Bryan RARICK, Individually and on behalf of a class of similarly situated persons v. FEDERATED SERVICE INSURANCE COMPANY, Appellant; Terry Easterday; Linda Easterday, h/w individually and on behalf of a class of similarly situated persons v. The Federated Mutual Insurance Company, Appellant
No. 15-3606, No. 16-1328
United States Court of Appeals, Third Circuit.
Argued November 2, 2016 (Filed: March 28, 2017)
223, 225, 226, 227, 228, 229, 230
III. Postjudgment Interest
The district court did not address Tru-Art‘s claim for postjudgment interest, stating only that “Plaintiff‘s motion for prejudgment interest and costs is denied.” J.A. 163. On appeal, Tru-Art argues that the district court abused its discretion in failing to state any reason why it denied postjudgment interest. Local 137 did not object to Tru-Art‘s request for postjudgment interest before the district court and does not now dispute Tru-Art‘s entitlement to postjudgment interest on appeal.
Pursuant to
CONCLUSION
For the reasons stated above, we AFFIRM the district court‘s denial of Tru-Art‘s motion for prejudgment interest and costs. We VACATE the district court‘s order to the extent that it denied postjudgment interest and REMAND the action for the district court to calculate and award such interest.
Charles E. Spevacek [Argued], William M. Hart, Tiffany M. Brown, Julia J. Nierengarten, Meagher & Geer, 33 South Sixth Street, Suite 4400, Minneapolis, MN 55402, Attorneys for Defendants-Appellants
James C. Haggerty [Argued], Suzanne T. Tighe, Esq., Haggerty Goldberg Schleifer & Kupersmith, 1835 Market Street, Suite 2700, Philadelphia, PA 19103, Attorneys for Plaintiffs-Appellees
Before: CHAGARES, HARDIMAN, and SCIRICA, Circuit Judges.
HARDIMAN, Circuit Judge.
In Brillhart v. Excess Insurance Company of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), the Supreme Court held that federal courts have broad discretion to decline to hear actions arising under the Declaratory Judgment Act. Decades later the Court reminded federal courts that they have a “virtually unflagging obligation” to exercise jurisdiction over actions seeking legal relief. Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). But this “unflagging obligation” does not undermine the discretion inherent in the Declaratory Judgment Act as interpreted in Brillhart. See Wilton v. Seven Falls Co., 515 U.S. 277, 286-88, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995).
What about complaints that seek both declaratory and legal relief? Our sister courts of appeals and district courts within the Third Circuit have disagreed over the legal standard applicable in such cases. The United States District Court for the Eastern District of Pennsylvania in the two appeals we consider here adopted a “heart of the matter” test and, after finding that the essence of each action was declaratory, declined to exercise jurisdiction. In our view, the heart of the matter test is problematic because it enables plaintiffs to avoid federal subject matter jurisdiction through artful pleading. Accordingly, we will vacate the orders of the District Court and remand the cases for further proceedings.
I
A
A resident of Pennsylvania, Brian Rarick worked for a company that insured its vehicles under a business automobile policy provided by Federated Service Insurance Company, a Minnesota corporation. Under that policy, Rarick‘s employer waived uninsured motorist coverage for most of its employees, including Rarick.
In his complaint, Rarick alleged that he suffered injuries after he crashed a company car insured by Federated Service when an unidentified vehicle forced him off the road. Rarick reported the accident and submitted a claim to Federated Service for uninsured motorist benefits, in accordance with the
Federated Service removed Rarick‘s civil action to the District Court under
The District Court adopted a “heart of the matter” test to determine whether it had discretion to decline jurisdiction. The Court determined that the crux of the litigation was declaratory because Rarick sought a declaration that he is entitled to uninsured motorist benefits. The Court then considered whether it should decline jurisdiction over the entire case under our decision in Reifer v. Westport Insurance Corp., 751 F.3d 129 (3d Cir. 2014). Under Reifer, the absence of a pending state case created a rebuttable presumption in favor of jurisdiction. In light of “the nature and novelty of the state law issues,” the Court found the presumption was rebutted, so it declined jurisdiction and remanded the case to the Court of Common Pleas. Rarick v. Federated Serv. Ins. Co., 2015 WL 5677295, at *5 (E.D. Pa. Sept. 28, 2015). Federated Service appealed.
B
Terry Easterday, a resident of Pennsylvania, worked for an affiliate of Federated Service called Federated Mutual Insurance Company, which is a Minnesota company. Federated Mutual had a business automobile policy that waived underinsured motorist coverage.
In his complaint, Easterday alleged that he sustained injuries in two rear-end collisions while driving a car owned and insured by Federated Mutual. Easterday submitted insurance claims seeking tort damages and he later sought recovery of underinsured motorist benefits from Federated Mutual. The company denied Easterday‘s claim citing the waiver of underinsured motorist benefits.
Easterday, along with his wife Linda, sued in the Court of Common Pleas of Philadelphia County, Pennsylvania. The Easterdays sought, inter alia, a declaration that Pennsylvania law required Federated Mutual to provide underinsured motorist coverage. The Easterdays also requested damages for breach of contract, alleging—in nearly identical language to their prayer for declaratory relief—that Federated Mutual breached its contract by failing to provide Easterday with underinsured motorist coverage.
Federated Mutual removed the case to the District Court under
In light of the factual similarities between the two cases, the District Court followed Rarick, 2015 WL 5677295. The Court found that the heart of the matter was declaratory because “[t]he crux of th[e] litigation is whether the insurance
II
The District Court had jurisdiction in both cases under
III
A
A federal district court‘s discretion to decline jurisdiction depends on whether the complaint seeks legal or declaratory relief. When an action seeks legal relief, federal courts have a “virtually unflagging obligation” to exercise jurisdiction. Colo. River, 424 U.S. at 817, 96 S.Ct. 1236. There are but a few “extraordinary and narrow exception[s]” to this rule. Id. at 813, 96 S.Ct. 1236.
When an action seeks declaratory relief, however, federal courts may decline jurisdiction under the
B
Before today “[w]e have never ruled on the legal standard a district court must
The United States Courts of Appeals for the Second, Fourth, and Fifth Circuits have adopted a bright line rule that prioritizes a federal court‘s duty to hear claims for legal relief over its discretion to decline jurisdiction to hear declaratory judgment actions. Under that rule, “[t]he Colorado River standard applies to all mixed claims—even when the ‘claims for coercive relief are merely “ancillary” to [a party‘s] request for declaratory relief.‘” VonRosenberg v. Lawrence, 781 F.3d 731, 735 (4th Cir. 2015), as amended (Apr. 17, 2015) (alterations in original) (quoting Black Sea Inv., Ltd. v. United Heritage Corp., 204 F.3d 647, 652 (5th Cir. 2000)); see also New Eng. Ins. Co. v. Barnett, 561 F.3d 392, 397 (5th Cir. 2009) (per curiam) (“[W]hen an action contains any claim for coercive relief, the Colorado River abstention doctrine is ordinarily applicable.” (citation omitted)); Vill. of Westfield v. Welch‘s, 170 F.3d 116, 124 n.5 (2d Cir. 1999). These courts generally have found that Colorado River‘s “unflagging obligation” to entertain legal claims supersedes any discretion to decline jurisdiction over a declaratory claim in the same suit. See VonRosenberg, 781 F.3d at 735 (depriving access to a federal forum simply because there is a request for declaratory relief “seems especially unwarranted given that nearly all claims, including those for damages or injunctive relief, effectively ask a court to declare the rights of the parties to the suit“).
The United States Courts of Appeals for the Seventh Circuit and Ninth Circuit have taken a slightly different approach, applying an independent claim test, which balances the court‘s duty to hear legal claims with its discretion to decline jurisdiction over claims for declaratory relief. Under this test, the district court first determines whether claims seeking legal relief are independent of claims for declaratory relief. R.R. St. & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, 716-17 (7th Cir. 2009). “Non-declaratory claims are ‘independent’ of a declaratory claim when they are alone sufficient to invoke the court‘s subject matter jurisdiction and can be adjudicated without the requested declaratory relief.” Id. at 715 (citing United Nat‘l Ins. Co. v. R&D Latex Corp., 242 F.3d 1102, 1113 (9th Cir. 2001)). If the legal claims are dependent on the declaratory claims, the court may decline jurisdiction over the entire action. Id. at 716-17. But if they are independent, the court must adjudicate the legal claims unless there are exceptional circumstances as described in Colorado River. Id. When the legal claims are independent, courts generally will not decline the declaratory judgment action in order to avoid piecemeal litigation. R.R. St. & Co., 569 F.3d at 715-16. “Where the [legal] claims are not independent, the district court has discretion under Wilton/Brillhart to abstain from hearing the entire action.” Id. at 716.
Finally, district courts in the Third Circuit, following the approach taken by the United States Court of Appeals for the Eighth Circuit in Royal Indem. Co. v. Apex Oil Co., 511 F.3d 788 (8th Cir. 2008), primarily have applied the “heart of the matter” or “essence of the lawsuit” test. Under that test, the court “examines the relationship between the claims, and determines what the ‘essence of the dispute’ concerns.” Elec. Claims Processing, Inc. v. M.R. Sethi, M.D., S.C., 2013 WL 243594, at *3 (W.D. Pa. Jan. 22, 2013) (quoting ITT Indus., Inc. v. Pac. Emp‘rs. Ins., 427 F.Supp.2d 552, 566-67 (E.D. Pa. 2006)). This approach seeks to “balance between
C
The District Court in both cases under review here adopted the “heart of the matter” test. In Rarick, the Court was persuaded that the “Supreme Court‘s specific recognition that declaratory judgment actions necessitate a different treatment than other types of cases” required the court to analyze the facts of a mixed claim before deciding whether it should decline jurisdiction. 2015 WL 5677295, at *4 (quoting ITT Indus., Inc., 427 F.Supp.2d at 557). Using similar reasoning, the District Court in Easterday adopted the heart of the matter test because it found “that the outcome of the plaintiffs’ claims for breach of contract and bad faith are dependent on how the insurance policies are interpreted for the declaratory judgment claim.” 2016 WL 492481, at *3 n.2.
After careful consideration of the various tests applied in the decisions mentioned, we hold that the independent claim test is the most appropriate one. When a complaint contains claims for both legal and declaratory relief, a district court must determine whether the legal claims are independent of the declaratory claims. If the legal claims are independent, the court has a “virtually unflagging obligation” to hear those claims, subject of course to Colorado River‘s exceptional circumstances. Colo. River, 424 U.S. at 817-19, 96 S.Ct. 1236. If the legal claims are dependent on the declaratory claims, however, the court retains discretion to decline jurisdiction of the entire action, consistent with our decision in Reifer, 751 F.3d at 144-46.
The independent claim test is superior to the others principally because it prevents plaintiffs from evading federal jurisdiction through artful pleading. Although Rarick and Easterday included declaratory claims in their complaints, they requested a legal remedy—damages—for breach of contract. Because both cases satisfied the requirements for diversity jurisdiction, Rarick and Easterday could have obtained their desired relief in federal courts without requesting a declaratory judgment. By including a declaratory claim in their pleadings, however, Rarick and Easterday invited the District Court to avoid Colorado River‘s “virtually unflagging obligation” in favor of the more expansive discretion afforded under Reifer.
This outcome is inconsistent with the purpose of the Declaratory Judgment Act, which is to “clarify legal relationships” in order to help putative litigants “make responsible decisions about the future.” Step-Saver Data Sys., 912 F.2d at 649. The Declaratory Judgment Act was intended to “enlarge[] the range of remedies available in the federal courts” by authorizing them to adjudicate rights and obligations even though no immediate remedy is requested. Skelly Oil Co., 339 U.S. at 671, 70 S.Ct. 876 (emphasis added). The heart of the matter test enables plaintiffs to subvert this goal by using the Declaratory Judg-
Another virtue of the independent claim test is that it gives district courts the flexibility that the bright line test precludes. We agree with the Seventh Circuit when it opined: “we do not think the mere fact that a litigant seeks some non-frivolous, non-declaratory relief in addition to declaratory relief means that a district court‘s Wilton/Brillhart discretion to decline to hear the declaratory claim should be supplanted by the narrow Colorado River doctrine.” R.R. Street & Co., Inc., 569 F.3d at 716. We also agree that while the bright line test is more easily applied by courts, “it unduly curtails a district court‘s ‘unique and substantial discretion’ to abstain from hearing claims for declaratory relief.” Id. (quoting Wilton, 515 U.S. at 286, 115 S.Ct. 2137).
IV
We hold that the independent claim test is the applicable legal standard for review of a complaint that seeks both legal and declaratory relief. In these cases, both Plaintiffs’ legal claims were independent of their declaratory claims. Accordingly, we will vacate the judgments of the District Court and remand the cases for a determination whether exceptional circumstances exist under Colorado River.