James River Insurance Company v. Rich Bon Corp ( 2022 )

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[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-11617
____________________
JAMES RIVER INSURANCE COMPANY,
a foreign corporation,
Plaintiff-Appellant,
versus
RICH BON CORP.,
a Florida corporation
d.b.a. The Mint Lounge,
MARQUELL SHELLMAN,
an individual,
DAINA HILBERT,
as Personal Representative of the Estate of
David Hilbert,
Defendants-Appellees.
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2 Opinion of the Court 20-11617
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 1:16-cv-20273-JEM
____________________
Before BRANCH, GRANT, and BRASHER, Circuit Judges.
GRANT, Circuit Judge:
Ordinarily, federal courts have no margin for error on
questions of our jurisdiction. But Declaratory Judgment Act cases
are different, because that statute vests courts with discretion to say
whether declaratory relief is appropriate in the underlying conflict.
Here that meant deciding whether the federal suit would interfere
with a pending state action.
The district court chose to dismiss the federal case,
concluding that it overlapped significantly with the one in state
court. But in the process the court overstepped the bounds of its
discretion because it fully assessed only one of the claims for
declaratory relief, rather than both of them. We therefore vacate
and remand.
I.
Late one Miami summer night at the Mint Lounge, an
argument between acquaintances escalated into a shootout. A
guest at the nightclub, Marquell Shellman, was shot. So was club
employee David Hilbert, who tragically died from his injuries.
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20-11617 Opinion of the Court 3
The nightclub was insured by James River Insurance
Company under a general liability policy, which covered “bodily
injury and property damage liability.” The policy contained
several restrictions on that coverage. To start, it excluded both
worker’s compensation liability and employee-injury liability. The
policy also imposed limits on coverage for bodily injuries “arising
out of, resulting from, or in connection with” assault or battery.
The limit per occurrence was $25,000, and the aggregate assault-
and-battery limit was $50,000.
A few months after the shooting Shellman sued the
nightclub in Florida state court, alleging that it was negligent for
failing to provide adequate security; a lawsuit from Hilbert’s estate
was expected too. So to determine the full extent of its liability
under the policy, James River filed a federal declaratory judgment
action against Mint, Shellman, and Hilbert’s estate.
The insurer raised two claims in its complaint. First, it
contended that because the nightclub shooting was an assault and
battery, the policy limited recovery for any and all injuries to
$50,000. Second, it argued that the worker’s compensation and
employee-injury exclusions barred Hilbert from recovery because
he was an employee of the nightclub. The district court stayed the
case pending resolution of Shellman’s state court suit. Soon after,
James River settled the state suit on the nightclub’s behalf for
$50,000 minus claim expenses and costs—the total amount
available under the assault and battery cap.
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Ten months later, Hilbert’s estate sued the nightclub in
Florida state court. One wrinkle for the estate was that the Florida
worker’s compensation statute generally prohibits employees from
bringing tort claims against their employers. See Fla. Stat.
§ 440.11(1). To get around that problem, the estate argued that the
nightclub’s actions triggered a statutory exception for intentional
torts. It alleged that the nightclub had engaged in conduct that it
“knew”—based on similar incidents in the past—“was virtually
certain to result in injury or death to the employee.” See id.§ 440.11(1)(b).
Both the estate’s tort action and James River’s federal
declaratory judgment action thus required a decision on whether
the Florida worker’s compensation statute applied to Hilbert. The
tort suit, however, did not raise any questions about the insurance
policy or its assault and battery limit. In fact, Florida law barred
adding James River to that suit. See id. § 627.4136.
While its state court suit proceeded, Hilbert’s estate moved
the federal district court to lift its stay of the declaratory action so
that it could dismiss the case altogether. The court lifted the stay,
but did not immediately dismiss the case. Meanwhile, James River
amended its federal complaint to ask the court to declare not only
that the $50,000 assault and battery limit applied, but also that the
Shellman settlement had exhausted that coverage. In response, the
estate again asked the court to exercise its discretion and dismiss
the case in deference to the concurrent state court suit.
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20-11617 Opinion of the Court 5
The district court considered whether to exercise
jurisdiction in two steps. It first asked whether the two suits were
parallel enough to compare at all, concluding they were for two
reasons: the claims in both cases involved Florida’s worker’s
compensation law, and the defendants in the federal suit were also
parties in the state action. It then moved on to consider whether
the federalism and comity concerns generated by the declaratory
action outweighed the efficiency gains of resolving the claims in
federal court, applying the guideposts this Court provided in
Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328 (11th Cir.
2005). Relying primarily on the conflict between one of the federal
claims and the state case, the district court dismissed the case.
James River appeals.
II.
When a district court dismisses a declaratory judgment
action, we review for abuse of discretion. Ameritas, 411 F.3d at
1330. A district court abuses its discretion (1) when it fails to
consider a relevant and significant factor; (2) when it gives
significant weight to an improper factor; or (3) when it “commits a
clear error of judgment” in weighing the proper factors. Id.(quotation omitted). A district court also abuses its discretion
when it applies “the wrong legal standard.” Id.USCA11 Case: 20-11617 Date Filed: 05/23/2022 Page: 6 of 19
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III.
A.
When district courts decide whether to proceed with
declaratory judgment actions that raise issues also disputed in state
court proceedings, they are called to balance conflicting interests—
to foster efficient dispute resolution while still preserving the
States’ interests in resolving issues of state law in their own courts.
Discerning “the propriety of declaratory relief” requires “a
circumspect sense” of the whole affair. Wilton v. Seven Falls Co.,
515 U.S. 277, 287 (1995) (quotation omitted).
On one hand, a declaratory judgment action is often quite
efficient, eliminating delays and uncertainty. It may enable, for
example, a prospective defendant to ask the court to declare its
“rights and other legal relations,” including whether it is liable to a
prospective plaintiff for prior or planned future acts. 28 U.S.C.
§ 2201(a). Without the chance to seek a declaratory judgment, a
prospective defendant would often be stuck, waiting out statutes
of limitations while watching for lawsuits. See 10B Charles Alan
Wright & Arthur R. Miller, Federal Practice & Procedure § 2751
(4th ed. 2021). That waiting game can impose serious costs,
whether financial or personal.
Declaratory actions are especially helpful for third parties—
insurance companies in particular. See, e.g., Travelers Prop. Cas.
Co. of Am. v. Moore, 763 F.3d 1265, 1267 (11th Cir. 2014);
Ameritas, 411 F.3d at 1329–30; Admiral Ins. Co. v. Feit Mgmt. Co.,
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20-11617 Opinion of the Court 7
321 F.3d 1326, 1327 (11th Cir. 2003). That is because a tort suit
against an insured often generates distinct issues beyond whether
the insured is liable for the tort, say, whether the insurer has a duty
to defend, or whether the insured’s policy covers the liability
alleged in the complaint. See Maryland Cas. Co. v. Pac. Coal & Oil
Co., 312 U.S. 270, 273 (1941); Advanced Sys., Inc. v. Gotham Ins.
Co., 272 So. 3d 523, 527 (Fla. Dist. Ct. App. 2019) (an insurer’s duty
to defend “is not determined by the insured’s actual liability”).
When the policy does not cover the liability even if all the facts
alleged in the complaint are true, declaratory relief enables the
insurance company to avoid the tort suit completely. Cf. National
Trust Ins. Co. v. S. Heating & Cooling, Inc., 12 F.4th 1278, 1290
(11th Cir. 2021). And even when the policy does apply, a
declaratory suit allows the insurance company to resolve its
liability without waiting for every individual injured party to sue
the insured. Declaratory judgments thus play a valuable role in this
context, clarifying insurance companies’ liability quickly and
directly.
On the other side of the scale are federalism and comity
concerns animated by our system of dual sovereignty. Competing
state and federal actions are common. See, e.g., Wilton, 515 U.S.
at 280; Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 492–94
(1942); Ameritas, 411 F.3d at 1329–30. After all, while the
Declaratory Judgment Act enables a prospective defendant to sue
in federal court, it does not prevent the party sued from initiating
a concurrent state court proceeding. See 28 U.S.C. § 2201. Nor
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does anything in the Act prevent a state court defendant from
bringing a federal declaratory judgment suit.
What’s more, when the issues and parties match, each
plaintiff competes to be first to the finish, because whichever case
is decided earliest will have preclusive effect on common questions
in the other. See Empire Fire & Marine Ins. Co. v. J. Transp., Inc.,
880 F.2d 1291, 1296 (11th Cir. 1989) (holding that declaratory
judgments trigger collateral estoppel).
Of central concern in this federalism analysis are cases
competing to resolve state law issues that “are not foreclosed under
the applicable substantive law.” Brillhart, 316 U.S. at 495. When a
federal court decides an unresolved question of state law, issue
preclusion prevents the creation of state court precedent on that
issue in the companion case. See, e.g., Mobil Oil Corp. v. Shevin,
354 So. 2d 372, 374 (Fla. 1977). That, in turn, delays the final
resolution of the question as applied to future suits because state
supreme courts are the ultimate authority on questions of state
law. See Pincus v. Am. Traffic Sols., Inc., 986 F.3d 1305, 1310–11
(11th Cir. 2021). So declaratory judgments have the potential to
leave important questions of state law unanswered by state
authorities and impede a State’s general authority to dispose of
state law issues.
These concerns and others need to be balanced with the
obvious benefits of declaratory judgments. The Declaratory
Judgment Act thus is not a license to supplant state court litigation
in every case. If it were, the byproducts—waste, delay, and
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20-11617 Opinion of the Court 9
needless competition—would mean the Act sometimes did more
harm than good. As the Supreme Court cautioned in Brillhart,
“[g]ratuitous interference with the orderly and comprehensive
disposition of a state court litigation should be avoided.” 316 U.S.
at 495. Nor can the benefits of a declaratory judgment suit be
ignored—it is “a remedial arrow in the district court’s quiver,”
fashioned by Congress to provide “a new form of relief” when the
need arises. See Wilton, 515 U.S. at 288.
That is where the Act’s unusual jurisdictional provision
comes in. It vests district courts with discretion to dismiss
declaratory suits when, in their best judgment, the costs outweigh
the benefits. Its language is spare, but direct: federal courts “may
declare the rights and other legal relations of any interested party
seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added).
The Act thus makes an explicit “textual commitment to
discretion.” Wilton, 515 U.S. at 286. So while federal courts
normally have an “unflagging obligation” to exercise our
jurisdiction, where declaratory judgments are concerned this
imperative “yields to considerations of practicality and wise judicial
administration.” Id. at 284, 288 (quotation omitted).
Over time, precedents have developed to aid district courts
in balancing the interests at stake. In Ameritas, this Court provided
non-exclusive “guideposts” for district courts to consider when
deciding whether to dismiss a federal declaratory judgment action
that overlaps with a state case. 411 F.3d at 1331. These factors are
intentionally broad, but still offer substantive guidance:
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(1) the strength of the state’s interest in having the
issues raised in the federal declaratory action decided
in the state courts;
(2) whether the judgment in the federal declaratory
action would settle the controversy;
(3) whether the federal declaratory action would
serve a useful purpose in clarifying the legal relations
at issue;
(4) whether the declaratory remedy is being used
merely for the purpose of “procedural fencing”—that
is, to provide an arena for a race for res judicata or to
achieve a federal hearing in a case otherwise not
removable;
(5) whether the use of a declaratory action would
increase the friction between our federal and state
courts and improperly encroach on state jurisdiction;
(6) whether there is an alternative remedy that is
better or more effective;
(7) whether the underlying factual issues are
important to an informed resolution of the case;
(8) whether the state trial court is in a better position
to evaluate those factual issues than is the federal
court; and
(9) whether there is a close nexus between the
underlying factual and legal issues and state law
and/or public policy, or whether federal common or
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20-11617 Opinion of the Court 11
statutory law dictates a resolution of the declaratory
judgment action.
Id.As a whole these guideposts account for the federalism and
comity concerns generated by competing cases, as well as the
comparative utility of the declaratory judgment action. To be sure,
courts are not restricted to this set of factors—the list is not
“absolute,” and no single factor is controlling. Id. Indeed, we have
characterized the inquiry as a “totality-of-the-circumstances
analysis.” National Trust, 12 F.4th at 1285. So whatever the district
court decides to do, it must capture the breadth of the competing
interests; without a complete understanding of those interests, it
cannot properly balance them.
The question here is whether the court below appropriately
followed this process. James River argues that the district court not
only weighed the Ameritas guideposts incorrectly, but that because
the state and federal cases were not truly parallel it never should
have applied the guideposts in the first place.
We agree that the district court erred, but not for those
reasons. For one, the district court was wrong to assess whether
the federal and state cases were “parallel” as a prerequisite to
considering the Ameritas guideposts. To be fair, that was less clear
before our recent decision in National Trust. But the court did err
in its application of the Ameritas factors too. It should not have
focused on one of the federal claims almost to the exclusion of the
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other—in doing so it failed to properly consider the totality of the
circumstances.
B.
To begin, “the existence of a parallel proceeding is not a
prerequisite to a district court’s refusal to entertain an action under
§ 2201(a),” the Declaratory Judgment Act. National Trust, 12 F.4th
at 1284. Courts possess “unique and substantial discretion” under
the Act. Wilton, 515 U.S. at 286 (contrasting this discretion with
Colorado River abstention). And neither our precedents nor the
Act itself give specific guidance on what constitutes a “parallel”
case—whether the parties must be identical, for example, or
whether the claims must overlap completely. That uncertain
inquiry finds no home in the analysis.
Consequently, and unlike some abstention doctrines that
are more prudential in nature, a parallel proceeding is not a
mandatory prerequisite to applying the Ameritas guideposts. 1 On
this point we have been explicit, albeit after the district court’s
decision here: the guideposts themselves offer sufficient
1 Colorado River abstention, for example, first requires asking whether the
cases involve “substantially the same parties and substantially the same
issues.” Gold-Fogel v. Fogel, 16 F.4th 790, 800 (11th Cir. 2021) (quotation
omitted). Only then may a court consider several factors to decide whether
the circumstances are “exceptional” enough to justify dimissing the “federal
suit due to the presence of a concurrent state proceeding for reasons of wise
judicial administration.” Colorado River Water Conservation Dist. v. United
States, 424 U.S. 800, 818 (1976).
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consideration of the challenges relating to concurrent proceedings.
National Trust, 12 F.4th at 1286. One area of consideration under
Ameritas, for example, is whether the federal action would resolve
the parties’ dispute; that requires discerning whether the same
issues and same parties are present in both cases. Another is
whether declaratory relief would create friction between the
federal and the state courts; unless the cases implicate the same
facts or legal questions, friction is unlikely. Because the guideposts
themselves account for the interests presented by competing state
and federal lawsuits, we refuse to impose a duplicative inquiry.
The district court thus erred when it forced James River to
clear this extra hurdle. It should not have grafted “a discrete,
parallel-proceeding factor” from abstention doctrine onto the
Ameritas test. Id. at 1285. While a concurrent state proceeding is
still significant under Ameritas, it is not dispositive—in either
direction. Id.
C.
Once the district court moved on from its parallelism
analysis, it made another serious misstep: it focused on one of the
federal claims almost to the exclusion of the other. Every claim
matters, because Ameritas requires a “totality-of-the-circumstances
analysis.” National Trust, 12 F.4th at 1285. And a comprehensive
analysis is impossible when a court only considers half of the
federal claims. Regardless of the guideposts it applies, a district
court must assess the claims raised in a federal declaratory
judgment action evenhandedly.
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That means a court cannot cherry pick for its Ameritas
analysis the claims that favor dismissing—or proceeding with—a
federal action. If the court only considers issues raised in both the
state and federal cases, it will always underestimate the need to
resolve the issues unique to the declaratory action. And if it only
assesses the unique federal claims, the opposite result will follow;
the court will underestimate the federalism concerns raised by the
overlapping issues. Both approaches are unreasonable. Instead, to
appropriately assess “the degree of similarity between concurrent
state and federal proceedings,” a district court needs to look at the
cases as a whole. See id. at 1282.
Here, the district court addressed each Ameritas guidepost
as it analyzed the employee exclusions claim. It noted the “close
nexus” between that claim and “Florida public policy” and relied
on the state court’s better position to resolve the overlapping
factual issues “given its familiarity with” the state tort suit. The
policy limits claim, however, largely received the silent treatment.
The court mentioned that both counts of the federal lawsuit
concerned “issues of state law,” but said nothing further about the
policy limits issue. That lopsided analysis was unreasonable.
For example, when discussing the fifth guidepost (potential
friction between federal and state courts and improper
encroachment on state jurisdiction), the district court only said that
“[o]verlapping judicial effort is virtually certain to occur.” But that
is not a complete analysis, at least for this lawsuit. Although the
claim involving Florida’s worker’s compensation statute overlaps
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20-11617 Opinion of the Court 15
with the claims in the state case, the policy limits claim can only be
resolved in the declaratory judgment action. See Fla. Stat.
§ 627.4136. That’s because the state suit is between Hilbert’s estate
and the nightclub—meaning no insurance policy is directly at issue
and James River cannot be added to the case. Id. Deciding whether
James River has paid in full or still owes the nightclub for future
liabilities thus creates no conflict with the state liability case.
Nor was that the only omission. When the court considered
the third guidepost (whether the declaratory action would clarify
the legal relations at issue), it failed to account for the fact that
resolving the policy limits claim could clarify the relationship
between James River and the nightclub. And when discussing the
fourth and sixth guideposts (whether the declaratory action was
merely “procedural fencing” and whether a better alternative
remedy existed), the district court again failed to mention that
James River was not party to the state suit and that the policy limits
claim could only be resolved through the federal declaratory
action.
The district court thus overlooked the significant gains in
efficiency the declaratory judgment action would generate. These
guideposts as applied to the policy limits claim strongly favor
allowing the declaratory judgment action to go forward. If the
district court had addressed that claim, as it must on remand, it
could have included these efficiency interests in the balance against
the federalism and comity interests that it did consider. The failure
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to do so was a clear error of judgment—and therefore an abuse of
discretion.
* * *
A totality-of-the-circumstances analysis only works when a
court considers all of the relevant details. To do otherwise leaves
weights that should be balanced off the scales, or, if used more
nefariously, would tip them in favor of a result chosen in advance.
We do not suggest that any such artifice happened here. But we
do think that the district court, by failing to consider the policy
limits claim, missed the efficiency gains that it needed to balance
against federalism and comity interests before deciding whether to
proceed with the declaratory judgment action. We therefore
VACATE the judgment and REMAND the case for further
proceedings consistent with this opinion.
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20-11617 BRASHER, J., Concurring 1
BRASHER, Circuit Judge, Concurring:
I concur in full in the Court’s opinion. As I said in my
concurring opinion in National Trust Ins. Co. v. S. Heating &
Cooling, Inc., 12 F.4th 1278 (11th Cir. 2021), insurers reasonably
expect the federal courts to resolve run-of-the-mill disputes about
their duties to defend and indemnify against claims made in an
underlying tort action. In fact, allowing “a declaratory action by an
insurer to establish nonliability under casualty insurance was one
of the prime purposes of the Declaratory Judgment Act.” W. Cas.
& Sur. Co. v. Teel, 391 F.2d 764, 766 (10th Cir. 1968).
In deciding whether to decline jurisdiction in a case like this
one, I don’t think district courts should fixate on whether a related
action is pending because one almost always is. Whenever a
liability insurer sues its insured for a declaration of its duties to
defend and indemnify (or vice versa), there will be a pending or
threatened related lawsuit—often in state court—between the
insured and a third party. After all, if a third party had not sued or
threatened to sue the insured, then the liability insurer would not
be asking for a declaratory judgment about its duties to defend and
indemnify against that claim. Accordingly, the mere pendency or
threat of such a related action is no justification for a district court
to decline to adjudicate a federal lawsuit between an insurer and its
insured.
In weighing the Ameritas factors in a dispute between a
liability insurer and its insured, see Ameritas Variable Life Ins. Co.
v. Roach, 411 F.3d 1328, 1331 (11th Cir. 2005), I suggest district
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2 BRASHER, J., Concurring 20-11617
courts focus on whether there is anything unique or extraordinary
that differentiates their case from the mine run of liability insurance
disputes. For example, one could ask: Does the State have a
stronger interest in deciding this particular state-law issue in state
court than it normally would in a state-law liability insurance
dispute? Is there a state-specific public policy at play that is not
present in most other insurance disputes? Is there some important
factual dispute in the state litigation that would be unusually
dispositive in the declaratory judgment action? We answered these
questions in the affirmative in National Trust, where coverage first
turned on an open question of state law that had split state courts
(whether carbon monoxide was a “pollutant” under the policy’s
pollution exclusion) and then on a difficult fact question that was
being litigated in the underlying tort action (whether the fire that
harmed the third parties was burning outside of its intended
location, potentially triggering a “hostile fire” exception to the
pollution exclusion).
But, as the Court’s opinion suggests, there is nothing special
about this case that warrants declining jurisdiction. Far from it. The
district court can resolve this dispute by interpreting the terms of
the insurance contract—specifically, the policy’s bodily injury
limits, a worker’s compensation exclusion, and an employer
liability exclusion, which are all common features of commercial
insurance policies. Federal courts routinely answer questions like
these. See, e.g., Endurance Am. Specialty Ins. Co. v. United Constr.
Eng’g, Inc., 343 F. Supp. 3d 1274, 1280, 1287–88 (S.D. Fla. 2018),
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20-11617 BRASHER, J., Concurring 3
aff’d, 786 F. App’x 195 (11th Cir. 2019) (employer’s liability
exclusion and worker’s compensation exclusion); Scottsdale Ins.
Co. v. GFM Operations, Inc., 789 F. Supp. 2d 1278, 1287–88 (S.D.
Fla. 2011) (same). If the Ameritas factors weighed against exercising
jurisdiction here, then they would justify that result in almost any
liability-insurance-related declaratory judgment action.
Accordingly, it was an abuse of discretion for the district court to
decline to exercise jurisdiction.