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Rarick v. Federated Service Insurance Co.

United States Court of Appeals, Third Circuit

March 28, 2017

BRYAN RARICK, Individually and on behalf of a class of similarly situated persons
v.
FEDERATED SERVICE INSURANCE COMPANY, Appellant TERRY EASTERDAY; LINDA EASTERDAY, h/w individually and on behalf of a class of similarly situated persons
v.
THE FEDERATED MUTUAL INSURANCE COMPANY, Appellant

          Argued November 2, 2016

         On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Nos. 2-13-cv-03286, 5-14-cv-01415) District Judge: Honorable Joseph F. Leeson, Jr., District Judge: Honorable Lawrence F. Stengel

          Charles E. Spevacek [Argued] William M. Hart Tiffany M. Brown Julia J. Nierengarten Meagher & Geer Attorneys for Defendants-Appellants

          James C. Haggerty [Argued] Suzanne T. Tighe, Esq. Haggerty Goldberg Schleifer & Kupersmith Attorneys for Plaintiffs-Appellees

          Before: CHAGARES, HARDIMAN, and SCIRICA, Circuit Judges.

          OPINION

          HARDIMAN, Circuit Judge.

         In Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942), the Supreme Court held that federal courts have broad discretion to decline to hear actions arising under the Declaratory Judgment Act. Decades later the Court reminded federal courts that they have a "virtually unflagging obligation" to exercise jurisdiction over actions seeking legal relief. Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). But this "unflagging obligation" does not undermine the discretion inherent in the Declaratory Judgment Act as interpreted in Brillhart. See Wilton v. Seven Falls Co., 515 U.S. 277, 286-88 (1995).

         What about complaints that seek both declaratory and legal relief? Our sister courts of appeals and district courts within the Third Circuit have disagreed over the legal standard applicable in such cases. The United States District Court for the Eastern District of Pennsylvania in the two appeals we consider here adopted a "heart of the matter" test and, after finding that the essence of each action was declaratory, declined to exercise jurisdiction. In our view, the heart of the matter test is problematic because it enables plaintiffs to avoid federal subject matter jurisdiction through artful pleading. Accordingly, we will vacate the orders of the District Court and remand the cases for further proceedings.

         I

         A

         A resident of Pennsylvania, Brian Rarick worked for a company that insured its vehicles under a business automobile policy provided by Federated Service Insurance Company, a Minnesota corporation. Under that policy, Rarick's employer waived uninsured motorist coverage for most of its employees, including Rarick.

         In his complaint, Rarick alleged that he suffered injuries after he crashed a company car insured by Federated Service when an unidentified vehicle forced him off the road. Rarick reported the accident and submitted a claim to Federated Service for uninsured motorist benefits, in accordance with the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. §§ 1701, et seq. Federated Service denied the claim, citing its waiver of uninsured motorist coverage for employees like Rarick.

         After his claim was denied, Rarick filed a class action lawsuit in the Court of Common Pleas of Philadelphia County, Pennsylvania. Rarick sought, inter alia, a judgment declaring that Pennsylvania's Motor Vehicle Financial Responsibility Law required Federated Service to provide Rarick with uninsured motorist coverage. Rarick also requested damages for breach of contract alleging-in nearly identical language to his prayer for declaratory relief-that Federated Service breached its contract by failing to provide him with uninsured motorist coverage.

         Federated Service removed Rarick's civil action to the District Court under 28 U.S.C. §§ 1441 (removal) and 1332 (diversity jurisdiction). After the removal, no related case remained pending in state court. Later, the District Court issued an order to show cause why it should not remand the case to ...


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