Present: All the Justices
JOYCE GREEN, ET AL.
v. Record No. 032106 OPINION BY JUSTICE CYNTHIA D. KINSER
June 10, 2004
GOODMAN-GABLE-GOULD COMPANY,
INC., ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Leslie M. Alden, Judge
In this appeal, we address the appropriate use of
declaratory judgments. Because we conclude that the
declaratory relief requested in this action was a
determination of a disputed issue rather than an
adjudication of the parties’ rights, we will reverse the
judgment of the circuit court granting declaratory relief.
MATERIAL FACTS AND PROCEEDINGS
A residence owned by Joyce E. Green and John W. Gural
(collectively, the “Homeowners”) was destroyed by fire. A
few days after the fire, the Homeowners decided to engage
the services of Goodman-Gable-Gould Company, Inc. (“GGG”),
a public insurance adjusting company, to assist them in
processing their fire loss claim with Allstate Insurance
Company (“Allstate”), the company that had issued the
policy insuring the Homeowners’ residence and personal
property. The Homeowners contacted James Goodman, a
representative of GGG who had approached them at the fire
about the services offered by GGG.1 Goodman met with the
Homeowners at the hotel where they were temporarily
staying. After Goodman explained a proposed contract to
the Homeowners, Gural executed the one-page contract.2
In pertinent part, the contract provided that the
Homeowners were employing “Goodman-Gable-Gould/Adjusters
International” to assist them in adjusting the fire loss
claim with Allstate. GGG was “authorized to prepare all
necessary inventories and other applicable and/or required
instruments to comply with the provisions” of the Allstate
policy. In return for GGG’s services, the Homeowners
agreed to pay GGG a fee of ten percent of “the gross amount
adjusted or otherwise recovered.” The Homeowners also
assigned to GGG “all moneys due or to become due from”
Allstate to the extent of GGG’s fee. Gural also executed
an addendum to the contract that required GGG to waive that
portion of its fee relating to rebuilding the Homeowners’
1
According to Goodman, GGG learns about fires, floods,
and tornadoes via several paging systems. Upon receiving a
page about a particular disaster, GGG decides whether it is
of sufficient magnitude to warrant further investigation.
2
The parties stipulated at trial that Green was a
party to the contract with GGG and had ratified that
contract even though she did not sign it.
2
residence if they elected to retain Rolyn Construction for
that purpose.
The Homeowners eventually became dissatisfied with the
manner in which GGG was performing its contractual
obligations. Consequently, they authorized their attorney
to request that GGG withdraw from the adjustment of the
fire loss claim with Allstate. A letter to GGG for that
purpose stated:
On behalf of Joyce Green and John Gural, we
request that you and your firm withdraw from this
matter and allow us to deal directly with
Allstate. We appreciate your assistance, and
will call you if your assistance is needed again.
When our clients’ claim is paid, we will notify
you and discuss your fee.
Following receipt of the letter, GGG advised the
Homeowners’ counsel that GGG did not agree with the request
to “withdraw.” In a letter to Allstate, GGG demanded that
Allstate include GGG as an additional payee on any check
issued on the Homeowners’ claim. GGG also asserted that it
had a lien interest in the insurance proceeds and Allstate
had an obligation to honor the Homeowners’ assignment of
funds. This litigation then ensued.
In a motion for judgment naming the Homeowners and
Allstate as defendants, GGG sought a declaratory judgment
that, inter alia, GGG had an interest in the insurance
3
proceeds and that it was owed a fee of ten percent of those
proceeds. GGG also sought monetary damages in claims for
breach of contract and quantum meruit against the
Homeowners, and in a conversion claim against Allstate.
Trial of the case was set to commence on Monday, April
28, 2003. On the Wednesday before the scheduled trial, GGG
served a motion to nonsuit all the claims except those
seeking declaratory relief and to waive a jury trial on the
remaining issues. GGG’s stated reason for filing this
motion was the fact that Allstate had not yet resolved the
Homeowners’ fire loss claim. In GGG’s view, the proper
course of action was to seek only declaratory relief.
The next day, the Homeowners filed a written objection
to GGG’s request to proceed only with the declaratory
judgment claim.3 The Homeowners stated that they did not
object to GGG’s nonsuit of the breach of contract and
quantum meruit claims but argued that, without those
claims, declaratory relief was not appropriate. On the day
of the scheduled trial, the Homeowners also filed a motion
for summary judgment on the declaratory judgment claim.
3
The Homeowners first raised the issue regarding the
appropriateness of declaratory relief in a demurrer to
GGG’s motion for judgment. They asserted that GGG was
seeking a judgment regarding a disputed issue of fact
rather than an interpretation of a defined right.
4
They again asserted that the “declaratory judgment action
was appropriate only because it was pursued in conjunction
with the substantive counts against the [Homeowners].”
Since those claims had been nonsuited, the Homeowners
argued that declaratory relief did not lie because GGG was
using that procedure to avoid its burden of proof on the
nonsuited claims. Thus, the Homeowners asked the circuit
court to dismiss the declaratory judgment claim, or
alternatively, grant summary judgment in their favor.
After hearing argument on the Homeowners’ motion, the
circuit court took the matter under advisement and
proceeded with a jury trial on the declaratory judgment
claim. The court eventually denied the motion for summary
judgment during the trial.
At the close of the evidence, the circuit court
submitted one factual issue to the jury in an
interrogatory: “Do you find that Goodman, Gable, [&] Gould
Company rendered substantial performance to the Defendants
Joyce Green and John Gural under their November 5, 2001
contract with them prior to the March 22, 2002 letter
requesting Goodman, Gable[,] & Gould Company to withdraw
from the claim?” The jury answered “Yes” to this
interrogatory. The circuit court subsequently entered a
5
final order granting declaratory relief to GGG and ruling
that GGG has an “irrevocable interest” in the insurance
proceeds attributable to the Homeowners’ claim for the fire
loss, that the amount of its interest is ten percent of
“the gross amount paid or to be paid by Allstate . . .
under the . . . policy of insurance,” that the assignment
in favor of GGG was valid and enforceable, and that
Allstate shall pay directly to GGG all sums that are due or
may become due to GGG from the Homeowners’ claim. We
awarded the Homeowners this appeal.
ISSUES AND ANALYSIS
The sole issue is whether the circuit court abused its
discretion in allowing this case to proceed as a
declaratory judgment action after GGG nonsuited its other
claims. Resolution of this issue requires an analysis of
the proper function of a declaratory judgment.
The purpose of declaratory judgments, which are
“creatures of statutes,” see Code §§ 8.01-184 through –191,
is to “supplement rather than to supersede ordinary causes
of action and to relieve litigants of the common law rule
that no declaration of rights may be judicially adjudged
until a right has been violated.” Williams v. Southern
Bank of Norfolk, 203 Va. 657, 661-62, 125 S.E.2d 803, 806-
6
07 (1962). Declaratory judgments provide relief from the
uncertainties stemming from controversies over legal
rights, USAA Cas. Ins. Co. v. Randolph, 255 Va. 342, 346,
497 S.E.2d 744, 746 (1998), but they are not to be utilized
“as instruments of procedural fencing, either to secure
delay or to choose a forum.” Williams, 203 Va. at 662, 125
S.E.2d at 807. “ ‘Where a declaratory judgment as to a
disputed fact would be determinative of issues, rather than
a construction of definite stated rights, status, and other
relations, commonly expressed in written instruments, the
case is not one for declaratory judgment.’ ” Id. at 663,
125 S.E.2d at 807 (quoting 16 Am. Jur., Declaratory
Judgments, § 20 at 294-95); accord Hoffman Family, L.L.C.
v. Mill Two Associates P’ship, 259 Va. 685, 693, 529 S.E.2d
318, 323 (2000); Randolph, 255 Va. at 346, 497 S.E.2d at
746.
This Court addressed the propriety of using a
declaratory judgment action to decide disputed issues in
Randolph. There, an employee filed a declaratory judgment
proceeding to determine whether his injury arose out of and
in the course of his employment. 255 Va. at 344, 497
S.E.2d at 745. We held that declaratory judgment was
inappropriate “because the case [did] not involve a
7
determination of rights, but only involve[d] a disputed
issue to be determined in future litigation between the
parties, namely, whether [the employee’s] injuries arose
out of and in the course of his employment.” Id. at 347,
497 S.E.2d at 747.
Similarly, in Williams, a bank filed a petition for
declaratory judgment seeking a determination whether it
could be held liable for damages in a civil action for
malicious prosecution. 203 Va. at 658-59, 125 S.E.2d at
804. A former customer of the bank had been the subject of
11 indictments for larceny in regard to the financing of
motor vehicles by the bank. Id. at 658, 125 S.E.2d at 804.
After the customer was acquitted of two of the charges, the
Commonwealth’s Attorney “nol pros[sed]” the remaining nine
indictments. Id. The customer then threatened 11
malicious prosecution actions against the bank. Id. The
sole issue presented in the declaratory judgment proceeding
was one of disputed fact, whether the bank had made a full
and honest disclosure of all material facts within its
knowledge to its attorney and the Commonwealth’s Attorney.
Id. at 663, 125 S.E.2d at 807. We concluded that
declaratory judgment was not appropriate because “[t]he
determination of that issue rather than an adjudication of
8
the rights of the parties was the real object of the
proceeding.” Id. The bank’s use of a declaratory judgment
proceeding allowed it to pick the forum and its position at
the trial of the cause of action. Id., 125 S.E.2d at 808.
In the declaratory judgment proceeding here, GGG
sought to determine whether it had substantially performed
its obligations under the contract with the Homeowners, as
evidenced by the interrogatory submitted to the jury. Like
the employee in Randolph and the bank in Williams, GGG’s
actual objective in the declaratory judgment proceeding was
a determination of that disputed issue rather than an
adjudication of the parties’ rights. See Williams, 203 Va.
at 663, 125 S.E.2d at 807. However, that issue should have
been litigated in the context of a breach of contract
claim. By nonsuiting that claim and seeking only
declaratory relief, GGG did not have to prove, by the
greater weight of the evidence, a valid contract, a breach
of that contract by the Homeowners, and damages resulting
from the breach. See Shenandoah Milling Co. v. Phosphate
Products Corp., 161 Va. 642, 650, 171 S.E. 681, 684 (1933).
The jury instructions themselves illustrate this
point. The jury was not instructed with regard to the
elements that a plaintiff must prove to establish a breach
9
of contract. Instead, the jury was instructed that the
issue in the case was whether GGG had substantially
performed its contract with the Homeowners prior to the
letter requesting GGG to withdraw from the claim and that
GGG had the burden of proof on that issue by the greater
weight of the evidence. Nevertheless, the jury was
instructed that “[a] party to a contract who prevents the
other party from performing his obligations under a
contract has breached the contract.” Similarly, the
circuit court instructed the jury with regard to what
constitutes a material breach of a contract and that “[a]
breach of a contract cannot be material if the breaching
party has rendered substantial performance.” In other
words, the jury was instructed about various aspects of a
breach of contract claim but were never told that GGG had
to prove, by the greater weight of the evidence, that the
Homeowners breached the contract.
GGG and Allstate, however, assert that declaratory
relief was appropriate because it provided all the parties
with a determination as to whom the insurance proceeds
should be paid once that amount was ascertained.4 Relying
4
We note that Allstate, in a demurrer to the motion
for judgment, took the position that declaratory relief was
not appropriate in this case.
10
on our decision in Reisen v. Aetna Life & Cas. Co., 225 Va.
327, 302 S.E.2d 529 (1983), GGG and Allstate contend that,
without declaratory relief, neither of them could protect
their rights in the face of the competing claims to the
Homeowners’ unliquidated insurance claim. We do not agree.
In Reisen, the appellant, Philip O. Reisen, filed a
tort action against Jack W. Goins, who had driven his truck
into Reisen while he was on a sidewalk. 225 Va. at 329,
302 S.E.2d at 530. The insurance company providing
coverage on Goin’s truck advised Reisen and Goins that the
loss was not covered under the policy because Goins’ act
was intentional. Id. at 330, 302 S.E.2d at 530. The
insurance company then filed a declaratory judgment
proceeding seeking a determination that it was not
obligated to pay any judgment that might be rendered
against Goins. Id. The issue on appeal was “whether
declaratory judgment [lay] to decide a coverage question
when the ultimate issue of fact determining coverage[,
whether Goins’ act was intentional, was] set for
adjudication in a related, pending tort action.” Id. at
329, 302 S.E.2d at 530.
Because of a firm offer from Reisen to settle his
claim within the policy limits, the insurance company had a
11
duty to exercise good faith in dealing with that offer.
Id. at 335, 302 S.E.2d at 533. That duty was independent
of the insurance company’s duty to defend Goins. Id.
Thus, we concluded that declaratory relief was appropriate
because the parties needed guidance in their future conduct
in relation to each other so as to avoid the risk of action
that would jeopardize their respective interests. Id.; see
also Liberty Mut. Ins. Co. v. Bishop, 211 Va. 414, 421, 177
S.E.2d 519, 524 (1970). Unlike the situation in Williams,
declaratory relief regarding the disputed fact in issue in
Reisen “resulted . . . in delineation and interpretation of
definite rights expressed in the insurance contract.”
Reisen, 225 Va. at 337, 302 S.E.2d at 534; see also
Randolph, 255 Va. at 348, 497 S.E.2d at 747 (unlike Reisen,
employee did not seek adjudication of rights).
The same distinction exists between Reisen and the
present case. Although GGG asserts that it was seeking a
determination of its rights vis-à-vis the Homeowners with
regard to the insurance proceeds, GGG was actually asking
the circuit court to decide whether the Homeowners had
breached the contract between them and GGG. That was an
inappropriate use of declaratory judgment.
CONCLUSION
12
A trial court’s authority to enter declaratory relief
is discretionary. Randolph, 255 Va. at 346, 497 S.E.2d at
746 (citing Bishop, 211 Va. at 421, 177 S.E.2d at 524).
That discretion must, however, be exercised ”with great
care and caution.” Id. For the reasons stated, we
conclude that the circuit court abused its discretion by
allowing GGG to seek declaratory relief after it nonsuited
the other claims. GGG was using declaratory judgment as an
instrument of “procedural fencing.” Williams, 203 Va. at
662, 125 S.E.2d at 807; accord Hoffman, 259 Va. at 692, 529
S.E.2d at 323. Thus, we will reverse the judgment of the
circuit court and dismiss the declaratory judgment action.5
Reversed and dismissed.
5
We also find no merit in GGG’s motion to dismiss this
appeal and will deny that motion.
13