Argued: November 3, 2016
Appeal from the United States District Court for the Eastern
District of Pennsylvania (No. 2:14-cv-07149) District Judge:
Honorable Joel H. Slomsky
Bahadoran (ARGUED) Michele A. Vargas Hinshaw & Culbertson
LLP Counsel for Appellant Maxum Specialty Insurance Group.
Reed Evans (ARGUED) Selective Law Group, LLC 760 West Sproul
Road Counsel for Appellees The Carman Corporation, The Carman
Group, Inc., The Carman Group, LLC, and Sergius B. Carman.
Michael O. Pansini Steven M. Mezrow Gregory J. Kowalski
(ARGUED) Pansini & Mezrow Counsel for Appellees Ronald
and Patrice Kelly.
Before: CHAGARES, HARDIMAN, and SCIRICA, Circuit Judges.
CHAGARES, CIRCUIT JUDGE.
case presents a situation familiar to our district courts.
Two related lawsuits are pending - one each in state and
federal court. The state action seeks to determine a
defendant's liability for an alleged harm, and the
federal action seeks only a declaratory judgment on an
insurer's obligation to defend and indemnify the
defendant. The District Court here exercised its discretion
to abstain from entertaining the declaratory action under the
Declaratory Judgment Act, 28 U.S.C. §§ 2201-02
("DJA"), largely because it determined that the
state court action concerning liability and the declaratory
judgment action were parallel proceedings. The District Court
further concluded that the remaining factors guiding the
consideration of whether it should entertain the declaratory
action weighed against retaining jurisdiction.
a state action parallels a federal action - in which case a
district court has significant discretion under the DJA to
decline a lawsuit seeking only declaratory relief - is a
question that has divided the district courts in this
Circuit. Although the question is not dipositive to a
court's decision to abstain, it is important, and is one
that courts must address. We hold that contemporaneous state
and federal proceedings are parallel for purposes of the DJA
when they are substantially similar, and the two proceedings
here were not. We further hold that the lack of parallel
state and federal proceedings - a significant factor favoring
hearing the case - is not outweighed by other factors. For
the reasons that follow, we will reverse the District
Court's order and remand.
2007, appellee Ronald Kelly's car collided with another
vehicle driven by a drunk driver. The driver had been
drinking at a bar, Princeton Tavern, owned by BBK Tavern,
Inc. ("Princeton Tavern"), which was insured under
a dram shop liability policy issued by State National
Insurance Company ("State National"). The insurance
policy had been procured by appellee Carman Corporation
("Carman"), Princeton Tavern's insurance
2009, Ronald and Patrice Kelly (collectively, "the
Kellys") sued Princeton Tavern in state court seeking
damages for injuries and economic losses caused by the
collision. Kelly v. Siuma, Case No. 090503424
(Phila. Cty., Pa. Ct. Com. Pl. May Term 2009). The Kellys
eventually obtained a default judgment against Princeton
Tavern and settled for $5 million.
that lawsuit was filed, Princeton Tavern alerted its broker,
Carman, and requested that Carman notify State National of
the insurer's obligation under the dram shop policy to
defend and indemnify Princeton Tavern. Carman did not do
this. Lacking notice of the lawsuit, State National refused
to cover Princeton Tavern's legal liability. After the
Kellys secured the judgment, Princeton Tavern assigned to
them the rights to sue Carman for its failure to notify State
National about the litigation.
2013, the Kellys sued Carman in state court for negligence
and breach of contract. Ronald & Patrice Kelly,
as assignees of BBK Tavern, Inc. v. The Carman
Corp., Case No. 4825 (Phila. Cty., Pa. Ct. Com. Pl. July
Term 2013) (the "Tort Action"). While that case was
proceeding, the Kellys filed a separate state-court action
against Carman and its professional liability insurer,
appellant Maxum Specialty Insurance Group
("Maxum"), seeking a declaratory judgment that
Maxum was obligated to defend and indemnify Carman against
the Tort Action claims. Kelly v. Maxum Specialty Ins.
Grp., Case No. 233 (Phila. Cty., Pa. Ct. Com. Pl. Dec.
Term 2014) (the "Declaratory Action").
removed the Declaratory Action to the District Court under 28
U.S.C. § 1441, asserting diversity jurisdiction pursuant
to 28 U.S.C. § 1332. Although the Kellys and Carman are
Pennsylvania citizens, Maxum - a Georgia company - argued
that the Kellys and Carman are together interested in
securing Maxum's coverage for Carman's potential
liability. Therefore, according to Maxum, diversity of
citizenship (and thus federal jurisdiction) would exist once
Carman was properly realigned to join the Kellys as a
Kellys moved to remand the Declaratory Action to state court.
They argued that they and Carman do not have the same
interests and should not be realigned to secure diversity
jurisdiction. They also requested alternatively that the
District Court exercise its discretion under the DJA to
decline jurisdiction. Maxum opposed the motion, and Carman
filed a response in support of remand.
the factors for deciding whether to abstain from entertaining
declaratory judgment actions set forth in Reifer v.
Westport Insurance Corp., 751 F.3d 129, 143-46 (3d Cir.
2014), the District Court sided with the Kellys and Carman.
The Court's conclusion rested heavily on its
determination that the still-pending state Tort Action
constituted a parallel proceeding to the Declaratory Action.
By order issued on September 29, 2015, the District Court
declined to hear the lawsuit and remanded the action to state
court. With the motion resolved, the Court did not address
whether realignment of the parties to secure diversity
jurisdiction was proper. Maxum timely appealed.
district court's discretionary remand in a declaratory
judgment action is a final decision that is appealable under
28 U.S.C. § 1291. Reifer, 751 F.3d at 133. We
review the District Court's decision for abuse of
discretion. Id. at 137-39. In doing so, we review
legal questions, including the question of whether state
court and federal court proceedings are parallel, de
novo. See Nationwide Mut. Fire Ins. Co. v. George V.
Hamilton, Inc., 571 F.3d 299, 307 (3d Cir. 2009).
Kellys seek a declaratory judgment, a remedy made available
to the federal courts by the DJA. That statute provides that
federal courts "may declare the rights and
other legal relations of any interested party seeking such
declaration, whether or not further relief is or could be
sought." 28 U.S.C. § 2201(a) (emphasis added).
Granting a declaratory judgment is therefore discretionary
and a court may abstain from entertaining an action seeking
only declaratory relief. Reifer, 751 F.3d at 134
(citing Brillhart v. Excess Ins. Co. of Am., 316
U.S. 491, 494 (1942)); Wilton v. Seven Falls Co.,
515 U.S. 277, 282 (1995) ("[D]istrict courts possess
discretion in determining whether and when to entertain an
action under the [D]A], even when the suit otherwise
satisfies subject matter jurisdictional
prerequisites."); see also Rarick v. Federated Serv.
Ins. Co., 852 F.3d 223, 229 (3d Cir. 2017) (clarifying
the extent of a court's discretion where a litigant seeks
both declaratory and non-declaratory relief).
discretion courts exercise in actions seeking only
declaratory relief is "substantial" but nonetheless
"bounded and reviewable." Reifer, 751 F.3d
at 140. On the one hand, courts may abstain based on
"considerations of practicality and wise judicial
administration." Wilton, 515 U.S. at 288. On
the other hand, the "wholesale" dismissal of
certain types of cases brought under the DJA is improper, as
litigants should not be unjustifiably denied the right to
obtain an authorized remedy in federal court. See
Reifer, 751 F.3d at 147.
directed courts deciding whether to entertain a declaratory
action to weigh certain enumerated and other factors
"bearing on the usefulness of the declaratory judgment
remedy, and the fitness of the case for [federal]
resolution." Id. at 138 (quoting
Wilton, 515 U.S. at 289). This type of "uniform
approach" is intended to "clarify for parties and
district courts the relevant considerations to sound and
reasoned discretion, as well as help properly focus our abuse
of discretion review." Id. at 146.
should first determine whether there is a "parallel
state proceeding." Id. at 143, 146. Although
the existence of a parallel state proceeding is but one
factor for courts to consider, it is a significant factor
that is treated with "increased emphasis."
Id. at 144; see also Sherwin-Williams Co. v.
Holmes Cty., 343 F.3d 383, 394 (5th Cir. 2003) (noting
that "the presence or absence of a pending parallel
state proceeding is an important factor"); Aetna
Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419,
423 (4th Cir. 1998) ("[T]he existence of [a parallel
state] proceeding should be a significant factor in the
district court's determination. But it is not
dispositive."). We have held, as a result, that
"the absence of pending parallel state proceedings
militates significantly in favor of exercising jurisdiction,
although it alone does not require such an ...