Wilton v. Seven Falls Company

PETITIONER: Wilton
RESPONDENT: Seven Falls Company
LOCATION: Schwegmann’s Grocery Store

DOCKET NO.: 94-562
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 515 US 277 (1995)
ARGUED: Mar 27, 1995
DECIDED: Jun 12, 1995

ADVOCATES:
Michael A. Orlando - Argued the cause for the petitioners
Werner A. Powers - Argued the cause for the respondents

Facts of the case

London Underwriters refused to defend or indemnify the Hill Group, which was involved in litigation over the ownership and operation of Texas oil and gas properties, under several commercial liability insurance policies. After a verdict was entered against the Hill Group, the underwriters sought a federal declaratory judgment that their policies did not cover the Hill Group's liability. The Hill Group filed a state court suit and moved to dismiss or to stay the underwriter's action. The District Court entered a stay on the ground that the state suit encompassed the same coverage issues raised in the federal action. The Court of Appeals affirmed. Noting that a district court has broad discretion to grant or decline to grant declaratory judgment, the appellate court did not require application of the exceptional circumstances test. The appellate court also reviewed the District Court's decision for abuse of discretion and found none.

Question

Does the exceptional circumstances test govern a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings? Should a court of appeals evaluate a district court's decision to do so under an abuse of discretion standard of review?

Media for Wilton v. Seven Falls Company

Audio Transcription for Oral Argument - March 27, 1995 in Wilton v. Seven Falls Company

Audio Transcription for Opinion Announcement - June 12, 1995 in Wilton v. Seven Falls Company

William H. Rehnquist:

The opinions of the court in two cases will be announced by Justice O'Connor.

Sandra Day O'Connor:

The first case is number 94-562, Wilton versus Seven Falls Company and this case comes here on writ of certiorari to the United States Court of Appeals for the Fifth Circuit.

The petitioners are various insurance underwriters.

The respondents are owners of Oil and Gas Properties in Texas.

The respondent's ask the petitioner's to defend or indemnify them under several commercial liability insurance policies.

When they became involved in litigation against third parties and the insurance underwriters decline to do that and after a sizable verdict was entered against respondents, the respondents told the petitioners, they intended to file suit under the insurance policies.

The petitioners immediately sought a Declaratory Judgment in Federal District Court to the effect that their policies did not cover respondent's liability.

The respondents then sued petitioners in state court, and asked the Federal District Court to dismiss or in the alternative to stay the declaratory judgment action given the pendency of the parallel state court action.

The Federal District Court did enter a stay on a ground that the state suit encompassed the same coverage issues, raised in the federal action.

The Court of Appeals affirmed.

We granted certiorari to resolve two different Circuit Court splits on issues in the case.

First, Courts of Appeals have divided on the circumstance under which Federal District Courts, may stay or dismiss declaratory judgment actions in light of the pendency of the similar State Court proceedings.

Some courts applied this court's 1942 decision in Brillhart which upheld a District Court's broad discretion to enter a stay under circumstances similar to this case.

Other courts have looked to language in this court's cases in Colorado River and Moses Cone and upheld that a District Court must point to exceptional circumstances before it may stay or dismiss Federal Declaratory Judgment actions.

We hold a more permissive standard set forth in Brillhart rather than the exceptional circumstances test governed here.

The Declaratory Judgment Act in our view justifies standard vesting district courts with broad latitude in determining whether and when to grant a declaratory judgment.

Our cases have repeatedly characterized the act as an enabling act which confers a discretion on the courts rather than an absolute right upon the litigant, and because of this broad discretion we think the declaratory in a declaratory judgment context, the normal principle that federal courts should adjudicate claims within your jurisdiction, yields to considerations of practicality and wise administration.

Now, the second issue on which Court of Appeals have divided is the proper standard of appellate review of district court's decisions to stay declaratory judgment proceedings.

Some courts adopted de novo review standard, others review for abuse of discretion.

We believe that's more consistent with the statute to vest district courts with the discretion in the first instance because facts bearing on the fitness of the case for resolution are peculiarly within their knowledge and grasp.

Accordingly, we hold a proper measure of review is the abusive discretion standard. Accordingly, we affirm the judgment of the Fifth Circuit.

The opinion is unanimous.

Justice Breyer took no part in the consideration or decision of the case.