Opinion
CIVIL ACTION NO. 3:01-CV-1847-G
December 18, 2001
MEMORANDUM ORDER
Before the court are the following motions: (1) the motion of the defendant Petro Stopping Centers, L.P. ("Petro") to dismiss the claims of the plaintiff Great-West Life Annuity Company ("Great-West") for failure to state a claim, and (2) the motion of Petro to transfer this case, for the convenience of the parties and witnesses and in the interest of justice, to the United States District Court for the Western District of Texas. For the reasons discussed below, Petro's motion to dismiss is granted, and its motion to transfer is denied as moot.
I. BACKGROUND
Petro established a self-funded employee benefit plan ("the Plan") governed by the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"), for which Great-West provided administrative services. Plaintiff's Response in Opposition to Defendant's Motion to Dismiss ("Response") at 1. In connection with the Plan, the parties entered into both a Services Contract and a Stop-Loss Contract ("the Plan Contracts"). Id. At Petro's request, the Plan Contracts terminated on December 31, 1999. Id. at 2. A dispute arose between Great-West and Petro as to the disposition of "run-out claims" — i.e., medical claims that were incurred, but not yet paid, as of the contract termination date. Id. In January 2000, Petro requested that Great-West pay these run-out claims. Id. After negotiation, the parties reached an agreement under which, in exchange for a one-time fee, Great-West would continue to pay run-out claims through May 31, 2000 (the "Run-out Contract"). Id. Under this arrangement, Petro agreed to reimburse Great-West for all run-out claims paid, and Great-West was not obligated to provide stop-loss coverage of any kind on claims paid on or after January 1, 2000. Id.
Subsequently, a dispute arose regarding the timing of certain run-out claims paid by Great-West. Id. On April 27, 2001, Petro sent a letter to Great-West stating that those claims (which were paid by Great-West in 2000 under the Run-out Contract) should have been paid in 1999, thereby falling under the stop-loss coverage in effect during 1999. Id. Petro alleged that the Plan Contracts, taken together, permitted Great-West to manipulate the handling of submitted claims so as to avoid the stop-loss coverage, and were therefore unconscionable. Id.; see also Exhibit A to Great-West's Amended Complaint, located in Defendant's Appendix in Support of Motion to Dismiss ("Motion Appendix") at 31-33. Petro also alleges that Great-West "wrongfully draft[ed]" Petro's bank account for certain claims paid by Great-West after May 31, 2000. Response at 2-3. Great-West counters that Petro's employees continued to submit claims for reimbursement after that date and that Petro was ultimately responsible for the payment of those claims. Id.
Great-West first became aware of a potential lawsuit to be filed by Petro around April 27, 2001. Defendant's Brief in Support of Motion to Dismiss ("Motion") at 1. After receiving Petro's initial demand letter, dated April 27, 2001, Great-West suggested pre-suit mediation. Id. Both parties agreed to mediate the controversy, and an unsuccessful pre-suit mediation was held on September 14, 2001. Id.
Great-West filed the instant suit, seeking declaratory judgment, on September 18, 2001. Id. On that same date, Petro also filed an action against Great-West in the 346th Judicial District Court of El Paso County, Texas. Id. at 2. In the state court action, Petro alleges that Great-West breached its contract with Petro, breached its duty of good faith and fair dealing toward to Petro, violated Article 21.21 of the Texas Insurance Code, violated the Texas Deceptive Trade Practices Act, and was negligent. Id. Great-West contends that all of the claims alleged by Petro are predicated on, and are inextricably bound up with, the contracts at issue. Response at 3. Great-West removed the state court action to the United States District Court for the Western District of Texas, El Paso Division. Id.
As stated below, Great-West later removed the state court action to federal court on the basis of diversity of citizenship. To avoid confusion, however, the court will refer to this suit as the state court action.
Petro seeks dismissal of this case, under FED. R. CIV. P. 12(b)(6), for failure to state a claim on which relief can be granted. Additionally, Petro seeks dismissal because the declaratory judgment action is an effort by Great-West to forum shop and the state court action provides an adequate vehicle for resolution of the dispute. In the alternative, Petro moves to stay this declaratory judgment action. Finally, subject to its motion to dismiss, Petro moves to transfer this case to the Western District of Texas.
II. ANALYSIS A. The Declaratory Judgment Act
This court may exercise discretion in deciding whether to exercise jurisdiction over a declaratory judgment action. See Wilton v. Seven Falls Company, 515 U.S. 277, 282-83 (1995); Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942). The Declaratory Judgment Act provides that a court "may declare the rights and other legal relations of any interested party seeking such declaration. . . ." 28 U.S.C. § 2201. The Fifth Circuit has held that this provision grants district courts broad discretion in choosing whether to exercise jurisdiction over such actions. See Rowan Companies, Inc. v. Griffin, 876 F.2d 26, 29 (5th Cir. 1989); Wilton, 41 F.2d at 935; see also Wilton 515 U.S. at 287 (describing "the unique breadth of [the] discretion to decline to enter a declaratory judgment"). Thus, this court may choose to dismiss this case by not exercising jurisdiction over the matter or by dismissing the case for failure to state a claim. Out of an abundance of caution, the court will conduct an analysis of each ground for dismissal.
In determining whether to exercise its jurisdiction to decide a declaratory judgment action, the court may consider a variety of factors, including:
1. whether the matter is also before a state court capable of resolving all the issues between the parties;
2. whether the declaratory judgement action was filed for the purpose of forum shopping in anticipation of suit to be filed by the other party, thus allowing the declaratory judgment plaintiff to gain precedence in time or forum;
3. inequities in allowing the declaratory plaintiff to gain precedence in time and forum; and
4. the convenience to the parties and witnesses.
See Psarianos v. Standard Marine, Limited, Inc., 12 F.3d 461, 463-64 (5th Cir.), cert. denied, 511 U.S. 1142 (1994); Odeco Oil Gas Company, Drilling Division v. Bonnette, 4 F.3d 401, 404 (5th Cir. 1993), cert. denied, 511 U.S. 1004 (1994); Wilton, 41 F.3d at 935.
The Declaratory Judgment Act may not be used as a tool for forum shopping. See Psarianos, 12 F.3d 461 at 463-64; Odeco, 4 F.3d at 404. This is especially true when a state court provides an adequate forum for resolution of the dispute. In Wilton, the Court of Appeals instructed that
. . . the district court should determine whether the state action provides an adequate vehicle for adjudicating the claims of the parties and whether the federal action serves some purpose beyond mere duplication of effort. The district court should consider denying declaratory relief to avoid gratuitous interference with the orderly and comprehensive disposition of a state court litigation if the claims of all parties can satisfactorily be adjudicated in the state court proceeding.41 F.3d at 935 (citing Matter of Magnolia Marine Transportation Company, 964 F.2d 1571, 1581 (5th Cir. 1992)). Parallel state court proceedings often provide a more efficient forum when dealing with state law claims. See, e.g., Wilton, 515 U.S. at 282. Further, if sufficient overlap exists over issues of law and fact, the dispute should be resolved in state court to avoid duplicative or piecemeal litigation. See Wilton, 41 F.3d at 935; Nationwide Insurance v. Zavalis, 52 F.3d 689, 692 (7th Cir. 1995).
Great-West filed this action within two business days of the unsuccessful pre-suit mediation between the parties, and on the same day Petro filed the state court action. Motion at 8; Motion Appendix at 3, 42. Great-West had prior knowledge that Petro would file a suit if the dispute could not be amicably resolved. Motion at 8; Motion Appendix at 11-14. The court agrees with Petro (Motion at 8) that the present action was clearly filed in anticipation of the state court action brought by Petro, in an attempt to nullify Petro's right, as a tort plaintiff in Texas, to select its forum. Viewed in this light, Great-West's actions constitute forum-shopping.
Further, the state court action filed by Petro and the declaratory judgment action filed by Great-West are redundant. Id.; Motion Appendix at 22-47. Both involve the same issue: whether Great-West is liable for the delay in payment of certain large claims under the Plan Contracts. Great-West can assert any available defenses in the state court proceeding, and all of the parties' claims can be adjudicated in the state court action. Allowing the declaratory action to proceed would result in piecemeal adjudication of the disputes between Great-West and Petro, and would reward Great-West's attempt at forum shopping. Accordingly, dismissal of this action in favor of the state court proceeding commenced in El Paso County, Texas is proper. See Torch, Inc. v. LeBlanc, 947 F.2d 193, 194-96 (5th Cir. 1991); Mission Insurance Company v. Puritan Fashions Corporation, 706 F.2d 599, 600-03 (5th Cir. 1983). Cf. Wilton, 515 U.S. at 283 ("That the court here stayed, rather than dismissed, the action is of little moment . . . because the state court's decision will bind the parties under principles of res judicata.").
Finally, the state court suit provides a convenient, proper forum for both parties. Much of the evidence and many of the witnesses needed for resolution of this dispute are in El Paso, Texas. See Affidavit of Walter Kalinowski, located in Motion Appendix at 48-51. Accordingly, dismissal is proper as the convenience of the parties and witnesses in this case favors the state court action. See, e.g., Wilton, 515 U.S. at 283; Mission Insurance Company, 706 F.2d at 602 ("The convenience of parties and witnesses has traditionally been considered in determining whether to hear a declaratory judgment action.").
B. Standard for Dismissal Under Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for "failure to state a claim upon which relief can be granted." However, a motion under Rule 12(b)(6) should be granted only if it appears beyond doubt that the plaintiffs could prove no set of facts in support of their claims that would entitle them to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Leffall v. Dallas Independent School District, 28 F.3d 521, 524 (5th Cir. 1994); see also Kaiser Aluminum Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982) (citing WRIGHT MILLER, Federal Practice and Procedure: Civil § 1357 at 598 (1969), for the proposition that "the motion to dismiss for failure to state a claim is viewed with disfavor and is rarely granted"), cert. denied, 459 U.S. 1105 (1983). In determining whether dismissal should be granted, the court must accept all well-pleaded facts as true and view them in the light most favorable to the plaintiffs. See Capital Parks, Inc. v. Southeastern Advertising and Sales System, Inc., 30 F.3d 627, 629 (5th Cir. 1994); Norman v. Apache Corporation, 19 F.3d 1017, 1021 (5th Cir. 1994); Chrissy F. by Medley v. Mississippi Department of Public Welfare, 925 F.2d 844, 846 (5th Cir. 1991).
Petro brings this motion to dismiss for failure to state a claim and contends (1) that Great-West's declaratory judgment action is improper because Petro is seeking to hold Great-West liable in tort, (2) that Petro's claims are extra-contractual and, therefore, not properly adjudicated by declaratory relief, and (3) that Great-West's action should be dismissed as declaratory relief is improper to adjudicate past conduct. Motion at 3-6. Each of these contentions will be examined in turn.
1. Great-West's Declaratory Judgment Action is Improper as an Attempt to Establish Its Non-Liability in Tort
Petro avers that under Texas law, a prospective tort defendant cannot use declaratory judgment as a tool to establish non-liability, and that such conduct is an improper use of the Declaratory Judgment Act, as it deprives the real tort plaintiff of its right to choose the time and venue of the tort cause of action. See Abor v. Black, 695 S.W.2d 564, 566 (Tex. 1985) (citing K.M.S. Research Laboratories v. Willingham, 629 S.W.2d 173, 174 (Tex.App.-Dallas 1982, no writ)). The declaration of non-liability is not a proper function of the Declaratory Judgment Act. See BHP Petroleum Company, Inc. v. Millard, 800 S.W.2d 838, 841 (Tex. 1990) (citing Abor, 695 S.W.2d at 566).
Likewise, it is not the purpose of the federal Declaratory Judgment Act to enable prospective defendants in tort actions to obtain a declaration of non-liability.
See Torch, Inc. v. LeBlanc, 947 F.2d 193, 196 n. 2 (5th Cir. 1991); Sun Oil Co. v. Transcontinental Gas Pipe Line Corporation, 108 F. Supp. 280, 282 (E.D. Pa. 1952), aff'd, 203 F.2d 957 (3rd Cir. 1953) (adopting the opinion of the district court); Cunningham Brothers, Inc. v. Bail, 407 F.2d 1165, 1168 (7th Cir.), cert. denied 395 U.S. 959 (1969). Compelling "potential personal injury plaintiffs to litigate their claims at a time and in a forum chosen by the alleged tort-feasor would be a perversion of the Declaratory Judgment Act." Cunningham Brothers, Inc., 407 F.2d at 1167. The purpose of the Declaratory Judgment Act is not the declaration of non-liability for past conduct, but to settle actual controversies before they ripen into violations of law or breach of some contractual duty and to prevent the accrual of avoidable damages to those uncertain of rights. See Chevron U.S.A., Inc. v. Traillour Oil Company, 987 F.2d 1138, 1154 (5th Cir. 1993) (citing Hardware Mutual Casualty Co. v. Schantz, 178 F.2d 779, 780 (5th Cir. 1949)); see also Cunningham Brothers, Inc., 407 F.2d at 1168.
While Great-West tries to frame the issues in this case in terms of breach of contract, many of the issues on which it seeks declaratory judgment are elements of Petro's tort claims. In its complaint, Great West asks this court to declare:
(a) that Petro is not entitled to a refund of any payment made to Great-West by Petro for claims submitted to Great-West;
(c) that the Plan Contracts are valid and legally binding upon the parties, and are not unconscionable;
(d) that Great-West acted in good faith;
(e) that Great-West timely, and otherwise properly, processed and paid out all claims properly submitted by Petro;
(f) that Petro is solely liable for all run-out claims;
(g) that Great-West has not violated the Texas Insurance Code or the Texas Deceptive Trade Practices Act ("TDTPA");
(h) that Great-West has honored all of its obligations under the contracts and the laws of the State of Texas.See Motion Appendix at 8-9, 28-29.
Petro contends that sections (d), (e), (g), and (h) seek direct determinations by this court of Great-West's potential tort liability. Motion at 5. The court agrees.
First, section (d) pertains to tort liability for breach of duty of good faith and fair dealing. Under Texas law:
[w]hile a policy claim and a bad faith claim both involve policy coverage, a breach of the duty of good faith and fair dealing gives rise to a cause of action in tort that is separate from any cause of action for breach of the underlying insurance contract. Thus, a separate contract cause of action is not necessary to pursue a breach of good faith and fair dealing claim because a plaintiff can establish policy coverage in the tort action.Lias v. State Farm Mutual Automobile Insurance Company, 45 S.W.3d 330, 334-335 (Tex.App.-Dallas 2001, no writ); see also Aranda v. Insurance Company of North America, 748 S.W.2d 210, 213-14 (Tex. 1988) (holding that a plaintiff states a cause of action for breach of good faith and fair dealing by proving coverage without bringing a separate breach of contract action). Thus, it is unnecessary for this court to construe the contract before the claim for breach of the duty of good faith and fair dealing is decided in the tort action. Likewise, sections (e) and (h) must be construed as requests to preliminarily determine Petro's bad faith and negligence claims. Section (g), regarding the Texas Insurance Code and the TDTPA, also implicates Petro's tort claims, as "the mere breach of an insurance contract does not give rise to liability under the Insurance Code or the [T]DTPA," MacIntire v. Armed Forces Benefit Association, 27 S.W.3d 85, 92 (Tex.App.-San Antonio 2000, no writ) (quoting Walker v. Federal Kemper Life Assurance Company, 828 S.W.2d 442, 454 (Tex.App.-San Antonio 1992, writ denied)).
The court also agrees with Petro's contention (Motion at 5) that sections (a) and (f) are derivative of findings by this court of Great-West's potential tort liability, as a finding of bad faith would be determinative of those issues.
Finally, the court agrees with Petro ( Id.) that sections (b) and (c), although couched in contractual terms, seek declarations that Great-West's conduct was not unconscionable — a claim which would be properly decided in the tort lawsuit in state court. Under Texas law, a plaintiff need not bring a separate contract cause of action to pursue a bad faith claim because the plaintiff can establish policy coverage in the tort action. See Lias, 45 S.W.3d at 335. Likewise, the court finds that the unconscionability claim, also a claim under the TDTPA, should be decided along with Petro's other claims in the tort action.
In making each of its claims for declaratory judgment, Great-West is improperly seeking to have this court pre-determine its tort liability. Therefore, the motion by Petro to dismiss Great-West's declaratory judgment action must be granted.
III. CONCLUSION
For the reasons discussed above, Petro's motion to dismiss is GRANTED, and Petro's motion to transfer venue is DENIED as moot.