Goodwill Industries of Central Oklahoma Inc v. Philadelphia Indemnity Insurance Company

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF OKLAHOMA

GOODWILL INDUSTRIES OF )

CENTRAL OKLAHOMA, INC., )

d/b/a GOODWILL CAREER )

PATHWAYS INSTITUTE, )

)

Plaintiff, )

)

v. ) No. CV-20-511-R

)

)

PHILADELPHIA INDEMNITY )

INSURANCE COMPANY, )

)

Defendant. )

ORDER

Before the Court is Plaintiff’s Motion to Abstain from Exercising Jurisdiction and

Remand and Brief in Support. Doc. No. 12. Defendant filed an Opposition to Plaintiff’s

Motion, Doc. No. 18, and Plaintiff filed a Reply in Support of its Motion. Doc. No. 19.

Plaintiff, Goodwill Industries of Central Oklahoma, Inc. (“Goodwill”), is a not-for-profit

corporation operating various locations throughout central Oklahoma. Doc. No. 12, p. 2.

Defendant, Philadelphia Indemnity Insurance Company (“PIIC”) is a Delaware corporation

with its principal place of business in Pennsylvania. Doc. No. 1, ¶ 3.

Goodwill purchased an insurance policy (“the Policy”) underwritten by PIIC for the

“period from May 1, 2019 to May 1, 2020.” Doc. No. 1-1, p. 2. The policy includes

coverage for losses incurred by “direct physical loss of or damage to property at premises”

operated by Goodwill throughout central Oklahoma. Id. pp. 2-3. Additionally, Goodwill

alleges that “[PIIC] added an endorsement to the Policy that purports to exclude coverage

for loss due to virus or bacteria.” Id. p. 5. The endorsement is titled “Exclusion of Loss

Due to Virus or Bacteria” (“Virus Endorsement”), and it “applies to all coverage under all

forms and endorsements …, including … damage to buildings or personal property and …

business income, extra expense, or action of civil authority.” Doc. No. 1-1, p. 100.

On March 15, 2020, the Governor of Oklahoma issued an Executive Order declaring

a state of emergency as a result of the eighth case of the novel coronavirus (“COVID-19”)

in Oklahoma. Id. p. 3. Soon after, mayors in cities across central Oklahoma required the

“suspension of non-essential businesses,” causing Goodwill to close its locations in each

respective city. Id.

Goodwill alleges its closures caused it to “sustain[] direct physical loss or damage

to its property … covered by the Policy.” Id. p. 7. PIIC argues that the Policy does not

cover the closures resulting from COVID-19. Doc. No. 8, pp. 12, 14.

Goodwill filed suit in the District Court of Cleveland County on May 6, 2020,

seeking a declaratory judgment from the Court that “Goodwill sustained ‘direct physical

loss’ of or damage to its property” from the mandated closures enacted in response to

COVID-19. Doc. No. 1-1, ¶ 18. On June 1, 2020, PIIC removed this action from state court

pursuant to 28 U.S.C. §§ 1332 and 1441.1 However, Goodwill asks the Court to decline to

exercise its jurisdiction and remand the case to state court. Doc. No. 12, p. 4. Accordingly,

the Court must decide whether to abstain from exercising its diversity jurisdiction over

Goodwill’s declaratory judgment action.

1 “Goodwill does not dispute the Court has jurisdiction.” Doc. No. 12, p. 4.

The Declaratory Judgment Act states that a court “may declare the rights and other

legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). Thus,

district courts retain discretion to decide whether to entertain an action under the

Declaratory Judgment Act, even when the dispute satisfies subject matter jurisdictional

requirements. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942). “Since its

inception, the Declaratory Judgment Act has been understood to confer on federal courts

unique and substantial discretion in deciding whether to declare the rights of litigants.”

Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). In Wilton, the Court characterized the

Declaratory Judgment Act as a “remedial arrow in the district court’s quiver” establishing

“an opportunity, rather than a duty, to grant a new form of relief.”2 Id. at 288.

The Tenth Circuit addressed a district court’s discretionary decision in State Farm

Fire Cas. Co v. Mhoon, 31 F.3d 979 (10th Cir. 1994), instructing district courts to consider

the following factors when deciding whether to “declare the rights and other legal

relations” under the Declaratory Judgment Act:

i) whether a declaratory action would settle the controversy;

ii) whether it would serve a useful purpose in clarifying the legal

relations at issue;

iii) 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 ”;

iv) whether use of a declaratory action would increase friction between

our federal and state courts and improperly encroach upon state

jurisdiction; and

v) whether there is an alternative remedy which is better or more

effective.

2 In Wilton, the Court declined to “delineate the outer boundaries” of a district court’s discretion. Notably, the Court

explained that it did not decide whether such discretion applies to “cases in which there are no parallel state

proceedings.” Wilton, 515 U.S. at 290.

Mhoon, 31 F.3d at 983. Under Mhoon, the Court is “obligat[ed] to weigh these various

factors when deciding whether to hear a declaratory judgment action.” Id. at 983. Both

parties agree that the declaratory judgment action would settle the controversy3 and serve

a useful purpose in clarifying the legal relations at issue.4 Thus, the Court must only address

the third through fifth Mhoon factors.

I. The Third Mhoon Factor

Goodwill argues that the third factor is neutral because “there is no evidence either

party engaged in ‘procedural fencing.’” Doc. No. 12, p. 8. PIIC responds that “the third

Mhoon factor cuts against Plaintiff … [because] the only ‘procedural fencing’ here is

Plaintiff’s own claim-splitting strategy.” Doc. No. 18, p. 9 n. 3. At this time, the only claim

before the Court is the claim for declaratory judgment, thus, the Court will not speculate

as to future claims that the Plaintiff or Defendant may bring. Therefore, the Court finds the

third Mhoon factor to be neutral.

II. The Fourth Mhoon Factor

“[T]he Supreme Court directed that we prevent the ‘gratuitous interference with the

orderly and comprehensive disposition’ of a pending state court action.” Grand Trunk W.

R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984) (quoting Brillhart, 316

3 Goodwill conceded that the first Mhoon factor, “whether the declaratory judgment action would settle the

controversy,” weighs in PIIC’s favor because “a declaration … would presumably settle the controversy.” Doc. No.

12, p. 8. PIIC noted Goodwill’s concession, without elaborating on its position. Doc. No. 18, pp. 12-13. In its motion

to dismiss, PIIC argues that “Plaintiff’s declaratory judgment claim would not resolve the dispute between the parties.”

Doc. No. 8, p. 19. However, whether a declaratory judgment action completely resolves the dispute depends on the

success of Goodwill’s claim. For the purposes of this motion, however, because the parties do not dispute one another’s

position, the Court accepts Goodwill’s concession and notes that the first two Mhoon factors weigh in PIIC’s favor.

4 “Because this case is limited to a coverage dispute, and a declaration of whether Goodwill’s losses are covered would

presumably settle the controversy, the first two factors admittedly weigh in PIIC’s favor.” Doc. No. 12, p. 8.

U.S. at 495). In Grand Trunk, the Sixth Circuit explained that requesting the district court

“to do what the state court ha[d] already refused to do … [would] create unnecessary

friction between the federal and state courts.” Id. The Court, adopting what are known in

the Tenth Circuit as the Mhoon factors, concluded that the district court erred in giving

declaratory judgment because of its interference with the state court litigation. Id. at 327.

However, “the absence of a pending parallel state court proceeding makes it less

likely that by choosing to exercise jurisdiction over the action, this court will cause friction

with the state court.” Bd. of Cnty. Comm'rs. of Cnty. of Marshall v. Cont'l W. Ins. Co., 184

F. Supp. 2d 1117, 1122 (D. Kan. 2001); see also Nw. Pac. Indem. Co. v. Safeway, Inc., 112

F. Supp. 2d 1114, 1121 (D. Kan. 2000) (noting declaratory jurisdiction would cause

unnecessary friction because the dispute … “remain[ed] active.”) (emphasis added);

United Specialty Ins. Co. v. Conner Roofing & Guttering, LLC, No. 11-CV-0329-CVE-

TLW, 2012 WL 208104, at *5 (N.D. Okla. Jan. 24, 2012) (finding that the Mhoon factors

did not support declining jurisdiction because “[the] case [did] not present any substantial

factual or legal issue … litigated in the state court lawsuit.”); W. Am. Ins. Co. v. Atyani,

338 F. Supp. 3d 1227, 1234 (D.N.M. 2018) (finding no unnecessary friction between state

and federal courts when the district court suit addressed “interpretation … in the liability

policies” and the related state court suit addressed a violation of a city ordinance.).5

5 The district court for the district of New Mexico explained that “[i]f ongoing state court proceedings do not qualify

as ‘parallel’ with a federal declaratory judgment action, the district court's discretion to abstain from deciding

the declaratory judgment action is limited.” Hartford Fire Ins. Co. v. Gandy Dancer, LLC, No. CIV 10-0137 JB/RHS,

2011 WL 1336523, at *12 (D.N.M. Mar. 30, 2011) (quoting 12-57 M. Redish Moore’s Federal Practice § 57.42 (3d

ed. 1999)).

Goodwill argues that “this case was removed pursuant to diversity jurisdiction and

thus implicates no federal statutory law.” Doc. No. 12, p. 9. However, district courts retain

an interest in exercising jurisdiction over diversity cases. See e.g., Valls v. Allstate Ins. Co.,

919 F.3d 739, 743 (2d Cir. 2019). The Supreme Court articulated this interest by stating

that “we can discern in [Congress’s] action no recognition of a policy which would exclude

cases from the jurisdiction merely because they involve state law or because the law is

uncertain or difficult to determine.” Meredith v. City of Winter Haven, 320 U.S. 228, 236

(1943).

Goodwill alternatively argues that the issue “is one of first impression,” and thus is

“best addressed by Oklahoma courts.” Doc. No. 12, p. 11. However, “[a]n insurance policy

is a contract, and the rules … for the construction of written instruments apply to contracts

of insurance equally with other contracts.” Tri-State Cas. Ins. Co. v. Loper, 204 F.2d 557,

558 (10th Cir. 1953). Further, the Tenth Circuit has “expressly recognized that one of the

primary functions of the [Declaratory Judgment] Act is to provide … a forum” for having

an insurer’s liability declared. Farmers All. Mut. Ins. Co. v. Jones, 570 F.2d 1384, 1386

(10th Cir. 1978) citing Western Casualty and Surety Co. v. Teel, 391 F.2d 764, 766 (10th

Cir. 1968).

The risk of unnecessary friction between the state and federal courts is low because

there is no pending state litigation nor any special interest preventing the federal court from

exercising its jurisdiction, and thus, the fourth Mhoon factor weighs in PIIC’s favor.

III. The Fifth Mhoon Factor

A more effective alternative remedy may exist when “the same issues [are] involved

in … pending state proceedings.” St. Paul Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167,

1169 (10th Cir. 1995); see also Kunkel v. Continental Casualty Co., 866 F.2d 1269, 1276

(10th Cir. 1989) (explaining that the Court “should not entertain a declaratory judgment

action over which it has jurisdiction if the same fact-dependent issues are likely to be

decided in another pending proceeding.”).

However, here, there is no pending state proceeding. Thus, a better or more effective

alternative is unavailable. “If the federal courts in Oklahoma are closed to insurers and

insureds seeking declaratory relief, it will leave all the parties […] in a precarious position.”

Horace Mann Ins. Co. v. Johnson ex rel. Johnson, 953 F.2d 575, 578 (10th Cir. 1991)

(concluding that the district court abused its discretion “in declining to exercise jurisdiction

over the declaratory judgment action.”); see also Allstate Ins. Co. v. Brown, 920 F.2d 664,

668 (10th Cir. 1990) (holding that even staying a declaratory judgment action on liability

insurance coverage pending resolution of the underlying tort litigation in state court was

inappropriate).

“Declaratory judgment actions are … useful in actions where[] insurance companies

seek to have their liability declared.” Farmers All. Mut. Ins. Co. v. Jones, 570 F.2d 1384,

1386 (10th Cir. 1978). Without an alternative remedy currently available, the fifth factor

weighs in PIIC’s favor.

IV. Conclusion

After weighing the factors outlined in Mhoon, the Court finds that it should entertain

the Declaratory Judgment Action properly removed by PIC. Therefore, Goodwill’s

Motion to Abstain from Exercising Jurisdiction and Remand is DENIED IN ITS

ENTIRETY.

IT IS SO ORDERED on this 9th day of November 2020.

DAVID L. RUSSELL

UNITED STATES DISTRICT JUDGE