State Farm Mutual Automobile Insurance Company v. A & D Brown Enterprises Inc

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

STATE FARM MUTUAL AUTOMOBILE )

INSURANCE COMPANY, )

)

Plaintiff, )

)

v. ) Case No. CIV-20-00436-PRW

)

A & D BROWN ENTERPRISES, INC., et al., )

)

Defendants. )

ORDER

The Declaratory Judgment Act bestows on the district courts unique and substantial

discretion in deciding whether to declare the rights of litigants in actions brought

thereunder. Defendants Nick and Charla Shaffer, with their “Motion to Dismiss Plaintiff’s

Second Amended Complaint for Declaratory Judgment or, in the Alternative, Motion to

Stay” (Dkt. 19), and Defendant Cheekia Rogers, with her “Motion to Dismiss Plaintiff’s

Second Amended Complaint for Declaratory Judgment or, in the Alternative, Motion to

Stay” (Dkt. 30),1 ask the Court to exercise its discretion to dismiss or stay this declaratory

action. For the reasons that follow, the Court will grant their motions and dismiss the action

without prejudice.

1 Cited hereinafter as “Shaffer Mot. to Dismiss (Dkt. 19)” and “Rogers Mot. to Dismiss

(Dkt. 30),” respectively.

Background

This litigation traces back to a tragic, fatal car accident. On January 15, 2020, H.S.,

a minor, went for a driving lesson with her instructor, George A. Voss of Brown’s Driving

School. At the conclusion of her lesson, the pair picked up A.R., another minor and student

driver. At the direction of Voss, A.R. took the wheel with instructions to bring H.S. back

to her home before continuing with her own driving lesson.

With A.R. at the wheel, Voss in the front passenger seat, and H.S. in the backseat,

the trio headed westbound on I-240 before taking the 3B exit to S.E. 74th Street. According

to Defendant Cheekia Rogers, A.R.’s parent and legal guardian, as they approached the

end of the exit ramp, Voss instructed A.R. to bring the vehicle to a complete stop despite

the absence of a stop or yield sign, and A.R. dutifully complied.

As she did so, Sammual Pace exited the ramp immediately behind them. While Pace

saw the stopped vehicle and applied his brakes, it was too late: He slammed into the rear

of the student-driven car. H.S., seated in the backseat of the vehicle, was killed.

For reasons that will be made clear, the precise sequence of the events that followed

is critical to the disposition of these motions. On January 29, 2020, H.S.’s parents, Nick

and Charla Shaffer (“the Shaffers”), sent a letter to Brown’s Driving School’s insurance

carrier, State Farm Insurance Mutual Automobile Insurance Company (“State Farm”),

notifying it of potential insurance claims arising from the accident and requesting copies

of any relevant insurance policies.2 Anticipating possible litigation, the Shaffers also sent

2 See Jan. 29, 2020 Insurance Claim Letter (Dkt. 19, Ex. 2).

a spoliation and preservation of evidence letter to both State Farm and Brown’s Driving

School.3

Meanwhile, on March 6, 2020, the Shaffers sued Brown’s Driving School, Sammual

Pace, George Voss, and A.R. in the District Court of Oklahoma County,4 asserting an

assortment of state law tort claims.5 At the initiation of that state action, State Farm had

not yet responded to the Shaffer’s request for copies of the relevant insurance policies.

Then, on March 13, 2020, State Farm produced a Confirmation of Coverage.6 It

disclosed that Brown’s Driving School had one million dollars ($1,000,000.00) in liability

coverage and one hundred thousand dollars ($100,000.00) per person, per incident, up to

three hundred thousand dollars ($300,000.00) total per incident (i.e., regardless of the

number of individuals involved in the incident), in uninsured/ underinsured (“UM”)

coverage for each of its twenty-five vehicles.7 The Confirmation of Coverage did not

contain the entirety of the insurance policy, however.

In response to the Confirmation of Coverage, the Shaffers demanded that State Farm

pay them two and a half million dollars ($2,500,000.00).8 In their view, the total amount

available to satisfy their claim was the one hundred thousand dollars ($100,000.00) per

3 See Feb. 14, 2020 Preservation of Evid. and Spoliation Letter (Dkt. 19, Ex. 3).

4 See State Action Dkt. (Dkt. 19, Ex. 4) at 2.

5 See Second Am. Pet. (Dkt. 19, Ex. 1) at 4–18.

6 Confirmation of Coverage (Dkt. 19, Ex. 5).

7 See id.

8 See Mar. 23, 2020 Demand Letter (Dkt. 19, Ex. 6) at 2.

vehicle times the twenty-five vehicles covered by the policy (i.e., the per-vehicle limits

“stack”).9 If not paid in full, the Shaffers continued, litigation would imminently follow.10

They pointed to the state lawsuit against the other parties involved in the accident as if to

say, “We will make good on our threat.”11

On April 6, 2020, State Farm responded that it was evaluating the Shaffers’

demand.12 Then, four days later, on April 10, 2020, State Farm paid the Shaffers one

hundred thousand dollars ($100,000.00) pursuant to the coverage for the vehicle that H.S.

was in at the time of the accident.13 State Farm neither provided an answer as to the balance

of the amount demanded (i.e., whether the policies “stack”) nor sent the complete insurance

policy. However, State Farm did acknowledge the potentially forthcoming claims against

it.14

The complete insurance policy wasn’t conveyed until a month later, on May 11,

2020.15 And the day after that, on May 12, 2020, State Farm told the Shaffers that the policy

9 See id. at 7.

10 See, e.g., id. at 7 (demanding two and a half million dollars ($2,500,000.00) and musing

that, “[g]iven the extreme nature of the facts in this case, State Farm Insurance would want

to avoid any bad faith claim”).

11 See id. (observing that they had “filed a Petition against the Defendants and are currently

negotiating with the at-fault carriers”).

12 See Apr. 6, 2020 Resp. Email (Dkt. 19, Ex. 7) (stating that they had “been retained by

State Farm to assist them in responding to [the Shaffer’s] current demand for payment”).

13 See Apr. 10, 2020 Letter (Dkt. 19, Ex. 8).

14 See id. (“This payment is being made without prejudice to your clients pursuing any and

all other causes of action they may have against State Farm . . . .”).

15 May 11, 2020 Email (Dkt. 19, Ex. 9) (attaching the insurance policy).

did not “stack” and that they therefore were not entitled to the two and a half million dollars

($2,500,000.00) demanded, only the one hundred thousand dollars ($100,000.00) it paid

earlier.16 State Farm then filed its Complaint for Declaratory Judgment (Dkt. 1) with this

Court the very same day, asking for a declaratory judgment as to its legal obligations under

the insurance policy.17 Specifically, State Farms asks this Court to declare that:

(1) “[t]he [UM] coverage provided by the Policy may not be stacked . . . and

therefore, the maximum limit of [UM] coverage available for the fatal

injuries sustained [by] H.S. is the Each Person limits of $100,000.00,”

(2) “[t]he Policy does not provide coverage for punitive damages,”

(3) “[t]o the extent Underlying Plaintiffs seek to recover from Brown’s Driving

School for damages that do not constitute ‘bodily injury’ or ‘property

damage’ caused by an ‘accident’ involving an insured vehicle, the Policy

does not provide Liability Coverage for such damages,” and

(4) “State Farm has no duty to satisfy any judgment entered in the Underlying

Action to the extent that judgment is for damages that do not constitute

‘bodily injury’ or ‘property damage’ caused by an ‘accident’ involving an

insured vehicle.”18

On May 14, 2020, based on State Farm’s denial of their demand, the Shaffers filed

their Second Amended Complaint in the state action, adding State Farm as a defendant and

alleging state law claims for breach of contract and related damages, including punitive

damages.19

16 See May 12, 2020 Denial Letter (Dkt. 19, Ex. 16) at 4.

17 Pl.’s Compl. for Declaratory J. (Dkt. 1).

18 Id. at 12.

19 See Second Am. Compl. (Dkt. 19, Ex. 1).

A series of subsequent developments in the state action prompted State Farm to

amend their complaint in this action. On June 15, 2020, A.R. filed a cross-claim against

State Farm in the state action asserting, inter alia, bad faith and breach of contract claims.20

Later that same day, State Farm amended its complaint in this action to add Voss as a

defendant in light of his newly asserted insurance claim.21 Then, about three weeks after

A.R. filed her state court breach of contract and bad faith claims against State Farm, it

amended its complaint in this case for the second time to add A.R. as a defendant.22

Now, the Shaffers, individually and as parents and next of friends of H.S., and

Cheekia Rogers, as parent and legal guardian of A.R., move this Court to dismiss or, in the

alternative, to stay the declaratory action in deference to the state action. They argue that

that such a dismissal or stay is proper because there is a pending state court action between

similar parties, presenting similar issues, all of which are governed by state law, and also

because this declaratory action was filed in an effort to unfairly deprive the would-be

plaintiffs of their forum of choice.23 They point out that “since State Farm is a party in the

state court case, it can have all of its relief requested and claims against it resolved” through

that action, whereas the declaratory action “would not resolve all the claims against State

Farm.”24 Indeed, the state action, they continue, can resolve all claims against all parties

20 See Cross-cl. Of Sycheekia Rogers, as Parent and Legal Guardian of A.R., a Minor,

Against Cross-cl. Defs. (Dkt. 19, Ex. 17).

21 Pl.’s Am. Compl. for Declaratory J. (Dkt. 9).

22 Pl.’s Second Am. Compl. for Declaratory J. (Dkt. 15).

23 Shaffer Mot. to Dismiss (Dkt. 19) at 5; Rogers Mot. to Dismiss (Dkt. 30) at 5.

24 Shaffer Mot. to Dismiss (Dkt. 19) at 6; Rogers Mot. to Dismiss (Dkt. 30) at 6.

to the accident.25 In their view, State Farm is simply “attempting to recreate a lawsuit in

the forum of its choice [to] rob the Shaffers and the other Defendants of their natural

plaintiff right to litigate their claims in the state court case that was filed before the

Declaratory Judgment.”26

State Farm disagrees, of course. It believes this declaratory action “is the most

efficient and expeditious route to resolution of the insurance coverage issues presented,”

and that a decision by this Court would not interfere with the state action.27 It emphasizes

that it brought the declaratory action before it was brought into the state action and stresses

that the declaratory action presents only a narrow, legal question.28 As such, it asks this

Court to allow the declaratory action to proceed.

Legal Framework

Typically, the “federal courts have a ‘virtually unflagging obligation’ to exercise

the jurisdiction conferred on them by Congress.”29 But in the context of actions for

declaratory relief brought pursuant to the Declaratory Judgment Act,30 the federal courts

25 Shaffer Mot. to Dismiss (Dkt. 19) at 6; Rogers Mot. to Dismiss (Dkt. 30) at 6.

26 Shaffer Mot. to Dismiss (Dkt. 19) at 7; see Rogers Mot. to Dismiss (Dkt. 30) at 7.

27 Pl.’s Resp. to Def., Cheekia Rogers, as Parent and Legal Guardian of A.R., a Minor’s,

Mot. to Dismiss Pl.’s Second Am. Compl. for Declaratory J. or, in the Alternative, Mot. to

Stay (Dkt. 32) at 5–6.

28 Pl.’s Resp. to Defs., Nick Shaffer and Charla Shaffer, Individually and as Parents and

Next Friends of H.S., a Deceased Minor’s, Mot. to Dismiss and/or Stay Pl.’s Second Am.

Compl. for Declaratory J. (Dkt. 21) at 6–7, 21.

29 Wilton v. Seven Falls Co., 515 U.S. 277, 284, (1995) (quoting Colorado River Water

Conservation Dist. v. United States, 424 U.S. 800, 813, 817–18 (1976)).

30 The Federal Declaratory Judgment Act provides that “[i]n a case of actual controversy

within its jurisdiction . . . any court of the United States, upon the filing of an appropriate

enjoy “unique and substantial discretion in deciding whether to declare the rights of

litigants.”31

To assist the district courts in determining whether to exercise their discretion to

hear a particular action for declaratory judgment, the Tenth Circuit has identified some

factors (known as the Mhoon factors) for the district court to consider:

(1) whether a declaratory action would settle the controversy;

(2) whether it would serve a useful purpose in clarifying the legal relations at

issue;

(3) 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;

(4) whether use of declaratory action would increase friction between our federal

and state courts and improperly encroach upon state jurisdiction; and

(5) whether there is an alternative remedy which is better or more effective.32

If, after considering the Mhoon factors, the district court determines in its sound

discretion that it should entertain the declaratory judgment action, then that is the end of

the inquiry for present purposes. But if the district court declines to exercise jurisdiction

over a declaratory judgment action, there is another step: The district court must determine

whether to stay the action or dismiss it and must state the reasons for that decision.33 To

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.” 28 U.S.C. § 2201(a).

31 Wilton, 515 U.S. at 286.

32 State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994).

33 A district court’s failure to provide reasons for its decision to stay or dismiss a declaratory

judgment action is cause for remand on appeal. See United States v. City of Las Cruces,

289 F.3d 1170, 1192 (10th Cir. 2002) (“The district court dismissed the United States’ suit

without providing reasons for its choice of remedy. Without reasons ‘appellate review is

that end, “the district court considers such questions as whether the state proceedings will

likely adjudicate the claims of the federal parties and whether the federal proceeding will

serve any useful purpose considering the likely scope of the state proceeding.”34 As the

emphasis on “likely” suggests, this “analysis involves some measure of prognostication.”35

Discussion

I. Whether to Exercise Jurisdiction: The Mhoon Factors

a. First and Second Mhoon Factors: Settling the Controversy & Clarifying the

Legal Relations

The first two Mhoon factors are (1) “whether a declaratory action would settle the

controversy” and (2) “whether it would serve a useful purpose in clarifying the legal

relations at issue.”36 These factors are “designed to shed light on the overall question of

whether the controversy would be better settled in state court.”37

As to the first factor, the state action can resolve all claims and defenses, tort and

contract alike, between all parties arising from the car accident, whereas the federal

declaratory action would resolve only a narrow, antecedent question to the current and

prospective breach of contract claims, namely the scope of the contractual coverage.

impossible,’ and the appropriate procedure is to remand for further findings and

determinations by the district court.” (citing ARW Exploration Corp. v. Aguirre, 45 F.3d

1455, 1459 (10th Cir. 1995))).

34 Id. (emphasis in original)

35 City of Las Cruces, 289 F.3d at 1192.

36 Mhoon, 31 F.3d at 983 (citation omitted).

37 City of Las Cruces, 289 F.3d at 1187.

But, State Farm argues, the relevant “controversy” for purposes of this first factor

is the narrow controversy as to the scope of coverage, which, it continues, would be fully

resolved by the declaratory action. It cites United Specialty Ins. Co. v. Connor Roofing &

Guttering, LLC38 in support.

In Connor Roofing, Chief Judge Eagan did indeed conclude that the declaratory

action in that case would “fully resolve the issue of insurance coverage between United

and Conner Roofing” and found that to be “the relevant ‘controversy’ for the purpose of

ruling on [the] motion to dismiss.”39 But she also found as relevant to that inquiry that “the

state court lawsuit w[ould] not resolve the insurance coverage issue” and that, “[i]n any

event, [the declaratory judgment plaintiff was not named] as a party in the state court

lawsuit and . . . ha[d] no opportunity to raise th[e] issue in state court.”40 Of course, that is

not the case here. State Farm is a party to the underlying state action and has raised its

defenses there.41

In fact, the state action will necessarily or, at the very least, likely resolve all issues

presented in the declaratory action. The state court must necessarily resolve whether the

38 2012 WL 208104 (N.D. Okla. Jan. 24, 2012).

39 Id. at *4.

40 Id.

41 This broader conception of “controversy,” predicated on the degree of identity of the

parties and claims between the state and federal actions, is widespread in this circuit. See,

e.g., Bristol W. Ins. Co. v. Salas, 469 F. Supp. 3d 1175, 1177 (D. N.M. 2020) (the first two

Mhoon factors “focus on the degree of identity between the parties and issues in the state

and federal suits” and that “[t]he relevant inquiry . . . is whether the claims of all parties in

interest can satisfactorily be adjudicated in the state court proceedings”); Prime Ins. Co. v.

GKD Mgmt. LP, 2020 WL 7698789, at *3 (D. Utah Dec. 28, 2020) (same).

coverage “stacks” and whether punitive damages are available in a breach of contract claim

to adjudicate the breach of contract claim. As for the other declarative relief, State Farm

has asserted the affirmative defense42 that “Plaintiffs’ claims against [it] are not covered

and are expressly excluded by the terms and conditions of the applicable insurance policy,”

raising the issue of whether it may be liable for damages that do not constitute “bodily

injury” or “property damage” caused by an “accident” involving an insured vehicle.43 The

declaratory action, then, in all likelihood resolves nothing that will not be resolved in the

state action. For this reason, the second factor, concerning whether the declaratory action

would serve a useful purpose in clarifying the legal relations at issue, tips in favor of

declining jurisdiction as well.

b. Third Mhoon Factor: Procedural Fencing

The third Mhoon factor concerns 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. The anticipatory timing and defensive nature of a declaratory action are telltale

signs of procedural fencing,44 and this case is a paradigmatic example. As recounted earlier,

42 The Court takes judicial notice of State Farm’s Answer to Plaintiffs’ Second Amended

Petition in the underlying state action. See St. Louis Baptist Temple v. Fed. Deposit Ins.

Corp., 605 F.2d 1169, 1172 (10th Cir. 1979) (“[I]t has been held that federal courts, in

appropriate circumstances, may take notice of proceedings in other courts, both within and

without the federal judicial system, if those proceedings have a direct relation to matters at

issue.”).

43 State Farm Mutual Automobile Insurance Company’s Answer to Pls.’ Second Am. Pet.

at 14, Shaffer v. Pace, No. CJ-2020-1338 (Okla. Cty. Dist. Ct. filed Nov. 13, 2020).

44 See Neverve, LLC v. SE Prop. Holdings, LLC, 2019 WL 3022200, at *4 (W.D. Okla.

July 10, 2019) (“The timing and defensive nature of this suit epitomize procedural

fencing.”).

before they filed the state action, the Shaffers alerted State Farm to their potential insurance

claims and sent a preservation of evidence and spoliation letter—clear indications of their

litigious intent. And if the imminent possibility of litigation were not abundantly clear at

that point, in the lead up to the declaratory action, the Shaffers demanded two and a half

million dollars ($2,500,000.00) from State Farm and made clear that if their demand went

unmet, litigation would ensue. In fact, they even pointed to the pending state action against

the others connected to the car accident to substantiate their threat. Nevertheless, knowing

that the Shaffers would bring it into the state action the moment it denied their demand,

State Farm opted to simultaneously deny the demand and file their declaratory action. In

so doing, State Farm was able to file its suit here, in the forum of its choosing, before

providing the Shaffers with the requisite breach necessary for them to state a claim for

breach of contract in the state action.

In short, this case is a clear example of procedural fencing: State Farm brought its

federal declaratory action here, in its forum of choice, in anticipation of an imminent state

court action against it concerning the same subject matter. Accordingly, the third Mhoon

factor weighs in favor of declining jurisdiction over this declaratory action.45

45 The Tenth Circuit has affirmed a district court’s refusal to exercise jurisdiction over a

declaratory action in similar circumstances. In St. Paul Fire & Marine Ins. Co. v. Runyon,

53 F.3d 1167 (10th Cir. 1995), defendant informed plaintiff, his insurance company, prior

to filing suit that if plaintiff would not assume his defense in a liability claim, he would file

suit for bad faith and breach of contract by a certain date. See id. at 1167. One day before

this deadline, plaintiff filed suit for declaratory judgment. See id. Defendant filed his own

suit the next day as promised. See id. The district court held these circumstances constitute

procedural fencing by plaintiff and in its discretion dismissed the action. See id. at 1169.

The Tenth Circuit affirmed this ruling, explaining that plaintiff's use of a declaratory

c. Fourth and Fifth Mhoon Factors: Friction between State and Federal Courts

and Improperly Encroaching Upon State Jurisdiction & Better or More

Effective Alternative Remedy

The fourth Mhoon factor directs the Court to consider whether exercising

jurisdiction in this matter would cause unnecessary entanglement and friction between the

state and federal courts.46 The Court finds that this declaratory action invites just such

entanglement and friction. In effect, State Farm asks this Court to determine questions of

state law for a state court that would have necessarily made those determinations itself but

for the intervention of the federal court.

As to the fifth factor, the Court finds that the state action provides the best remedy.

As discussed earlier, the state action will provide a comprehensive and efficient resolution

to all claims arising from the car accident and is better suited to decide the questions of

state law at issue. And while State Farm complains that it will be dragged through a wide-

ranging litigation involving a plethora of fact-intensive tort claims, if it wants to opt out of

that potentially protracted and costly litigation, and its legal arguments are sound, it can

move to have the claims against it dismissed for failure to state a claim as a matter of law.

For these reasons, the fourth and fifth Mhoon factors weigh in favor of declining

jurisdiction over the declaratory action as well.

judgment action as procedural fencing is an “adequate reason for the district court to refuse

jurisdiction....” Id. at 1170.

46 See Runyon, 53 F.3d at 1169.

d. The Mhoon Factors Weigh in Favor of Declining Jurisdiction

In sum, all five Mhoon factors point in favor of declining jurisdiction over this

declaratory action. Accordingly, the Court will exercise its discretion to decline

jurisdiction.

II. The Proper Remedy: to Dismiss or to Stay

Having decided to decline jurisdiction over this declaratory action, the Court must

next determine whether to stay the action or dismiss it. To that end, the Court “considers

such questions as whether the state proceedings will likely adjudicate the claims of the

federal parties and whether the federal proceeding will serve any useful purpose

considering the likely scope of the state proceeding.”47 In other words, the functional

question is whether the district court anticipates a later need to resolve a dispute raised by

the declaratory action.

All aspects of coverage for which declarative relief is sought are before the state

court in the state action. The state court must resolve whether the coverage “stacks” and

whether punitive damages are available in a breach of contract claim to adjudicate the

breach of contract claim. State Farm has also asserted as an affirmative defense that

“Plaintiffs’ claims against [it] are not covered and are expressly excluded by the terms and

conditions of the applicable insurance policy,” raising the issue of whether it may be liable

for damages that do not constitute “bodily injury” or “property damage” caused by an

“accident” involving an insured vehicle. There is no reason, then, to stay this action in

47 City of Las Cruces, 289 F.3d at 1192 (emphasis in original).

anticipation of a need to resolve these issues down the road. As such, dismissal without

prejudice, as opposed to a stay, is proper.

Conclusion

The Court has broad discretion to hear cases brought pursuant to the Declaratory

Judgment Act. In this case, a declaratory action is of little benefit in light of the parallel

state action between the same parties, raising the same (and additional) claims and

defenses. Simply put, the state action provides a more comprehensive and efficient

resolution to the controversy and is better suited to decide the questions of state law at

issue. Moreover, the declaratory action was clearly brought to deprive the natural plaintiffs

of the opportunity to select their forum. Accordingly, the Court exercises its sound

discretion to decline jurisdiction over this declaratory action.

Defendants Nick and Charla Shaffer’s Motion to Dismiss or, in the Alternative, to

Stay the Second Amended Complaint (Dkt. 19) and Defendant Cheekia Rogers’s Motion

to Dismiss or, in the Alternative, to Stay the Second Amended Complaint (Dkt. 30) are

hereby GRANTED and the case is DISMISSED WITHOUT PREJUDICE.

IT IS SO ORDERED this 3rd day of February 2021.

UNITED STATES DISTRICT JUDGE

15