United States District Court, D. Kansas
MEMORANDUM AND ORDER
THOMAS MARTEN, JUDGE
2015, plaintiff The Bar Plan (TBP) issued a legal malpractice
insurance policy to the defendant Brown, Dengler, &
O'Brien (BDO). In 2016, the bankruptcy trustee
representing the former clients of Christopher O'Brien,
one of the attorneys named as an insured in the BDO policy,
commenced an action against O'Brien and BDO. J.
Michael Morris, Trustee v. O'Brien, No. 16-5163
(Bankr. Kan.). TBP subsequently commenced this declaratory
judgment action seeking a determination of its obligations
under the policy.
Morris v. O'Brien, the Trustee alleges that
O'Brien was the attorney for Roger and Marcia Altis, that
he placed proceeds from the sale of their business, RCCA Well
Service, into the BDO trust account, and then withdrew them
for his personal use or benefit. The Trustee advances claims
of conversion, fraud, and breach of fiduciary duty against
O'Brien. He also seeks recovery against BDO, first under
a respondeat respondeat superior theory, alleging that
O'Brien was acting as the firm's agent, and second
for negligent supervision of the BDO trust account.
undertaken the defense of BDO in the bankruptcy action under
a reservation of rights. It contends that BDO is not covered
under the policy under two provisions. Under Exclusion A, the
policy excludes coverage for “[a]ny dishonest,
deliberately fraudulent, criminal, malicious or deliberately
wrongful acts or omissions by an Insured.” The
Exclusion does not apply if an insured was unaware of the
fraud, but this limitation is inapplicable “to the
extent that the act or omission underlying the Claim for
Damages does not relate to or arise out of the defalcation by
any Insured.” Second, Exclusion L bars claims
“against an Insured who before the Policy effective
date knew, or should reasonably have known, of any
circumstance, act or omission that might reasonably be
expected to be the basis of that Claim.” The matter is
currently before the court on defendant BDO's motion to
dismiss or stay the declaratory judgment action. BDO argues
the court should abstain from hearing TBP's declaratory
judgment action. According to BDO, the existence of coverage
depends on issues of fact which will be resolved in
Morris v. O'Brien.
an independent parallel action is pending, a district court
enjoys broad discretion to decline to exercise jurisdiction
under the Declaratory Judgment Act. See Brillhart v.
Excess Ins. Co. of America, 316 U.S. 491, 494 (1942).
Such abstention serves both “considerations of
practicality and wise judicial administration, ”
Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995),
and avoids “[g]ratuitous interference” with state
proceedings. Brillhart, 316 U.S. at 495.
deciding whether to dismiss a declaratory judgment action,
the district court should consider:
 whether a declaratory action would settle the
controversy;  whether it would serve a useful purpose in
clarifying the legal relations at issue;  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;  whether use of a declaratory
action would increase friction between our federal and state
courts and improperly encroach upon state jurisdiction; and
 whether there is an alternative remedy which is better or
State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d
979, 983 (10th Cir.1994) (quotations omitted).
correctly points out that the cases cited by BDO all involve
abstention premised on the existence of parallel state
litigation. See Brillhart, 316 U.S. at 495,
United States v. City of Las Cruces, 289 F.3d 1170,
1187 (10th Cir. 2002), St. Paul Fire & Marine Ins.
Co. v. Runyon, 53 F.3d 1167, 1169 (10th Cir. 1995);
State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d
979, 983 (10th Cir.1994). In the present case, there is no
parallel state litigation. Morris v. O'Brien is
an adversarial bankruptcy proceeding.
while the existence of state litigation may be an important
factor supporting a decision to decline jurisdiction under
the Declaratory Judgment Act, the court does not view it as
fatal to defendant's motion. Any exercise of jurisdiction
under the Act is discretionary. See Public Affairs Press
v. Rickover, 369 U.S. 111, 112 (1962) (“The
Declaratory Judgment Act was an authorization, not a command.
It gave the federal courts competence to make a declaration
of rights; it did not impose a duty to do so.”);
Green v. Mansour, 474 U.S. 64, 72 (1985)
(Declaratory Judgment Act “is an enabling Act, which
confers a discretion on the courts rather than an absolute
right upon the litigant”).
the court finds in its discretion that the present matter
should not be dismissed. First, even if the absence of state
litigation is not in itself fatal to BDO's motion, it is
clear that the federalism concerns typically present in
Brillhart abstention cases is not present here.
Thus, an exercise of jurisdiction would not serve to
“increase the friction” between federal and state
courts. Nor is there any indication that TBP has filed the
present action as “procedural fencing, ” or in
any manner other than as a bona fide attempt to obtain a
resolution of the scope of coverage under the policy.
nature and extent of the policy language is the central issue
in the present case, and may be effectively resolved by the
present declaratory action. While the adversarial bankruptcy
proceeding may touch on some of the issues in the present
case, each case addresses issues and are tied factual
questions which are not identical. The present case may
effectively resolve the controversy over TBP's duty to
defend the Morris action.
Reply, BDO argues that the exclusion to the waiver to
Exclusion A is inapplicable, since “there is no claim
against BDO for a ‘dishonest, deliberately fraudulent,
criminal, malicious, or deliberately wrongful
act.'” (Dkt. 19, at 6). Thus, it reasons,
“[b]ecause the exclusion set forth in the first
sentence of Exclusion A. does not ...