St. Paul Insurance v. Trejo

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

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No. 93-4902

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THE ST. PAUL INSURANCE COMPANY,

Plaintiff-Appellant,

versus

ESTANISLADO TREJO,

Defendant-Appellee.

______________________________________________

Appeal from the United States District Court for the

Eastern District of Texas

______________________________________________

(November 29, 1994)

Before REAVLEY, GARWOOD and HIGGINBOTHAM, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant St. Paul Insurance Company (St. Paul)

appeals the district court's order dismissing its declaratory

judgment action. St. Paul contends that the district court erred

in dismissing the suit based on both 28 U.S.C. § 1445(c) and

federal abstention concerns. We reverse and remand.

Facts and Proceedings Below

In March 1990 defendant-appellee Estanislado Trejo (Trejo) was

injured on the job in Texas. Consequently, Trejo received an award

from the Texas Workers Compensation Commission against his employer

and their worker's compensation carrier, St. Paul. Thereafter,

St. Paul filed suit in the state district court in Angelina County,

Texas, to set aside the award. The parties then entered into a

court-approved settlement agreement (First Settlement) whereby St.

Paul agreed to pay Trejo $45,000 plus all past and future medical

expenses through October 31, 1995.

Trejo then filed suit in the same Angelina County state court

against a third party, Moore Brothers Construction Company (Moore

Brothers). Trejo alleged that Moore Brothers' negligence caused

his work-related injury. St. Paul intervened in the lawsuit to

obtain payment of its subrogation interests. Subsequently, Moore

Brothers settled the lawsuit by agreeing to pay $195,000 for

Trejo's injuries. St. Paul received $40,000 of the $195,000 in

settlement of its subrogation interests and Trejo received the

remaining $150,000.

After the settlement Trejo and St. Paul had a dispute about

Trejo's medical expenses. The dispute concerned whether, pursuant

to Tex. Rev. Civ. Stat. art 8307 6a(c),1 St. Paul had to pay

1

Although this provision was repealed in 1991, it was in

effect at the time of Trejo's injuries. Article 8307 § 6a(c)

provides:

"If at the conclusion of a third party action a

workmen's compensation beneficiary is entitled to

compensation, the net amount recovered by such

beneficiary from the third party action shall be

applied to reimburse the association for past benefits

and medical expenses paid and any amount in excess of

past benefits and medical expenses shall be treated as

an advance against future benefit payments of

compensation to [sic] which the beneficiary is entitled

to receive under the Act. When the advance is adequate

to cover all future compensation and medical benefits

payments as provided by this law, no further payments

shall be made by the association but if insufficient,

the association shall resume such payments when the

2

medical expenses incurred by Trejo after settlement of the Moore

Brothers case.

On November 2, 1992, St. Paul filed this action, based upon

diversity of citizenship, against Trejo. St. Paul's lawsuit sought

a declaratory judgment of its rights and responsibilities under

both the First Settlement and article 8307 § 6a(c). On March 4,

1993, Trejo filed suit against St. Paul in the Angelina County

state courtSQthe same court in which the two earlier suits had been

filedSQalleging St. Paul had breached its duty of good faith and

fair dealing and requesting actual and punitive damages. On March

5, 1993, Trejo filed a motion to dismiss the instant federal

lawsuit.

On May 7, 1993, the district court granted Trejo's motion to

dismiss. The court ruled that the case should be dismissed for two

reasons. First, the court held that the suit should be dismissed

pursuant to 28 U.S.C. §1445(c) since it arose under the Texas

worker's compensation laws. Second, the court determined that

dismissal was appropriate on general federal abstention principles.

St. Paul now appeals.

Discussion

I. 28 U.S.C. § 1445(c)

28 U.S.C. § 1445(c) provides that "[a] civil action in any

State court arising under the workmen's compensation laws of such

State may not be removed to any district court of the United

advance is exhausted. The reasonable and necessary

medical expenses incurred by the claimant on account of

the injury shall be deducted from the advance in the

same manner as benefit payments."

3

States." St. Paul argues that the district court erred in deciding

that section 1445(c) authorizes dismissal of its lawsuit. St. Paul

contends that its action is not dismissible under section 1445(c)

since it was properly filed in the federal court on the basis of

diversity jurisdiction and was never subject to removal from a

state court.

Although the district court acknowledged that St. Paul's

lawsuit had not been removed, it nevertheless concluded that the

federalism concerns underlying section 1445(c) allowed the lawsuit

to be dismissed. The district court reasoned that since St. Paul's

lawsuit involved a request for a declaration of rights under a

worker's compensation agreement it was a lawsuit "arising under"

the Texas worker's compensation laws. And it concluded that

retaining jurisdiction of the case would thus thwart the

congressional purpose behind section 1445(c).

The Supreme Court decision in Horton v. Liberty Mutual Ins.

Co., 81 S.Ct. 1570, 1572-73 (1961), speaks directly to this

question. In Horton, Liberty Mutual filed a federal lawsuit, on

the basis of diversity of citizenship, to set aside a worker's

compensation award granted by a state administrative board.

Thereafter, Horton filed his own action in state court and then

moved for dismissal of the federal lawsuit on jurisdictional

grounds. In Horton, the Supreme Court held that federal

jurisdiction was not barred by the 1958 amendment to Title 28 (now

section 1445(c)), which forbade the removal of state worker's

compensation cases. The Court observed that while the purposes of

the 1958 amendment, such as limiting federal court congestion and

4

eliminating the burdens that worker's compensation claimants might

suffer, militated against the exercise of jurisdiction, the

amendment did not specifically prohibit jurisdiction in worker's

compensation cases which were originally filed in federal court.

Id. Further, the Court noted that "Congress used language

specifically barring removal of such cases from state to federal

courts [but] left unchanged the old language which . . .

specifically permits civil suits to be filed in federal courts in

cases where there are both diversity of citizenship and the

prescribed jurisdictional amount." Id. at 1573 (emphasis added).

The Horton Court concluded that "we must take the intent of

Congress with regard to the filing of diversity cases in Federal

District Courts to be that which its language clearly sets forth."

Id.

In accordance with Horton, even though St. Paul's declaratory

judgment action involved a state worker's compensation law,2

jurisdiction was still proper based on diversity of citizenship.

We accordingly hold that the district court erred in dismissing St.

Paul's suit on the basis of section 1445(c), or the supposed

congressional purposes underlying it, or on the basis of any

analogy to section 1445(c) or its purposes. See also Home

Indemnity Company v. Moore, 499 F.2d 1202, 1204 (8th Cir. 1974)

(noting that section 1445(c) "cannot be extended to cases beyond

the scope of the plain wording of the statute").

2

We assume, arguendo only, that St. Paul's suit is properly

characterized as one "arising under" the Texas worker's

compensation law.

5

II. Abstention Concerns

The district court alternatively held that St Paul's suit

could also be dismissed under federal abstention principles. The

court concluded that judicial abstention was proper under both the

Burford and the Colorado River abstention doctrines. St. Paul

contends that, in the instant case, neither of these doctrines is

applicable.

A. Burford abstention

Pursuant to the Burford doctrine,

"[w]here timely and adequate state-court review is

available, a federal court sitting in equity must decline

to interfere with the proceedings or orders of state

administrative agencies: (1) when there are 'difficult

questions of state law bearing on policy problems of

substantial public import whose importance transcends the

result in the case then at bar'; or (2) where the

'exercise of federal review of the question in a case and

in similar cases would be disruptive of state efforts to

establish a coherent policy with respect to a matter of

substantial public concern.'" New Orleans Public Serv.

Inc. v. Council of New Orleans, 109 S. Ct. 2506, 2514

(1989) (citing Colorado River Water Conservation Dist. v.

United States, 96 S.Ct. 1236, 1244 (1976)).3

Although "Burford is concerned with protecting complex state

administrative processes from undue federal interference, it does

not require abstention whenever there exists such a process, or

3

In Burford v. Sun Oil Company, 63 S.Ct. 1098 (1943) the Sun

Oil Company filed a federal court suit seeking to enjoin an order

by the Texas Railroad Commission granting Burford a permit to

drill four oil wells. The sole issue in Sun's lawsuit was

whether the Commission had improperly applied its oil and gas

regulations, denying Sun due process. Noting that (1) the

lawsuit involved highly technical and complicated regulatory

issues which affected the entire state's oil and gas conservation

system, id. at 1101-1102, and (2) the state had created a

comprehensive centralized system for judicial review of the

Commission's orders, the Court determined that abstention was

proper to protect the state's administrative process from undue

federal influence. Id. at 1107.

6

even in all cases where there is a 'potential for conflict' with

state regulatory law or policy." New Orleans Pub. Serv., 109

S.Ct.at 2515.

The concerns governing the Burford abstention doctrine are not

present in the instant case. St. Paul's lawsuit does not involve

a state administrative proceeding. Further, it does not seek to

interfere with Texas' worker's compensation system. St. Paul's

declaratory judgment action simply seeks interpretation of the

First Settlement in light of a Texas statute. Thus, unlike the

situations in which Burford-type abstention is appropriate, federal

jurisdiction in this case would neither affect the state's system

of reviewing worker's compensation awards nor be disruptive of the

state's policies respecting worker's compensation. Hence, the

district court erred in relying on the Burford doctrine to dismiss

this case.

B. Colorado River abstention

Noting that abstention is warranted in order to avoid

duplicative litigation and discourage forum shopping, the district

court also concluded that it should abstain from jurisdiction in

the "interests of wise administration." Abstention based on "wise

judicial administration" is commonly recognized as Colorado River

abstention. This abstention doctrine was developed by the Supreme

Court to "govern in situations involving the contemporaneous

exercise of concurrent jurisdictions either by federal courts or by

state and federal courts." Colorado River, 96 S.Ct. at 1246.

In fashioning this abstention doctrine, the Supreme Court

emphasized that as a general rule a federal court may not abstain

7

from jurisdiction simply because there are parallel proceedings in

a state court. Id. However, in spite of the federal court's

"virtually unflagging obligation . . . to exercise the jurisdiction

given them," the Court determined that there were a few

"exceptional circumstances" in which a federal court may abstain

based on concurrent litigation. Id.

Colorado River identified four factors that a district court

should consider when determining whether "exceptional

circumstances" overcome its general duty to exercise jurisdiction.

These factors are: (1) whether another court has assumed

jurisdiction over property, (2) whether the federal forum is

inconvenient, (3) whether it is desirable to avoid piecemeal

litigation, and (4) the order in which jurisdiction was obtained by

the concurrent forums. Later, in Moses H. Cone Memorial Hosp. v.

Mercury Constr. Corp., 103 S.Ct. 927 (1983), the Supreme Court

added two additional factors to the Colorado River test. These

factors are: (1) whether the federal law provides the rule of

decision and (2) whether the state court proceedings are inadequate

to protect the federal court plaintiff's rights.4 Id. at 942. In

Moses Cone, the Court stressed the very limited nature of

abstention under the Colorado River doctrine and noted that a

decision to dismiss did not rest on "a mechanical checklist, but on

4

Unlike the first four factors, these two factors were not

added as considerations to weigh against retaining jurisdiction.

Instead, these two factors provide additional reasons for

retaining jurisdiction. Id. at 942. For example, while the

presence of a federal-law issue is an additional reason for

retaining federal jurisdiction, the lack of such an issue would

not, alone, be a sufficient reason to abstain.

8

a careful balancing of the important factors as they apply in a

given case, with the balance heavily weighted in favor of the

exercise of jurisdiction." Id. at 937.

The district court's order failed to apply any of the six

factors developed under the Colorado River/Moses Cone "exceptional

circumstances" test. Instead, the district court simply recognized

that Colorado River, in limited circumstances, allows for

abstention where there are concurrent state proceedings, and

summarily stated its decision to dismiss.5 This conclusory

statement is not sufficient to satisfy the "exceptional

circumstances" analysis required by Colorado River and Moses Cone.

In considering the factors governing the Colorado River/Moses

Cone "exceptional circumstances" test, we conclude that abstention

on this basis was erroneous. This case does not satisfy any of the

first four Colorado River factors since it does not involve: (1) a

suit for property; (2) a less convenient federal forum; (3)

piecemeal litigation, i.e. no more than one plaintiff, one

defendant, and one issue; or (4) a federal court case being filed

after the pending state case. And although under the fifth factor

this case does not involve a question of federal law, this alone

cannot justify Colorado River abstention in a suit which is

properly before the federal court on the basis of diversity. As

5

The district court simply held that "in this case . . . --

i.e., one brought in diversity, under the Declaratory Judgment

Act, and one in which the insurer's action 'arises under' the

Texas worker's compensation scheme so that had it been but

removed from state court it would have been remanded under 28

U.S.C. § 1445(c) -- abstention is clearly called for by wise

judicial administration."

9

the Moses Cone Court observed, only in "rare circumstances [will]

the presence of state-law issues . . . weigh in favor of . . .

surrender." In addition, the sixth factor does not outweigh the

heavy presumption in favor of retaining jurisdiction. Even though

it appears that a state court proceeding would be adequate to

protect St. Paul's rights, this alone, or together with only the

fifth factor, is insufficient to overcome a federal court's

"virtually unflagging obligation" to exercise jurisdiction in a

case that is properly before it.

We hold that this suit does not qualify under the stringent

"exceptional circumstances" test of Colorado River and Moses Cone.

Hence, the district court erred in dismissing the case on the basis

of the Colorado River abstention doctrine.

III. Dismissal of a Declaratory Judgment Action

Although the instant case does involve concurrent state and

federal litigation, the Colorado River doctrine is not the only

basis on which the district court could have considered abstention.

Under settled Fifth Circuit law, a declaratory judgment action may

be dismissed even though it fails to satisfy the stringent Colorado

River/Moses Cone "exceptional circumstances" test. See Travelers

Ins. Co. v. Louisiana Farm Bureau Federation, 996 F.2d 774, 778

n.12 (5th Cir. 1993) (stating "the factors set out in Colorado

River . . . are inapplicable in declaratory judgment actions.)";

see also Granite State Ins. Co. v. Tandy Corp., 986 F.2d 94, 95

(5th Cir. 1992), cert. dismissed, 113 S.Ct. 1836 (1993).6

6

We note that in both Travelers and Granite State this Court

declined to determine whether the dismissal satisfied the

10

Under the Declaratory Judgment Act, a district court has a

measure of discretion in deciding whether to entertain the action.7

Although "the district court's discretion is broad, it is not

unfettered." Travelers, 996 F.2d at 778. For example, the

district court may not dismiss declaratory judgment actions "'on

the basis of whim or personal disinclination.'" Id. (citation

omitted). In addition, "unless the district court addresses and

balances the purposes of the Declaratory Judgment Act and the

factors relevant to the abstention doctrine on the record, it

abuses its discretion." Id. Relevant factors the district court

must consider in determining whether to dismiss a declaratory

judgment, include:

"(1) whether there is a pending state action in which all

of the matters in controversy may be fully litigated, 2)

whether the plaintiff filed suit in anticipation of a

lawsuit filed by the defendant, 3) whether the plaintiff

engaged in forum shopping in bringing the suit, 4)

whether possible inequities in allowing the declaratory

plaintiff to gain precedence in time or to change forums

exist, 5) whether the federal court is a convenient forum

Colorado River doctrine. See Travelers, 996 F.2d at 778 n.1.;

Granite State, 986 F.2d at 95. In the instant case, we evaluated

the district court's dismissal under the Colorado River doctrine

because the district court rendered its decision, in part, on

that basis. As a general matter, a district court's

discretionary, nonmerits based dismissal of a declaratory

judgment action cannot be successfully challenged merely because

it does not satisfy Colorado River abstention. See, e.g.,

Mission Ins. Co. v. Puritan Fashion Corp., 706 F.2d 599, 601 n.1.

(5th Cir. 1983). If such a dismissal is in accordance with the

Declaratory Judgment Act, it does not have to satisfy the more

stringent Colorado River abstention test.

7

See to 28 U.S.C. § 2201, stating in part: "any court of the

United States, upon the filing of an appropriate pleading, may

declare the rights and other legal relations of any interested

party seeking such declaration . . . ." (emphasis added).

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for the parties and witnesses, and 6) whether retaining

the lawsuit in federal court would serve the purposes of

judicial economy," id.,

and, we hold, whether the federal court is being called on to

construe a state judicial decree involving the same parties and

entered by the court before whom the parallel state suit between

the same parties is pending.8

We observe that although the district court noted its

discretionary power to dismiss declaratory judgments, it never

addressed the specific factors relevant to a dismissal on that

basis. After reviewing the relevant factors, we note that

questions such as whether St. Paul filed an anticipatory suit (as

Trejo claimed) and whether the court would be construing a judicial

decree to which the present litigants were parties entered by the

same state court before whom the parallel state litigation between

the same parties is pending, are potentially important, unresolved

factors. On the present record we cannot say as a matter of law

that the district court will be precluded from from dismissing the

lawsuit.9 As a result, we remand to the district court for

8

For example, here the district court should determine

whether it makes more sense for the state court that approved the

First Settlement to interpret it.

We also note that St. Paul's suit was filed first and there

is no finding that it was anticipatory. Moreover, St. Paul's

suit does not challenge, but merely seeks to interpret, the First

Settlement and judgment approving it. (Nor do we understand St.

Paul to challenge any order or judgment in the Moore Brothers

suit). Hence at this stage there is no reason to assume that

retention of the federal case would violate Texas Employers' Ins.

Ass'n v. Jackson, 862 F.2d 491 (5th Cir. 1988) (en banc), cert.

denied, 109 S.Ct. 1932 (1989). Cf. Royal Ins. Co. of America v.

Quinn-L Capital Corp., 3 F.3d 877, 884 (5th Cir 1993). Nor has

Trejo argued that it would.

9

Whether the state decree is now subject to being reopened

12

reconsideration, and possible further proceedings, in accordance

with the Declaratory Judgment Act and above-mentioned relevant

factors.10

Conclusion

For the foregoing reasons, the district court's dismissal of

this lawsuit is REVERSED and the cause is REMANDED for further

proceedings consistent herewith.

might conceivably also be relevant; also, proceedings in the

Moore Brothers suit before the same state court might conceivably

be relevant; on this record, we simply cannot tell.

10

We emphasize that the district court should not dismiss this

declaratory judgment suit simply because it does not involve a

question of federal law. The case is properly before the

district court on the basis of diversity, and, as a result, is

entitled to the same consideration as cases before the court on

some other jurisdictional basis. As there is no policy against

diversity jurisdiction, a district court's dismissal of a lawsuit

simply because it involves an issue of state lawSQeven an issue

of state worker's compensation lawSQwould not be proper.

13