Opinion ID: 32178
Heading Depth: 2
Heading Rank: 2

Heading: Applying the Trejo Factors: The Federalism Concerns

Text: 54 A threshold issue is the impact of the absence of any pending state court action between Sherwin-Williams and the declaratory judgment defendants when the district court dismissed this case. When a pending state court suit raises the same issues as a federal declaratory judgment action, the central question for a district court under Brillhart and Wilton is whether the controversy is better decided in state or federal court. A district court may decline to decide a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties. Brillhart, 316 U.S. at 495, 62 S.Ct. at 1176. Wilton expressly reserved the question whether the lack of a pending state court proceeding limited a district court's discretion to decide or dismiss a declaratory judgment action. 515 U.S. at 290, 115 S.Ct. at 2144 (We do not attempt at this time to delineate the outer boundaries of that discretion in other cases, for example, cases raising issues of federal law or cases in which there are no parallel state proceedings.). This court has not specifically addressed the effect of the absence of a pending parallel state case on a district court's discretion to dismiss a federal declaratory judgment action. Of the circuits that have considered this question, some have held that a court retains discretion to dismiss a declaratory judgment action even if there is no pending parallel state court action, while others have stated that the district court had to decide the declaratory judgment action in the absence of a pending related state court action. 55 The Fourth Circuit and the Ninth Circuit have both held that a district court retains discretion to dismiss a declaratory action when no parallel state case is pending. In Aetna Cas. & Sur. Co., 139 F.3d 419, 423 (4th Cir.1998), the Fourth Circuit stated that There is no requirement that a parallel proceeding be pending in the state court before a federal court should decline to exercise jurisdiction over a declaratory judgment action.... To hold otherwise would in effect create a per se rule requiring a district court to entertain a declaratory judgment action when no state court proceeding is pending. Such a rule would be inconsistent with our long-standing belief that district courts should be afforded great latitude in determining whether to grant or deny declaratory relief. The court emphasized that [c]learly, the existence of such a [parallel state] proceeding should be a significant factor in the district court's determination whether to hear a declaratory action. Id. The Ninth Circuit has also held that a district court has discretion to dismiss a declaratory judgment suit even without a pending parallel state proceeding. In Golden Eagle Ins. Co. v. Travelers Cos., 103 F.3d 750, 754 (9th Cir.1996), overruled on other grounds by Dizol, 133 F.3d 1220, the court stated that nothing in the Declaratory Judgment Act requires a parallel state proceeding in order for the district court to exercise its discretion to decline to entertain the action.... [T]he absence of a parallel state proceeding is not necessarily dispositive; the potential for such a proceeding may suffice. 103 F.3d at 754. 56 A later Ninth Circuit case, Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800 (9th Cir.2002), is instructive. An insurance company filed suit in federal court seeking a declaratory judgment that a defendant was not entitled to certain benefits. The declaratory judgment defendant later filed a state court declaratory judgment suit, which was removed to federal court on diversity grounds. The two actions were consolidated in federal court, leaving no pending state cases. The declaratory judgment defendant in the earlier-filed suit moved to stay the federal declaratory judgment action and to remand her later-filed case to the state court. The insurance company argued that the lack of a pending state action required the federal court to hear the declaratory judgment action. The Ninth Circuit again rejected this argument, stating that there are other factors the district court must weigh in deciding whether to dismiss the declaratory judgment action. 298 F.3d at 802-03. The court went on to analyze whether the district court had properly applied the Ninth Circuit's Brillhart -based discretionary test for deciding whether to hear to dismiss a declaratory judgment suit. 57 The Tenth and Eleventh Circuits have stated that dismissing a declaratory judgment action where there is no pending parallel state proceeding is an abuse of discretion. In Federal Reserve Bank of Atlanta v. Thomas, 220 F.3d 1235 (11th Cir.2000), the Federal Reserve Bank sought a federal court declaratory judgment of its liability to an injured employee under a state worker's compensation statute. The injured employee brought a related case in state court and filed a motion in federal court to dismiss the federal declaratory judgment action. The federal district court dismissed the case, finding that it did not have subject matter jurisdiction and that the federal court should abstain in deference to the pending state case. The Eleventh Circuit reversed. The court found that under 12 U.S.C. § 632, federal courts have jurisdiction over all suits to which the Federal Reserve Bank is a party, even if the claims are based on state law. The court noted that the application of section 632 effectively mean[t] that there will be no state court action to which the federal district court [could] defer, because the Federal Reserve Bank could remove any state case the injured employee might bring. The court concluded that it is an abuse of discretion ... to dismiss a declaratory judgment action in favor of a state court proceeding that does not exist. Id. at 1247 (citing Michigan Tech Fund v. Century Nat'l Bank of Broward, 680 F.2d 736 (11th Cir.1982)). 58 In ARW Exploration Corp. v. Aguirre, 947 F.2d 450 (10th Cir.1991), the Tenth Circuit also held that a district court abused its discretion when it dismissed a declaratory judgment action after a related state court proceeding had been dismissed. In that case, however, the state court had not addressed the issues raised in the federal declaratory judgment action and those claims could no longer be adjudicated in state court because the state court proceeding had been dismissed. Id. at 454. Both factors weighed in favor of the federal court's exercise of jurisdiction. The Tenth Circuit later cited with approval the Fourth Circuit's decision in Aetna Cas. & Sur. Co., stating that where simultaneously pending state actions and federal declaratory judgment actions are not perfectly parallel, the extent of similarity is a factor in the decision whether to exercise discretion to hear a declaratory action, but is not determinative. United States v. Las Cruces, 289 F.3d 1170, 1183 (10th Cir. 2002)( Aguirre firmly places the similarity of the proceedings in the process of balancing the Brillhart/Mhoon factors [of whether the declaratory judgment would serve a useful purpose and whether there is an alternative remedy which is better or more effective].); see also Continental Cas. Co. v. Robsac, 947 F.2d 1367, 1373 (9th Cir.1991). 59 This court finds that a per se rule requiring a district court to hear a declaratory judgment action is inconsistent with the discretionary Brillhart and Wilton standard. As the Court stated in Wilton, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants. Id. at 286, 115 S.Ct. at 2142. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration. Id. at 289, 115 S.Ct. at 2143. The lack of a pending parallel state proceeding should not automatically require a district court to decide a declaratory judgment action, just as the presence of a related state proceeding does not automatically require a district court to dismiss a federal declaratory judgment action. 5 60 Even without a per se rule requiring a district court to hear a declaratory judgment action where there is no pending state litigation, the presence or absence of a pending parallel state proceeding is an important factor. The absence of any pending related state litigation strengthens the argument against dismissal of the federal declaratory judgment action. In this case, although the lack of a pending parallel state proceeding did not require the district judge to hear the declaratory judgment action, it is a factor that weighs strongly against dismissal. 61
62 Sherwin-Williams argues that the district court's failure to consider the presence of federal questions before dismissing the declaratory judgment action was an abuse of discretion. Sherwin-Williams sought a declaratory judgment that it could not be liable to a school district for lead paint abatement costs based on its membership in lead paint trade associations, on First Amendment grounds. Sherwin-Williams also sought a declaratory judgment that the Federal Hazardous Substances Act (FHSA) preempted any claims of inadequate labeling of its products after the passage of that act. Appellees argue that although Sherwin-Williams raised these federal law issues, the case primarily involved issues of state tort law. Appellees argue that a federal court faced with a declaratory judgment suit involving mixture of federal and state law issues, where the state law issues predominate, should decline to decide the case. Appellees also argue that Sherwin-Williams already had a federal forum for its federal claims and defenses, because the two suits filed in state court had been removed to federal court. 6 63 Neither Brillhart nor Wilton decided whether the presence of a federal question in a declaratory judgment action limited a district court's discretion to decide or dismiss the action. 515 U.S. at 290, 115 S.Ct. at 2144. Although the presence of a federal question is not specifically identified as one of the seven Trejo factors, those factors are nonexclusive. Two circuits have held that a district court should consider the presence of federal questions when deciding whether to dismiss a declaratory judgment suit. In Verizon Communications, Inc. v. Inverizon Int'l, Inc., 295 F.3d 870 (8th Cir.2002), plaintiff sought a declaration that its trademark did not infringe on defendant's rights under both the federal Lanham Act and state unfair competition statutes. The district court abstained in favor of a state court suit brought by the declaratory judgment defendant six weeks after the federal declaratory judgment suit was filed. The Eighth Circuit court began by noting that neither Wilton nor Brillhart involved a federal question; although the district court had properly considered the factors in Wilton and Brillhart, but failed to mention one very significant factor not at issue in Wilton and Brillhart -the presence of a federal question that is not present in the state court action. Verizon, 295 F.3d at 873. In Youell v. Exxon Corp., 74 F.3d 373 (2d Cir.1996), the Second Circuit considered a district court's dismissal of a declaratory judgment action that was brought after the related state court suit. An oil company whose tanker ran aground sued the company's insurer, in state court, alleging that the insurer breached the insurance agreement. Sometime later, the insurer filed a declaratory judgment action in federal court, arguing that it was not liable under the insurance agreement for the loss. The federal district court dismissed the declaratory judgment action. The Second Circuit reversed on the ground that the issue presented in the declaratory judgment action was a novel issue of federal admiralty law, stating that a federal question of first impression must all but demand that the federal court hear the case. Youell, 74 F.3d at 376 (citation omitted). In Prudential Ins. Co. of Am. v. Doe, 140 F.3d 785, 790 (8th Cir.1998), the presence of ERISA-based claims in a federal declaratory judgment action supported the district court's exercise of jurisdiction over that case. 64 Verizon and Youell are distinguishable in some respects from this case. The Verizon court noted that the federal Lanham Act was the gravamen of the federal complaint. In the present case, there are two federal law issues — the First Amendment and the federal preemption defenses — and two state tort law issues raised, each important to the outcome. The facts of Youell raised novel issues of federal admiralty law. In the present case, the question of statutory preemption is not novel. This court has already held that the FHSA preempts state law causes of action for failure to warn. See Comeaux v. Nat'l Tea Co., 81 F.3d 42, 43 (5th Cir.1996). The Sixth Circuit has held in a case involving abstention under the Declaratory Judgment Act that when state and federal courts have concurrent jurisdiction to decide preemption questions, a federal court should abstain to allow the state court to consider the preemption issues. However ... if the issues present facially conclusive claims of federal preemption, we will not abstain, but instead will decide the preemption question. U.S. v. Kentucky, 252 F.3d 816, 826 (6th Cir. 2001) (citations omitted). State and federal courts have concurrent jurisdiction over First Amendment questions. See In re Bay Area Citizens Against Lawsuit Abuse, 982 S.W.2d 371 (Tex.1998) (holding that requiring an advocacy group to disclose its donor lists violated the First Amendment). 65 The presence of federal law questions, their relationship to state law questions, the ability of the federal court to resolve state law issues, and the ability of a state court to resolve the federal law issues are important to deciding whether a state or federal court should be the one to decide the issues raised in the federal court declaratory judgment action. The presence of federal law issues must always be a major consideration weighing against surrender of federal jurisdiction. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The presence of federal law issues is especially important when there is no pending state court proceeding to which the federal district court can defer. If the federal law issue is important to the case, even if state law questions are also present and important to the outcome, and no state court case is pending, that weighs in favor of the federal court exercising its discretion to decide the declaratory judgment action. 66 This case did not involve novel questions of state law. Lead paint abatement suits are highly fact-intensive. The fourth question Sherwin-Williams identified — whether it had a duty to reimburse the various defendant counties and school districts for abatement — may not have been susceptible to resolution in the declaratory judgment suit. The legal basis of Sherwin-Williams's liability did not, however, rest on novel or undecided issues of state tort law. See United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 494 (4th Cir.1998). Federal courts have interpreted similar state tort law issues. See Hughes v. Tobacco Inst., Inc., 278 F.3d 417 (5th Cir. 2001) (applying Texas tort law to suits against tobacco manufacturers and trade association); Jefferson v. Lead Indus. Assoc., Inc., 106 F.3d 1245, 1248 (5th Cir. 1997) (We do not lightly abdicate our mandate to decide issues of state law while sitting in diversity.); Aguirre, 947 F.2d at 454-55 (it has from the first been the duty of the federal courts, if their jurisdiction has been properly invoked, to decide questions of state law whenever necessary to the rendition of a judgment.) (citations omitted). 67 The two federal law issues raised were both important as affirmative defenses to the state law causes of action. Those defenses could have been raised in state court, and the declaratory judgment complaint raised state law issues in addition to the federal law defenses. But at the time the federal court dismissed the declaratory judgment action, there were no pending state court cases. The district court failed to consider the presence, nature, and role of the federal law issues Sherwin-Williams raised in the declaratory judgment complaint. 68