the federal action because "it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties."218 F.3d at 874-75. The court also emphasized the fact that the issue involved was one that had resulted in a split of authority among Missouri courts. Id. at 875. Finally, there can be little doubt that the court of appeals was concerned about the contradiction in having the state court rule one way and then, shortly thereafter, the federal court rule the opposite way on a matter of state law.
Haverfield does not establish a per se rule requiring dismissal or stay of a declaratory action once a garnishment action has been filed in state court; it requires consideration of the relationship and potential conflict between the two proceedings. With that in mind, the Court notes that this case is further along than the garnishment action and has the potential to declare the rights of all interested parties, not just the sole customer whose tort case has concluded. In addition to being less advanced than this case, the garnishment action cannot proceed until post-trial matters have been addressed (including possible appeals). This case was also filed first, which is a factor favoring these proceedings.
Unlike Haverfield, this case does not appear to present an uncertain issue of state law. Another difference between the two cases is that there is no decision from the state court at this time, so the awkward situation in which the state and federal courts reached opposite conclusions is not present.
Certainly, the situation would be different if the state court was to issue a decision on the garnishment. It would also be different if there was some indication that a decision from the state court is imminent, or that the garnishment action had "caught up" to this one and were closer to being decided. In the absence of these circumstances, the Court declines to exercise its discretion to dismiss or stay this case.
IT IS SO ORDERED.