Progressive Specialty Insurance Company v. Thakur

Full title: PROGRESSIVE SPECIALTY INSURANCE COMPANY, Plaintiff/Counter-Defendant, v…

Court: United States District Court, D. New Mexico

Date published: Nov 14, 2006

No. 06-CV-542 BRB/RHS (D.N.M. Nov. 14, 2006)

Opinion

No. 06-CV-542 BRB/RHS.

November 14, 2006

ORDER DENYING DEFENDANTS' MOTION TO DISMISS BUT ALLOWING DEFENDANTS' ALTERNATIVE MOTION TO STAY PROCEEDINGS

BOBBY BALDOCK, Circuit Judge[fn*] [fn*] Honorable Bobby R. Baldock, United States Circuit Judge for the Tenth Circuit Court of Appeals, sitting by designation pursuant to 28 U.S.C. § 291(b).

Before the Court is Defendant Maheshwar Thakur's (Thakur) motion to dismiss or, in the alternative, to stay this action pending the outcome of a parallel state court proceeding. For the reasons stated herein, the Court denies Thakur's motion to dismiss but, in the exercise of its discretion, grants his motion to stay.

I.

This diversity suit involves a dispute between Plaintiff Progressive Specialty Insurance Company (Progressive), the insurer, and Thakur, the insured, concerning the amount of Thakur's uninsured motorist coverage under his Progressive insurance policy. Progressive asserts the total amount of coverage is $50,000. Thakur asserts the total amount of coverage is $200,000. Progressive has paid Thakur $50,000, but no more, for injuries he sustained in an auto accident. Progressive asks the Court to declare the rights and obligations of the parties under the policy pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. Thakur has counterclaimed against Progressive, seeking, in addition to a declaration of rights and obligations, reformation of the insurance contract and monetary damages based on breach of contract, negligence, bad faith dealing, and violations of the New Mexico Insurance Code and Unfair Practices Act.

Thakur further responded to Progressive's suit by filing his own suit against Progressive in New Mexico state court. See Thakur v. Progressive Specialty Ins. Co., No. D-101-CV-2006 01907 (N.M. 1st Dist., filed Aug. 25, 2006). As an additional Defendant, Thakur named Silas T. Garcia Agency (Garcia) which, according to Thakur, is a necessary and indispensable party to this action. Garcia is the agency which sold Thakur the Progressive policy. Because both Thakur and Garcia are residents of New Mexico, Garcia's joinder effectively destroyed diversity jurisdiction and the possibility of removal from state court.

Although broader in scope, Thakur's state law suit raises issues identical to Progressive's federal counterpart. Count I of the state court complaint seeks a declaration that under New Mexico law, namely N.M. Stat. Ann. § 66-5-301.A., the policy's uninsured motorist bodily injury coverage must equal its bodily injury liability limits and that Thakur is entitled to recover such coverage. Count II seeks reformation of the insurance contract because, among other reasons, "Defendants [ i.e., Progressive and Garcia] did not meet their statutory duty to offer [Thakur] uninsured motorist coverage with limits as high as their liability limits[.]" Count III alleges Defendants breached the contract and acted negligently "by failing and refusing to provide the insurance coverage requested and reasonably expected by [Thakur] and due under § 66-5-301.A[.]" Count IV is directed at Garcia and alleges "breach of contract by agency, agency negligence, breach of fiduciary duties, and insurance agent malpractice." Lastly, Count V alleges bad faith and violations of the New Mexico Insurance Code and Unfair Practices Act against both Progressive and Garcia.

II.

In Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942), the Supreme Court held that while a district court might have jurisdiction of a suit brought pursuant to the Federal Declaratory Judgment Act (the Act does not provide an independent basis for jurisdiction), the court "is under no compulsion to exercise that jurisdiction." Id. at 494. According to the Supreme Court, where a district court is presented with a claim under the Act which can be resolved in a parallel state court proceeding, the court in deciding whether to exercise jurisdiction —

should ascertain whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in the state court. This may entail inquiry into the scope of the pending state court proceeding and the nature of defenses open there. The federal court may have to consider [among other things] whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, [and] whether necessary parties have been joined. . . ."

Id. at 495.

Over a half-century later, the Supreme Court reaffirmedBrillhart in Wilton v. Seven Falls Co., 515 U.S. 277 (1995). Wilton, like the present case, presented a situation where an insurer, anticipating a coercive suit, sought a declaration in federal court of non-liability on an insurance policy. The district court stayed the federal action pending the outcome of a subsequently filed state action, and the Court upheld that stay as a proper exercise of the district court's discretion. Id. at 280-82. "Brillhart makes clear that district 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." Id. at 282. The Court concluded:

Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory 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 288 (internal footnote omitted).

Expanding on Brillhart and Wilton, the Tenth Circuit has enumerated five factors a district court should evaluate in determining whether to exercise jurisdiction under the Declaratory Judgment Act when a parallel state proceeding will likely resolve the issues raised in the federal suit. These factors are —

[1] whether a declaratory action would settle the controversy; [2] whether it would serve a useful purpose in clarifying the legal relations at issue; [3] whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race to res judicata;" [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and [5] whether there is an alternative remedy which is better or more effective.

State Farm Ins. Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994) (White, J., sitting by designation)

III.

The inquiry into whether a declaratory judgment would settle the controversy and clarify the legal relations at issue is designed to shed light on the overriding question identified inBrillhart, that is, whether the state court proceeding can better settle the controversy. See United States v. City of Las Cruces, 289 F.3d 1170, 1187 (10th Cir. 2002). In this instance, the state proceeding, unlike the present case, appears to encompass the entire controversy by addressing both Progressive's (the insurer) and Garcia's (the agent) potential liability to Thakur. In other words, the rights and obligations of all concerned parties may be adjudicated only in the state action. This Court's adjudication of the present controversy between Thakur and Progressive alone might lead to piecemeal litigation thereby undermining both federal and state interests in "practicality and wise judicial administration." Wilton, 515 U.S. at 288.

For much the same reasons, the state remedy appears to be the most effective. Because the state action will likely decide the rights of all interested parties, including the parties to the present action, such remedy necessarily is more comprehensive and cohesive. Progressive's federal suit can hardly be viewed as providing Thakur with an "effective" remedy because he might very well have to argue factually and legally similar issues against Garcia in state court. See Las Cruces, 289 F.3d at 1192. Perhaps more importantly, this controversy presents purely questions of state law including the interpretation of the state's insurance code. The State of New Mexico has the predominant interest in deciding a matter involving an insurance policy issued within the state to a state resident involved in an auto accident on a state thoroughfare. As the Brillhart Court opined: "Ordinarily 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 state court presenting the same issues, not governed by federal law, between the same parties."Brillhart, 316 U.S. at 495.¹

1 Because the Court cannot determine from the present record whether Progressive sought to "preempt" Thakur's state action by filing the present action in federal court, the Court makes no determination as to whether Progressive has engaged in "procedural fencing."

IV.

Whether to dismiss or stay the present case is the only question remaining. In Las Cruces, 289 F.3d at 1192, the Tenth Circuit recognized in cases such as this that "[a] stay will often be preferable[.]" See also Wilton, 515 U.S. at 288 n. 2. While the Court believes the ongoing state proceeding will likely adjudicate the claims between Progressive and Thakur in this case, thus resulting in the application of res judicata,see id. at 283, the Court out of an abundance of caution will not dismiss the case at this time. A stay will allow the Court "to quickly reconsider whether the state forum remains the best in which to hear the . . . parties' claims should the court's predictions regarding the scope of the state proceedings turn out to be erroneous." Las Cruces, 289 F.3d at 1192. A stay may quickly be lifted if the Court later determines "there exists a significant possibility of delay or other procedural inadequacy in the state proceeding" not attributable to Progressive. Id. Finally, a stay avoids problems which might arise if application of a time bar might prevent Progressive from refiling its federal action. See id.

V.

For the foregoing reasons, Defendants' motion to dismiss this action is DENIED. Defendants' alternative motion to stay further proceedings in this action pending resolution of the parallel state court action is GRANTED. At this time the Court need not determine whether Garcia is an indispensable party to this action. The parties are hereby directed to file a joint report as to the status of the state action three months from the date of this order and every three months thereafter through the conclusion of the state court proceeding.

SO ORDERED.