Court Opinion

ID: 2971389
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:34:20.402932+00
Date Added: 2024-06-11T12:03:30.284356
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RECOMMENDED FOR FULL-TEXT PUBLICATION
                Pursuant to Sixth Circuit Rule 206                         2       AmSouth Bank et al.                    Nos. 03-5517/5521
        ELECTRONIC CITATION: 2004 FED App. 0321P (6th Cir.)                        v. Dale et al.
                    File Name: 04a0321p.06
                                                                                                 _________________
UNITED STATES COURT OF APPEALS                                                                        COUNSEL
                  FOR THE SIXTH CIRCUIT                                    ARGUED: Robert S. Michaels, ROBINSON, CURLEY &
                    _________________                                      CLAYTON, Chicago, Illinois, for Appellants. Larry B.
                                                                           Childs, WALSTON, WELLS, ANDERSON & BAINS,
 AM SOUTH BANK (03-5517);          X                                       Birmingham, Alabama, Leo M. Bearman, Jr., BAKER,
 FIRST TENNESSEE BANK               -                                      DONELSON, BEARMAN, CALDWELL & BERKOWITZ,
 (03-5521),                         -                                      Memphis, Tennessee, for Appellees. ON BRIEF: Robert S.
                                    -  Nos. 03-5517/5521                   Michaels, Alan F. Curley, Robert L. Margolis, ROBINSON,
           Plaintiffs-Appellees, -                                         CURLEY & CLAYTON, Chicago, Illinois, for Appellants.
                                     >                                     Larry B. Childs, Randall D. Quarles, WALSTON, WELLS,
                                    ,
            v.                      -                                      ANDERSON & BAINS, Birmingham, Alabama, Leo M.
                                    -                                      Bearman, Jr., R. Mark Glover, BAKER, DONELSON,
 GEORGE DALE et al.,                -                                      BEARMAN, CALDWELL & BERKOWITZ, Memphis,
                                                                           Tennessee, Samuel T. Bowman, BAKER, DONELSON,
        Defendants-Appellants. -                                           BEARMAN, CALDWELL & BERKOWITZ, Nashville,
                                    -
                                   N                                       Tennessee, Anthony J. McFarland, Catherine A. Colley,
                                                                           David R. Esquivel, BASS, BERRY & SIMS, Nashville,
       Appeal from the United States District Court                        Tennessee, for Appellees.
     for the Middle District of Tennessee at Nashville
    Nos. 02-00677; 02-00683—William J. Haynes, Jr.,                          MOORE, J., delivered the opinion of the court, in which
                       District Judge.                                     QUIST, D. J., joined. BOGGS, C. J., concurred in the
                                                                           judgment only.
                      Argued: June 9, 2004
                                                                                                 _________________
            Decided and Filed: September 21, 2004
                                                                                                     OPINION
  Before: BOGGS, Chief Judge; MOORE, Circuit Judge;                                              _________________
              QUIST, District Judge.*
                                                                             KAREN NELSON MOORE, Circuit Judge. Defendants-
                                                                           Appellants George Dale (“Dale”), Scott B. Lakin, Carroll
                                                                           Fisher, and Mike Pickens,1 all commissioners of insurance or

                                                                               1
    *
                                                                                 Mike Pickens is a defendant on ly in the action brought by First
     The Honorable Gordon J. Quist, United States District Judge for the   Tennessee Bank, and not that b rought by AmSo uth Bank, and therefore
W estern District of Michigan, sitting by designation.                     is a party only to Appeal No. 03-5521.

                                   1
Nos. 03-5517/5521                   AmSouth Bank et al.       3    4    AmSouth Bank et al.                 Nos. 03-5517/5521
                                          v. Dale et al.                v. Dale et al.

the equivalent for their respective states, who were sued in       Frankel pleaded guilty to numerous charges in the United
their official capacity as receivers for various insolvent         States District Court for the District of Connecticut.
insurance companies (collectively, “Receivers”), appeal from
the district court’s grant of a preliminary injunction barring       Bank accounts used in Frankel’s money-laundering scheme
them from pursuing their coercive action originally filed in       were held by the insurance companies at both AmSouth, from
Mississippi state court in these ongoing declaratory judgment      1991 to 1999, and FTB, from 1997 to 1999. Essentially, the
suits brought by Plaintiffs-Appellees AmSouth Bank                 Receivers argue that the Banks were negligent in not realizing
(“AmSouth”) and First Tennessee Bank (“FTB”)                       the massive fraud that those accounts were being used to
(collectively, “Banks”). The Receivers argue that the district     commit. In the course of the receivership proceedings, the
court improperly entertained this action, because it lacked        Receivers concluded they might have claims against
jurisdiction or because it should have declined jurisdiction in    AmSouth, and contacted AmSouth to begin settlement
its discretion. Because the district court abused its discretion   discussions. On June 28, 2001, attorneys for AmSouth and
in entertaining these declaratory actions, we DISSOLVE the         the Receivers executed on behalf of their clients a tolling
injunction, REVERSE the district court’s decision, and             agreement through August 27, 2001. That tolling agreement
REMAND the case to the district court with instructions to         was extended six times, through July 31, 2002. During the
dismiss the actions.                                               pendency of that tolling agreement, negotiations were
                                                                   ongoing; on September 27, 2001, explicitly “for settlement
                    I. BACKGROUND                                  purposes,” the Receivers sent draft allegations to AmSouth.
                                                                   Joint Appendix No. 03-5517 (“J.A. AmS”) at 566. On June
   This case concerns the latest effort of the Receivers to        28, 2002, the Receivers’ counsel sent a draft complaint that
recover some of the funds embezzled from a number of               they intended to file “on or before July 31, 2002” if that
southern insurance companies by the infamous Martin                “effort at compromise [was] unsuccessful,” including a
Frankel (“Frankel”). See, e.g., Lakin v. Prudential Sec., Inc.,    “written, pre-filing demand” that AmSouth had “asked [the
348 F.3d 704 (8th Cir. 2003); United States v. Peoples Benefit     Receivers] to make,” and indicating that the settlement offer
Life Ins. Co., 271 F.3d 411 (2d Cir. 2001); Dale v. ALA            would expire on July 10. J.A. AmS at 567-68. On July 10,
Acquisitions, Inc., 203 F. Supp. 2d 694 (S.D. Miss. 2002);         2002, AmSouth’s counsel sent a letter to the Receivers’
Dale v. Frankel, 206 F. Supp. 2d 315 (D. Conn. 2001).              counsel indicating that AmSouth’s counsel had discussed
Frankel had purchased seven insurance companies in five            settlement and litigation options with their client, but
states through various entities, while at the same time            requested 1) a meeting “among the parties and their counsel”;
controlling the unregistered brokerage that was supposedly         2) an insurance-company-by-insurance-company breakdown
investing the large cash reserves that insurance companies         of damages suffered; and 3) an extension of the time for
typically have on hand. Instead, he was funneling the money        response through July 19. J.A. AmS at 570. A phone
to overseas bank accounts. Dale, insurance commissioner for        conversation between counsel took place on July 15, 2002,
Mississippi, became suspicious and placed the Frankel-             the contents of which are contested, but which likely led to
controlled insurance companies under state supervision, and        some sort of agreement that the extension had been approved.
in May 1999, Frankel fled the country as his scheme                On July 17, 2002, AmSouth’s counsel sent a letter regarding
dissolved. Frankel was the subject of a four-month, world-         the Receivers’ ongoing concerns with respect to Federal Rule
wide manhunt, culminating in his capture in Germany.               of Evidence 408, governing the disclosure of settlement
Nos. 03-5517/5521                  AmSouth Bank et al.      5    6     AmSouth Bank et al.                   Nos. 03-5517/5521
                                         v. Dale et al.                v. Dale et al.

discussions, in which the last paragraph stated that AmSouth     § 210.25 et seq. (“Regulation J”), governing wire transfers.
was “still considering” the Receivers’ demand and                FTB then filed a motion to dismiss for improper venue, or in
AmSouth’s options, and that counsel would “be in touch in        the alternative to transfer the case, on September 26, 2002.
the near future concerning a written response and a possible     On October 7, 2002, the Receivers filed a remand motion.
meeting on July 24.” J.A. AmS at 572. On July 18, 2002,          When the Middle District of Tennessee (“district court”)
counsel for the Receivers sent a letter formalizing their        decided in the instant actions to enjoin the further prosecution
approval of the extension to July 19, 2002, for a response to    of the Mississippi litigation, the Mississippi litigation was
their settlement offer, indicating their openness to a meeting   stayed by the federal district court in Mississippi.
on July 24, and including a detailed breakdown of damages
by bank account. Unbeknownst to the Receivers, on July 18,          In the instant actions (collectively, “the Tennessee
2002, AmSouth had filed a complaint for declaratory relief in    litigation”), AmSouth and FTB ask for declaratory relief that
the U.S. District Court for the Middle District of Tennessee.    they are not liable to the Receivers, relying both on federal
On July 19, 2002, AmSouth sent a letter formally rejecting       law and state law defenses, and both complaints ask the
the settlement offer, but failing to mention the suit they had   district court to enjoin the Receivers from bringing any future
filed the previous day. The Receivers learned of the filing      lawsuits and require them instead to bring all claims as
through the call of a newspaper reporter on July 19.             counterclaims in the Tennessee litigation. The Receivers filed
                                                                 motions to dismiss both FTB’s and AmSouth’s actions on
  Negotiations with FTB took place in a shorter period of        August 23, 2002. A hearing was held on that motion on
time, but followed a similar track. In May 2002, the             January 13, 2003, and the district court issued its decision and
Receivers’ counsel initiated negotiations with FTB through       orders denying the motions to dismiss and enjoining further
phone conversations; to this end, they signed a tolling          prosecution of the Mississippi litigation on March 31, 2003.
agreement that extended from May 3 through May 31, 2002.         A timely notice of appeal was filed in each case on April 4,
This agreement was extended once, on May 24, 2002, through       2003.
July 31, 2002 (the same date as the final date of the AmSouth
tolling agreement). In July 2002, FTB requested a formal            Subsequently, the Mississippi litigation was stayed on
settlement demand; while Receivers’ counsel was drafting         April 16, 2003. In mid-2003, apparently out of concern for
this demand, they learned that FTB had filed the instant         risking mounting legal fees for a limited potential recovery,
declaratory judgment action in the Middle District of            Paula Flowers, Commissioner of Commerce and Insurance
Tennessee.                                                       for the State of Tennessee, then a defendant in the Tennessee
                                                                 litigation and a plaintiff in the Mississippi litigation, decided
  On July 31, 2002, at the end of the tolling period, the        that Tennessee should withdraw from the Mississippi
Receivers filed an action in Mississippi state court against     litigation, and in response, FTB and AmSouth agreed to
both AmSouth and FTB (“the Mississippi litigation”).             dismiss her from the Tennessee litigation. See Getahn Ward,
AmSouth removed the action to the U.S. District Court for the    Tennessee Pulls Out of Suit Against 2 Banks, THE
Southern District of Mississippi with FTB’s consent on           TENNESSEAN, July 29, 2003, at 4E. On June 23, 2003,
September 5, 2002, based on alleged improper joinder of          Flowers filed a motion to dismiss her appeals in this court
FTB, and asserted complete preemption of the Receivers’          which we granted on June 25, 2003; on June 26, 2003,
claims under Federal Reserve Board Regulation J, 12 C.F.R.       Flowers’s claims in the Mississippi litigation were dismissed
Nos. 03-5517/5521                   AmSouth Bank et al.       7    8     AmSouth Bank et al.                   Nos. 03-5517/5521
                                          v. Dale et al.                 v. Dale et al.

with prejudice; on July 18, 2003, FTB and AmSouth’s claims         contention rests on the lack of a motion under Federal Rule of
against Flowers in the Tennessee litigation were dismissed in      Civil Procedure 65 in the district court by either FTB or
the district court. Finally, in the district court below, which    AmSouth asking for the injunction issued by the district
has continued proceedings during this interlocutory appeal,        court. FTB relies on I.A.M. National Pension Fund Benefit
having denied Receivers’ motions to stay same, FTB and             Plan A v. Cooper Industries, Inc., 789 F.2d 21, 24 n.3 (D.C.
AmSouth have moved for summary judgment, and oral                  Cir.), cert. denied, 479 U.S. 971 (1986), which notes that
argument on the motion was held on May 26, 2004.                   “Carson[’s requirement of serious or irreparable
                                                                   consequence] does not apply to an order clearly granting or
                       II. ANALYSIS                                denying a specific request for injunctive relief.” See also MAI
                                                                   Basic Four, Inc. v. Basis, Inc., 962 F.2d 978, 980 n.3 (10th
A. Appellate Jurisdiction                                          Cir. 1992) (noting that while the motion for the injunction
                                                                   was not pursuant to Rule 65, “this is a Rule 65(a) motion in
  1.   Whether the Injunction is Appealable under                  all but name,” and relying on that characterization in
       § 1292(a)(1)                                                distinguishing Hershey). But both FTB’s and AmSouth’s
                                                                   complaints specifically ask for injunctive relief against the
   The Banks argue that this court lacks appellate jurisdiction    Receivers’ prosecution of claims in other forums. It is
over the district court’s order enjoining the Receivers from       therefore rather disingenuous of FTB to claim the district
further prosecution of the Mississippi litigation. FTB argues      court issued the injunction “sua sponte.” In any case, it is
first that the district court’s order was not an “injunction”      difficult to see what difference this distinction would make;
within the meaning of the statute, and therefore, as merely an     if the order would be appealable had a party requested it, that
order with the practical effect of an injunction, subject to the   the district court issued an order sua sponte cannot insulate
“serious, perhaps irreparable, consequence” limitation under       the order from review. See Phillips v. Chas. Schreiner Bank,
Carson v. American Brands, Inc., 450 U.S. 79, 84 (1981)            894 F.2d 127, 129-30 (5th Cir. 1990) (finding appealable an
(internal quotation marks omitted), in order to be appealable      order granting relief that “[n]either party had moved formally
under 28 U.S.C. § 1292(a)(1). FTB next argues that this court      for,” because the “challenged order prevents [the defendant]
should follow the Third Circuit in holding that an injunction      from taking any ‘further action in any state or federal court’”
against litigating in another forum is not an appealable           and was therefore an injunction); FDIC v. Santiago Plaza,
injunction, as not going to the ultimate relief demanded by the    598 F.2d 634, 635-36 (1st Cir. 1979) (district court issued
plaintiff. See Hershey Foods Corp. v. Hershey Creamery Co.,        order sua sponte but circuit court still applied general rule that
945 F.2d 1272 (3d Cir. 1991).                                      injunctions against proceedings in other courts are appealable
  “Section 1292(a)(1) . . . provide[s] appellate jurisdiction      under § 1292(a)(1)).
over orders that grant or deny injunctions and orders that have      Next, FTB argues that this circuit should go against the
the practical effect of granting or denying injunctions and        weight of authority and adopt the Third Circuit’s outlier
have ‘“serious, perhaps irreparable, consequence.”’”               opinion in Hershey. Hershey held that an injunction, issued
Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S.            in a coercive trademark action in the Middle District of
271, 287-88 (1988). FTB argues that the injunction below           Pennsylvania, against prosecution of a “motion for order
falls into the second, rather than the first category. This        construing and enforcing” an earlier consent judgment
Nos. 03-5517/5521                          AmSouth Bank et al.            9    10     AmSouth Bank et al.                         Nos. 03-5517/5521
                                                 v. Dale et al.                       v. Dale et al.

between the parties in the Southern District of New York, was                  under the Hershey test, this injunction would be appealable,
not appealable under the earlier Third Circuit en banc                         as it contains relief sought in the complaint. The whole point
decision in Cohen v. Board of Trustees of the University of                    of this litigation is to prevent the Receivers from prosecuting
Medicine and Dentistry, 867 F.2d 1455 (3d Cir. 1989).                          claims against FTB and AmSouth.
Hershey, 945 F.2d at 1279. Hershey’s rule has not been
adopted by any other circuit. Instead, courts have held, “An                     2. The Scope of This Court’s Review
order that prohibits a party from pursuing litigation in another
forum unquestionably is an injunction for purposes of                            On appeal, the Receivers argue that the reasons given in
§ 1292(a)(1), despite a carefully reasoned rejection of this                   their motion to dismiss each independently require dissolution
proposition by the Third Circuit.” 16 CHARLES ALAN                             of the injunction. See infra note 3. The Banks object on the
WRIGHT , ARTHUR R. MILLER & EDWARD H. COOPER ,                                 basis of this court’s limited appellate jurisdiction, arguing that
FEDERAL PRACTICE AND PROCEDURE § 3923, at 123 (2d ed.                          this court can only narrowly evaluate the propriety of the
1996). See HBE Leasing Corp. v. Frank, 48 F.3d 623, 632                        injunction, without reference to the Receivers’ arguments.
n.6 (2d Cir. 1995) (quoting § 3923); MAI Basic Four, 962                       This seems deliberately to misunderstand the nature of those
F.2d at 981-82 (same); Phillips, 894 F.2d at 130 (rule in Fifth                arguments: because each of them goes to the power of the
Circuit is that orders prohibiting proceedings in other courts                 district court to exercise jurisdiction over these actions or its
are always appealable as injunctions); Katz v. Lear Siegler,                   discretionary responsibility to decline to do so, they all go to
Inc., 909 F.2d 1459, 1461 (Fed. Cir. 1990) (“[T]he grant of an                 the “merits” of the injunction issued by the district court,
injunction against continuing suit in another forum is                         which was premised on the proper assumption of jurisdiction.
appealable as of right [under] 28 U.S.C. § 1292(a).”); Asset                   The Banks’ admonition that this court should only review the
Allocation & Mgmt. Co. v. W. Employers Ins. Co., 892 F.2d                      propriety of the injunction, without examining whether the
566, 568 (7th Cir. 1989) (injunction against proceeding in                     case was properly in the district court in the first place, defies
pending litigation in other court was appealable under 28                      logic. While not all of the Receivers’ arguments are strictly
U.S.C. § 1292(a)(1)); Santiago Plaza, 598 F.2d at 635-36 (An                   jurisdictional in the sense of attacking the bare power of the
“injunction against appellant proceeding in state court . . . is               district court to hear the case, they are all jurisdictional in the
clearly appealable under 28 U.S.C. § 1292(a)(1).”). Most                       sense that they attack the propriety of the district court’s
fatal to FTB’s argument, a prior Sixth Circuit case treated an
injunction against prosecution of other litigation as an
appealable injunction. See Guy v. Citizens Fid. Bank & Trust
Co., 429 F.2d 828, 831 (6th Cir. 1970) (district court’s
                                                                               it (1) ‘conclusively determine[s] the disputed question,’ (2) ‘resolve[s] an
injunction restraining parties from prosecuting certain actions                important issue co mpletely separate from the merits of the action,’ and (3)
was an appealable order under § 1292(a)(1)).2 Finally, even                    is ‘effectively unreviewable o n app eal from a final judgment.’” Sell v.
                                                                               United States, 539 U.S. 166, 176 (2003) (alterations in original). This
                                                                               sepa rate basis for review is unnecessary in the face of the exp licit
    2
                                                                               language of § 12 92(a)(1), however. American Motors Corp. v. FTC, 601
      Coleman v. American R ed Cro ss, 979 F.2d 11 35, 1137 (6th Cir.          F.2d 132 9, 13 31-3 2 (6th Cir.), cert. denied, 444 U.S. 941 (1979), dealt
1992), cited by the Re ceivers, hold s this sort of injunctio n app ealab le   with a district court’s direction to an administrative agency to cease its
under the collateral order doctrine, rather than § 1292(a)(1), which           investigations, which was held appealable as an order having the
doctrine renders appealable a “preliminary or interim decision . . . when      substance of an injunction.
Nos. 03-5517/5521                         AmSouth Bank et al.          11     12   AmSouth Bank et al.                   Nos. 03-5517/5521
                                                v. Dale et al.                     v. Dale et al.

assumption of jurisdiction.3 The injunction is only proper as                 unavoidably decides the second.”). We will therefore remand
preventing duplicative litigation if the declaratory judgment                 with orders to dismiss the actions in their entirety.
action should have been allowed to proceed. The “harm or
effect” of the preliminary injunction that FTB faults the                     B. Subject Matter Jurisdiction in the District Court
Receivers for not identifying and arguing is precisely what the
Receivers are in fact arguing: that for a plethora of reasons,                   The district court’s jurisdiction over AmSouth’s action was
their coercive action, the Mississippi litigation, is the proper              premised on both federal question and diversity jurisdiction,
vehicle for this dispute — the litigation which they were                     whereas its jurisdiction over FTB’s action was premised
specifically prohibited from pursuing.                                        solely on federal question jurisdiction. In determining
                                                                              whether federal question jurisdiction was properly determined
  The Banks assert that the issues argued by the Receivers                    to exist in the district court, we look to the Receivers’
can only be recognized by this court under “pendent appellate                 threatened coercive action. Because the Banks’ actions are
jurisdiction,” which allows unappealable orders to be                         declaratory judgment actions “seek[ing] in essence to assert
reviewed only when they are “inextricably intertwined” with                   a defense to an impending or threatened state court action, it
appealable orders; they then argue that the grant of the                      is the character of the threatened action, and not of the
preliminary injunction is not so intertwined with the motion                  defense, which will determine whether there is federal-
to dismiss. See Brennan v. Township of Northville, 78 F.3d                    question jurisdiction in the District Court.” Pub. Serv.
1152, 1157-58 (6th Cir. 1996). While the Receivers disclaim                   Comm’n v. Wycoff Co., 344 U.S. 237, 248 (1952). “Federal
any reliance on the doctrine of pendent appellate jurisdiction,               courts will not seize litigations from state courts merely
arguing instead that under any meaningful scheme of review                    because one, normally a defendant, goes to federal court to
an appeal from an injunction necessarily sweeps up any issues                 begin his federal-law defense before the state court begins the
that bear on the district court’s power to issue the injunction,              case under state law.” Id.; see also Franchise Tax Bd. v.
they do correctly note that in order to reverse the district                  Constr. Laborers Vacation Trust, 463 U.S. 1, 15-16 (1983)
court’s denial of their motion to dismiss, this court would                   (reaffirming rule of Skelly Oil Co. v. Phillips Petroleum Co.,
have to find that it had pendent appellate jurisdiction over that             339 U.S. 667 (1950), that “if, but for the availability of the
denial. Because we conclude that the district court abused its                declaratory judgment procedure, the federal claim would arise
discretion in entertaining this declaratory action, we                        only as a defense to a state created action, jurisdiction is
necessarily decide that the denial of the Receivers’ motion                   lacking” (quoting 10A CHARLES ALAN WRIGHT , ARTHUR R.
was improper, satisfying the “inextricably intertwined” rule.                 MILLER & MARY KAY KANE, FEDERAL PRACTICE AND
See id. at 1158 (“Our finding on the first issue necessarily and              PROCEDURE § 2767 (2d ed. 1983)); Heydon v. Mediaone of
                                                                              S.E. Mich., Inc., 327 F.3d 466, 470 (6th Cir. 2003) (relying on
                                                                              Skelly Oil in finding no subject matter jurisdiction over
    3                                                                         declaratory judgment action). The Receivers suggest that
      The Receivers argue a lack of federal question jurisdiction and
McCarran-Ferguson reverse preemption of the Declaratory Judgment Act,         therefore the district court should have looked to their
both of which would render the district court’s injunction void for lack of   subsequently-filed state complaint in the Mississippi litigation
jurisdiction over these actions, and that Burford abstention was proper and   in determining whether, under the well-pleaded complaint
that these are not proper declaratory actions, which doctrines go to the
discretionary assumption of jurisdiction and would render the injunction
                                                                              rule, their causes of action arose under federal law. At least
below an abuse of the district court’s discretion.                            one case from another circuit, however, suggests that the
Nos. 03-5517/5521                            AmSouth Bank et al.             13     14     AmSouth Bank et al.                        Nos. 03-5517/5521
                                                   v. Dale et al.                          v. Dale et al.

proper inquiry is not into the complaint as subsequently filed,                     deciding the question in favor of complete preemption,
but instead whether the declaratory plaintiff “could                                namely Eisenberg v. Wachovia Bank, N.A., 301 F.3d 220,
reasonably have anticipated” a federal cause of action from                         223-24 (4th Cir. 2002), and Donmar Enterprises, Inc. v.
the conduct of the other party. PHC, Inc. v. Pioneer                                Southern National Bank, 64 F.3d 944, 948-50 (4th Cir. 1995).
Healthcare, Inc., 75 F.3d 75, 78-79 (1st Cir. 1996). Under                          These decisions, however, clearly deal with ordinary
that formulation, the appropriate place to look is the                              preemption, rather than the complete preemption that would
correspondence and conversations between the Banks and the                          justify original arising-under jurisdiction.
Receivers. Neither party addresses this point, however, and
the record is relatively silent as to the character of the claims                      The district court erred in holding that Regulation J, a
made on FTB by the Receivers, as opposed to their claims on                         federal regulation promulgated by the Federal Reserve Board,
AmSouth, who received a draft complaint.                                            a federal agency, could completely preempt the Receivers’
                                                                                    state law claims; only Congress can completely preempt a
  Instead, FTB defends the district court’s finding of subject                      state cause of action. See Beneficial Nat’l Bank, 539 U.S. at
matter jurisdiction entirely on the basis of the so-called                          8, 9 & n.5 (describing doctrine of complete preemption as
“complete preemption” of Regulation J.               Complete                       when a “federal statute completely pre-empts the state-law
preemption is a narrow exception to the well-pleaded                                cause of action”; “Only if Congress intended [the statute at
complaint rule, whereby plaintiff is master of his complaint                        issue] to provide the exclusive cause of action . . . would the
and can choose to assert only state law claims, in situations                       statute” completely preempt state law claims; “[T]he proper
where Congress has indicated an intent to occupy the field so                       inquiry focuses on whether Congress intended the federal
completely that any ostensibly state law claim is in fact a                         cause of action to be exclusive.” (emphases added)); Metro.
federal claim for purposes of arising-under jurisdiction. See                       Life Ins., 481 U.S. at 66 (the touchstone of complete
Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 6-9 (2003).                          preemption is “the intent of Congress” (emphasis added));
The Supreme Court has only found three statutes that evince                         Peters v. Lincoln Elec. Co., 285 F.3d 456, 468 n.11 (6th Cir.
this sort of Congressional intent: § 301 of the LMRA, see                           2002)) (“Without evidence of Congress’s intent to transfer
Avco Corp. v. Aero Lodge No. 735, Int’l Ass’n of Machinists,                        jurisdiction to federal courts, there is no basis for invoking
390 U.S. 557, 560 (1968), § 502(a)(1)(B) of ERISA, see                              federal judicial power.” (emphasis added)); Hyzer v. Cigna
Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-66 (1987), and                      Prop. Cas. Ins. Co., 884 F. Supp. 1146, 1152 (E.D. Mich.
§§ 85 and 86 of the National Bank Act, see Beneficial Nat’l                         1995) (no support for contention that agency regulations
Bank, 539 U.S. at 10-11. The district court, in finding that                        could completely preempt area). This conclusion fits in more
Regulation J might completely preempt the Receivers’ state                          generally with the balance struck between an agency’s ability
law claims,4 characterized two Fourth Circuit opinions as                           to promulgate regulations with the force of federal law — and
                                                                                    therefore its ability to preempt state causes of action through

     4
      The district co urt specifically stated , “Thus, clearly federa l questions
are present here and the Court con clude s that a federal sce nario is              (“J.A. FT B”) at 76.       As the Receivers note, this formulation
presented in which Defendants’ state law claims could be co mpletely                misunderstands the narrowly drawn nature of complete preemption and
preempted by Re gulation J.” First Tenn. B ank v. Da le, No. 3:02-0683,             the necessity of looking to the character of the thre atened actio n on its
slip op. at 28 (M.D. Tenn. Mar. 31, 2003), Joint Appendix No. 03-5521               face in determining federal question jurisdiction in a declaratory action.
Nos. 03-5517/5521                   AmSouth Bank et al.       15    16    AmSouth Bank et al.                   Nos. 03-5517/5521
                                          v. Dale et al.                  v. Dale et al.

ordinary preemption — and its inability to create a right of        0683, slip op. at 28 (M.D. Tenn. Mar. 21, 2003), Joint
action where Congress has not intended it do so. See                Appendix No. 03-5521 (“J.A. FTB”) at 76. The court then
generally Alexander v. Sandoval, 532 U.S. 275, 291 (2001)           stated, “To the extent that Plaintiff’s complaint raises this
(“Language in a regulation may invoke a private right of            issue, clearly this is a legal question that gives rise to federal
action that Congress through statutory text created, but it may     jurisdiction.” J.A. FTB at 76 (Mem. Op. at 28). These
not create a right that Congress has not.”); Marx v. Centran        statements mischaracterize the nature of the inquiry under the
Corp., 747 F.2d 1536, 1544 (6th Cir. 1984) (“It is plain that       well-pleaded complaint rule and the Skelly Oil rule: the
the [agency] is without authority [to create an implied cause       question to be asked is whether, under the hypothetical state-
of action]. The true question is whether Congress, in enacting      law action of the Receivers, a well-pleaded federal question
[the enabling statute], intended to create a remedy for             would appear on the face of the complaint. This question
violations of [the regulation].”), cert. denied, 471 U.S. 1125      must be answered in the negative under Merrell Dow
(1985). While the agency can create federal law, it cannot          Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 807-12
expand federal jurisdiction.                                        (1986), in which the Court held that where a federal statute
                                                                    does not create a private right of action, mere incorporation of
  Therefore, the proper inquiry in determining complete             federal statutory standards into a state-law tort action cannot
preemption is directed to the enabling statute, here the Federal    create federal question jurisdiction. Because the Bank
Reserve Act, ch. 6, 38 Stat. 251 (1913) (codified as amended        Secrecy Act does not create a private right of action, the
at 12 U.S.C. § 221 et seq.). The regulations in question            Receivers’ incorporation of its standards into a state-law
govern wire transfers on Fedwire, the wire transfer system of       cause of action cannot transform their complaint into one that
the Federal Reserve Banks.           The regulations were           raises a federal question.
promulgated pursuant to the authority granted by four
different sections of the Act: § 11(i) and (j) (12 U.S.C               FTB argues on appeal that as Flowers, the only non-diverse
§ 248(i) and (j)); § 13 (12 U.S.C. § 342); paragraph fourteen       defendant, has been dismissed from the case, diversity subject
of § 16 (12 U.S.C. § 248(o)); and § 19(f) (12 U.S.C. § 464).        matter jurisdiction now exists.           Although normally
None of these sections provide specific authority for the           jurisdiction depends upon the facts as they are at the time of
Fedwire system — instead, they are general provisions — and         filing, curing a jurisdictional defect through dismissal of a
none of them reference causes of action having to do with the       party that destroys diversity “ha[s] long been an exception to
Federal Reserve system, or any of the markers associated with       the time-of-filing rule.” Grupo Dataflux v. Atlas Global
complete preemption. This argument is unavailing.                   Group, L.P., No. 02-1689, 541 U.S. ___, slip op. at 3-4, 5
                                                                    (2004). This dismissal can be effected by the district court,
  The district court also relied upon the Bank Secrecy Act          even subsequent to adjudication on the merits, and even by an
(“BSA”) in determining that federal jurisdiction existed,           appellate court. See Newman-Green, Inc. v. Alfonzo-Larrain,
reasoning that “Defendants’ factual allegations and claim           490 U.S. 826, 836-38 (1989).
implicate the BSA,” and therefore, since the BSA did not
create a private right of action, “FTB’s complaint raises a            The Receivers make three arguments in an attempt to
federal question, if FTB’s [presumably, should be Receivers’]       distinguish the instant case from this clear precedent. They
claims are, in effect, asserting an implied right of action under   first argue that under the authority of United States Fidelity &
the Bank Secrecy Act.” First Tenn. Bank v. Dale, No. 3:02-          Guaranty Co. v. Thomas Solvent Co., 955 F.2d 1085, 1087
Nos. 03-5517/5521                          AmSouth Bank et al.          17     18    AmSouth Bank et al.                    Nos. 03-5517/5521
                                                 v. Dale et al.                      v. Dale et al.

(6th Cir. 1992), the district court never had jurisdiction over                Caterpillar, 519 U.S. at 75, that arise only after trial is
the case, and therefore its order dismissing Flowers is void.                  completed.
This argument is unavailing; the court in United States
Fidelity came to the ultimate conclusion that jurisdiction was                   We are reluctant to expand this narrow exception to the
lacking, whereas in cases where a post-filing jurisdiction cure                time-of-filing rule (the post-filing jurisdiction cure through
is allowed, all intermediate decisions are rendered not void                   dismissal of a party) in light of Grupo Dataflux’s rejection of
for lack of jurisdiction. See Caterpillar Inc. v. Lewis, 519                   an expansion of the exception to a change in citizenship of a
U.S. 61, 73-77 (1996). Next, the Receivers attempt to                          partnership based on individuals leaving the association.
distinguish the clear holdings of Caterpillar and Newman-                      However, we also take note of the Grupo Dataflux Court’s
Green.5 With respect to Newman-Green, they emphasize that                      characterization of the dismissal of a non-diverse party as an
Newman-Green was a Rule 21 case, and that Flowers was                          “established exception” to the time-of-filing rule. Slip op. at
dismissed pursuant to Rule 41. The Receivers further argue                     6. What is most disturbing in this case is not the particular
that Rule 21 permits dismissal only of non-indispensable                       rule pursuant to which Flowers was dismissed, or the extent
parties, and that because Flowers was a plaintiff in the                       of the litigation activity which has transpired before the
Mississippi litigation, she was therefore indispensable. While                 jurisdictional defect is noticed and/or corrected, but instead
it is unclear from the record pursuant to which Rule Flowers                   that jurisdiction in the district court was alleged to be federal
was dismissed, although we note that we have in the past                       question jurisdiction. The more difficult question is not
indicated that dismissal of a party, rather than of an entire                  whether Flowers’s dismissal is the equivalent of those in
action, is more proper pursuant to Rule 21, see Letherer v.                    Caterpillar or Newman-Green but whether the original
Alger Group, L.L.C., 328 F.3d 262, 265-66 (6th Cir. 2003),                     defective allegation of federal question can be corrected by a
we conclude that the particular rule used is immaterial in                     subsequent happenstance creation of diversity jurisdiction.
assessing whether jurisdiction was created by a party’s
dismissal. See Safeco Ins. Co. v. City of White House, Tenn.,                    In Grupo Dataflux and Caterpillar, the Court indicated that
36 F.3d 540, 546 (6th Cir. 1994) (either Rule 15 or Rule 21                    the cure of jurisdiction accomplished by the dismissal of a
can provide mechanism for post-filing jurisdiction cure). The                  nondiverse party can also serve to cure the statutory defect
Receivers then note that the Court in Newman-Green and                         existing where a case is removed at a time when it is not in
Caterpillar relied on practical considerations of less weight                  the original jurisdiction of the district courts of the United
here: “considerations of finality, efficiency, and economy,”                   States within the meaning of 28 U.S.C. § 1441(a). Grupo
                                                                               Dataflux, slip op. at 7. The district court now has jurisdiction
                                                                               over FTB’s action based on diversity of citizenship; the
                                                                               question is whether the prior defects are the sort that are
    5
      Faysound Ltd. v. United Coconut Chemicals, Inc., 878 F.2d 290,
                                                                               remedied by the post-filing jurisdiction cures of Caterpillar
296 (9th Cir. 1989), cited by the Receivers for the proposition that a post-   and Newman-Green. Two distinctions may serve to oust
filing dismissal of parties cannot confe r diversity jurisdiction, is          jurisdiction here: first, the prior defect is different in kind, as
something of an outlier. It can perhaps be best explained by a rule that       jurisdiction was not originally alleged on the basis of
once the district court properly decides it has no jurisdiction at a time      diversity, and second, the jurisdictional defect was noticed
when all non-diverse parties are indispensable, actions subsequent to that
decision aimed at making those parties dismissable cannot confer
                                                                               early (and often) and the action had not proceeded to
jurisdiction.                                                                  judgment at the time of this appeal.
Nos. 03-5517/5521                    AmSouth Bank et al.       19    20    AmSouth Bank et al.                   Nos. 03-5517/5521
                                           v. Dale et al.                  v. Dale et al.

    Title 28 U.S.C. § 1653 provides, “Defective allegations of       not “apparent” on the face of the complaint, as evidenced by
jurisdiction may be amended, upon terms, in the trial or             this court’s hesitant language (“could have been alleged,”
appellate courts.” Relying upon this section, courts have            “most probably”); second, we allowed an amended complaint
often reached beyond the specific statutory sections cited by        to be filed in the Sixth Circuit itself, suggesting that the
the complaint to reach a different basis for jurisdiction —          Newman-Green rule should extend to reach a case like this
albeit one that exists on the face of that complaint. See, e.g.,     one. In an earlier case, Blanchard v. Terry & Wright, Inc.,
LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning                331 F.2d 467, 468-69 (6th Cir.), cert. denied, 379 U.S. 831
Corp.) 196 F.3d 1, 5 (1st Cir. 1999) (“Affirmative pleading of       (1964), this court held that although the diversity jurisdiction
the precise statutory basis for federal subject matter               alleged on the face of the complaint was not present, the
jurisdiction is not required as long as a complaint alleges          factual allegations in the complaint were sufficient to confer
sufficient facts to establish jurisdiction.”), cert. denied, 530     federal question jurisdiction. “Even though the allegations of
U.S. 1230 (2000); Gerritsen v. de la Madrid Hurtado, 819             the original complaint with respect to jurisdiction of the court
F.2d 1511, 1515 (9th Cir. 1987) (“[I]n determining the               were defective, the trial or appellate court had full power to
existence of subject matter jurisdiction, we are not limited to      correct them.” Id. at 469. In the case at bar, the district court
the jurisdictional statutes identified in the complaint.”);          has jurisdiction over the case under Caterpillar and Newman-
Vukonich v. Civil Serv. Comm’n, 589 F.2d 494, 496 n.1 (10th          Green, as all parties are now diverse. The antecedent
Cir. 1978) (“The failure to alleged this alternate basis for         defective allegations of jurisdiction should not serve,
jurisdiction is not fatal where the complaint revealed a basis       following these cases, to defeat this general rule.
for § 1331 jurisdiction.”); Rohler v. TRW, Inc., 576 F.2d
1260, 1264 (7th Cir. 1978) (“[I]t is not essential that a              Because we decide that this action should be dismissed
complainant set forth the statutory basis for the court’s            because it is an inappropriate declaratory action, we do not
jurisdiction in order for the court to assume jurisdiction, if the   need to decide whether, when such a jurisdictional defect is
facts alleged provide a basis for the assumption of                  raised in an interlocutory appeal, we have discretion to
jurisdiction.”). Of particular interest in this line are two Sixth   disallow a post-filing jurisdiction cure, or, if we do have such
Circuit cases allowing amendment of a complaint to change            discretion, if we should exercise it in such a situation.
the asserted basis of jurisdiction from federal question to          Instead, we hold subject matter jurisdiction exists and
diversity and vice versa. In Miller v. Davis, 507 F.2d 308,          exercise it for the limited purpose of remanding this action for
311 (6th Cir. 1974), although the complaint’s allegation of          dismissal with prejudice.
federal question jurisdiction was deficient, “It appears,
however, that [diversity] jurisdiction could have been alleged       C. McCarran-Ferguson Act and Burford Abstention
. . . . Appellants are most probably citizens of Kentucky . . . ,
Appellees are not Kentucky citizens, and the Fund is situated           In their AmSouth appeal, the Receivers argue that
in the District of Columbia.” Relying on 28 U.S.C. § 1653,           McCarran-Ferguson Act reverse preemption and Burford
the court proceeded to the merits of the appeal but directed         abstention form independent grounds for the district court to
the appellants to “file, within ten days of this decision, a         have found it lacked jurisdiction. The district court did not
proper amendment in this Court alleging diversity                    address the McCarran-Ferguson Act argument, but it was
jurisdiction.” 507 F.2d at 311 (emphasis added). Two                 raised by the Receivers below. Reviewing the lines of cases
aspects of Miller stand out: first, diversity jurisdiction was       cited by the parties, it becomes clear that often when faced
Nos. 03-5517/5521                    AmSouth Bank et al.       21    22    AmSouth Bank et al.                    Nos. 03-5517/5521
                                           v. Dale et al.                  v. Dale et al.

with suit in the federal courts, a state commissioner of             federal judicial power, but the Receivers argue that
insurance as receiver or liquidator of an insurance company          McCarran-Ferguson gives them that power.
placed under the state’s care will rely on one or both of these
doctrines to attempt to defeat federal court jurisdiction.              McCarran-Ferguson reverse preemption depends upon the
Because state liquidation proceedings of insolvent insurers are      policies that undergird state law. Where a state law protects
exactly the sort of intricate state regulation on behalf of state-   state insurance-policyholders, it is a “law enacted . . . for the
resident policyholders that these doctrines are intended to          purpose of regulating the business of insurance”; when it
protect, these arguments have some force when angry                  protects other interests, for instance, those of stockholders in
creditors attempt to sue insolvent insurance companies in            those insurance companies, it is not such a law within the
federal court to jump ahead in the queue of claims, but they         meaning of the Act. See SEC v. Nat’l Sec. Inc., 393 U.S. 453,
have less force here, where the insurance companies are              457 (1969). The connection to the protection of policyholders
themselves the natural plaintiffs, as Receivers vociferously         cannot be too attenuated; in United States Department of the
argue. This dispute involves the Receivers’ attempt to               Treasury v. Fabe, 508 U.S. 491, 508 (1993), in the course of
recover money in an ordinary common-law-damages suit; the            finding that an Ohio insurer-liquidation statute providing for
Banks do not here attempt to disrupt a coherent state scheme         a creditor-preference order contrary to general federal law
in favor of enriching their own pockets.                             reverse-preempted the federal law to the extent it privileged
                                                                     policyholders and the administration of the system in
   First, the Receivers claim that the McCarran-Ferguson Act,        furtherance of the privilege of policyholders, the Court noted
15 U.S.C. § 1012(b), which provides that “[n]o Act of                the difficulty.
Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of              Of course, every preference accorded to the creditors of
regulating the business of insurance . . . unless such Act             an insolvent insurer ultimately may redound to the
specifically relates to the business of insurance,” reverse-           benefit of policyholders by enhancing the reliability of
preempts the Declaratory Judgment Act in this case. They               the insurance company. This argument, however, goes
argue that if the Declaratory Judgment Act allows this action          too far: “But in that sense, every business decision made
against them, it impairs the operation of state laws providing         by an insurance company has some impact on its
for the liquidation of insurance companies, including those            reliability . . . and its status as a reliable insurer.” [Group
providing for antisuit injunctions. Antisuit injunctions were          Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205,
issued as part of the liquidation proceedings for each of the          216-17 (1979)]. Royal Drug rejected the notion that such
insolvent insurance companies controlled by the Receivers.             indirect effects are sufficient for a state law to avoid pre-
See, e.g.,Tenn. ex rel. Sizemore v. Franklin Am. Life Ins. Co.,        emption under the McCarran-Ferguson Act.
No. 99-1326-II (Tenn. Ch. Oct. 25, 1999) (Consent Final
Order of Liquidation; Finding of Insolvency; and Permanent           Fabe, 508 U.S. at 508-09. Finally, when assessing whether
Injunction, at 4) (“[N]o action at law or equity or in               a general federal statute that creates a cause of action
arbitration shall be brought against the insurer or liquidator.”),   “impairs” the operation of a state law, the proper inquiry is
J.A. FTB at 812, 815. Those injunctions bar suits against the        whether the particular suit being brought would impair state
insurance companies in any court; both parties agree on              law. See Humana Inc. v. Forsyth, 525 U.S. 299, 311, 313
appeal that the injunctions of their own force cannot limit          (1999) (analyzing effect of McCarran-Ferguson Act on RICO
Nos. 03-5517/5521                  AmSouth Bank et al.      23    24    AmSouth Bank et al.                   Nos. 03-5517/5521
                                         v. Dale et al.                 v. Dale et al.

suit with respect to particular suit, rather than only general    regulating the business of insurance, the court went on to
operation of statute).                                            conclude that ordering the reinsurers’ action “resolved in a
                                                                  forum other than the receivership court nevertheless conflicts
   This court has previously rejected a claim that an Ohio law,   with the Oklahoma law giving the state court the power to
Ohio Rev. Code § 3927.05, requiring the insurance                 enjoin any action interfering with the delinquency
commissioner to revoke the license of any foreign insurance       proceedings.” Id. at 595. The court did note that “the precise
company that removes an action initiated by a citizen of Ohio     degree to which a state statute may be impaired so as to
to federal court, was saved from its otherwise conceded           trigger the McCarran-Ferguson Act is not well-settled,” but
unconstitutionality by the operation of the McCarran-             found “impairment sufficient to trigger it” there. Id.
Ferguson Act. See Int’l Ins. Co. v. Duryee, 96 F.3d 837, 838-     Following Munich American, the Tenth Circuit in Davister
40 (6th Cir. 1996). The question in that case boiled down to      Corp. v. United Republic Life Insurance Co., 152 F.3d 1277,
whether the statute was “aimed at protecting or regulating the    1280-82 (10th Cir. 1998), cert. denied, 525 U.S. 1177 (1999),
performance of an insurance contract,” the standard               held similarly that the Federal Arbitration Act was reverse-
announced in Fabe, 508 U.S. at 505 (internal quotation marks      preempted by the Utah statute “consolidating all claims
omitted). We held it was not, noting that whether litigation      against a liquidating insurer.” An earlier Second Circuit case,
itself could be integral to that performance, the choice of       not cited by the Receivers, reaches a similar conclusion with
forum was not; that unlike the statute at issue in Fabe,          respect to the effect on the Federal Arbitration Act of the
§ 3927.05 did not increase the substantive rights of              Kentucky Insurers Rehabilitation and Liquidation Law, which
policyholders, but was in fact not limited to policyholders;      contains an anti-arbitration clause. See Stephens v. Am. Int’l
and that the reach of the statute was not confined to policy      Ins. Co., 66 F.3d 41, 43-45 (2d Cir. 1995). Finally, the
disputes. Finding the statute “not enacted so much ‘for the       Receivers cite Covington v. Sun Life of Canada (U.S.)
purpose of regulating the business of insurance’ as for the       Holdings, Inc., No. C-2-00-069, 2000 WL 33964592, *3-*10
parochial purpose of regulating a foreign insurer’s choice of     (S.D. Ohio May 17, 2000), which held that the federal
forum,” Duryee, 96 F.3d at 840, we concluded that the statute     removal and diversity jurisdiction provisions were reverse-
was not within McCarran-Ferguson’s sweep.                         preempted by Ohio law granting exclusive jurisdiction in
                                                                  liquidation-related legal matters to the Franklin County Court
   Two cases cited by the Receivers concluded that McCarran-      of Common Pleas.
Ferguson reverse preemption protects state insurer-liquidation
courts’ antisuit injunctions. In Munich American Reinsurance         On the other side is a different line of cases refusing to find
Co. v. Crawford, 141 F.3d 585, 590-96 (5th Cir.), cert.           reverse preemption. In Gross v. Weingarten, 217 F.3d 208,
denied, 525 U.S. 1016 (1998), the Fifth Circuit faced the         222-23 (4th Cir. 2000), the court rested its holding, after
question of whether Oklahoma’s antisuit injunctions, part of      treating critically Munich American and its progeny, on the
its Uniform Insurers Liquidation Act (the “OUILA”), were          conclusion that “concurrent federal jurisdiction over the
protected by McCarran-Ferguson such that they preempted           defendants’ counterclaims [does not] threaten[] to ‘invalidate,
the Federal Arbitration Act and the insolvent insurance           impair, or supersede’. . . . Virginia’s efforts to establish a
company could not be compelled to enter arbitration.              single equitable proceeding to liquidate or rehabilitate
Deciding that the OUILA as a whole and its antisuit               insolvent insurers.” Id. at 222 (citing Humana, 525 U.S. at
provisions in particular were enacted for the purpose of          307-10). This conclusion was dependent on the facts of the
Nos. 03-5517/5521                   AmSouth Bank et al.      25    26    AmSouth Bank et al.                   Nos. 03-5517/5521
                                          v. Dale et al.                 v. Dale et al.

particular case before it, but the court also indicated that the   seek only declaratory judgment, based in turn on a threatened
sort of interference contemplated by the parties in that case      ordinary common-law action against them, and the assets of
could be dealt with through abstention doctrines. In Suter v.      the insurance companies are up for grabs only in that
Munich Reinsurance Co., 223 F.3d 150, 160-62 (3d Cir.              attenuated fashion. A second wrinkle is the narrow or broad
2000), the court, assuming the “enacted for the purpose”           definition of “impair”: in Munich American, impairment was
prong, found no impairment on the facts of the case, where         defined ultimately quite broadly, in that any suit which was
the proceeding was “a suit instituted by the Liquidator against    in violation of the antisuit provision would have impaired that
a reinsurer to enforce contract rights for an insolvent insurer,   provision. The Gross court, looking to the purpose of the
which, if meritorious, will benefit the insurer’s estate.” In      antisuit provision, held that impairment does not occur unless
Grode v. Mutual Fire, Marine and Inland Insurance Co.,             the integrity of the core liquidation proceedings is attacked.
8 F.3d 953, 960 (3d Cir. 1993), the court tersely rejected the     Here those core proceedings are not implicated. Ultimately,
McCarran-Ferguson Act argument made by the Insurance               we conclude that it would be an overly expansive reading of
Commissioner, noting that the “action instituted by the            the case law and the purposes of the doctrine to find
Commissioner in this case has nothing to do with                   McCarran-Ferguson reverse preemption here. The threatened
Pennsylvania’s regulation of insurance.” And in Nichols v.         declaratory judgment actions against insolvent insurance
Vesta Fire Insurance Corp., 56 F. Supp. 2d 778, 780 (E.D.          companies for the purpose of evading liability in a threatened
Ky. 1999), the court concluded that under the Kentucky law         common-law coercive action by the insurance companies
the action it had before it — “a common law breach of              have only an attenuated connection to regulating the business
contract action which merely happens to involve an insolvent       of insurance.
insurer” — was not subject to the exclusive jurisdiction of the
liquidation court.                                                    Burford abstention is similarly inapplicable here. First
                                                                   invoked in Burford v. Sun Oil Co., 319 U.S. 315 (1943),
  Where the insolvent insurer is itself a plaintiff in an          Burford abstention requires a federal court to abstain from
ordinary contract or tort action, courts tend to look              jurisdiction where to assume jurisdiction would “be disruptive
unfavorably on claims of McCarran-Ferguson preemption of           of state efforts to establish a coherent policy with respect to
the FAA or the removal statutes so as to insulate that action      a matter of substantial public concern.” Colo. River Water
from the federal courts. That seems to be motivated as much        Conservation Dist. v. United States, 424 U.S. 800, 814
by frustration over the attempts by parties to evade federal       (1976). But Burford “does not require abstention whenever
jurisdiction as by reasoned doctrinal analysis, but one way to     there exists [a complex state administrative process], or even
cast it in a favorable doctrinal light is to extend the rule of    in all cases where there is a ‘potential for conflict’ with state
Humana — that impairment must be defined with respect to           regulatory law or policy.” New Orleans Pub. Serv., Inc. v.
the particular cause of action — to the question of purpose.       Council of New Orleans, 491 U.S. 350, 362 (1989) (quoting
That is, an ordinary suit against a tortfeasor by an insolvent     Colo. River, 424 U.S. at 815-16). Instead, “This balance only
insurance company implicates a “regulation of the business of      rarely favors abstention, and the power to dismiss recognized
insurance” only in the attenuated fashion rejected in Fabe; an     in Burford represents an extraordinary and narrow exception
antisuit injunction would only be a regulation of the business     to the duty of the District Court to adjudicate a controversy
of insurance to the extent it protected the assets of the          properly before it.” Quackenbush v. Allstate Ins. Co., 517
insurance company from suit. Here, of course, the Banks            U.S. 706, 728 (1996) (quotation omitted). State liquidation
Nos. 03-5517/5521                  AmSouth Bank et al.     27    28    AmSouth Bank et al.                   Nos. 03-5517/5521
                                         v. Dale et al.                v. Dale et al.

proceedings seem like an excellent candidate for Burford         non-insurance-related activities, federal law defenses, and
abstention, but it is difficult to see how a federal court’s     state tort law, do not warrant Burford abstention. The district
pronouncement on issues of common-law liability having           court thus did not abuse its discretion in refusing to abstain
nothing to do with insurance could be disruptive of those        under Burford.
proceedings. Like under the McCarran-Ferguson analysis,
that Receivers are covered by the antisuit provisions of the     D. Appropriateness of Declaratory Relief
various liquidation laws seems mere coincidence, and
abstention seems inappropriate. The cases cited by the              “This court reviews the district court’s exercise of
Receivers are all distinguishable.                               discretion under the Declaratory Judgment Act, 28 U.S.C.
                                                                 § 2201(a), for abuse of discretion.” Scottsdale Ins. Co. v.
   Gonzalez v. Media Elements, Inc., 946 F.2d 157, 157 (1st      Roumph, 211 F.3d 964, 967 (6th Cir. 2000). “[D]istrict courts
Cir. 1991), involved a dispute over coverage with a solvent      possess discretion in determining whether and when to
insurer that apparently became insolvent on appeal. A            entertain an action under the Declaratory Judgment Act, even
coverage claim against a now-insolvent insurer that arose        when the suit otherwise satisfies subject matter jurisdictional
prior to the insolvency is of course exactly the sort of claim   prerequisites.” Wilton v. Seven Falls Co., 515 U.S. 277, 282
that must be heard in the liquidation proceedings; although      (1995). The Declaratory Judgment Act is “‘an enabling Act,
dismissal under Burford abstention is no longer appropriate      which confers a discretion on the courts rather than an
under Quackenbush in damages actions, presumably                 absolute right upon the litigant.’” Id. at 287 (quoting Wycoff,
McCarran-Ferguson protection would extend to this kind of 344 U.S. at 241). “‘[T]he propriety of declaratory relief in a
claim. The court in Martin Insurance Agency, Inc. v.             particular case will depend upon a circumspect sense of its
Prudential Reinsurance Co., 910 F.2d 249, 254-55 (5th Cir.       fitness informed by the teachings and experience concerning
1990), predicated its decision that Burford abstention was       the functions and extent of federal judicial power.’” Id.
appropriate where the “claims involve what are, on their face,   (quoting Wycoff, 344 U.S. at 243). These concerns are
assets of [the insolvent insurance company] owned solely by      heightened where, as in Wilton, there are pending state-court
the receiver.” And while Grimes v. Crown Life Insurance          proceedings representing the same issues of state law; “a
Co., 857 F.2d 699 (10th Cir. 1988), does involve a receiver-     district court might be indulging in ‘gratuitous interference’
instituted suit, the subject matter of the suit was recovering   if it permitted the federal declaratory action to proceed.” Id.
money damages from another insurance company based on a          at 283 (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S.
coverage dispute.         The “appeal center[ed] on the          491, 495 (1942)) (alteration in original) (citations omitted).
interpretation of certain provisions contained in the            This case represents an interesting conundrum in that at the
[reinsurance] Agreement [and] the effect of the interpretation   time the motion to dismiss was filed, the Mississippi litigation
of the Agreement by the Oklahoma Commissioner of                 was in state court; when the Tennessee district court’s
Insurance.” Id. at 700. Because Burford abstention is            injunctive order was entered, the Mississippi litigation had
concerned with potential disruption of a state administrative    been, possibly incorrectly, removed to the federal district
scheme, rather than the mere existence of such a scheme,         court for the Southern District of Mississippi; but now, the
looking behind the action to determine whether it implicates     Mississippi litigation is likely correctly in federal court under
the concerns of Burford is necessary, and the issues in this     Caterpillar, as the incorrect removal can be cured by the
litigation, concerning the liability of the Banks for various    subsequent creation of jurisdiction. Had the Tennessee
Nos. 03-5517/5521                   AmSouth Bank et al.      29    30     AmSouth Bank et al.                   Nos. 03-5517/5521
                                          v. Dale et al.                  v. Dale et al.

district court ruled immediately on the Receivers’ motion, the       (3) whether the declaratory remedy is being used merely
district court would also have been bound by the Anti-                   for the purpose of “procedural fencing” or “to
Injunction Act, 28 U.S.C. § 2283, and cases interpreting it to           provide an arena for a race for res judicata”;
dismiss the Banks’ complaint, as the Banks pray for                  (4) whether the use of a declaratory action would
injunctive relief against the prosecution of state-court                 increase the friction between our federal and state
proceedings (the Mississippi litigation) instituted before               courts and improperly encroach on state jurisdiction;
decision in the Tennessee district court and seek a declaratory          and
judgment which will have the same practical effect. See              (5) whether there is an alternative remedy that is better
Martingale LLC v. City of Louisville, 361 F.3d 297, 303 (6th             or more effective.
Cir. 2004); Tropf v. Fidelity Nat’l Title Ins. Co., 289 F.3d
929, 941-42 (6th Cir. 2002), cert. denied, 537 U.S. 1118           Scottsdale Ins. Co., 211 F.3d at 968. The district court noted
(2003). While the Anti-Injunction Act does not by its terms        this test, but did not apply each factor, instead deciding that
apply now, where the Mississippi litigation will likely take       the pendency of a related state action did not necessarily bar
place in federal court, that it did apply at the time the motion   a federal declaratory-judgment action, finding that the Banks
to dismiss the Tennessee litigation was filed, and would have      had not engaged in procedural fencing, and finding that
applied at the time of the district court’s decision below but     “Tennessee is a logical forum for this dispute.” J.A. FTB at
for a potentially erroneous removal of the Mississippi             64 (Mem. Op. at 16). Because we find clear error in certain
litigation by AmSouth, is extremely disturbing.               In   of the district court’s factual findings, and misapplication of
determining the propriety of entertaining a declaratory            legal standards, we conclude that the district court abused its
judgment action, competing state and federal interests weigh       discretion in assuming jurisdiction over these declaratory
in the balance, with courts particularly reluctant to entertain    actions.
federal declaratory judgment actions premised on diversity
jurisdiction in the face of a subsequently-filed state-court         1.    Whether the        Judgment       Would      Settle    the
coercive action. These background concerns — that even if                  Controversy?
the Banks acted in good faith, the ultimate outcome of their
procedural behavior has been to wrest this case away from the         The district court did not consider this factor in its analysis,
state courts — should come into play in assessing the              but the parties dispute on appeal whether it weighs in favor of
appropriateness of assuming jurisdiction over these claims.        entertaining the actions or dismissing them. The crux of the
                                                                   argument between the parties is whether or not the ability of
   This court has adopted a five-factor test to determine when     the Receivers to file counterclaims that will dispose of all
a district court should exercise jurisdiction over a declaratory   issues in the declaratory-judgment actions can be considered
judgment:                                                          in determining whether the judgments would settle the
                                                                   controversy. Each side argues that the rule the other proposes
  (1) whether the judgment would settle the controversy;           will swallow this factor, as counterclaims will so often be
  (2) whether the declaratory judgment action would                possible or even compulsory that all declaratory judgments
      serve a useful purpose in clarifying the legal               will either be able to or not be able to settle the controversy.
      relations at issue;                                          We conclude only that in this case, this first factor does not
                                                                   weigh heavily in favor of or against allowing these actions.
Nos. 03-5517/5521                    AmSouth Bank et al.        31    32    AmSouth Bank et al.                   Nos. 03-5517/5521
                                           v. Dale et al.                   v. Dale et al.

  2.   Whether the Declaratory Judgment Action Would                  The “useful purpose” served by the declaratory judgment
       Serve a Useful Purpose in Clarifying the Legal                 action is the clarification of legal duties for the future, rather
       Relations at Issue?                                            than the past harm a coercive tort action is aimed at
                                                                      redressing. Here, the Banks incurred no further loss while
   This factor weighs heavily in favor of dismissing the              settlement negotiations continued, and at the time they filed,
declaratory judgment suit. The only “useful purpose” these            even the “uncertainty” of awaiting suit on past behavior
declaratory-judgment actions could serve is an ultimate               would have extended less than two weeks, from the filing
determination of liability on an already-accrued damages              dates of July 18 and 19 to the end of the tolling period on July
claim. Its usefulness is therefore severely undercut by the           31. While AmSouth describes the two-year settlement
presence of the Mississippi litigation. This is not a situation       negotiations as a “danse macabre” in which a “Damoclean
in which a declaratory plaintiff will suffer injury unless legal      sword hung over its head,” all AmSouth ever had to do to
relations are clarified; the Banks do not currently “act at their     stop this “danse macabre” was to refuse to renew the tolling
peril.” See Tempco Elec. Heater Corp. v. Omega Eng’g, Inc.,           agreement or to cease settlement negotiations, at which time,
819 F.2d 746, 749-50 (7th Cir. 1987) (where declaratory               if the Receivers did not file suit promptly, a declaratory suit
defendant “promptly filed suit to enforce its [underlying]            may have been appropriate. See Hyatt Int’l Corp. v. Coco,
claim . . . a declaratory judgment would serve no useful              302 F.3d 707, 712 (7th Cir. 2002) (“[T]he threat of suit,
purpose and was properly denied”).                                    however immediate, is not by itself sufficient for the
                                                                      invocation of the federal power to issue a declaratory
   Normally, when a putative tortfeasor sues an injured party         judgment.”); Int’l Ass’n of Entrepreneurs v. Angoff, 58 F.3d
for a declaration of nonliability, courts will decline to hear the    1266, 1270 (8th Cir. 1995) (“[T]he Declaratory Judgment Act
action in favor of a subsequently-filed coercive action by the        is not to be used to bring to the federal courts an affirmative
“natural plaintiff.” See 10B WRIGHT , MILLER & KANE § 2765            defense which can be asserted in a pending state action.”),
at 638 (3d ed. 1998) (“The courts have also held that it is not       cert. denied, 516 U.S. 1072 (1996); Morrison v. Parker, 90 F.
one of the purposes of the declaratory judgments act to enable        Supp. 2d 876, 881 (W.D. Mich. 2000) (“Viewed from the
a prospective negligence action defendant to obtain a                 perspective of [the Sixth Circuit’s five] standards, an action
declaration of nonliability.”). This general rule is subject to       by a putative tortfeasor fares poorly as a declaratory judgment
exception when some additional harm, not merely waiting for           action.”); Plough, Inc. v. Allergan, Inc., 741 F. Supp. 144,
the natural plaintiff to sue, will befall the declaratory plaintiff   147-48 (W.D. Tenn. 1990) (in Lanham Act case, where
in the meantime. That is, a party who wants, for example, to          declaratory plaintiff was under threat of suit for ongoing
embark on a marketing campaign, but has been threatened               marketing activities, declaratory judgment appropriate).
with suit over trademark infringement, can go to court under
the Declaratory Judgment Act and seek a judgment that it is             The district court characterized the settlement negotiations
not infringing that trademark, thereby allowing it to proceed         engaged in by FTB and the Receivers as “‘continuous[]
without the fear of incurring further loss. Similarly, a party        accus[ations]’” for “at least several months before FTB
with an ongoing contractual relationship who has been                 brought this suit ‘to secure an adjudication of its rights.’”
accused of breach can go to court and have the contract               J.A. FTB at 63 (Mem. Op. at 15). The district court relied on
definitively interpreted, thus allowing it to conform its             Eli’s Chicago Finest, Inc. v. Cheesecake Factory, Inc., 23 F.
behavior to the law and stop the potential accrual of damages.        Supp. 2d 906, 908 (N.D. Ill. 1998), for the point that
Nos. 03-5517/5521                    AmSouth Bank et al.        33    34     AmSouth Bank et al.                 Nos. 03-5517/5521
                                           v. Dale et al.                    v. Dale et al.

continuous accusations without adjudication of rights can             trademark infringement) and those where the injury is already
justify entertaining a declaratory judgment suit. But as              complete. Contract claims can sometimes fall into the first
demonstrated by Eli’s Chicago Finest, in which a single               category because of the ongoing nature of a contractual
cease-and-desist letter was held not to constitute continuous         relationship, whereas tort claims will often fall into the
accusations, the factual circumstances surrounding those              second because they are dependent on historical occurrences
accusations are dispositive. First, as the Receivers point out,       rather than ongoing conditions. All of the claims extended by
it is unclear what “two demands” the district court was               the Receivers fall into the second category, in that they allege
referring to in finding “continuous accusations”; the                 no present or continual wrongdoing on the part of the Banks
Receivers made no formal demands to FTB, only an oral                 that would require immediate clarification of the parties’
indication that they intended to assert claims if they could not      respective rights. While the Banks might have a continuing
be resolved through negotiation. FTB had signed a tolling             contractual relationship with the insurance companies and the
agreement, indicating some willingness to negotiate a                 Receivers, the historical incidents giving rise to liability are
settlement rather than forcing a legal action, had engaged in         finished. Ultimately, this factor weighs heavily against the
preliminary negotiations, and had in fact asked for a formal          exercise of jurisdiction over these declaratory actions, where
settlement demand that was being prepared as it filed suit.           a pending coercive action exists.
This is clearly not the case of the plaintiff who accuses
continuously but does not file, but instead the case of the             3.    Whether the Declaratory Remedy is Being Used
defendant who races to the courthouse while at the same time                  Merely for the Purpose of Procedural Fencing or to
assuring the plaintiff that the defendant is still interested in at           Provide an Arena for a Race for Res Judicata?
least discussing settlement options. The district court clearly
erred in these historical findings of fact.                              Courts take a dim view of declaratory plaintiffs who file
                                                                      their suits mere days or weeks before the coercive suits filed
   FTB also argues on appeal that many of the claims                  by a “natural plaintiff” and who seem to have done so for the
advanced by the Receivers are not torts, but instead contract         purpose of acquiring a favorable forum. Allowing declaratory
claims, and therefore, FTB does not fit into the category of          actions in these situations can deter settlement negotiations
“putative tortfeasor.” At most, this can only undermine               and encourage races to the courthouse, as potential plaintiffs
reliance on those cases that rely on that particular formulation      must file before approaching defendants for settlement
of the type of declaratory plaintiff at issue here. In any case,      negotiations, under pain of a declaratory suit. This also
it is irrelevant to the policy considerations that underly the        dovetails with the previous factor: where a putative defendant
doctrine: Where a pending coercive action, filed by the               files a declaratory action whose only purpose is to defeat
natural plaintiff, would encompass all the issues in the              liability in a subsequent coercive suit, no real value is served
declaratory judgment action, the policy reasons underlying            by the declaratory judgment except to guarantee to the
the creation of the extraordinary remedy of declaratory               declaratory plaintiff her choice of forum — a guarantee that
judgment are not present, and the use of that remedy is               cannot be given consonant with the policy underlying the
unjustified. This is true whatever the nature of the coercive         Declaratory Judgment Act. See Hyatt Int’l, 302 F.3d at 712
action underlying the declaratory action — the important              (the Act “is not a tactical device whereby a party who would
distinction in the case law is between situations where some          be a defendant in a coercive action may choose to be a
uncertainty beyond the possibility of litigation exists (i.e.,        plaintiff by winning the proverbial race to the courthouse.”
Nos. 03-5517/5521                          AmSouth Bank et al.          35     36       AmSouth Bank et al.                       Nos. 03-5517/5521
                                                 v. Dale et al.                         v. Dale et al.

(internal quotation marks omitted)); NGS Am., Inc. v.                          J.A. FTB at 65 (Mem. Op. at 17). We conclude that the
Jefferson, 218 F.3d 519, 523 (6th Cir. 2000) (“[A] rule                        factual determination underlying this finding was clearly
permitting [this sort of declaratory] action could frustrate a                 erroneous, as were the legal standards used to reach this
plaintiff’s choice of forum and encourage forum shopping,                      conclusion. The district court first found that the Receivers
races to the courthouse, needless litigation occasioning waste                 had continuously accused FTB for several months before
of judicial resources, delay in the resolution of controversies,               FTB’s action was brought to secure an adjudication of its
and misuse of judicial process to harass an opponent in                        rights; then that Tennessee was a logical forum for this
litigation,” irrespective of the actual motives of the                         dispute; and finally that a controversy was presented by the
declaratory plaintiff); BASF Corp. v. Symington, 50 F.3d 555,                  Receivers’ threat of suit. Taking up this last conclusion first,
558-59 (8th Cir. 1995) (“declaratory actions founded                           we note that the presence of a controversy is a prerequisite for
exclusively on a defense to a state law claim should be                        the district court’s initial power to hear a declaratory
dismissed as a tactical maneuver calculated to deny potential                  judgment action; its absence strips the district court of
plaintiffs of their traditional right to choose the forum and                  jurisdiction, and its presence therefore should have no weight
time of suit”; “the natural plaintiff’s choice of forum and law                in determining whether a declaratory-judgment action is
will be disturbed only in exceptional circumstances”);                         appropriate. Next, whether the forum chosen by the
Tempco, 819 F.2d at 750 (“[T]he federal declaratory                            declaratory plaintiff is “logical” can have only a minimal
judgment is not a prize to the winner of the race to the                       value in determining whether procedural fencing has
courthouse.” (internal quotation marks omitted)); UAW v.                       occurred.7 The question is not which party has chosen the
Dana Corp., No. 3:99CV7603, 1999 WL 33237054, *5-*6
(N. D. Ohio Dec. 6, 1999) (where declaratory plaintiff filed
suit in order to “preempt the choice of forum that otherwise                   and granting injunction), Joint App endix No. 03-5517 (“J.A. AmSouth”)
would be for the union to make,” declaratory judgment                          at 42. We find it to be clear o n the rec ord that Am South engaged in
inappropriate; noting “a presumption that a first filed                        procedural fenc ing, and therefore we d o not need to remand for sep arate
                                                                               factual findings to evaluate the pro priety of each of these ac tions.
declaratory judgment action should be dismissed or stayed in
favor of the substantive suit,” and that at the least, “the                         7
                                                                                     It is unclear whether the propriety of Tennessee as a forum was
declaratory judgment plaintiff should have the burden or                       weighed by the district court as part of the “proced ural fencing” analysis,
showing persuasive cause why its suit should not be                            or as a separate factor in determining whether the declaratory judgment
enjoined”).                                                                    was appropriate. The parties vigorously contest whether the district court
                                                                               app ropriately considered the logic of the forum. The Receivers cite Essex
  The district court found “that this declaratory judgment                     Group, Inc. v. Cobra Wire & Cable, Inc., 100 F. Supp. 2d 912, 916 (N.D.
action6 was not filed in Tennessee for procedural fencing.”                    Ind. 200 0) (“[R ]egardless o f whether Indiana is the more appropriate
                                                                               venue . . . it is inappropriate for the Plaintiffs to file for a declaratory
                                                                               judgment for the purposes of forum-shopping.”) and UAW v. Dana Corp.,
                                                                               No. 3:99CV7603, 1999 WL 33237054, *4 (N. D. Ohio Dec. 6, 1999)
    6
                                                                               (differentiating proper forum selection, where a “plaintiff seeking redress
     The district court issued a memorandum decision in FTB’s action           for a co gnizab le injury is entitled” to choose amon g appro priate forums,
against the receivers m aking find ings only as to FT B’s action, but then     from improper forum shopping, where a party “manipulate[s] procedural
denied the Receivers’ motion to dismiss in the AmSouth action “[f]or the       devices to secure an advantage which, were those de vices not available,
reasons stated in the First Tennessee action.” Am Sou th Ba nk v. D ale, No.   it could not employ to defeat its opp onent’s choice of forum”). AmSouth
3:02-0677 (M.D . Tenn. Mar. 31, 20 03) (order denying motion to d ismiss       relies on United States Fire Insurance Co. v. Goodyear Tire & Rubber
Nos. 03-5517/5521                          AmSouth Bank et al.          37     38    AmSouth Bank et al.                   Nos. 03-5517/5521
                                                 v. Dale et al.                      v. Dale et al.

better forum, but whether the declaratory plaintiff has filed in               actions not to resolve issues of liability that were hindering
an attempt to get her choice of forum by filing first. That a                  their normal behavior, but instead to gain procedural
particular forum is better or worse is irrelevant in answering                 advantage. See Zide Sport Shop of Ohio, Inc. v. Ed Tobergte
that factual question.                                                         Assocs., Inc., No. 00-3183, 2001 WL 897452, *4 (6th Cir.
                                                                               July 31, 2001) (where declaratory plaintiffs filed suit after
  Instead, we conclude that a review of the factual record                     requesting extension to respond to settlement demand, one
leads to the unavoidable conclusion that procedural fencing                    day before extension’s expiration, a “finding of bad faith is
has occurred. The Receivers, alerted to the possibility of                     overwhelmingly supported in the record”); Nortek, Inc. v.
claims against the Banks in the course of litigation against                   Molnar, 36 F. Supp. 2d 63, 70 (D.R.I. 1999) (where
other parties, notified the Banks of their exploration of those                declaratory plaintiff asked for letter outlining legal reasoning
claims and initiated settlement negotiations. The Banks                        and promised to respond, then filed action prior to responding
indicated their willingness to consider settlement, most                       to letter, party “certainly shopped for a forum,” and court
notably by signing a number of tolling agreements, and in                      therefore declined jurisdiction over first-filed action);
AmSouth’s case, through correspondence indicating that                         Columbia Pictures Indus., Inc. v. Schneider, 435 F. Supp.
those negotiations were ongoing. FTB requested a settlement                    742, 747-48 (S.D.N.Y. 1977) (allowing six-days-earlier
demand, and while that demand was being prepared, filed this                   declaratory action to proceed “would create disincentives to
action. Just one day before filing its declaratory action,                     responsible litigation,” and instead, “Potential plaintiffs
AmSouth’s counsel sent a letter stating that AmSouth was                       should be encouraged to attempt settlement discussions (in
“still considering” the Receivers’ demand and its options, and                 good faith and with dispatch) prior to filing lawsuits without
that counsel would “be in touch in the near future concerning                  fear that the defendant will be permitted to take advantage of
a written response and a possible meeting on July 24.” J.A.                    the opportunity to institute litigation in a district of its own
AmS at 572. It seems clear that the Banks filed declaratory                    choosing before plaintiff files an already drafted complaint.”).
                                                                               Cf. N. Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 647 (7th
                                                                               Cir. 1998) (where settlement negotiations had reached
                                                                               acknowledged impasse, declaratory judgment filed one month
Co., 920 F.2d 487, 489 n.7 (8th Cir. 1990) (footnote remarking as an
aside to rejecting the declaratory defendant’s claims of procedural fencing    after last contact between parties was not “racing to the
that the disp ute was one over a Minnesota judgment and involved a             courthouse”); Kmart Corp. v. Key Indus., Inc., 877 F. Supp.
Minneso ta accident); Telephonics Corp. v. Lindly & Co., 291 F.2d 445,         1048, 1052-55 (E.D. Mich. 1994) (finding declaratory
446-47 (2d Cir. 1961) (in weighing propriety of an antisuit injunction         judgment appropriate; key consideration is whether the
entered by district court in declaratory action, noting that New York was      declaratory plaintiff “misled the defendant into believing that
a more appropriate venue for the suit); and DP-Tek, Inc. v. Villalobos, 809
F. Supp. 811, 813 (D. Kan. 1992) (using traditional forum selection
                                                                               their dispute could be resolved amicably so that the plaintiff
factors in weighing appropriateness of declaratory action). Whether or not     could win the race to the courthouse”).
the district court’s consideration of this factor was inco rrect, given that
both parties have a reasonable claim to their respective forum, this factor      We conclude that the practical effect of FTB’s and
is something of a wash, and we decline to decide whether a district court      AmSouth’s participation in settlement negotiations and
is always precluded from considering it. To the extent it may weigh in         affirmative representations of that participation was to lull the
favor of the declaratory action, the other factors — explicitly required by
prior circuit case law — still weigh heavily in favor of the Mississippi       Receivers into believing that amicable negotiation was still
litigation.                                                                    possible, and that the filing of these declaratory actions was
Nos. 03-5517/5521                     AmSouth Bank et al.        39    40   AmSouth Bank et al.                 Nos. 03-5517/5521
                                            v. Dale et al.                  v. Dale et al.

an effort to engage in procedural fencing to secure the Banks’         insurance companies, and that the scheme was nationwide,
choice of forum. The district court clearly erred in                   with documents in numerous fora.
concluding otherwise. This factor weighs heavily against
entertaining these actions under the Declaratory Judgment                The existence of a coercive action is important to our
Act.                                                                   determination that this declaratory action would serve no
                                                                       useful purpose. See, e.g., Albie’s Foods, Inc. v. Menusaver,
  4.   Whether allowing the action would cause friction                Inc., 170 F. Supp. 2d 736, 740 (E.D. Mich. 2001) (relying on
       between state and federal courts?                               Tempco in deferring to a subsequently-filed coercive action,
                                                                       noting that invocation of coercive remedy will “help sharpen
  This is a factor that, as noted above, would have at the             and refine the issues to be decided”); Pakideh v. Ahadi, 99 F.
outset of this litigation been dispositive under the Anti-             Supp. 2d 805, 807-09 (E.D. Mich. 2000) (dismissing
Injunction Act, and before the dismissal of Flowers from the           declaratory judgment action in favor of coercive action
suit weighed heavily against entertaining this action in favor         pending in other federal district court after removal); Essex
of allowing the Mississippi litigation to proceed. It seems            Group, Inc. v. Cobra Wire & Cable, Inc., 100 F. Supp. 2d
unfortunate that happenstance and procedural maneuvering by            912, 915-17 (N.D. Ind. 2000) (dismissing first-filed
the Banks should serve to undercut this particularly important         declaratory judgment in favor of coercive action in other
factor in the balance, but at this point it is difficult to say that   federal court because to do otherwise would discourage
requiring the district court to dismiss the action will decrease       settlement and encourage costly duplicate litigation). Beyond
the friction between the state and federal courts.                     recognizing that an alternative remedy exists, we are unsure
                                                                       that this factor weighs heavily in favor of or against
  5.   Whether there is an alternative remedy that is                  entertaining these declaratory actions.
       better or more effective?
                                                                         Ultimately, then, two factors, that the declaratory
  The Receivers argue that the Mississippi litigation presents         judgments would serve no useful purpose and that FTB and
a better remedy, because a coercive action is an inherently            AmSouth are using these actions for the purpose of
more effective litigation vehicle, because the Receivers               procedural fencing, weigh heavily in favor of declining
proceed in one action in the Mississippi litigation, rather than       jurisdiction over these declaratory actions, with no factors
the two actions in the district court and this court, and because      weighing in favor of proceeding with the declaratory-
the parties are naturally aligned in the Mississippi litigation,
noting with respect to this last point the evident misstatements
in the district court’s opinion switching the two sets of
parties. AmSouth notes that the material witnesses reside in
Tennessee, the underlying events occurred in that state,
relevant documents are located in Tennessee, and Tennessee
law will likely govern. The Receivers reply that Tennessee
and Mississippi are adjacent, reducing the burden of travel,
that two-thirds of the total loss suffered was by Mississippi
Nos. 03-5517/5521                           AmSouth Bank et al.            41
                                                  v. Dale et al.

judgment action.8 The district court therefore abused its
discretion in entertaining these actions.
                         III. CONCLUSION
  For the foregoing reasons, we DISSOLVE the injunction,
REVERSE the district court’s decision, and REMAND the
case to the district court with instructions to dismiss the
actions.

    8
       The district court also relied on the first-filed rule in denying the
Receivers’ motio n to dismiss, which was likely improper, in that the first-
filed rule only applies to two cases filed in separate fed eral co urts, see
Zide Sport Shop of Ohio, Inc. v. Ed Tobergte Assocs., Inc., No. 00-3183,
200 1 W L 89 745 2, *3 (6th Cir. July 31, 20 01) (“T he first-to-file rule is a
well-established doctrine that encourages comity among federal courts of
equal rank.” (emphasis added)) Hea lthcare Capital, LLC v. Healthmed,
Inc., 213 F. Supp. 2d 850, 856 (S.D. Ohio 2002), and the Mississippi
litigation was filed in state court. In any case, the first-filed rule is not a
strict rule and much more often than no t gives way in the context of a
coercive action filed subsequent to a decla ratory action. See, e.g., Zide,
2001 W L 89 745 2 at *3 (“A plaintiff, even one who files first, does not
have a right to bring a declaratory judgment action in the forum of his
choosing”.); Essex, 100 F. Supp. 2d at 915-17 (dismissing first-filed
declaratory judgment in favor of subsequent coercive action in other
federal court); UAW, 1999 W L 3323 7054 at *6 (“Cases construing the
interplay between declaratory judgment actions and suits based on the
merits of underlying substantive claims create, in practical effect, a
presumption that a first filed declaratory judgment action should be
dismissed or stayed in favor o f the substantive suit.”); Nortek, Inc. v.
Molnar, 36 F. Supp. 2d 6 3, 70 (D.R.I. 1999) (dismissing first-filed
declaratory judgment in favor of subsequent coercive action).