Granite State Insurance Company v. Tandy Corporation - Oral Argument

Argument of Ann E. Webb

Chief Justice Rehnquist: We'll hear argument first this morning in Number 91-2086, the Granite State Insurance Company v. the Tandy Corporation.

Ms. Webb.

Mr. Webb: Mr. Chief Justice, and may it please the Court:

There is only one issue in this case which is truly uncontested.

Granite State and Tandy had been engaged in a significant coverage dispute for over 2 years beginning several months before Granite State filed suit.

In an effort to resolve an escalating problem, Granite State filed a declaratory judgment action in Federal court using a remedy expressly granted by Congress in the Declaratory Judgment Act.

Both jurisdiction and venue were proper in Houston.

Nonetheless, the district court stayed this action in deference to a later-filed State court action filed almost a month later by Tandy in Fort Worth, Texas.

The Fifth Circuit affirmed.

By giving the district court virtually unfettered discretion to defer to the State courts, the Fifth Circuit has judicially eviscerated an affirmative legislative remedy.

Granite State is here today asking this Court to reinstate the Declaratory Judgment Act.

There are two questions presented by this appeal.

The first is whether a district court with unquestioned jurisdiction can abstain from hearing an action validly before it simply because of the presence of a later-filed State court action.

The second issue is whether the abstention decision of the district court is reviewed de novo or for abuse of discretion.

Because of the importance of the comity and Federalism issued presented by abstention decisions, it is important that courts of appeals stringently address... stringently review the decision of the district court.

The pendency of a parallel action is always a consideration in an abstention decision.

There is no abstention decision unless there is a parallel State court action.

This cannot be an exceptional circumstance which will justify abstention from a Federal court's unflagging obligation to exercise its valid jurisdiction.

In determining whether an abstention decision is appropriate, a Federal court must begin with one of the fundamental precepts of our Federal judicial system, and this Court has stated that Federal courts have no more right to decline the exercise of valid jurisdiction than to usurp that which is not given.

The one or the other is treasonous to the Constitution.

Abstention is an extraordinary and narrow exception to a Federal court's unflagging obligation to exercise its valid jurisdiction.

Unknown Speaker: Well, Ms. Webb, are you assuming that an action for a declaratory judgment in that respect is the same as an action for an injunction or for damages because the declaratory judgment statute which you set forth in your brief at page 3 says that the district court may declare the rights.

It certainly suggests discretion to do so or not to do so, doesn't it?

Mr. Webb: Your Honor, there seems to be some discretion in the declaratory judgment statute.

We believe the discretion is not whether or not a district court may hear the case, but whether or not the district court may grant the release asked for.

There are many occasions in which declaratory relief is sought, but declaratory relief isn't appropriate for one reason or another.

For example, in the Grow case, it's... the Voting Rights Act precludes the granting of declaratory relief.

The State legislative prerogative precludes the granting of declaratory relief.

A case cited by my co-counsel, Mansour v. Green, the Eleventh Amendment barred the granting of declaratory relief.

We believe that is where the discretion lies.

The courts do not have discretion whether or not to decline jurisdiction.

Jurisdiction is mandatory.

Unknown Speaker: What do you do with the Brillhart case?

Mr. Webb: We believe that the Brillhart case, a decision almost 50 years old at this point, cannot be read in a vacuum.

It must be read in light of this Court's intervening decisions, in Colorado River, Moses Cone, and most recently in the NOPSI decision, in which this Court has applied a different type of analysis to cases involving the Declaratory Judgment Act.

They have not relegated declaratory judgment cases to the unfettered discretion of the district judge as Brillhart seemed to do.

Unknown Speaker: Well, were all of the cases that you described as the more modern cases, did those all involve declaratory judgments?

Mr. Webb: Colorado River did not.

Moses Cone was begun as a declaratory judgment action seeking a declaration that the Arbitration Act applied.

NOPSI, the New Orleans public service case issued by this Court in 1989, was expressly seeking declaratory and injunctive relief.

Unknown Speaker: Ms. Webb, I don't quite understand how you express... how you expect this to work.

After hearing all the evidence the district court says, well, in light of the fact that there is a State court action pending, I don't think it's a good idea to issue the declaratory judgment you want and therefore, exercising the discretion I have not to issue the declaratory judgment, though I don't have any discretion whether to take all the evidence, I won't give you the declaratory judgment.

Is that how it works?

Mr. Webb: I don't believe so.

In the first place--

Unknown Speaker: I hope not, because that would be an awful waste of time if they have discretion not to issue it, why don't they have discretion not to hear it?

Mr. Webb: --Well, in the first place you have to start with the proposition that jurisdiction is unflagging, and you have to go from there into--

Unknown Speaker: We've never said its unflagging.

We've said it's virtually unflagging and really haven't even behaved as though it was.

Mr. Webb: --Well, certainly in Moses Cone and NOPSI this Court has reversed abstention decisions in declaratory judgment cases, which... and the Court has continuously emphasized the importance of the obligation to exercise jurisdiction.

The--

Unknown Speaker: Well, you must take the position, then, that after taking all of the evidence and proceeding with the trial, the district court does not have the discretion to deny the declaratory relief, either, if the reason he's going to deny it she's going to deny it that there's a State action pending, right?

Mr. Webb: --I don't believe that the fact that there's a State action pending is a sufficient reason to deny declaratory relief.

Unknown Speaker: Why do you say that?

Mr. Webb: Because this Court has continuously emphasized that the presence of a parallel action is no bar to the Federal court's ruling on an issue.

Unknown Speaker: It seems to me a very good reason to deny the declaratory relief, that there's a prior action pending, comity, consideration for the State.

Why isn't that a perfectly valid equitable consideration?

If it's a valid consideration for not issuing the injunction for the declaratory relief, certainly it's a valid consideration, it seems to me, for not accepting jurisdiction in the first place.

Mr. Webb: Well, we would certainly disagree with your position that it's a valid reason for declining to issue the requested relief, but the issue is not whether or not the district court... I'm sorry.

The State court action was the second action filed in this case.

Granite State filed first in Federal court using an affirmative remedy under the Declaratory Judgment Act.

The presence of a later-filed State court action is not a reason to decline to hear a first-filed declaratory judgment action.

It makes no sense, and it certainly does not comport with the obvious congressional purpose in giving Federal litigants a right to a declaratory judgment action when they have valid jurisdiction to say that a litigant who comes to a Federal court seeking help, a litigant who says, I don't know... I'm between a rock and a hard place here.

I have a choice.

I can pay my assured $10 million on the one hand with no hope of ever getting it back, or I can deny coverage and get nailed with a bad faith lawsuit in State court.

Granite State being faced with that position chose what we believe to have been the prudent course of asking the Federal court for help.

Unknown Speaker: What if the State court action had been filed first?

Mr. Webb: In that case, Your Honor, there is a good argument for leaving it in the State court.

Unknown Speaker: So then it's not an unflagging obligation.

There may be considerations based on State court litigation.

Mr. Webb: We would suggest that the Declaratory Judgment Act represents such an important congressional intent that litigants who have Federal jurisdiction be allowed to retain their Federal jurisdiction and proceed in Federal court, that abstention would not be appropriate even in a later-filed State court action.

The argument is much stronger that the Federal court should defer if there is a first-filed State court action.

Unknown Speaker: But you don't... you would say they shouldn't defer even then.

Mr. Webb: I would say they shouldn't defer even then.

Unknown Speaker: Wasn't there just a stay in this case?

Mr. Webb: There was just a stay in this case, but because--

Unknown Speaker: So it really isn't an abstention case in the sense that you dismissed the case.

Mr. Webb: --It has the same effect as an abstention case because res judicata--

Unknown Speaker: But it isn't an abstention case.

It's just a stay.

They are retaining their jurisdiction.

They did not dismiss.

Mr. Webb: --They did not dismiss.

The district court stayed, but because of the presence of res judicata... because of the doctrine of res judicata, any ruling by the State court is going to effectively keep Granite State out of its Federal forum.

We will not be able to relitigate our issues in the Federal forum.

Unknown Speaker: Well, then you go back to the question that Justice Scalia raised initially.

I don't really understand what the rule is you're proposing.

If a district judge finds, after looking at the face of the pleadings, that it's most unlikely that he will enter this declaratory judgment, then it seems to me that he should stay the action, but you seem to think that he has to proceed through the motions of hearing evidence and come right up to the time when he's ready to issue his decision.

That doesn't make sense.

Mr. Webb: What we are suggesting is that the district court has to engage in abstention analysis before they can make a decision whether to abstain or not.

Unknown Speaker: But it's not--

Mr. Webb: Not that he has--

Unknown Speaker: --But you call it abstention analysis.

Suppose he calls it declaratory judgment statute analysis.

There are factors that indicate whether or not it's prudent, under the declaratory judgment statute, for me to make this ruling, for me to make this expenditure of time and resources of the courts and the parties, and those factors indicate to me that I should not do this.

I'll just let the case hang on the docket and see what happens in the State proceeding.

Mr. Webb: --That's exactly what the district court has done in this case, and we believe that the district court's analysis was incorrect, because he ignored the court's unflagging obligation to exercise jurisdiction.

We think that the--

Unknown Speaker: Well, to begin with, he hasn't dismissed the case.

He is retaining jurisdiction.

Mr. Webb: --It does not matter in... certainly not in the Moses Cone analysis, which was also a stay, and which this Court decided resolved under the Colorado River plus two additional factors.

The Moses Cone-Colorado River analysis involved stays, not dismissal.

I don't recall whether NOPSI was a stay or a dismissal at this point, but the functional effect of a stay in a case such as this one is of a dismissal.

There should be no difference in the analysis.

Unknown Speaker: Do you agree that the Colorado River factors should govern?

Mr. Webb: In the first instance, we would prefer to say that the legislative policy of the Declaratory Judgment act, coupled with valid Federal jurisdiction, means that the Federal court cannot dismiss or stay a case of this nature.

However, we recognize that this Court has indicated in Colorado River and Moses Cone in a declaratory judgment case that there may be some certain circumstances in which there is an extraordinary state interest or other exceptional circumstances in which there is an extraordinary State interest or other exceptional circumstances in which abstention is appropriate, and we suggest that those factors come from Moses Cone and Colorado River and must be analyzed.

Unknown Speaker: So if the Colorado River factors happen to balance out against you, why, you wouldn't be here, I guess.

Mr. Webb: Well, the Colorado River doctrine states, when it's coupled with Moses Cone, that the obligation to exercise jurisdiction is unflagging, and the factors must be exercised or weighed in light of that unflagging obligation.

In other words, if the factors are evenly balanced, or if the factors do not apply, such as jurisdiction over property--

Unknown Speaker: My proposition was that let's assume that the Colorado River factors clearly balance out against you.

Mr. Webb: --If the factors--

Unknown Speaker: You would say you would lose the case.

Mr. Webb: --Yes, sir.

Unknown Speaker: Which is to say it's not really an unflagging obligation.

You would say the obligation flags--

Mr. Webb: But only--

Unknown Speaker: --If you lose on the Colorado River factor, right?

Mr. Webb: --The obligation only flags if extraordinary circumstances exist, and the Court has identified those extraordinary circumstances in the various abstention doctrines... Pullman, Burford, Younger... and the factors of Colorado River and Moses Cone.

I think the NOPSI decision, which was quite straightforwardly a declaratory and injunctive relief lawsuit in which this Court did not defer to the district court's discretion but instead analyzed it de novo in light of the Burford and Younger abstention doctrines, indicates clearly that the declaratory judgment cases are not committed to the unfettered discretion of the district court but rather must be analyzed under traditional principles of the Federal court's jurisdiction is mandatory unless exceptional circumstances exist, and no exceptional circumstances were identified by the district court.

Unknown Speaker: And you think that that call is different from the call as to whether you issue the declaratory relief.

You must acknowledge that whether you will issue the declaratory judgment is not governed by any jurisdictional principles--

Mr. Webb: Yes.

Unknown Speaker: --It's governed by equitable principles--

Mr. Webb: Yes.

Unknown Speaker: --Right?

Mr. Webb: Yes.

Yes, right.

Unknown Speaker: Okay.

So you say there is a different standard for whether you issue the injunction than for whether you agree to hear the whole case in the first place.

Mr. Webb: That's correct.

Unknown Speaker: So then we are confronted with the problem that troubled Justice Kennedy and me that you're going to make judges go through a whole trial, even though it's very clear that at the end of it, by virtue of their equitable discretion, they are not going to issue the declaratory judgment--

Mr. Webb: I think that's--

Unknown Speaker: --And there's no way to avoid that.

Mr. Webb: --I'm not sure that there's no way to avoid that.

For instance, if the Eleventh Amendment sovereign immunity controls, and you have a declaratory judgment action against a State, there's no reason why that can't be addressed on summary judgment immediately.

There's nothing to prevent that issue from being resolved before a full-blown trial on the merits.

Unknown Speaker: Oh, but that--

Mr. Webb: It depends on the type--

Unknown Speaker: --But that's not an equitable issue.

You're talking there a legal issue with respect to jurisdiction.

I'm talking about the equitable call is clear at the outset.

The judge knows that the court will not issue a declaratory judgment, and you say the Court must nonetheless accept jurisdiction and go ahead.

Mr. Webb: --I believe so.

I believe the court has an obligation to do that.

Unknown Speaker: But are you saying that even on the facts of this case?

I mean, can't you tell at the beginning, assuming your client is right, would there be any reason why the judge wouldn't have discretion not to grant your relief if he goes ahead with the trial?

Mr. Webb: This case involves a marine insurance contract dispute.

Unknown Speaker: Right.

Mr. Webb: Granite State claims the policy is void ab initio because Tandy misrepresented certain material facts--

Unknown Speaker: Right.

Mr. Webb: --In the formation of the policy.

It's a fairly simple contract--

Unknown Speaker: You're not suggesting that if you win on those... if you prove what you've alleged he'd have discretion not to give you relief on these facts, are you?

Mr. Webb: --No, I'm not saying he would have discretion.

In fact, that raises a point that I'd like to address briefly.

If Granite State had filed this lawsuit not as a declaratory judgment action but as a breach of contract lawsuit seeking to have the policy rescinded under traditional contract principles, the Court would have had no discretion to have abstained.

The Court would have had to have taken it up, and Granite State chose to file this as a declaratory judgment action because we did not want to further escalate the hostilities between the parties.

That judgment call, whether it be a declaratory judgment action or a breach of contract suit should not make the difference in whether or not this case gets to stay in Federal court.

There is nothing to prevent... there is no reason why equitable relief in the form of declaring the policy void ab initio should not be entered in this case.

Unknown Speaker: But that's contrary to a long line of authority at common law, that the issuance of an injunction and the declaratory judgment statute indicates that you use the same principles there as... is a matter of discretion with the court.

There are all sorts of reasons why you may not issue an injunction even though the party has made out a good case on the law, as opposed to the common law claim for damages where there isn't any discretion.

Mr. Webb: That's correct, but we would--

Unknown Speaker: Then what does that do to your position, if that's correct?

Mr. Webb: --The court has to make the decision whether the equitable considerations exist or not, and the district court never got to that point.

The district court said, I don't want to hear this court... this case because Granite State raced to the courthouse, because Granite State took advantage of a proactive, preemptive remedy which is expressly designed to get litigants into court before another lawsuit is filed, and because Tandy filed a second lawsuit you're not entitled to be in a Federal forum.

That's the only basis for the district judge's decision.

Unknown Speaker: Even if the court hadn't stayed the action, if the State court suit went ahead and finished first and it was against you, why, there would be res judicata, wouldn't there?

Mr. Webb: Yes, it would, and that is one of the ever-present problems in a dual judicial system.

Unknown Speaker: Well, sure.

Sure--

Mr. Webb: This court has addressed that numerous times.

Unknown Speaker: --But you wouldn't suggest that the Federal court could stay the State court action, would you?

Mr. Webb: Certainly not, not unless Younger applies, not unless the, you know, traditional kind of equitable considerations with Federal courts enjoining State courts applied.

Unknown Speaker: If this action had been in State court... there's no Federal court.

Just assume that Granite had gone first to a State court and asked for equitable relief, declaratory relief, rescission of the contract, there had been a counterclaim for damages.

I think it would have been perfectly in order for the State trial judge to say well, we have legal issues here and equitable issues here, I'm going to let the jury make the first determination.

Depending on what it does, it may or may not be necessary for me to make further orders.

And it seems to me that in all likelihood the trial judge would let the jury hear the case initially, and it seems to me that in effect that's all that's happening here.

You just have two courts where the claims for relief are divided, rather than being all in one, and it seems to me perfectly sensible for the district court to say, oh, I'll wait for the legal action to proceed.

Mr. Webb: It may be sensible for the district judge to have done that, but we believe that Congress has given an affirmative remedy in the Declaratory Judgment Act which is designed to give litigants... Granite State has never denied coverage in this lawsuit, yet nonetheless we are facing a significant, substantial exposure of $110 million in the State court action because Tandy has sued us for bad faith failure to pay them the $10 million they want.

We believe that the--

Unknown Speaker: Ms. Webb, would you have felt better if the district judge here, after hearing the same arguments that it heard with regard to the jurisdictional point, had decided the case not on a jurisdictional ground, but rather, on the merits, and said after hearing all this argument about this pending State action, I am going to decline to issue a declaratory judgment while this State act is pending, and therefore I dismiss this lawsuit without prejudice.

You can refile it for declaratory judgment after the State proceeding is completed.

I've accepted jurisdiction, I am denying you your declaratory judgment on the merits.

Would you have any problem with that?

Mr. Webb: --I'm a little bit confused about your question, because I believe you said that the district court declined to enter the declaratory relief because of the pending State court action--

Unknown Speaker: No--

Mr. Webb: --Not because he had decided on the merits.

Is your question, he's--

Unknown Speaker: --No, but he has decided on the merits of whether equity calls for the issuance of a declaratory judgment.

He's not deciding on a jurisdictional ground.

He's saying, I've accepted jurisdiction, I have on my hat as a court of equity, and as the chancellor, I decide this is not the kind of a case in which a declaratory judgment should issue... on the merits.

Mr. Webb: --I would feel better in that situation, although we would still be probably before this Court appealing it.

It results... has the same effect on Granite State, the same adverse effect on Granite State, but the district judge has then engaged in the correct analysis, which Judge Hittner did not do here.

Unknown Speaker: So that's all we're fighting about, whether you want to conduct the same argument under the rubric of jurisdiction or whether you want to conduct it under the rubric of equitable discretion.

Mr. Webb: I believe what we're trying to do is get... give district court some guidelines as to what they're supposed to in declaratory judgment cases.

The circuits are significantly split on this issue, and some of them just use unfettered discretion, and some of them use the Colorado River-Moses Cone factors.

Unknown Speaker: Ms. Webb, you say Congress has furnished this remedy, but it seems to... don't you think Brillhart was a statutory construction case?

Didn't it construe the Declaratory Judgment Act?

Mr. Webb: Yes, Brillhart did in fact construe the Declaratory Judgment Act.

Unknown Speaker: And it said there's discretion.

Mr. Webb: Well, Brillhart--

Unknown Speaker: Well, is... I know, but isn't that true?

Mr. Webb: --Yes, it is true.

Brillhart did--

Unknown Speaker: And we usually don't overturn statutory construction cases very readily.

We leave it up to Congress.

If they don't like it, they change it, and this was an authoritative construction of this statute that Congress has left standing all these years.

Mr. Webb: --The Brillhart court stated specifically that they did not in that case pretend to enumerate all the factors that go into this district judge's discretion.

That's one of the last paragraphs of the decision.

We do not now intend to enumerate all factors the district court should consider in exercising his discretion.

We believe that this Court's opinions in later abstention-type cases, specifically Colorado River and Moses Cone, and then NOPSI put on top of that, indicate that declaratory judgment cases have been interpreted by this Court to be the same type of case as any other case validly within the Federal jurisdiction, and they must be viewed with a light toward the Court's unflagging obligation to exercise jurisdiction and in light of the Moses Cone-Colorado River factors.

That does not require overruling... overturning Brillhart.

I believe that it is a fair assessment... or fair statement that the intervening decisions of Colorado River and Moses Cone and NOPSI just show... just expand upon the Brillhart analysis, but do not overturn it.

Unknown Speaker: But you don't think... you're suggesting, however, I suppose, that in light of the later cases the degree of discretion that a district judge has in a declaratory judgment case is not the discretion that Brillhart suggests.

Mr. Webb: Brillhart I believe reversed an abstention decision and sent it back to the district court, but yes, I would agree with you that the discretion imposed by Moses Cone, Colorado River and NOPSI is different from the one--

Unknown Speaker: So we... you suggest we have really revisited our statutory construction decision in Brillhart.

Mr. Webb: --I believe it's--

Unknown Speaker: Unknowingly, yes.

Unknowingly.

Mr. Webb: --I believe it's... I think so.

I mean, there have been several declaratory judgment cases this Court has addressed in recent years, and not a single one of them has been decided under the Brillhart analysis.

They have... they've used Burford, they've used Pullman, they've used Younger, or they've used Colorado River-Moses Cone.

They have not used the Brillhart analysis.

Unknown Speaker: Because four of the... the four dissenters in Calvert thought Brillhart stood on its own two feet, didn't they?

Mr. Webb: The Calvert decision is, we believe, somewhat aberrational when compared with the others.

Unknown Speaker: Well, was the dissent aberrational?

Mr. Webb: I... the Calvert decision, I think that the plurality... I'm sorry, I'm having a little trouble remembering who was where in that case.

Unknown Speaker: Well, I think... my recollection, Justice Blackmun made the majority, so that you had four, four, and one, and the dissenting four, as I read the dissent, thought Brillhart stood on its own feet.

You should say dissent is always aberrational, Ms. Webb.

[Laughter]

Mr. Webb: I just didn't want to suggest that when several of the dissenters were present on the Court today.

Unknown Speaker: You can tell who just announced two opinions of the Court this morning.

[Laughter]

Mr. Webb: The Calvert case... the decisions that come after Calvert seem to indicate... my opinion that Calvert is a bit off the mark is not an unusual opinion.

The following decisions say that Moses Cone-Colorado River are still good law and that Brillhart may not be as strong a proposition as my opponents would have you believe.

Unknown Speaker: Have you abandoned your suggestion in your brief that there's a Federal issue in the case?

Mr. Webb: No, sir, we have not.

We have certainly not abandoned that issue.

Unknown Speaker: You haven't paid much attention to it.

Mr. Webb: That's because I've been asked a lot of questions about the abstention doctrine.

[Laughter]

The--

Unknown Speaker: But you would think it wouldn't make any difference whether there was or not.

At least it may be a factor on your side.

Mr. Webb: --It certainly is a factor on our side, and I believe Moses Cone--

Unknown Speaker: Under Colorado River it's a factor on your side.

Mr. Webb: --It certainly is.

Moses Cone says that if there's a Federal law issue... an issue of Federal law present then this Court is virtually... the Federal courts are virtually obligated to take on a case, and we certainly have not abandoned our position that Federal maritime law applies to this case, and it applies to this case because of the choice of law provision in the contract.

The contract provision is somewhat ambiguous, and the issue of choice of law is hotly contested by my opponents, but we firmly believe that Federal maritime law applies to the formation of this policy.

Unknown Speaker: But even if it's a State law issue and no Federal issue, you think you should win under the declaratory judgment cases.

Mr. Webb: Yes, sir.

Unknown Speaker: But even the Federal choice of law issue simply remits you to the law of one or another competing States, does it not?

Mr. Webb: No, it does not.

In this case we have a worldwide contract for the transportation... worldwide policy for the insurance of goods in--

Unknown Speaker: What's your position on the conflict of law issue?

Mr. Webb: --Our position is Federal maritime law applies, but because the place of the loss is Korea and the parties are diverse, there could be several choices of law.

If it's not Federal maritime, it could as easily be Korean law as Texas law.

Unknown Speaker: All right.

Mr. Webb: I'd like to reserve the remainder of my time for rebuttal.

Unknown Speaker: Very well, Ms. Webb.

Ms. Liberato.

Argument of Lynne A. Liberato

Mr. Liberato: Mr. Chief Justice, and may it please the Court:

At the heart of this case is an understanding of the purpose of declaratory relief under the Declaratory Judgment Act.

The purpose of a declaratory judgment is to settle and to clarify legal issues.

It is to provide relief from uncertainty and from insecurity.

But here, what Granite State is trying to do is to turn these wholesome purposes of declaratory judgment relief on its head, and instead of simplifying the issues, declaratory relief in this case would complicate.

Instead of clarify, it would confuse.

To have a declaratory judgment action take place in this case would increase costs, and it would waste judicial resources and personal resources and the resources of the parties.

This is an attempt to forum-shop by Granite State.

It is a tactical attempt to, if you will, divide and conquer, and to seek safe harbor, to use an admiralty term, but to seek safe harbor in the Federal courts.

Unknown Speaker: Well, that's okay, isn't it?

Mr. Liberato: It's okay--

Unknown Speaker: I mean, that's why we have Federal courts, because some people don't trust State courts, so do we get mad when they come into Federal court?

Mr. Liberato: --We don't, but there are times when it's appropriate to consider that and times when it's not, and in this particular case it's a misuse of the declaratory judgment action to seek that safe harbor.

Certainly it's not inappropriate to seek it under the right circumstances.

This just isn't one of those circumstances, because the declaratory judgment relief is discretionary, and we know it's discretionary because it's specifically provided for in the Declaratory Judgment Act, where Congress says that any court of the United States may declare rights and other legal relationships.

It doesn't say that it has to... that it may declare rights, and so whenever--

Unknown Speaker: Well, why shouldn't it do it here, other than the reason that there's forum shopping, because I frankly don't find that a very persuasive one.

Are there any other reasons?

Mr. Liberato: --Well, there are many reasons, and... for example, the danger of piecemeal litigation, the application of State law rather than Federal law, all of these types of factors that you hear frequently discussed in cases using Moses Cone and using Colorado River, and even using abstention, those kinds of analysis also apply to the determination of whether there should be declaratory relief granted, at least the declaratory judgment heard.

But it's also easy to kind of mix up apples and oranges, because even though those common sense factors go into the determination of whether it's appropriate--

Unknown Speaker: May I ask you a question, just so... I don't know whether it's actually in this record or not, but supposing the State court had a 3-year delay on getting to trial and the Federal court's calendar was current, because one of the things they always did was dismiss all of their declaratory judgment cases--

[Laughter]

Would that be a factor that the judge should weigh in deciding whether to dismiss?

Mr. Liberato: --I think so, yes, Your Honor.

It is not to say--

Unknown Speaker: What was the condition here?

Does the record tell us which court was more current?

Mr. Liberato: --The record doesn't tell us that.

Unknown Speaker: But he... there's something he should have considered but it's not in the record, so we don't know.

Mr. Liberato: Well, but in this particular case what is in the record is the fact that there was practically no progress in the Federal court action.

The only thing--

Unknown Speaker: Well, how... because you filed, what, within 30 or 40 days, is that what it was?

Mr. Liberato: --The State court suit?

Unknown Speaker: Yes.

Mr. Liberato: Was about... I think it was 21 days after the Federal suit was filed.

Unknown Speaker: Would it make a difference if it was 90 days later?

Mr. Liberato: I think it depends on the progress that was made in the State action... excuse me, the progress that had taken place in the Federal action.

Unknown Speaker: In other words, if the defendant in the Federal action was able to get three or four continuances before filing his answer, and then filed the State action, that would still be a duty to dismiss and let the State action go forward.

Mr. Liberato: I think it depends on the other factors that are present in the case.

I'm not sure--

Unknown Speaker: What are the factors here except for the one fact that there's a State action pending?

Mr. Liberato: --Well--

Unknown Speaker: And I guess you say you want to bring in another party, too, don't you.

Mr. Liberato: --Bring in other parties, right.

The danger of piecemeal litigation certainly is here, but that's present any time there's parallel cases.

The forum shopping aspect--

Unknown Speaker: Should the Court give any consideration to the reason why there is diversity jurisdiction, the neutral forum argument?

Does that have any relevance?

Mr. Liberato: --It has relevance.

I think that is a factor to a degree.

Unknown Speaker: Should the court give any consideration of the possibility of a Federal question being in the case?

Mr. Liberato: It should consider it just because that is yet another practical factor.

Unknown Speaker: What consideration does the district judge give to those factors in this case?

Mr. Liberato: Well, in particular, the district judge talked about three factors.

He elaborated actually on all those other factors as an alternative to his primary decision, which is that under Brillhart it was discretionary.

There he talked about the piecemeal adjudication, forum shopping, and needless decision State law.

Unknown Speaker: Is one party guilty of more forum shopping than the other in this case?

Mr. Liberato: Well--

Unknown Speaker: Each of you has a forum you'd prefer.

Mr. Liberato: --That is true, but as the... as the, really the putative plaintiff in this case is the claimant.

Looking at the claim and not the claimant we have a right, I believe, to pick our forum, and in certain instances certainly the Federal plaintiff in this case, Granite State, has the right to pick its forum, but then once it picks its forum, then the district judge has the discretion under Brillhart to determine whether that and balancing all the other factors that are appropriate in making that determination whether the State or the Federal... well, not really the State is appropriate, but whether the Federal forum is appropriate and whether that Federal action should go forward.

Unknown Speaker: Are you defending the Fifth Circuit judgment?

Mr. Liberato: Yes, Your Honor, I am.

Unknown Speaker: And the theory... and the theory that Colorado River doesn't apply at all to declaratory judgment actions?

Mr. Liberato: I think that it does not, except for the fact that some of the factors that go into the Colorado River analysis just logically go into a determination of whether a district judge properly exercises his or her discretion.

Unknown Speaker: Well, the Fifth Circuit came awfully close just to saying that there's complete discretion to... under the... in the district court under the declaratory judgment action as to whether to go ahead at all.

Mr. Liberato: I don't think it's complete discretion.

I think that they were saying that the district court has a lot of discretion and that that discretion is reviewed under an abuse of discretion standard.

Unknown Speaker: Well, at least it refused... the district court went through the Colorado River rigmarole, didn't it?

Mr. Liberato: Yes, Your Honor, it did as an alternative--

Unknown Speaker: And it came out on your side.

Mr. Liberato: --Yes.

Yes, Your Honor.

Unknown Speaker: And the Fifth Circuit didn't even get to the Colorado River factors.

Mr. Liberato: Right.

Unknown Speaker: Do you think... and you say it needn't have.

Mr. Liberato: I say it needn't have, except to the limited degree that those are logical factors for a trial court to consider in exercising its discretion.

The principles underlying the unflagging obligation of the court to consider a case are different, because this is a declaratory judgment action and a declaratory judgment action is discretionary, and there's a specific legislative mandate that makes that discretionary, and that's why it's different, that the whole difference in this case is the fact it's a declaratory judgment action.

If it were not, we wouldn't disagree that the court has an unflagging duty to exercise jurisdiction, but the fact of the matter is, this is a declaratory judgment action, and Congress has said that that is discretionary, as has this Court in Brillhart.

And so if I may come back to your question, Justice White, only to say that yes, the factors apply in the sense of making a common sense determination, but as far as using the standard, the unflagging obligation standard in applying those factors, that does not apply to this case.

Unknown Speaker: Well, I suppose if the district court had come out the other way, and had applied the Colorado River factors against you, and you had appealed, the court of appeals probably would have said, well... would have reversed, because the Colorado River factors shouldn't decide the case.

Mr. Liberato: Well, I agree to the point that I think that if the district court had agreed to hear this case and granted declaratory relief, that the Fifth Circuit would have reversed, because I don't think it's necessary to go that far in this case, but I think it would be a fair policy to say that the presumption is against the district court exercising its declaratory judgment relief authority if there is a parallel State court action, and so I do believe--

Unknown Speaker: You say they would have reversed, but there wouldn't have been an appealable order, would it?

Mr. Liberato: --Only after final disposition of the case.

Unknown Speaker: Well, they wouldn't have reversed after the whole trial, would they, and have said you shouldn't have the trial?

Mr. Liberato: Well, there are... they could have granted, I guess, arguably, a summary judgment.

I think it's possible that that could arise.

There are some cases that have come through the circuits where the court has actually reversed the case based on an abuse of discretion for hearing the case after the district court granted the declaratory judgment relief.

As a matter of fact, most of those cases you'll find in the petitioner's brief, because they use that in support of their contention that de novo is a proper standard of review, and perhaps I could address that for just a moment.

It seems logical, and perhaps going back to what Justice White was talking about, about the Fifth Circuit's view of this, and just a great deal of discretion, but it seems logical that if there is discretion to grant declaratory relief, or to hear a declaratory judgment case, then that should be reviewed on an abuse of discretion standard.

But just in looking at the cases as they reach the circuits and they apply a de novo review, they apply that review to cases where the court did indeed hear a declaratory judgment action and then the circuits reverse on a de novo review of the granting of the declaratory relief, and I think that's significant.

I think it supports our position, because our position is that this is a case in which... and this type of case is a case in which the court should not have granted and should at least properly exercise its discretion and refuse to hear the declaratory judgment relief request.

Unknown Speaker: Is there any dispute, Ms. Liberato, about what the standard is for reviewing a denial of declaratory relief on the merits?

Is that de novo, or abuse of discretion?

Mr. Liberato: It is... I--

Unknown Speaker: Suit has proceeded to judgment--

Mr. Liberato: --Right.

Unknown Speaker: --And judgment is... declaratory judgment is denied for lack of equity.

How is that reviewed?

Mr. Liberato: More often than not, it's reviewed de novo.

I don't know of a pronouncement from this Court, but it appears to me in reading the cases from the different circuits that there is a variance, but more often than not they use a de novo review.

Unknown Speaker: And how is the refusal to issue an injunction reviewed?

Mr. Liberato: I don't know.

I believe it's abuse of discretion, but I'm not sure, on injunction.

Unknown Speaker: You are arguing for a more permissive standard of review with regard to the acceptance of jurisdiction--

Mr. Liberato: Well, I--

Unknown Speaker: --Again as applied to the merits question about whether a declaratory judgment in equity should issue or not.

You want the reviewing court to review the declining of jurisdiction more deferentially.

Mr. Liberato: --In... quite frankly, Your Honor, in this case it doesn't matter either way.

I know that the Court--

Unknown Speaker: Well, I know, but just make believe it did.

Mr. Liberato: --Okay.

Of course, I would prefer that it be abuse of discretion, because that's a more liberal standard, and that would be more favorable.

Unknown Speaker: But doesn't it seem strange to you that you're going to apply a more liberal standard to the merits than you apply to the jurisdictional question?

Mr. Liberato: Well--

Unknown Speaker: It seems strange to me.

You know, that the judge can decline to take the case entirely and it's pretty much up to him, but if he takes the case and finds no equity in issuing the declaratory judgment, we're going to review that as an original matter, just as though the question is for us and not for him.

It seems to me just backwards, if anything.

Mr. Liberato: --Well, part of it may well be that in applying the factors it may be a distinction without a difference.

I understand, of course, that de novo review is very different than abuse of discretion, but in looking at the factors, the common sense factors that results tend to be the same in most of the cases that use de novo review whether it's on the front end or the back end.

After the determination on the merits the result comes out to be the same, and that is a great deference to the discretion of the trial judge.

Unknown Speaker: In the State court proceedings, if the insurer alleges that there was nondisclosure on the part of the insured, or misrepresentations in procuring a policy, does the State trial judge have the choice or the discretion to hear the equitable claims for rescission first before the case is submitted to the jury?

Mr. Liberato: I think the trial court would have that discretion to do that.

Unknown Speaker: Does the trial judge in Texas often exercise the discretion that way, or does he usually submit all the issues to the jury?

Mr. Liberato: He submits all of the factual issues, certainly, to the jury, and I would say tends to submit the issues to the jury.

If there's going to be a jury trial the judges tend to submit the whole case to the jury, but all of those kinds of questions still have to be, I think, couched in terms of what is the purpose of a declaratory judgment action.

It is to simplify, it is not to complicate, and in this case--

Unknown Speaker: Well, I'm not sure why it doesn't simplify it in one respect, leaving aside for a moment the using resources of multiple courts, if there's no coverage, then that's the end of it, there's no jury trial.

That's a substantial saving for the insurer, isn't it?

Mr. Liberato: --If it were a mirror image case, that may be true, but it's not a mirror image because there are in the State court six other parties that are not present and can't be brought into the Federal action, and so all it will do instead is confuse the issues, not simplify them.

Unknown Speaker: Why couldn't they be brought into the Federal action--

Mr. Liberato: They couldn't be brought in because it would destroy diversity to bring them in.

Unknown Speaker: --Well, I know, but what if it's a Federal case?

What if it's a Federal law case?

Mr. Liberato: If it were a federal case, then that would be true, they could be brought in, but this is not a Federal question case.

Unknown Speaker: Well, that's... nobody's decided that yet.

Mr. Liberato: Well, if they were to decide that, I would make a strong argument that uberrimae fidei does not apply in this case.

That is the only Federal issue that Granite State has injected into this case.

Unknown Speaker: I know that you make that point in your brief, but your opposition disagrees.

Mr. Liberato: Well, we disagree on several things.

[Laughter]

Unknown Speaker: I gather.

Mr. Liberato: But this is one we--

Unknown Speaker: I gather.

Mr. Liberato: --Yes, Your Honor, but this is one I think we disagree on even more than others.

There are at least two reasons why uberrimae fidei doesn't change the ability of the judge to exercise his discretion in the way that he did.

The first is, this is not an admiralty case.

This case involves a warehouse endorsement to an open... marine open, cargo marine policy.

It is the endorsement.

It covers... and this is what... the only damage was... that we're seeking to be paid for damage that occurred in an inland plant and damage to inventory and work in progress.

It has absolutely nothing to do with anything even remotely wet, or as this Court put in one case, it does not have a salty flavor, but even if it did--

Unknown Speaker: Ms. Liberato, does everyone say uberrimae fidei, or is it just people from Texas.

[Laughter]

Is that really how you say that?

I mean, everybody says it that way?

Mr. Liberato: --Judge Scalia, it's only Italians from Texas that say it that way.

Unknown Speaker: I see.

[Laughter]

Mr. Liberato: Sorry.

However you say those two words--

Unknown Speaker: I'm seeking information, because I've read them but I've never heard a live person say them.

I'm wondering what the--

Mr. Liberato: --Well, at the Fifth Circuit Judge Jones was kind enough to say it first before I had to, and frankly, I parroted the way she said it, and she is from Texas also, so at least from that sample... I guess I have to confess, I cannot answer your question.

The best I know, it's uberrimae fidei.

But the other part of it, even assuming, to go back to the issue that Judge White raises about... Justice White, about whether there is a Federal question here based on uberrimae fidei, even if you assume that there were... was, it is a defense only.

It wouldn't even be enough in this particular case to raise Federal question jurisdiction if they were properly a plaintiff.

Of course, in a declaratory judgment act again you look at the claim and not the claimant, and so that is why, even if it did apply, which we vehemently disagree that it does not, we do not believe that would make any difference.

Unknown Speaker: --I would think, given your position in the defense of the Fifth Circuit, that you would think the district court should not just have stayed but have dismissed the case.

Mr. Liberato: Well, I think that the stay is fine.

I don't... we don't have any dispute with the stay.

Unknown Speaker: Well--

Mr. Liberato: Because... because... if... there may be some circumstance that would come up that would be proper for the court to go ahead and lift the stay.

Unknown Speaker: --Like if the State action weren't tried within 2 years, say.

Mr. Liberato: I think that's an excellent point, and certainly that would be a reason, and it didn't cut off Granite State from any right to appeal, obviously.

Unknown Speaker: Well, you must... where do you practice?

Mr. Liberato: In Houston.

Unknown Speaker: You must have some clue as to what the State court's docket--

Mr. Liberato: Oh, I do know what the State court's docket is like.

Unknown Speaker: --What's the--

Mr. Liberato: In this particular case we'd be pretty far down the road in this particular court.

Unknown Speaker: --Like what?

They must have statistics in the State court system as to what's the average time for filing a suit... go ahead, you've got the answer--

Mr. Liberato: Well, my co-counsel can be real specific and say that it's 18 months.

Unknown Speaker: --How much?

Mr. Liberato: 18 months to get to trial.

This is a little bit more complicated case because it does have so many parties, but 18 months is about right in the Southern District--

Unknown Speaker: What about Federal court?

Mr. Liberato: --They're getting to trial faster, frankly, Your Honor.

I don't know how quickly they are getting to trial, but I do know that they're getting to trial much faster now than they used to, but the court--

Unknown Speaker: You say they're getting to trial in the Federal court faster than they used to.

Mr. Liberato: --Yes, Mr. Justice Rehnquist.

Unknown Speaker: Is there any way you have of comparing the time of getting to trial in the State court with the time of getting to trial in the Federal court at the time the action was filed?

Mr. Liberato: I don't know specifically.

I frankly don't know.

I do know, of course, that under the Federal Justice Reform Act that there are many changes that have taken place in the Southern District and that, because of those changes, that one is able to get a civil case before the Federal court much more quickly, but it's still a long time.

As a general rule... Yes, Your Honor?

Well, as you say, as a general rule it is easier, much easier to get to trial in State court and to get to trial more quickly in State court than it is in Federal court.

Unknown Speaker: Ms. Liberato, why do you think that State law is going to be involved in this case?

Why wouldn't English law govern the contract?

The goods that were destroyed were destroyed in South Korea, right?

Mr. Liberato: Right.

Unknown Speaker: It's an international contract, maritime or not.

Isn't there a choice of law clause?

Mr. Liberato: There is a choice of law, and it says that I believe the laws of England will apply except in the United States, but all of the contract formation took place in the United States.

These are all American companies involved, all of the defendants are, many of the parties are from Texas, in fact.

Unknown Speaker: What do you mean, it says the law of England will apply except in the United States?

Mr. Liberato: Except in the United States.

Unknown Speaker: Is that how it reads, the law of England will apply except in the United States?

Mr. Liberato: I'm not sure precisely, but it's close to that.

Unknown Speaker: Wow.

Mr. Liberato: And so--

[Laughter]

Unknown Speaker: Except in the United States courts, is that what that clause means?

Mr. Liberato: I can't remember exactly, but it--

Unknown Speaker: Well, that's sort of important as to whether, you know, we think Texas law is really going to be at issue in this case.

Mr. Liberato: --Well--

Unknown Speaker: I mean, if it's not admiralty law, it may not be Texas law.

I don't want Texas figuring out English law.

I think probably the Federal courts are as good at that as the Texas courts.

Mr. Liberato: --Well, but all of the dispute here goes to the contract formation and all of the action that took place that relates to this determination definitely occurred in Texas.

I don't believe that they have argued that English law applies other than uberrimae fidei.

I'm sure Ms. Webb will correct me on that if I'm wrong, but by and large the controversy is going to be governed by the laws of the State of Texas, and insurance law, which necessarily... or, not necessarily, but which have actually been left specifically by Congress through the McCarran-Ferguson Act to the States.

This is peculiarly an issue of State court interest, because that's what is being construed, is a provision in the contract, and the resulting bad faith claims that we have, breach of contract, all of those are peculiar to the State and State court law, and that is another factor, I believe, that the court decides in exercising its discretion to grant the declaratory judgment action.

There are many factors the court can apply.

The Fifth Circuit emphasized forum shopping and inconvenience.

Judge Hittner in the district court emphasized the piecemeal litigation aspect, the forum shopping aspect, and needless decisions of State law.

It would be possible, and certainly Judge Hittner did that to a degree in analyzing the Moses Cone and Colorado River factors, to look at other things, like the order in which jurisdiction was acquired and some of the other factors that are found in other cases, but the point is that if, in the exercise of its discretion, the court doesn't fulfill the purposes of the Declaratory Judgment Act, that relief, to provide relief to simplify and to clarify issues, then that declaratory judgment is not appropriate, and for these reasons... yes.

Unknown Speaker: Before you wind up, I want to come back to whether review is de novo or not.

You concede... it seems to me it is a concession for your side that it is de novo on review of injunctions, or at least declaratory judgments when they're issued on the merits, but the cases that you rely on for that, aren't they... if I understood your discussion earlier, aren't they cases in which declaratory judgment was issued?

Mr. Liberato: Yes, Your Honor.

Yes, that's correct.

Unknown Speaker: Don't you think it's a little bit different if you decline to exercise your equitable powers?

Might there not be a different rule, when you decline to issue an injunction as to the rigidity of the review as opposed to when you issue the injunction, which raises a lot of legal issues?

Mr. Liberato: Well, it seems to be that in fact that's a distinction that the circuit courts have made not specifically but in fact.

Unknown Speaker: Well, I have a good deal of doubt about whether the ordinary rule for review is de novo on refusal to exercise equitable discretion.

It seems to me it ought to be an abuse of discretion standard.

Mr. Liberato: Well, I agree with you, and that is what the Fifth Circuit held in this case, but my point, which I did not make very artfully, that in either event, that the presumption is in favor of the court exercising its jurisdiction, so I would believe that what the Fifth Circuit did was correct and that the district court was proper in issuing the stay.

Unknown Speaker: Thank you, Ms. Liberato.

Ms. Webb, you have 3 minutes remaining.

Rebuttal of Ann E. Webb

Mr. Webb: The first thing I'd like to comment on is Ms. Liberato's pronunciation of utmost good faith.

On our side of the bench we say, uberrimae fidei, but utmost good faith works just as well and it's a little bit easier to follow.

The choice of law provision in the contract says specifically all questions of liability arising out of this policy are to be governed by the law and customs of England except in the United States and its possessions.

Unknown Speaker: I repeat, wow.

Who wrote that, I wonder?

Mr. Webb: It's a form policy.

We believe that, since it doesn't say whether the loss arises in the United States or whether the lawsuit arises in the United States, it's ambiguous and it needs to be construed.

We believe the appropriate construction is to give a consistent application regardless of where the loss occurs, be it Korea, Australia, Singapore, Texas, Seattle, any one of the States that has a water port.

The only consistent application is to apply the law that is equivalent to the law of England, which is Federal maritime law, and we don't believe that the McCarran-Ferguson Act, and

"the insurance regulation belongs to the State. "

applies here, because the doctrine of utmost good faith is a well-entrenched maritime good doctrine, and it is not one of those cases where State insurance law should fill the cracks.

I'd like to comment briefly about the district court never... about some of the points raised by Ms. Liberato.

We're talking about the making of a policy of insurance.

The place of the loss has nothing to do with the making of the policy, and the policy itself says the choice of law is English, and we believe that gets you to maritime.

The place of the loss in Korea has nothing to do with the choice of law that should apply to the formation of the policy.

With regard to the several questions about the standard of review, abstention doctrine is a question of law, which is customarily reviewed de novo.

It is further important that this type of decision be reviewed de novo because of the comity and federalism concerns that are raised.

We believe that both the decision whether or not to keep a case within the Federal jurisdiction as well as the decision on the merits should both be reviewed under a legal standard de novo.

The district court partially reviewed the Colorado River factors.

He did not review the choice of law issue, and he failed to weigh any of the issues in favor of the unflagging obligation to exercise jurisdiction.

We further believe that he did not correctly evaluate some of the ones he did.

For instance, the minimal inconvenience between Houston, Texas and Forth Worth, Texas, when there were something upwards of 50 flights a day between the two cities, between the Dallas-Fort Worth area and Houston, cannot be justified in this modern era.

Unknown Speaker: So I guess, if I'm right about what the review of the failure to issue a declaratory judgment is, a district judge would always be wise to accept jurisdiction and deny the declaratory judgment instead of simply saying, I won't take jurisdiction.

I mean, you could do it the same way the same day, but you're better--

Rebuttal of Lynne A. Liberato

Mr. Liberato: In terms of getting reversed, I guess that's correct, but we believe that unless the traditional concerns precluding a declaratory judgment exist, the district court should maintain jurisdiction.

Thank you, Your Honor.

Chief Justice Rehnquist: Thank you, Ms. Webb.

The case is submitted.