Opinion
Civil Action No. 3:02-CV-0279-D
June 4, 2002
MEMORANDUM OPINION AND ORDER
The court declines to exercise jurisdiction in this declaratory judgment action and therefore dismisses it without prejudice.
I
Plaintiff United of Omaha Life Insurance Company ("United") seeks a judgment declaring that it had or has no duty or obligation to establish appropriate funding levels for a self-funded employee welfare benefit plan, to assist defendants Rogers Belding Insurance Agency, Inc. ("Rogers") and Region 19 Education Service Center ("Region 19") in underwriting, evaluating, or establishing appropriate funding levels for the plan, or to provide reimbursement for plan underfunding, and that Rogers was always acting as the agent for Region 19, not for United. Rogers and Region 19 move to dismiss for failure to state a claim on which relief can be granted. Subject to these motions, they move to transfer this case to the Western District of Texas, El Paso Division.
United alleges in its complaint that Region 19, acting through Rogers as its agent, contacted United to request that it bid on insurance for employees of a cooperative of West Texas area independent school districts ("Cooperative") or for administrative services for a possible self-funded program. United did not bid on insurance, but it did submit a proposal to provide administrative services for the Cooperative's self-funded employee welfare benefit plan ("Plan"). United, Region 19, and Rogers then engaged in negotiations that led to entry into an Administrative Services Agreement ("Agreement"). United also issued a stop-loss policy to the Cooperative to limit Region 19's risk associated with the Plan. United did not agree to provide underwriting or actuarial services in connection with determining funding levels for the Plan, and neither the Agreement nor any other agreement between United and defendants creates any duty, obligation, or responsibility by United to provide underwriting or actuarial services.
Rogers asked United to provide Region 19 suggested funding rates for the Plan, based on certain assumptions that Rogers provided United concerning expected Plan participation levels. Although under no obligation to do so, United as a courtesy sent Rogers information regarding potential funding rates that Region 19 might consider, based on the assumptions that Rogers had given United. All parties understood that United did not represent that the potential funding rates, which were intended solely as informational, were accurate or sufficient. They were also aware that Region 19 and Rogers had sole responsibility to determine the appropriate level and method of funding the Plan. The parties also understood that Region 19 and Rogers were solely responsible for making any necessary adjustments to the funding method and rates based on changes in participation, claims experience, or other factors.
Region 19 set the funding levels for 2000-01 too low, resulting in a short fall of approximately $780,000 (i.e., benefits paid exceeded contributions collected by that amount). On December 11, 2001 Region 19's counsel sent a demand letter asserting that United is responsible for the deficit.
II
Federal courts have broad discretion to grant or refuse declaratory judgment. See Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991). "Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). This section is "an authorization, not a command." Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). It gives federal courts the competence to declare rights, but it does not impose a duty to do so. Id. Although "the district court's discretion is broad, it is not unfettered." St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590 (5th Cir. 1994) (quoting Travelers Ins. Co. v. La. Farm Bureau Fed'n, Inc., 996 F.2d 774, 778 (5th Cir. 1993)). The court cannot dismiss a declaratory judgment action "on the basis of whim or personal disinclination." Id (quoting Travelers, 996 F.2d at 778).
The Fifth Circuit has established certain factors to guide the district court's decision whether to dismiss a declaratory judgment action. The court may consider whether (1) there is a pending state action in which all of the matters in controversy may be fully litigated; (2) plaintiff filed suit in anticipation of a lawsuit filed by defendant; (3) plaintiff engaged in forum-shopping in bringing the action; (4) possible inequities exist in allowing plaintiff to maintain the action; (5) federal court is a convenient forum for parties and witnesses; (6) retaining the lawsuit in federal court would further judicial economy; and (7) the federal court must construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the parties is pending. Id. at 590-91 (quoting Travelers, 996 F.2d at 778). Having considered the pertinent factors, the court declines in the present case to exercise its authority to enter a declaratory judgment.
It is apparent from the briefing that deciding the questions that United raises in its complaint either will not resolve the controversy among these parties or will, at most, determine but a small component that will not conclude the entire dispute. In its complaint, United asks the court to enter a judgment that declares the following:
1. it had and has no contractual or other duty or obligation to establish appropriate funding levels for the Plan, Compl. ¶ 19;
2. it had and has no duty or obligation to assist defendants in underwriting, evaluating, or establishing appropriate funding levels for the Plan, id.;
3. other than as required under the stop-loss insurance, it has no duty or obligation under the Agreement or otherwise to reimburse Region 19 or the Plan for any amount by which benefits paid under the Plan exceeded contributions to the Plan, id. at 20; and
4. Rogers was at all times acting as Region 19's insurance consultant and agent in this transaction and was never United's agent for purposes of this transaction or for purposes of determining the proper funding levels for the Plan, id. at ¶ 21.
Region 19 does not intend, however, to rely on a contractual predicate for asserting that United had any of the obligations in question. See Region 19 Br. at 5-7 and 9 (stating that United knew that Rogers and Region 19 "would file tort actions"). Its December 11, 2001 demand letter to United refers only to tort claims. See Region 19 App. 45-46. Region 19 contends that "the matters for which [United] seeks declaratory judgment lie in tort, not contract." Id. at 5. It argues that United's duty arose because United voluntarily assumed the duty, not because it is imposed by contract. See id. Likewise, Rogers disclaims any intent to sue United on a basis other than in tort. See Rogers Br. at 5-6 and 9 (stating that United knew that Rogers and Region 19 "would file tort actions"). It also relies on a theory of extra-contractual duty. See id. at 5. The court is unwilling, as a matter of discretion, to declare that United had no contractual obligation to perform tasks that neither Region 19 nor Rogers contends it had a contractual duty to carry out.
Although the letter is not included in United's complaint, the court can consider it in deciding these motions. See Holmes v. Nat'l Football League, 939 F. Supp. 517, 520 n. 2 (N.D.Tex. 1996) (Fitzwater, J.). United does not dispute the authenticity of the letter and in fact refers to it in its complaint. See Compl. ¶ 15.
The court includes in the term "tort claims" a statutory claim based on the Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. Com. Code Ann. §§ 17.41-17.826 (Vernon
1987 Pamp. Supp. 2002), which both defendants indicate they intend to file. See Region 19 Br. at 10; Rogers Br. at 9-10.
This is not a case in which defendants are only now eschewing contract-based theories to obtain dismissal of this case. Region 19's letter, written before United filed suit in this court, evidences the intent to sue based on common law tort and statutory, rather than contractual, grounds.
To the extent that United requests a declaration that it had or has no other (presumably non-contractual) duty or obligation, it is asking this court to declare that it could not have committed a tort. It is not the purpose of the federal Declaratory Judgment Act to enable a prospective defendant in tort actions to obtain a declaration of non-liability. See Torch, 947 F.2d at 196 n. 2 (5th Cir. 1991) ("it is not one of the purposes of the declaratory judgment acts to enable a prospective negligence action defendant to obtain a declaration of non-liability.") (quoting Cunningham Bros., Inc. v. Bail, 407 F.2d 1165, 1168 (7th Cir. 1969)); Sun Oil Co. v. Transcontinental Gas Pipe Line Corp., 108 F. Supp. 280, 282 (E.D. Pa. 1952), aff'd on basis of dist. ct. op., 203 F.2d 957 (3d Cir. 1953) (per curiam). 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 Co., 987 F.2d 1138, 1154 (5th Cir. 1993) ("The purpose of the Declaratory Judgment Act is to settle `actual controversies' before they ripen into violations of law or breach of some contractual duty." (quoting Hardware Mut. Cas. Co. v. Schantz, 178 F.2d 779, 780 (5th Cir. 1949))).
United maintains in its response to Region 19's motion that its "[c]omplaint makes no reference to any tort or Deceptive Trade Practices Act claims asserted by Region 19." P. Br. (in Resp. to Region 19 Mot.) at 10. In response to Rogers' motion, it advances essentially the identical assertion. P. Br. (in Resp. to Rogers Mot.) at 10. Although the complaint makes no explicit reference, United pleads in part for a declaration that it had no duty "contractual or otherwise." Compl. ¶ 19 (emphasis added). If a duty is not contractual, it is imposed by common law or by statute.
This leaves only United's request that the court determine whether Rogers was United's or Region 19's agent. Doing so will, at most, resolve a small and non-case-dispositive component of the parties' overall dispute, however, because Region 19 and Rogers intend to rely on conduct that United undertook directly, not merely via Rogers.
To the extent the other factors set out in Travelers bear on this question, the court holds that they support declining to exercise jurisdiction. United filed suit in this court in anticipation of being sued by Region 19 and Rogers in the Western District of Texas. It engaged in forum shopping by bringing suit on the 59th day after the date of a letter from counsel for Region 19 stating that suit would be filed in 60 days if they could not reach a settlement. And since allowing this case to remain in this court will result in defendants' filing counterclaims based in tort and on statutory grounds, United will have effectively selected the forum — one that is relatively distant from defendants' home forum — for what is essentially a tort case by bringing a declaratory judgment action of limited value in resolving the overall dispute.
Region 19's letter is dated December 11, 2001. See Region 19 App. 44. United filed suit on February 8, 2002. Sixty days after December 11, 2001 was February 9, 2002.
Even if defendants filed suit in the Western District of Texas, that court likely would transfer the case to this tribunal (where the first-filed case is pending) for consolidated proceedings.
* * *
Accordingly, the court dismisses this action without prejudice for the reasons stated. A judgment will be filed today.