Opinion
No. C 04-03248 CW.
October 27, 2004
ORDER GRANTING MOTION TO DISMISS
Plaintiff New York Life Insurance Company brought this action for declaratory relief to seek judicial adjudication as to whether its insured is totally disabled under the terms of its insurance policy. The insured, Defendant Dion Regelson-Blanck, moves to dismiss this action for lack of subject matter jurisdiction or, in the alternative, to dismiss this action pursuant to its discretion under the Declaratory Judgment Act, 28 U.S.C. § 2201, or to stay this case pending the outcome of a parallel action in State court. Plaintiff opposes this motion. Having considered all of the papers filed by the parties, the Court GRANTS the motion to dismiss.
BACKGROUND
Plaintiff is a mutual insurance company organized under the laws of the State of New York with its principal place of business in New York, New York. Defendant is a citizen of the State of California and a resident of Santa Cruz, California. On June 21, 1999, Defendant purchased an "Own Occupation" disability income insurance policy, which entitles Defendant to monthly disability benefits if he becomes disabled from his "own occupation" as a veterinarian. The insurance policy initially provided for a monthly total disability benefit of $2,500. On August 8, 2002, and May 1, 2003, Defendant purchased additional coverage which increased his benefits to $2,900 and $3,900 respectively. Under the terms of the insurance policy, if Defendant becomes totally disabled before his sixty-fifth birthday, and that disability continues past his sixty-fifth birthday, Defendant is entitled to receive disability benefits for life. The insurance police defines total disability, in pertinent part, as follows:
A Covered Total Disability is an incapacity from the following which an INSURED MEMBER suffers while he or she is insured under the Policy: (1) an INJURY or SICKNESS, but only if such incapacity completely and continuously prevents the INSURED MEMBER from doing the material and substantial duties of his or her occupation, provided he or she is not engaged in any occupation for pay or profit, except that: If an INSURED MEMBER: (a) is engaged in an occupation of pay or profit which does not require his or her professional veterinary education and training; and (b) has elected the Own Occupation Disability Definition Option; Covered Total Disability is an incapacity from an INJURY or SICKNESS, but only if such incapacity completely and continuously prevents the INSURED MEMBER from doing the material and substantial duties of his or her occupation.
On June 25, 2003, Defendant's treating physician, Dr. Douglas Sunde, referred him to Dr. Marc Lieberman, a rheumatologist, for evaluation. On July 9, 2003, Dr. Lieberman diagnosed Defendant with osteoarthritis of the hands and filled out the necessary disability paperwork for Defendant. Plaintiff received Defendant's notice of claim in writing later that month. In the notice, Defendant asserted that due to pain in his hands caused by early osteoarthritis, he was totally disabled from his occupation as a veterinarian. In October, 2003, Plaintiff began paying Defendant monthly disability payments in the amount of $3,900.
In November, 2003, Plaintiff had Defendant's medical records reviewed by an independent board-certified rheumatologist who recommended that (1) an independent medical examination be conducted by an hand surgeon; and (2) Defendant undergo occupational therapy to evaluate his functional capacity. Also in November, Plaintiff had Defendant's medical records reviewed by a board-certified orthopedic surgeon. That surgeon questioned the change in Defendant's grip strength that had occurred in 2003 and recommended that (1) an independent medical examination be conducted by a hand surgeon; and (2) Defendant undergo occupational therapy to rebuild his deficient strength.
On December 18, 2003, at Plaintiff's request, Defendant was examined by Dr. Reginald McCoy, an orthopedist. Dr. McCoy opined that the functional ability of Defendant's left hand was compromised approximately ten percent and, therefore, Defendant was not totally disabled. Dr. McCoy recommended that Defendant undergo a bone scan. On January 7, 2004, Novacare Rehabilitation performed a functional capacity examination on Defendant and reported that Defendant did not give maximum effort in all tests, refused to undergo certain tests, and demonstrated inconsistencies within the test's items.
Plaintiff referred Defendant's medical records, independent medical report, and functional capacity results to a board-certified orthopedic surgeon and a board-certified rheumatologist. Both doctors opined that the information provided did not support a claim of total disability. Both doctors also recommended that Defendant undergo a bone scan. As plead in the complaint, Defendant refused to undergo either a bone scan or MRI. Upon Defendant's refusal, Plaintiff referred his records to another board-certified orthopedic surgeon specializing in hand surgery. That doctor opined that any discomfort Defendant experienced in his hand could be corrected by surgical treatment with a high likelihood of success. Following its investigation, Plaintiff determined that Defendant was not totally disabled.
On August 4, 2004, Plaintiff sent Defendant a letter notifying him that, pursuant to its investigation, he was not totally disabled under the terms of the Policy. On August 10, 2004, Plaintiff filed the instant action against Defendant for declaratory relief and reimbursement for disability benefits paid and those it would pay through the pendency of this action. Defendant claims that Plaintiff never advised him of its intention to seek reimbursement of benefits already paid and, further, that there is no right to reimbursement under the policy. Defendant filed suit against Plaintiff on August 20, 2004, in Santa Cruz County Superior Court, for breach of contract, and breach of the covenant of good faith and fair dealing. Defendant also included claims for battery and fraud against Dr. McCoy.
LEGAL STANDARD
I. Subject Matter Jurisdiction
Pursuant to Rule 12(b)(1), when the district court lacks subject matter jurisdiction over the claim, dismissal is appropriate. Fed.R.Civ.P. 12(b)(1). Federal subject matter jurisdiction must exist at the time the action is commenced.Morongo Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988), cert. denied, 488 U.S. 1006 (1989). A Rule 12(b)(1) motion may either attack the sufficiency of the pleadings to establish federal jurisdiction, or allege an actual lack of jurisdiction which exists despite the formal sufficiency of the complaint.Thornhill Publ'g Co. v. Gen. Tel. Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987).
Subject matter jurisdiction is a threshold issue which goes to the power of the court to hear the case. Therefore, a Rule 12(b)(1) challenge should be decided before other grounds for dismissal, because they will become moot if dismissal is granted.Alvares v. Erickson, 514 F.2d 156, 160 (9th Cir.), cert. denied, 423 U.S. 874 (1975); 5A Charles Alan Wright Arthur R. Miller, Federal Practice Procedure § 1350, p. 210 (2d ed. 1990).
A federal court is presumed to lack subject matter jurisdiction until the contrary affirmatively appears. Stock West, Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989).
An action should not be dismissed for lack of subject matter jurisdiction without giving the plaintiff an opportunity to amend unless it is clear that the jurisdictional deficiency cannot be cured by amendment. May Dep't Store v. Graphic Process Co., 637 F.2d 1211, 1216 (9th Cir. 1980). Absent an independent basis, the agreement of the parties does not confer subject matter jurisdiction. Brockman v. Merabank, 40 F.3d 1013, 1017 (9th Cir. 1994).
II. Declaratory Judgment Act
Declaratory relief is available at the discretion of the district court. 28 U.S.C. § 2201; Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998). "A district court may decline to exercise jurisdiction over a declaratory action even though subject matter jurisdiction is otherwise proper."Snodgrass v. Provident Life and Accident Ins. Co., 147 F.3d 1163, 1166 (9th Cir. 1998).
In Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942), the Supreme Court identified several factors that a district court should consider when determining whether to exercise jurisdiction over a declaratory judgment action:
Where a district court is presented with a [declaratory judgment] claim, it should ascertain whether the questions in controversy between the parties to the federal suit . . . 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 whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, whether such parties are amenable to process in that proceeding, etc.Brillhart, 316 U.S. at 495.
The Ninth Circuit has affirmed that "the Brillhart factors remain the philosophical touchstone for the district court."Dizol, 133 F.3d at 1225.
The district court should avoid needless determination of State law issues; it should discourage litigants from filing declaratory actions as a means of forum shopping; and it should avoid duplicative litigation. If there are parallel State proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in State court.Id. (internal citations omitted).
DISCUSSION
District courts have original jurisdiction over all civil actions "where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States." 28 U.S.C. § 1332(a). The Declaratory Judgment Act does not itself confer federal subject matter jurisdiction. 28 U.S.C. § 2201(a). "Actions brought under the act must be founded on an independent basis for subject matter jurisdiction." Maryland Casualty Co. v. Knight, 96 F.3d 1284, 1288 (9th Cir. 1996) (citing Staacke v. United States Secretary of Labor, 841 F.2d 278, 280 (9th Cir. 1988)).
In the present case, the parties do not dispute that they are citizens of different States. The only dispute concerns whether the amount in controversy exceeds the $75,000 jurisdictional minimum.
Plaintiff is seeking a judicial declaration that Defendant is not currently, and never was, totally disabled. Plaintiff additionally seeks reimbursement for all total disability benefits paid to Defendant. The parties do not dispute that Plaintiff has paid Defendant $3,900 per month since October, 2003 or that, at the time this action was commenced, Plaintiff had paid Defendant $39,000. It is also undisputed that Plaintiff has offered to continue to provide Defendant monthly disability benefits through the pendency of this action, although Defendant points out that Plaintiff has committed to do so only if Defendant complies with the terms of the policy. Based on the foregoing, Plaintiff claims that the potential recovery at the time of trial will be over $75,000 because "it is beyond dispute that this case will not go to trial within ten months." Pl. Opp. at 8-9.
The Ninth Circuit holds that the amount in controversy "is determinable as of the time the action was commenced,"Commercial Casualty Insurance Company v. Fowles, 154 F.2d 884, 886 (9th Cir. 1946), and that "jurisdictional questions are answered by reference to the time of the filing of an action . . .," Morongo Band of Mission Indians, 858 F.2d at 1380 (quoting Nuclear Eng'g Co. v. Scott, 660 F.2d 241, 248 (7th Cir. 1981), cert. denied, 455 U.S. 993 (1982).
In support of its argument that benefits paid after this action commenced should be included in the amount in controversy, Plaintiff relies on Massachusetts Casualty Insurance Company v. Rossen, 953 F. Supp. 311 (C.D. Cal. 1996), as an exception to the general rule. In Rossen, the insurer instituted an action for declaratory relief and restitution. The insurer sought to recover $39,664 at the time the action commenced, an amount below the then jurisdictional minimum of $50,000. However, the court concluded that because the insurer had unconditionally committed to continue to make monthly payments of $1,654 during the pendency of the action, the amount in controversy would exceed the jurisdictional minimum before the matter could come to trial.
This Court finds Rossen both unpersuasive and distinguishable from the present action. To begin, as previously discussed, theRossen holding is contrary to the Ninth Circuit's rule that the amount in controversy is determined at the time the action is commenced. Fowles, 154 F.2d at 886. Second, in reaching its conclusion, the court in Rossen cites Aetna Casualty Surety Co. v. Flowers, 330 U.S. 464 (1947), for its holding that "when an unconditional right to future payments exists, the court may consider such payments in computing the amount in controversy."Rossen, 953 F. Supp. at 314. However, Aetna clearly limits consideration of future payments in computing the amount in controversy to awards that may be paid by a single judgment reduced to present value. Aetna, 330 U.S. at 467-468. The holding in Aetna specifically states that "where judgment could be entered only for the installments due at the commencement of the suit, future installments could not be considered in determining whether the jurisdictional amount was involved, even though the judgment would be determinative of liability for future installments as they accrued." Id. at 467.
Plaintiff attempts to navigate around Aetna's prohibition against including future benefits in the amount in controversy by claiming that it is not relying on future benefits to reach the jurisdictional minimum. Plaintiff argues that, by definition, future benefits are benefits that come after the date of judgment and, thus, Plaintiff is actually seeking restitution. Plaintiff's argument is not well-taken.
Even if Rossen were persuasive, the facts are inapposite. The amount in controversy in Rossen included benefits to be paid pending trial because the insurer was unconditionally committed to paying them. In the present action, Plaintiff is not unconditionally committed to paying Defendant during the litigation of this action. Plaintiff expressly states that payment is contingent upon Defendant's compliance with the terms of the policy. Moreover, Defendant contends that he was unaware that Plaintiff would seek reimbursement for the previously paid benefits. Plaintiff cannot therefore be certain that Defendant will continue to accept benefits in light of Plaintiff's desire to seek reimbursement. Further, Plaintiff cannot presume that the present action will not be resolved within the ten month period before the jurisdictional minimum is met.
Finally, the procedural posture of this action indicates that Plaintiff's suggested methodology for calculating the amount in controversy is merely a means of obtaining federal court jurisdiction and, thus, dismissal is justified. See Greer v. Academy Equip. Rentals, 1994 WL 443421 at 2 (N.D. Cal.) (holding that when "independent facts show that the amount of damages was claimed merely to obtain federal court jurisdiction," dismissal is justified) (citing 14A C. Wright, A. Miller E. Cooper, Federal Practice and Procedure § 3702 at 49-50)). This Court notes that it should "exercise its discretion to decline jurisdiction when the federal action has simply been filed in anticipation of an impending state court suit; for example, when an insurer anticipates that its insured intends to file a non-removable state court action, it `rushes' to file a declaratory judgment action in federal court in hopes of `preempting any state court proceedings.'" Maryland Casualty Co., 96 F.3d at 1289 (citing Continental Casualty Co. v. Robsac Indust., 947 F.2d 1367, 1372-1373 (9th Cir. 1991)).
Plaintiff filed this federal action less than a week from the date of its letter notifying Defendant that it believed that he was not disabled under the policy, and more than ten months before the point at which its claim would meet the jurisdictional minimum. Defendant filed his State action, which joins Dr. McCoy, a California resident, only nine days after Plaintiff's federal action was filed, and less than three weeks from the date of Plaintiff's letter. This time-line clearly indicates that Plaintiff hastily commenced this action in anticipation of Defendant filing a similar case in State court. Furthermore, Plaintiff's intent to preempt State court proceedings is also demonstrated by its misrepresentation to the State court that this Court had already decided to take jurisdiction and, as such, the State court should either dismiss or stay Defendant's pending State claims. Thus, the sum claimed by Plaintiff does not control because it was alleged as a means to obtain federal court jurisdiction. See Crum v. Circus Circus Enters., 231 F.3d 1129, 1131 (9th Cir. 2000) (holding that sum claimed by plaintiff is controlling if made in good faith); Greer, 1994 WL 443421 at 2.
Accordingly, this Court finds that Plaintiff's claim does not satisfy the minimum amount in controversy and jurisdiction is not proper. Because federal subject matter jurisdiction does not exist, Defendant's alternative argument that the Court should exercise its discretion and dismiss the present action under the Declaratory Judgment Act is moot. Alvares, 514 F.2d at 160.
CONCLUSION
Defendant's motion to dismiss is GRANTED, and this action is DISMISSED without leave to amend, but without prejudice to Defendant's pursuit of his claims in State court.
IT IS SO ORDERED.