Physicians Insurance Risk Retention Group, Inc. v. Taos Health Systems Inc. et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
PHYSICIANS INSURANCE RISK
RETENTION GROUP, INC.,
Plaintiff,
v. 	1:25-cv-00536-DHU-DLM
TAOS HEALTH SYSTEMS, INC.,
dba HOLY CROSS HOSPITAL,
Defendants.
OPINION AND ORDER
This matter comes before the Court on Defendant Taos Health Systems, Inc.’s Motion to
Dismiss or Stay. Doc. 4. Taos Health seeks dismissal of Plaintiff Physicians Insurance Risk
Retention Group, Inc.’s (PIRRG) Complaint for declaratory judgment under the Declaratory
Judgment Act, 28 U.S.C. § 2201. The Court held a hearing on this matter on Tuesday, February
17, 2026. After considering the parties’ briefing and oral arguments, as well as the relevant and
applicable law, the Court granted Defendant’s motion in a ruling from the bench. This Order
memorializes the Court’s reasoning as stated on the record.
I.
BACKGROUND
On June 5, 2025, PIRRG filed a Complaint, seeking a declaration from this Court that it
does not owe a duty to defend or indemnify its insured, Taos Health, in an underlying medical
malpractice action brought in New Mexico state court. Doc. 1. On July 10, 2025, Taos Health
moved to dismiss or stay the Complaint. Doc. 4. As grounds for its motion, Taos Health made
two arguments. First, that the Complaint should be dismissed under Federal Rule of Civil
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Procedure 12(b)(7) for failure to join a required party under Rule 19. Second, that the Court
should decline to exercise jurisdiction under the discretionary factors outlined by the Tenth
Circuit in State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979 (10th Cir. 1994). On August 14,
2025, PIRRG responded in opposition to the motion. Doc. 15. PIRRG asserted that the Court
should deny Defendant’s motion to dismiss because Taos Health has not met its burden under
Rule 19. Id. at 1. Additionally, PIRRG argues that the Mhoon factors weigh in favor of this Court
exercising jurisdiction. Id. at 2. On August 28, 2025, Taos Health submitted a Reply in support
of its Motion. Doc. 16. On February 17, 2026, the Court heard oral argument from both parties.
For the reasons stated on the record and memorialized in this Order, the Court granted
Defendant’s Motion and dismissed the case without prejudice.
II.
LEGAL STANDARDS
A. Dismissal Under Rule 12(b)(7)
Federal Rule of Civil Procedure 12(b)(7) permits a court to dismiss a claim for failure to
join an indispensable party under Federal Rule of Civil Procedure 19. According to the Tenth
Circuit, failure to join a party under Rule 19 warrants dismissal when: 1) the absent party is
necessary; 2) joinder is not feasible, and; 3) the action cannot in “equity and good conscience”
continue in the party’s absence. See Citizen Potawatomi Nation v. Norton, 248 F.3d 993, 997
(10th Cir. 2001).
B. Exercising Jurisdiction under the Mhoon Factors
Even where a federal court otherwise has jurisdiction under the Federal Declaratory
Judgments Act, it is “under no compulsion to exercise that jurisdiction.” Brillhart v. Excess Ins.
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Co. of Am., 316 U.S. 491, 494 (1942) (internal citation omitted). The Tenth Circuit requires that
courts consider the following five factors when deciding whether to hear a declaratory action:
[1] whether a declaratory action would settle the controversy; [2] whether it
would serve a useful purpose in clarifying the legal relations at issue; [3] whether
the declaratory remedy is being used merely for the purpose of “procedural
fencing” or “to provide an arena for a race to res judicata ”; [4] whether use of a
declaratory action would increase friction between our federal and state courts
and improperly encroach upon state jurisdiction; and [5] whether there is an
alternative remedy which is better or more effective.
State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994) (quoting Allstate Ins.
Co. v. Green, 825 F.2d 1061, 1063 (6th Cir. 1987)).
III.
DISCUSSION
A. The Court finds that the Mhoon factors weigh against exercising jurisdiction.
Both parties argue that the factors outlined in Mhoon weigh in favor of their respective
positions. After weighing the Mhoon factors against the facts of this case, the Court declines to
exercise jurisdiction because it finds that the issues raised in this action would be better resolved
by the state court.
1. The First and Second Mhoon Factors
The first two Mhoon factors ask: 1) whether a declaratory action would settle the
controversy, and 2) whether it would serve a useful purpose in clarifying the legal relations at
issue. These two factors are generally considered together because “the inquiry into whether the
declaratory judgment settles a controversy and clarifies the legal relationships at issue is
designed to shed light on the overall question of whether the controversy would be better settled
in state court.” See United States v. City of Las Cruces, 289 F.3d 1170, 1187 (10th Cir. 2002).
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In Mhoon, the Tenth Circuit suggested that including the insurer in the underlying action
“obviate[es] any need for an independent declaratory action[.]” 31 F.3d at 984. In this case, the
Court finds that the first and second Mhoon factors weigh in favor of declining jurisdiction.
PIRRG has been joined in the state action, and the pleadings in that action allege facts relevant to
the duty to defend and indemnify. Under these circumstances, a separate declaratory action is not
required to determine coverage, and the Court believes that the state action will provide a simpler
and more efficient resolution of the issues raised here.
2. The Third Mhoon Factor
The third Mhoon factor asks whether the plaintiff is engaging in procedural fencing. This
factor weighs against exercising jurisdiction “when the timing of the federal claim suggests that
its main purpose is to delay the state court action or receive a favorable judgment on an issue
before the state court has a chance to fully develop the facts.” W. Am. Ins. Co. v. Atyani, 338
F.Supp.3d 1227, 1233 (D.N.M. 2018).
Taos Health alleges that PIRRG brought this action in the hopes of finding a favorable
verdict in federal court, but it is within PIRRG’s rights to seek judgment under the Declaratory
Judgment Act. See W. Cas. & Surety Co. v. Teel, 391 F.2d 764, 766 (10th Cir. 1968). Absent more
evidence, the Court cannot say that the timing of this action indicates that PIRRG has engaged in
procedural fencing. Accordingly, the Court finds that this factor weighs neither for nor against
exercising jurisdiction.
3. The Fourth and Fifth Mhoon Factors
The fourth Mhoon factor examines whether use of a declaratory action would increase
friction between the federal and state courts or improperly encroach upon state jurisdiction. The
fifth factor looks to whether there is an alternative remedy that is better or more effective.
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Together these factors ask, “whether a declaratory judgment in federal court would prevent the
state court from determining the same issue or lead to friction between two conflicting
resolutions of the same dispute.” Atyani, 338 F. Supp. 3d at 1232.
In New Mexico, “a determination of whether an exclusion relieves an insurer from a duty
to defend must be made in the primary lawsuit, and not in an action for declaratory judgment,
because it is a factual question.” Lopez v. N.M. Pub. Schs. Auth., 117 N.M. 207, 210 (1994).
When analyzing the Mhoon factors, at least one other court in this district has recognized New
Mexico’s preference for resolving coverage issues in the underlying state action. See Nautilus
Ins. Co. v. Tierra Blanca Ranch, 2015 WL 11643517, at *4 (D.N.M. Sept. 29, 2015) (Armijo, J.)
(stating, “the resolution of the Third Party Complaint in the underlying action is in accord with
the New Mexico Supreme Court's preference for having insurance coverage issues resolved by
the court hearing the underlying case.”).
The fourth and fifth Mhoon factors may support federal resolution of a claim that is
pending in state court when the insurer is not and cannot be made a party to the state action.
Atyani, 338 F. Supp. 3d at 1233. In this case, PIRRG both can and has been made a party to the
underlying medical malpractice suit. Considering this fact, in addition to the preference
expressed by the New Mexico Supreme Court to have coverage issues decided by the court
hearing the underlying case, the Court finds that the fourth and fifth Mhoon factors weigh against
exercising jurisdiction.
B. The Court does not reach Defendant’s 12(b)(7) argument.
The Court finds that the Mhoon factors weigh against exercising jurisdiction in favor of
the state proceedings and therefore need not make a determination as to Defendant’s 12(b)(7)
argument at this time.
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IV.
CONCLUSION
For the foregoing reasons, IT IS ORDERED that Defendant Taos Health System’s
Motion to Dismiss (Doc. 4) is GRANTED and Plaintiff’s claim is DISMISSED WITHOUT
PREJUDICE.
IT IS SO ORDERED.
HONORABLE DAVID HERRERA URIAS
UNITED STATES DISTRICT JUDGE
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