United States District Court, S.D. Indiana, Indianapolis Division
DEFENDANTS' MOTION TO STAY (DKT. 7)
DEBRA McVICKER LYNCH, District Judge.
The complaint filed by plaintiff Travco Insurance Company seeks a declaratory judgment regarding Travco's defense and indemnity obligations under a homeowners' insurance policy (the "Policy") it issued to Christopher and Kindra Webster with respect to claims asserted against them by Aaron and Erin Manifold in a wrongful death case filed in Hamilton Superior Court ("State Court"). The Websters and Manifolds jointly move for a stay of this case in favor of proceedings supplemental in the State Court. (Dkt. 7). They argue that the insurance issues about which Travco seeks a declaratory judgment are pending in the State Court and that this court should enter a stay under the Supreme Court's Brillhart/Wilton abstention doctrine. Brillhart/Wilton allows a district court, in its discretion and without the presence of extraordinary circumstances, to dismiss or stay a declaratory judgment action because of the pendency of parallel state court proceedings. See Wilton v. Seven Falls Company, 515 U.S. 277 (1995); Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942).
Because the court is not persuaded that in its current posture the State Court litigation is a parallel proceeding, it denies the defendants' motion for a stay of this case. The court first describes the State Court proceedings and then explains the rationale for declining to enter a stay.
The State Court Proceedings
In October 2012, the Manifolds' infant daughter suffered fatal injuries while in the care of Mrs. Kindra Webster in the Websters' home. After the death, the Websters made a claim under the Policy but Travco decided that the Policy excluded coverage based on its determination that the death arose out of or in connection with a day care business operated by the Websters. (Dkt. 1-3, pp.1&2). The Manifolds then filed suit in Hamilton Superior Court in March 2013 and the Websters asked Travco to provide a defense and indemnity against any judgment. Travco again determined that a business exclusion under the Policy applied, and that because the Manifolds' claim fell outside coverage, Travco would not defend the Websters. Travco told the Websters that they must defend themselves and hire counsel at their own cost. (Dkt. 1-3, p. 3).
On July 16, 2013, the Websters were defaulted in the State Court case and a damages hearing was set for September 5, 2013. (Dkt. 8-3). On September 4, 2013, the Websters (at that time represented by counsel) and the Manifolds entered into a Consent Judgment. (Dkt. 1-4). Under the Consent Judgment, the Websters admitted their negligence, agreed that the Manifolds' damages were $1, 002, 175, and agreed to pay $2, 175 of that amount and to provide a written apology to the Manifolds. The Websters also assigned to the Manifolds all rights and causes of actions they may have against Travco for payment of the remaining $1.0 million. On September 5, the State Court entered the Consent Judgment as a final judgment against the Websters. (Dkt. 8-5).
On December 4, 2013, the Manifolds-as judgment creditors-filed in the State Court case a motion for proceedings supplemental. They named Travco as a garnishee-defendant, and asked the court "after hearing" to make a finding that Travco "is in possession of property that [the Websters] have due and owing and issue an appropriate order to apply said property towards the Judgment pursuant to statute." (Dkt. 8-6 at p. 2). Their motion included a copy of the Policy. The Manifolds also obtained an order from the State Court (which they had submitted for the court's consideration) requiring Travco to answer certain interrogatories about the Policy. The order set a hearing at which Travco would be required to present "any claim or defense" under its Policy. The order states: "Any claim or defense to the proceedings supplemental or garnishment order must be presented at the time and place of the hearing specified herein." (Dkt. 8-9). The State Court filled in blanks in the Websters' tendered order that set the hearing for January 29, 2014.
Travco obtained a continuance of the hearing to March 5, 2014, and in the meantime filed the complaint for declaratory judgment in this court. It then asked the State Court to stay its proceedings. The State Court denied the request for a stay and ordered Travco to answer the interrogatories. Its order to answer interrogatories states that answering "shall not be construed as a waiver of [Travco's] federal declaratory judgment action." Dkt. 14-1. The interrogatories ask Travco whether it issued a homeowners' policy to the Websters for the period October 1, 2011, through October 1, 2012, and seek production of the policy (Dkt. 8-7). Travco apparently has answered the interrogatories, though this court has not been provided a copy. According to the parties, no case management procedures for discovery, summary judgment briefing, or trial to adjudicate insurance coverage issues have been set in the State Court. (Dkt. 14).
I. The Brillhart/Wilton abstention doctrine applies to declaratory judgment act cases.
In Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942), the Supreme Court held that a district court is under "no compulsion to exercise" its jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201. Id. at 494. If all matters that are in controversy in the federal suit can be adequately tested and satisfactorily adjudicated in a pending state court proceeding, then a federal district court should probably abstain and avoid "[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation." Id. at 495.
Brillhart concerned a district court's dismissal of a declaratory judgment suit brought by a reinsurer that its agreement to reinsure certain obligations of an insurance company (Central Mutual) which had been liquidated did not provide indemnity coverage on a state court judgment. Central Mutual had insured a person whose actions caused the death of another in an auto accident. Central Mutual had determined there was no coverage under its policy and refused to defend its insured. Its insured suffered a default judgment. The decedent's estate sought to collect its judgment against the reinsurer and instituted proceedings supplemental under Missouri state law. The federal district court dismissed the declaratory judgment action on the estate's motion, which argued that the reinsurer's coverage obligations could be decided in the garnishment proceeding pending in the Missouri state court. Id. at 493. The district court's decision did not, however, expressly address whether all coverage issues in the federal case could in fact adequately be tested in the garnishment proceeding.
The Supreme Court ruled that in exercising discretion to refrain from entertaining the declaratory judgment suit, the district court must address whether all matters in controversy in the federal suit can be fully adjudicated in the state litigation. Id. at 495. To the extent there is doubt whether the state garnishment proceeding allows adequate adjudication of all claims among all parties, the district court properly may refuse to abstain from exercising its jurisdiction under the Declaratory Judgment Act ("DJA"). Id. at 496-97.
Fifty years later, in Wilton v. Seven Halls Company, 515 U.S. 277 (1995), the Court again addressed in the context of an insurance coverage dispute a district court's discretion to abstain from exercising its jurisdiction under the DJA in favor of a parallel state proceeding. It ruled that Brillhart was still good law as to DJA cases and the "exceptional circumstances" test from the Court's 1976 Colorado River case (requiring a district court to exercise its jurisdiction even if there is a parallel state proceeding except in "exceptional circumstances") did not apply in the DJA context. The Court affirmed a district court's ...