Wilton v. Seven Falls Co.

• Decision Date: 12 June 1995
• Docket Number: No. 94-562.,94-562.
• Parties: Leslie WILTON, etc., et al., Petitioners v. SEVEN FALLS COMPANY et al.
• Court: U.S. Supreme Court

515 U.S. 277

115 S.Ct. 2137

132 L.Ed.2d 214

Leslie WILTON, etc., et al., Petitioners v. SEVEN FALLS COMPANY et al.

No. 94-562.

Supreme Court of the United States

Argued March 27, 1995

June 12, 1995

Syllabus^*

Petitioner underwriters refused to defend or indemnify respondents under several commercial liability insurance policies in litigation between respondents and other parties over the ownership and operation of certain Texas oil and gas properties. After a verdict was entered against respondents and they notified petitioners that they intended to file a state court suit on the policies, petitioners sought a declaratory judgment in federal court that their policies did not cover respondents' liability. Respondents filed their state court suit and moved to dismiss or, in the alternative, to stay petitioners' action. The District Court entered a stay on the ground that the state suit encompassed the same coverage issues raised in the federal action, and the Court of Appeals affirmed. Noting that a district court has broad discretion to grant or decline to grant declaratory judgment, the court did not require application of the test articulated in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483, and Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765, under which district courts must point to "exceptional circumstances" to justify staying or dismissing federal proceedings. The court reviewed the District Court's decision for abuse of discretion, and found none.

Held:

1. The discretionary standard of Brillhart v. Excess Ins. Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620, governs a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings. Pp. 282-288

(a) In addressing circumstances virtually identical to those present here, the Court in Brillhart made clear that district courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act (Act), even when the suit otherwise satisfies subject matter jurisdiction. While Brillhart did not set out an exclusive list of factors governing the exercise of this discretion, it did provide some guidance, indicating that, at least where another suit involving the same parties and presenting opportunity for ventilation of the same state law issues is pending in state court, a district court might be indulging in gratuitous interference if it permitted the federal declaratory action to proceed. Pp. 282-283.

(b) The Act's distinct features justify a standard vesting district courts with greater discretion in declaratory judgment actions than that permitted under the "exceptional circumstances" test set forth in Colorado River and Moses H. Cone, neither of which dealt with declaratory judgments. On its face, the Act makes a textual commitment to discretion by specifying that a court "may " declare litigants' rights, 28 U.S.C. § 2201(a) (emphasis added), and it has repeatedly been characterized as an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant. Pp. 283-287.

(c) Petitioners' argument that, despite the unique breadth of this discretion, district courts lack discretion to decline to hear a declaratory judgment suit at the outset depends on the untenable proposition that a court, knowing at the litigation's commencement that it will exercise its discretion to decline declaratory relief, must nonetheless go through the futile exercise of hearing a case on the merits first. Nothing in the Act recommends this reading, and the Court is unwilling to impute to Congress an intention to require such a wasteful expenditure of judicial resources. Pp. 287-288.

2. District courts' decisions about the propriety of hearing declaratory judgment actions should be reviewed for abuse of discretion, not de novo. It is more consistent with the Act to vest district courts with discretion in the first instance, because facts bearing on the declaratory judgment remedy's usefulness, and the case's fitness for resolution, are particularly within their grasp. Proper application of the abuse of discretion standard on appeal can provide appropriate guidance to district courts. Pp. 288-289.

3. The District Court acted within its bounds in staying the declaratory relief action in this case, since parallel proceedings, presenting opportunity for ventilation of the same state law issues, were underway in state court. P. 289-290.

29 F.3d 623 (CA5 1994), affirmed.

O'CONNOR, J., delivered the opinion of the Court, in which all other Members joined, except BREYER, J., who took no part in the consideration or decision of the case.

Michael A. Orlando, Westmont, NJ, for petitioners.

Werner A. Powers,

Dallas, TX, for respondents.

Justice O'CONNOR delivered the opinion of the Court.

This case asks whether the discretionary standard set forth in Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), or the "exceptional circumstances" test developed in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), governs a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings, and under what standard of review a court of appeals should evaluate the district court's decision to do so.

I

In early 1992, a dispute between respondents (the Hill Group) and other parties over the ownership and operation of oil and gas properties in Winkler County, Texas, appeared likely to culminate in litigation. The Hill Group asked petitioners (London Underwriters)¹ to provide them with coverage under several commercial liability insurance policies. London Underwriters refused to defend or indemnify the Hill Group in a letter dated July 31, 1992. In September 1992, after a 3-week trial, a Winkler County jury entered a verdict in excess of $100 million against the Hill Group on various state law claims.

The Hill Group gave London Underwriters notice of the verdict in late November 1992. On December 9, 1992, London Underwriters filed suitin the United States District Court for the Southern District of Texas, basing jurisdiction upon diversity of citizenship under 28 U.S.C. § 1332. London Underwriters sought a declaration under the Declaratory Judgment Act, 28 U.S.C. § 2201(a) (1988 ed., Supp. V), that their policies did not cover the Hill Group's liability for the Winkler County judgment. After negotiations with the Hill Group's counsel, London Underwriters voluntarily dismissed the action on January 22, 1993. London Underwriters did so, however, upon the express condition that the Hill Group give London Underwriters two weeks' notice if they decided to bring suit on the policy.

On February 23, 1993, the Hill Group notified London Underwriters of their intention to file such a suit in Travis County, Texas. London Underwriters refiled their declaratory judgment action in the Southern District of Texas on February 24, 1993. As promised, the Hill Group initiated an action against London Underwriters on March 26, 1993 in state court in Travis County. The Hill Group's codefendants in the Winkler County litigation joined in this suit and asserted claims against certain Texas insurers, thus rendering the parties nondiverse and the suit nonremovable.

On the same day that the Hill Group filed their Travis County action, they moved to dismiss or, in the alternative, to stay London Underwriters' federal declaratory judgment action. After receiving submissions from the parties on the issue, the District Court entered a stay on June 30, 1993. The District Court observed that the state lawsuit pending in Travis County encom- passed the same coverage issues raised in the declaratory judgment action and determined that a stay was warranted in order to avoid piecemeal litigation and to bar London Underwriters' attempts at forum shopping. London Underwriters filed a timely appeal. See Moses H. Cone Memorial Hospital, supra, at 10, 103 S.Ct., at 933-934 (a district court's order staying federal proceedings in favor of pending state litigation is a "final decisio[n]"appealable under 28 U.S.C. § 1291).

The United States Court of Appeals for the Fifth Circuit affirmed in an unpublished opinion filed on July 29, 1994. Noting that under Circuit precedent, "[a] district court has broad discretion to grant (or decline to grant) declaratory judgment," Wilton v. Seven Falls Co., 41 F.3d 934, 935 (CA5 1994), citing Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (CA5 1991), the Court of Appeals did not require application of the test articulated in Colorado River, supra, and Moses H. Cone, supra, under which district courts must point to "exceptional circumstances" to justify staying or dismissing federal proceedings. Citing the interests in avoiding duplicative proceedings and forum shopping, the Court of Appeals reviewed the District Court's decision for abuse of discretion, and found none. Wilton, 41 F.3d, at 935.

We granted certiorari, 513 U.S. ----, 115 S.Ct. 571, 130 L.Ed.2d 488 (1994), to resolve circuit conflicts concerning the standard governing a district court's decision to stay a declaratory judgment action in favor of parallel state litigation, compare, e.g., Employers Ins. of Wausau v. Missouri Elec. Works, 23 F.3d 1372, 1374, n. 3 (CA8 1994) (pursuant to Colorado River and Moses H. Cone, a district court may not stay or dismiss a declaratory judgment action absent "exceptional circumstances"); Lumbermens Mut. Casualty Co. v. Connecticut Bank & Trust, 806 F.2d 411, 413 (CA2 1986) (same), with Travelers Ins. Co. v. Louisiana Farm Bureau Federation, Inc., 996 F.2d 774, 778, n. 12 (CA5 1993) (the "exceptional circumstances" test of Colorado River and ...