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Terra Nova Insurance Co. v. 900 Bar Inc.

argued: February 2, 1989.


Appeal from the United States District Court for the Eastern District of Pennsylvania, (D.C. Civil Action No. 88-0879).

Hutchinson, Scirica, and Nygaard, Circuit Judges.

Author: Hutchinson

HUTCHINSON, Circuit Judge


Terra Nova Insurance Company, Ltd. (Terra Nova) appeals from two orders of the United States District Court for the Eastern District of Pennsylvania. The first granted appellee 900 Bar, Inc.'s (900 Bar's) motion to stay this declaratory judgment action. The second denied Terra Nova's Federal Rule of Civil Procedure 59(e) motion to alter or amend the stay order. Terra Nova's appeals were docketed at Nos. 88-1736 and 89-1008 respectively. Because No. 88-1736 was filed while Terra Nova's motion to alter or amend was pending before the district court, it is ineffective and we will dismiss it for lack of appellate jurisdiction.

However, No. 89-1008 brings up the underlying stay order. On this record, the stay is effectively final as to Terra Nova's obligation to provide a defense in the underlying state tort action and is not inherently tentative. Accordingly, we have jurisdiction to review the merits of the stay.

On the merits, Terra Nova argues that the district court's order is an abuse of the narrowly circumscribed discretion to stay an action which is afforded by Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). We believe, however, that the district court's stay order is based on the somewhat broader statutory discretion the Declaratory Judgment Act, 28 U.S.C.A. §§ 2201-2202 (West 1982 & Supp. 1989) (Act), gives district courts to decide whether to entertain declaratory judgment actions.

The district court stayed this action to avoid finding facts that will also be the subject of determination in the state court actions. With respect to the duty to defend, this was error. Under Pennsylvania law, an insurer has a duty to defend if the complaint alleges facts that support recovery within the policy, at least until the action has been confined to claims that are not covered. From the pleadings in the underlying tort actions and the policy, the district court could not say that Terra Nova would not have to indemnify 900 Bar. Since Terra Nova disclaimed any desire to go beyond the pleadings in the state court suits, it is not presently entitled to the declaration it seeks. This determination does not depend on any facts at issue in the state court actions, which do not present the issue of Terra Nova's duty to defend, and the district court therefore erred in staying resolution of the duty to defend. Accordingly, we will vacate the stay and direct the district court, on remand, to dismiss this portion of Terra Nova's complaint.

Our holding on the duty to defend compels the conclusion that the stay of the duty to indemnify must remain in effect. Based on the pleadings in the underlying actions, Terra Nova would have no right to a declaration that it has no duty to indemnify 900 Bar. Whether Terra Nova must indemnify 900 Bar will thus depend on the facts as they develop in the state court actions, and Terra Nova has repeatedly stated that it does not seek to have those facts determined in the district court. The district court could therefore have awaited further developments in the state fora. As Terra Nova does not challenge the terms of the district court's stay order, the stay with respect to the duty to indemnify must stand.


On November 28, 1985, Leroy Phillips (Phillips) and Melvin Roane (Roane) each sustained gunshot wounds at the Mark IV Bar, owned by appellee 900 Bar and located in Philadelphia. Phillips filed an action in the Court of Common Pleas of Philadelphia, Pennsylvania, against 900 Bar and its employee, John Walker, who allegedly fired the gun. Phillips sought recovery under alternate counts of negligence and intentional infliction of serious bodily harm. Appendix (App.) at R.R. 15-20. Roane also brought an action in the same court, alleging alternate counts of negligence and assault and battery, and his wife sought damages for loss of consortium. Id. at R.R. 24-29.

900 Bar's general liability insurance policy obligates Terra Nova to defend and indemnify 900 Bar but contains a coverage limitation which reads:

Assault and Battery Exclusion

It is hereby understood and agreed that no coverage shall apply under the policy for any claim, demand or suit based on assault and battery, and assault and battery shall not be deemed an accident, whether or not committed by or at the direction of the insured.

Id. at R.R. 63. Terra Nova appointed counsel to defend 900 Bar in the state court actions, subject to a reservation of rights letter, and filed this declaratory judgment action in the district court to determine its obligations under the policy. Id. at R.R. 6-12. It named 900 Bar, the Mark IV Bar, Walker, Phillips and the Roanes as defendants and sought discovery. 900 Bar moved to stay the declaratory judgment action pending disposition of the underlying tort suits and refused to comply with discovery requests. Id. at R.R. 87-89. It contended that the declaratory judgment action required inquiry into the same facts as those involved in the tort actions, posing a conflict between Terra Nova's putative duty to defend 900 Bar in the state actions and Terra Nova's own interest in obtaining a declaration that it had no obligation to defend or indemnify 900 Bar because of the policy exclusion.

The district court granted 900 Bar's motion to stay the declaratory judgment action by order entered August 24, 1988. Id. at R.R. 139. The court cited three factors "[impelling] the exercise of [its] discretionary power to stay this action." Id. at R.R. 146. First, it noted a general policy of restraint "when the same issues of state law will be determined in a pending state suit." Id. Second, the court cited the "inherent conflict of interest" between Terra Nova's duty to defend 900 Bar and its efforts to prove the factual basis for invoking the assault and battery policy exclusion. Id. Finally, the court cautioned that "the courts would do well to prevent and avoid duplicative litigation." Id.

On September 2, 1988, Terra Nova filed a Rule 59(e) motion to alter or amend the August 24 order granting the stay with an accompanying request that the court certify the order for appeal under 28 U.S.C.A. § 1292(b) (West Supp. 1989). Id. at R.R. 151. Meanwhile, on September 21, 1988, Terra Nova appealed the district court's August 24 order. The district court denied the Rule 59(e) motion and the request for certification on December 15, 1988. Terra Nova appealed the December 15 order on January 9, 1989.*fn1


The district court had subject matter jurisdiction over this diversity action for declaratory relief under 28 U.S.C.A. § 1332(a) (West Supp. 1989).*fn2 Before proceeding to the merits of these appeals, however, we must first consider our appellate jurisdiction over each of them.


Terra Nova appealed from the district court's order granting the stay while its Rule 59(e) motion to alter or amend that order was still pending. Under Federal Rule of Appellate Procedure 4(a)(4)(iii), a notice of appeal filed while a Rule 59(e) motion is pending "shall have no effect. A new notice of appeal must be filed. . . ." The United States Supreme Court has held that "a subsequent notice of appeal is . . . ineffective if it is filed while a timely Rule 59 motion is still pending." Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 61, 74 L. Ed. 2d 225, 103 S. Ct. 400 (1982). "In short, it is as if no notice of appeal were filed at all. And if no notice of appeal is filed at all, the Court of Appeals lacks jurisdiction to act." Id. A unanimous Supreme Court recently reaffirmed this principle. See Osterneck v. Ernst & Whinney, 489 U.S. 169, 109 S. Ct. 987, 990, 103 L. Ed. 2d 146 (1989).

The Rule 59(e) motion was pending when Terra Nova filed its first appeal. Therefore, we will grant 900 Bar's motion in part and dismiss the appeal at No. 88-1736 for lack of appellate jurisdiction.


We next consider our jurisdiction over the appeal at No. 89-1008. "A timely appeal from a denial of a Rule 59 motion to alter or amend 'brings up the underlying judgment for review.'" Federal Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 348 (3d Cir. 1986) (quoting Quality Prefabrication v. Daniel J. Keating Co., 675 F.2d 77, 78 (3d Cir. 1982)). Underlying this Rule 59(e) motion is the district court's order granting 900 Bar's motion for a stay. Unless this underlying order is final, we lack appellate jurisdiction over the second appeal.*fn3

Most orders granting or denying a stay do not end the litigation. Therefore, they do not ordinarily fit within the general definition of final orders appealable under 28 U.S.C.A. § 1291 (West Supp. 1989). Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 108 S. Ct. 1133, 1136, 99 L. Ed. 2d 296 (1988) (denial of stay); Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 10 n. 11, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983) (stays usually not final "since most stays do not put the plaintiff 'effectively out of court'"). However, under the "collateral order doctrine," a small class of decisions that do not end the litigation are nonetheless considered final for purposes of § 1291. Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949). Some stays are included in this sub-class of final orders. See Moses H. Cone, 460 U.S. at 11-12. To be appealable under the Cohen doctrine, the order must "'conclusively determine the disputed question' . . .[,] 'resolve an important issue completely separate from the merits of the action' . . . [and] be 'effectively unreviewable on appeal from a final judgment.'" Gulfstream, 108 S. Ct. at 1136-37 (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 57 L. Ed. 2d 351, 98 S. Ct. 2454 (1978) (footnote omitted)).

In Moses H. Cone, the Supreme Court concluded that an order granting a stay of litigation in favor of a parallel state court action pursuant to the exceptional circumstances doctrine of Colorado River was collateral under the Cohen test and therefore appealable under § 1291. Moses H. Cone, 460 U.S. at 11-12. The Court first concluded that since the order "[amounted] to a refusal to adjudicate the merits," it involved an important issue separate from the merits. Id. at 12. Next, the Court found that the order would be entirely unreviewable if not appealed now. The district court would have to give preclusive effect to the determination in the state court action involving the identical question of arbitrability. Id. Finally, the Court rejected the argument that the order did not conclusively determine the disputed question. While technically amendable, the order was not "inherently tentative" but rather was "made with the expectation that [it would] be the final word on the subject ...

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