Court Opinion

ID: 6112079
Source: CourtListenerOpinion
Date Created: 2022-01-24 21:01:48.260914+00
Date Added: 2024-06-11T08:54:21.971519
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                   File Name: 22a0040n.06

                                                 No. 21-5652

                              UNITED STATES COURT OF APPEALS
                                   FOR THE SIXTH CIRCUIT

                                                                                                  FILED
                                )                                                         Jan 24, 2022
    BANKS ENGINEERING, INC.,
                                )                                                     DEBORAH S. HUNT, Clerk
         Plaintiff-Appellee,    )
                                )
    v.                          )                                  ON APPEAL FROM THE UNITED
                                )                                  STATES DISTRICT COURT FOR
    NATIONWIDE MUTUAL INSURANCE )                                  THE   EASTERN DISTRICT OF
    COMPANY; NATIONAL CASUALTY )                                   KENTUCKY
    COMPANY,                    )
         Defendants-Appellants. )
                                )

Before: SUHRHEINRICH, WHITE, and STRANCH, Circuit Judges.

        SUHRHEINRICH, Circuit Judge. Banks Engineering, Inc. was sued in a Kentucky court

for, among other things, committing professional negligence. It sought defense and indemnity

from its professional-liability insurer, Nationwide Mutual Insurance Company.1 After Nationwide

denied coverage, Banks brought this declaratory action in state court, and Nationwide removed it

to the U.S. District Court for the Eastern District of Kentucky. That court declined to exercise

jurisdiction and remanded the case to state court, which Nationwide now appeals. Because the

district court did not abuse its discretion, we affirm.

                                                        I.

        We first recount the facts underlying the Kentucky suit against Banks before turning to the

facts directly relevant here.

1
  The insurance policy was underwritten by co-defendant National Casualty Company. For simplicity’s sake, we refer
to both defendants as “Nationwide.”
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

       State-Court Action. In 2018, LPW Redevelopment owned a piece of real property in

Nicholasville, Kentucky, which was divided into four parcels. LPW contracted with Banks to

provide engineering and consulting services related to developing Parcel 3 into a residential

subdivision. Banks prepared for LPW, among other things, a preliminary subdivision plat and

final development plan for Parcel 3.

       Those documents, as well as LPW’s previously approved and recorded construction plans

for Parcel 2, showed a box culvert (i.e., a stream crossing) within Parcel 2. The Nicholasville

Planning Commission approved LPW’s construction plans for Parcel 2 without requiring LPW to

provide surety for construction of the box culvert. LPW partially developed Parcel 2, but it did

not build the box culvert.

       In 2018, Boone Development, LLC purchased Parcel 3 from LPW.               When Boone

purchased the parcel, it assumed LPW’s rights and obligations under LPW’s contract with Banks

regarding the development of Parcel 3. Boone also agreed to pay Banks for the engineering

services needed to finish developing Parcel 3.

       In July 2019, Boone’s principal met with the Nicholasville City Engineer to discuss the

sureties Boone would be required to post before the Planning Commission approved the

development plans for Parcel 3. The engineer said that Boone—despite not owning Parcel 2—

would be required to post a surety of roughly $200,000 for construction of the box culvert on

Parcel 2. The Commission ultimately explained that Boone was responsible for the culvert

(regardless of whether Boone or LPW owned the land under the planned culvert) because “it was

depicted on the Preliminary Plat and the construction plans for Parcel 3”—the documents Banks

had prepared earlier. Hence, Boone claims Banks wrongly obligated it to foot the bill for the

culvert.

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No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

        In March 2020, Boone and a related entity sued Banks, the Planning Commission, several

of its Commissioners, its Chairman, its Planning Director/Administrative Officer, and the City

Engineer in Kentucky court (the “State-Court Action”). Boone raised a variety of state and federal

constitutional, tort, contractual, and equitable claims against those defendants, all of which relate

to whether Boone must either post surety or pay for the box culvert. As relevant here, Boone

alleged three claims against Banks: (1) breach of contract because Banks refused to continue

working for Boone to fully develop Parcel 3, (2) unjust enrichment for money previously paid to

Banks, in part by LPW, for work yet to be performed, and (3) professional negligence in preparing

the construction plans, if Boone is ultimately required to post surety or pay for the box culvert.

The State-Court Action apparently remains pending, although the parties’ briefing here is sparse

on that point.

        Banks’s Declaratory Action Against Nationwide. Banks purchased an Architects and

Engineers Professional Liability Insurance Policy from Nationwide.2 Shortly after Boone filed the

State-Court Action, Banks notified Nationwide of the lawsuit and requested coverage under the

Policy. In April 2020, Nationwide denied coverage, asserting that Boone’s claim of professional

negligence was not made during the Policy’s coverage period, Banks’s alleged professional

negligence occurred prior to the Policy’s coverage period, and Banks failed to disclose the

possibility of the claim when it applied for the Policy.

        Banks then filed this action, which seeks a declaration that Nationwide is “obligated to

provide insurance coverage, including defense and indemnity[,] to [Banks] pursuant to the terms

and conditions of the Policy.” Banks filed the suit in a Kentucky court, but Nationwide timely

2
 The Policy provides defense-and-indemnity coverage for claims made and reported between December 7, 2019, and
December 7, 2020, and retroactively applies to any claim arising from a wrongful act occurring on or after December
7, 2014.

                                                       -3-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

removed it to the U.S. District Court for the Eastern District of Kentucky based on diversity

jurisdiction.   Banks thereafter moved to remand the case back to state court, arguing that

Nationwide failed to adequately prove that the amount in controversy exceeded $75,000, or,

alternatively, that the court should decline to exercise its discretion to hear the declaratory action.

        The district court rejected the first argument but accepted the second. After analyzing the

factors that guide whether a federal court should exercise jurisdiction over a declaratory action,

see generally Grand Trunk W.R.R. Co. v. Consol. Rail Corp., 746 F.2d 323 (6th Cir. 1984), it

granted Banks’s motion to remand. Nationwide timely appealed.

                                                   II.

        The Declaratory Judgment Act provides that “[i]n 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, whether or not further relief is or could be sought.”

28 U.S.C. § 2201(a) (emphasis added). That “may” goes a long way—it gives district courts

“unique and substantial discretion in deciding whether to declare the rights of litigants.” Scottsdale

Ins. Co. v. Flowers, 513 F.3d 546, 554 (6th Cir. 2008) (quoting Wilton v. Seven Falls Co., 515

U.S. 277, 286 (1995)). And for good reason: “[d]istrict courts must be afforded substantial

discretion to exercise jurisdiction ‘in the first instance, because facts bearing on the usefulness of

the declaratory judgment remedy, and fitness of the case for resolution, are peculiarly within their

grasp.’” Id. (quoting Wilton, 515 U.S. at 289).

        We thus ask only whether the district court abused its discretion in deciding to hear (or not

hear) a declaratory-judgment action. W. World Ins. Co. v. Hoey, 773 F.3d 755, 758 (6th Cir. 2014).

To guide that discretion, district courts apply the Grand Trunk factors:

                                                  -4-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

       (1) Whether the declaratory action would settle the controversy;
       (2) whether the declaratory action would serve a useful purpose in clarifying the
           legal relations in issue;
       (3) whether the declaratory remedy is being used merely for the purpose of
           “procedural fencing” or “to provide an arena for res judicata;”
       (4) whether the use of a declaratory action would increase the friction between our
       federal and state courts and improperly encroach upon state jurisdiction; [which is
       determined by asking]
               a. whether the underlying factual issues are important to an informed
               resolution of the case;
               b. whether the state trial court is in a better position to evaluate those factual
               issues than is the federal court; and
               c. whether there is a close nexus between underlying factual and legal issues
               and state law and/or public policy, or whether federal common or statutory
               law dictates a resolution of the declaratory judgment action; and
       (5) whether there is an alternative remedy which is better or more effective.

Id. at 759 (alteration in original) (quoting Flowers, 513 F.3d at 554, 560); see also Grand

Trunk, 746 F.2d at 326 (primary factors); Bituminous Cas. Corp. v. J. & L Lumber Co., Inc., 373

F.3d 807, 814–15 (6th Cir. 2004) (subfactors). “‘[W]e have never indicated’ the relative weights

of th[ose] factors”—we leave that too to the district court’s discretion, to be judged based on the

facts of each case. United Specialty Ins. Co. v. Cole’s Place, Inc., 936 F.3d 386, 396 (6th Cir.

2019) (quoting Flowers, 513 F.3d at 563).

       Given that substantial discretion, our review is quite modest. “The essential question is

always whether a district court has taken a good look at the issue and engaged in a reasoned

analysis of whether issuing a declaration would be useful and fair.” Id. at 402 (alteration omitted)

(quoting Hoey, 773 F.3d at 759). Three core lodestars guide “our own review”—“efficiency,

fairness, and federalism.” Hoey, 773 F.3d at 760.

       Practically speaking, so long as the district court offered a reasoned basis for declining

jurisdiction, we generally do not substitute our judgment for its. For example, reversal is not

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No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

warranted just because we think, based on the facts of the case, that the district court wrongly

emphasized one or more of the Grand Trunk factors. Scottsdale Ins. Co. v. Roumph, 211 F.3d 964,

968–69 (6th Cir. 2000). Nor is it sufficient that another court, faced with the same facts, reasonably

might have reached a different result. See id.; Mass. Bay Ins. Co. v. Christian Funeral Dirs., Inc.,

759 F. App’x 431, 443 (6th Cir. 2018) (citing Hoey, 773 F.3d at 760–61). At bottom, we are

“reluctant to reverse a district court’s decision to decline jurisdiction.” Mass. Bay, 759 F. App’x

at 442. Only rarely have we done so—by our count, just once—under the post-Wilton abuse-of-

discretion standard. See Byler v. Air Methods Corp., 823 F. App’x 356, 365 (6th Cir. 2020)

(finding that district court abused its discretion by failing to apply the Grand Trunk factors and

providing “only three lines of analysis explaining its decision to decline jurisdiction”).

                                                 III.

       The district court here dutifully trekked through the Grand Trunk factors and opted to

remand the case to state court. We first recount the district court’s analysis before turning to

Nationwide’s objections to it.

                                                 A.

       As for the first and second Grand Trunk factors, the district court found that a declaration

likely would neither “end the controversy” nor “provide complete clarity regarding the parties’

legal relations.” The court reasoned that, while a declaration could “settle some questions

regarding contract interpretation,” it was also “likely that other questions would remain

outstanding until the underlying state-court claims against Banks are resolved.” For one thing,

because the plaintiffs in the State-Court Action are not parties to this suit, the court reasoned that

the declaration sought by Banks would not bind them. For another, it noted that common factual

issues were implicated by both actions—e.g., the timing and substance of the engineering services

                                                 -6-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

that Banks provided for Boone and LPW. Those factual issues were not hypothetical; the parties’

joint Rule 26(f) planning-conference report anticipated that discovery would be needed as to “the

events and circumstances leading to the allegations in the [State-Court Action] against [Banks].”

Because of these overlapping factual issues and non-overlapping parties, the court found that the

first two factors both weighed in favor of remand. We find no error in that. See Travelers Indem.

Co. v. Bowling Green Pro. Assocs., PLC, 495 F.3d 266, 272 (6th Cir. 2007) (finding the absence

of state-court parties in the declaratory action weighed against exercising jurisdiction).

       The district court next found that the third factor—whether this case involves procedural

fencing or a race to res judicata—“points toward exercising jurisdiction.” It noted that Banks, as

the insured, is the declaratory plaintiff here; Banks filed the suit in state court, and Nationwide

removed it to federal court. The court found that that distinguishes this case from those less fit for

a federal declaratory judgment—those in which “declaratory plaintiffs . . . file their suits mere days

or weeks before the coercive suits filed by a ‘natural plaintiff’” to “acquir[e] a favorable forum”

in federal court. Flowers, 513 F.3d at 558 (quoting AmSouth Bank v. Dale, 386 F.3d 763, 788 (6th

Cir. 2004)).

       We agree that that’s a meaningful distinction, but we might quibble with the conclusion;

this factor seems neutral at best. Banks, as the natural plaintiff in a coercive suit against

Nationwide for declining insurance coverage, wants to be in state court and filed the case there

first. It might be one thing if Nationwide was the first to file in federal court (and there otherwise

was no evidence of procedural fencing). See, e.g., Flowers, 513 F.3d at 558. But it seems unfair

to give Nationwide a point on its Grand Trunk scorecard simply for waiting for Banks to file and

then removing that case to its preferred forum. We thus think this factor is neutral. See Cole’s

                                                 -7-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

Place, 936 F.3d at 399 (noting that “we often find that the factor is ‘neutral’” when “there is no

evidence of procedural fencing” (quoting Travelers, 495 F.3d at 272)).

       The court then addressed the fourth factor (and its three subfactors): whether hearing the

declaratory action would increase friction between federal and state courts, because the declaratory

action (a) requires the finding of facts already being found in state court, (b) is thus best heard by

the state court, and (c) implicates state, rather than federal, policies. In the district court’s view,

this case checked all three boxes.

       The court first noted that Banks’s declaratory suit does not appear to raise purely legal

questions, but rather likely “require[s] making factual findings that might conflict with similar

findings made by the state court.” Flowers, 513 F.3d at 560. Second, it cited to Travelers, in

which we observed that “issues of ‘insurance contract interpretation are questions of state law with

which the Kentucky state courts are more familiar and, therefore, better able to resolve.’” 495 F.3d

at 273 (quoting Bituminous Cas. Corp., 373 F.3d at 815). Third, it identified no federal policies

implicated by Banks’s case, and it noted that Kentucky courts are best situated to “identify and

enforce the public policies that form the foundation of insurance regulation.” Accordingly, it

found that the fourth factor favored remand.

       We see no error in that analysis. The parties provided (both here and below) scant briefing

as to the status and scope of the State-Court Action, so the court was within its discretion to err on

the side of caution regarding the first subfactor. See Mass. Bay, 759 F. App’x at 439–41; Allstate

Ins. Co. v. Mercier, 913 F.2d 273, 278–79 (6th Cir. 1990) (reversing exercise of jurisdiction where

issuing declaration was premature and could interfere with ongoing state proceedings), abrogated

on other grounds by Wilton, 515 U.S. at 289–90. The court’s analysis of the second and third

                                                 -8-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

subfactors likewise fits within our cases. See Travelers, 495 F.3d at 273; Bituminous, 373 F.3d at

815–16. We thus agree that the fourth factor favored remand.

          As for the fifth factor—whether an alternative remedy is available to a federal declaratory

action—the court found that, because Banks could (and did) seek a declaration in Kentucky’s

courts under Ky. Rev. Stat. § 418.040, this factor also weighed in favor of remand. We agree.

See, e.g., Cole’s Place, 936 F.3d at 401 (finding the same, considering Ky. Rev. Stat. § 418.040);

Travelers, 495 F.3d at 273 (same); Bituminous, 373 F.3d at 816–17 (same).

          Balancing the five factors, the district court found that “[t]hey point heavily toward

remand;” it reasoned that “this case is so closely connected with matters being litigated in state

court” and that the State-Court Action “has been pending for more than a year and it is clear that

the state courts and the parties have invested substantial time and resources in the matter.” Based

on that finding, and reasoning that federal courts should exercise jurisdiction over declaratory

actions “only when doing so would advance the interests of justice or preserve the resources of the

parties,” the court granted Banks’s motion to remand.

          We find no reversible error. The court took “a good look at the issue and engaged in a

reasoned analysis of whether issuing a declaration would be useful and fair,” and its conclusions

reflect our core considerations of “efficiency, fairness, and federalism.” Hoey, 773 F.3d at 759,

760. At the very least, the court’s reasoned exercise of discretion did not come close to the rare

case that warrants reversal. See Byler, 823 F. App’x at 365 (finding abuse of discretion due to

“[t]he district court’s minimal analysis and its disregard of the Grand Trunk factors”); see also

Mass. Bay, 759 F. App’x at 442 (noting our “reluctan[ce] to reverse a district court’s decision to

decline jurisdiction”). The court did not, therefore, abuse its discretion in remanding Banks’s

action.

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No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

                                                        B.

        Nationwide disagrees, devoting most of its briefing to the first two Grand Trunk factors.

It starts by arguing that the court overlooked two facts, not at issue in the State-Court Action, that

“would be dispositive of Banks’s action and thus settle the controversy.” First, Nationwide

contends it has no duty to defend or indemnify Banks under the Policy because “the [State-Court

Plaintiffs’] claim against Banks’ [sic] was first made prior to the Policy period”—a fact that,

Nationwide says, “is not at issue in the” State-Court Action. Second, Nationwide argues it has no

duty to defend or indemnify under the Policy because “Banks failed to identify the [State-Court

Plaintiffs’] claim on its application” for the Policy. In Nationwide’s view, because those facts

would be dispositive of Banks’s declaration for insurance coverage, the district court erred by

finding that a declaration would not “settle the controversy.”

        However strong those arguments may be, the problem is that Nationwide did not make

them below.3 Had Nationwide done so, the district court may have reached a different conclusion

or weighed the Grand Trunk factors differently. But we cannot say that the court abused its

discretion by failing to apprehend facts or arguments that it was not asked to consider.

        Nationwide next claims the district court misidentified two factual issues as overlapping

with the State-Court Action: (1) when Banks’s alleged professional negligence occurred, and

(2) the nature of Banks’s professional services regarding the box culvert.                     As to the first,

Nationwide argues that it’s the substance, not timing, of Banks’s work that is currently at issue in

the State-Court Action. Fair enough. But, as the district court correctly reasoned, the question of

3
  In its opposition to Banks’s motion to remand, Nationwide provided a conclusory, single-sentence argument as to
the first two Grand Trunk factors: “Resolution of the question of whether Nationwide has a duty to defend Banks in
the State Court Action and to indemnify it for any damages will settle the controversy between Banks and Nationwide
and will clarify the current legal obligations between them.”

                                                       -10-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

timing would inevitably arise in the State-Court Action, even if it’s not at issue now: (a) if Boone

is held liable for the cost of the box culvert, (b) Boone would seek to impose liability on Banks,

and (c) Banks would then seek indemnification from Nationwide, which would require

determining whether Banks’s alleged professional negligence (timing-wise and substantively) is

covered by the Policy. See Hoey, 773 F.3d at 760.

           As for the second fact, Nationwide faults the district court for not explaining specifically

how the nature of Banks’s professional services is implicated by both this action and the State-

Court Action. But the district court, in issuing a declaration as to insurance coverage, would of

course have to determine whether Banks’s alleged negligence is covered by the Policy—which

would in turn call for examining the services that Banks (allegedly negligently) provided to Boone,

facts directly at issue in the State-Court Action. Further, the district court did not pull this fact out

of nowhere; it relied on Banks’s and Nationwide’s joint Rule 24(f) planning report, which

anticipated discovery regarding “the events and circumstances leading to the allegations in the

[State-Court Action]” against Banks. In other words, Nationwide itself admitted, in the joint

planning report, that the declaratory action would involve a factual inquiry that overlaps with the

State-Court Action. We cannot fault the district court for relying on that.

           Nationwide’s arguments as to Grand Trunk factor four and its three subfactors fail to move

the needle.4 Its arguments as to the first subfactor are largely a redux of previous ones—that the

court misidentified factual issues as overlapping with the State-Court Action because this case

involves only insurance-coverage issues not currently being litigated in state court. We reject

those for the reasons stated above. Nationwide also argues that the second and third subfactors

have “less force” here—federal courts in Kentucky “routinely” exercise jurisdiction over

4
    Nationwide does not address Grand Trunk factor three.

                                                        -11-
No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

declaratory actions like this, and this case (according to Nationwide) presents no novel questions

of state law. Maybe so, but that still “does not necessarily mean” the federal court was in a better

position than the state court to resolve the “factual issues relevant to the coverage question.”

Cole’s Place, 936 F.3d at 401.       The second subfactor therefore favored remand.          Finally,

Nationwide argues that the third subfactor weighed against remand because the legal issues in this

case “can be reasonably predicted” given how “well-developed” Kentucky insurance law is. But

that just as equally supported remand—“state courts are best situated to identify and enforce the

public policies that form the foundation of [insurance] regulation.” Flowers, 513 F.3d at 561

(quoting Bituminous, 373 F.3d at 815); Cole’s Place, 936 F.3d at 401 (recognizing our adherence

to this principle “even in cases where state law has not been difficult to apply”). And, as stated

above, Banks’s case implicates no federal policies. The district court thus did not abuse its

discretion in finding the fourth Grand Trunk factor favored remand.

       As for factor five, Nationwide argues that the mere existence of Kentucky’s declaratory-

judgment remedy (as an alternative to the federal declaratory judgment) does not counsel against

exercising jurisdiction. We disagree, as we have before—and in the specific context, no less, of

Kentucky’s declaratory-judgment remedy. Cole’s Place, 936 F.3d at 401 (considering Ky. Rev.

Stat. § 418.040); Travelers, 495 F.3d at 273 (same); Bituminous, 373 F.3d at 816–17 (same).

       Moreover, Nationwide fails to adequately grapple with two key points that undercut most

of its arguments here: (1) no plaintiff in the State-Court Action is a party to this suit, which means

any declaration will not fully settle the controversy, see Travelers, 495 F.3d at 272; Bituminous,

373 F.3d at 814; Cole’s Place, 936 F.3d at 408 (White, J., dissenting) (citing Travelers and

Bituminous and reasoning that the first two Grand Trunk factors weigh against exercising

jurisdiction when the state-court plaintiff is not a party to the federal action); and (2) this case

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No. 21-5652, Banks Eng’g, Inc. v. Nationwide Mutual Ins. Co., et al.

involves the denial, not exercise, of jurisdiction—a decision that we are generally “reluctant to

reverse,” Mass. Bay, 759 F. App’x at 442 (citing Roumph, 211 F.3d at 969). Considering that, we

are convinced that the district court did not abuse its discretion in declining jurisdiction.

                                                 IV.

       For the foregoing reasons, we AFFIRM.

                                                 -13-