Myles Lumber Co. v. CNA Financial Corp. , 233 F.3d 821 ( 2000 )


Menu:
  •                            PUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    MYLES LUMBER COMPANY,                  
    Plaintiff-Appellee,
    v.
    CNA FINANCIAL CORPORATION;
    CONTINENTAL INSURANCE COMPANY, a                 No. 00-1318
    non-resident insurance corporation;
    BOSTON OLD COLONY INSURANCE
    COMPANY, a non-resident insurance
    corporation,
    Defendants-Appellants.
    
    Appeal from the United States District Court
    for the Northern District of West Virginia, at Elkins.
    Robert Earl Maxwell, Senior District Judge.
    (CA-99-121-2)
    Argued: October 30, 2000
    Decided: December 5, 2000
    Before WILKINS and KING, Circuit Judges, and
    Frank J. MAGILL, Senior Circuit Judge of the
    United States Court of Appeals for the Eighth Circuit,
    sitting by designation.
    Vacated and remanded by published opinion. Judge Wilkins wrote the
    opinion, in which Judge King and Senior Judge Magill joined.
    COUNSEL
    ARGUED: Amy Marie Smith, STEPTOE & JOHNSON, Clarksburg,
    West Virginia, for Appellants. Jodi K. Douglas, COOPER & PRES-
    2            MYLES LUMBER CO. v. CNA FINANCIAL CORP.
    TON, Parsons, West Virginia, for Appellee. ON BRIEF: Daniel C.
    Cooper, STEPTOE & JOHNSON, Clarksburg, West Virginia, for
    Appellants. John W. Cooper, COOPER & PRESTON, Parsons, West
    Virginia, for Appellee.
    OPINION
    WILKINS, Circuit Judge:
    Myles Lumber Company (Myles Lumber) filed suit in state court
    against CNA Financial Corporation, Boston Old Colony Insurance
    Company, and Continental Insurance Company (collectively, "Boston
    Old Colony") seeking coverage under an insurance policy. Boston
    Old Colony removed the action to federal district court based on
    diversity jurisdiction. See 28 U.S.C.A. § 1332 (West 1993 & Supp.
    2000); 28 U.S.C.A. § 1441 (West 1994). The district court abstained
    from exercising jurisdiction and remanded. Boston Old Colony
    appeals. For the reasons set forth below, we vacate the order of the
    district court and remand for further proceedings.
    I.
    At all times relevant to this appeal, Boston Old Colony insured
    Myles Lumber under a commercial general liability insurance policy.
    Myles Lumber was sued in West Virginia state court by a group of
    individuals who contended that they were the rightful owners of prop-
    erty on which Myles Lumber had cut timber ("the Hyre lawsuit" or
    "the underlying action"). Boston Old Colony defended Myles Lumber
    in the underlying action under a full reservation of rights, believing
    that if the trees on the disputed property had not belonged to Myles
    Lumber, certain policy exceptions would apply which would preclude
    coverage. Myles Lumber lost the Hyre lawsuit and paid a judgment
    of over $300,000, plus related fees and costs.
    Myles Lumber’s request for insurance coverage was denied
    because Boston Old Colony believed that certain exclusions applied.
    Myles Lumber disputed this and filed a three-count complaint in West
    Virginia state court. In the first count, Myles Lumber sought a decla-
    MYLES LUMBER CO. v. CNA FINANCIAL CORP.                     3
    ration of its rights under the insurance contract as well as attorneys’
    fees and consequential damages incurred as a result of suing for cov-
    erage. See W. Va. Code Ann. §§ 55-13-1 to 55-13-16 (Michie 1994)
    (Uniform Declaratory Judgments Act). In the second count, Myles
    Lumber alleged breach of contract, and in the third count, it sought
    relief under the state Unfair Trade Practices Act, see W. Va. Code
    Ann. § 33-11-4(9)(a) (Michie 1996).
    Boston Old Colony removed the action to federal district court
    based on diversity of citizenship, see 28 U.S.C.A. §§ 1332, 1441, and
    Myles Lumber moved to remand based on principles of abstention.
    The district court held a hearing at which it granted the remand
    motion. It noted that this court has established certain factors to be
    considered in deciding whether to abstain from hearing a declaratory
    judgment action, see Centennial Life Ins. Co. v. Poston, 
    88 F.3d 255
    ,
    257 (4th Cir. 1996), and concluded that consideration of those factors
    favored abstention. In particular, the district court noted that the case
    would require application of state law and emphasized its determina-
    tion that the suit could be more efficiently resolved by the state court
    because the state court was already familiar with the facts of the
    underlying action.
    Boston Old Colony appeals, arguing that the district court lacked
    authority to abstain. Boston Old Colony alternatively argues that even
    if the district court possessed discretion to abstain, it was an abuse of
    discretion to abstain here. We agree that the district court lacked
    authority to abstain from exercising jurisdiction over the claims for
    breach of contract and unfair trade practices because those claims
    plainly seek damages. We further conclude that even if the district
    court had discretion to abstain from exercising jurisdiction over the
    declaratory judgment claim, under these circumstances it would be an
    abuse of discretion to remand that single claim.
    II.
    District courts ordinarily have a strict duty to exercise the jurisdic-
    tion that is conferred on them by Congress. See Quackenbush v. All-
    state Ins. Co., 
    517 U.S. 706
    , 716 (1996). However, when a suit
    involves equitable or discretionary relief, a district court may either
    stay the suit in favor of state court action or "decline to exercise juris-
    4             MYLES LUMBER CO. v. CNA FINANCIAL CORP.
    diction altogether by . . . dismissing the suit or remanding it to state
    court." Id. at 721. In contrast, a district court may stay an action seek-
    ing damages but generally may not subject it to "outright dismissal or
    remand." Id. Thus, a threshold requirement that must be satisfied for
    a case to be subject to remand is that the complaint seek either equita-
    ble or otherwise discretionary relief. Whether a case satisfies the basic
    requirements of abstention is a legal question subject to de novo review.1
    See Garamendi v. Allstate Ins. Co., 
    47 F.3d 350
    , 354 (9th Cir. 1995),
    aff’d sub nom. Quackenbush v. Allstate Ins. Co., 
    517 U.S. 706
     (1996);
    see also United States v. Smith, 
    115 F.3d 241
    , 244 (4th Cir. 1997)
    (stating that questions of law are reviewed de novo).
    Counts Two and Three of Myles Lumber’s complaint—for breach
    of contract and unfair trade practices—plainly seek damages and thus,
    under Quackenbush, were not subject to remand. The question then
    becomes whether, assuming that the district court possessed discre-
    tion to remand the declaratory judgment claim,2 it would be proper to
    remand that claim alone. We conclude that remanding would be an
    abuse of discretion. See United Capitol Ins. Co. v. Kapiloff, 
    155 F.3d 488
    , 493 (4th Cir. 1998).
    A court must consider four factors in deciding whether to exercise
    its discretion to hear a declaratory judgment action:
    1
    Although remand orders generally are not subject to review on appeal,
    see 28 U.S.C.A. § 1447(d) (West 1994), the Supreme Court has held that
    abstention-based remand orders such as the one at issue here are appeal-
    able, see Quackenbush, 517 at 711-15.
    2
    Myles Lumber’s declaratory judgment count arguably presents a
    claim for damages as it seeks a declaration of rights under the insurance
    contract. Cf. Terry v. Chauffeurs, Local 391, 
    863 F.2d 334
    , 339 (4th Cir.
    1988) (concluding that when declaratory judgment action required inter-
    pretation of a collective bargaining agreement and determination of
    whether the agreement was breached, the suit involved legal rather than
    equitable issues), aff’d, 
    494 U.S. 558
     (1990); see also 9 Charles Alan
    Wright & Arthur R. Miller, Federal Practice and Procedure § 2313
    (1995) ("Although the origin of the declaratory judgment procedure
    largely is in equity, the remedy itself is neither legal nor equitable . . .
    In that event, this entire action is for damages and the district court
    would be constrained to exercise jurisdiction.
    MYLES LUMBER CO. v. CNA FINANCIAL CORP.                    5
    (i) the strength of the state’s interest in having the issues
    raised in the federal declaratory action decided in the state
    courts; (ii) whether the issues raised in the federal action can
    more efficiently be resolved in the court in which the state
    action is pending; [ ](iii) whether permitting the federal
    action to go forward would result in unnecessary "entangle-
    ment" between the federal and state court systems, because
    of the presence of "overlapping issues of fact or law"[; and
    (iv)] whether the declaratory judgment action is being used
    merely as a device for "procedural fencing" . . . .
    Centennial Life Ins., 88 F.3d at 257 (quoting Nautilus Ins. Co. v. Win-
    chester Homes, Inc., 
    15 F.3d 371
    , 377 (4th Cir. 1994)) (alterations in
    original).
    Comity concerns do not weigh heavily in favor of the exercise of
    jurisdiction. Although this case will involve the application of state
    law, there is nothing that would give West Virginia courts a particu-
    larly strong interest in deciding it. See id. at 258 (noting that interest
    of state in deciding matter of state law is lessened when state law
    issue is not problematic or difficult); cf. Johnson v. Collins Entm’t
    Co., 
    199 F.3d 710
    , 719-21 (4th Cir. 1999) (noting that state had
    strong interest in deciding issues that involved "a most basic problem
    of [state] public policy" and "the treacherous waters of state political
    controversy").
    In contrast, the efficiency factor weighs heavily in favor of retain-
    ing jurisdiction. First, we consider it significant that there is no state
    action pending. Further, as the district court must retain jurisdiction
    over the damages claims, it would be more efficient for the district
    court to adjudicate the entire case. See Gov’t Employees Ins. Co. v.
    Dizol, 
    133 F.3d 1220
    , 1225-26 (9th Cir. 1998) (en banc) (stating that,
    to avoid piecemeal litigation, a district court generally should not
    remand or decline to entertain a declaratory relief claim when other
    claims are joined with the claim for declaratory relief); cf. Centennial
    Life Ins., 88 F.3d at 258 (stating that efficiency factor favored absten-
    tion when pending state action would settle the entire matter but fed-
    eral declaratory judgment action would not).
    The district court determined that efficiency favored remand
    because the state court was familiar with the facts of the underlying
    6            MYLES LUMBER CO. v. CNA FINANCIAL CORP.
    action. The court believed that one issue pertaining to the merits of
    this suit would be whether Myles Lumber’s trespass was intentional,
    and that resolving that issue would involve considering both state law
    and the facts of the trespass. Assuming that Myles Lumber’s intent is
    at issue—a proposition disputed by Boston Old Colony—efficiency
    does not favor remand. Again, there is no pending state court action
    that will resolve this issue, so there is no immediate efficiency gain
    by transferring the issue to state court. And, because the dispute in the
    underlying action merely concerned boundary lines and did not
    involve the issue of whether Myles Lumber’s trespass was intentional,
    this will be a new issue regardless of which court decides it.
    The third factor concerns avoiding unnecessary entanglement
    between the federal and state court systems. We perceive no realistic
    threat of entanglement here primarily because there is no pending
    state court action. Although Myles Lumber contends that there is a
    danger of entanglement because the state court is already familiar
    with the facts of the underlying suit, this argument is specious.
    Whichever court decides the merits of this case must tread carefully
    with regard to the facts already decided in the underlying action, and,
    as previously noted, the intent issue was not decided in the Hyre law-
    suit. Accordingly, the third factor does not favor remand. Finally, the
    fourth factor concerns the potential for procedural fencing, but there
    is no evidence to support Myles Lumber’s assertion that Boston Old
    Colony has engaged in forum shopping.
    Thus, this case only nominally raises comity concerns, entangle-
    ment is not realistically an issue, there is no evidence of procedural
    fencing, and efficiency considerations weigh heavily in favor of
    retaining jurisdiction. We therefore conclude that, assuming that the
    district court possessed discretion to remand the declaratory judgment
    claim, it would be an abuse of discretion to do so under these circum-
    stances.
    III.
    In sum, we conclude that the district court was without authority
    to abstain from exercising its jurisdiction over Counts Two and Three
    of the complaint because they seek damages. Further, assuming the
    district court possessed discretion to abstain from deciding the declar-
    MYLES LUMBER CO. v. CNA FINANCIAL CORP.                 7
    atory judgment count, we conclude that under the circumstances pres-
    ent here the court would abuse its discretion in doing so. We therefore
    vacate the remand order of the district court and remand for further
    proceedings consistent with this opinion.
    VACATED AND REMANDED