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Seventh Circuit Explains Wilton/Brillhart Abstention Doctrine In Federal Cases Involving Independent Non-Declaratory Claims

In R.R. Street & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, a case of first impression in the Seventh Circuit Court of Appeals, the court explained the test under the Wilton/Brillhart abstention doctrine when considering whether the district court may dismiss or stay an action for declaratory judgment brought under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202.

R.R. Street & Co. and its insurer, National Union Fire Insurance Co. of Pittsburgh, filed a declaratory judgment action against Vulcan in federal court under the Declaratory Judgment Act, contending that Vulcan refused to defend and indemnify R.R. Street & Co. in various lawsuits arising out of Per Sec, a dry-cleaning agent manufactured by Vulcan and distributed by R.R. Street & Co.

An agreement between R.R. Street & Co. and Vulcan provided Vulcan would defend and indemnify R.R. Street & Co. against any claims involving Per Sec. R.R. Street & Co. and National Union sued Vulcan, claiming breach of contract, common law indemnity, promissory estoppel, and money damages for refusal to defend and indemnify.

Vulcan filed a motion to dismiss, contending a parallel action was pending in California state court, and therefore, dismissal was warranted under the Wilton/Brillhart abstention doctrine.

The district court dismissed the declaratory action. The Seventh Circuit reversed and explained:

Whether an abstention doctrine is applicable in the first place is a question of law that we review de novo. Under the Declaratory Judgment Act (‘the Act’), ‘[i]n a case of actual controversy within its jurisdiction . . . any court in the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration.’ 28 U.S.C. § 2201(a). Since its inception, the Act, ‘has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants.’

Consistent with the discretionary nature of the relief permitted under the Act, the Supreme Court held in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), that district courts possess considerable leeway in deciding whether to entertain declaratory judgment actions even though subject matter jurisdiction is established. In Wilton, the Court confirmed the continued vitality of Brillhart, rejecting the argument that exceptional circumstances under the Colorado River doctrine must exist in order to justify abstention in a declaratory judgment action.”

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“There is no doubt that a court may dismiss or stay an action under the Wilton/Brillhart abstention doctrine where solely declaratory relief is sought. But where, as here, both declaratory and non-declaratory relief is sought, does the Wilton/Brillhart standard even apply, and, if so, under what circumstances?”

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“If independent non-declaratory claims are present, then ‘the district court is without discretion to . . . decline to entertain these causes of action. Indeed, the district court has a “virtually unflagging” obligation to exercise jurisdiction over these claims.’ Gov’t Employees Insurance Co. v. Dizol, 133 F.3d 1220, 1226 n.6 (9th Cir. 1998) (en banc). 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. Regarding the declaratory claim, ‘[t]he district court should not, as a general rule . . . decline to entertain the claim for declaratory relief. If a federal court is required to determine major issues of state law because of the existence of non-discretionary claims, the declaratory action should be retained to avoid piecemeal litigation.’ Thus, . . . concern for judicial economy significantly limits the discretion afforded by Wilton/Brillhart over a declaratory claim when independent non-declaratory claims are present. Where the non-declaratory claims are not independent, the district court has discretion under Wilton/Brillhart to abstain from hearing the entire action.”

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“Where state and federal proceedings are parallel and the federal suit contains claims for both declaratory and non-declaratory relief, the district court should determine whether the claims seeking non-declaratory relief are independent of the declaratory claim. If they are not, the court can exercise its discretion under Wilton/Brillhart and abstain from hearing the entire action. But if they are, the Wilton/Brillhart doctrine does not apply and, subject to the presence of exceptional circumstances under the Colorado River doctrine, the court must hear the independent non-declaratory claim. The district court should then retain the declaratory claim under Wilton/Brillhart (along with any dependent non-declaratory claims) in order to avoid piecemeal litigation.”

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“A claim for non-declaratory relief is ‘independent’ of the declaratory claim if: 1) it has its own federal subject-matter-jurisdictional basis, and 2) its viability is not wholly dependent upon the success of the declaratory claim. If a claim satisfies this test, then the district court’s ‘virtually unflagging obligation’ to exercise jurisdiction over a non-declaratory claim is triggered.

In other words, this test requires a court to adjudicate non-declaratory claims if it ‘determine[s] . . . there are claims in the case that exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case.’ R&D Latex Corp., 242 F.3d at 1112 (quoting Snodgrass, 147 F.3d at 1167-68) (emphasis added). Otherwise, if, after factoring out the requested declaratory relief, there are no viable non-declaratory claims, then the district court may abstain from the entire action under Wilton/Brillhart without running afoul of its near-unwavering obligation to hear claims within its jurisdiction.”

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“Applying that standard to this case, and assuming the Vulcan Insurance Action is a parallel proceeding, we conclude that the district court erred in dismissing the action under Wilton/Brillhart. Were the declaratory claim dropped from the case, the district court would still have diversity jurisdiction over the plaintiff’s breach of contract, common law indemnity, and promissory estoppel claims that seek relief in the form of money damages, and the requested declaratory relief is not a prerequisite to resolution of those claims. Put simply, the non-declaratory claims are independent of the declaratory claim because they could stand alone in federal court - - both jurisdictionally and substantively - - irrespective of the declaratory claim. Therefore, the district court was without discretion under Wilton/Brillhart to dismiss the non-declaratory claims and should have exercised its discretion under that doctrine to retain the declaratory claim.”

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“We conclude that the plaintiff’s claims for non-declaratory relief were independent of their claim for declaratory relief, and thus Wilton/Brillhart abstention was an inappropriate basis for dismissal of those claims. In addition, the district court should have retained the declaratory claim under Wilton/Brillhart for reasons of judicial economy. Accordingly, we reverse the judgment of the district court and remand the case for further proceedings.”

Midwest State Survey: Construction Tort Law Issues
by Mark E. Christensen

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Joint and Several Liability Impacted and Expanded by Illinois Supreme Court Opinion

The Illinois Supreme Court in Ready v. United/Goedecke Services, Inc. held that apportionment of fault as to non-medical damages applies only to defendants remaining in the litigation at the time of trial. The court concluded that 735 ILCS 5/2-1117, as enacted in 1986,  was never intended to include settling defendants in the allocation of fault and that they should not appear on the verdict form.

In the Ready trial, the remaining defendant United/Goedecke Services, Inc. was held responsible for the entire verdict of $14.23 million, less the plaintiff’s comparative negligence of 35 percent and $1.13 million in settlements by other defendants, resulting in a net judgment of $8.137 million. The trial court precluded evidence of the settling defendants’ negligent conduct and refused to allow them to be listed on the verdict form for an allocation of liability. The Illinois Supreme Court affirmed these rulings after United’s appeal.

The ramifications of Ready are significant. First, a remaining target defendant will not be able to introduce any evidence of the settling defendants’ contributory negligence. Second, settling defendants will not be on the verdict form. Thus, a sole remaining target defendant will have no chance to contend that its liability is less than 25 percent to prevent responsibility for the entire verdict. Third, the Ready decision will encourage piece-meal settlement of peripheral defendants. Fourth, there will be more contested hearings on settling defendants’ motions for good faith findings, as remaining defendants will argue that the actual settlement value is disproportionately lower than the settling defendants’ pro-rata shares of liability.

Finally, target defendants in construction, product and premises liability cases may find it more difficult to settle at their perceived pro-rata shares of liability.

Mediation Pointers for Insurers: Preparation, Position, Power
by Mark E. Christensen

The exorbitant costs of trial and limited judicial resources have spawned the mediation industry as an alternative form of conflict resolution. As a result, just about anyone, lawyers, retired judges, even motivational speakers have opened up mediation businesses, making a self-proclamation of expertise. The fact of the matter is that mediation is not the ultimate solution, but one of the processes used during litigation

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