Argonaut Ins. Co. v. St. Francis Medical Center
17f4th1276
9th Cir.2021Background
- Argonaut (insurer) sued St. Francis Medical Center (SFMC) in federal court under the Declaratory Judgment Act, seeking declarations about which historic insurance policies existed, their terms, and Argonaut’s duties in connection with related Hawaii state litigation alleging decades-old abuse.
- SFMC answered, asserting a threshold defense that the district court should decline jurisdiction over Argonaut’s declaratory action because parallel state proceedings and state-law issues made federal adjudication inappropriate.
- Contemporaneously, SFMC pleaded two counterclaims: a declaratory-counterclaim mirroring Argonaut’s requests and a monetary bad-faith counterclaim. Both counterclaims were expressly conditioned on the court first exercising jurisdiction over Argonaut’s declaratory suit.
- Argonaut argued SFMC’s bad-faith counterclaim was an “independent” monetary claim under Dizol and thus triggered mandatory federal jurisdiction over the whole action; SFMC argued its counterclaims were conditional and preserved its threshold objection.
- The district court declined jurisdiction and dismissed Argonaut’s declaratory claims; Argonaut appealed.
- The Ninth Circuit held conditional counterclaims pleaded alongside a preserved jurisdictional objection do not, by themselves, convert discretionary declaratory jurisdiction into mandatory jurisdiction under Dizol, and affirmed the district court’s discretionary dismissal.
Issues
| Issue | Plaintiff's Argument (Argonaut) | Defendant's Argument (SFMC) | Held |
|---|---|---|---|
| Whether a defendant's monetary counterclaim filed in an answer converts discretionary declaratory jurisdiction into mandatory federal jurisdiction under Dizol | SFMC’s bad-faith counterclaim was independent and satisfied diversity, so Dizol requires the district court to retain jurisdiction over the declaratory claim | SFMC’s counterclaims were conditional on the court exercising jurisdiction and thus do not invoke Dizol’s mandatory rule | A defendant may plead conditional counterclaims while preserving jurisdictional objections; conditional counterclaims alone do not trigger Dizol’s mandatory jurisdiction rule |
| Whether SFMC waived its preserved jurisdictional defense by filing counterclaims and engaging in pre-discovery litigation conduct | Filing counterclaims and participating in scheduling/discovery filings caused SFMC to waive its jurisdictional objection | SFMC’s conduct was consistent with preserving its conditional defense and did not forfeit the threshold objection | No waiver: ordinary preparatory litigation conduct consistent with conditional pleading did not forfeit SFMC’s jurisdictional defense |
| Whether the district court abused its discretion in dismissing (rather than staying) the declaratory action | If Dizol does not apply, the court should at least stay the declaratory action rather than dismiss it | Dismissal was within the court’s discretion after considering Brillhart/Dizol factors and because state court was suitable | No abuse: district court adequately considered Brillhart/Dizol factors and permissibly dismissed rather than stayed |
Key Cases Cited
- Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en banc) (monetary claims that are "independent" generally compel federal courts to retain jurisdiction over related declaratory claims)
- Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (Declaratory Judgment Act confers discretion to stay or dismiss declaratory suits)
- Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942) (district courts need not exercise jurisdiction over declaratory claims to avoid needless state-law decisions and duplicative litigation)
- United Nat’l Ins. Co. v. R&D Latex Corp., 242 F.3d 1102 (9th Cir. 2001) (clarifies Dizol principles and when monetary claims are "independent")
- Hillis v. Heineman, 626 F.3d 1014 (9th Cir. 2010) (preserving threshold defenses in an answer while asserting counterclaims does not waive those defenses)
- Knapp-Monarch Co. v. Dominion Elec. Corp., 365 F.2d 175 (7th Cir. 1966) (conditional counterclaims should not be used to invoke federal jurisdiction)
- Spectacor Mgmt. Group v. Brown, 131 F.3d 120 (3d Cir. 1997) (counterclaims asserted in an answer can place an amount in controversy for subject-matter jurisdiction purposes)
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) (filing a pleading can invoke district-court Rule 11 jurisdiction; not controlling for discretionary declaratory jurisdiction)
- Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996) (district courts may dismiss or remand actions when declining to exercise discretionary jurisdiction)