Filed: Feb. 04, 2016
Latest Update: Mar. 02, 2020
Summary: Case: 15-10478 Document: 00513370104 Page: 1 Date Filed: 02/04/2016 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 15-10478 United States Court of Appeals Fifth Circuit FILED NATIONAL CASUALTY COMPANY, February 4, 2016 Lyle W. Cayce Plaintiff - Appellant Clerk v. ALICE GONZALEZ, doing business as A & J Transport, Defendant - Appellee Appeal from the United States District Court for the Northern District of Texas USDC No. 5:13-CV-226 Before STEWART, Chief Judge, and REAVLEY and D
Summary: Case: 15-10478 Document: 00513370104 Page: 1 Date Filed: 02/04/2016 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 15-10478 United States Court of Appeals Fifth Circuit FILED NATIONAL CASUALTY COMPANY, February 4, 2016 Lyle W. Cayce Plaintiff - Appellant Clerk v. ALICE GONZALEZ, doing business as A & J Transport, Defendant - Appellee Appeal from the United States District Court for the Northern District of Texas USDC No. 5:13-CV-226 Before STEWART, Chief Judge, and REAVLEY and DA..
More
Case: 15-10478 Document: 00513370104 Page: 1 Date Filed: 02/04/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 15-10478 United States Court of Appeals
Fifth Circuit
FILED
NATIONAL CASUALTY COMPANY, February 4, 2016
Lyle W. Cayce
Plaintiff - Appellant Clerk
v.
ALICE GONZALEZ, doing business as A & J Transport,
Defendant - Appellee
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 5:13-CV-226
Before STEWART, Chief Judge, and REAVLEY and DAVIS, Circuit Judges.
PER CURIAM:*
In this diversity action, plaintiff National Casualty Company (“National
Casualty”) seeks a declaratory judgment regarding an insurance coverage
dispute. Defendant Alice Gonzalez, d/b/a A&J Transport (“A&J Transport”)
agrees that the insurance policy does not provide coverage and argues that it
thought it had and should have had coverage. Accordingly, in a separate state
court action, A&J Transport seeks to hold its insurance agent, All Quote
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
Case: 15-10478 Document: 00513370104 Page: 2 Date Filed: 02/04/2016
No. 15-10478
Insurance (“All Quote”), its insurance broker, U.S. Risk Insurance, Inc. (“U.S.
Risk”), and National Casualty liable for this lack of coverage. Neither All
Quote nor U.S. Risk are parties to this federal litigation, and the district court
dismissed the action upon a finding that they are required and indispensable
parties whose joinder would destroy diversity. The district court also found
Colorado River abstention proper. National Casualty timely appealed, and we
now vacate the judgment and render judgment in favor of National Casualty.
I.
National Casualty issued a commercial automobile policy (the “Policy”)
to A&J Transport. The Policy covered one tractor/trailer and had a hundred-
mile radius of operation. The insured tractor/trailer was involved in an
automobile accident approximately 190 miles from A&J Transport’s base of
operation—well outside the Policy’s area of coverage. Accordingly, National
Casualty rejected A&J Transport’s coverage claim.
National Casualty later filed this action in federal court seeking a
declaration that the Policy does not cover the accident. A&J Transport denies
neither the language of the Policy nor the location of the accident. Rather, it
claims that, a few months prior to the accident, it inquired through All Quote
about increasing its covered radius of operations to 300 miles. And, based on
alleged representations from All Quote and an alleged increased premium,
A&J Transport claims it operated under the belief that it had acquired this
increased coverage.
Three days after this action was filed, A&J Transport filed suit in a
Texas state court seeking declaratory judgment and asserting claims of
negligence, breach of contract, breach of duty of good faith and fair dealing,
and breach of trust and agreement to provide insurance coverage. In addition
to suing National Casualty and All Quote, A&J Transport also named U.S.
Risk as a defendant.
2
Case: 15-10478 Document: 00513370104 Page: 3 Date Filed: 02/04/2016
No. 15-10478
In federal court, A&J Transport moved to dismiss, arguing that All
Quote and U.S. Risk are indispensable parties under Rule 19 of the Federal
Rules of Civil Procedure (“Rule 19”) and that they destroyed complete diversity
because, like A&J Transport, All Quote and U.S. Risk are Texas citizens. The
district court denied the motion.
National Casualty eventually moved for summary judgment. Upon
reviewing the motion and opposition, the district court sua sponte reversed its
earlier decision and granted A&J Transport’s motion to dismiss. Without the
benefit of briefing, the district court also ruled it “should abstain from
exercising jurisdiction under” Colorado River Water Conservation District v.
United States, 424 U.S. 800, 818,
96 S. Ct. 1236 (1976). After filing an
unsuccessful motion to reconsider, National Casualty timely appealed.
II.
“[A] district court’s decision to dismiss for failure to join an indispensable
party is properly reviewed under an abuse-of-discretion standard.” Pulitzer-
Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986). “[A]n erroneous view
of the law” necessarily constitutes an abuse of discretion. Hood ex rel. Miss. v.
City of Memphis, Tenn.,
570 F.3d 625, 628 (5th Cir. 2009) (quoting Chaves v.
M/V Medina Star,
47 F.3d 153, 156 (5th Cir. 1995)).
“Although we review a district court’s abstention ruling for abuse of
discretion, we review de novo whether the requirements of a particular
abstention doctrine are satisfied.” Nationwide Mut. Ins. Co. v. Unauthorized
Practice of Law Comm., 283 F.3d 650, 652 (5th Cir. 2002).
III.
A.
Federal Rule of Civil Procedure 12(b)(7) allows dismissal for “failure to
join a party under Rule 19.” “Determining whether to dismiss a case for failure
to join an indispensable party requires a two-step inquiry.” Hood, 570 F.3d at
3
Case: 15-10478 Document: 00513370104 Page: 4 Date Filed: 02/04/2016
No. 15-10478
628. “Rule 19(a) provides a framework for deciding whether a given person
should be joined,” and “Rule 19(b) guides the court in deciding whether the suit
should be dismissed if that person cannot be joined.” Pulitzer-Polster, 784 F.2d
at 1309. “If the necessary party cannot be joined without destroying subject-
matter jurisdiction, the court must then determine whether that person is
‘indispensable,’ that is, whether litigation can be properly pursued without the
absent party.”
Hood, 570 F.3d at 629. “While the party advocating joinder has
the initial burden of demonstrating that a missing party is necessary, after ‘an
initial appraisal of the facts indicates that a possibly necessary party is absent,
the burden of disputing this initial appraisal falls on the party who opposes
joinder.’”
Hood, 570 F.3d at 628 (quoting
Pulitzer-Polster, 784 F.2d at 1309)).
We deal here with parties whose joinder would destroy diversity
jurisdiction. Accordingly, if All Quote and U.S. Risk are required parties under
Rule 19(a), we must determine whether they are indispensable parties under
Rule 19(b). The district court found both subsections of Rule 19 satisfied and
so dismissed the case. We find, however, that “the threshold requirements of
Rule 19(a) have not been satisfied,” meaning “no inquiry under Rule 19(b) is
necessary.” Temple v. Synthes Corp., 498 U.S. 5, 8,
111 S. Ct. 315, 316 (1990)
The district court ruled that the “declaratory judgment action is
inextricably intertwined with [A&J Transport’s state court] claims against All
Quote and U.S. Risk,” and that “[a]ny decision made by this Court about
[National Casualty’s] liability will determine the outcome of the underlying
state court litigation.” Given “that it is not necessary for all joint tortfeasors
to be named as defendants in a single lawsuit,” the Supreme Court has already
held that concurrent “separate litigations” with “overlap[ping]” claims is not
enough to satisfy Rule 19(a). Temple, 498 U.S. at 7–8, 111 S. Ct. at 316. As
the state court action demonstrates, A&J Transport perceives National
Casualty, All Quote, and U.S. Risk to be joint tortfeasors. That does not make
4
Case: 15-10478 Document: 00513370104 Page: 5 Date Filed: 02/04/2016
No. 15-10478
them required parties. See Rule 19(a)(1) (identifying specific criteria of
required parties). As a matter of law, the District Court erred by finding All
Quote and U.S. Risk to be required parties under Rule 19(a)(1). 1
B.
In the alternative, the district court found it proper to dismiss the case
pursuant to the Colorado River abstention doctrine. This, too, was error.
[T]he Supreme Court has set forth six factors that may be
considered and weighed in determining whether exceptional
circumstances exist that would permit a district court to decline
exercising jurisdiction: (1) assumption by either court of
jurisdiction over a res; (2) the relative inconvenience of the forums;
(3) the avoidance of piecemeal litigation; (4) the order in which
jurisdiction was obtained by the concurrent forums; (5) whether
and to what extent federal law provides the rules of decision on the
merits; and (6) the adequacy of the state proceedings in protecting
the rights of the party invoking federal jurisdiction.
Murphy v. Uncle Ben’s, Inc., 168 F.3d 734, 738 (5th Cir. 1999).
Here, the district court “found factors one, two, and four to be neutral,
and factors three, five, and six weighing in favor of abstention.” Based on this
tally, it abstained from exercising jurisdiction. Unfortunately, the district
court incorrectly assessed every factor and failed to properly weight
the balance heavily in favor of exercising jurisdiction.
(1) Assumption by either court of jurisdiction over a res.
Here, there is no res. Contrary to the understanding of the district court
and the parties, this factor is not “neutral.” “[T]he absence of this first factor
weighs against abstention.” Murphy, 168 F.3d at 738.
1 We have reviewed A&J Transport’s alternative arguments and found they lack the
merit to warrant discussion.
5
Case: 15-10478 Document: 00513370104 Page: 6 Date Filed: 02/04/2016
No. 15-10478
(2) The relative inconvenience of the forums.
The parties and district court all consider this factor “neutral” because
the federal and state courts are equally convenient. This is incorrect. See id.
The inapplicability of the second factor weighs against abstention.
(3) The avoidance of piecemeal litigation.
The district court found abstention would “avoid piecemeal litigation.”
The district court failed to recognize, however, that this factor is less important
where, as here, the “case does not involve jurisdiction over a res or property”
and “there is no danger of inconsistent rulings affecting property ownership.”
Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1192 (5th Cir. 1988). Because
the “real concern at the heart of the third Colorado River factor” is not
implicated here, the factor weighs only lightly in favor of abstention. Black
Sea Inv., Ltd. v. United Heritage Corp.,
204 F.3d 647, 650–51 (5th Cir. 2000).
(4) The order in which jurisdiction was obtained by the
concurrent forums.
The district court found the fourth factor “neutral” based on its
conclusion that the federal action, filed just days before the state action, was
timed to “beat [A&J Transport] to the punch.” The finding is inconsistent with
published decisions, including a decision of the Supreme Court.
In Moses H. Cone Memorial Hospital v. Mercury Construction Corp, the
Supreme Court explained that “priority should not be measured exclusively by
which complaint was filed first, but rather in terms of how much progress has
been made in the two actions.” 460 U.S. 1, 21,
103 S. Ct. 927, 940 (1983). The
Court confronted a “state-court suit in which no substantial proceedings . . .
had taken place at the time of the decision” and a federal action where, “by
contrast, the parties had taken most of the steps necessary to a resolution.”
Id.
at 22, 103 S. Ct. at 940. “In realistic terms, the federal suit was running well
6
Case: 15-10478 Document: 00513370104 Page: 7 Date Filed: 02/04/2016
No. 15-10478
ahead of the state suit at the very time that the District Court decided to refuse
to adjudicate the case.” Id.
Here, the federal action has proceeded to summary judgment, and the
district court was capable of finally adjudicating the matter. Meanwhile,
despite bearing the burden of showing abstention to be proper, A&J Transport
has put nothing in the record showing the relative progress of the state court
action. According to National Casualty’s reply brief, the “state court action has
involved little more than an original petition, answers, and a stay of
proceedings.” This case is just like Moses H. Cone, and the fourth factor weighs
strongly against abstention. See Stewart v. W. Heritage Insurance Co.,
438
F.3d 488, 493 (5th Cir. 2006) (Where the federal “case has clearly progressed
further . . . this factor favors federal jurisdiction.”).
(5) Whether and to what extent federal law provides the rules
of decision on the merits.
The district court found the fifth factor to favor abstention because “all
of the claims brought in both lawsuits are state-law claims.” This reasoning
again runs contrary to Supreme Court and Fifth Circuit authority. “The
absence of a federal-law issue does not counsel in favor of abstention.”
Evanston Ins. Co., 844 F.2d at 1193. “[O]ur task in cases such as this is not to
find some substantial reason for the exercise of federal jurisdiction by the
district court; rather, the task is to ascertain whether there exist ‘exceptional’
circumstances, the ‘clearest of justifications,’ that can suffice under Colorado
River to justify the surrender of that jurisdiction.” Moses H.
Cone, 460 U.S. at
25–26, 103 S. Ct. at 942. This is a simple diversity action involving routine
matters of state law, and A&J Transport “has failed to show that ‘rare
circumstances’ exist.”
Stewart, 438 F.3d at 493. “Therefore, this factor is ‘at
most neutral.’”
Id. (quoting Black Sea
Inv., 204 F.3d at 651).
7
Case: 15-10478 Document: 00513370104 Page: 8 Date Filed: 02/04/2016
No. 15-10478
(6) The adequacy of state proceedings in protecting the rights
of the party invoking federal jurisdiction.
The district court found the sixth factor to favor abstention because the
adequacy of the state court forum is not in doubt. This is wrong. The final
factor recognizes that it would be “a serious abuse of discretion” to abstain
under Colorado River where there is “substantial doubt” as to the state forum’s
adequacy. Moses H. Cone, 460 U.S. at 28, 103 S. Ct at 943. Accordingly, it “can
only be a neutral factor or one that weighs against, not for, abstention.”
Evanston Ins.
Co., 844 F.2d at 1193. Here, this factor is neutral.
IV.
The district court wrongly dismissed this under Rules 12(b)(7) and 19. It
further erred in assessing the Colorado River factors. “Although the instant
case does involve concurrent state and federal litigation, the Colorado River
doctrine is not the only basis on which the district court could have considered
abstention.” St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590 (5th Cir. 1994). “Under
settled Fifth Circuit law, a declaratory judgment action may be dismissed even
though it fails to satisfy the stringent Colorado River/Moses Cone ‘exceptional
circumstances’ test.”
Id. Indeed, “[a]s a general matter, a district court’s
discretionary, nonmerits based dismissal of a declaratory judgment action
cannot be successfully challenged merely because it does not satisfy Colorado
River abstention.”
Id. at 590 n.6.
“The seven Trejo factors that must be considered on the record before a
discretionary, nonmerits dismissal of a declaratory judgment action” include
“‘whether retaining the lawsuit in federal court would serve the purposes of
judicial economy.’” Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382,
390 (5th Cir. 2001) (quoting
Trejo, 39 F.3d at 590–91). While, on this record,
assessment of most of the Trejo factors would be guesswork, we will not
remand for a determination of whether discretionary dismissal is proper under
8
Case: 15-10478 Document: 00513370104 Page: 9 Date Filed: 02/04/2016
No. 15-10478
the Declaratory Judgment Act. Considerations of judicial economy are
dispositive under the present circumstances; the case is ready for resolution
and there is no genuine dispute about the scope of coverage under the Policy.
A&J Transport did not oppose National Casualty’s motion for summary
judgment. Rather, it conceded that the accident took place outside the
coverage area and “request[ed the district] court to grant [National Casualty’s]
motion for summary judgment as to the policy of insurance radius of operation
at one-hundred (100) miles . . . .” There is no reason to delay this ruling.
Because the accident “is not covered by the terms of insuring agreement,” we
render judgment in National Casualty’s favor. See Audubon Ins. Co. v. Terry
Rd. Wine & Liquor, Inc., 68 F.3d 469 (5th Cir. 1995) (per curiam)
(unpublished).
The judgment of the district court is therefore VACATED, and summary
judgment is RENDERED in favor of National Casualty.
9
