Ronald Kelly v. Maxum Specialty Insurance Grou
868 F.3d 274
| 3rd Cir. | 2017Background
- In 2007 a drunk driver injured Ronald Kelly; the bar (Princeton Tavern) had dram-shop coverage from State National procured via broker Carman. Plaintiffs obtained a $5M settlement/judgment against the tavern after State National refused coverage due to lack of notice.
- Princeton Tavern assigned its claims against broker Carman to the Kellys; the Kellys sued Carman in Pennsylvania state court (Tort Action) for negligence/breach of contract in 2013.
- The Kellys separately sued Carman’s professional-liability insurer Maxum in state court for a declaratory judgment that Maxum must defend/indemnify Carman (Declaratory Action); Maxum removed that action to federal court asserting diversity after proposed realignment.
- The District Court declined to exercise its discretionary power under the Declaratory Judgment Act (DJA) and remanded, reasoning the state Tort Action and federal Declaratory Action were parallel and other Reifer factors favored abstention.
- The Third Circuit reversed: it held the two actions were not "parallel" for DJA purposes because they were not substantially similar in parties or issues (Maxum was not a party in the Tort Action and coverage issues were distinct from Carman’s liability).
- The court remanded for the district court to determine subject-matter jurisdiction (realignment/diversity) and proceed consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the federal declaratory action and the state tort action are "parallel" under the DJA | The Kellys: the state Tort Action may raise coverage and thus is parallel, so federal court should abstain | Maxum: proceedings are not parallel because Maxum is not a party in the Tort Action and coverage issues are distinct | Held: Not parallel — parallelism requires substantial similarity in parties/issues contemporaneously, not mere potentiality |
| Whether district court properly exercised discretion to decline DJA jurisdiction under Reifer factors | Kellys: Reifer factors favor remand/abstention given the related state action and comity | Maxum: Nonexistence of a parallel proceeding and other factors favor exercising federal jurisdiction | Held: District Court abused discretion — lack of parallel proceeding weighed significantly in favor of exercising jurisdiction and Reifer factors did not outweigh that lack |
| Standard for defining "parallel" proceedings for DJA abstention | Kellys (and some district courts): potential that state proceedings could resolve coverage is sufficient | Maxum: potentiality is insufficient; must compare proceedings as they presently exist | Held: Court adopts view requiring substantial similarity (contemporaneous overlap of parties/issues), not mere potentiality |
| Whether court must resolve jurisdiction before abstaining/remanding a DJA case | Kellys: argued remand appropriate without reaching alignment/jurisdiction | Maxum: court must determine whether diversity exists via realignment before proceeding | Held: Although district court may abstain before resolving jurisdiction, on remand the district court must determine subject-matter jurisdiction (realignment/diversity) before reaching merits |
Key Cases Cited
- Reifer v. Westport Ins. Corp., 751 F.3d 129 (3d Cir. 2014) (framework of factors for DJA abstention)
- Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (discretionary nature of declaratory relief under the DJA)
- Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942) (principles guiding abstention from declaratory actions)
- Sinochem Int’l Co. v. Malay. Int’l Shipping Corp., 549 U.S. 422 (2007) (courts may address non-merits threshold issues before jurisdictional questions)
- Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) (parallel-case/abstention principles for wise judicial administration)
- Md. Cas. Co. v. Consumers Fin. Serv., 101 F.2d 514 (3d Cir. 1938) (separating insurer coverage disputes from insured’s liability claims)
- Emp’rs Ins. of Wausau v. Crown Cork & Seal Co., 905 F.2d 42 (3d Cir. 1990) (party realignment and determining principal purpose of suit for jurisdictional alignment)
- Steel Co. v. Citizens for Better Env’t, 523 U.S. 83 (1998) (requirement to address subject-matter jurisdiction before merits)