R.R. Street & Co., Inc. v. Vulcan Materials Co.

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: Manion
• Citation: R.R. Street & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711 (7th Cir. 2009)
• Decision Date: 25 June 2009
• Docket Number: No. 08-3445.,No. 08-3529.,08-3445.,08-3529.
• Parties: R.R. STREET & CO., INC., and National Union Fire Insurance Company of Pittsburgh, PA, as subrogee of R.R. Street and Co., Inc., Plaintiffs-Appellants, v. VULCAN MATERIALS COMPANY, n/k/a Legacy Vulcan Corp., Defendant-Appellee.

569 F.3d 711

R.R. STREET & CO., INC., and National Union Fire Insurance Company of Pittsburgh, PA, as subrogee of R.R. Street and Co., Inc., Plaintiffs-Appellants, v. VULCAN MATERIALS COMPANY, n/k/a Legacy Vulcan Corp., Defendant-Appellee.

No. 08-3445.

No. 08-3529.

United States Court of Appeals, Seventh Circuit.

Argued February 27, 2009.

Decided June 25, 2009.

John B. Thomas, Hicks, Thomas, Houston, TX, Eric Grant (argued), Sacramento, CA, Bryan G. Schumann, Bollinger, Ruberry & Garvey, Chicago, IL, Plaintiffs-Appellants.

Richard C. Godfrey (argued), Matthew T. Regan, Kirkland & Ellis, Chicago, IL, for Defendant-Appellee.

Before MANION, ROVNER, and TINDER, Circuit Judges.

MANION, Circuit Judge.

Under what is known as the Wilton/Brillhart abstention doctrine, district courts possess significant discretion to dismiss or stay claims seeking declaratory relief, even though they have subject matter jurisdiction over such claims. R.R. Street & Company, Inc. ("Street") and National Union Fire Insurance Company of Pittsburgh, PA ("National Union") sued Vulcan Materials Company ("Vulcan") in this diversity action for declaratory relief and money damages related to Vulcan's refusal to defend and indemnify Street in several underlying lawsuits. Relying on the Wilton/Brillhart doctrine, Vulcan moved to dismiss the action or, alternatively, to stay the action pending resolution of a California state court action in which all three parties were involved. The district court granted Vulcan's motion, dismissing the plaintiffs' claims for both declaratory and non-declaratory relief based on the Wilton/Brillhart abstention doctrine. Street and National Union appeal. Because we conclude that the district court lacked discretion under the Wilton/Brillhart doctrine to dismiss the non-declaratory claims and should have exercised its discretion under that doctrine to retain the declaratory claim, we reverse and remand.

I.

Vulcan manufactures a dry-cleaning solvent called PerSec. In 1961, Vulcan made Street the exclusive distributor of PerSec in the United States. In 1992, Vulcan and Street entered an agreement in which Vulcan allegedly promised to defend and indemnify Street for all claims brought against Street related to its distribution of PerSec. Subsequent to that agreement, several lawsuits (the "underlying lawsuits") were filed against Street and Vulcan in California for harms allegedly caused by PerSec. Those underlying lawsuits are still active.

Vulcan has liability insurance with many insurance companies, one of which is National Union. In 2005, some of those insurers, including National Union, filed a lawsuit in California state court ("the Vulcan Insurance Action") seeking a declaration that they owe no coverage obligations to Vulcan in various lawsuits.

National Union also insures Street under several general liability policies and has been defending Street in the underlying lawsuits because Vulcan has refused to defend or indemnify Street in those suits, as Street claims Vulcan promised to do under their 1992 agreement. On February 26, 2008, Street and National Union (as Street's subrogee) filed a diversity action against Vulcan in the Northern District of Illinois.¹ In their amended complaint, the plaintiffs asserted claims for breach of contract, common law indemnity, and promissory estoppel, seeking money damages for Vulcan's refusal to defend and indemnify Street in the underlying lawsuits. Street and National Union also brought a claim for declaratory relief under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, asking the district court to declare that Vulcan owes defense and indemnity obligations to Street in the underlying lawsuits.

Vulcan then filed a cross-complaint against Street and National Union in the Vulcan Insurance Action seeking a declaration that it has no duty to defend or indemnify Street in the underlying lawsuits.² Vulcan also filed a motion to dismiss (or, alternatively, to stay) the plaintiffs' complaint in this case. Vulcan argued that the district court should either dismiss the case under the Wilton/Brillhart abstention doctrine or stay the action under either Wilton/Brillhart or the Colorado River abstention doctrine pending resolution of the Vulcan Insurance Action in California state court. The district court granted Vulcan's motion, dismissing the action pursuant to the Wilton/Brillhart doctrine. The court did not discuss Colorado River abstention. Relying on the Lyon court's order of dismissal, the district court first determined that Wilton/Brillhart was applicable to the entire case because the plaintiffs' claims for damages were dependent upon their claim for declaratory relief. Then, the court applied the relevant Wilton/Brillhart factors and decided they counseled in favor of dismissing the action. After their motions to alter or amend the judgment were denied, the plaintiffs appealed the dismissal of the case.

II.

On appeal, the plaintiffs argue that the district court's dismissal was erroneous because Wilton/Brillhart does not apply to this action. Whether an abstention doctrine is applicable in the first place is a question of law that we review de novo. See AAR Int'l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 518 (7th Cir.2001) (whether two proceedings are parallel, which is a prerequisite for Colorado River abstention, is a matter of law subject to de novo review); Prop. & Cas. Ins. Ltd. v. Cent. Nat'l Ins. Co. of Omaha, 936 F.2d 319, 321 (7th Cir.1991) (whether a case meets traditional abstention requirements is a question of law subject to de novo review).

Under the Declaratory Judgment Act ("the Act"), "[i]n a case of actual controversy within its jurisdiction ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). Since its inception, the Act "has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). In other words, in passing the Act, "Congress sought to place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants." Id. at 288, 115 S.Ct. 2137.

Consistent with the discretionary nature of the relief permitted by the Act, the Supreme Court held in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), that district courts possess considerable leeway in deciding whether to entertain declaratory judgment actions even though subject matter jurisdiction is established. In Wilton, the Court confirmed the continued vitality of Brillhart, rejecting the argument that exceptional circumstances under the Colorado River doctrine³ must exist in order to justify abstention in a declaratory judgment action. Id. at 286, 115 S.Ct. 2137.

There is no doubt that a court may dismiss or stay an action under the Wilton/Brillhart abstention doctrine where solely declaratory relief is sought. Id. at 288, 290, 115 S.Ct. 2137; Sta-Rite Indus., Inc. v. Allstate Ins. Co., 96 F.3d 281, 287 (7th Cir.1996); see Brillhart, 316 U.S. at 492, 495, 62 S.Ct. 1173. But where, as here, both declaratory and non-declaratory relief is sought, does the Wilton/Brillhart standard even apply, and, if so, under what circumstances? This issue has received different treatment in the courts of appeals that have addressed it and is one of first impression in this court.

The Fifth Circuit has adopted a strict bright-line approach: When an action includes a claim for declaratory relief along with any non-frivolous claim for coercive relief, Wilton/Brillhart abstention is completely inapplicable to all claims, and the Colorado River doctrine governs instead. New England Ins. Co. v. Barnett, 561 F.3d 392, 395 (5th Cir.2009) (collecting cases). The Second and Tenth Circuits have agreed with the Fifth Circuit's approach, albeit in dicta. United States v. City of Las Cruces, 289 F.3d 1170, 1181-82 (10th Cir.2002); Vill. of Westfield v. Welch's, 170 F.3d 116, 125 n. 5 (2d Cir.1999).⁴

In contrast, the Ninth Circuit first determines "whether there are claims in the case that exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case." United Nat'l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1112 (9th Cir. 2001) (quoting Snodgrass v. Provident Life & Accident Ins. Co., 147 F.3d 1163, 1167-68 (9th Cir.1998) (per curiam)). If independent non-declaratory claims are present, then "the district court is without discretion to ... decline to entertain these causes of action. Indeed, the district court has a `virtually unflagging' obligation to exercise jurisdiction over these claims." Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1226 n. 6 (9th Cir.1998) (en banc). Non-declaratory claims are "independent" of a declaratory claim when they are alone sufficient to invoke the court's subject matter jurisdiction and can be adjudicated without the requested declaratory relief. R&D Latex, 242 F.3d at 1113; Snodgrass, 147 F.3d at 1167-68. Regarding the declaratory claim, "[t]he district court should not, as a general rule ... decline to entertain the claim for declaratory relief. If a federal court is required to determine major issues of state law because of the existence of non-discretionary claims, the declaratory action should be retained to avoid piecemeal litigation." Dizol, 133 F.3d at 1225-26. Thus, under the Ninth Circuit's approach, concern for judicial economy significantly limits the discretion afforded by Wilton/Brillhart over a declaratory claim when independent non-declaratory claims are present.⁵ Where the non-declaratory claims are not independent, the district court has discretion...