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Pupp v. Illinois Union Insurance Co.

March 29, 2010

GUY R. PUPP, D.P.M., PLAINTIFF,
v.
ILLINOIS UNION INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Janet T. Neff United States District Judge

HON. JANET T. NEFF

OPINION

The instant action arises from an underlying medical malpractice suit, Julie Sprague v. Guy Pupp, D.P.M., and Southeast Michigan Surgical Hospital, L.L.C, pending in the Macomb Circuit Court of Michigan (Docket No. 08-1778-NH) (Compl. ¶ 5). On May 7, 2009, Plaintiff Guy Pupp, D.P.M., filed a three-count complaint in Ingham Circuit Court of Michigan, seeking a declaratory judgment that Defendant Illinois Union Insurance Company was obligated to defend and indemnify Plaintiff for purposes of the Sprague case (Dkt 1, Ex. A). On June 9, 2009, Defendant removed the Ingham Court action to this Court based on diversity of citizenship pursuant to 28 U.S.C. §§ 1332, 1441, and 1446 (Dkt 1).

Pending before this Court is Plaintiff's Motion to Remand (Dkt 8). For the reasons that follow, the Court declines to exercise jurisdiction over Plaintiff's declaratory judgment action, and Plaintiff's motion to remand is GRANTED.

Background

In the underlying malpractice action, Sprague alleges a claim of professional negligence pertaining to her medical care and treatment at the Southeast Michigan Surgical Hospital (SMSH) Podiatry Clinic where she was treated by Plaintiff, a licensed podiatrist, who served as the director of the SMSH podiatry program (Def. Br. 3; Pl. Br. 1). SMSH tendered the defense of the Sprague malpractice action to its professional liability insurer, Defendant. Plaintiff likewise tendered the defense of the Sprague malpractice action to his personal professional liability insurer, who retained separate counsel to defend Plaintiff and his practice (Def. Br. 3-4). Plaintiff subsequently tendered the defense of the malpractice action to Defendant, as SMSH's insurer (id. at 4). Defendant declined Plaintiff's request for defense and indemnification (id.), leading to the instant action.

Discussion

This Court has the discretion to decide whether to dismiss or stay a declaratory judgment action pursuant to 28 U.S.C. § 2201(a); see also Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995); Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448, 453-54 (6th Cir. 2003). The Sixth Circuit Court of Appeals has held that courts are to consider five factors in assessing the propriety of exercising discretion in a declaratory judgment action. Grand Trunk W. RR v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984); see also Northland Ins., 327 F.3d at 453; Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000); Omaha Prop. & Cas. Ins. Co. v. Johnson, 923 F.2d 446, 448 (6th Cir. 1991).

The five factors enumerated in Grand Trunk are: (1) whether the action would settle the controversy; (2) whether the declaratory judgment action 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 for res judicata;" (4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction; and (5) whether there is an alternative remedy that is better or more effective. Grand Trunk, 746 F.2d at 326 (citation omitted). The Court has carefully considered the five factors and concludes that the first, fourth and fifth factors weigh strongly against retaining jurisdiction of this matter, while the second factor is, if not neutral, of minimal weight under the circumstances presented.*fn1

Two lines of precedent have developed concerning whether the first Grand Trunk factor relates to the declaratory judgment action or the underlying action "in the context of an insurance company's suit to determine its policy liability." Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 555 (6th Cir.2008). This appears to depend in part on the overlap between the cases and whether the same parties are involved. Id. at 556.

In the present case, there is a factual overlap between the declaratory action and underlying state court case, which involves not only Plaintiff and Defendant, but also SMSH, whose policy is in dispute in this action. Although this declaratory action may resolve the specific defense and indemnity dispute between Plaintiff and Defendant, that is only one aspect of a multifaceted controversy involving these same parties in the underlying action. Moreover, the insurance coverage controversy turns on the state law question of whether Plaintiff is an "insured" under the terms of the policy issued by Defendant to SMSH, and the development of facts related thereto. In light of these considerations, the benefit of the resolution of this action to settlement of the controversy is questionable. Thus, the first factor weighs against the exercise of jurisdiction.

The second Grand Trunk factor considers whether the district court's judgment would clarify the legal relations at issue. This factor's analysis is closely related to that of the first factor. Flowers, 513 F.3d at 557; see also Travelers Indem. Co. v. Bowling Green Prof'l Assocs., 495 F.3d 266, 271 (6th Cir. 2007) (considering the first two factors together). "Indeed, it is almost always the case that if a declaratory judgment will settle the controversy, then it will clarify the legal relations in issue." Flowers, 513 F.3d at 557. Similar to the split in jurisprudence concerning the first factor, "a split has developed in precedent concerning whether the district court's decision must only clarify the legal relations presented in the declaratory judgment action or whether it must also clarify legal relations in the underlying state action." Id. In Flowers, the Sixth Circuit focused only on whether the district court's decision would clarify the legal relationships presented to the federal court. Id. In the present case, this Court is asked to clarify Defendant's contractual duties to defend and indemnify Plaintiff. Even though the declaratory judgment action may serve to clarify the legal relations presently before this Court, this matter can also be efficiently resolved in the underlying state court action. Although this factor, if not neutral, appears to favor Defendant, the other factors weigh strongly against this Court retaining jurisdiction.

The fourth Grand Trunk factor asks the Court to consider whether the use of the declaratory action may increase friction between federal and state courts. In Roumph, the court articulated three subfactors to be considered when determining whether the action will increase friction between federal and state courts. Roumph, 211 F.3d at 968; Flowers, 513 F.3d at 560. These factors include:

(1) whether the underlying factual issues are important to an informed resolution of the case; (2) whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and (3) whether there is a close nexus between underlying factual and legal issues and state law and/or public policy, or whether ...


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