While a district court can decline to exercise jurisdiction over a declaratory judgment action, here the declaratory claims were joined with an independent monetary claim. The insured filed a counterclaim for monetary relief, but only if the court first exercised jurisdiction over the insurer's claim for declaratory judgment. Could the district court still decline jurisdiction? Argonaut Ins. Co. v. St. Francis Med. Cir., 2021 U.S. App. LEXIS 34218 (9th Cir. Nov. 16, 2021).
The underlying state action involved former students of Kamehameha Schools alleging sexual abuse by a doctor from the late 1950s through the early 1980s. Because the doctor had practiced at St Francis Medical Center, Kamehameha Schools filed crossclaims against St. Francis, which sent the crossclaims to its insurer, Argonaut. The insurer agreed to defend under a reservation of rights.
Argonaut the filed for declaratory judgment in federal court to determine what rights and duties Argonaut owed St. Francis. In its answer, St. Francis asserted the district court should decline jurisdiction because the claim presented solely issues of state law during the pendency of parallel proceedings in state court. St. Francis also filed two counterclaims, the first mirroring Argonaut's declaratory judgment requests for relief and the second seeking monetary relief because Argonaut breached its duty of good faith and fair dealing. St. Francis asserted its counterclaims, however, only if the court asserted jurisdiction over Argonaut's declaratory relief claim.
The district court agreed with St. Francis, holding that notwithstanding get monetary counterclaim, it had discretionary jurisdiction over Argonaut's declaratory claims and the relevant facts supported declining jurisdiction. Argonaut appealed.
The Ninth Circuit held that St. Francis did not waive its threshold defense by not raising it in a motion. Here, St. Francis raised its threshold defense by answer. Such defenses were preserved even if coupled with counterclaims.
The Ninth Circuit went on to hold that the district court properly evaluated factors under Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942) and Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir 1998) in declining jurisdiction. The district court noted: (1) there was related litigation in state court involving St Francis; (2) insurance law was an area regulated by the states; (3) there was no compelling federal interest in the case; (4) dismissing this case would discourage forum shopping; (5) dismissal would avoid duplicative litigation on any overlapping issues; (6) proceeding with this case in federal court would entangle the state and federal court systems; (7) state court would be as convenient a forum as federal court for this case.
Accordingly, the district court properly held that conditionally pled counterclaims did not trigger mandatory jurisdiction over declaratory claims.
