Atlantic Mutual Insurance Company v. Kathleen Gula

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 02-4160
ATLANTIC MUTUAL INSURANCE COMPANY,
Appellant
v.
KATHLEEN GULA,
AND HER HUSBAND; PAUL GULA
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 02-cv-03807)
District Judge: Hon. Edmund V. Ludwig
Submitted Under Third Circuit LAR 34.1(a)
December 1, 2003
Before: SLOVITER, ALITO and FRIEDMAN,* Circuit Judges
(Filed : December 17, 2003)
OPINION OF THE COURT
___________________
* Hon. Daniel M. Friedman, United States Senior Circuit Judge for the
Federal Circuit, sitting by designation.

-- 1 of 6 --

2
SLOVITER, Circuit Judge.
I.
Appellant Atlantic Mutual Insurance Company appeals from the judgment of the
District Court granting the motion of defendants Kathleen and Paul Gula to dismiss the
complaint and denying Atlantic Mutual’s motion for judgment on the pleadings as moot.
Atlantic Mutual filed this action for a declaratory judgment that it has no duty to
indemnify or defend its insured, Novaeon, Inc., with respect to the suit brought by the
Gulas against Novaeon.
The issue arose when Kathleen Gula fell at work while carrying out her duties as
an x-ray technician at Taylor Hospital. During the course of her treatment she was
prescribed an EMG diagnostic test. Novaeon was the claims administrator for Taylor,
and according to Novaeon policy pre-certification was required before obtaining an EMG.
Mrs. Gula was certified to undergo the test, which she had on April 1, 1999. The treating
neurologist, Dr. Grossinger, opined that surgery was not needed and discharged her to full
duty on April 8, 1999. Dissatisfied with her quality of care, Mrs. Gula sought treatment
with neurosurgeon Dr. Chitale who performed release surgery on May 24, 1999.
The Gulas filed two suits in the Court of Common Pleas in Delaware County,
Pennsylvania. The first alleges that Novaeon failed to provide appropriate health care;
the second against several health care providers alleges medical negligence during the
course of her treatment. Mrs. Gula is seeking compensation for personal injuries and M r.

-- 2 of 6 --

3
Gula is seeking compensation for loss of consortium.
Novaeon filed for bankruptcy prior to the lawsuits filed by the Gulas, but the Gulas
were granted relief from the automatic stay so they could pursue their claim for personal
injuries in the pending state action. Atlantic Mutual filed this declaratory judgment action
seeking a declaration that its policy covering Novaeon does not provide coverage for the
Gulas’ claims. The District Court exercised its discretion under the Declaratory Judgment
Act to decline jurisdiction. The Court treated the Gulas’ motion to remand as a motion to
dismiss which it granted.
II.
We have jurisdiction pursuant to 28 U.S.C. § 1291. Because the question before
this court centers on a discretionary decision by the District Court, we review its decision
for an abuse of discretion. Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995).
The Declaratory Judgment Act provides, in part, that “[i]n a case of actual
controversy within its jurisdiction, . . . any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other legal relations of any interested
party seeking such declaration.” 28 U.S.C. § 2201. Jurisdiction conferred by this act is
discretionary and district courts are “under no compulsion to exercise it.” State Auto Ins.
Cos. v. Summy, 234 F.3d 131, 133 (3d Cir. 2000) (citing Brillhart v. Excess Ins. Co. of
Am., 316 U.S. 491, 495 (1942)). “The central question is whether the controversy may
‘better be settled’ in the state court . . .” United States v. Pennsylvania Dep’t of Envtl.

-- 3 of 6 --

4
Res., 923 F.2d 1071, 1075 (3d Cir. 1991) (dismissing the action because the same issue
was pending in state court and because the court believed the declaratory action was an
attempt to forum shop).
In Summy, we noted that the district courts do not maintain “open-ended discretion
to decline jurisdiction over a declaratory judgement action,” but stated that federal courts
should hesitate to entertain a declaratory judgment action where the action is restricted to
issues of state law. Summy, 234 F.3d at 134-35. Where the subject of the declaratory
judgment action involves an insurance coverage issue, the following considerations are
relevant: “1. A general policy of restraint when the same issues are pending in 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.” Id. at 134. Moreover “[t]he
state’s interest in determining issues of state law also weighs against exercising
jurisdiction in declaratory judgment actions.” State Auto Mut. Ins. Co. v. Toure, 2003
U.S. Dist. LEXIS 15495, *5 (E.D. Pa. 2003) (citing Summy, 234 F.3d at 136).
Looking to the first Summy factor, we note that of the two actions the Gulas filed
in state court related to the facts of this case, Gula v. TMCA/Novaeon, Inc., No. 01-02011
(Delaware County) is relevant to the case at bar as the complaint in that suit asserts that
Novaeon failed to provide adequate, timely and proper health care for Mrs. Gula’s injury.
Atlantic Mutual argues that this action does not expressly deal with the issue of coverage

-- 4 of 6 --

5
which is currently before this court. The Gulas respond that if they ultimately prevail in
state court on the negligence claim, “[t]he illusory coverage issue . . . will come up in
garnishment proceedings.” Gulas’ Br. at 6-7. In other words, even if the coverage issue
is not currently pending, it will as a matter of logic necessarily arise before the matter is
concluded in state court. The first Summy factor is met.
Atlantic Mutual argues that Pennsylvania insurance law is not uncertain and that
therefore there is no need to remand. The District Court noted, among other things, that
Atlantic Mutual’s complaint questions the validity of the state default judgment, and
concluded that that issue is best decided by the state court in which the default judgment
is pending. The court’s conclusion in that regard is well within the stream of precedential
authority.
Atlantic Mutual argues that there are “unusual circumstances” here, particularly
the possibility that a court will be required to interpret federal bankruptcy statutes
affecting the release of Novaeon from all personal liability. We see no open federal
bankruptcy issue. When the Bankruptcy Court granted Mrs. Gula’s Petition for Relief
from the Automatic Stay, Mrs. Gula was limited to insurance coverage. That signified the
conclusion of the her issues in the Bankruptcy Court.
III.
We find no basis to reverse the District Court’s order, and will affirm.

-- 5 of 6 --

TO THE CLERK:
Please file the foregoing opinion.
/s/ Dolores K. Sloviter
Circuit Judge
6

-- 6 of 6 --