Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-15-03606/USCOURTS-ca3-15-03606-0/pdf.json

Parties Involved:
Federated Service Insurance Company
Appellant
Bryan Rarick
Appellee

Document Text:

PRECEDENTIAL 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

___________ 

No. 15-3606 

___________ 

BRYAN RARICK, Individually and on behalf 

of a class of similarly situated persons 

v. 

FEDERATED SERVICE INSURANCE COMPANY, 

 Appellant 

__________ 

On Appeal from the United States District Court 

for the Eastern District of Pennsylvania 

(D.C. No. 2-13-cv-03286) 

District Judge: Honorable Joseph F. Leeson, Jr. 

___________ 

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___________ 

No. 16-1328 

___________ 

TERRY EASTERDAY; 

LINDA EASTERDAY, h/w individually and on behalf 

of a class of similarly situated persons 

v. 

THE FEDERATED MUTUAL INSURANCE COMPANY, 

 Appellant 

__________ 

On Appeal from the United States District Court 

for the Eastern District of Pennsylvania 

(D.C. No. 5-14-cv-01415) 

District Judge: Honorable Lawrence F. Stengel 

___________ 

Argued November 2, 2016 

Before: CHAGARES, HARDIMAN, and SCIRICA, 

Circuit Judges. 

(Filed: March 28, 2017) 

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Charles E. Spevacek [Argued] 

William M. Hart 

Tiffany M. Brown 

Julia J. Nierengarten 

Meagher & Geer 

33 South Sixth Street, Suite 4400 

Minneapolis, MN 55402 

Attorneys for Defendants-Appellants 

James C. Haggerty [Argued] 

Suzanne T. Tighe, Esq. 

Haggerty Goldberg Schleifer & Kupersmith 

1835 Market Street, Suite 2700 

Philadelphia, PA 19103 

Attorneys for Plaintiffs-Appellees

____________ 

OPINION OF THE COURT 

____________ 

HARDIMAN, Circuit Judge. 

In Brillhart v. Excess Insurance Company of America, 

316 U.S. 491 (1942), the Supreme Court held that federal 

courts have broad discretion to decline to hear actions arising 

under the Declaratory Judgment Act. Decades later the Court 

reminded federal courts that they have a “virtually unflagging 

obligation” to exercise jurisdiction over actions seeking legal 

relief. Colo. River Water Conservation Dist. v. United States, 

424 U.S. 800, 817 (1976). But this “unflagging obligation” 

does not undermine the discretion inherent in the Declaratory 

Judgment Act as interpreted in Brillhart. See Wilton v. Seven 

Falls Co., 515 U.S. 277, 286–88 (1995). 

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What about complaints that seek both declaratory and 

legal relief? Our sister courts of appeals and district courts 

within the Third Circuit have disagreed over the legal 

standard applicable in such cases. The United States District 

Court for the Eastern District of Pennsylvania in the two 

appeals we consider here adopted a “heart of the matter” test 

and, after finding that the essence of each action was 

declaratory, declined to exercise jurisdiction. In our view, the 

heart of the matter test is problematic because it enables 

plaintiffs to avoid federal subject matter jurisdiction through 

artful pleading. Accordingly, we will vacate the orders of the 

District Court and remand the cases for further proceedings. 

I 

A 

A resident of Pennsylvania, Brian Rarick worked for a 

company that insured its vehicles under a business 

automobile policy provided by Federated Service Insurance 

Company, a Minnesota corporation. Under that policy, 

Rarick’s employer waived uninsured motorist coverage for 

most of its employees, including Rarick. 

In his complaint, Rarick alleged that he suffered 

injuries after he crashed a company car insured by Federated 

Service when an unidentified vehicle forced him off the road. 

Rarick reported the accident and submitted a claim to 

Federated Service for uninsured motorist benefits, in 

accordance with the Pennsylvania Motor Vehicle Financial 

Responsibility Law, 75 Pa. Cons. Stat. §§ 1701, et seq. 

Federated Service denied the claim, citing its waiver of 

uninsured motorist coverage for employees like Rarick. 

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After his claim was denied, Rarick filed a class action 

lawsuit in the Court of Common Pleas of Philadelphia 

County, Pennsylvania. Rarick sought, inter alia, a judgment 

declaring that Pennsylvania’s Motor Vehicle Financial 

Responsibility Law required Federated Service to provide 

Rarick with uninsured motorist coverage. Rarick also 

requested damages for breach of contract alleging—in nearly 

identical language to his prayer for declaratory relief—that 

Federated Service breached its contract by failing to provide 

him with uninsured motorist coverage. 

Federated Service removed Rarick’s civil action to the 

District Court under 28 U.S.C. §§ 1441 (removal) and 1332 

(diversity jurisdiction). After the removal, no related case 

remained pending in state court. Later, the District Court 

issued an order to show cause why it should not remand the 

case to the Court of Common Pleas consistent with its 

discretion under the Declaratory Judgment Act. 

The District Court adopted a “heart of the matter” test 

to determine whether it had discretion to decline jurisdiction. 

The Court determined that the crux of the litigation was 

declaratory because Rarick sought a declaration that he is 

entitled to uninsured motorist benefits. The Court then 

considered whether it should decline jurisdiction over the 

entire case under our decision in Reifer v. Westport Insurance 

Corp., 751 F.3d 129 (3d Cir. 2014). Under Reifer, the absence 

of a pending state case created a rebuttable presumption in 

favor of jurisdiction. In light of “the nature and novelty of the 

state law issues,” the Court found the presumption was 

rebutted, so it declined jurisdiction and remanded the case to 

the Court of Common Pleas. Rarick v. Federated Serv. Ins. 

Co., 2015 WL 5677295, at *5 (E.D. Pa. Sept. 28, 2015). 

Federated Service appealed. 

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B 

Terry Easterday, a resident of Pennsylvania, worked 

for an affiliate of Federated Service called Federated Mutual 

Insurance Company, which is a Minnesota company. 

Federated Mutual had a business automobile policy that 

waived underinsured motorist coverage. 

In his complaint, Easterday alleged that he sustained 

injuries in two rear-end collisions while driving a car owned 

and insured by Federated Mutual. Easterday submitted 

insurance claims seeking tort damages and he later sought 

recovery of underinsured motorist benefits from Federated 

Mutual. The company denied Easterday’s claim citing the 

waiver of underinsured motorist benefits. 

Easterday, along with his wife Linda, sued in the Court 

of Common Pleas of Philadelphia County, Pennsylvania. The 

Easterdays sought, inter alia, a declaration that Pennsylvania 

law required Federated Mutual to provide underinsured 

motorist coverage. The Easterdays also requested damages 

for breach of contract, alleging—in nearly identical language 

to their prayer for declaratory relief—that Federated Mutual 

breached its contract by failing to provide Easterday with 

underinsured motorist coverage. 

Federated Mutual removed the case to the District 

Court under 28 U.S.C. §§ 1441 (removal) and 1332 (diversity 

jurisdiction). After the removal, no related case remained 

pending in state court. At a Rule 16 conference in the District 

Court, Easterday raised the issue of subject matter 

jurisdiction. 

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In light of the factual similarities between the two 

cases, the District Court followed Rarick, 2015 WL 5677295. 

The Court found that the heart of the matter was declaratory 

because “[t]he crux of th[e] litigation is whether the insurance 

policy in question provides coverage to the plaintiffs.” 

Easterday v. Federated Mut. Ins. Co., 2016 WL 492481, *4 

(E.D. Pa. Feb. 9, 2016). The Court then turned to Reifer to 

determine whether it should decline jurisdiction. As in 

Rarick, the Court found that although there was no pending 

parallel state court proceeding, it should nonetheless decline 

jurisdiction because of the novel nature of the state law claim 

and the absence of a federal interest. Id. Federated Mutual 

appealed. 

II 

The District Court had jurisdiction in both cases under 

28 U.S.C. §§ 1441 and 1332. We have appellate jurisdiction 

under 28 U.S.C. § 1291. See Reifer, 751 F.3d at 133 (holding 

that “a remand order entered pursuant to the [Declaratory 

Judgment Act] is an appealable final decision”). We typically 

review a district court’s decision to decline jurisdiction under 

the Declaratory Judgment Act for abuse of discretion. Id. at 

138–39. However, when a district court declines jurisdiction 

of non-declaratory matters, we “review[] the underlying legal 

questions de novo but the court’s decision to abstain for abuse 

of discretion.” Nat’l City Mortg. Co. v. Stephen, 647 F.3d 78, 

82 (3d Cir. 2011) (citations omitted). Here, we must first 

decide whether the District Court applied the appropriate 

legal standard to ascertain its discretion to decline 

jurisdiction. We review that question of law de novo. 

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III 

A 

A federal district court’s discretion to decline 

jurisdiction depends on whether the complaint seeks legal or 

declaratory relief. When an action seeks legal relief, federal 

courts have a “virtually unflagging obligation” to exercise 

jurisdiction. Colo. River, 424 U.S. at 817. There are but a few 

“extraordinary and narrow exception[s]” to this rule. Id. at 

813. 

When an action seeks declaratory relief, however, 

federal courts may decline jurisdiction under the Declaratory 

Judgment Act. 28 U.S.C. § 2201(a) (“In a case of actual 

controversy within its jurisdiction, . . . any court of the United 

States . . . may declare the rights and other legal relations of 

any interested party seeking such declaration . . . .” (emphasis 

added)). Courts have greater discretion to decline jurisdiction 

over actions for declaratory judgments because they seek an 

adjudication of rights and obligations prior to the enforcement 

of a remedy. See Skelly Oil Co. v. Phillips Petroleum Co., 339 

U.S. 667, 671–72 (1950); see also Step-Saver Data Sys., Inc. 

v. Wyse Tech., 912 F.2d 643, 649 (3d Cir. 1990) (“The idea 

behind the [Declaratory Judgment Act] was to clarify legal 

relationships so that plaintiffs (and possibly defendants) could 

make responsible decisions about the future.”); 10B Charles 

A. Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ.

§ 2751 (4th ed.) (“[The Act] gives a means by which rights 

and obligations may be adjudicated in cases involving an 

actual controversy that has not reached the stage at which 

either party may seek a coercive remedy and in cases in 

which a party who could sue for coercive relief has not yet 

done so.”). The Supreme Court first confirmed federal courts’ 

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discretion to decline jurisdiction over declaratory judgment 

actions in Brillhart, 316 U.S. at 495–96, and reaffirmed this 

discretion in Wilton, 515 U.S. at 288. 

B 

Before today “[w]e have never ruled on the legal 

standard a district court must apply when addressing whether 

it may decline jurisdiction when both declaratory and legal 

relief are claimed.” Reifer, 751 F.3d at 135 n.5. Federal courts 

opining on the matter have developed three main approaches. 

The United States Courts of Appeals for the Second, 

Fourth, and Fifth Circuits have adopted a bright line rule that 

prioritizes a federal court’s duty to hear claims for legal relief 

over its discretion to decline jurisdiction to hear declaratory 

judgment actions. Under that rule, “[t]he Colorado River

standard applies to all mixed claims—even when the ‘claims 

for coercive relief are merely “ancillary” to [a party’s] request 

for declaratory relief.’” VonRosenberg v. Lawrence, 781 F.3d 

731, 735 (4th Cir. 2015), as amended (Apr. 17, 2015) 

(alterations in original) (quoting Black Sea Inv., Ltd. v. United 

Heritage Corp., 204 F.3d 647, 652 (5th Cir. 2000)); see also

New Eng. Ins. Co. v. Barnett, 561 F.3d 392, 397 (5th Cir. 

2009) (per curiam) (“[W]hen an action contains any claim for 

coercive relief, the Colorado River abstention doctrine is 

ordinarily applicable.” (citation omitted)); Vill. of Westfield v. 

Welch’s, 170 F.3d 116, 124 n.5 (2d Cir. 1999). These courts 

generally have found that Colorado River’s “unflagging 

obligation” to entertain legal claims supersedes any discretion 

to decline jurisdiction over a declaratory claim in the same 

suit. See VonRosenberg, 781 F.3d at 735 (depriving access to 

a federal forum simply because there is a request for 

declaratory relief “seems especially unwarranted given that 

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nearly all claims, including those for damages or injunctive 

relief, effectively ask a court to declare the rights of the 

parties to the suit”). 

The United States Courts of Appeals for the Seventh 

Circuit and Ninth Circuit have taken a slightly different 

approach, applying an independent claim test, which balances 

the court’s duty to hear legal claims with its discretion to 

decline jurisdiction over claims for declaratory relief. Under 

this test, the district court first determines whether claims 

seeking legal relief are independent of claims for declaratory 

relief. R.R. St. & Co., Inc. v. Vulcan Materials Co., 569 F.3d 

711, 716–17 (7th Cir. 2009). “Non-declaratory claims are 

‘independent’ of a declaratory claim when they are alone 

sufficient to invoke the court’s subject matter jurisdiction and 

can be adjudicated without the requested declaratory relief.” 

Id. at 715 (citing United Nat’l Ins. Co. v. R&D Latex Corp., 

242 F.3d 1102, 1113 (9th Cir. 2001)). If the legal claims are 

dependent on the declaratory claims, the court may decline 

jurisdiction over the entire action. Id. at 716–17. But if they 

are independent, the court must adjudicate the legal claims 

unless there are exceptional circumstances as described in 

Colorado River. Id. When the legal claims are independent, 

courts generally will not decline the declaratory judgment 

action in order to avoid piecemeal litigation. R.R. St. & Co., 

569 F.3d at 715–16. “Where the [legal] claims are not 

independent, the district court has discretion under 

Wilton/Brillhart to abstain from hearing the entire action.” Id.

at 716. 

 Finally, district courts in the Third Circuit, following 

the approach taken by the United States Court of Appeals for 

the Eighth Circuit in Royal Indem. Co. v. Apex Oil Co., 511 

F.3d 788 (8th Cir. 2008), primarily have applied the “heart of 

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the matter” or “essence of the lawsuit” test. Under that test, 

the court “examines the relationship between the claims, and 

determines what the ‘essence of the dispute’ concerns.” Elec. 

Claims Processing, Inc. v. M.R. Sethi, M.D., S.C., 2013 WL 

243594, at *3 (W.D. Pa. Jan. 22, 2013) (quoting ITT Indus., 

Inc. v. Pac. Emp’rs. Ins., 427 F. Supp. 2d 552, 566–67 (E.D. 

Pa. 2006)). This approach seeks to “balance between the 

various interests at stake” by examining the crux of the 

litigation. Id. (quoting Columbia Gas of Pa. v. Am. Int’l Grp., 

2011 WL 294520, at *2 (W.D. Pa. Jan. 27, 2011)). Courts 

applying this test have found that the “administrative, 

jurisprudential, and other concerns” of mixed action litigation 

make it “fundamentally reasonable to pull a dependent 

coercive claim within the ambit of the discretion afforded its 

declaratory counterpart.” Columbia Gas, 2011 WL 294520, at 

*2. On this view, to allow an ancillary or dependent legal 

claim to eliminate the court’s discretion under the Declaratory 

Judgment Act, “would be the tail wagging the dog.” Id. 

(quoting Franklin Commons E. P’ship v. Abex Corp., 997 F. 

Supp. 585, 592 (D.N.J. 1998)). 

C 

The District Court in both cases under review here 

adopted the “heart of the matter” test. In Rarick, the Court 

was persuaded that the “Supreme Court’s specific recognition 

that declaratory judgment actions necessitate a different 

treatment than other types of cases” required the court to 

analyze the facts of a mixed claim before deciding whether it 

should decline jurisdiction. 2015 WL 5677295, at *4 (quoting 

ITT Indus., Inc., 427 F. Supp. at 557). Using similar 

reasoning, the District Court in Easterday adopted the heart 

of the matter test because it found “that the outcome of the 

plaintiffs’ claims for breach of contract and bad faith are 

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dependent on how the insurance policies are interpreted for 

the declaratory judgment claim.” 2016 WL 492481, at *3 n.2. 

 After careful consideration of the various tests applied 

in the decisions mentioned, we hold that the independent 

claim test is the most appropriate one. When a complaint 

contains claims for both legal and declaratory relief, a district 

court must determine whether the legal claims are 

independent of the declaratory claims. If the legal claims are 

independent, the court has a “virtually unflagging obligation” 

to hear those claims, subject of course to Colorado River’s 

exceptional circumstances. Colo. River, 424 U.S. at 817–19. 

If the legal claims are dependent on the declaratory claims, 

however, the court retains discretion to decline jurisdiction of 

the entire action, consistent with our decision in Reifer, 751 

F.3d at 144–46. 

The independent claim test is superior to the others 

principally because it prevents plaintiffs from evading federal 

jurisdiction through artful pleading. Although Rarick and 

Easterday included declaratory claims in their complaints, 

they requested a legal remedy—damages—for breach of 

contract. Because both cases satisfied the requirements for 

diversity jurisdiction, Rarick and Easterday could have 

obtained their desired relief in federal courts without 

requesting a declaratory judgment. By including a declaratory 

claim in their pleadings, however, Rarick and Easterday 

invited the District Court to avoid Colorado River’s “virtually 

unflagging obligation” in favor of the more expansive 

discretion afforded under Reifer. 

This outcome is inconsistent with the purpose of the 

Declaratory Judgment Act, which is to “clarify legal 

relationships” in order to help putative litigants “make 

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responsible decisions about the future.” Step-Saver Data Sys., 

912 F.2d at 649. The Declaratory Judgment Act was intended 

to “enlarge[] the range of remedies available in the federal 

courts” by authorizing them to adjudicate rights and 

obligations even though no immediate remedy is requested. 

Skelly Oil Co., 339 U.S. at 671 (emphasis added). The heart 

of the matter test enables plaintiffs to subvert this goal by 

using the Declaratory Judgment Act to avoid federal subject 

matter jurisdiction over claims that are ripe for adjudication 

and in which the plaintiffs seek immediate relief. 

Another virtue of the independent claim test is that it 

gives district courts the flexibility that the bright line test 

precludes. We agree with the Seventh Circuit when it opined: 

“we do not think the mere fact that a litigant seeks some nonfrivolous, non-declaratory relief in addition to declaratory 

relief means that a district court’s Wilton/Brillhart discretion 

to decline to hear the declaratory claim should be supplanted 

by the narrow Colorado River doctrine.” R.R. Street & Co, 

Inc., 569 F.3d at 716. We also agree that while the bright line 

test is more easily applied by courts, “it unduly curtails a 

district court’s ‘unique and substantial discretion’ to abstain 

from hearing claims for declaratory relief.” Id. (quoting 

Wilton, 515 U.S. at 286). 

IV 

We hold that the independent claim test is the 

applicable legal standard for review of a complaint that seeks 

both legal and declaratory relief. In these cases, both 

Plaintiffs’ legal claims were independent of their declaratory 

claims. Accordingly, we will vacate the judgments of the 

District Court and remand the cases for a determination 

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whether exceptional circumstances exist under Colorado 

River. 

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