WILTON v. SEVEN FALLS CO.
London Underwriters refused to defend or indemnify the Hill Group, which was involved in litigation over the ownership and operation of Texas oil and gas properties, under several commercial liability insurance policies. After a verdict was entered against the Hill Group, the underwriters sought a federal declaratory judgment that their policies did not cover the Hill Group's liability. The Hill Group filed a state court suit and moved to dismiss or to stay the underwriter's action. The District Court entered a stay on the ground that the state suit encompassed the same coverage issues raised in the federal action. The Court of Appeals affirmed. Noting that a district court has broad discretion to grant or decline to grant declaratory judgment, the appellate court did not require application of the exceptional circumstances test. The appellate court also reviewed the District Court's decision for abuse of discretion and found none.
Does the exceptional circumstances test govern a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings? Should a court of appeals evaluate a district court's decision to do so under an abuse of discretion standard of review?
Legal provision: 28 U.S.C. 2201
No and yes. In a 8-0 opinion delivered by Justice Sandra Day O'Connor, the Court held that the discretionary standard of Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, governs a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings and that a district courts' decisions about the propriety of hearing declaratory judgment actions should be reviewed for abuse of discretion. The Court also concluded that the District Court acted within its bounds in staying the declaratory relief action in this case, since parallel proceedings, presenting an opportunity for the ventilation of the same state law issues, were underway in state court. Justice Stephen G. Breyer did not participate.
Argument of Michael A. Orlando
Chief Justice Rehnquist: We'll hear argument next in Number 94 562, Leslie Wilton v. Seven Falls Company.
Mr. Orlando: Mr. Chief Justice and may it please the Court:
The heart of the issue before the Court today is the use of the word "may" in the context of the Federal Declaratory Judgment Act, which provides that the Federal courts may declare the rights and other legal relations of any interested party seeking such declaration.
We contend that the word "may", as used in that context, means three things and only three things.
The first is the literal connotation of the word, such that the Federal courts may grant the relief requested and make a declaration, the second meaning is that the court may grant the declaration provided there is a justiciable controversy, and the third meaning, the final meaning, is that the court may grant the relief provided the case does not fall within the category of cases presenting exceptional circumstances as described by this Court's Colorado River doctrine.
The present analytical framework of the Fifth Circuit Court of Appeals fails in the third respect, and that is, it gives no balancing of the guidelines that were established in Colorado River and Moses Cone against the virtually unflagging obligation of the district court to accept jurisdiction of the case, and that is precisely the fatal flaw in the Fifth Circuit's approach.
The majority of the circuits around the country have adopted the Colorado River Moses Cone analytical framework, and that seems to be working well with the district courts.
They are able to use the factors that have been established as the six factors to be considered in such cases, they balanced those factors, weighed it against the concept that jurisdiction is virtually unflagging, and they either decide--
Unknown Speaker: May we just go back to that.
We're dealing with a request for a declaratory judgment.
It was my understanding, as I think it was Borchard's, who wrote the act, that a declaratory judgment, that that is a matter within the discretion of the trial court, that there is jurisdiction, but it need not be exercised.
That's the way the author of the act described it.
That's what the notion of a declaratory remedy is.
Well, if it's too iffy, the court says we won't handle it, for any of a variety of reasons.
Isn't that what a declaratory action is?
Mr. Orlando: --Yes, Your Honor, I agree with you, and I agree that that's what Mr. Borchard's understanding of the remedy was as well, is that a new Federal remedy was being created.
It was something that at that point in time the Federal courts would not have had the ability to decide a case that just sought a declaration, because there was no Federal remedy along those lines, but the heart of the issue is that there must be a distinction between the exercise, the threshold question of the exercise of jurisdiction versus the granting of the equitable remedy being sought, and the petitioners herein do not contend that granting of a declaration is mandatory.
The wording of the statute is contrary to that.
What we do contend is that there is discretion to grant the declaratory judgment.
Unknown Speaker: But isn't... doesn't it make sense to infer that there is a derivative or implicit discretion to determine whether to go ahead and have a trial on the issue, because let's assume we apply Colorado River, Moses Cone, or any other set of criteria.
If the court right at the threshold says it's perfectly clear that this is a case in which it's quite unlikely that we would, in fact, grant relief, that is a very good reason for the court at that stage to say, we therefore are going to abstain.
Why doesn't... why isn't that a sensible way to give practical effect to the discretion that you concede?
Mr. Orlando: Your Honor, I agree with you that that is a sensible way.
The only disagreement that the petitioners have with the way things are happening in the Fifth Circuit Court of Appeals is that what is essentially unfettered discretion is given to the district judge to abstain on that threshold--
Unknown Speaker: Well--
Mr. Orlando: --question.
Unknown Speaker: --May I just ask one other?
Your reference to unfettered discretion I think sort of takes its significance from the fact that you continue to reiterate throughout your argument that you have here this morning that there is this unflagging obligation to exercise discretion, which I took you to mean was something inconsistent with abstention, absent an overwhelming case for abstention, and that really is not so.
If, in fact, there is the derivative discretion that I was talking about, then we are not in a situation in which there is this unflagging obligation as we are in the circumstances which Moses Cone and Colorado specifically addressed.
Mr. Orlando: Well, Your Honor, beginning with the Brillhart case, which essentially is the respondents' touchstone in this matter, which seemed to give very wide discretion to the district court on the very threshold issue, the very next term, in the Winter Haven case, this Court said that you can decide these... you can abstain or use discretion, but it's only in, I believe the words were, the extraordinary case, or the exceptional circumstances, and so in the very--
Unknown Speaker: Was that a declaratory judgment case?
Mr. Orlando: --Yes, Your Honor, the Winter Haven case was a declaratory judgment case.
Unknown Speaker: With no other relief sought?
Mr. Orlando: I believe injunctive relief was sought in that case as well.
Unknown Speaker: Has this Court ever said what you're contending, that you must exercise the jurisdiction but when you go through the whole trial you stop because you have discretion with respect to the remedy?
That just doesn't make any sense.
Mr. Orlando: No, Your Honor, I don't believe the Court has said that, and that's... I want to make it clear, that is not our position in this case.
Our position is that what we merely seek is that this Court declare to the Fifth Circuit that the Colorado River Moses Cone analytical framework should apply.
Unknown Speaker: Well--
--but did the district court, or the circuit court in this case, ever purport to be abstaining?
Mr. Orlando: Not from the literal sense of the word "abstention", which I take to mean dismissal, Your Honor.
Unknown Speaker: Well, it seems to me that in your argument so far you have talked about the discretion not to grant declaratory relief as if it were abstention, and it seems to me those are very different things.
Now, it may well be that many of the factors you look to with the abstention determination parallel the factors that you look to with reference to declaratory relief, but I suggest that perhaps the one factor that is not present in declaratory relief is a virtual unflagging obligation, and it seems to me that you are conflating in all of your discussions so far abstention and failure to grant declaratory relief in the sound discretion of the court, and that those are analytically two quite separate foundational principles for the court to consider.
Mr. Orlando: Again, Your Honor, I do contend that it is a threshold question.
We're not standing before this Court contending that the Colorado River Moses Cone analysis is not a threshold issue.
I believe it is.
It is something that the court, the district court in the very first instance, on a motion to dismiss by a respondent should go through the analysis of looking at a given set of standards and say, either this case should be dismissed or stayed based on the guidelines as set by this Court, and--
Unknown Speaker: To follow up on Justice Kennedy's question, does your answer suggest that the court should treat a dismissal as exactly the same way as staying?
Mr. Orlando: --Yes, Your Honor.
In this instance, where we're referring to parallel State court proceedings as being the basis for such an abstention or stay, as the court in Moses Cone noted, the effect of a stay when you're dealing with parallel State court litigation is, practical consequences, the same thing as a dismissal because of the res judicata effect.
Unknown Speaker: Well, I suggest to you again that the court did not say, and I don't think you can interpret its opinion as saying, that it was abstaining.
Mr. Orlando: The court... unfortunately, Your Honor, what's happening is the lower courts, the circuit court opinions as well as the district court opinions, do terribly confuse just the very pure abstention doctrine versus the prudential deference, as some of the cases refer to it as, in the Colorado River Moses Cone analysis.
And I would ask the Court that it adopt this, what I would term prudential deference, in the same situation of a declaratory judgment remedy with a diversity based case, and that's what this Court is presented with here today, is the basis for Federal court jurisdiction is purely diversity, do not have a Federal question involved in this case, and under that--
Unknown Speaker: Do you want us to say there is an unflagging obligation to grant declaratory relief?
Mr. Orlando: --No, Your Honor.
That is not what I'm asking.
What I am asking the Court to do is to say that there is a virtually unflagging obligation to exercise jurisdiction unless there are exceptional circumstances in which the Court can either abstain or defer to the State court.
Unknown Speaker: I think we're back where we started.
You're saying there's an unflagging obligation to assert jurisdiction, although once it asserts jurisdiction you can then say, however, we don't think this is an appropriate case for a declaratory judgment, get out of here, right?
Mr. Orlando: That... yes, Your Honor, I agree, because that is what the Colorado River--
Unknown Speaker: So what do you gain by that?
Mr. Orlando: --Well, that is--
Unknown Speaker: You gain simply the statement we... instead of saying, we don't think this is an appropriate case, get out of here, the court must say, we think this is an appropriate case for us to take jurisdiction, but not to grant relief, get out of here.
Have you really won a lot for your clients on--
Mr. Orlando: --Your Honor, the practical effect of telling the lower courts, though, that they may simply elect not to take a declaratory judgment case for any reason at all as long as it's not bias or prejudice, means that we have effectively done away with a declaratory judgment--
Unknown Speaker: --Well, I thought that answer just contradicts what were you telling Justice Souter.
I thought you were telling Justice Souter that you were not going to make them go through that extra step of saying we have jurisdiction but we're not going to give you a judgment.
I thought you said that that doesn't make any sense.
Mr. Orlando: --I'm sorry I was confusing, Your Honor.
What I meant in response to Justice Ginsburg's question was, I don't believe that it's necessary to go through a trial process.
I thought Justice Ginsburg--
Unknown Speaker: But maybe a summary judgment process.
In other words, time has got to be spent evaluating perhaps uncontested facts, but time has got to be spent doing something more than would be done if you simply say at the threshold point, get out of here.
Mr. Orlando: --No, Your Honor, I do not believe so, because as this Court did, as Judge Hittner did, we had to have a hearing, an oral hearing on the motion to dismiss, and all that the petitioners are requesting herein is that at such time as the district court takes up the motion to dismiss, that he consider that he has a virtually unflagging obligation to accept the jurisdiction, but that in exceptional circumstances he may either abstain completely or defer to the State court.
Unknown Speaker: To what extent is what you're saying inconsistent with the statement, there is nothing automatic or obligatory about the assumption of jurisdiction by Federal court in a declaratory judgment action even if the parties are proper and the jurisdictional amount is present.
The distinction between jurisdiction over the case and the propriety of exercising that jurisdiction must be borne in mind.
Those are Borchard's words about the statute that he largely composed.
I take it you don't agree with that.
Mr. Orlando: Well, I do agree from the standpoint that we're not asking the Court to make an initial ruling on the merits when considering whether or not to defer or abstain.
All that must be done is an analysis of the very threshold jurisdictional question under a certain set of guidelines, and I believe Borchard in some of his writings also presaged some of the guidelines that the court should use, and although I don't know that he predicted the six that came out of the Colorado River Moses Cone analysis very well--
Unknown Speaker: Why must you go through a checklist, instead of saying, here's a case where the insurer is suing first, and then you have another case where the insured is coming into court, there's no Federal question, there are more parties in the State court action, and the one thing that you shouldn't have is wasting judicial resources by having two courts deal with the same matter at the same time, so one court should defer to the other, right?
It's just simply a question of which one should wait.
Mr. Orlando: --Well, the main reason that you do force some sort of guidelines onto the district court is because if you do not do that, Your Honor, then essentially you have unfettered discretion, and that's our big squabble today, is that we contend that the district courts should not have unfettered discretion.
Unknown Speaker: Do you agree that a fundamental point is, you should not have two lawsuits over the same matter going on at the same time, unless there's extraordinary reason for that?
Mr. Orlando: Yes, Your Honor, I would--
Unknown Speaker: All right, and then the decision has to be made which of the two lawsuits, and what are the... we have two lawsuits going on now.
What are the standards that you say should control whether the Federal court suit stops and lets the State go forward, or whether the State should stop and let the Federal suit go forward?
Mr. Orlando: --Your Honor, the... our contention is that the Colorado River Moses Cone analytical framework should be used in precisely that fashion.
That's all that we ask.
If the district court in reviewing that line of cases makes, in his discretion, the... an order stating that his court should either abstain completely or defer to the State court, then we wouldn't be here today, and that's precisely what's happening throughout the majority of the district courts around the country today, but just not in the Fifth Circuit.
Unknown Speaker: But you say that the district judge can say what you've just said, we should go forward, but then can immediately say, having gone forward we find that all things considered it's better for the State court to proceed than it is for us to proceed, and therefore on the merits we decline the declaratory judgment.
Mr. Orlando: No, that's not what--
Unknown Speaker: No.
The merits decision is also a Moses Cone decision.
Mr. Orlando: --I believe that, Your Honor, the Moses Cone decision was purely a jurisdictional--
Unknown Speaker: Right.
Now, on the merits of whether to issue a declaratory judgment or not, what is the standard for that?
Mr. Orlando: --That... those facts aren't presented by this case--
Unknown Speaker: Well, but--
Mr. Orlando: --Your Honor, so--
Unknown Speaker: --But... yes, I assume not, but let's... is it the same standard as Moses Cone?
Mr. Orlando: --No, I don't believe so.
Unknown Speaker: It's a lot more restrictive of the Federal court than Moses Cone, isn't it?
Mr. Orlando: --I believe so, Your Honor.
I believe that because the declaratory judgment statute, the grant of a declaration is essentially an equitable remedy, that the court's other equitable decisions would apply in that setting as well.
Just as the court must look at whether or not the granting of an injunction was proper in a given case, then the court will exercise the same standard on the merits as it would in any other equitable--
Unknown Speaker: And even--
--On these facts, supposing the district judge had said, I have jurisdiction here, and I have an unflagging obligation to exercise it, but on these facts, there's a lawsuit pending in the State court and I'm not going to grant a declaratory judgment.
Is that a permissible disposition of the case in the district court?
Mr. Orlando: --Not on that alone, Your Honor, only because that would have been just one of the factors that the Court has said in the Colorado River and Moses Cone analysis that should be looked at.
Unknown Speaker: So you're saying the district court has to go through the whole Moses Cone list, even though it's a declaratory judgment?
Mr. Orlando: --Yes, Your Honor, that is precisely the position that this case--
Unknown Speaker: How does the fact that it's a declaratory judgment affect the Moses Cone calculus?
Mr. Orlando: --It affects it in the sense that this Court's decision just about, I guess 6 years ago in the NOPSI, a shorthand rendition of the New Orleans Public Service case, that was a declaratory judgment case as well, and the Court, although it didn't go through the Colorado River Moses Cone abstention analysis because it presented a different type of abstention, the Court was having to look at the Burford and Younger abstention doctrines, that was a declaratory judgment case, and it just so happened it presented Federal--
Unknown Speaker: My question was, how does the presence of a declaratory judgment request affect the Moses Cone analysis?
Are you in the process of answering it, or have you gotten onto something else?
Mr. Orlando: --Well, Your Honor, I guess it doesn't change... our position would be that it does not change the Colorado River Moses Cone analysis at all, that the same factors--
Unknown Speaker: In spite of the discretion granted by the statute itself?
Mr. Orlando: --Yes, Your Honor, because the discretion that's granted by the statute itself is the discretion to decide the merits of the case.
The statute itself, from just a literal reading of the statute, does not mention the word "jurisdiction".
Nowhere in the legislative history of the declaratory judgment statute does the word "jurisdiction" appear.
That statute is merely the creation of a Federal remedy, and that got back to my opening statement, Your Honor, that I believe that the only proper way to interpret that language of "may" declare the rights is that threefold test, that you literally can declare the rights, you have to go through the justiciability analysis, you can't grant the declaration if it's not a justiciable controversy, and also, you don't have to grant the relief if you go through the Colorado River Moses Cone analysis--
Unknown Speaker: Mr. Orlando, now Moses Cone, that was not a declaratory judgment action, was it?
Mr. Orlando: --No, Your Honor.
Unknown Speaker: And I thought after Colorado River, wasn't there that case of Will v.... what was it?
Mr. Orlando: Calvert--
Unknown Speaker: Calvert--
--Calvert, and didn't the plurality there refer back to Brillhart and say Brillhart set the standard?
Mr. Orlando: --Yes, Your Honor.
Unknown Speaker: And so why shouldn't we adhere to that?
That was a post Colorado River case.
Moses Cone wasn't a declaratory judgment case.
Why shouldn't we stick with Brillhart?
Mr. Orlando: The Will v. Calvert case, Your Honor, which was decided just a couple of years after... it was in between Colorado River and Moses Cone, there were four justices that were led by the chief justice in the plurality opinion which sent the case back down, as I recall, but the fifth justice, Mr. Justice Blackmun, voted with the other four justices to state very specifically that the Colorado River analysis should apply.
So we did have five justices... even though there were three separate opinions in that case, five of the justices post Colorado River said no, we need to apply the Colorado River analysis.
Unknown Speaker: Well, maybe it's time to declare that Brillhart sets the standard.
Mr. Orlando: That is the precise question before this Court--
Unknown Speaker: Exactly, and I would like to know why that doesn't present the better point of view.
Mr. Orlando: --It doesn't present the better point of view for a couple of reasons.
The first and perhaps the most important is just the pure separation of powers between Congress and the legislative branch.
The Congress set forth the--
Unknown Speaker: Congress gave the judicial branch some discretion in the Declaratory Judgment Act.
That's clear on the face of it.
Mr. Orlando: --Yes, Your Honor, the Congress did give discretion, but again, I would reemphasize that our position is that that discretion was to grant the relief, not to accept jurisdiction.
Congress, it is very clear, and there are some cases... I can't recall the name of any that this Court has said, but I'm almost certain there is Supreme Court precedent for the authority that the declaratory judgment statute is a remedial statute, that it doesn't say anything about jurisdiction, and while it is a discretionary remedy, there are lots of Federal discretionary remedies, injunction relief, though really our position is that there is no reason to treat the discretionary relief, the equitable type of relief being stated from a declaratory judgment versus any other type of equitable relief that this Court--
Unknown Speaker: You know, one of the ironies of the issue is, we talk about Colorado River as unflagging obligation, and of course they didn't retain jurisdiction in that case itself, and one of the factors that Justice Brennan mentioned in the... in his opinion under all these unflagging factors is desirability of avoiding piecemeal litigation, citing Brillhart.
And he also says that the factors don't have any necessary... you don't know which one is the heaviest and how to weigh them, but I don't know why, even within the Colorado River formulation, one couldn't say that a district judge has some discretion to decide whether, given the case going forward in two different court systems, which one is a better forum for adjudicating the merits.
Mr. Orlando: --Part of the problem with that approach, Your Honor, is that if this Court does not give some guidance to the lower courts as to which factors should or should not be looked at by the district court, then in essence the Court is granting unfettered discretion, and what is or may happen is the district court may simply look at his docket and say, my docket is overcrowded with criminal cases--
Unknown Speaker: Well, supposing he looks at the docket and says, if I take... keep this case, I'll be able to try it in about 30 months, it will probably go to trial next week in the State court, and that's the only factor I look at.
Is that a sufficient factor?
Mr. Orlando: --If that's the only factor, then I would say no, Your Honor.
Although it is a fairly compelling factor in and of itself, if the Court didn't look at some of the other reasons why the case might properly be in Federal court, then it would be our contention that again, that would be basically unfettered discretion.
Unknown Speaker: Mr. Orlando, you answered Justice O'Connor that that is indeed the issue here, whether we should use as a jurisdictional issue what we have said to be the basis for a merits determination under declaratory judgment actions, but is that really the issue?
Do we know that the dismissal in the district court here was a jurisdictional dismissal?
Mr. Orlando: Yes, we do, Your Honor.
The dismissal, although the order is not worded specifically saying that I'm declining to accept jurisdiction, a fair reading of the order, as well as the Fifth Circuit opinion, is that it was a threshold question.
Unknown Speaker: Where did you get it, it's on B 2, B 1 of the cert petition?
Mr. Orlando: Yes.
Unknown Speaker: I think I'm a fair reader, and I can't... it says, B 2,
"the district court in its discretion may provide declaratory relief. "
It didn't say, may exercise jurisdiction.
"To determine if declaratory relief is appropriate. "
not if entertaining jurisdiction is appropriate,
"the court may consider whether the declaratory judgment action was filed in anticipation of a trial on the same issues. "
blah, blah, blah, blah, blah, and then it goes down and says,
"Thus, the court finds that exercising jurisdiction to grant declaratory relief would result in the piecemeal adjudication. "
Mr. Orlando: But it is... I agree that is the wording, but there was no consideration of the merits of the proceeding, and that's really the basis for my position, Your Honor, is in the motion to dismiss hearing he didn't talk about merits.
Unknown Speaker: What is the merits?
I mean, the merits is, if there is another State action pending and declaratory judgment was filed in anticipation of trial on that same issue, why isn't that exactly the merits?
Mr. Orlando: Well, the merits of this case would have had to address the propriety of whether or not the insurer should be defending the underlying litigation, which was the principal... one of the principal issues--
Unknown Speaker: But all that could be done in the State court, and I think you agreed with me that one... the fundamental thing that we start with in these days of overcrowded courts, even without that, you should not have two courts proceeding in the same matter at the same time.
That's so basic.
And then the question is, which one, and it seems that this court, this district court just explained why, that everything could be... everything that was brought to the Federal court and more was pending before the State court, plus that suit came up in the ordinary course, the insured suing the insurer, not the insurer anticipating the suit.
So what reasons, other than the ones that were given, need to be given?
Mr. Orlando: --Well, those... Your Honor, there are perhaps three or four of the other Colorado River Moses Cone factors that the court should have considered and the court should have balanced those factors in favor of accepting jurisdiction.
Unknown Speaker: What factors, other than 1) there should be one lawsuit; 2) the State court is not going to relinquish this case.
It's got all the parties, or more of the parties before it than in the Federal court.
What else, beyond that, should a sensible district judge consider?
Mr. Orlando: Just, we contend none, other than the Colorado River's--
Unknown Speaker: Well, counsel, suppose that the State of New York, I don't know if this is true or not, has a statute which is exactly parallel to the Federal declaratory judgment suit, and this action were brought in the State of New York to enjoin the parties... to declare the rights of the parties.
Would you tell the State court of New York, in determining whether to exercise its discretion to grant a declaratory judgment, that it has to consider Moses Cone factors?
Mr. Orlando: --No, Your Honor, I don't believe there would be any--
Unknown Speaker: It seems to me that this case is no different than that.
Now, many of the factors that the court considers sound very much like Moses Cone factors, and they are, but you don't cite Moses Cone for the proposition that the declaratory judgment relief is either properly or improperly denied in the matter of the Court's discretion.
Mr. Orlando: --Yes, Your Honor, I would agree with that, but I would also point out to Your Honor the NOPSI decision, which came just a few years ago, was a declaratory judgment case.
Unknown Speaker: Thank you, Mr. Orlando.
Mr. Powers, we'll hear from you.
Argument of Werner A. Powers
Mr. Powers: Mr. Chief Justice, and may it please the Court:
As I believe opposing counsel has conceded, what we have before this Court today is merely a question of statutory construction, no more, no less.
The question before this Court is, does the Declaratory Judgment Act mean what it says when it says "may" as oppose to "must" declare rights, and are we going to engraft on this statute some requirement that the discretion can only be exercised after there is some hearing on the merits, whatever that means?
The issue before this Court is made simpler, it seems, because it comes on the heels... not on the heels, after the decision in Brillhart some 50 years ago, which I believe has already answered the question of statutory construction for this Court.
Justice Frankfurter clearly held that the discretion was vested in the district court by this statute to have the discretion not to exercise jurisdiction over a declaratory judgment act, particularly when there is a State court proceeding that can resolve the issue and all the issues are issues of State law, so that issue has been decided.
Unknown Speaker: Did he say that?
Was it put that way, not to exercise jurisdiction over the case?
Mr. Powers: I believe he does use the term "jurisdiction" in the opinion.
Unknown Speaker: Well, maybe, but he might have said, as the Court here said, jurisdiction to grant the... this is very subtle, but that's what we're talking about, isn't it?
Mr. Powers: It is very subtle, and picking up on a point that was made earlier, it may be that we're talking semantics more than anything else.
Unknown Speaker: Maybe.
Mr. Powers: Is the decision not to exercise jurisdiction to grant the relief no different than saying, I'm exercising my discretion not to grant relief?
Unknown Speaker: Right.
Mr. Powers: Justice... Judge Hittner in his opinion was, I thought, very artful in the way he drafted his opinion.
Unknown Speaker: Well, although he ended up... I'm afraid I misled counsel, saying he dismissed.
He didn't dismiss.
He stayed, and stayed, I guess, is really much more consistent with declining to exercise jurisdiction over the case for the moment.
Isn't that right?
Or maybe it isn't.
Maybe it means I exercise jurisdiction, but I'm just not going to make up my mind about the declaratory judgment.
Maybe it's in between the two.
Mr. Powers: Indeed.
Perhaps it's no different than a court deciding to allocate its docket in such a way that it's going to put this case down the road apiece.
Unknown Speaker: Down the road apiece.
Mr. Powers: And see what happens in the State court.
Now, that's not a jurisdictional decision.
That's just a docket allocation.
Unknown Speaker: May I ask... it's just a stay, not a dismissal.
Was this an interlocutory appeal, or was that... is a stay a final judgment?
How did the court of appeals have jurisdiction to review this?
Mr. Powers: I believe that the court of appeals treated it as a final judgment in that it was for all practical purposes concluded with the stay.
Unknown Speaker: But the case was still pending in the district court.
Mr. Powers: That is an intriguing--
Unknown Speaker: I suppose any time the district court decided to, he could have just said I think I'll... I find out that the proceedings have been delayed interminably over in the States, and I think we ought to go ahead with this trial.
Nothing would have prevented the judge from doing that, would it?
Mr. Powers: --I think that is a fair point, and perhaps does argue that perhaps abstention analysis is at play here to some degree.
I don't know that the court of appeals actually focused on that issue when they took jurisdiction.
Unknown Speaker: Maybe that's why they didn't want to publish their opinion.
Mr. Powers: That may very well be the case.
But to say that they did not focus on the issue is not to say that had they focused on the issue they may have decided that they didn't have jurisdiction to begin with, perhaps, because they could have construed this as a nonjurisdictional--
Unknown Speaker: No, but they affirmed.
They didn't dismiss the appeal.
Mr. Powers: --That is true.
That is true.
Unknown Speaker: What did Moses Cone do, do you remember?
Did they dismiss or stay?
We call all of these things abstention cases.
I went through them once and I forgot what conclusions I came up with, but some we dismiss and some we simply say, we're going to wait to see what the State court does.
What was Moses Cone?
Mr. Powers: Your Honor, I do not know the answer to your question.
I think that--
Unknown Speaker: They're quite different things, really, aren't they?
Mr. Powers: --Well, they are.
As I recall, though, the policy reasons for underlying the abstention doctrines, at least in part, was that it's perhaps less prejudicial to the litigant who is petitioning for relief to stay the action and to keep it on the court's docket in order to see how the State court action or the parallel proceeding, whatever that might be, proceeds, and that's somehow less draconic.
I must confess, I don't know that that's necessarily true in a declaratory judgment action.
I don't see why they can't simply dismiss the case, and then if it needs to be refiled, it can be refiled later if need be, but I don't know the answer to Your Honor's question.
Unknown Speaker: In Colorado River, as I read the opinion we affirmed the order dismissing the complaint.
We usually should talk about dismissing actions.
Mr. Powers: That's correct.
The... whatever procedure is used, it seems to me, to resolve the matter, is certainly... should not be dispositive of this appeal.
The problem I'm having also with the merits of this issue that's being advanced by the petitioner is, we have had the decision by this Court some 50 years construing the statute.
There's been no legislative response to it.
Now, they've had plenty of time... the legislature has had plenty of time to engraft whatever protections need to be engrafted on the declaratory judgment statute and has done nothing, which I think leads even more conclusively to a conclusion by this Court that in the absence of some legislative response to the earlier decision, that we should interpret the statute as it was interpreted by Justice Frankfurter.
Now, whether that means it's a jurisdictional issue, or it's simply a decision not to grant the relief, how that is handled semantically, it probably would be a pure, a logically pure reasoning to say it's nonjurisdictional, that it's simply a question of interpreting the statute and denying the relief under... with the discretion of the court.
Unknown Speaker: Isn't it just the difference between 12b(1), which would be subject matter jurisdiction, and 12b(6) doesn't state a claim for relief?
Mr. Powers: I think so.
I think so, but I also think you could probably run a Rule 56 motion and get to the same result.
That's why I didn't quite understand earlier why that should make a difference whether you run a Rule 56 motion, a summary judgment motion saying that because of these parallel proceedings you should not exercise jurisdiction here, or you should not grant the relief because there's another forum better suited to grant complete relief with all the parties.
Either way, you would get to the same result, it seems to me, whether it would be under Rule 12 or under Rule 56, and surely we're not here in this Court because it was a Rule 12 motion as opposed to a Rule 56 motion that was filed below, but either of those two provisions would, of course, accord the same relief.
Unknown Speaker: Maybe the stay result in the district court is like if you grant a motion, a forum non conveniens motion when the forum is broad and the district court wants to make sure that that other litigation really goes forward before dropping the case.
If it's reinstituted there may be a statute of limitations question.
Maybe that was the logic behind the stay.
Mr. Powers: I think so, but I'm not so sure you have a statute of limitations issue with a declaratory judgment action in this case, but that would be... that is typically one of the reasons for staying instead of dismissing, is to avoid any kind of statute of limitations bar.
Unknown Speaker: How did the... Justice Stevens and I were just speculating, how does a stay get to be appealable as a final order?
I mean, suppose he hadn't announced a stay, just put it at the bottom of his stack of cases, just didn't get to it for several years?
Mr. Powers: If memory serves, and I always hate to pull a case out of the top of my head, but doesn't the Landis case speak to a situation where a trial court abuses its discretion by manipulating its docket in such way as to, in essence, never reach judgment on a case?
Unknown Speaker: It sounds right to me.
Mr. Powers: I think that's the case, but that's--
Unknown Speaker: Did you ask for an injunction?
Mr. Powers: --No.
We did not ask for anything.
We were the defendant.
Unknown Speaker: Well then, 1292, or did the... pardon me.
Did the plaintiff ask for an injunction?
Mr. Powers: Absolutely not, simply a declaratory relief.
Unknown Speaker: Then 1292(a) doesn't work.
Mr. Powers: No.
Unknown Speaker: Gee, maybe the case doesn't belong here.
Mr. Powers: We've traveled a long way.
It must belong here.
Unknown Speaker: Well, let's go ahead on the assumption it does, yes.
Mr. Powers: We must get an opinion on this.
The... but it is an intriguing jurisdictional issue, I grant that.
The... I'm also having difficulty understanding any public policy reason for engrafting the Colorado River notions onto the Declaratory Judgment Act.
The... you know, making Erie leaps into State law is great sport, but you know, the fact is that Federal courts would... who already have an overly burdened docket ought to be spending what little precious time they have addressing Federal issues, Federal crimes, and not guessing at what a State court will do in resolving purely a State law question.
The declaratory judgment action also, as in this case, is simply used for abuse.
I mean, for abuse for forum shopping.
This is a classic example, it seems to me, of a misuse or abuse of the Declaratory Judgment Act.
In this case, to talk a little bit about insurance law for just a moment, typically in a third party insurance contract you have two distinct duty.
You have a duty to indemnify, and you have a duty to defend.
In this case, the insurance carriers had already decided not to afford coverage to the respondents.
They had already rejected any coverage with respect to the defense obligation.
They certainly didn't need to petition a Federal court in order to get comfort before they made that decision.
They made that decision without any judicial intervention.
And in terms of indemnification obligations, the Winkler County action, which is the subject of the declaratory judgment suit below, that State court proceeding is still on appeal.
It may be reversed.
Who knows what will happen with that State court proceeding, so it's premature to grant a declaratory judgment action with respect to whether or not there will be indemnity.
Unknown Speaker: Where is Winkler County?
Mr. Powers: It's in West Texas, Your Honor.
Unknown Speaker: In... how large is the county seat?
Mr. Powers: Well, Your Honor, I don't know how large the county seat is, but it's a relatively rural area.
Unknown Speaker: Is there any reason why all this litigation was brought there rather than somewhere else?
Mr. Powers: In the underlying litigation... this, of course, does not involve any of the insurance carriers.
It was brought there in part because that... it was an oil and gas dispute, and venue was proper under State law in that jurisdiction because of where the oil and gas was being developed.
Unknown Speaker: The statements you were just making about this being premature as a declaratory judgment action, assume... and about race to the courthouse assumes that the Declaratory Judgment Act was not meant precisely to permit what occurred here, to permit an out of State defendant who does not want to have to be subjected to State courts to file first in order to avoid that.
Mr. Powers: Justice Scalia, I will take issue with that, if I may.
Unknown Speaker: Well, I'm not... I'm saying... I'm just saying what you assumed.
I don't know whether it's right or wrong, but why do you assume it?
Mr. Powers: Well, the purpose of a declaratory judgment action, as I understand it, is that before a party breaches a contract, before they engage in conduct that might be a breach of contract, and thereby expose themselves to the damages that flow from that, that they would go to court to seek a declaration of what the contract... contractual rights and duties are.
That's the classic example of why you would use a DJ, and that often happens in the insurance industry.
An insurance carrier decides to defend, even though they think there's no coverage, and then they simultaneously... before they breach a contract they simultaneously seek a declaration of their rights as to whether they have a duty to defend.
In this case, the carriers had already decided to deny defense.
They had already breached the contract, if they indeed had breached it, so there was no need to seek a declaration with respect to that issue.
With respect to duties of indemnification, as Your Honor knows, you cannot use the declaratory judgment action to adjudicate purely speculative results, and until the Winkler County action is ultimately resolved, either by affirming the trial court's judgment, or modifying it, or remanding it and retrying it, whatever happens, it's impossible to know whether there will ultimately be a duty to indemnify under the insurance contracts, so why are we wasting time with a declaratory judgment action where the carrier has already decided to breach the contract, if it did breach the contract, and it's too early to tell--
Unknown Speaker: Well, that was their mistake, then.
They really shouldn't have made that decision.
They could have just not shown up and say, we really aren't really sure.
Should the whole thing turn on that, do you think?
Mr. Powers: --Well--
Unknown Speaker: It's easy enough for an insurance company never to make up its mind categorically until the action is filed.
Mr. Powers: --I think we would have had a truer application of a DJ action if... if upon giving notice to the carrier, the carrier had come in and defended the lawsuit and simultaneously sought a declaration of rights.
That would be a classic example and a proper example.
Unknown Speaker: Why--
--Is this... I'm sorry.
Of course, isn't there another factor we at least ought to think about for a minute, that one of the whole purposes of diversity jurisdiction is to avoid the danger of a forum that's somewhat prejudiced in favor of the local citizenry, and if the law would say, well, we will let the local court go forward, we kind of forget why the authors of the Constitution even granted diversity jurisdiction in the first place.
Mr. Powers: Well, at the risk, of course, of heresy to the Constitution, I will say there is something that many State courts find offensive, at the concept that a State court is somehow biased simply because a foreign interest is before the bar, and... but aside from that--
Unknown Speaker: That's not our thinking.
It's the Founding Fathers.
Mr. Powers: --Yes, I know, but--
Unknown Speaker: I mean, blame it on them.
It's not a frivolous suggestion.
They did establish diversity jurisdiction.
Mr. Powers: --But by the same token, by the same token Congress has repeatedly distinguished between Federal jurisdiction... I mean, diversity jurisdiction and Federal question jurisdiction, making it much easier for litigants to petition a Federal court for relief than for purely diverse parties to seek Federal relief.
Besides, they have an answer.
They have a remedy.
If... we have removal statutes, and they either apply or they don't apply, and so where a court--
Unknown Speaker: I'd say you've nicely avoided that by including another party in the State action, which is a party, a Texas party, so that removal in this case will not be possible, and as I recall they say that occurred after they filed the declaratory judgment.
Mr. Powers: --Well, two responses to that.
First of all, it's not true, and of course, if it were true, they had a remedy.
They could have removed the case and argued fraudulent joinder of the nondiverse party, and there's a whole body of law that could have come to their rescue if rescue they needed.
But they didn't remove the case.
They didn't test the fraudulent joinder, and the reason they didn't do it is because it's patently frivolous, because obviously the Hunts, who are the other plaintiffs and the other carriers, they didn't talk the other carriers into rejecting coverage solely so the Hills could defeat removal jurisdiction, so while that's a nice argument that--
Unknown Speaker: It seemed like a nice argument to me.
Mr. Powers: --Well, it's a nice argument.
They have a remedy for that, and so the issue that you're addressing, and that is, are we doing disservice to the Constitution by creating an impediment to a foreign interest seeking relief from a Federal court, the answer is no.
The answer is, they have removal statutes.
If the removal statutes apply, they will apply, and if the foreign interest has truly a right to be in Federal court, that right will be afforded.
Unknown Speaker: But how can they remove, because as I understand it, the State court suit doesn't have complete... there isn't complete diversity, and there's no basis that you could... one defendant could get out and get into Federal court.
Mr. Powers: And the answer to that, again, is in the Framers of the Constitution and in the Congress.
I mean, the district courts are creatures of legislation, and the legislation makes clear that you have to have complete diversity, so I guess the answer to the question is, no, they can't remove the case because there isn't complete diversity, but then it was never envisioned that litigants could petition the Federal court where there wasn't complete diversity.
That's just the way the statutes are written.
I have... in responding to your questions, I believe... I suppose there's one thing I should pick up if I can, Justice Ginsburg, because I want to stress that we should not divorce rules of law from practicality, and there is nothing more egregious than two courts racing to judgment with the same controversy.
There is nothing that creates more waste.
There is nothing that creates more animosity between two systems of justice, a State system and a Federal system of justice.
I've been there.
I've seen it, and you see it frequently where, whenever one litigant in the race to judgment is displeased with a ruling by that judge, he runs to the other forum and tries to pit one court against another court.
It's not only a waste of resources, it's entirely unseemly, it seems to me, and absent extraordinary circumstances there is no reason for a Federal court to be acting in a purely declaratory manner when you have a pending State court action that can fully resolve the issues.
As was noted by one of the justices earlier, somebody has to give.
Somebody has to give, and Congress in the DJ statute gives the Federal courts the ability to give, and that's what the Federal courts should do, is they should give, and they should yield to the State court remedy.
Unknown Speaker: You would not say it would be an abuse of discretion for a Federal district judge to say, well, that's a pretty complex proceeding over there in the State court.
It's going to take a long time to decide.
They've got all those parties in, and these parties just want me to decide one narrow issue.
I will exercise my discretion to go ahead and decide that.
You wouldn't say he'd be off base doing something like that, would you?
Mr. Powers: I think under the law he would probably have the discretion to do that.
I would argue that to exercise that discretion would be abusive under those circumstances.
I have a hard time imagining any situation in which, given the pendency of a State court action, given that you're only dealing with State law questions, okay, given that you have complete identity of parties in the two proceedings, I find it... I find it very difficult to conceive of a compelling reason why a Federal court should make an Erie leap that it doesn't need to make solely for the purpose of intruding itself into that State court action.
I have a hard time seeing a reason for that.
Unknown Speaker: Well, that's surely true when the State action is filed first, but here it was filed second.
Suppose an insurance company wants to get this thing... there's some reason why it thinks it's necessary.
There are elderly witnesses involved.
They don't want to take a chance about witnesses dying, so they want to get it resolved quickly, and they don't know how long it is going to take the plaintiff to file, so they file a declaratory judgment action at once, and then what?
I don't know.
Contract statute of limitations in Texas, what is it?
It's 5 years later in the... after a lot of evidence has been taken in the declaratory judgment action the State action commences.
Mr. Powers: I think that is why the discretion feature is given to the district court.
You could perhaps hypothesize a situation where the State court action is not filed until, say, several years after the Federal court action has been filed, and it has proceeded apace to such a point that it would be a total waste of judicial resources not to reach a resolution.
Unknown Speaker: --But that's very far afield from your case where the Federal action was reinstituted after you gave notice that you were bringing a suit in State court.
Mr. Powers: Indeed, and in this case, of course, very little water had been tread before the State order was entered.
Moreover, one fact I think is interesting in this case, bearing on this issue, is that, remember there were two declaratory judgment actions.
The petitioners come into this Court saying, all we want is to rush to judgment, rush and hurry and get a declaratory action filed and get resolution of this issue.
They dismissed their first case.
They dismissed it, and quite frankly would never have refiled it but for the fact that the policyholder declared its intentions to seek affirmative relief in State court, so this is... just on the facts of this case, this is not one where, as you might posit, a carrier legitimately is at a loss for a declaration of its rights.
This is not that case.
They did not seek an immediate resolution of the issue.
In fact, they agreed to dismiss their case, and there are no--
Unknown Speaker: In fairness, though, they agreed to dismiss it because they thought it was moot.
Didn't they think that there was not going to be any claim made against them?
Mr. Powers: --I don't believe that there's anything in the record to suggest that, and I might say, there's been a lot of things outside the record in the briefing, and I haven't pointed that out in opening, but much of the arguments that they make that the Hills have engaged in forum shopping themselves is really outside the record, and... but anyway, that did not exist there.
Unless there are any other questions by the Court, I appreciate the Court's attention and I yield the rest of my time.
Chief Justice Rehnquist: The case is submitted.
Unknown Speaker: The honorable court is now adjurned until tomorrow at ten o'clock.
Argument of Speaker
Mr. Speaker: The opinions of the court in two cases will be announced by Justice O'Connor.
Argument of Justice O'Connor
Mr. O'Connor: The first case is number 94-562, Wilton versus Seven Falls Company and this case comes here on writ of certiorari to the United States Court of Appeals for the Fifth Circuit.
The petitioners are various insurance underwriters.
The respondents are owners of Oil and Gas Properties in Texas.
The respondent's ask the petitioner's to defend or indemnify them under several commercial liability insurance policies.
When they became involved in litigation against third parties and the insurance underwriters decline to do that and after a sizable verdict was entered against respondents, the respondents told the petitioners, they intended to file suit under the insurance policies.
The petitioners immediately sought a Declaratory Judgment in Federal District Court to the effect that their policies did not cover respondent's liability.
The respondents then sued petitioners in state court, and asked the Federal District Court to dismiss or in the alternative to stay the declaratory judgment action given the pendency of the parallel state court action.
The Federal District Court did enter a stay on a ground that the state suit encompassed the same coverage issues, raised in the federal action.
The Court of Appeals affirmed.
We granted certiorari to resolve two different Circuit Court splits on issues in the case.
First, Courts of Appeals have divided on the circumstance under which Federal District Courts, may stay or dismiss declaratory judgment actions in light of the pendency of the similar State Court proceedings.
Some courts applied this court's 1942 decision in Brillhart which upheld a District Court's broad discretion to enter a stay under circumstances similar to this case.
Other courts have looked to language in this court's cases in Colorado River and Moses Cone and upheld that a District Court must point to exceptional circumstances before it may stay or dismiss Federal Declaratory Judgment actions.
We hold a more permissive standard set forth in Brillhart rather than the exceptional circumstances test governed here.
The Declaratory Judgment Act in our view justifies standard vesting district courts with broad latitude in determining whether and when to grant a declaratory judgment.
Our cases have repeatedly characterized the act as an enabling act which confers a discretion on the courts rather than an absolute right upon the litigant, and because of this broad discretion we think the declaratory in a declaratory judgment context, the normal principle that federal courts should adjudicate claims within your jurisdiction, yields to considerations of practicality and wise administration.
Now, the second issue on which Court of Appeals have divided is the proper standard of appellate review of district court's decisions to stay declaratory judgment proceedings.
Some courts adopted de novo review standard, others review for abuse of discretion.
We believe that's more consistent with the statute to vest district courts with the discretion in the first instance because facts bearing on the fitness of the case for resolution are peculiarly within their knowledge and grasp.
Accordingly, we hold a proper measure of review is the abusive discretion standard. Accordingly, we affirm the judgment of the Fifth Circuit.
The opinion is unanimous.
Justice Breyer took no part in the consideration or decision of the case.