The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
KING’S COLLEGE, et al., : Civil No. 3:20-CV-01655
:
Plaintiffs, :
:
v. :
:
TRAVELER’S INSURANCE :
COMPANY, :
:
Defendant. : Judge Jennifer P. Wilson
MEMORANDUM
This is a declaratory judgment action in which Plaintiffs King’s College,
Thomas J. O’Hara (“O’Hara”), and Robert McGonigle (“McGonigle”) seek a
declaration that their insurer, Traveler’s Insurance Company (“Traveler’s”), is
obligated to indemnify and defend them in connection with another lawsuit that is
currently pending before this court. The present case was filed in the Luzerne
County Court of Common Pleas but has been removed to this district under 28
U.S.C. § 1441. The case is presently before the court on Plaintiffs’ motion to
remand the case to Pennsylvania state court, which asks the court to exercise its
discretion under the Declaratory Judgment Act and decline to exercise jurisdiction
over this case. For the reasons that follow, Plaintiffs’ motion to remand is denied.
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BACKGROUND AND PROCEDURAL HISTORY
The facts of this case arise from another lawsuit that is pending before this
court, Rittenhouse Entertainment, Inc. v. City of Wilkes-Barre, No. 3:11-CV-00617
(M.D. Pa. filed Apr. 4, 2011). The plaintiffs in that case, a business owner and
several businesses in which he is either the sole or principal owner, alleged that
King’s College, O’Hara, McGonigle, and numerous other defendants connected to
either King’s College, the City of Wilkes-Barre, or Luzerne County had engaged in
a concerted effort to violate the plaintiffs’ civil rights and committed various torts
against the plaintiffs. Id. After several claims in the case were dismissed, United
States District Judge A. Richard Caputo granted summary to the defendants as to
all remaining federal claims and declined to exercise supplemental jurisdiction
over the remaining state law claims. Rittenhouse Entm’t, Inc. v. City of Wilkes-
Barre, No. 3:11-CV-00617, 2018 WL 3756711 (M.D. Pa. Aug. 8, 2018). The
plaintiffs appealed, and the Third Circuit reversed in part, remanding the case back
to this district with instructions to consider whether the remaining defendants are
entitled to qualified immunity and whether they are entitled to summary judgment
as to the plaintiffs’ tortious interference with a contract claim. Rittenhouse Entm’t,
Inc. v. City of Wilkes-Barre, 782 F. App’x 148, 156 & nn.5–6 (3d Cir. 2019).
Following remand, the case was reassigned to the undersigned, and after the parties
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filed supplemental briefs, the court granted summary judgment in part and denied
it in part. Rittenhouse, No. 3:11-CV-00617, Doc. 238 (M.D. Pa. May 6, 2021).
The dispute in the present case is whether an insurance policy (“the Policy”)
that Plaintiff King’s College had with Traveler’s obligates Traveler’s to (a) cover
Plaintiffs for any losses resulting from Rittenhouse and (b) defend Plaintiffs from
any liability in Rittenhouse. (See Complaint, Doc. 2, pp. 2–11.) Coverage and
defense were not initially in dispute between the parties, but on May 13, 2020,
approximately nine months after the Third Circuit remanded Rittenhouse,
Traveler’s disclaimed its duty to either cover or defend Plaintiffs. (Id. ¶ 14, Doc.
2, p. 6.) Plaintiffs filed suit in the Luzerne County Court of Common Pleas,
alleging that Traveler’s decision to disclaim coverage and defense was improper
and accordingly seeking a declaration that Traveler’s was obligated to indemnify
and defend Plaintiffs as to any claims in Rittenhouse. (Id. ¶ 26, Doc. 2, p. 10.)
On September 11, 2020, Traveler’s removed the case to this district under 28
U.S.C. § 1441, asserting that the court has diversity jurisdiction under 28 U.S.C. §
1332 because the parties are citizens of different states and the amount in
controversy exceeds $75,000. (Doc. 1.) Traveler’s then answered the complaint
on September 28, 2020. (Doc. 8.)
Plaintiffs filed the instant motion to remand on October 6, 2020, along with
a brief in support of the motion. (Docs. 9–10.) Plaintiffs concede that the court
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has subject matter jurisdiction over the case, but argue that the court should
exercise its discretion under the Declaratory Judgment Act and decline to exercise
jurisdiction over the case. (Id.) Traveler’s filed a brief in opposition to the motion
on October 19, 2020. (Doc. 11.) No reply brief has been filed, and the time for
doing so has expired. Accordingly, the motion to remand is ripe for the court’s
disposition.
JURISDICTION
This court has jurisdiction under 28 U.S.C. § 1332, which allows a district
court to exercise subject matter jurisdiction where the parties are citizens of
different states and the amount in controversy exceeds $75,000.
DISCUSSION
Under the Declaratory Judgment Act, a United States District Court “may
declare the rights and other legal relations of any interested party seeking such
declaration.” 28 U.S.C. § 2201(a). The jurisdiction conferred by the Declaratory
Judgment Act is discretionary rather than compulsory. Reifer v. Westport Ins.
Corp., 751 F.3d 129, 134 (3d Cir. 2014) (citing Brillhart v. Excess Ins. Co. of Am.,
316 U.S. 491, 494 (1942)). A district court therefore has “broad discretion to
decline to hear actions arising under the Declaratory Judgment Act.” Rarick v.
Federated Serv. Ins. Co., 852 F.3d 223, 225 (3d Cir. 2017) (citing Brillhart, 316
U.S. at 491).
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Although a district court’s discretion over whether to hear a declaratory
judgment claim is broad, the discretion is not unlimited. Reifer, 751 F.3d at 140.
The Declaratory Judgment Act gives courts “an opportunity to exercise a reasoned
discretion” that is “bounded and reviewable.” Id. (internal citations omitted).
When considering whether a declaratory judgment action should be heard, a
district court should be guided by “considerations of practicality and wise judicial
administration.” Id. at 139 (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 288
(1995)). “The propriety of declaratory relief in a particular case will depend upon
a circumspect sense of its fitness informed by the teachings and experience
concerning the functions and extent of federal judicial power.” Id. (quoting
Wilton, 515 U.S. at 287).
A court deciding whether to exercise jurisdiction in a declaratory judgment
action should consider several factors, including:
(1) the likelihood that a federal court declaration will resolve the
uncertainty of obligation which gave rise to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the uncertainty of obligation;
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are pending in a
state court;
(6) avoidance of duplicative litigation;
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(7) prevention of the use of the declaratory action as a method of
procedural fencing or as a means to provide another forum in a race for
res judicata; and
(8) (in the insurance context), an inherent conflict of interest between
an insurer’s duty to defend in a state court and its attempt to characterize
that suit in federal court as falling within the scope of a policy
exclusion.
Id. at 146.
Cases in which a party seeks declaratory relief in federal court when there is
no parallel proceeding in state court sit on the “outer boundary” of a district court’s
discretion under the Declaratory Judgment Act. Id. at 137 (quoting Wilton, 515
U.S. at 290). The existence or non-existence of pending parallel state court
proceedings is therefore a particularly important factor in determining whether a
district court should exercise jurisdiction over a declaratory judgment action, and
“the absence of pending parallel state proceedings militates significantly in favor
of exercising jurisdiction.” Id. at 144. Although the absence of parallel
proceedings does not by itself require a court to exercise jurisdiction, district courts
“should be rigorous in ensuring themselves that the lack of pending parallel state
proceedings is outweighed by opposing factors” before they decline to exercise
jurisdiction in such a situation. Id.
On the other hand, district courts should be “particularly reluctant” to
exercise jurisdiction over a declaratory judgment action when “state law is
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uncertain or undetermined.” Id. at 148 (citing Summy, 234 F.3d at 135). District
courts should give serious consideration to the fact that they are “limited to
predicting” state law when faced with an uncertain question of state law. Id.
(citing Summy, 234 F.3d at 135). This factor is particularly important in the
insurance context. Id. (citing Summy, 234 F.3d at 135).
In this case, Plaintiffs argue that consideration of the factors laid out in
Reifer leads to the conclusion that the case should be remanded to the Luzerne
County Court of Common Pleas. (Doc. 10, pp. 6–9.) Plaintiffs acknowledge that
there is no parallel proceeding in state court and that the absence of such a parallel
proceeding weighs strongly in favor of the court exercising jurisdiction, but they
argue that this factor is outweighed by the convenience to the parties of proceeding
in state court, the public interest in the case being decided in state court, and the
unsettled status of applicable state law. (Id.)
Plaintiffs argue that the Luzerne County Court of Common Pleas is the more
convenient location because they are physically located in Luzerne County and
because witnesses and parties to Rittenhouse are also located in that county,
whereas the undersigned is located in Harrisburg. (Id. at 7.) Plaintiffs also argue
that the public interest weighs in favor of remand because insurance coverage is
purely a question of state law and there is no countervailing federal interest. (Id.)
Finally, Plaintiffs argue that the state law applicable to their declaratory judgment
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claim is unsettled because a key issue in the case is whether Traveler’s should be
estopped from disclaiming its coverage of Plaintiffs, and, Plaintiffs assert,
Travelers is likely to argue that Plaintiffs must establish “actual prejudice” to
establish estoppel. (Id. at 7–8.) The question of whether prejudice may be
presumed in circumstances like this, Plaintiffs argue, is an unsettled question that
was recently addressed by the Pennsylvania Superior Court in Selective Way Ins.
Co. v. MAK Servs., Inc., 232 A.3d 762 (Pa. Super. Ct. 2020).
Traveler’s argues that the motion to remand should be denied because the
other factors that the court should consider do not outweigh the fact that there is no
parallel state court proceeding. (Doc. 11.) Contrary to Plaintiffs’ argument,
Traveler’s argues that the convenience of the parties is neutral because there is
little chance that the court will actually conduct any in-person proceedings in
Harrisburg. (Id. at 7–8.) Traveler’s further argues that Plaintiffs’ public interest
argument is misplaced because it is essentially just a restatement of their argument
that uncertain questions of state law should be decided in state court. (Id. at 8–9.)
Finally, Traveler’s argues that the state law at issue is not uncertain and that the
court simply needs to apply settled law to the facts of the case. (Id. at 11–16.)
Upon consideration of the factors laid out in Reifer and guided by
considerations of “practicality and wise judicial administration,” Reifer, 751 F.3d
at 139, the court will deny Plaintiffs’ motion to remand. This conclusion is guided
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by several considerations. First, and most importantly, there is no parallel state
proceeding, and the Third Circuit has stated that when there is no parallel state
proceeding a district court operates on the “outer boundary” of its discretion and
should only decline to exercise jurisdiction when other considerations outweigh the
absence of a parallel state proceeding. Id. at 137, 144.
The other factors noted by the Third Circuit in Reifer do not outweigh the
absence of a parallel state proceeding. This court will be able to resolve the
“uncertainty of obligation” between the parties, so the first and third factors weigh
in favor of the court exercising jurisdiction. There are no parallel proceedings in
state or federal court that would cause concerns of comity, duplicative litigation,
procedural fencing, or a conflict of interest by Traveler’s, so the fifth, sixth,
seventh, and eight factors weigh in favor of exercising jurisdiction.
The fourth factor, the availability and relative convenience of other
remedies, also weighs in favor of exercising jurisdiction. Although state court
litigation in the Luzerne County Court of Common Pleas is available as an
alternative remedy, there is an advantage of relative convenience in litigating the
suit in federal court because the underlying lawsuit, Rittenhouse, is also being
litigated before this court. To the extent that knowledge of the facts and legal
issues in Rittenhouse proves necessary to resolve the present case, this court is
surely in the best position to exercise that knowledge.
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The second factor, the convenience of the parties, weighs against the
exercise of jurisdiction, because, as Plaintiffs note, they are physically located in
Luzerne County, which is about 100 miles away from the court’s location in
Harrisburg. (See Doc. 10, p. 7.) This factor is afforded minimal weight, however,
because there is a decent chance that no in-person proceedings will prove
necessary given that (a) the court is asked to resolve a purely legal question of the
proper interpretation of an insurance policy and (b) the court is able to conduct
proceedings by remote means for the convenience of counsel and/or parties.
Finally, the court will address the purportedly unsettled status of applicable
state law, which Plaintiffs assert is a compelling reason for the court to decline
jurisdiction. (See Doc. 10, pp. 7–9.) Plaintiffs’ argument that the applicable state
law is uncertain is based on the Pennsylvania Superior Court’s decision in
Selective Way, 232 A.3d at 762. In that case, a snow and ice removal company,
MAK Services, had a liability insurance policy with Selective Way Insurance
Company that obligated Selective Way to defend MAK Services for certain legal
claims. Id. at 764. During the period of coverage, a man slipped and fell in a
parking lot for which MAK Services was responsible for snow and ice removal,
and the man brought suit. Id. at 765. Selective Way appointed counsel to
represent MAK Services in the lawsuit through a reservation of rights letter that
purportedly reserved Selective Way’s right to withdraw its defense of MAK
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Services. Id. Selective Way then defended MAK Services for approximately
eighteen months, at which point it brought a claim for declaratory relief in
Pennsylvania state court seeking a declaration that it had no obligation to defend
MAK Services because of an exclusion in the policy. Id. at 765–66. The trial
court ruled in Selective Way’s favor on the claim for declaratory relief, and MAK
Services appealed to the Superior Court. Id. at 766.
On appeal, the Superior Court considered whether Selective Way should be
estopped from disclaiming its defense of MAK Services given its lengthy defense
prior to the declaratory judgment action. Id. at 769. In that context, the court
noted that a 1929 Pennsylvania Supreme Court case, Malley v. American Indemnity
Corp., 146 A. 571, 573 (1929), “held that an insurance company was estopped
from challenging coverage after it had mounted a full defense of its insured
without undertaking an appropriate investigation beforehand.” Selective Way, 232
A.3d at 769. The Superior Court noted that a critical aspect of the Malley court’s
analysis “was whether the insurance company’s belated assertion of a policy
exclusion could disadvantage the insured in the underlying litigation.” Id. The
court then cited a line of cases following Malley that “focused upon the prejudice
that may result from a delayed investigation and a consequently tardy assertion of
non-coverage.” Id. The court noted that a recent Superior Court decision “distilled
Malley and its progeny for the proposition that ‘where an insurer fails to clearly
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communicate a reservation of rights to an insured, prejudice may be fairly
presumed.’” Id. (citing Erie Ins. Exchange v. Lobenthal, 114 A.3d 832, 839 (Pa.
Super. Ct. 2015)). Applying that line of cases to the facts before it, the Superior
Court concluded that prejudice to MAK Services could be presumed given the
circumstances of the case. Id. at 771.
Thus, contrary to Plaintiffs’ argument, Selective Way does not indicate that
the state law at issue in the present case is uncertain. Plaintiffs suggest that there is
uncertainty as to the circumstances when prejudice may be presumed, but there is
well established case law on that issue going back as far as the Pennsylvania
Supreme Court’s Malley decision in 1929. The Superior Court’s decisions in
Selective Way and Lobenthal did not break any new ground in this line of cases,
they simply “distilled Malley and its progeny” for the proposition that prejudice
may be presumed “where an insurer fails to clearly communicate a reservation of
rights to an insured.” Id. at 769 (quoting Lobenthal, 114 A.3d at 839). Therefore,
to the extent that there is any uncertainty, it is only as to whether prejudice may be
presumed under the facts of this case, but federal courts and state courts are
“equally capable of applying settled state law to a difficult set of facts.” Reifer,
751 F.3d at 147. This factor accordingly does not support remand.
In sum, the lack of a parallel state court proceeding weighs heavily in favor
of the court exercising jurisdiction over this case, and all but one of the other
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factors identified by the Third Circuit in Reifer also support the exercise of
jurisdiction. The one factor that weighs against the exercise of jurisdiction, the
convenience of the parties, does not outweigh the other factors. The court will
accordingly exercise its jurisdiction over this case and deny Plaintiffs’ motion to
remand.
CONCLUSION
For the foregoing reasons, Plaintiffs’ motion to remand (Doc. 9) is
DENIED. An appropriate order follows.
s/Jennifer P. Wilson
JENNIFER P. WILSON
United States District Court Judge
Middle District of Pennsylvania
Dated: May 7, 2021
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