Scottsdale Insurance Company v. BEVERLY ROUMPH , Individually and as Next Friend of Lavina Roumph; LAVINA ROUMPH

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0158P (6th Cir.)
File Name: 00a0158p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
S COTTSDALE INSURANCE
C OMPANY ,
Plaintiff-Appellant,
v.
BEVERLY R OUMPH ,
Individually and as Next
Friend of Lavina Roumph;
LAVINA R OUMPH ,
Defendants-Appellees.
;>

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No. 98-1950
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 97-73396—Gerald E. Rosen, District Judge.
Argued: March 8, 2000
Decided and Filed: May 4, 2000
Before: WELLFORD, SILER, and GILMAN, Circuit
Judges.

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2 Scottsdale Ins. Co. v. Roumph, et al. No. 98-1950
1We recite the names of the minors with considerable reluctance, but
they have been made public in prior state proceedings and in the district
court by defendant Roumph.
_________________
COUNSEL
ARGUED: Ronald S. Lederman, SULLIVAN, WARD,
BONE, TYLER & ASHER, P.C., Southfield, Michigan, for
Appellant. Mark R. Bendure, BENDURE & THOMAS,
Detroit, Michigan, for Appellees. ON BRIEF: Ronald S.
Lederman, Thomas L. Auth, Jr., SULLIVAN, WARD,
BONE, TYLER & ASHER, P.C., Southfield, Michigan, for
Appellant. Mark R. Bendure, BENDURE & THOMAS,
Detroit, Michigan, for Appellees.
_________________
OPINION
_________________
HARRY W. WELLFORD, Circuit Judge. In 1995
defendant herein, Beverly Roumph, as next friend for Lavina
Roumph, filed a state tort action in the Wayne County Circuit
Court in Michigan, based upon a sexual assault upon her
young daughter. Ms. Roumph alleged that she had accepted
minor Keith Kelley, Jr., into her home as a foster child upon
placement by The Children’s Center, a Michigan social
welfare agency. Within a month, Kelley raped four-year-old
Lavina Roumph, defendant’s daughter. Roumph’s second
amended complaint in the state action alleged negligence
and/or gross negligence by The Children’s Center in failing to
disclose pertinent information regarding possible danger to
her and the foster family; failing to warn the foster family that
Kelley had been sexually abused and had a history of
molesting other children; failing properly to review his file;1
and failing to properly recommend and provide psychiatric or
psychological treatment for Kelley. Scottsdale Insurance
Company (“Scottsdale”), plaintiff in this proceeding, insured

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No. 98-1950 Scottsdale Ins. Co. v. Roumph, et al. 3
The Children’s Center and provided its defense under a
reservation of rights in the state proceeding. The Scottsdale
policy with The Children’s Center provided general liability
coverage of $3,000,000 but contained a “Sexual Misconduct
Limitation Endorsement” which limited coverage to
$100,000:
“Sexual misconduct” means any action or behavior, or
any physical contact or touching, which is intended to
lead to, or which culminates in any sexual act, arising out
of the professional treatment and care of any client,
patient, or any other person whose care has been
entrusted to the named insured, whether committed by,
caused by or contributed to by failure of any insured to:
1. Properly train, hire or supervise any employee, or;
2. Properly control, monitor or supervise the treatment
and care of any client, patient, or any other person whose
care has been entrusted to the named insured.
In the state court proceedings the issue arose as to whether
Scottsdale’s applicable policy limits in the case were
$3,000,000 or only $100,000 under the special endorsement.
Scottsdale filed this declaratory action under 28 U.S.C.
§ 2201 in the United States District Court for the Eastern
District of Michigan on July 14, 1997, seeking a ruling on
applicable limits in the state court action.
At the beginning of the state trial, The Children’s Center,
with Scottsdale’s consent, admitted liability, and the parties
on February 2, 1998, made the following agreement:
One, Children’s Center will admit liability. Two, case
will proceed against Children’s Center as to damages
only. Three, the individual defendants, Wheeler,
Skowronski, and Potje will be dismissed with prejudice
without a release.
. . . .

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4 Scottsdale Ins. Co. v. Roumph, et al. No. 98-1950
Four, plaintiffs will not seek to enforce any judgment
against Children’s Center over and above the insurance
policy limits.
Five, defendants Wheeler, Skowronski and Potje were
employees of the Children’s Center during their
respective periods of employment and acted within the
scope of employment as to the matters in this action.
. . . .
That nothing contained in this agreement eviscerate
any coverage under the existing insurance policy,
including any taxable costs or interest.
. . . .
This agreement is predicated upon the representation
that Children’s Center has a liability policy with $3
million general limit and a $100,000 sexual misconduct
limit that is covering this occurrence and that the only
claim regarding the extended coverage is that claim
currently stated in the pending declaratory judgment
action.
(Emphasis added.) Co-defendant Lula Belle Stewart Center,
Inc., alleged agent of The Children’s Center, was dismissed
from the suit with prejudice and without costs per a March 20,
1998 order after settling with Roumph for $1,000,000, the
amount of its separate insurance liability coverage. Due to
the stipulation entered in the state court, Scottsdale asserts
that it was not necessary to offer evidence regarding the
nature and extent of negligence of the insured as “defined by
the admitted factual and legal allegations in the First
Amended Complaint filed in the state court action.”
The state court jury returned an $8,000,000 verdict for
Roumph on February 12, 1998, and a judgment was entered
on June 12, 1998, whereby Roumph reportedly recovered the
net amount of $6,233,857.32. After entry of judgment but
while a motion for new trial and a motion for remittitur were
No. 98-1950 Scottsdale Ins. Co. v. Roumph, et al. 9
breadth of leeway we have always understood it to
suggest, distinguish the declaratory judgment context
from other areas of the law in which concepts of
discretion surface. . . . When all is said and done, we
have concluded, “the propriety of a declaratory relief in
a particular case will depend upon a circumspect sense of
its fitness informed by the teachings and experience
concerning the functions and extent of federal judicial
power.” Wycoff, supra, [344 U.S.] at 243.
. . . .
We agree, for all practical purposes, with Professor
Borchard, who observed half a century ago that “[t]here
is . . . nothing automatic or obligatory about the
assumption of ‘jurisdiction’ by a federal court” to hear a
declaratory judgment action. Borchard, Declaratory
Judgments, at 313. By the Declaratory Judgment Act,
Congress sought to place a remedial arrow in the district
court’s quiver; it created an opportunity, rather than a
duty, to grant a new form of relief to qualifying litigants.
Consistent with the nonobligatory nature of the remedy,
a district court is authorized, in the sound exercise of its
discretion, to stay or to dismiss an action seeking a
declaratory judgment before trial or after all arguments
have drawn to a close.
Wilton, 515 U.S. at 286-88 (citations and footnote omitted).
We believe that the district court properly considered the
circumstances involved in whether to exercise its discretion
to issue a declaratory judgment in a dispute pending in state
court. It exercised its discretion not to entertain the case. In
reaching that result, we cannot say that the district court did
not employ “the sound exercise of its discretion” under the
circumstances. Wilton, 515 U.S. at 288.
Accordingly, we AFFIRM the decision of the district court.

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8 Scottsdale Ins. Co. v. Roumph, et al. No. 98-1950
This case is a close one considering the factors we have
relied upon in cases of this kind. We see no indication of an
attempt to delay by the insurance carrier through the
declaratory action in federal court; and a prompt declaration
of policy coverage would surely “serve a useful purpose in
clarifying the legal relations at issue.” It is hard to perceive
of “an alternative remedy that is better or more effective.”
The district court, however, pointed to a factor that supports
its decision not to proceed--that “there are no reported
decisions in Michigan or elsewhere construing the language
of [the] ‘sexual misconduct’ endorsement.” The district court
concluded from this factor that it would be inappropriate “to
preempt the right of the state court to rule on a previously
undetermined question of state law.” Omaha Property &
Casualty, 923 F.2d at 448; see also American Home
Assurance Co. v. Evans, 791 F.2d 61, 63 (6th Cir. 1986).
What is involved in this case is an interpretation of a special
contract of insurance. Indeed, had the district court
undertaken the task of legal interpretation, we might be in a
position to decide whether the policy limits should be
$100,000, rather than $3,000,000. Such a result might, of
course, “increase the friction between our federal and state
courts.” This is not to say that a district court should always
turn away a declaratory judgment action when an
undetermined question of state law is presented, but it is an
appropriate consideration for the court to weigh in the
exercise of its discretion.
We turn to the latest Supreme Court discussion of this issue
in Wilton:
Since its inception, the Declaratory Judgment Act has
been understood to confer on federal courts unique and
substantial discretion in deciding whether to declare the
rights of litigants. On its face, the statute provides that a
court “may declare the rights and other legal relations of
any interested party seeking such declaration,” 28 U.S.C.
§ 2201(a) (1988 ed., Supp. V) (emphasis added). The
statute’s textual commitment to discretion, and the
No. 98-1950 Scottsdale Ins. Co. v. Roumph, et al. 5
2Paula Skowronski, Eveldora Wheeler, Steve Potje, and The
Children’s Center were named defendants in Roumph’s motion for
abstention. However, the notice of appeal includes only the parties listed.
pending, Roumph, on February 17, 1998, filed a motion for a
stay or dismissal in the district court. Scottsdale filed a
response and, following a hearing, the district court granted
Roumph’s motion and dismissed the action without prejudice
in August of 1998. The district court also dismissed, without
prejudice, the parties’ cross-motions for summary judgment.
Scottsdale timely filed a notice of appeal.
It is important to note that Scottsdale also appealed the state
court judgment on behalf of its insured, The Children’s
Center,2 and that appeal is presently pending before the
Michigan Court of Appeals. Roumph has filed a declaratory
judgment action in the Michigan state court seeking a ruling
on the coverage issue, but the record does not reflect when
that action was filed, and the state court has not yet taken
action on the case.
We are presented with the issue, not a new one from
Michigan, of whether the district court abused its discretion
in declining to entertain plaintiff Scottsdale’s declaratory
judgment action, which sought a ruling on the applicable
policy limits for its pending state court tort action.
This court reviews the district court’s exercise of discretion
under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), for
abuse of discretion. See Wilton v. Seven Falls Co., 515 U.S.
277, 289-90 (1995) (replacing de novo standard applied in,
e.g., Allstate Ins. Co. v. Mercier, 913 F.2d 273, 277 (6th Cir.
1990)). Plaintiff relies upon Allstate Ins. Co. v. Green, 825
F.2d 1061 (6th Cir. 1987), wherein this Court held that no per
se rule applied to prevent district courts from exercising
jurisdiction over declaratory actions in circumstances
somewhat akin to this one. Under de novo review, this Court
reversed the district court’s dismissal of the declaratory action
because the district judge “failed to exercise any discretion,
but felt himself bound to dismiss based on our decisions in

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6 Scottsdale Ins. Co. v. Roumph, et al. No. 98-1950
American Home and Manley, Bennett,” and the Court
remanded “to permit that court to assess the propriety of the
action pursuant to the general considerations, as well as the
five-factor test.” Green, 825 F.2d at 1065, 1067 (citing
Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine
Ins. Co., 791 F.2d 460, 462 (6th Cir. 1986) (de novo review));
see Mercier, 913 F.2d at 277 (“When the record contains no
indication that the district court considered these criteria and
factors, this court has the option either to apply them on
appeal or to remand to the district court for this exercise.”).
Several of the cases mentioned from Michigan involved
insurance carriers seeking a declaratory judgment in federal
court about defense and coverage when their insureds have
been sued for alleged tort liability in state court concerning
situations perceived as a “race to the courthouse,” state or
federal, for a declaratory judgment determination. In many of
these cases we decided that not proceeding in the federal case
was the wise and rational course of action. As pointed out by
the district court, we have generally considered five factors to
assess the propriety of the federal court’s exercise of
discretion in such a situation:
(1) whether the judgment would settle the controversy;
(2) whether the declaratory judgment action 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 for res judicata”;
(4) whether the use of a declaratory action would
increase the friction between our federal and state
courts and improperly encroach on state jurisdiction;
and
(5) whether there is an alternative remedy that is better
or more effective.
No. 98-1950 Scottsdale Ins. Co. v. Roumph, et al. 7
Omaha Property &Casualty Ins. Co. v. Johnson, 923 F.2d
446, 447-48 (6th Cir. 1991); Mercier, 913 at 277; Grand
Trunk W. R.R. v. Consolidated Rail Corp., 746 F.2d 323, 326
(6th Cir. 1984).
The district court also considered concerns about federalism
expressed in Wilton v. Seven Falls Co., 515 U.S. 277 (1995),
and added additional factors to consider including:
1. whether the underlying factual issues are important
to an informed resolution of the case;
2. whether the state trial court is in a better position to
evaluate those factual issues than is the federal
court; and
3. whether there is a close nexus between the
underlying factual and legal issues and state law
and/or public policy, or whether federal common or
statutory law dictates a resolution of the declaratory
judgment action.
The district court emphasized the importance of a “well-
developed factual record” in the state court. We believe,
however, that this emphasis was misplaced in this case
because liability was stipulated in state court, indicating a
concession about the nature of the minor Kelley’s known
background and proclivity so far as the placement center was
involved, as well as the character of his sexual offense in the
foster home. Had the district court exercised its discretion by
electing to proceed, we doubt that this would have constituted
“‘gratuitous interference with the orderly and comprehensive
disposition of a state court litigation’” as in Grand Trunk, 746
F.2d at 326 (quoting Brillhart v. Excess Ins. Co., 316 U.S.
491, 495 (1942)). The defendant Roumph’s delay in seeking
declaratory judgment in state court, moreover, removed any
consideration of a race to the courthouse steps for a res
judicata decision in this controversy. A declaratory decision
should “settle the controversy” about the extent of insurance
coverage, whether undertaken in state or federal court.

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