Scottsdale Ins. Co. v. Detco Industries

• Decision Date: 20 October 2005
• Docket Number: No. 04-2633.,04-2633.
• Parties: SCOTTSDALE INSURANCE COMPANY, Appellant, v. DETCO INDUSTRIES, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

426 F.3d 994

SCOTTSDALE INSURANCE COMPANY, Appellant, v. DETCO INDUSTRIES, INC., Appellee.

No. 04-2633.

United States Court of Appeals, Eighth Circuit.

Submitted: April 13, 2005.

Filed: October 20, 2005.

COPYRIGHT MATERIAL OMITTED

Stephen P. Hall, argued, New Orleans, LA (James W. Tilley and Leah E. Nunn, on the brief), for appellant.

William C. Brazil, argued, Conway, AR, for appellee.

Before WOLLMAN, HANSEN, and BENTON, Circuit Judges.

WOLLMAN, Circuit Judge.

Scottsdale Insurance Company (Scottsdale) appeals from the district court's dismissal of its declaratory judgment action. We reverse and remand.

I.

The parties to this case are insurer Scottsdale and its insured, Detco Industries, Inc. (Detco). Detco is the named defendant in multiple class action lawsuits in Arkansas state court stemming from a 2004 explosion at its facility in Conway, Arkansas. Scottsdale is not a party to those lawsuits, and Scottsdale's obligations to Detco under the insurance policies are not at issue in those actions. After the commencement of the state court actions, Scottsdale sought a federal declaratory judgment that it was not obligated to defend or indemnify Detco in the state court actions. Detco asserted that abstention was warranted and moved to dismiss Scottsdale's action. It is from the grant of that motion that Scottsdale now appeals.

II.

We review for abuse of discretion a decision to stay or dismiss a declaratory judgment. See Capitol Indem. Corp. v. Haverfield, 218 F.3d 872, 874 (8th Cir.2000).

Generally, a federal district court must exercise its jurisdiction over a claim unless there are "exceptional circumstances" for not doing so. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16-19, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 818, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). In Wilton v. Seven Falls Co., however, the Supreme Court held that a federal district court has much broader discretion in determining whether to exercise jurisdiction in a declaratory judgment action during the pendency of parallel state court proceedings. 515 U.S. 277, 282-90, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). The Wilton Court expressly limited its holding to those instances in which parallel proceedings are pending in state court, stating that it was "not attempt[ing] at this time to delineate the outer boundaries of [the district court's] discretion in other cases, for example, cases raising issues of federal law or cases in which there are no parallel state proceedings." Id. at 290, 115 S.Ct. 2137.

III.

A threshold issue in this case is whether parallel proceedings were pending in state court at the time Scottsdale brought its declaratory judgment action. We review de novo the district court's determination of this issue. Ryan v. Johnson, 115 F.3d 193, 196 (3d Cir.1997); see also Am. Guarantee & Liab. Ins. Co., 408 F.3d 248, 250 (5th Cir.2005).

We conclude that the proceedings between Detco and various plaintiffs pending in state court are not parallel to the request for declaratory judgment pending in federal court. Suits are parallel if "substantially the same parties litigate substantially the same issues in different forums." New Beckley Mining Corp. v. Int'l Union, United Mine Workers of Am., 946 F.2d 1072, 1073 (4th Cir.1991); see also Wilton, 515 U.S. at 290, 115 S.Ct. 2137 (noting that parallel proceedings present an opportunity for ventilation of the same state law issues). Scottsdale is not a party to the suits pending in state court against Detco. Further, the state court actions do not involve "substantially the same issues" as the federal declaratory judgment action. New Beckley Mining Corp., 946 F.2d at 1073. The suits in state court involve issues regarding Detco's liability relating to the January 2005 fire and explosion at its facility, whereas the federal suit between Detco and Scottsdale involves matters of insurance coverage. Although, as the district court noted, the issues in each proceeding may depend on some of the same facts, that circumstance does not compel a conclusion that the suits are parallel, for the state court proceedings involve parties, arguments, and issues different from those in the federal court proceedings.

IV.

We have not previously determined the extent of a federal district court's discretion in deciding whether to abstain from exercising jurisdiction over a declaratory judgment action in which there are no parallel state court proceedings.

As indicated above, the Supreme Court in Wilton adopted a broad discretionary standard governing a district court's determination whether to exercise jurisdiction over a declaratory judgment action in which there are parallel state court proceedings. The Court departed from the exceptional circumstances standard established in Colorado River Water Conservation District v. United States because "[d]istinct features of the Declaratory Judgment Act . . . justify a standard vesting district courts with greater discretion in declaratory judgment actions."¹ Wilton, 515 U.S. at 286, 115 S.Ct. 2137. In such a context, obligatory jurisdiction yields to considerations of practicality and wise judicial administration. Id. at 288, 115 S.Ct. 2137. Under Wilton's broad discretionary standard, the district court should consider "the scope of the pending state court proceeding and the nature of defenses open there," including "whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, [and] whether such parties are amenable to process in that proceeding." Id. at 283, 115 S.Ct. 2137 (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942)).

In Prudential Insurance Co. of America v. Doe, we made clear that the exceptional circumstances test does not apply in declaratory judgment actions. 140 F.3d 785, 789 (8th Cir.1998). A federal court's obligation to exercise jurisdiction, however "does not evaporate simply because there is a pending state court action involving the same subject matter." Federated Rural Elec. Ins. Corp. v. Arkansas Elec. Coops., Inc., 48 F.3d 294, 297 (8th Cir.1995). Because there are no parallel state court proceedings here, the considerations of practicality and wise judicial administration that allow a district court greater discretion under Wilton are diminished.

A number of our sister circuits agree that the broad discretion granted in Wilton does not apply when there are no parallel state court proceedings. See, e.g., United States v. City of Las Cruces, 289 F.3d 1170, 1187 (10th Cir.2002) (balancing factors more restrictive than those balanced in Wilton); Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir.2000) (same); Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422 (4th Cir.1998) (per curium) (same). Most of these circuits agree that the exceptional circumstances test also does not apply where a declaratory judgment action is in question. These circuits have instead struck a balance between these two standards, allowing the federal district court some, but not complete, discretion in determining whether to dismiss or stay declaratory judgment actions when there are no parallel state court proceedings. In Aetna Casualty & Surety Co. v. Ind-Com Electric Co., for example, the Fourth Circuit articulated a six-factor test to determine whether abstention by the district court would be appropriate in a declaratory judgment action in which there are no parallel state court proceedings. 139 F.3d at 422. According to the Fourth Circuit, the relevant factors to consider are: (1) whether the declaratory judgment sought "will serve a useful purpose in clarifying and settling the legal relations in issue"; (2) whether the declaratory judgment "will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the [federal] proceeding"; (3) "the strength of the state's interest in having 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 a race for res judicata' or `to achiev[e] a federal hearing in a case otherwise not removable.'" Id. (internal citations omitted). This test allows the district court greater discretion than the exceptional circumstances test, but less discretion than it would have under the Wilton standard. The Tenth and Sixth Circuits have adopted similar tests.²

We agree with our sister circuits that a federal district court is afforded greater discretion in determining whether to exercise jurisdiction over a declaratory judgment action than in other circumstances. We also agree that the district court's discretion is limited when no parallel proceedings are pending in state court, because in those circumstances there are less-pressing interests of practicality and wise judicial administration. For example, in the absence of parallel state court proceedings, it is less likely that "the claims of all parties in interest can satisfactorily be adjudicated" in the state court proceeding. Wilton, 515 U.S. at 283, 115 S.Ct. 2137 (quoting Brillhart, 316 U.S. at 495, 62 S.Ct. 1173). Accordingly, we conclude that the Fourth Circuit's six-factor test should be applied by the district court in determining whether to exercise jurisdiction over a declaratory judgment action.

V.

Applying the six-factor test to the district court's ruling in the present...