Kelly v. Maxum Specialty Ins. Group, 868 F.3d 274 (3d Cir. 2017). Judge Chagares began one of the early paragraphs of today’s opinion for the Third Circuit in this Declaratory Judgment Act, 28 U.S.C. §2201-2202 (“DJA”), case this way:
“Whether a state action parallels a federal action– in which case a district court has significant discretion under the DJA to decline a lawsuit seeking only declaratory relief– is a question that has divided the district courts in this Circuit. Although the question is not dispositive to a court’s decision to abstain, it is important, and is one that courts must address. We hold that contemporaneous state and federal proceedings are parallel for purposes of the DJA when they are substantially similar, and the two proceedings here were not. We further hold that the lack of parallel state and federal proceedings– a significant factor favoring hearing the case– is not outweighed by other factors.”
The District Court here had abstained from entertaining the DJA action, instead remanding it to the Pennsylvania state court from which it had been removed. That “discretionary remand” was a final, appealable decision. Applying the abuse of discretion standard of review, while exercising de novo review of the legal issue of whether the proceedings were parallel, the panel reversed that decision and remanded for further proceedings. Judge Chagares noted that although the District Court was also confronted with issues of subject matter jurisdiction, that court was not required to address jurisdiction first, but could (as it did) “choose among threshold grounds for denying audience to a case on the merits.”
The District Court had followed other District Court decisions that held that, “for purposes of the DJA, a state proceeding parallels a federal action where there is the potential that the federal claims might be satisfactorily adjudicated in state court” (emphasis in original). Judge Chagares found that approach improper. “[T]he mere potential or possibility that two proceedings will resolve related claims between the same parties is not sufficient to make those proceedings parallel; rather, there must be a substantial similarity in issues and parties between contemporaneously pending proceedings.” In a footnote, the panel declined to follow dicta in opinions by other Courts of Appeal that might be read to “incorporate[ ] potentiality” into the definition of “parallel proceedings.”
Citing cases from other Courts of Appeal, the panel amplified that “substantial similarity” d0es not require “[s]trict identity between parties and claims,” but instead means only that ‘the parties involved are closely related and … the resolution of an issue in one will necessarily settle the matter in the other.” Judge Chagares also looked to definitions of parallelism in related abstention contexts, citing as an example the abstention doctrine under Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), under which the Third Circuit had found that “cases are parallel when they involve the same parties and claims.”
Here, the proceedings were not parallel. The state court matter was a tort action arising out of an auto accident. The federal action was a declaratory judgment case regarding insurance coverage. The insurance carrier was not a party to the state court case, and “[t]he issue of coverage [was] not necessary to the resolution of the state action.”
The fact that the proceedings were not parallel was not, however, dispositive of whether the District Court properly declined to entertain the DJA action, though the absence of parallel proceedings “weighed significantly” in favor of entertaining the case while not requiring it. Reifer v. Westport Ins. Corp., 751 F.3d 129 (2014), contains a non-exclusive list of factors that courts are to weigh in deciding whether to abstain from hearing a DJA case. Judge Chagares evaluated those factors and determined that they did not outweigh the significant interest in entertaining a DJA case where there are no parallel proceedings. Accordingly, the panel remanded the case to the District Court, and directed that, before doing anything else, that court address the threshold subject matter jurisdiction issue that had been raised.