Opposition Brief — Covalt v. Allstate Insurance Insurance Co. (No. 09-128)

(D Supreme Court, U.S.

FILED

No. 09-128 AUG 28 2009

OFFICE OF THE CLERK

In The

Supreme Court of the United States

*

WILLIAM COVALT, Individually, and

LOREN MORGAN, as Personal Representative

of the Estate of LINDA COVALT, Deceased,

Petitioners,

Vv.

ALLSTATE INSURANCE COMPANY,

Respondent.

4

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Tenth Circuit

¢

BRIEF IN OPPOSITION

%

RICHARD J. HARRIS

Counsel of Recerd

JERRY D. NOBLIN, JR.

WALLS WALKER HARRIS

& WOLFE, PLLC

Union Plaza, Suite 500

3030 N.W. Expressway

Oklahoma City, OK 73112

Telephone: (405) 702-5300

Attorneys for Respondent

Allstate Insurance Company

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether the district court properly exercised its

discretion by accepting jurisdiction over this first-

filed contractual insurance dispute under the Federal

Declaratory Judgment Act.

CORPORATE DISCLOSURE STATEMENT

PURSUANT TO SUPREME COURT RULE 29.6

In accordance with Sup. Cr. R. 29.6, Respondent,

Allstate Insurance Company (“Allstate”) states that it

is a wholly-owned subsidiary of The Allstate Corpo-

ration, a publicly-held Delaware corporation.

111

TABLE OF CONTENTS

Page

QUBS LION PIU Bi) vesesussconvsnvssssvscsseceynasensees 1

CORPORATE DISCLOSURE STATEMENT ........ re

SUMMARY OF RESPONDENT'S ARGUMENT .. 1

STATEMENT OF THE CABE.......ccssccsscersssscsscseseses 2

REASONS FOR DENYING THE PETITION ....... 6

a

IT.

The Tenth Circuit Properly Affirmed The

District Court’s Discretionary Decision To

Hear Allstate’s First-To-Be-Filed Declara-

COTY COVOTRMBO AGCIOTasecsccissccssesesssserevececssesess

A. The District Court’s Exercise of Juris-

diction Under the Act is Reviewed for

PDMS CT EPIDOT OCOD eee sivcsisscacsccvcsscescsececces

B. The Oklahoma Federal District Court

was a Proper Forum for Resolution of

an Insurance Contract Coverage Dis-

pute Between Citizens of Different

States Involving Allegedly Competing

Public Policies of Two States.................

C. The District Court Accepted Jurisdic-

tion Based on a Thorough Review of Ap-

propriate, Well-Established Factors.....

The District Court’s Proper Exercise Of

Its Discretion Under The Act Did Not

“Change The Law” Governing Any Issue In

This Case, Nor Did It Violate “Erie Policy”

Or Deprive Morgan Of Any Traditional

Privilege Of Selecting The Forum For His

Tort Claim Amminet COVBUIE ........0ssssccccssessnsces

¢)

TABLE OF CONTENTS — Continued

Page

III. There Is No Split Between The Tenth And

Fifth Circuits On Any Issue Presented

IR cc g0i asa cdescatiatabnoscuedecteovenactstes choo tircekie 16

ST ehiiikivictnainnceitakssucterrapniensnaereei 19

TABLE OF AUTHORITIES

Page

CASES

Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139

ee ee On ES ID ooo os. ccocaasackvarcansnddachiacesacens 11

Bohannon v. Allstate Ins. Co., 820 P.2d 787

(DR AR I SR a SI ee ee See TaN a 16

Cincinnati Ins. Co. v. Holbrook, 867 F.2d 1330

a 13

Cont’l Cas. Co. v. Robsac Indus., 947 F.2d 1367

I a Fe 11

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)....14, 16

E.R. Squibb & Sons, Inc. v. Lloyd’s & Cos., 241

Pe I Oe IY is ei visnssaccsscasncndeewcsscuvaavccecevcat

Farmers Alliance Mut. Ins. Co. v. Jones, 570

ee, BT BE Ht, BOT? aviv cncevnccscvevecncareowaecsansecavnnse 8

Franklin Life Ins. Co. v. Johnson, 157 F.2d 653

I nS area ei dasdattandcoseiins 13

Harris v. U.S. Fid. & Guar. Co., 569 F.2d 850

i sd sad dauccudncavecedebannacwinvdnkenk 11

Kern v. TXO Prod. Corp., 738 F.2d 968 (8th Cir.

Bilt AT el AIR Rp a eer ee oa Po ey cl eA 7

Kunkel v. Cont’l Cas. Co., 866 F.2d 1269 (10th

sc ee 11

Mission Ins. Co. v. Puritan Fashions Corp., 706

F.2d 599 (5th Cir. 1983) ................. 11, 16, 17, 18, 19

vi

TABLE OF AUTHORITIES — Continued

Patterson by Patterson v. Coca-Cola Bottling

Co. Catro-Sikeston, 852 F.2d 280 (7th Cir.

Resort Car Rental Systems, Inc. v. Chuck

Ruwart Chevrolet, Inc., 519 F.2d 317 (10th

CRT sass rd ads cancun eucovesaviiesacobenenocaiareyid pexéogioyee 10

Rogers v. Andrus Transp. Servs., 502 F.3d 1147

I ssi ia Sane Vapinesdbinnapeuetmesnecumeunnonh teens 6

State Auto. Ins. Cos. v. Summy, 234 F.3d 131

I ors) enh avs sab edekanoisemsseiokieaewerveaeus’ 13

State Farm Fire & Casualty v. Mhoon, 31 F.3d

REARS Aes 2 ri DE 5, 8,9, 17

St. Paul Fire & Marine Ins. Co. v. Runyon, 53

ee BES CREST, BOP case cincsssectnesesserssissustansrancess 11

United Capitol Ins. Co. v. Kapiloff, 155 F.3d

I III isn ccavesasvansanednevvakess savveuid 8,11, 13

Van Dusen v. Barrack, 376 U.S. 612 (1964)......... 14,15

Wilton v. Seven Falls Co., 515 U.S. 277 (1995)............ 6

STATUTES

ee CE Ss i cans bpembenoekensbacnceeaeeauante’ 16

y Sok Rede 27 es auabbanansunesins ideo 14

a ade oan pads enmeerieeeeabee: 10

RULES

PE EE oes cdanissécsuincviaancdsevsuerns July Gkded tasdeataasaenien 7

TABLE OF AUTHORITIES — Continued

Page

OTHER AUTHORITIES

6A Moore’s FEDERAL PRACTICE § 57.08(4) (2d

es SRR Tn Day ieee y ABBA Sel INENBES ANION 120 trae OS a |

WRIGHT, MILLER, AND KANE, Federal Practice

and Procedure, Civil § 2751 (3d ed. 1998)................ 7

SUMMARY OF RESPONDENT’S ARGUMENT

The Petition presents nothing more than a fact-

bound challenge to a district court’s discretionary

decision to exercise jurisdiction over this first-filed in-

surance dispute under the Federal Declaratory Judg-

ment Act (“Act”). The underlying dispute involved

Oklahoma insurance contracts issued to Oklahoma

citizens covering risks principally located in Okla-

homa. After giving Petitioner Covalt notice and the

opportunity to join in the case on stipulated facts,

respondent Allstate filed this action in federal district

court in Oklahoma, seeking a declaration of its

contractual obligations.

Petitioners thereafter filed a state-court tort

lawsuit in New Mexico, and sought to dismiss this

lawsuit on the ground that the contractual issue

presented here should be decided there. Applying a

number of well-settled discretionary factors, the

district court below declined to dismiss this action in

light of the New Mexico lawsuit, and the United

States Court of Appeals for the Tenth Circuit affirmed

on the ground that the district court did not thereby

abuse its discretion. This case accordingly involves

nothing more than the discretionary application of

settled law to fact, and does not remotely implicate a

circuit conflict. The United States Court of Appeals

for the Fifth Circuit case cited by Petitioners also

affirmed a district court’s exercise of its discretion

concerning jurisdiction under the Act, and the district

court there simply declined to exercise that

jurisdiction on the particular facts of that case. It is

2

not surprising that courts reach different results in

applying discretionary factors to different facts;

indeed, that is the very essence of discretion. This

Court should deny the Petition.

a

STATEMENT OF THE CASE

Petitioner William Covalt, his wife Linda, and

their daughter LaDon all lived in Oklahoma and were

Oklahoma citizens. They owned a 1999 Ford Econo-

line van principally garaged at their Oklahoma home.

In August 2007, the Covalts were returning home

from a trip to California. While driving through New

Mexico on U.S. Interstate Highway 40 at approxi-

mately 1:00 a.m., Mr. Covalt lost control of the van. It

rolled over, killing Mrs. Covalt. No other vehicle was

involved, no other persons were injured, and no other

property was damaged.

Before the accident, the Covalts purchased two

insurance policies from Respondent Allstate in Okla-

homa: (1) an automotive policy which provided both

uninsured motorist (“UM”) and liability coverage (the

“Auto Policy”) and (2) a Persona! Umbrella Policy (the

“PUP”). Allstate issued the Auto Policy pursuant to

the requirements of Oklahoma’s Compulsory Insur-

ance laws. (10th Cir. App., Tab 6, p. 144) (“Liability

Insurance is provided in this Policy in accordance

with coverage required by the Compulsory Insurance

Laws of Oklahoma”). The Auto Policy contained an

exclusion which reduced (i.e., “stepped-down”) the

liability coverage limits from $250,000 to Oklahoma’s

3

statutory minimum ($25,000) whenever the injured

person was a relative of, and resided with, the

insured. The PUP was a general excess liability policy

which applied only to bodily injury damages

exceeding $100,000 and which excluded all coverage

for personal injuries sustained by an insured.

Both the Auto Policy and the PUP were pur-

chased in Oklahoma, issued in Oklahoma, and

covered risks principally located in Oklahoma. Con-

sequently, both policies contained virtually the same

choice of law provision which defaulted to Oklahoma

law unless one stated exception applied. (10th Cir.

App., Tab 6, p. 159 (Auto Policy), and p. 182 (PUP).)

After the accident, Mr. Covalt hired an Oklahoma

attorney and filed a probate action concerning his

wife’s Last Will and Testament in Oklahoma state

court. Mrs. Covalt’s Will named Mr. Covalt (the tort-

feasor) as the sole beneficiary and personal represen-

tative of her estate. (10th Cir. App., Tab 6, p. 201.) Mr.

Covalt, as Mrs. Covalt’s surviving spouse, then

asserted a claim with Allstate (through the same

attorney) under the Auto Policy for Mrs. Covalt’s

death.

Allstate determined that the UM limits of

$250,000 were owed, and that the Auto Policy’s “step-

down” provision limited liability coverage to Okla-

homa’s minimum limits ($25,000) because the injured

person (Mrs. Covalt) was a resident relative of the

insured (Mr. Covalt). In early November 2007,

Allstate’s Oklahoma counsel contacted Mr. Covalt’s

counsel and informed him that Allstate would pay the

4

Auto Policy’s UM limits of $250,000 and offered the

stepped-down liability coverage limits of $25,000.

Allstate’s counsel also expressed Allstate’s conclusion

that the step-down provision was enforceable under

Oklahoma law, which governed the construction of

the policy. Mr. Covalt’s attorney stated his belief that

New Mexico law governed this insurance policy and

that the step-down provisieon was not enforceable

under that law. (10th Cir. App., Tab 4, p. 43.)

Allstate’s counsel informed Mr. Covalt’s counsel

that Allstate intended to file a declaratory judgment

action in Oklahoma federal court on the issue of

coverage, and invited Mr. Covalt to join in that action

on stipulated facts. Mr. Covalt’s counsel never re-

sponded. Jd. Four days later, on November 13, 2007,

Allstate’s counsel sent a courtesy copy of the Com-

plaint seeking declaratory judgment to Mr. Covalt’s

counsel prior to filing, and again invited him to join

in the action. Again, there was no response. Later

that same day, Allstate filed this declaratory judg-

ment action in the United States District Court for

the Western District of Oklahoma. Mr. Covalt sub-

sequently nominated another Oklahoma citizen,

Petitioner Loren Morgan, and had him appointed

persona) representative of his wife’s estate by the

Oklahoma probate court, without notifying Allstate.

(10th Cir. App., Tab 6, p. 203.)

Mr. Covalt’s counsel then associated with a New

Mexico lawyer and filed suit in that state on

December 6, 2007, on behalf of Mr. Morgan against

Mr. Covalt. The New Mexico suit originally included

only allegations of tort liability (wrongful death).

There is no dispute over the choice of New Mexico as

a proper venue for litigating any tort claims arising

from the accident. However, in an effort to make the

second-filed New Mexico state action mirror Allstate’s

federal declaratory contract action, Mr. Morgan filed

an amended complaint on December 17, 2007, and a

second amended complaint on December 20, 2007,

adding Allstate as a defendant and asserting a claim

for declaratory judgment that the Oklahoma policy

exclusions were unenforceable under New Mexico

law. (10th Cir. App., Tab 4, pp. 33-38.) Mr. Covalt then

moved to dismiss or stay this Oklahoma federal

declaratory action.

The district court denied that motion after con-

cluding, based on all applicable factors, that this

action was an appropriate use of the Act. Specifically,

the district court applied the discretionary factors set

forth by the Tenth Circuit in State Farm Fire &

Casualty Company v. Mhoon, 31 F.3d 979, 983 (1984),

for determining when a district court should exercise

jurisdiction over a declaratory action.

After the district court denied Covalt’s Motion to

Dismiss or Stay, Allstate moved for summary judg-

ment on the issue of coverage. The district court then

addressed the conflict of law issue, holding that Okla-

homa law governed the contract dispute, and ruled in

favor of Allstate on the merits. On appeal, a unani-

mous panel of the Tenth Circuit, in an unpublished

6

opinion, affirmed the district court’s analysis and

conclusions in all respects.

4

REASONS FOR DENYING THE PETITION

I. The Tenth Circuit Properly Affirmed The

District Court’s Discretionary Decision To

Hear Allstate’s First-To-Be-Filed Declara-

tory Coverage Action.

A. The District Court’s Exercise of Juris-

diction Under the Act is Reviewed for

Abuse of Discretion.

“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) (emphasis added).

This Court has “distinguish{ed] the declaratory judg-

ment context from other areas of the law in which

concepts of discretion surface” and has given lower

courts a larger “breadth of leeway” for their exercise

of discretion under the Act. /d., at 287. So long as the

lower court’s decision to accept jurisdiction is not

arbitrary, capricious or manifestly unreasonable, and

does not exceed the bounds of permissible choice

under the circumstances, the lower court will be

found to have properly exercised its substantial

discretion. Rogers v. Andrus Transp. Servs., 502 F.3d

1147, 1153 (10th Cir. 2007); Patterson by Patterson v.

Coca-Cola Bottling Co. Cairo-Sikeston, 852 F.2d 280,

7

283 (7th Cir. 1988); Kern v. TXO Prod. Corp., 738 F.2d

968, 971 (8th Cir. 1984).

B. The Oklahoma Federal District Court

was a Proper Forum for Resolution of

an Insurance Contract Coverage Dis-

pute Between Citizens of Different

States Involving Allegedly Competing

Public Policies of Two States. |

The Oklahoma federal district court was a per-

fectly appropriate forum for resolution of this contrac- —

tual insurance coverage dispute involving Allstate,

Oklahoma citizens and Oklahoma policies, particu-

larly given the presence of an underlying alleged

conflict of laws between two states. The Act states in

pertinent part as follows: “In a case of actual

controversy within its jurisdiction ... any court of the

United States, upon the filing of an appropriate

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; accord, FED.R.Civ.P. 57.

Congress passed the Act for the very purpose of the

early resolution of disputes: “The remedy made

available by the Declaratory Judgment Act and Rule

57 is intended to ... afford one threatened with

hability an early adjudication without waiting until

an adversary should see fit to begin an action[.]”

WRIGHT, MILLER, AND KANE, Federal Practice &

Procedure, Civil § 2751 (3d ed. 1998).

8

Circuit courts have recognized the usefulness of

the Act in resolving insurance coverage disputes. As

the Tenth Circuit has stated, “Declaratory judgment

actions are seen as useful in actions wherein in-

surance companies seek to have their liability de-

clared. We have expressly recognized that one of the

primary functions of the Act is to provide the insurer

such a forum.” Farmers Alliance Mut. Ins. Co. uv.

Jones, 570 F.2d 1384, 1386 (10th Cir. 1978) (emphasis

added). Indeed, federal declaratory judgment actions

are the process by which insurance coverage disputes

are traditionally resolved. United Capitol Ins. Co. v.

Kapiloff, 155 F.3d 488, 494 (4th Cir. 1998); see also,

E.R. Squibb & Sons, Inc. v. Lloyd’s & Cos., 241 F.3d

154, 177 (2d Cir. 2001) (“[L]itigation over insurance

coverage has become the paradigm for asserting

jurisdiction [under the Act.]”) (emphasis added).

C. The District Court Accepted Jurisdic-

tion Based on a Thorough Review of

Appropriate, Well-Established Factors.

The district court acted within its substantial

discretion by applying the well-established factors set

forth by the Tenth Circuit in State Farm Fire &

Casualty Company v. Mhoon, 31 F.3d 979 (10th Cir.

1994) to the unique facts of this case. In Mhoon, the

Tenth Circuit held that a district court should con-

sider the following factors when determining whether

to hear a declaratory action:

(1) Whether the declaratory action would

settle the controversy;

9

(2) Whether it would help clarify the

parties’ legal relations at issue;

(3) Whether it is being used for “procedural

fencing”;

(4) Whether it would increase friction be-

tween federal and state courts and en-

croach upon state jurisdiction; and,

(5) Whether there is a better or more effec-

tive alternative forum.

In both the district court and on appeal, Petitioners

conceded that Mhoon governed their Motion to Dis-

miss or Stay. (10th Cir. App., Tab 4, p. 22.) Petitioners

have never argued that Mhoon contravened the law

from this Court or any appellate court. Petitioners

failed to show that the district court’s discretionary

application of even one of the Mhoon factors was

arbitrary or manifestly unreasonable. That is why the

Tenth Circuit had no difficulty affirming the district

court’s application of those discretionary factors to

the facts of this case.

The record amply reveals that the district court’s

decision to hear the declaratory action was reason-

able and well-grounded in both the facts and law. The

lower court reviewed the extensive and predominat-

ing contacts of this contract dispute showing that all

material contacts were in Oklahoma and concluding

that it would be appropriate for the parties to litigate

10

coverage in an Oklahoma forum. (Petitioners’ App., p.

34a.)’

Moreover, the district court observed that the

wrongful death claim filed in New Mexico was

distinct and severable frein the coverage issue under

the Oklahoma policies. (Petitioners’ App., p. 32a-33a.)

Coverage is a matter of contract construction and

enforceability which is distinct from the tert issues of

liability and damages. Resort Car Rental Sys., Inc. uv.

Chuck Ruwart Chevrolet, Inc., 519 F.2d 317, 319

(10th Cir. 1975) (“[Tlhe construction of a contract is a

question of law for the court.”). The plain language of

the Act clearly establishes that a declaratory coverage

action need not resolve underlying tort claims. 28

U.S.C. § 2201 (“[AJny court of the United States .

may declare the rights and other legal relations of

' The lower court found the following Oklahoma contacts:

(1) Allstate issued both insurance policies in Oklahoma; (2) The

Oklahoma Auto Policy expressly notes that the insurance is

provided in accordance with the requirements of Oklahoma's

Compulsory Financial Responsibility laws; (3) Mr. Covalt, as a

policyholder, the alleged tortfeasor, and sole beneficiary of his

deceased wife’s estate, is a citizen of Oklahoma; (4) Mrs. Covalt

was, prior to her death, a citizen of Oklahoma; (5) The Personal

Representative of the deceased’s Estate is a citizen of Oklahoma;

(6) The Estate’s primary legal counsel is located in Oklahoma;

and, (7) The insured auto involved in the accident was prin-

cipally garaged in Oklahoma. The only connection of this case to

New Mexico was that the underlying accident happened to occur

there. (Petitioners’ App., p. 34a.)

11

any interested party ... whether or not further relief

is or could be sought.”).”

Furthermore, the district court considered (and

properly rejected) Petitioners’ contention that Allstate

had engaged in improper “procedural fencing.” There

was no evidence that Petitioners were lulled into in-

action, that Allstate preemptively filed because Peti-

tioners were threatening litigation or that Allstate

acted for any other improper or abusive reason.”

Rather, as the district court noted, Allstate’s actions

were “above board,” as it attempted to resolve this

matter in an open, prompt manner. Allstate twice

invited Petitioners to join the declaratory coverage

* See also, Kunkel v. Cont’l Cas. Co., 866 F.2d 1269, 1276

(10th Cir. 1989) (“Nothing in the Declaratory Judgment Act pro-

hibits a court from deciding a purely legal question of contract

interpretation which arises in the context of a justifiable con-

troversy presenting other factual issues.”); Kapiloff, 155 F.3d at

494 (upholding a declaratory judgment even though it did not

resolve underlying state law tort claims); Harris v. U.S. Fid. &

Guar. Co., 569 F.2d 850, 852 (5th Cir. 1978) (“It is well settled

that a district court may render a declaratory judgment though

that judgment will not settle all the issues of the entire con-

troversy. The controversy settled by the declaratory judgment

need only be an autonomous dispute.”); 6A MOORE’S FEDERAL

PRACTICE § 57.08(4) (2d ed. 1974).

> For examples where such conduct did occur, see, Aetna

Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 423 (4th Cir.

1998); Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599

(5th Cir. 1983); Cont Cas. Co. v. Robsac Indus., 947 F.2d 1367,

1373 (9th Cir. 1991); (overruled on other grounds) and, St. Paul

Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1170 (10th Cir.

1995)

12

action with stipulated facts, informed them in ad-

vance of the intent to file the declaratory action in

federal court, selected a convenient court in Peti-

tioners’ home-state and, after receiving no response,

proceeded to file in a timely manner.’ (Petitioners’

App., p. 35a.)

Finally, the district court properly weighed

whether its resolution of the coverage dispute in-

volving Oklahoma citizens, Oklahoma insurance

policies and risks principally located in Oklahoma

might “gratuitously interfere” with a New Mexico

state court’s jurisdiction. The district court observed

that, while the administrative regulation of the

* As the District Court observed, if any party had engaged

in procedural gamesmanship, it was Petitioners: “To the extent

either party has engaged in procedural fencing or forum

shopping, the court concludes that Mr. Covalt and his

counsel have done at least as much, if not more, than

Allstate and its counsel.” (Petitioners’ App., p. 35a) (emphasis

added). Covalt’s counsel told Allstate no personal representative

had been appointed and never responded to Allstate’s open

invitations. After Allstate filed, Covalt and his attorney waived

his appointment as Personal Representative, had Morgan

appointed in his place, never gave Allstate notice of the new

appointment, left Oklahoma and traveled 340 miles to New

Mexico to “sue” Covalt (but not Allstate) in New Mexico state

court for wrongful death. Then, after adding Allstate to the New

Mexico case under a declaratory judgment claim of their own,

Petitioners filed two Motions to Dismiss Allstate’s first-filed

federal action and argued that it was “gratuitously interfering”

with their second-to-be-filed New Mexico action, and that

Allstate’s claim should be dismissed for failing to join Morgan,

the theretofore undisclosed Personal Representative. (See, 10th

Cir. App., Tabs 4, 14.)

13

insurance industry is traditionally left to the states,

the resolution of coverage disputes under insurance

policies is an accepted role for federal courts and an

appropriate use of the Act. (Petitioners’ App., pp. 33a-

34a.) See also, Kapiloff, 155 F.3d at 494; Cincinnati

Ins. Co. v. Holbrook, 867 F.2d 1330, 1333 (11th Cir.

1989).

Petitioners submitted no evidence to support

their claim of gratuitous interference. In essence,

they argued to the lower court (as they do now to this

Court) that anytime an insurance company files a

declaratory action in federal court, if the insured or

tort claimant later files his or her own declaratory

action in a state court, the federal court must stand

down. The district court properly rejected that

extreme position. See, e.g., State Auto. Ins. Cos. v.

Summy, 234 F.3d 131, 136 (3d Cir. 2000) (holding

gratuitous interference occurs when a federal court

declares the rights of litigants on unsettled issues

of state Jaw currently pending before that state’s

appeals court); Franklin Life Ins. Co. v. Johnson, 157

F.2d 653, 659 (10th Cir. 1946) (The mere “mainte-

nance of [a] declaratory judgment action does not

amount to a usurpation of state court jurisdiction.

There is no interference with the orderly and compre-

hensive disposition of pending state court litigation.”).

14

II. The District Court’s Proper Exercise Of

Its Discretion Under The Act Did Not

“Change The Law” Governing Any Issue

In This Case, Nor Did It Violate “Erie

Policy” Or Deprive Morgan Of Any

Traditional Privilege Of Selecting The

Forum For His Tort Claim Against Covalt.

Petitioners insist, however, that the district

court’s decision to accept jurisdiction “changed the

law” applicable to this Oklahoma-based contract dis-

pute, deprived Morgan of his choice of forum for his

tort claim, and somehow violated the principles of

Erie Railroad Company v. Tompkins, 304 U.S. 64

(1938). Petitioners base that argument on Van Dusen

v. Barrack, 376 U.S. 612 (1964).

That reliance is unavailing. The only issue in Van

Dusen was whether a change in venue under the

federal transfer statute, 28 U.S.C. § 1404(a), should

result in a change in the substantive law applicable

to the plaintiffs’ tort claims. 376 U.S., at 625.” This

Court ruled that a change of venue could not be used

to shut the courthouse doors to the plaintiffs’

* In Van Dusen, personal representatives of the victims of a

commercial airliner crash in Massachusetts filed numerous

wrongful death actions in both Massachusetts and Pennsylvania

federal court. The defendants moved under 28 U.S.C. § 1404(a)

to transfer the Pennsylvania actions to Massachusetts. The

district court held that transfer of venue to another state was

proper even though numerous Pennsylvania plaintiffs had not

qualified under Massachusetts law to sue as personal repre-

sentatives.

15

wrongful death claims by changing the applicable

law.

Van Dusen is inapposite because a transfer of

venue did not occur here nor was it ever requested.

Thus, no “change of law” was made. In fact, when the

district court accepted jurisdiction over Allstate’s

contractual declaratory judgment claim, the question

of which state’s law would apply to the contracts was

still undetermined. The conflict of laws issue was not

presented for decision by Petitioners’ Motions to

Dismiss or Stay Proceedings, but only by Allstate’s

subsequent Motion for Summary Judgment. Also,

Petitioners’ characterization that a change of law

occurred assumes (incorrectly) that New Mexico law

governed the insurance contracts in the first instance.

Whether New Mexico law governed the policies was a

legal proposition which they failed to demonstrate to

the district court, failed to demonstrate to the Tenth

Circuit, and have not even attempted to demonstrate

to this Court.

Furthermore, the district court decision to accept

jurisdiction over the declaratory judgment claim did

not foreclose, or in any way affect, Petitioner

Morgan’s ability to prosecute his tort claim in the

forum of his choosing (New Mexico). The parties

never disputed that New Mexico law governed Mor-

gan’s tort claim or that New Mexico state courts

would have jurisdiction over that claim. Conse-

quently, it is clear that the district court’s proper

exercise of jurisdiction over the contractual coverage

dispute did not deprive Morgan of any traditional

prerogative to select the forum for his tort claim.

16

Further, Petitioners’ effort to invoke “Erie Policy”

(that “the ‘accident of diversity’ [should] not result in

a substantially different outcome in federal court

than would be achieved if the action were filed in

state court”) (Petition, p. 6) must also fail because

the “Erie Policy” they invoke clearly was not violated

here. That doctrine aims to prevent inconsistent

results between cases filed in a federal court under

diversity jurisdiction and cases filed in state court in

the same state where the federal court sits. This case

presents no danger of any such inconsistency. Had

Allstate filed this declaratory judgment action in

Oklahoma state court, Oklahoma’s choice of law rules

still would have governed. See, Bohannon v. Allstate

Ins. Co., 820 P.2d 787 (Okla. 1991); 12 Okla. Stat.

§ 1651 (providing declaratory judgment actions in

Oklahoma state courts). Thus, while the diversity of

citizenship between the litigants here allowed

Allstate to bring the matter in the neutral federal

court, it in no way resulted in a different outcome

than would have occurred if the case had been

brought in Oklahoma state court.

Ill. There Is No Split Between The Tenth And

Fifth Circuits On Any Issue Presented

Here.

Petitioners claim that the Fifth Circuit in Mis-

sion Insurance Company v. Puritan Fashions Corpo

ration, 706 F.2d 599 (5th Cir. 1983) held that a

district court should not hear a federal declaratory

action if doing so would change the law to be applied

17

in the declaratory defendant's state court action.

(Petition, p. 10.) Again, no “change in the law”

occurred here. But even if it did, the Fifth Circuit in

Mission never endorsed any such rule.

Rather, the Fifth Circuit in Mission (like the

Tenth Circuit in this case) utilized several factors to

review a district court’s exercise of discretion under

the Act regarding whether to accept jurisdiction. /d.,

at 601 (“The district court may .. . take into account a

wide variety of factors. Our review of the district

court’s action is limited to whether it abused its

discretion.”) (In fact, the Tenth Circuit in Mhoon even

cites Mission as support for the abuse of discretion

standard it employs. Mhoon, 31 F.3d at 983, fn. 6).

Moreover, a comparison of Mission to the Tenth

Circuit’s decision in the present case reveals that

both circuits considered and applied effectively the

same law. Compare, Mission, 706 F.2d at 602-03, with

Covalt, Petitioners’ App., pp. 32a-35a.

A comparison of Mission to the present case also

makes clear that the lower courts reached different

discretionary decisions not because they applied

different law, but because they faced markedly dif-

ferent facts. Mission involved an insurance claim by a

clothing manufacturer for the alleged theft of

$900,000 in merchandise. The clothing was manu-

factured in Texas, but the FBI investigation led to the

conviction of two individuals in California. The

insurance policy contained a one-year limitations

period for filing suit. The insured requested an

extension of that deadline. The insurer promised to

18

allow the insured additional time to file suit up to

thirty days after such time as the claim might be

denied in writing. Subsequently, the insurance

company’s “president orally rejected [the] claim, and

this declaratory judgment suit was filed by the

[Insurance] Company in Texas that same day.”

Mission, 706 F.2d at 600.

The insured then filed its own suit in California

asserting not only a declaratory judgment claim, but

claims of bad faith, fraud and unfair claim settlement

practices against the insurance company, as well as

tort claims for conversion against other defendants.

The Fifth Circuit affirmed the Texas federal district

court’s decision not to accept jurisdiction, finding:

Plaintiff caused Defendant to delay filing

suit in California by representing that Plain-

tiff was considering the merits of the claim

and by allowing an extension of the one year

limitations period. But for those representa-

tions and implications, Defendant would

have been the first to file an action pre-

senting the same issues (plus a few more),

and the forum for the trial of those [factual]

issues presented in this suit would be in

California.

ld., at 601.

Clearly, the facts of Mission are nothing like

those here. As noted above, Allstate promptly

informed the insured of its coverage determination.

When the insured disagreed, Allstate informed him in

advance of its intention to file a declaratory action in

19

Oklahoma federal court and invited him to partici-

pate. The insured never expressed any intention to

file suit. Further, there were no factual issues to be

determined in the coverage dispute, which was purely

a legal issue, and all contacts relevant to the con-

tractual dispute were in Oklahoma, not New Mexico.

Thus, the Tenth Circuit’s affirmance of the lower

court’s decision to accept jurisdiction was entirely

consistent with the Fifth Circuit’s holding in Mission.

°

CONCLUSION

For the foregoing reasons, this Court should deny

the Petition for Writ of Certiorari.

Respectfully submitted,

RICHARD J. HARRIS

Counsel of Record

JERRY D. NOBLIN, JR.

WALLS WALKER HARRIS

& WOLFE, PLLC

Union Plaza, Suite 500

3030 N.W. Expressway

Oklahoma City, OK 73112

Telephone: (405) 702-5300

Attorneys for Respondent

Allstate Insurance Company