Summary
In SmithKline Beecham Corp. v. Continental Insurance Co., an insured seeking indemnity from its insurer for costs of a personal injury lawsuit could not show the independence of the claims for breach of contract and declaratory relief. Judge Baylson considered whether declaratory relief would decide the exact same issues as the breach of contract claim: "Deciding these claims requires resolution of the same issues - whether or not there existed a duty for [the defendant] to defend and indemnify [the plaintiff] - and will ultimately result in the same relief."
Summary of this case from Butta v. GEICO Cas. Co.Opinion
Civil Action No. 04-2252.
August 4, 2004
MEMORANDUM
I. Introduction
This case involves a dispute between an insured, Smithkline Beecham, Corp. ("Smithkline") and its insurer, Continental Insurance Company ("CIC"), whereby Smithkline seeks insurance coverage from CIC for costs it incurred in defending and settling a personal injury lawsuit. (Complaint at ¶¶ 1-29.) In seeking this relief, Smithkline's cause of action sets forth Five Counts:
The Court has jurisdiction over this case pursuant to 28 U.S.C. 1332 — diversity of citizenship. This case was removed to this Court from the Pennsylvania Court of Common Pleas for Philadelphia County on May 24, 2004.
Count I Breach of Contract — Duty to Defend
Count II Declaratory Relief Pursuant to 42 Pa. Cons. Stat. Ann. § 7533 et seq. Duty to DefendCount III Breach of Contract — Duty to Indemnify
Count IV Declaratory Relief Pursuant to 42 Pa. Cons. Stat. Ann. § 7533 et seq. Duty to Indemnify
Count V Bad Faith Refusal to Pay Defense and Indemnity Costs Pursuant to 42 Pa. Cons. Stat. Ann. § 8371.
CIC moves to dismiss Counts II and IV of Smithkline's Complaint, arguing that Smithkline's claims for declaratory judgment are duplicative of its claims for breach of contract and should, therefore, be severed. Because the Court agrees with CIC, Counts II and IV of Smithkline's Complaint will be dismissed.
II. Standard
When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien Frankel, 20 F.3d 1251, 1261 (3d Cir. 1994). The Court must accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the plaintiff. Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985). A Rule 12(b)(6) motion will be granted only when it is certain that no relief could be granted under any set of facts that could be proved by the plaintiff. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).
III. Discussion
Because Smithkline's breach of contract claims will afford Smithkline full relief, if successful, Smithkline's declaratory judgment claims are duplicative and will be dismissed.
A critical element of every claim for breach of contract requires a showing of a breach of some duty owed. 23 Williston on Contracts § 63:1 (4th ed.) (noting that the Restatement (Second) of Contracts sets forth that "when performance of a duty under a contract is due any non-performance is a breach."). Hence, to determine whether or not a breach occurred, it must first be determined whether or not CIC owed a duty to insure Smithkline for its defense costs and for damages in the underlying litigation. This raises the exact same issue to be decided in a declaratory judgment action, the purpose of which is to determine the respective rights and duties of the parties involved. Henglein v. Colt Indus., 260 F.3d 201, 212 (3d Cir. 2001) ("`the very purpose of declaratory relief is to achieve a final and reliable determination of legal issues.'") (quoting 18 Wright, Miller Cooper, Federal Practice Procedure S 4421 (1981)).
While it appears that Plaintiff frames its claims as arising under Pennsylvania law, seeking declaratory relief pursuant to 42 Pa. Cons. Stat. Ann. § 7533, the applicable law in this case remains unclear and Defendant has reserved the right to raise the issue at a later date. In any event, the applicable law in this case is of no consequence, as "breach of some duty owed" is a necessary element of breach of contract regardless of the jurisdiction.
Although Smithkline initially pleaded its declaratory judgment claims under state law, declaratory judgment actions, in federal court, are considered procedural. Hence,
the federal rules respecting declaratory judgment actions, apply in diversity cases. While state law must determine the substantive rights and duties of the parties to the insurance contract, the question of justiciability is a federal issue to be determined only by federal law. "Thus a federal court decides for itself whether a party has standing to raise a particular issue, or that a particular matter is justiciable or that it is not."Federal Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 352 (3d Cir. 1986) (quoting 6A J. Moore, Moore's Federal Practice, para. 57.02[5]).
Under federal law, the district court's power to preside over declaratory judgment actions is discretionary. In determining whether or not to exercise this discretion, the Third Circuit has listed the following relevant considerations:
1. A general policy of restraint when the same issues are pending in a state court;
2. An inherent conflict of interest between an insurer's duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion; and
3. Avoidance of duplicative litigation.
State Auto Ins. Cos. v. Summy, 234 F.3d 131, 134 (3d Cir. 2000)
Although the Third Circuit, in Summy, was specifically concerned with avoiding duplicative litigation in the context of parallel state proceedings, the same considerations of judicial economy exist with regard to duplicative claims in the same cause of action at the federal level. Precedent from this District supports this conclusion. In Good Lad Co. v. BW Associates, 1999 U.S. Dist. LEXIS 1047 (E.D. Pa. Feb. 15, 1999), this Court dismissed a declaratory judgment claim where the duties sought to be defined were also at issue in a counterclaim for breach of easement in a parallel federal proceeding. Id. at *3-7. The Court held dismissal to be appropriate, in that case, where a party's declaratory judgment claim raised "the same issues and [sought] the same relief" as its counterclaim. Id. at *6.
The facts of the present case are substantially similar to the facts of Good Lad. Smithkline alleges breach of contract for failure to defend and failure to indemnify, and seeks a declaratory judgment on the same grounds. Deciding these claims requires resolution of the same issues — whether or not there existed a duty for CIC to defend and indemnify Smithkline — and will ultimately result in the same relief.
The precedent cited by Smithkline is of no consequence. It merely sets forth the legal conditions under which a declaratory judgment may be sought. It does not address the conditions under which the Court may exercise its discretion in deciding whether or not to entertain claims for a declaratory judgment.
Hence, because Smithkline's breach of contract claims require resolution of the same issues raised in Smithkline's declaratory judgment claims and because Smithkline can be afforded full relief on its breach of contract claims, and will, therefore, suffer no prejudice from the dismissal of its declaratory judgment claims, the Court will decline to entertain Smithkline's claims for declaratory judgment. Counts II and IV will, therefore, be dismissed.
An appropriate Order follows.
ORDER
AND NOW THIS day of August, 2004, upon consideration of Defendant's Motion to Dismiss (Docket No. 3) and Plaintiff's response thereto, it is hereby Ordered that Counts II and IV of Plaintiff's Complaint are dismissed with prejudice.