United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
May 2, 2005
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 04-30571
AMERICAN GUARANTEE & LIABILITY INSURANCE
COMPANY, a New York Corporation; ZURICH AMERICAN
INSURANCE COMPANY, a New York Corporation , as
Successor to Zurich Insurance Company, U. S. Branch,
Plaintiffs-Counter Defendants-Appellants,
versus
ANCO INSULATIONS, INC., a Louisiana Corporation,
Defendant-Counter Claimant- Appellee,
versus
ROYAL INDEMNITY COMPANY, a Delaware Corporation,
Defendant-Apellant.
__________________
ANCO INSULATIONS, INC.
Plaintiff-Appellee,
versus
ZURICH AMERICAN INSURANCE COMPANY;
AMERICAN GUARANTEE & LIABILITY INSURANCE
COMPANY,
Defendants-Appellants.
Appeals from the United States District Court for
the Middle District of Louisiana
_________________________________________________________
Before REAVLEY, JONES and GARZA, Circuit Judges.
REAVLEY, Circuit Judge:
American Guarantee & Liability Insurance Co. and Zurich American
Insurance Co. (collectively “Zurich”)1 and Royal Indemnity Company (“Royal”)
appeal the district court’s decision to stay their suit for declaratory relief and
restitution against Anco Insulations, Inc. (“Anco”) pending the outcome of a state
proceeding involving Zurich and Anco which encompasses some common issues.
Zurich also asks this court to rule on its motion for partial summary judgment which
was pending in the district court at the time it issued its stay order. We vacate the
stay order and remand.
The district court’s jurisdiction was premised on diversity.2 Although the stay
order did not terminate federal proceedings, it is appealable under 28 U.S.C. § 1291
as a collateral order if it conclusively determined a disputed question which is
1
American Guarantee & Liability Insurance Co. is a wholly-owned subsidiary of
Zurich American Insurance Co.
2
28 U.S.C. § 1332.
2
separate from the merits and which cannot be reviewed on appeal from a final
judgment.3
By granting the stay, the district court surrendered determination of issues
common to the federal and state suits to the state court—the state court’s resolution
of those issues will have preclusive effect in the federal court once the stay is lifted.
The stay is therefore an important issue separate from the merits, because it amounts
to “a refusal to adjudicate the merits” of the common issues.4 The preclusive effect
of the state court’s decision will also foreclose federal review of the common
issues.5 And because there is no indication that the district court intends to revisit
its decision to stay the case, the stay order is a conclusive determination.6 Thus, the
order is within this court’s jurisdiction as an appealable collateral order.
We review a district court’s decision to stay a federal suit pending the
outcome of state proceedings for abuse of discretion and any legal interpretation
underpinning that decision de novo.7 One of two standards governs the propriety of
3
Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978).
4
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 12 (1983).
5
Id.
6
Id. at 12-13.
7
Black Sea Inv., Ltd. v. United Heritage Corp., 204 F.3d 647, 649-50 (5th Cir.
2000).
3
a decision to stay based on considerations of wise judicial administration, depending
on whether the federal suit is purely declaratory or seeks other relief.8 If the federal
suit seeks only a declaration of rights, the district court’s discretion to stay or
dismiss the suit is governed by a standard derived from Brillhart v. Excess
Insurance Co. of America, 316 U.S. 491 (1942).9 If the suit involves a request for
monetary or other relief, the district court’s discretion to stay is “narrowly
circumscribed” by its obligation to hear cases within its jurisdiction, even if
declaratory relief is also requested, and the propriety of a stay is governed by the
“exceptional circumstances” standard of Colorado River Water Conservation
District v. United States, 424 U.S. 800, 817-19 (1976).10 Colorado River discretion
to stay is available only where the state and federal proceedings are parallel—i.e.,
8
Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23 F.3d 948, 950 (5th Cir.
1994).
9
Id.; see Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995) (holding that
Brillhart governs the propriety of a district court’s decision to stay a declaratory
judgment action); Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 389-392 (5th
Cir. 2003) (discussing multi-factor analysis governing a district court’s decisions about
the propriety of hearing a declaratory judgment action developed following Brillhart in
St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir. 1994)).
10
Southwind, 23 F.3d at 951; see also Diamond Offshore Co. v. A & B Builders,
Inc., 302 F.3d 531, 538-41 (5th Cir. 2002) (citing Colo. River, 424 U.S. at 817, and
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996)); Black Sea, 204 F.3d at 652.
4
where the two suits involve the same parties and the same issues.11
It is unclear whether the district court followed the Colorado River standard
in deciding to enter the stay or believed that the Brillhart standard applied. The
court had previously denied Anco’s request that the court dismiss the case pursuant
to Burford or Colorado River abstention, but it is unclear whether it had Brillhart or
Colorado River in mind in staying the case.12 The court may have believed that it
had greater discretion to stay under Colorado River than it had to dismiss.13
However, the Supreme Court has held that the exceptional circumstances test
applies regardless of whether the district court dismisses or merely stays a case.14
We conclude that, regardless of whether the district court applied the
11
Diamond Offshore, 302 F.3d at 540. If the proceedings are parallel, the court
must engage in a multi-factor analysis to determine whether exceptional circumstances
support deference to the state court. Moses H. Cone, 460 U.S. at 15-16; Black Sea, 204
F.3d at 650. Those factors include: (1) either court’s assumption of jurisdiction over a
res; (2) the relative convenience of the fora; (3) avoidance of piecemeal litigation; (4) the
order in which jurisdiction was obtained in the fora; (5) whether and to what extent
federal law governs the case; and (6) the adequacy of the state proceeding. Id.
12
Dist. Ct. Order of May 18, 2004 at 4 (“All things considered, the court finds,
based on concerns of fairness and efficiency, that this case should be stayed during the
pendency of the [state] litigation. While that litigation may not resolve all issues in this
matter, it will certainly resolve many of them and will certainly avoid conflicting
rulings.”).
13
Id. (“[D]ismissing [a] federal case pursuant to Colorado River abstention . . . is
very different from deciding whether to grant a motion to stay.”).
14
Moses H. Cone, 460 U.S. at 27-28.
5
Brillhart or Colorado River standard, its grant of the stay was an abuse of
discretion. Here, Zurich seeks both a declaration of its rights and liabilities under
insurance policies issued to Anco as well as restitution for amounts it paid to defend
or indemnify Anco that it alleges exceeded the policies’ limits. The district court’s
discretion to stay based only on concerns of wise judicial administration was
therefore governed by the Colorado River standard, and application of the Brillhart
standard was inappropriate.15 In addition, as the court noted in denying Anco’s
request for dismissal, the federal and state proceedings are not parallel.16 While the
two suits share some issues between Zurich and Anco, Royal is not a party to the
state suit. In addition, the state action does not encompass Zurich’s claim for
15
Black Sea, 204 F.3d at 652; Dist. Ct. Order of May 18, 2004 at 4 (basing its
decision on “concerns of fairness and efficiency”). Although Anco argues that Zurich’s
restitution claim is merely ancillary to its declaratory relief claim, it has made no showing
that the restitution claim is “frivolous or premature or otherwise wanting in equity,” and
that the case should thus be viewed as a solely declaratory action. See id. As we stated
in Black Sea, it is immaterial that the restitution claim may be ancillary to the declaratory
claim—the only potential exception to the applicability of the exceptional circumstances
standard in cases requesting both declaratory and other relief exists “when a party’s
request for [other] relief is either frivolous or is made solely to avoid application of the
Brillhart standard.” Id.; see also Diamond Offshore, 302 F.3d at 539 n.5.
16
Dist. Ct. Order of July 10, 2003 at 9 (stating that the federal action is “clearly
different from the state court tort action. Each case involves different parties, claims, and
relevant dates and policy periods. Although . . . there does exist some overlap between
the two lawsuits, the proceedings in this court are far more encompassing. Further,
Zurich seeks to determine its rights in this matter relative not only to its insured but to its
insured’s other insurers for other policy periods. The proceedings are not parallel and
thus abstention based on Colorado River is inappropriate in this matter.”).
6
restitution. The court thus lacked discretion under Colorado River to stay in favor
of the state suit.
In sum, the district court’s stay of Zurich’s federal suit in favor of a non-
parallel pending state suit was an abuse of discretion. We therefore VACATE the
stay order and REMAND the case for further proceedings.17
17
We decline to consider Zurich’s motion for partial summary judgment. In
Moses H. Cone, the Court approved of the Fourth Circuit’s decision to rule on the
construction company’s motion to compel arbitration, even though the district court had
not ruled on the motion before staying the case. Moses H. Cone, 460 U.S. at 29.
However, the Court stated that “[o]rdinarily, we would not expect the Court of Appeals to
pass on issues not decided by the District Court.” Id. The Court approved of the Fourth
Circuit’s resolution of the issue only because of the special policy favoring quick
resolution of motions to compel arbitration under the Arbitration Act. Id. No such
special policy is involved in Zurich’s motion for partial summary judgment. We
therefore leave the motion for the district court to consider in the first instance. See id. at
36 (Rehnquist, J., dissenting) (stating that a federal court of appeals lacks authority to
decide motions for summary judgment not passed on by the district court).
7