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Famers Insurance Company of Arizona v. Castillo

United States District Court, D. New Mexico

March 27, 2019




         THIS MATTER comes before the Court on Defendant Steven Castillo's Motion to Dismiss, or, in the Alternative, for a Stay of Proceedings [Doc. 3]. Plaintiff Farmers Insurance Company of Arizona filed a Response [Doc. 8] and Defendant filed a Reply [Doc. 10]. The Court, having considered the Motion, briefs and relevant law, and being otherwise fully informed, finds that the motion is well-taken and will be GRANTED.


         On or about September 22, 2016, Steven Castillo was severely injured in a collision with Susan Sanchez, an underinsured driver who was allegedly at fault. Doc. 3 at 1. Steven Castillo's reported injuries included lacerations, fractures of the tibia, pelvis and vertebrae, and damage to his prostate, bladder, and urethra. Doc. 1 at ¶ 13. As a result, Mr. Castillo had to undergo several surgeries. Id. Ms. Sanchez carried bodily injury coverage of $50, 000.00 per person and $100, 000.00 per occurrence with Farmers Insurance Company. Doc. 3 at 1. On that same date, Mr. Castillo and Bernice Castillo were named insureds and/or beneficiaries of two policies with Farmers Insurance Company, each of which provided $100, 000.00 per person and $300, 000.00 per occurrence of liability coverage. Id. at 1-2. Mr. Castillo claims that he was entitled to stacked Uninsured/Underinsured Motorist (UM/UIM) coverage equal to the bodily injury liability limits of these policies. Doc. 1 at ¶ 15. Farmers alleges that the UM/UIM coverage was rejected when Ms. Castillo signed a UM/UIM selection form on May 11, 2015 rejecting UM/UIM coverage in its entirety for both policies. Id. at ¶¶ 6-11. However, Mr. Castillo claims that the UM/UIM rejections are not enforceable because they were not attached to the policies delivered to Ms. Castillo and because they predated the policies that were in effect at the time of the accident. Id. at ¶ 17. Farmers disputes this, alleging that the rejections are enforceable and that it is not required to reform the policies to include UM/UIM coverage equal to the bodily injury limits of the policies. Id. at ¶ 18.

         Plaintiff Farmers filed this lawsuit to invoke the jurisdiction of the federal court pursuant to the Declaratory Judgment Act to interpret the policies and resolve the dispute as to whether the UM/UIM rejections are enforceable. Id. at ¶¶ 3, 19. Specifically, Plaintiff requests that the Court enter judgment declaring the rights and obligations of each party, declaring that the rejections of the UM/UIM coverage on Mr. Castillo's policies are enforceable and binding, and declaring that Mr. Castillo is not entitled to UM/UIM coverage under said policies. Id. at ¶ 19. Defendant Castillo then filed the instant Motion asking the Court to exercise its discretion to decline jurisdiction in this matter due to a parallel action pending in the Second Judicial District Court of New Mexico addressing the same issues presented in this case (“State Court Action”). Doc. 3 at 1. The State Court Action, filed by Mr. Castillo, names Farmers Insurance Company of Arizona as a party and includes a declaratory action as well as extra-contractual claims. Id. at 4. Specifically, Mr. Castillo's state court case in Count I seeks a declaration that the policy did not contain a valid and binding rejection of UM/UIM coverage in an amount equal to his liability limits, pursuant to Jordan v. Allstate Ins. Co., 245 P.3d 1214 (N.M. 2010). Id.


         Plaintiff's Complaint is brought pursuant to the Declaratory Judgment Act under 28 U.S.C. § 2201. The Act states: “In a case of actual controversy within its jurisdiction, … 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.” 28 U.S.C. § 2201 (emphasis added).

         The Supreme Court of the United States has held that a district court's exercise of jurisdiction under the Act is strictly discretionary, and there is nothing “automatic or obligatory” with respect to a federal court's jurisdiction to hear a declaratory judgment action. Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (citation omitted). The Supreme Court has found that even where a district court had jurisdiction under the Act, “it was under no compulsion to exercise that jurisdiction.” Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942); see also Kunkel v. Cont'l Cas. Co., 866 F.2d 1269, 1273 (10th Cir. 1989) (quoting Pub. Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962) (“The Declaratory Judgment Act was an authorization, not a command.”). In fact, the Supreme Court has cautioned against encroaching unnecessarily upon state court litigation:

Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties. Gratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided.

Brillhart, 316 U.S. at 495.

         The Tenth Circuit has also echoed this discretionary standard: “While the statute vests the federal courts with power and competence to issue a declaration of rights, ” the decision of whether to exercise that power is “vested in the sound discretion of the district courts.” St. Paul Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167 (10th Cir. 1995) (citing Pub. Affairs Assocs., 369 U.S. at 112); see also Kunkel, 866 F.2d at 1273 (citing Alabama State Fed'n of Labor v. McAdory, 325 U.S. 450, 462 (1945)) (“Whether to entertain a justiciable declaratory judgment action is a matter committed to the sound discretion of the trial court.”). It is therefore the duty of the district court to ascertain whether the issues presented “can better be settled in the proceeding pending in the state court.” Brillhart, 316 U.S. at 495. A district court's decision regarding whether to exercise its jurisdiction and grant declaratory relief is reviewed for abuse of discretion. Wilton, 515 U.S. at 289-90.


         The Tenth Circuit has adopted a five-factor test to determine whether a court should exercise its discretionary jurisdiction over a declaratory judgment action where a parallel state court action might address some or all of the issues set forth in the federal claim:

[1] whether a declaratory action would settle the controversy; [2] whether it 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 to res judicata”; [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach ...

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