Opinion
Civil Action No. 03-6052.
August 16, 2003
MEMORANDUM AND ORDER
Plaintiff American Home Assurance Company ("American Home") brings this declaratory judgment action against the Church of Bible Understanding (the "COBU") and Gayle Traill, a missionary for the COBU. American Home issued a worker's compensation policy (the "Policy") of insurance to the COBU for the period running from August 8, 2001 through August 8, 2002. Traill was injured on February 7, 2002 and sought worker's compensation coverage for her injuries. American Home seeks a declaration that (1) Gayle Traill was not an employee of the COBU at the time of her accident, and thus is not entitled to coverage under the Policy (Count I); (2) Gayle Traill was not acting in the course and scope of her employment with the COBU at the time of her accident, and thus is not entitled to coverage under the Policy (Count II); and (3) the COBU made material misrepresentations to American Home, entitling American Home to rescind the Policy (Count III). The Court has jurisdiction over this diversity action pursuant to 28 U.S.C. § 1332(a).
The Federal Declaratory Judgment Act does not provide an independent basis of federal jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950).
Now before the Court are the Motions of the COBU and Traill to dismiss the declaratory judgment complaint. For the reasons stated below, the Court will deny Traill's Motion to dismiss, but will stay Counts I and II pending resolution of the state worker's compensation proceedings. The COBU's Motion will be denied.
I. Background
Pastor Stuart Traill, the husband of Gayle Traill, founded the Church of Bible Understanding in 1973. Motion to Dismiss of COBU ("COBU Motion") at 2. According to Pastor Traill, the COBU's stated mission is to advance religious beliefs and to fund orphanages for underprivileged children in Haiti. Id. Gayle Traill and her husband allege that, at the time of her accident, they were on a layover in Exuma, Bahamas, on their way to Haiti to provide supplies and religious counsel to children in Haitian orphanages. Id. at 3. American Home disputes that the Traills were in the Bahamas as part of a church mission. Compl. at ¶ 16-23.
While in Exuma, the Traills were involved in a head-on collision in which Gayle suffered head, neck, and back injuries. COBU Motion at 1. Stuart Traill filed a worker's compensation claim for medical benefits on her behalf, which American International Group ("AIG") claim services denied on March 1, 2002. Compl. at ¶ 8. He then filed a Claim Petition with the Pennsylvania Department of Labor and Industry's Bureau of Worker's Compensation.
American Home is a wholly-owned subsidiary of AIG. See AIG 2003 Annual Report, Form 10-K.
The named parties to the worker's compensation proceeding were Gayle Traill, the COBU, and AIG. See Claim Petition, Compl. Ex. B. At the hearing, AIG was represented by Timothy Coffey of Post Schell, P.C. Attorney Coffee requested that Worker's Compensation Judge ("WCJ") Susan Kelley hear the parties' dispute regarding the contractual terms in the insurance policy and the applicable scope of coverage. Motion to Dismiss of Gayle Traill ("Traill Motion") at 4. Initially, counsel for the Traills objected to the WCJ resolving the contractual dispute, but later conceded that the worker's compensation proceeding would be an appropriate forum in which to litigate the contractual issues. See Letter Memorandum to WCJ Kelley, Traill Motion Ex. C.
On November 3, 2003, American Home, also represented by Post Schell, filed the instant declaratory judgment action. A supplemental hearing was held before WCJ Kelley on November 4, 2003, at which time counsel for AIG requested a stay of the worker's compensation proceeding based on the filing of the federal case. COBU Motion at 7. WCJ Kelley refused to stay the worker's compensation proceeding, however, because defense counsel had already agreed to have all issues, including those relating to the scope of coverage, heard in the worker's compensation proceeding. Id. at 8. As of this date, the worker's compensation hearings have been completed and the parties are awaiting decision from the WCJ.
Gayle Traill and the COBU now move this Court to dismiss the declaratory judgment action on the ground that another suit involving the same subject matter and the same parties is currently pending before the state Bureau of Worker's Compensation.
II. Legal Standard
The Federal Declaratory Judgment Act, 28 U.S.C. §§ 2201- 2202 (the "Act"), provides that "any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." Id. § 2201(a). Although the Court has jurisdiction over the instant action, it is "under no compulsion to exercise that jurisdiction." Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942). Rather, the question of whether to exercise jurisdiction over a declaratory judgment action is within the discretion of the federal court. Id.; Maryland Casualty Co. v. Consumers Finance Service, 101 F.2d 514, 515 (3d Cir. 1938).
A district court may decline to assume jurisdiction on the ground that another action is pending in a state court. "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 a state court presenting the same issues, not governed by federal law, between the same parties."Brillhart, 316 U.S. at 495. In considering whether to dismiss or stay a claim, district courts look not to traditional abstention doctrines, but to the Act itself. Terra Nova Ins. Co., Ltd. v. 900 Bar, Inc., 887 F.2d 1213, 1224 (1989).
The Supreme Court has enumerated several factors for district courts to consider, including: (1) "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;" (2) "the scope of the pending state court proceeding and the nature of defenses open there;" (3) "whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding;" (4) "whether necessary parties have been joined;" and (5) "whether such parties are amenable to process in that proceeding." Brillhart, 316 U.S. at 495. The Third Circuit has set forth the following general guidelines for courts to consider in addition to the Brillhart factors: "(1) the likelihood that the declaration will resolve the uncertainty of obligation which gave rise to the controversy; (2) the convenience of the parties; (3) the public interest in a settlement of the uncertainty of obligation; and (4) the availability and relative convenience of other remedies." Terra Nova, 887 F.2d at 1224 (internal quotations omitted).
In conducting this analysis, "`[c]ourts look with disapproval upon any attempt to circumvent the laudable purposes of the Act, and seek to prevent the use of the declaratory action as a method of procedural fencing, or as a means to provide another forum in a race for res judicata.'" Terra Nova, 887 F.2d at 1225 (quoting 6A J. Moore, J. Lucas G. Girtheer, Jr., Moore's Federal Practice ¶ 57.08[5], at 57-50 (2d ed. 1987)). Courts also must take into account considerations specific to the insurance context. "In insurance cases, as in declaratory judgments in general, although both justiciability and federal jurisdiction are present, the court in a proper case may, nevertheless, refuse to proceed with the declaratory action for it is well settled that the exercise of jurisdiction in this area is discretionary. . . . [a]nd frequent, attempted abuses of the declaratory action in this area make the exercise of judicial discretion particularly important." Id., quoting Moore's Federal Practice at ¶ 57.19, at 57-206-07.
III. Analysis
A. Traill's Motion to Dismiss Counts I and II
Gayle Traill moves to dismiss Counts I and II of the declaratory judgment complaint due to the pendency of the state worker's compensation proceeding. Count I seeks a declaration that Traill was not an employee of the COBU at the time of her accident; Count II seeks a finding that Traill was not acting in the course and scope of her employment with the COBU at the time of her accident. Traill argues that the same parties are involved in the state and federal litigations; that the issues were presented to the WCJ; and that the questions presented in Counts I and II are issues of local, not federal, law. Traill Motion at 8-9. American Home contends that it is not a party to the worker's compensation proceeding and that the issue before this Court is one of contract construction. Pl. Resp. at 17.
Traill's Motion also requests that the Court dismiss the action pursuant to Fed.R.Civ.P. 12(b)(1), (2), (3) and (6). However, the memorandum of law accompanying her Motion does not advance arguments in support of dismissal under any of these provisions. Accordingly, the Court will consider the Motion to Dismiss only on the ground that another action is pending.
With respect to the identity of the parties, it is true that the Plaintiff in the instant action is American Home and that AIG, not American Home, is a party to the worker's compensation proceeding. However, in examining the totality of the circumstances in this case, it is abundantly clear that AIG and American Home have the same interests and should be considered the same entity. American Home is a wholly-owned subsidiary of AIG. American Home concedes that it is "involved and its policy implicated in [the state] proceedings insofar as it may be required to provide coverage based upon the [worker's compensation judge's] determination." Pl. Resp. to Traill's Motion at 18. In fact, although the insurance policy was issued by American Home, AIG adjudicated the claim for benefits in the state proceeding. Further, AIG immediately requested a stay of the worker's compensation proceeding after the filing of the federal action.
Additionally, both AIG and American Home are represented by the same law firm, Post Schell.
In determining that AIG and American Home must be considered the same party for purposes of the Brillhart analysis, the Court looks to the law governing res judicata, since the heart of the issue is whether a declaratory judgment would bind the parties in the state proceeding to the federal court's determination. For purposes of preclusion, "claims and issues decided against an entity bind also its parties in privity, including subsidiaries." Newton v. First Union Nat'l Bank, 316 F. Supp. 2d 225, 237 (E.D. Pa. 2004). Underlying this "common sense privity principle" is the unity of interest of the parent and its subsidiary. Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 966 (3d Cir. 1991). Based upon the actions taken by AIG and American Home, the Court concludes that their interests are identical with respect to the outcome of both the state and federal proceedings. Accordingly, this Court will not end its inquiry merely because the subsidiary, rather than the parent, filed the federal declaratory judgment action.
Although American Home characterizes the issues in Counts I and II as issues of "contract construction," determining whether Traill is entitled to coverage under the Policy implicates factual questions that were litigated in the state proceeding. Whether Traill was an employee and whether the accident occurred in the scope of employment will be decided by the WCJ. The Policy does not define who is an employee or what is outside the scope of employment. Rather, the Policy states, "We will pay promptly when due the benefits required of you by the workers compensation law." Policy at Part 1.B, Compl. Ex. H. It further provides, "Terms of this insurance that conflict with the workers compensation law are changed by this statement to conform to that law." Policy at Part 1.H.6. Thus, the insurer's duty to pay under the policy is coextensive with the employer's duty to pay under the state worker's compensation law. Accordingly, the determinations that American Home seeks in Counts I and II address the same issues that the WCJ must necessarily address in order to resolve whether benefits are owed under the worker's compensation law.
Under Pennsylvania worker's compensation law, a claimant must be an employee, as defined by the Worker's Compensation Act, 77 Pa. Cons. Stat. § 1, et seq., and have acted within the course and scope of his employment in order to recover from his employer. 77 Pa. Cons. Stat. § 51; Fonder v. W.C.A.B., 842 A.2d 512, 514 (Pa.Cmwlth. 2004).
Under the Policy, "Workers Compensation Law means the workers or workmen's compensation law and occupational disease law of each state or territory named in Item 3.A. of the Information Page." General Section C. The states named in Item 3.A. are Pennsylvania and New York.
In addition to privity of parties and identity of issues, a third threshold issue under Brillhart is whether issues of state or federal law are involved. This case presents only issues of state worker's compensation and contract law and does not implicate federal law. Accordingly, the Court now turns to whether, under the factors enumerated in Brillhart and Terra Nova, it should exercise its discretion to entertain the instant action.
The Court finds that, with respect to Counts I and II, it would be "uneconomical as well as vexatious" for the Court to proceed.Brillhart, 316 U.S. at 495. Turning first to the Brillhart factors, the Court finds that the questions in controversy would be better settled in the state worker's compensation proceeding, given the expertise of the WCJ in interpreting state worker's compensation law. Next, the Court notes that the state proceeding encompasses the questions about Traill's employment status and, by agreement of the parties, also addresses disputes regarding the scope of the insurance policy. Finally, the claims of all parties in interest can satisfactorily be adjudicated in the worker's compensation proceeding; all necessary parties have been joined; and the parties were amenable to process in that forum.
Proceeding to the Terra Nova considerations, a federal declaration would likely resolve the uncertainty of obligation which gave rise to the controversy. However, the federal forum is no more or less convenient than the state forum. Further, while there is always a public interest in a prompt settlement of a controversy, there is no particular public interest in this case. Finally, with respect to the availability and relative convenience of other remedies, the state proceeding provides a readily available alternative to a federal declaratory judgment. American Home is correct in its assertion that the state agency cannot issue a declaratory judgment. Pl. Resp. to Traill's Motion at 12. However, the state proceeding will determine, as a matter of worker's compensation law, Traill's status as an employee. It will also determine, by agreement of the parties, the scope of coverage under the Policy. The Court places great weight on Defendants' representation that counsel for AIG initially requested that the scope of coverage be addressed in the state proceeding. Clearly, AIG believed at the outset of the proceedings that the state forum could adequately resolve the issues that it now seeks to have the federal court decide. Examining the circumstances of this case as a whole, the Court concludes that the filing of the declaratory judgment action was an attempt on the part of AIG and American Home to circumvent the state proceedings in a race for res judicata. Accordingly, the Court will stay this action with respect to Counts I and II until the state proceedings have concluded.
Rather than dismissal, "where the basis for declining to proceed is the pendency of a state proceeding, a stay will often be the preferable course, because 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."Wilton v. Seven Falls Co., 515 U.S. 277, 288 n. 2 (1995).
B. The COBU's Motion to Dismiss Count III
Count III of this action seeks a declaration that the COBU made material misrepresentations in its application for coverage, entitling American Home to rescind the Policy. The COBU moves to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6) and because the issue of rescission is within the jurisdiction of the state worker's compensation judge.
When deciding a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). The Court must accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the plaintiff.Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985). A Rule 12(b)(6) motion will be granted only when it is certain that no relief could be granted under any set of facts that could be proved by the plaintiff. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).
American Home's Complaint states that the COBU made material misrepresentations in its application for worker's compensation insurance. Specifically, American Home alleges that the COBU owned at least one aircraft, but indicated that it did not own any aircraft. American Home further alleges that the COBU was aware that it sent employees out of state or out of the country, but its application says that its employees did not travel out of state. Compl. at ¶¶ 32-33. The COBU moves to dismiss on the ground that an insurance company cannot rescind a worker's compensation insurance policy.
Pennsylvania law in the area of rescission of worker's compensation insurance is sparse and inconsistent. The COBU citesPa. Nat'l Mutual Casualty Ins. Co. v. Powers Trucking Co., 1989 WL 205327, *3 (Pa. Com. Pl. Feb. 10, 1989), in which the Court of Common Pleas held that an insurer is statutorily precluded from rescinding its reinstatement of a worker's compensation policy on the ground of fraudulent misrepresentation by the employer, pursuant to 40 Pa. Cons. Stat. § 813. However, a more recent Pennsylvania case indicates that there may be circumstances in which an insurer can rescind a worker's compensation policy.SWIF v. W.C.A.B., 833 A.2d 343, 346 (Pa.Cmwlth.Ct. 2003). There are factual differences between these two cases. At this early stage of the proceedings, it would be premature for the Court to determine which case applies. Accordingly, the Court will not dismiss Count III for failure to state a claim.
With respect to the COBU's second allegation, that the issue of rescission is within the jurisdiction of the worker's compensation judge, the Court is unconvinced. Unlike employment status and scope, a determination as to whether the COBU made material misrepresentations to American Home such that American Home is entitled to rescind the Policy is not necessary to the worker's compensation judge's decision. Also unlike the issues discussed previously, this issue is one of contract construction that can be determined without interfering with or circumventing the WCJ's factual findings. Moreover, the COBU has provided the Court with no evidence to suggest that this issue is before WCJ Kelley. Thus, because the COBU has not demonstrated that the issues before the state and federal courts are the same, the Court will not abstain from adjudicating this claim. See Brillhart, 316 U.S. at 495.
IV. Conclusion
For the foregoing reasons, the Court will deny Traill's Motion to Dismiss; however, the Court will stay its determination of Counts I and II pending completion of the state worker's compensation proceedings. The Motion to Dismiss of the COBU will be denied. An appropriate Order follows.
ORDER
AND NOW, this 16th day of August, 2004, upon consideration of the Motion to Dismiss of Gayle Traill (docket no. 3) and the Motion to Dismiss of the Church of Bible Understanding (docket no. 10), and Plaintiff's responses thereto, it is ORDERED that:
1. The Motion of Gayle Traill is DENIED. However, the Court will stay its adjudication of Counts I and II pending completion of state worker's compensation proceedings.
2. The Motion of the Church of Bible Understanding is DENIED. The Court will proceed forthwith to adjudicate Count III.