Rox-Ann Reifer v. Westport Insurance Corp , 751 F.3d 129 ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______
No. 13-2880
______
ROX-ANN REIFER, assignee of Donald Russo, Esquire
v.
WESTPORT INSURANCE CORPORATION,
Appellant
______
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(4-12-cv-00533)
District Judge: Honorable Matthew W. Brann
______
Argued on March 25, 2014
Before: FUENTES, GREENBERG and VAN ANTWERPEN,
Circuit Judges
(Filed: April 29, 2014)
Robert P. Conlon, Esq.
Christopher A. Wadley, Esq. [ARGUED]
Walker Wilcox Matousek
One North Franklin Street
Suite 3200
Chicago, IL 60606
Mark T. Sheridan, Esq.
Margolis Edelstein
220 Penn Avenue
Suite 305
Scranton, PA 18503
Counsel for Appellant
Deborah J. Dewart, Esq.
620 East Sabiston Drive
Swansboro, NC 28584
Chester F. Dudick, Jr., Esq.
1043 Wyoming Avenue
Forty Fort, PA 18704
David W. Knauer, Esq. [ARGUED]
Knauer & Associates
1542 Lookout Springs Drive
Colorado Springs, CO 80921
Counsel for Appellee
______
OPINION
______
VAN ANTWERPEN, Circuit Judge.
2
Appellant Westport Insurance Corporation
(“Westport”) appeals the District Court for the Middle
District of Pennsylvania’s decision declining to exercise
jurisdiction over the instant case and its Order dismissing the
case without prejudice and remanding it to the Court of
Common Pleas of Lackawanna County, Pennsylvania. Reifer
v. Westport Ins. Corp., 943 F. Supp. 2d 506, 512 (M.D. Pa.
2013). It also appeals the District Court’s denial of its motion
for reconsideration. Reifer v. Westport Ins. Corp., No. 4:12-
CV-0533, 2013 WL 2650275, at *1 (M.D. Pa. June 12, 2013).
For the reasons that follow, we will affirm the decisions of
the District Court declining jurisdiction and denying
reconsideration.
I. BACKGROUND
Rox-Ann Reifer’s (“Reifer”) Complaint avers the
following: Reifer suffered a worker’s compensation injury
during the course of her employment at Intermediate Unit-20
(IU-20) where she provided special education to students. Her
injuries prevented her from returning to work, and she
retained Donald P. Russo, Esquire (“Russo”) out of concern
that IU-20 may bring disciplinary proceedings against her. At
the time she retained Russo, he carried legal malpractice
insurance with Westport and was in full compliance with the
Pennsylvania Rules of Professional Conduct as they pertained
to insurance coverage. When IU-20 initiated disciplinary
proceedings against Reifer, Russo failed to appear at the
hearing. When IU-20 terminated her in accord with the
hearing master’s recommendation, Russo also failed to
appeal. Russo then filed a federal lawsuit alleging violation of
Reifer’s employment rights, which he lost for failure to
exhaust her state remedies. Finally, when Reifer sought
3
alternate employment, she asked Russo how to answer an
employment application question as to whether she had ever
been terminated. Russo advised her to answer in the negative.
Reifer was terminated and subjected to public discipline for
falsely answering the employment application.
On March 18, 2008, Reifer commenced a malpractice
claim against Russo in state court by Praecipe for Writ of
Summons,1 which was served upon him. At the time of
service, Russo carried a “claims-made” policy with Westport,
which only covered losses claimed by him during the policy
period or within 60 days of the policy’s expiration. Despite
this, Russo failed to inform Westport of the action. That
August, Russo’s policy lapsed and he failed to secure a
replacement policy. Four months later, on December 29,
2008, Reifer filed a Complaint that was served upon Russo.
Russo only then notified Westport of the claim against him.
Westport refused to defend Russo. Eventually, Russo
admitted liability but the issue of damages was tried in state
court. The jury awarded Reifer a judgment of $4,251,516.00
plus delay damages. Russo assigned to Reifer any rights he
might have had under his legal malpractice insurance policy
with Westport. On March 1, 2012, Reifer, as Russo’s
assignee, filed the instant action against Westport for a
declaratory judgment pursuant to Pennsylvania’s Declaratory
Judgments Act, 42 Pa.C.S.A. § 7531, et seq. in the Court of
Common Pleas of Lackawanna County, Pennsylvania.
1
Pennsylvania allows a suit to be commenced by filing with
the prothonotary a praecipe for a writ of summons or a
complaint. Pa.R.C.P. No. 1007.
4
In her declaratory judgment Complaint, Reifer argued
that, under Pennsylvania case law and Pennsylvania Rule of
Professional Conduct 1.4(c), Westport was required to show
it was prejudiced by Russo’s failure to notify it of her claim.
Because Westport did not do so, Reifer argued it owed Russo
a duty to defend and indemnify and requested a declaratory
judgment that Westport “must pay” her judgment. (Compl. ¶¶
36–59.)
Reifer also filed another suit by Praecipe for Writ of
Summons under a different case number. The summons was
served but no complaint was filed.
On March 23, 2012, Westport removed the cases to
federal court; no proceedings remained in state court.
Westport moved to dismiss Reifer’s action on the merits.
Reifer opposed the motion and Westport replied. In response,
Reifer moved to amend her Complaint, which Westport
opposed. Neither party argued that the District Court should
decline its discretionary jurisdiction under the Declaratory
Judgment Act (“DJA”), 28 U.S.C. §§ 2201–2202. On October
12, 2012, a United States Magistrate Judge considered the
case on its merits and filed a 39-page report and
recommendation advising that Reifer’s Motion to Amend
should be denied and Westport’s Motion to Dismiss should be
granted. Reifer v. Westport Ins. Corp., No. 4:CV-12-0533,
2012 WL 7998229, at *20 (M.D. Pa. Oct. 12, 2012). Reifer
objected and Westport responded.
On May 1, 2012, the District Court sua sponte
declined to exercise jurisdiction over the matter. Reifer, 943
F. Supp. 2d at 508. It rejected the Magistrate’s report and
recommendation, dismissed the case without prejudice, and
5
remanded it to the Court of Common Pleas of Lackawanna
County, Pennsylvania. Id. Westport filed a Motion for
Reconsideration, which the District Court denied. Reifer,
2013 WL 2650275, at *1. Westport appeals both decisions.
II. JURISDICTION
The District Court had jurisdiction pursuant to 28
U.S.C. § 1332(a). Although it is uncontested by the parties,
we have an independent obligation to assure ourselves of our
jurisdiction. E.g., Kendall v. Daily News Publ’g Co., 716 F.3d
82, 86 (3d Cir. 2013).
We have jurisdiction to review “final decisions” of
district courts under 28 U.S.C. § 1291. Whether a district
court’s discretionary remand under the DJA is an appealable
“final decision” under § 1291 is a matter of first impression.2
We believe that a remand order entered pursuant to the DJA
is an appealable final decision because it is functionally
indistinguishable from the remand order found appealable in
Quackenbush v. Allstate Insurance Co., 517 U.S. 706, 713–15
2
In Henglein v. Colt Industries Operating Corp., we stated
that “[o]nce a judgment disposing of all issues on which the
parties sought a declaration is entered by a court, the case is
ripe for appeal. Even if the court decides in its discretion that
it will not entertain the case in any aspect whatsoever, that
ruling is subject to appeal.” 260 F.3d 201, 210 (3d Cir. 2001)
(citing Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995)).
Despite its broad language, Henglein did not deal with a
remand, id. at 206, which we believe warrants particular
consideration.
6
(1996). See Snodgrass v. Provident Life & Accident Ins. Co.,
147 F.3d 1163, 1165–66 (9th Cir. 1998).
As a threshold matter, we note that a remand under the
DJA implicates neither a lack of subject matter jurisdiction
nor a defect in removal procedure. Thus, 28 U.S.C. § 1447(d)
does not preclude our review. See Quackenbush, 517 U.S. at
712 (holding that, because § 1447(d) must be read in pari
materia with § 1447(c), its proscription against appellate
review is limited to those circumstances implicated by §
1447(c)); see also In re U.S. Healthcare, 159 F.3d 142, 146
(3d Cir. 1998).
In Quackenbush, the Supreme Court held that an
appeal is the appropriate procedural mechanism to review a
remand order made pursuant to Burford abstention where the
circumstances satisfy either of the alternate holdings of Moses
H. Cone Memorial Hospital v. Mercury Construction Corp.,
460 U.S. 1 (1983). Quackenbush, 517 U.S. at 712–15. First, a
remand order is appealable where it effectively puts the
litigants out of court so that “its effect is ‘precisely to
surrender jurisdiction of a federal suit to a state court.’” Id. at
714 (quoting Moses H. Cone, 460 U.S. at 10 n.11). This effect
is acutely felt in the context of remand orders whereby “the
district court disassociates itself from the case entirely,
retaining nothing of the matter on [its] docket.” Id.
Second, a remand order under the Burford abstention
doctrine is appealable pursuant to the collateral order doctrine
because it “conclusively determines an issue that is separate
from the merits, namely, the question whether the federal
court should decline to exercise its jurisdiction in the interest
of comity and federalism.” Id. Additionally, such an order is
7
“sufficiently important” to justify immediate appeal. Id. This
importance arises, in part, from the fact that a remand order is
otherwise effectively unreviewable. Id.
In Snodgrass, the Ninth Circuit held that a remand
pursuant to the DJA satisfied both of these tests and was
“functionally indistinguishable” from the remand order
addressed in Quackenbush. 147 F.3d at 1167. We agree. The
District Court’s remand order surrenders to the state court
jurisdiction to declare whether Westport’s policy covered
Reifer’s legal malpractice claim against Russo. It denies
Reifer and Westport access to the federal forum, placing them
“effectively out of court.” Quackenbush, 517 U.S. at 714
(quoting Moses H. Cone, 460 U.S. at 10 n.11). Additionally,
it “conclusively determines an issue that is separate from the
merits,” namely, whether the District Court should decline to
exercise jurisdiction over Reifer’s declaratory judgment
action. Id. This decision is not reviewable on appeal from any
final judgment eventually entered by the state court. Finally,
we agree with our sister circuit that the propriety of a district
court’s discretionary decision to decline to exercise
jurisdiction under the DJA “is too important to be denied
review.” Snodgrass, 147 F.3d at 1166; see, e.g., State Auto
Ins. Cos. v. Summy, 234 F.3d 131, 136 (3d Cir. 2000)
(emphasizing the duties of district courts in deciding whether
to exercise jurisdiction over insurance coverage cases under
the DJA). Because it is “functionally indistinguishable” from
the remand order found appealable in Quackenbush, we hold
that a remand order pursuant to a decision to decline
jurisdiction under the DJA is a “final decision” under § 1291
and reviewable on appeal.
III. DISCUSSION
8
Westport presents two main issues for consideration:
(1) whether the DJA, the authority by which the District
Court declined to exercise jurisdiction, applies; and (2) if so,
whether the District Court abused its discretion in declining
jurisdiction.
A. The DJA applies.3
Under the DJA, courts “may declare the rights and
other legal relations of any interested party seeking such
declaration, whether or not further relief is or could be
sought.” 28 U.S.C. § 2201(a) (emphasis added).4 The
Supreme Court has long held that this confers discretionary,
rather than compulsory, jurisdiction upon federal courts.
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942).
This is an exception to the general rule that “federal courts
have a strict duty to exercise the jurisdiction that is conferred
upon them by Congress.” Quackenbush, 517 U.S. at 716
(citing Colo. River Water Conservation Dist. v. United States,
424 U.S. 800, 821 (1976)).
3
We review the underlying legal basis for remand under a de
novo standard. Lazorko v. Pa. Hosp., 237 F.3d 242, 247 (3d
Cir. 2000).
4
Although Reifer’s declaratory judgment claim was
originally brought in state court under Pennsylvania law, the
question of whether to exercise federal jurisdiction to
adjudicate the controversy became a procedural issue under
federal law. See, e.g., Golden Eagle Ins. Co. v. Travelers
Cos., 103 F.3d 750, 753 (9th Cir. 1996), overruled on other
grounds by Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th
Cir. 1998) (en banc); accord Fischer & Porter Co. v. Moorco
Int’l Inc., 869 F. Supp. 323, 326 (E.D. Pa. 1994).
9
Westport claims that the District Court did not have
discretion to decline jurisdiction because the requirements for
diversity jurisdiction were satisfied and the DJA did not
apply. It argues that, although Reifer’s claim was couched in
terms of a declaratory judgment, it was in reality a suit which
sought a judgment compelling Westport to pay money
damages.5 To Westport, the timing of the state court judgment
5
In a few sentences, Westport advances an alternate argument
based upon Reifer’s other suit, brought by Praecipe for Writ
of Summons. It argues that Reifer’s other suit constituted a
claim for damages and that this claim for legal relief triggered
the district court’s “virtually unflagging obligation” to
exercise its jurisdiction. Colo. River, 424 U.S. at 817. Thus,
Westport argues, even if Reifer’s primary claim was a
declaratory judgment action, “there was, in fact, a claim for
damages before the district court.” (Brief of the Appellant
(“Appellant Br.”) at 22.) In support of its claim, Westport
directs our attention to the Civil Cover Sheet attending
Reifer’s praecipe. The Civil Cover Sheet indicates that money
damages are requested, that Reifer’s action sounds in
contract, and describes the action thus: “Assignment of cause
of action for payment of verdict.”
We understand Westport to argue that the District
Court had before it a “mixed claim” for declaratory and legal
relief. We have never ruled on the legal standard a district
court must apply when addressing whether it may decline
jurisdiction when both declaratory and legal relief are
claimed. See, e.g., Hartford Ins. Co. of S.E. v. John J., 848 F.
Supp. 2d 506, 510 (M.D. Pa. 2012). Moreover, our sister
circuits are “sharply divided” and advance four different
standards. See, e.g., Perelman v. Perelman, 688 F. Supp. 2d
10
367, 374–75, n.3 (E.D. Pa. 2010) (analyzing circuit split). Our
district courts have also embraced competing approaches.
Compare id. at 367–77 (adopting “independent claim” test),
with Hartford Ins. Co., 848 F. Supp. 2d at 512 (disagreeing
with Perelman and adopting “heart of the action” test).
Westport does not mention these competing approaches nor
urge us which to adopt.
We need not, however, resolve this issue because we
find that Westport has failed to show that Reifer’s praecipe
alone raises Reifer’s action to the level of a “mixed claim.”
Reifer’s praecipe was filed under a different case number than
her declaratory judgment action. It says nothing of the
underlying claim other than that it is a “Civil Action.” Reifer
did not file a complaint in this case and Westport did not
compel her to do so. See Pa.R.C.P. No. 1037(a). Neither the
Magistrate Judge nor the District Court ever mentioned the
praecipe. Indeed, it is not even clear that Westport was able to
remove it to federal court. See Sikirica v. Nationwide Ins. Co.,
416 F.3d 214, 223 (3d Cir. 2005); accord Gervel v. L & J
Talent, 805 F. Supp. 308, 308–09 (E.D. Pa. 1992). Further,
we are not persuaded by Westport’s heavy reliance on
Reifer’s Civil Cover Sheet. See, e.g., Polanco v. Coneqtec
Universal, 474 F. Supp. 2d 735, 736 n.1 (E.D. Pa. 2007)
(citing Pa.R.C.P. Nos. 1007, 1017) (explaining that a Civil
Cover Sheet is “not a writ of summons, praecipe, or
complaint[,] . . . cannot be used to commence an action under
Pennsylvania law[,] and is not deemed a pleading under
Pennsylvania law”). Under these circumstances, Westport has
failed to show that Reifer’s other suit divests the District
Court of its DJA discretion, especially where we understand
that the purpose of the other suit (as explained at oral
argument) was merely to protect a future money judgment
11
establishing Russo’s liability is crucial. Because Russo’s
liability had already been established, the declaratory
judgment action was not prospective. Rather, Reifer’s
complaint simply sought a declaratory judgment that
Westport “must pay” the damages already awarded to her.
(See Compl. ¶¶ 82–88.) Because “[t]here is no meaningful
difference between a complaint seeking a declaration that a
defendant ‘must pay’ damages and a complaint seeking to
recover such damages,” Westport contends Reifer’s claim is
legal in nature, not declaratory. (Brief of the Appellant
(“Appellant Br.”) at 20–21.) Thus, Westport argues, the
District Court had no discretion to decline jurisdiction.6
The District Court rejected this argument, finding that
the instant case was
precisely a declaratory judgment action. Reifer
wants the [District Court] to declare that Donald
P. Russo, Esquire was covered by the
malpractice insurance policy issued by
Westport at the time he committed legal
malpractice. Westport wants the undersigned to
claim from running afoul of the statute of limitations if Reifer
prevailed on the declaratory judgment claim.
6
Westport warns that permitting plaintiffs to so stylize their
complaints would “make a mockery of diversity jurisdiction”
by permitting local plaintiffs to deprive out-of-state
defendants of the right to a federal forum they otherwise
would have when legal relief was sought. (Appellant Br. at
21.) It argues that plaintiffs could plead “any ordinary claim
for damages in terms of seeking declaratory relief.” (Id.)
Thus, courts must focus on the claim’s substance, rather than
its form, when deciding if the DJA applies.
12
declare that Russo was not covered by the
policy issued at that time. The award of
damages has, of course, already been rendered
by the Court of Common Pleas of Northampton
County. The [District Court] is not being asked
to award damages against Westport; [it] is
instead merely being asked to determine if
Russo was or was not covered under his legal
malpractice insurance policy at the time he
committed legal malpractice.
Reifer, 2013 WL 2650275, at *2.7
We agree that the DJA applies because in reality
Reifer sought only a declaratory judgment. While Reifer’s
Complaint admittedly uses the words “must pay,” in
substance it requests a declaration that Russo was covered by
the policy. Specifically, Reifer sought a declaration that,
because Westport never showed that it was prejudiced by
Russo’s late notice, Russo was covered by Westport’s policy
at the time he reported Reifer’s claim. As the District Court
noted, it was not being asked to award damages; both parties
7
The District Court’s characterization of Reifer’s declaratory
judgment is not entirely correct. There is no dispute that the
policy was in effect and that Russo was covered at the time he
committed legal malpractice. Under the claims-made policy
that governed the relationship, the dispositive question before
the District Court was not whether Russo was covered at the
time he committed malpractice, but whether he reported the
claim to Westport within the appropriate time period.
Accordingly, what is disputed is whether Russo was covered
by Westport’s policy at the time he reported Reifer’s claim.
13
well knew that damages had already been awarded in state
court. Id. Westport’s own filings indicate that the primary
question was one of coverage, (Appendix (“App.”) at 97
(“This is an insurance action in which Rox-Ann Reifer seeks
coverage for a legal malpractice claim . . . . Ms. Reifer’s
claim is not covered . . . .”)), a common issue in declaratory
judgments. See Allstate Ins. Co. v. Seelye, 198 F. Supp. 2d
629, 631 (W.D. Pa. 2002) (noting the “all too common case”
of insurance companies using diversity jurisdiction to seek
declarations on purely state law matters). Additionally,
Reifer’s status as Russo’s assignee undercuts Westport’s
argument. In Westport’s own words, “it cannot be disputed
that Ms. Reifer ‘stands in Mr. Russo’s shoes’ for purposes of
pursuing coverage under the policy.” (App. at 188 (emphasis
added).)
Moreover, simply because additional recovery would
likely flow to Reifer as a result of a declaration in her favor
does not preclude applicability of the DJA. Courts “may”
grant declaratory judgments “whether or not further relief is
or could be sought.” 28 U.S.C. § 2201(a); see also id. § 2202
(“Further necessary or proper relief based on a declaratory
judgment or decree may be granted, after reasonable notice
and hearing, against any adverse party whose rights have
been determined by such judgment.”); United States v. Pa.,
Dep’t of Envtl. Res., 923 F.2d 1071, 1075 (3d Cir. 1991)
(citing Fed. R. Civ. P. 57) (noting that a district court may
exercise jurisdiction over declaratory judgment action where
“another adequate remedy exists”); Alexander & Alexander,
Inc. v. Van Impe, 787 F.2d 163, 166 (3d Cir. 1986) (finding
that prevailing party in a declaratory judgment may seek
“further relief,” including damages). Westport cites no
authority for the broad conclusion that a district court may
14
never exercise its discretionary jurisdiction under the DJA
simply because another action resulted in monetary damages,
the disposition of which will be affected by the court’s
declaration.8 It may, in some circumstances, be possible for a
party’s claim for legal relief to masquerade as a declaratory
judgment, improperly activating discretionary jurisdiction.
However, we do not believe that this is the case with the
matter at hand.
B. The District Court did not abuse its discretion.
8
We note that a potential unintended consequence of such a
rule could be to permit an insurer, but not an insured, to bring
a declaratory judgment action in precisely the same
circumstances. Wilton is illustrative, although it did not
address the instant issue. There, an insurer refused to defend
or indemnify its insured. Wilton, 515 U.S. at 279. A jury
awarded over $100 million against the insured. Id. at 280.
After the verdict, the insurer sought a declaration that its
policy did not cover the insured’s liability in that case. Id.
Were the insurer to lose the declaratory judgment action,
monetary relief would presumably flow to the insured. But no
one could, of course, claim that the insurer’s declaratory
judgment action was really a claim for damages. Thus, under
Westport’s rule, the DJA would apply and the district court
could exercise discretion. However, if the insured were to
bring the declaratory action and win, monetary relief would
also presumably flow to the insured. Westport’s approach
would require interpreting this as a claim for damages and
preclude application of the DJA. Despite being identical to
the previous scenario (despite which party brings the claim),
the district court would be unable to exercise its DJA
discretion. Such an approach would be unfair.
15
The instant case raises the question of the “outer
boundar[y]” of a district court’s discretion under the DJA,
specifically whether a district court may decline jurisdiction
over a declaratory judgment action when “there are no
parallel state proceedings.” Wilton v. Seven Falls Co., 515
U.S. 277, 290 (1995).9 It also presents an opportunity to help
clarify this area of the law as many of our sister circuits have
done. We ultimately conclude that declining to exercise
jurisdiction over the instant case was not an abuse of
discretion by the District Court because Reifer raises issues of
state law peculiarly within the purview of the Pennsylvania
court system which are better decided by that system.
1.
As a threshold matter, we must first address the
appropriate standard of review, which the parties dispute.
Invoking our holding in Exxon Corp. v. FTC, 588 F.2d 895,
900 (3d Cir. 1978), Westport argues for heightened abuse of
discretion review. There, we noted that due to our
traditionally “liberal interpretation” of the DJA, “the ambit of
the district court’s discretion is somewhat circumscribed and
the range of our review is correspondingly enlarged.” Id.
(citing Simmonds Aerocessories v. Elastic Stop Nut Corp. of
Am., 257 F.2d 485, 489 (3d Cir. 1958); Dewey & Almy Chem.
Co. v. Am. Anode, Inc., 137 F.2d 68, 70 (3d Cir. 1943)). We
concluded that a district court’s decision to decline
jurisdiction “will be given closer scrutiny than normally given
9
The Supreme Court has described a “parallel” proceeding as
“another proceeding . . . pending in a state court in which all
the matters in controversy between the parties could be fully
adjudicated.” Brillhart, 316 U.S. at 495.
16
on an ‘abuse of discretion’ review.” Id. We have since
described this standard as “heightened scrutiny,” Cost
Control Mktg. & Mgmt., Inc. v. Pierce, 848 F.2d 47, 49 (3d
Cir. 1988), and as a “caveat” to traditional abuse of discretion
review, Pa., Dep’t of Envtl. Res., 923 F.2d at 1073.
Subsequently, the Supreme Court in Wilton held that
“district courts’ decisions about the propriety of hearing
declaratory judgment actions . . . should be reviewed for
abuse of discretion.” 515 U.S. at 289–90. In rejecting de novo
appellate review of district courts’ exercise of DJA discretion,
the Court reasoned it to be “more consistent with the statute
to vest district courts with discretion in the first instance,
because facts bearing on the usefulness of the declaratory
judgment remedy, and the fitness of the case for resolution,
are peculiarly within their grasp.” Id. at 289. Since Wilton,
this Court has applied Wilton’s teachings rather than the
standard articulated in Exxon Corp. See, e.g., Summy, 234
F.3d at 134.
The “closer scrutiny” required by Exxon Corp. and our
subsequent case law expanding upon this “caveat” are
irreconcilable with the Supreme Court’s emphasis on
traditional abuse of discretion review. To the extent that
Exxon Corp. requires us to apply a standard of review more
stringent than that articulated by the Supreme Court, we must
deem it as overruled.10 We review a district court’s decision
10
We recognize the position taken by the First Circuit (and
advanced by Westport at argument) that Wilton only
“established the contours of . . . abuse of discretion review . . .
where the denial is based on there being a parallel proceeding
which presents the opportunity to ventilate the same state law
issues in the state courts.” Verizon New England, Inc. v. Int’l
17
Bhd. of Elec. Workers, Local No. 2322, 651 F.3d 176, 187–88
(1st Cir. 2011). As a result, the First Circuit found it unclear
whether Wilton had overruled its own heightened abuse of
discretion review in a case raising issues of federal law. Id. at
187 n.8 (citing Ernst & Young v. Depositors Econ. Prot.
Corp., 45 F.3d 530 (1st Cir. 1995)). We do not share this
concern and believe Wilton marked an end to the standard in
Exxon Corp. Wilton did limit its discretion holding to the
question whether “the District Court acted within its bounds
in staying [the underlying] action for declaratory relief where
parallel proceedings, presenting opportunity for ventilation of
the same state law issues, were underway in state court.” 515
U.S. at 290. Applying Brillhart, it answered in the
affirmative. Id. at 289–90. However, the authority that
informed the Supreme Court’s standard of review holding
was the DJA. Id. at 289 (“We believe it more consistent with
the statute to vest district courts with discretion in the first
instance . . . .” (emphasis added)). Admittedly, Wilton
expressly declined to delineate the boundaries of a district
court’s discretion when no parallel state proceedings exist. Id.
at 290. But while this implies that the contours of a district
court’s discretion can vary with the facts, it does not suggest
that the standard of appellate review compelled by the DJA
itself changes as well. Indeed, it is the district court’s peculiar
familiarity with those facts that undergirded the Court’s
rejection of a higher standard of review. Id. Consequently,
our role is to ensure the “sound administration of the
Declaratory Judgment Act” through “proper application of the
abuse of discretion standard on appellate review[,]” thereby
“provid[ing] appropriate guidance to district courts.” Id. at
289. Because we find that this role remains unchanged
18
to grant or withhold a declaratory judgment for abuse of
discretion. Wilton, 515 U.S. at 289–90; see also Summy, 234
F.3d at 134. Nevertheless, as discussed below, this does not
mean that district courts’ DJA discretion is effectively
unreviewable. See Wilton, 515 U.S. at 289 (rejecting
contention that abuse of discretion review “is tantamount to
no review” at all).
2.
Under the DJA, “any court of the United States . . .
may declare the rights and other legal relations of any
interested party.” 28 U.S.C. § 2201 (emphasis added). This
provision “place[s] a remedial arrow in the district court’s
quiver” and confers a “unique and substantial discretion” on
federal courts to determine whether to declare litigants’
rights. Wilton, 515 U.S. at 286, 288. The “breadth of leeway”
granted to federal courts originates in the “statute’s textual
commitment to discretion.” Id. at 286–87. Consequently,
district courts are authorized, “in the sound exercise of [their]
discretion, to stay or to dismiss an action seeking a
declaratory judgment before trial or after all arguments have
drawn to a close.” Id. at 288.
Although an exercise of discretion must be “sound,”
the Supreme Court has otherwise framed DJA discretion in
broad terms: “[T]he propriety of 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.” Id. at 287
despite the absence of parallel state proceedings, we believe
the Wilton standard replaced that in Exxon Corp.
19
(quoting Pub. Serv. Comm’n of Utah v. Wycoff Co., 344 U.S.
237, 243 (1952)). Rather than being subject to the “normal
principle that federal courts should adjudicate claims within
their jurisdiction,” district courts exercising DJA discretion
are governed by “considerations of practicality and wise
judicial administration.” Id. at 288.
Over seventy years ago, the Supreme Court in
Brillhart discussed relevant considerations for a district
court’s sound exercise of discretion in a particular factual
circumstance, namely, where “another proceeding was
pending in a state court in which all the matters in
controversy between the parties could be fully adjudicated.”
316 U.S. at 495. The Court reasoned that the existence of
such proceedings was relevant because
[o]rdinarily it would be uneconomical as well as
vexatious for a federal court to proceed in a
declaratory judgment suit where another suit is
pending in a state court presenting the same
issues, not governed by federal law, between
the same parties. Gratuitous interference with
the orderly and comprehensive disposition of a
state court litigation should be avoided.
Id. The Court enumerated specific factors for courts to
consider in such circumstances,11 but was careful to make
11
Courts should consider “whether the questions in
controversy between the parties to the federal suit, and which
are not foreclosed under the applicable substantive law, can
better be settled in the proceeding pending in the state court.”
20
clear that its list was non-exhaustive. Id. (“We do not now
attempt a comprehensive enumeration of what in other cases
may be revealed as relevant factors governing the exercise of
a district court’s discretion.”).
A half century later, in Wilton, the Supreme Court
addressed a “virtually identical” circumstance involving the
contours of DJA discretion during parallel state court
proceedings. 515 U.S. at 279. The Court affirmed Brillhart’s
relevance. Id. at 282–88. It reiterated the non-exhaustive
nature of Brillhart’s factors, characterizing them as providing
“useful guidance.” Id. at 283. Despite noting the “unique and
substantial discretion” granted to district courts by the DJA,
Wilton narrowly tailored its holding. Id. at 286, 290. It
expressly declined “to delineate the outer boundaries of that
discretion in other cases, for example, . . . cases in which
there are no parallel state proceedings.” Id. at 290. As
discussed, Wilton established abuse of discretion as the proper
standard of appellate court review. Id. at 289–90.
Brillhart, 316 U.S. at 495. Answering this question may
require inquiring
into the scope of the pending state court
proceeding . . . the nature of the defenses open
there. . . . whether the claims of all parties in
interest can satisfactorily be adjudicated in that
proceeding, whether necessary parties have
been joined, whether such parties are amenable
to process in that proceeding, etc.
Id.
21
Brillhart and Wilton stand for at least two broad
principles: (1) that federal courts have substantial discretion
to decide whether to exercise DJA jurisdiction, and (2) that
this discretion is bounded and reviewable. Accordingly, this
Circuit has acknowledged the DJA’s grant of discretion while
cautioning that “what is granted is an opportunity to exercise
a reasoned discretion.” Bituminous Coal Operators’ Assoc. v.
Int’l Union, United Mine Workers of Am., 585 F.2d 586, 596
(3d Cir. 1978), abrogated on other grounds by Carbon Fuel
Co. v. United Mine Workers of Am., 444 U.S. 212 (1979).
Thus, over the years we have enumerated factors for district
courts to consider when exercising DJA discretion. We have
required district courts to consider four general factors:
(1) the likelihood that a federal court
declaration will resolve the uncertainty of
obligation which gave rise to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the
uncertainty of obligation; and
(4) the availability and relative convenience of
other remedies.
Pa., Dep’t of Envtl. Res., 923 F.2d at 1075 (citing Terra Nova
Ins. Co. v. 900 Bar, Inc., 887 F.2d 1213, 1224 (3d Cir. 1989);
Bituminous Coal Operators’ Assoc., 585 F.2d at 596). We
have also suggested that courts “seek to prevent the use of the
declaratory action as a method of procedural fencing, or as a
means to provide another forum in a race for res judicata.”
Terra Nova, 887 F.2d at 1225 (quoting 6A J. Moore, J. Lucas
& G. Girtheer, Jr., Moore’s Federal Practice ¶ 57.08[5], at
57–50 (2d ed. 1987)).
22
Finally, in the insurance context, we have “suggested
relevant considerations” for whether a court must decline
jurisdiction under the DJA:
(1) A general policy of restraint when the same
issues are pending in a 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;
(3) Avoidance of duplicative litigation.
Summy, 234 F.3d at 134 (quoting Pa., Dep’t of Envtl. Res.,
923 F.2d at 1075).12
The insurance coverage context has been particularly
fertile ground for exercising—and testing the boundaries of—
DJA discretion, especially since our decision in Summy.13
12
Though not implicated here, we have also concluded that
where the issues include “federal statutory interpretation, the
government’s choice of a federal forum, an issue of sovereign
immunity, or inadequacy of the state proceeding,” district
courts’ discretion to decline jurisdiction is not “open-ended.”
Summy, 234 F.3d at 134 (citing Pa., Dep’t of Envtl. Res., 923
F.2d at 1076–79).
13
In Summy, a property owner and its insurer disputed
whether an insurance policy covered the poisoning of a child
in his home, allegedly due to lead paint. 234 F.3d at 131–32.
The insurer filed a declaratory judgment action in federal
court regarding its duty to cover the owner. Id. at 132. The
owner moved to dismiss or stay, arguing that the District
Court should decline jurisdiction. Id. Subsequently, the owner
filed for a declaratory judgment in state court, which the
23
See, e.g., Seelye, 198 F. Supp. 2d at 631 (finding such cases
“all too common”). In Summy, we addressed the common
case of an insurance company invoking diversity jurisdiction
to seek a declaratory judgment on a purely state law matter
and articulated now oft-quoted language: “The desire of
insurance companies and their insureds to receive
declarations in federal court on matters of purely state law has
no special call on the federal forum.” 234 F.3d at 136.
Summy provided other guidance as well. It concluded
that when applicable state law is “uncertain or undetermined,
district courts should be particularly reluctant” to exercise
insurer moved to dismiss. Id. The District Court retained
jurisdiction and granted the insurer’s summary judgment
motion. Id. At the time the District Court decided to exercise
its jurisdiction, only two Pennsylvania trial courts had ruled
on the issue, and both were later appealed. Id. The Third
Circuit vacated and remanded with directions to dismiss
because assuming jurisdiction was not a “sound” exercise of
discretion. Id. at 136. It noted that judicial efficiency was not
promoted when evidence was considered by both federal and
state courts and where federal court jurisdiction interfered
with the state court’s ability efficiently to resolve the
declaratory judgment and underlying tort action. Id. at 135–
36. Additionally, jurisdiction was a “vexatious” and
“gratuitous interference” with state litigation because two trial
court decisions, but no appellate cases, existed when the
District Court decided the issue, and the state forum was
“fully able and prepared to resolve [the] purely state law
issue.” Id. at 136 (citing Brillhart, 316 U.S. at 495). Finally,
no federal interests were promoted because the case involved
no federal question. Id.
24
DJA jurisdiction. Id. at 135. Rather, the proper relationship
between federal and state courts requires district courts to
“step back” and permit state courts to resolve unsettled state
law matters. Id. at 136. It found that “the state’s interest in
resolving its own law must not be given short shrift simply
because [parties] perceive some advantage in the federal
forum.” Id. Moreover, “[w]hen the state law is firmly
established, there would seem to be even less reason for the
parties to resort to the federal courts. Unusual circumstances
may occasionally justify such action, but declaratory
judgments in such cases should be rare.” Id.
Additionally, Summy concluded that federal courts
should decline jurisdiction where “doing so would promote
judicial economy by avoiding duplicative and piecemeal
litigation.” Id. at 135. It also noted that such insurance cases
lack a federal question or interest. Id. at 136. Finally, Summy
found that district courts should weigh a party’s “vigorous
objection” to the district court’s assumption of jurisdiction.
Id.
3.
Of course, Summy involved the existence of a pending
state court case involving the same issue. Id. at 131. We have
never squarely addressed the contours of DJA discretion in
the absence of pending parallel state proceedings. Facing this
open question, our district courts have applied Summy with
varying results.
In the instant matter, the District Court declined
jurisdiction sua sponte, citing the “trend” of federal district
courts in Pennsylvania “to decline to exercise jurisdiction
25
over declaratory judgment actions, involving an insurance
company, that are solely brought on diversity, and have no
federal question or interest.” Reifer, 943 F. Supp. 2d at 508. It
recognized, however, that the propriety of doing so was “not
settled law.” Id. The District Court quoted extensively from
Allstate Property & Casualty Insurance Co. v. Owens, No.
11-4, 2011 WL 94412 (W.D. Pa. Jan. 11, 2011), and,
following that case, rejected the interpretation that Summy
compelled it, per se, to exercise jurisdiction in the absence of
a pending parallel state proceeding. Id. at 509–11. In doing
so, the District Court expressed concern that requiring courts
to retain jurisdiction simply because no parallel proceedings
have been filed could invite forum shopping.14 Id. at 511. The
District Court concluded that “[f]or the sake of comity,” it
would follow this trend and “decline to exercise jurisdiction
over this purely state law issue.” Id.
Westport advances multiple arguments contending that
the District Court abused its discretion. First, it argues that the
three Summy factors enumerated above, which it claims “are
controlling,” are not implicated in this case. (Appellant Br.
24–26, 28.) The issues are not pending in state court; there is
no conflict between Westport’s duty to defend, if any, and its
claim of non-coverage; and there is no risk of duplicative
litigation. Westport also argues that, because the District
Court declined jurisdiction a year after removal, and after the
Magistrate Judge issued a 39-page ruling, considerations of
14
Specifically, an insurer, instead of filing a declaratory
judgment action, could wait for the insured to file the same in
state court. Reifer, 943 F. Supp. 2d at 511. It could then
remove the case to federal court assured that the lack of
parallel state proceedings would prevent the district court
from declining jurisdiction. Id.
26
judicial economy and fairness militate toward exercising
jurisdiction. Additionally, Westport contends that the issue of
Pennsylvania law raised by Reifer’s claim is well settled and
that the District Court was sufficiently equipped to apply it.15
Finally, Westport argues that Owens was incorrectly
decided and that the District Court abused its discretion in
following its lead. The “trend” identified by the District Court
is instead a “misappli[cation] of Summy,” whereby district
courts “dismiss, by rote, declaratory judgment suits involving
insurance coverage without considering the particular facts of
cases in light of the Summy factors.” (Reply Brief of the
Appellant (“Appellant Reply Br.”) at 11.) Westport reads
Summy only to apply when “a state court is poised to apply its
law in a related proceeding and the federal court has no
interest of its own.” (Id. at 12.) Thus, it concludes, Summy’s
three factors “pertain to situations in which related
proceedings are or may be brought in state court.” (Id.)
Consequently, Westport contends that, in the absence
of pending parallel state proceedings, “the district court
should proceed to resolve the parties’ dispute, even in the
absence of a federal question or interest.”16 (Appellant Br. at
15
Westport also argues that it is fundamentally unfair to
permit Reifer to raise the jurisdictional issue after the
Magistrate Judge’s unfavorable ruling. However, as noted
above, the District Court raised its jurisdiction sua sponte. Id.
16
In its Reply Brief, Westport clarifies its position: “Westport
is not arguing that parallel state court proceedings must be
present before a district court may dismiss a declaratory
judgment action. But, in the absence of related proceedings,
the dismissal of a declaratory judgment action should be the
exception, not the rule, and the mere absence of a unique
27
29.) Specifically, Westport argues that the absence of a
federal question or interest is insufficient reason, by itself, to
decline jurisdiction under the DJA. Where no pending parallel
state proceedings exist, “the district court should normally
adjudicate such claims within the jurisdiction afforded to it by
Congress.”17 (Appellant Reply Br. at 13.)
Westport’s arguments and the District Court’s decision
require us to resolve two issues: (1) the effect on a district
court’s DJA discretion of the absence of pending parallel state
proceedings, and (2) assuming the district court maintains
discretion in such circumstances, the scope of that discretion.
4.
federal substantive interest in the dispute should not be
sufficient to warrant dismissal under such circumstances.”
(Appellant Reply Br. at 14 n.2 (citing Scottsdale Ins. Co. v.
Detco Indus., Inc., 426 F.3d 994, 998 (8th Cir. 2005)).)
17
Westport also takes issue with the District Court’s forum
shopping concerns. The District Court was concerned that a
rule that required it to exercise jurisdiction in the absence of
parallel state proceedings could lead to manipulation and
forum shopping. Reifer, 943 F. Supp. 2d at 511. Rather than
address this, Westport argues that the District Court’s concern
is irrelevant because Reifer failed to present evidence that
Westport was forum shopping. Westport’s argument misses
the mark. The District Court did not imply that Westport
engaged in forum shopping, nor did it consider forum
shopping as a factor when determining whether to exercise
jurisdiction. Rather, the District Court cited the potential for
forum shopping as a reason against adopting a rule
compelling it to always exercise jurisdiction in the absence of
parallel state proceedings. Id.
28
We have previously noted that, pursuant to Brillhart,
“the mere existence of a related state court proceeding” does
not require a district court to decline to exercise jurisdiction
under the DJA. Pa., Dep’t of Envtl. Res., 923 F.2d at 1075
(citing Brillhart, 316 U.S. at 495). We have not yet addressed
the related question of whether the mere non-existence of
pending parallel state court proceedings requires the district
court to exercise its jurisdiction and hear the case under the
DJA. The Supreme Court and this Circuit have long noted the
importance of pending parallel state proceedings as a
consideration in a district court’s exercise of jurisdictional
discretion under the DJA. E.g., Brillhart, 316 U.S. at 494;
Terra Nova, 887 F.2d at 1224. Despite this focus, no binding
authority has held that a district court has no—or less—
discretion to decline jurisdiction in the absence of such
proceedings.18 Brillhart and Wilton only discussed DJA
discretion in the context of pending parallel state proceedings
because that is the factual context with which they were
faced. Thus, they illustrate only one application of DJA
discretion to a fact pattern that included the existence of
parallel state proceedings. They do not stand for the
proposition that DJA discretion has no life beyond the
circumstances to which they applied it. See Wilton, 515 U.S.
at 288 n.2 (suggesting that pendency of a state proceeding is
but one ground upon which jurisdiction may be declined);
Brillhart, 316 U.S. at 495 (“We do not now attempt a
comprehensive enumeration of what in other cases may be
18
At most, Wilton implies that district courts’ discretion may
be more circumscribed where no parallel state proceedings
exist. See 515 U.S. at 290 (describing the absence of parallel
state proceedings as an “outer boundar[y]” of a district court’s
jurisdictional DJA discretion).
29
revealed as relevant factors governing the exercise of a
district court’s discretion.”).
Many of our sister circuits have addressed this issue
and explicitly held that the existence or non-existence of
pending parallel state proceedings is but one factor for a
district court to consider when exercising its DJA jurisdiction.
Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 998
(8th Cir. 2005); Sherwin-Williams Co. v. Holmes Cnty., 343
F.3d 383, 394 (5th Cir. 2003); United States v. City of Las
Cruces, 289 F.3d 1170, 1183 (10th Cir. 2002); Aetna Cas. &
Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 423 (4th Cir.
1998) (per curiam); Golden Eagle Ins. Co. v. Travelers Cos.,
103 F.3d 750, 754 (9th Cir. 1996), overruled on other
grounds by Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th
Cir. 1998) (en banc). We agree. Our decision in Summy does
not compel a different result. Summy circumscribes a district
court’s discretion to exercise jurisdiction and “suggests
relevant considerations” for a district court’s analysis. 234
F.3d at 134, 136. We do not read Summy to create a rule that
tethers a district court’s DJA discretion to whether a party has
or has not filed a parallel action in state court. Indeed, Summy
itself lists pending state proceedings addressing the same
issues as one non-exhaustive factor. Id. at 134.19
19
Further, many of the cases cited by Westport found that
Summy did not compel them to decline jurisdiction in the
absence of parallel state proceedings. See, e.g., Ackerman v.
Geico Gen. Ins. Co., No. 2:12-cv-00005, 2012 WL 1377392,
at *2–3 (W.D. Pa. Apr. 19, 2012) (finding jurisdiction
“proper” where, inter alia, “no underlying state court action
[created] an existing, and more apt, forum”); Westfield Ins.
Co. v. Wertz, No. 10-03066, 2011 WL 2135579, at *3 (E.D.
30
In light of the foregoing authorities, we conclude that
it is not a per se abuse of discretion for a court to decline to
exercise jurisdiction when pending parallel state proceedings
do not exist. Nor is it a per se abuse of discretion for a court
to exercise jurisdiction when pending parallel state
proceedings do exist. Rather, the existence or non-existence
of pending parallel state proceedings is but one factor for a
district court to consider. We concur with the Fourth Circuit
that holding otherwise would “be inconsistent with our long-
standing belief that district courts should be afforded great
latitude in determining whether to grant or deny declaratory
relief.” Ind-Com Elec. Co., 139 F.3d at 423.
Although our sister circuits have found the existence
or non-existence of pending parallel state proceedings only to
be but one factor, they have placed upon it increased
emphasis. E.g., Scottsdale Ins. Co., 426 F.3d at 997–98
(holding that DJA discretion is diminished in absence of
parallel state proceedings); Sherwin-Williams Co., 343 F.3d at
394 (absence of parallel state proceeding is “important
factor,” which weighs “strongly against dismissal”); Ind-Com
Pa. May 27, 2011) (finding that lack of parallel state action
was a factor which weighed in favor of exercising
jurisdiction); TIG Ins. Co. v. Tyco Int’l, Ltd., No. 3:08-cv-
1584, 2009 WL 151597, at *5 (M.D. Pa. Jan. 21, 2009)
(finding jurisdiction appropriate because lack of pending state
proceedings meant that it did not “disrupt the state-federal
balance by entertaining a claim that may be the subject of a
future state court action”). This is different from saying that
Summy compelled these courts to exercise jurisdiction.
Rather, what they exercised was their discretion.
31
Elec. Co., 139 F.3d at 423 (existence of state proceeding is
“significant factor”); Golden Eagle Ins. Co., 103 F.3d at 754
(existence of parallel state proceeding is “major factor”). We
agree and believe the absence of pending parallel state
proceedings militates significantly in favor of exercising
jurisdiction, although it alone does not require such an
exercise. In this circumstance, as part of exercising sound and
reasoned discretion, district courts declining jurisdiction
should be rigorous in ensuring themselves that the lack of
pending parallel state proceedings is outweighed by opposing
factors. This same rationale applies when state proceedings
do exist. The existence of pending parallel state proceedings
militates significantly in favor of declining jurisdiction,
although it alone does not require doing so. In this
circumstance, as part of exercising sound and reasoned
discretion, district courts exercising jurisdiction should be
rigorous in ensuring themselves that the existence of pending
parallel state proceedings is outweighed by opposing factors.
5.
When addressing this question, our sister circuits have
commonly articulated anew or reiterated sets of factors for
district courts to consider when exercising their sound and
reasoned discretion.20 See, e.g., Scottsdale Ins. Co., 426 F.3d
20
We list them for the convenience of all concerned. In the
Fourth Circuit, district courts should consider (1) whether
declaratory relief “will serve a useful purpose in clarifying
and settling the legal relations in issue”; (2) whether
declaratory relief “will terminate and afford relief from the
uncertainty, insecurity, and controversy giving rise to the
proceeding”; (3) “the strength of the state’s interest in having
32
the issues raised in the federal declaratory judgment action
decided in the state courts”; (4) “whether the issues raised in
the federal action can more efficiently be resolved in the court
in which the state action is pending”; (5) “whether permitting
the federal action to go forward would result in unnecessary
‘entanglement’ between the federal and state court systems
because of the presence of overlapping issues of fact or law”;
and (6) “whether the declaratory judgment action is being
used merely as a device for ‘procedural fencing’—that is, ‘to
provide another forum in the race for res judicata’ or ‘to
achiev[e] a federal hearing in a case otherwise not
removable.’” Ind-Com Elec. Co., 139 F.3d at 422 (alteration
in original) (quoting Nautilus Ins. Co. v. Winchester Homes,
Inc., 15 F.3d 371, 377 (4th Cir. 1994); Mitcheson v. Harris,
955 F.2d 235, 237–40 (4th Cir. 1992); Aetna Cas. & Sur. Co.
v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937)).
In the Fifth Circuit, district courts must consider “(1)
whether there is a pending state action in which all of the
matters in controversy may be fully litigated; (2) whether the
plaintiff filed suit in anticipation of a lawsuit filed by the
defendant; (3) whether the plaintiff engaged in forum
shopping in bringing the suit; (4) whether possible inequities
in allowing the declaratory plaintiff to gain precedence in
time or to change forums exist; (5) whether the federal court
is a convenient forum for the parties and witnesses; (6)
whether retaining the lawsuit would serve the purposes of
judicial economy; and (7) whether the federal court is being
called on to construe a state judicial decree involving the
same parties and entered by the court before whom the
parallel state suit between the same parties is pending.”
Sherwin-Williams Co., 343 F.3d at 388 (quoting St. Paul Ins.
Co. v. Trejo, 39 F.3d 585, 590–91 (5th Cir. 1994)).
33
The Seventh Circuit has identified four factors:
whether (1) “the declaratory suit presents a question distinct
from the issues raised in the state court proceeding”; (2) “the
parties to the two actions are identical”; (3) “going forward
with the declaratory action will serve a useful purpose in
clarifying the legal obligations and relationships among the
parties or will merely amount to duplicative and piecemeal
litigation”; and (4) “comparable relief is available to the
plaintiff seeking a declaratory judgment in another forum or
at another time.” Nationwide Ins. v. Zavalis, 52 F.3d 689, 692
(7th Cir. 1995).
The Eighth Circuit has adopted the Fourth Circuit’s
test. Scottsdale Ins. Co., 426 F.3d at 998.
The Ninth Circuit has suggested the following
considerations: (1) party convenience; (2) the availability and
relative convenience of alternate remedies, and whether the
declaratory action (3) “will settle all aspects of the
controversy;” (4) “will serve a useful purpose in clarifying the
legal relations at issue;” (5) “is being sought merely for the
purposes of procedural fencing or to obtain a ‘res judicata’
advantage; or” (6) “will result in entanglement between the
federal and state court systems.” Dizol, 133 F.3d at 1225 n.5
(quoting Am. States Ins. Co. v. Kearns, 15 F.3d 142, 145 (9th
Cir. 1994) (Garth, J. concurring)).
The Tenth Circuit’s factors are “(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
34
at 998–99 (collecting cases). We find that establishing a
uniform approach from the many sets of factors will better
clarify for parties and district courts the relevant
considerations to sound and reasoned discretion, as well as
help properly focus our abuse of discretion review.
Thus, when determining whether to exercise DJA
jurisdiction, in addition to consulting the Brillhart factors,21 a
district court should guide its exercise of sound and reasoned
discretion by giving meaningful consideration to the
following factors to the extent they are relevant:
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)).
21
In circumstances like Brillhart’s, courts should consider
“whether the questions in controversy between the parties to
the federal suit, and which are not foreclosed under the
applicable substantive law, can better be settled in the
proceeding pending in the state court.” Brillhart, 316 U.S. at
495. Answering this question may require inquiring
into the scope of the pending state court
proceeding . . . the nature of the defenses open
there. . . . whether the claims of all parties in
interest can satisfactorily be adjudicated in that
proceeding, whether necessary parties have
been joined, whether such parties are amenable
to process in that proceeding, etc.
Id.
35
(1) the likelihood that a federal court declaration will
resolve the uncertainty of obligation which gave rise
to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the
uncertainty of obligation;
(4) the availability and relative convenience of other
remedies;
(5) a general policy of restraint when the same issues
are pending in a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a
method of procedural fencing or as a means to
provide another forum in a race for res judicata;
and
(8) (in the insurance context), 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.22
22
We articulate this criteria in awareness of the Ninth
Circuit’s troubled experience with requiring its district courts
“to consider the discretionary nature of [their] jurisdiction at
the outset of the case” even in the absence of a pending state
action and where the parties did not raise the issue below.
Dizol, 133 F.3d at 1223 (quoting St. Paul Fire & Marine Ins.
Co. v. F.H., 117 F.3d 435, 437 (9th Cir. 1997)). We express
no opinion today whether district courts, prior to exercising
DJA jurisdiction, must always address the appropriateness of
doing so even when not raised by the parties. We merely hold
that, when the propriety of DJA jurisdiction is raised by the
36
These factors are non-exhaustive, and there will be situations
in which district courts must consult and address other
relevant case law or considerations.23 For example, in
insurance cases, (and to the extent Summy applies elsewhere)
Summy’s additional guidance should also be considered. The
weighing of these factors should be articulated in a record
sufficient to enable our abuse of discretion review.
Enumerating these factors requires us to address the
Owens trend followed by the District Court. This trend could
be problematic for two reasons. First, there is nothing to
distinguish these cases from any other declaratory judgment
action that invokes diversity jurisdiction and asks federal
parties or by the district court sua sponte, the district court
should meaningfully consider the above guides in exercising
its sound and reasoned discretion. This weighing should be
articulated in a record sufficient to enable our abuse of
discretion review.
23
We understand the holding of Commonwealth of
Pennsylvania, Department of Environmental Resources to
have been derived from consideration of the above factors.
923 F.2d at 1076 (“We turn now to the application of these
many factors to the facts before us.”) To the extent that case
articulated additional relevant considerations, district courts
facing the same or similar issues should continue to consult
its guidance. See, e.g., Summy, 234 F.3d at 134 (citing Pa,
Dep’t of Envtl. Res., 923 F.2d at 1076–79) (noting that district
courts facing issues of “federal statutory interpretation, the
government’s choice of a federal forum, an issue of sovereign
immunity, or inadequacy of the state proceeding,” do not
have open-ended discretion to decline jurisdiction).
37
courts to declare the rights of parties under settled state law.
Placing our imprimatur on this exercise of discretion might on
its face appear to permit declining jurisdiction per se in every
such case. We are less than confident that wholesale,
“revolving door” dismissal of such cases evidences a
discretion that is either “sound,” Wilton, 515 U.S. at 286, or
“reasoned,” Bituminous Coal Operators’ Assoc., 585 F.2d at
596. See, e.g., Vulcan Materials Co. v. City of Tehuacana,
238 F.3d 382, 390 (5th Cir. 2001) (finding abuse of discretion
where district court failed to consider relevant factors and
dismissed declaratory judgment suit “simply because it [did]
not involve a question of federal law” (quoting St. Paul Ins.
Co. v. Trejo, 39 F.3d 585, 591 n.10 (5th Cir. 1994))). This is
especially true where “[f]ederal and state courts are equally
capable of applying settled state law to a difficult set of
facts.” Heritage Farms Inc. v. Solebury Twp., 671 F.2d 743,
747 (3d Cir. 1982) (quoting Note, Land Use Regulation, the
Federal Courts and the Abstention Doctrine, 89 Yale L.J.
1134, 1143 n.55 (1980)).
Second, these cases implicate neither an improper use
of procedure by insurance companies nor unfairness to
insureds. While we sympathize with our district courts’
apparent frustration over the volume of such cases, we, like
our sister circuit, “know of no authority for the proposition
that an insurer is barred from invoking diversity jurisdiction
to bring a declaratory judgment action against an insured on
an issue of coverage.” Dizol, 133 F.3d at 1225 (quoting Aetna
Cas. & Sur. Co. v. Merritt, 974 F.2d 1196, 1199 (9th Cir.
1992)); see also Sherwin-Williams Co., 343 F.3d at 398–400.
Indeed, we know of no other circuit court which has approved
the per se dismissal of declaratory judgment actions in these
circumstances. Rather, as noted above, when pending parallel
state proceedings do not exist, our sister circuits have
38
articulated extensive, multi-factor tests for district courts to
consider. See, e.g., Scottsdale Ins. Co., 426 F.3d at 998–99
(collecting cases).
These concerns do not conflict with our holding in
Summy. Despite our statements noting that such cases have
“no special call on the federal forum” and that even less
reason for federal jurisdiction exists when state law is “firmly
established,” Summy’s holding specifically turned on
considerations relevant to the pending state court suit. 234
F.3d at 135–36.
We reject any reading of Summy that supports per se
automatic declining of jurisdiction in every such case. On the
other side of the coin, we also reject Westport’s argument to
the extent that it implies that, when Summy’s factors are not
implicated, a district court must exercise its DJA jurisdiction.
As our non-exhaustive, multi-factor test makes clear, there
are many potential considerations that properly inform a
district court’s sound and reasoned discretion.
6.
We now turn to whether the District Court abused its
discretion in this case by declining to exercise its DJA
jurisdiction. We conclude that declining jurisdiction was
proper because the lack of pending parallel state proceedings
was outweighed by another relevant consideration, namely,
the nature of the state law issue raised by Reifer. Where state
law is uncertain or undetermined, the proper relationship
between federal and state courts requires district courts to
“step back” and be “particularly reluctant” to exercise DJA
jurisdiction. Id. (“[T]he state’s interest in resolving its own
39
law must not be given short shrift simply because one party
or, indeed, both parties, perceive some advantage in the
federal forum.”). The fact that district courts are limited to
predicting—rather than establishing—state law requires
“serious consideration” and is “especially important in
insurance coverage cases.” Id. at 135.
Reifer argues that her claims raise “critical issues of
state law and public policy that should be decided by
Pennsylvania state courts.” (Brief of Appellee at 19.) She
contends that the instant case exemplifies Pennsylvania’s
“broken state system,” which “[o]nly the state can repair.”
(Id.) She notes that Russo’s negligence deprived her of her
livelihood, and that his failure to notify Westport of her claim
will deprive her of a remedy unless Westport is required to
show prejudice. Reifer’s argument proceeds in five steps:
(1) Regulation of the practice of law is a
matter of state law and the Pennsylvania
Supreme Court “has inherent and exclusive
power” to supervise attorney conduct, which it
does by promulgating governing rules. (Id. at
19–20 (quoting Pa. R.D.E. 103).)
(2) Pennsylvania Rule of Professional
Conduct 1.4(c) requires attorneys to disclose
publically whether they maintain the mandatory
minimum coverage and notify existing clients if
their coverage falls below the minimum or
lapses.
(3) These mandatory disclosures induce
reasonable reliance on the belief that the public
is protected against attorney malpractice.
40
(4) Claims-made policies are the only
legal malpractice insurance policies available in
Pennsylvania and, under current Pennsylvania
law, insurers need not show prejudice before
denying claims not made during the policy
period.
(5) Thus, the protection the Pennsylvania
Supreme Court intends Rule 1.4(c) to provide is
illusory because a negligent attorney can
commit malpractice and fail to report a
malpractice claim, both harming the client and
the client’s prospect of recovery. This is true
even if the attorney had malpractice insurance
during the representation and when the
malpractice claim was filed.
Reifer argues that Pennsylvania can and should fix this
system by requiring insurance companies to cover late claims
unless they can show prejudice. She contends that doing so
would be a logical next step in Pennsylvania jurisprudence.
For example, she invokes Brakeman v. Potomac Insurance
Co., in which the Pennsylvania Supreme Court—for public
policy reasons, among others—required insurance companies
to show prejudice when tardily notified of claims pursuant to
occurrence contracts. 371 A.2d 193, 198 n.8 (Pa. 1977). She
admits that Pennsylvania courts have never applied Brakeman
to claims-made policies such as the one in question here, but
contends that protecting the public requires doing so.
Westport frames the case as a mundane question of
insurance coverage. It argues that remand was inappropriate,
in part, because the relevant state law was well settled and the
District Court was perfectly capable of applying it. It
41
contends that this case raises only the straightforward issue
“whether an insurer must prove prejudice before declining
coverage for late notice under a claims-made policy.”
(Appellant Br. at 16.) Pennsylvania courts, as well as federal
courts applying Pennsylvania law, have “unanimously
answered [this] question in the negative”: Insurance
companies simply need not show prejudice prior to denying
coverage on claims-made policies. (Id.)
While we express no opinion on the merits of Reifer’s
claim, we believe that, at minimum, she makes a nonfrivolous
argument for possibly carving an exception to governing
Pennsylvania law in the context of legal malpractice
insurance contracts. Federal courts are, of course, perfectly
capable of applying state law, Heritage Farms Inc., 671 F.2d
at 747, even where nonfrivolous arguments are raised to
change it; however, we believe this particular case is best
decided in the state court system. Importantly, Reifer’s
argument implicates the policies underlying Pennsylvania’s
rules governing attorney conduct, which are promulgated by
the Pennsylvania Supreme Court. See, e.g., Beyers v.
Richmond, 937 A.2d 1082, 1090 (Pa. 2007). Reifer’s
argument unmasks a potentially unintended and unforeseen
consequence arising out of the nexus of those Rules and
Pennsylvania insurance law, which places in the hands of
negligent attorneys the responsibility of ensuring their clients
receive a remedy. Reifer raises a legitimate concern that
current Pennsylvania insurance law permits the fox to guard
the henhouse and hinders realization of the Pennsylvania
Supreme Court’s intent. Thus, we believe her argument—
whatever its merits—is best decided in the Pennsylvania court
system because it directly raises a matter peculiarly within the
42
purview of that state’s highest court.24 See, e.g., id. (noting
the Pennsylvania Supreme Court’s “exclusive authority” to
govern attorney conduct).
Among other reasons, the District Court declined
jurisdiction “[f]or the sake of comity.” Reifer, 943 F. Supp.
2d at 511. It noted the importance of respecting the ability of
the Pennsylvania court system “to enforce its own judgments
decided by its own Courts of Common Pleas.” Reifer, 2013
WL 2650275, at *2. We would have preferred the District
Court to squarely address the alleged novelty of Reifer’s state
law claims, an argument she raised below. In the future,
district courts should meaningfully consider the guidance
discussed above when relevant, as well as any other relevant
considerations in their exercise of sound and reasoned
discretion. But under these circumstances we find that neither
the parties nor judicial efficiency would benefit from a
remand where we take issue with the District Court’s
procedures but not its result. We find that the issues raised
place this case peculiarly within the purview of the
Pennsylvania courts and that the District Court’s discretionary
decision achieved the proper result: declining jurisdiction and
remanding to the state court.25
24
Westport argues that Reifer stands in Russo’s shoes, and
that any individual claims she makes as a client are irrelevant.
For the same reasons discussed above, we believe the
Pennsylvania state courts are better suited to determine the
heights of this alleged barrier to her argument invoking
Pennsylvania’s rules of attorney conduct, such as whether
Reifer may amend her complaint to include individual claims.
25
We acknowledge that the timing of the District Court’s
remand raises judicial efficiency concerns. Westport removed
43
IV. CONCLUSION
For the foregoing reasons, we affirm the decisions of
the District Court to decline DJA jurisdiction and to deny
reconsideration.
the instant case to federal court on March 23, 2012. The
parties briefed the relevant issues and the Magistrate Judge
considered the merits and issued a 39-page report and
recommendation on October 12, 2012. Reifer and Westport
expended resources preparing an objection and response
respectively to the report and recommendation. After all of
this effort, over one year after the case was originally
removed, the district court, sua sponte, declined jurisdiction
and remanded the case back to state court. For the parties to
receive the declaration of rights they have vigorously
contested for over two years, another court in another forum
must now review the identical evidence, case law, and legal
arguments which were the subject of the Magistrate Judge’s
detailed report and recommendation. Although the DJA
confers “unique and substantial discretion” on federal courts
to determine when to issue a declaratory judgment, such
discretion is founded on “considerations of practicality and
wise judicial administration.” Wilton, 515 U.S. at 288. In a
future case, such considerations may require a district court,
when declining jurisdiction sua sponte, to do so in a more
timely fashion than occurred here as a matter of exercising its
sound and reasoned discretion. In the instant case, for the
reasons discussed above, we find this factor outweighed by
Reifer’s state law argument.
44