Government Employees Insurance v. Dizol

133 F.3d 1220, 98 Daily Journal DAR 398, 98 Cal. Daily Op. Serv. 291, 1998 U.S. App. LEXIS 489

• Court: Court of Appeals for the Ninth Circuit
• Decided: January 13, 1998
• Docket: No. 95-17393
• Status: Published

Opinions

Opinion by Judge THOMAS; Dissent by Judge ALARCON.

THOMAS, Circuit Judge:

In this appeal, we consider the circumstances under which federal courts must make findings concerning the exercise of jurisdiction pursuant to the Uniform Declaratory Judgment Act, 28 U.S.C. § 2201 (1994). We conclude that once subject matter jurisdiction exists, the district court may proceed with a declaratory relief action without sua sponte raising the issue of whether it should be entertained. If, however, the court does raise the issue sua sponte, or is asked to decline to entertain the action by a party, then it must explain the basis for its decision on the record.

I

The automobile accident which draws our attention to this issue occurred on Mamala-hoa Highway on the island of Hawaii, near Pu'uanahulu and Waikola.¹ Both the intoxicated driver Vemell Adams and passenger Kevin Dizol were killed in the one-vehicle collision. Dizol’s estate settled its tort claims against Adams’ estate for $35,000, the limit of Adams’ applicable insurance policy. The estate also settled its tort claims against the Highlands Bar and Grill, where Adams had been drinking prior to the accident, for $255,-000. an amount less than the bodily injury liability insurance coverage available to Highlands. Dizol’s estate also received $15,-000 in no fault and $35,000 in underinsurance motorist benefits from USAA Insurance Company.

The instant controversy arises out of the estate’s claim for underinsured motorist benefits under a Government Employees Insurance Company (“GEICO”) insurance policy issued to Haryey Dizol, the decedent’s brother, which covers relatives of the policyholder. Unable to resolve the dispute, GEICO filed a complaint in federal court pursuant to the Declaratory Judgment Act, seeking a declaration that Dizol’s estate was not entitled to any recovery under Harvey Dizol’s policy. Dizol’s estate did not move for abstention and. neither party objected to federal court jurisdiction.

GEICO moved for summary judgment arguing, inter alia, that the claims were barred by the applicable statute of limitations and that the estate had violated the policy’s prohibition against unauthorized settlements. The district court rejected GEICO’s statute of limitations defense, but granted summary judgment because the estate had failed to obtain GEICO’s written consent for the Adams and Highlands Bar settlements. At the time of the judgment, there was no lawsuit pending in the state courts of Hawaii.

On appeal, a three judge panel of this court entered an opinion sua sponte remanding the case to the district court for the entry of findings to demonstrate the fitness of the action for resolution under the Declaratory Judgment Act. Dizol, 108 F.3d at 1012. Upon a majority vote of the nonrecused active members of the court, we ordered rehearing en bane.

II

In 1934, Congress authorized fedorul declaratory relief in the passage of the Declaratory Judgment Act. Subject to certain exceptions inapplicable here, the present form of the statute provides that:

In a case of actual controversy within its jurisdiction, [exceptions omitted] ... 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. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201(a).

The Declaratory Judgment Act embraces both constitutional and prudential concerns. A lawsuit seeking federal declaratory relief must first present an actual case or controversy within the meaning of Article III, section 2 of the United States Constitution. Aetna Life Ins. Co. of Hartford v. Haworth, 300 U.S. 227, 239-40, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937).² It must also fulfill statutory jurisdictional prerequisites. Shelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 672, 70 S.Ct. 876, 879, 94 L.Ed. 1194 (1950). If the suit passes constitutional and statutory muster, the district court must also be satisfied that entertaining the action is appropriate. This determination is discretionary, for the Declaratory Judgment Act is “deliberately cast in terms of permissive, rather than mandatory, authority.” Public Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 250, 73 S.Ct. 236, 243-44, 97 L.Ed. 291 (1952) (J. Reed, concurring). The Act “gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so.” Public Affairs Associates v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 581-82, 7 L.Ed.2d 604 (1962).

Of course, this discretion is not unfettered. “[A] District Court cannot decline to entertain such an action as a matter of whim or personal disinclination.” Id. Prudential guidance for retention of the district court’s authority is found in Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), and its progeny.

That this discretion is vested in the district courts, rather than with appellate judges, was resolved in Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). As Justice O’Connor noted in her opinion for the Court:

We believe it more consistent with the statute to vest district courts with discretion in the first instance, because facts bearing on the usefulness of the declaratory judgment remedy, and the fitness of the case for resolution, are peculiarly within their grasp.

Id. at 289, 115 S.Ct. at 2143-44.

Wilton rejected de novo appellate review, citing the institutional advantage of trial courts in exercising discretion. Id. Thus, our review of a district court’s decision to entertain an action under the Declaratory Judgment Act is deferential, under the abuse of discretion standard. Id. at 289-290, 115 S.Ct. at 2143-44.

When litigants have properly raised an objection to the district court’s decision and the court has issued a written analysis detailing its reasoning, our appellate task is un-strained. However, the question posed by this appeal is how we should review the district court’s exercise of its discretionary authority in the antipodal circumstance: when no party has objected and the court has not independently recorded a rationale. Does the district court commit reversible error if it does not provide a written explanation? Do we have a sua sponte obligation to examine the district court’s exercise of its jurisdiction?

To date, we have answered these questions in the affirmative. Beginning with Continental Cas. Co. v. Robsac Indus., 947 F.2d 1367 (9th Cir.1991), and continuing with American Nat’l. Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir.1995), and Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir.1995), we have assumed a sua sponte obligation to review and decide whether the district court has properly exercised its discretion even when no party has raised the issue. As a panel recently explained in Budget Rent-A-Car v. Crawford, 108 F.3d 1075, 1078 (9th Cir.1997):

Our initial duty, in reviewing an order granting declaratory relief in a diversity action involving questions of state law, is to determine whether the district court abused its discretion in determining that the relevant factors justified the exercise of its jurisdiction.

This jurisprudential approach has evolved through Golden Eagle Ins. Co. v. Travelers Companies, 103 F.3d 750 (9th Cir.1996), Polido v. State Farm Mut. Auto. Ins. Co., 110 F.3d 1418 (9th Cir.1997), and the panel decision in this ease, into a requirement that the district court make written findings justifying its exercise of its discretionary jurisdiction or suffer reversal. As we recently summarized in St. Paul Fire & Marine Ins. Co. v. F.H., 117 F.3d 435, 437 (9th Cir.1997):

Under our recent precedent, the district court was required to consider the discretionary nature of its' jurisdiction at the outset of the case. See Budget Rent-A-Car v. Crawford, 108 F.3d 1075, 1078 (9th Cir.1997). We have held that the district court has a duty, even though there is no state action pending at the time and the parties do not raise the issue, to determine on the record whether it should have exercised its discretionary jurisdiction.

This doctrine has not been without its practical, as well as philosophical, limitations. With increasing frequency, opportunists have seized on this rule for tactical maneuvering. Some litigants have initiated a federal declaratory action, then claimed error in the trial court’s exercise of jurisdiction upon receiving an adverse decision by the trial court or on appeal. See, e.g., St. Paul Fire & Marine Ins. Co., 117 F.3d at 437. More often, lawsuits have been remanded sua sponte to state courts after years of federal litigation, defying the very principles of judicial economy and cooperative federalism the statute was designed to enhance. As we have observed, we “do the state no favor if, invoking the principle of comity, we reversed the district court and remanded this case simply to have it prosecuted again in state court on the same facts and the same law.” Golden Eagle Ins. Co., 103 F.3d at 756. In those circumstances, we do no favor to the litigants, or our district judges, either. Thus, reexamination of our procedure is apropos.

How do we best balance these concerns against the undeniable value in reviewing a written explanation of a district court’s decision to entertain the declaratory action? Fortunately, we have recent counsel from Acri v. Varian Associates, 114 F.3d 999 (9th Cir.1997) (en banc), in which we considered a similar problem in the exercise of supplemental jurisdiction pursuant to 28 U.S.C. § 1367.³ Acri considered “the extent to which a federal court is obliged to make a § 1367(c) analysis when no one has asked it to do so.” Id. at 1000. Although the theories underlying the exercise of supplemental jurisdiction and the election to hear a suit for declaratory relief differ, there are significant commonalities. Both involve a decision of a district court possessing competent jurisdiction to either entertain or decline a lawsuit. Both circumstances often involve parties who, for whatever reason, do not object to federal discretionary jurisdiction.

Acri held that when a district court has power to hear a ease under § 1367(a), the district court may exercise supplemental jurisdiction without sua sponte addressing whether jurisdiction should be declined. Id. As to appellate review, Acri similarly held that appellate courts are not required, sua sponte, to decide whether the district court abused its discretion. Id. For that reason, Acri held that in the absence of a preserved objection, appellate courts do not sua sponte decide whether the district court abused its discretion by retaining supplemental claims. Id.

In accordance with Acri’s philosophy, we hold that when a district court has constitutional and statutory jurisdiction to hear a case brought pursuant to the Declaratory Judgment Act, the district court may entertain the action without sua sponte addressing whether jurisdiction should be declined. We also hold that we are not required, sua sponte, to decide whether a district court abused its discretion in proceeding with the action when neither party raised an objection in the district court.⁴

With this holding, we return to our normal rules of appellate procedure. Non-jurisdictional matters not properly presented and considered by the district court may not be raised for the first time on appeal. Palmer v. Internal Revenue Service, 116 F.3d 1309, 1313 (9th Cir.1997). Similarly, non-jurisdictional issues not properly raised in appellate briefing will not be considered. S.E.C. v. American Capital Investments, 98 F.3d 1133, 1141 n. 9 (9th Cir.1996), cert. denied sub nom., Shelton v. Barnes, — U.S. -, 117 S.Ct. 1468, 137 L.Ed.2d 681 (1997). Parties may no longer crouch in the underbrush, poised for the opportunity to interpose a discretionary jurisdictional objection at the first hint of adversity. In accordance with normal appellate review, this holding further frees appellate panels from a sua sponte obligation to forfend the exercise of its discretionary jurisdiction by district courts when no one has raised the issue.

But what, one may inquire, is the district court’s duty if a party timely objects to the exercise of discretionary jurisdiction under the Declaratory Judgment Act? For us to “provide appropriate guidance to the district courts,” Wilton, 515 U.S. at 289, 115 S.Ct. at 2143-44, an adequate record is required. Thus, if a party properly raises the issue in the district court, the district court must make a sufficient record of its reasoning to enable appropriate appellate review. If on appeal the record is devoid of reasoning after an appropriate objection is registered, the case must be remanded to the district court to record its reasoning in a manner sufficient to permit the “proper application of the abuse of discretion standard on appellate review” dictated by Wilton. Id. This generally follows supplemental jurisdiction procedure. See Executive Software N. Am., Inc. v. United States Dist. Court, 24 F.3d 1545, 1558 (9th Cir.1994) (district court must provide written reasoning for its decision to decline jurisdiction).

The Brillhart factors remain the philosophic touchstone for the district court. The district court should avoid needless determination of state law issues; it should discourage litigants from filing declaratory actions as a means of forum shopping; and it should avoid duplicative litigation.⁵ Robsac, 947 F.2d at 1371-73. If there are parallel state proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court. Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366-67 (9th Cir.1991). The pendency of a state court action does not, of itself, require a district court to refuse federal declaratory relief. Id. at 1367. Nonetheless, federal courts should generally decline to entertain reactive declaratory actions.

However, there is no presumption in favor of abstention in declaratory actions generally, nor in insurance coverage cases specifically. ‘We know of no authority for the proposition that an insurer is barred from invoking diversity jurisdiction to bring a .declaratory judgment action against an insured on an issue of coverage.” Aetna Cas. & Sur. Co. v. Merritt, 974 F.2d 1196, 1199 (9th Cir.1992). Indeed, when other claims are joined with an action for declaratory relief (e.g., bad faith, breach of contract, breach of fiduciary duty, rescission, or claims for other monetary relief), the district court should not, as a general rule, remand or decline to entertain the claim for declaratory relief.⁶ Chamberlain, 931 F.2d at 1367. If a federal court is required to determine major issues of state law because of the existence of non-discretionary claims, the declaratory action should be retained to avoid piecemeal litigation. Id. at 1367-68.

But these are considerations for the district court, which is in the best position to assess how judicial economy, comity and federalism are affected in a given case. Our review, if actuated by proper appeal of the district court decision, is bounded by the same principles.

Ill

The panel and the dissent suggest that Brillhart and Wilton compel an entirely different result; that the Supreme Court has commanded the district courts to make written findings before retaining discretionary jurisdiction under the Declaratory Judgment Act. We must respectfully disagree with this interpretation. There is, in fact, nothing in Brillhart or Wilton which embraces such a requirement. Although Brillhart speaks to a “determination, certainly in the first instance, by the District Court,” this assignment of responsibility simply recognizes the discretion reposed in the district courts. It does not require us to adopt a rule requiring automatic reversal if a district court does not sua sponte consider in written form whether the action should be entertained. No other circuit has construed Brillhart or Wilton to convey such a command and no other circuit has imposed on itself an obligatory sua sponte enforcement duty.

Indeed, the automatic reversal rule adopted by the panel runs counter to Wilton ’s philosophy of allocating to the district court, rather than the court of appeals, the discretion to accept or deny jurisdiction under the Declaratory Judgment Act. In resolving this question, Wilton found it “more consistent with the statute to vest the district courts with discretion in the first instance.” 515 U.S. at 289, 115 S.Ct. at 2143-44. This determination was founded upon the notion that “as a matter of the sound administration of justice, one judicial actor is better positioned than another to decide the issue in question.” Id. (quoting Miller v. Fenton, 474 U.S. 104, 114, 106 S.Ct. 445, 451, 88 L.Ed.2d 405 (1985)). The dissent’s theory would intrude on this idea, reimposing close appellate scrutiny where none is required, or desired.⁷

In fact, our decisions in Robsac, Hunger-ford, Karussos, and Golden Eagle imply that if the district court does not provide a written explanation for retaining jurisdiction, we may make our own de novo determination based on the district court record. This theory cannot be reconciled with Wilton, which vests this discretion in the district court and interdicts de novo appellate review. Thus, neither Brillhart nor Wilton undercuts our holding; on the contrary, both buttress it.

IV

Of course, the preferable practice is for the district court expressly to consider whether a properly filed declaratory judgment action should be entertained and to record its reasons for doing so. As we noted in considering a similar issue in Acri, actually deciding whether to retain jurisdiction is a “responsibility that district courts are duty-bound to take seriously.” 114 F.3d at 1001. Our holding does not detract from the important issues of comity, judicial economy and federalism discussed in Brillhart. As Judge Rymer aptly observed for the court in Acri, “[g]iven the importance of these values in our federal system, the proper administration of justice is far better served by deliberative action than by default.” Id. However, as in Acri, “no matter how much we might have preferred a reasoned consideration, the district court here was not without jurisdiction over the state law claims.” Id.

V

In summary, we hold that when constitutional and statutory jurisdictional prerequisites to hear a case brought pursuant to the Declaratory Judgment Act have been satisfied, the district court may proceed with consideration of the action without sua sponte addressing whether jurisdiction should be declined. We are not obligated, sua sponte, to decide whether a district court abused its discretion in exercising discretionary jurisdiction when neither party has raised the issue. If a party has properly raised the issue before the district court, the court must record its reasoning for exercising jurisdiction in accordance with Brillhart and the general considerations we have described herein. We overrule suggestions to the contrary in Continental Cas. Co. v. Robsac Indus., American Nat’l Fire Ins. Co. v. Hungerford, Employers Reinsurance Corp. v. Karussos, Budget Rent-A-Car v. Crawford, Golden Eagle Ins. Co. v. Travelers Cos., Polido v. State Farm Mut. Auto. Ins. Co., St. Paul Fire & Marine Ins. Co. v. F.H., and Budget Rent-A-Car v. DeCoite, 113 F.3d 1132 (9th Cir.1997).

We vacate the panel decision and return control of the case to the panel for resolution of the appeal on its merits.

1 . A more exhaustive description of the facts is contained in the panel decision in this case. Government Employees Insurance Co. v. Dizol, 108 F.3d 999 (9th Cir.1997).

2 . The dissent argues we do not possess subject matter jurisdiction because GEICO lacks standing for failure to prove an actionable injury. The panel did not address this jurisdictional concern, and properly so. A litigant’s standing is normally evaluated on the pleadings. Gladstone, Realtors v. Bellwood, 441 U.S. 91, 109-16, 99 S.Ct. 1601, 60 L.Ed.2d 66 (1979). GEICO contends its injury stems from the possibility of having to honor a policy no longer in force due to the insured's breach. Only after a court has determined that there is, in fact, a valid contract at issue can it reach any questions of contractual obligation. Thus, to have standing to proceed, GEICO only had to allege it was threatened with injury by virtue of being held to an invalid policy. See Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273-74, 61 S.Ct 510, 512-13, 85 L.Ed. 826 (1941). Indeed, we have consistently held that a dispute between an insurer and its insureds over the duties imposed by an insurance contract satisfies Article Ill’s case and controversy requirement. American Nat’l Fire Ins. v. Hungerford, 53 F.3d 1012, 1015-16 (9th Cir.1995); American States Ins. Co. v. Kearns, 15 F.3d 142, 144 (9th Cir.1994).

3 . Section 1367(c) provides that:

The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if-

(1) the claim raises a novel or complex issue of State law,

(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which it has original jurisdiction, or

(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

4 . We, of course, retain the power to raise the issue sua sponte, however, should the extraordinary circumstances of a case so demand. See, e.g., Jackson v. Culinary Sch. of Wash., Ltd., 59 F.3d 254 (D.C.Cir.1995)(complex and important state law questions of first impression); Nationwide Mutual Fire Ins. Co. v. Willenbrink, 924 F.2d 104 (6th Cir.1991) (pending state action involving identical parties and coverage issues). In those rare cases when such an exceptional inquiry might be warranted, and the judicial concerns of comity and federalism loom so large that examination cannot be avoided, the proper procedure is for the appellate panel to remand the question to the district court to permit its consideration "in the first instance.” Wilton, 515 U.S. at 289, 115 S.Ct. at 2144; See also Jackson, 59 F.3d at 256; Nationwide, 924 F.2d at 105. Such exceptional conditions are not presented by cases such as the one at bar where the state action has been terminated and involved different issues from the federal action. Either circumstance should caution against sua sponte appellate intervention.

5 . The Brillhart factors are not exhaustive. We have suggested other considerations, such as “whether the declaratory action will settle all aspects of the controversy; whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a ‘res judicata’ advantage; or whether the use of a declaratory action will result in entanglement between the federal and state court systems. In addition, the district court might also consider the convenience of the parties, and the availability and relative convenience of other remedies.” Kearns, 15 F.3d at 145 (J. Garth, concurring).

6 . Because claims of bad faith, breach of contract, breach of fiduciary duty and rescission provide an independent basis for federal diversity jurisdiction, the district court is without discretion to remand or decline to entertain these causes of action. Indeed, the district court has a “virtually unflagging" obligation to exercise jurisdiction over these claims. First State Ins. Co. v. Callan Assoc., 113 F.3d 161, 163 (9th Cir.1997).

7 . The dissent argues that the doctrines of comity and federalism require sua spohte examination of abstention issues on appeal. While the federal courts have undisputed power to consider the necessity of abstention in the declaratory judgment context, see Samuels v. Mackell, 401 U.S. 66, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971), we believe these important doctrines are better raised and examined at the district court level. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, -, 116 S.Ct. 1712, 1722, 135 L.Ed.2d 1 (1996) (noting that the applicability of the abstention doctrine to a declaratory judgment case is committed to the trial court’s discretion under Wilton.) None of the general abstention cases cited by the dissent impose a sua sponte obligation to review an exercise of the district court's authority. Moreover, "principles of comity and federalism do not require that a federal court abandon jurisdiction it has properly acquired simply because a similar suit is later filed in a state court.” Town of Lockport, N.Y. v. Citizens for Community Action at the Local Level, Inc., 430 U.S. 259, 264 n. 8, 97 S.Ct. 1047, 1051 n. 8, 51 L.Ed.2d 313 (1977) (emphasis added).