United States Court of Appeals, Second Circuit.: No. 848. Docket 94-7691

74 F.
3d 373
64 USLW 2452
John Richard Ludbrooke YOUELL, an underwriter at Lloyd's

London for himself and as a representative of those other
Underwriters at Lloyd's London severally subscribing to
certain Global Corporate Excess Insuring Agreements at issue
and the following London Market Insurance Companies and
other international Underwriting entities, also severally
subscribing to the Insuring Agreements at issue, each on
their own behalf and not for the other; et al., PlaintiffsAppellants,
v.
EXXON CORPORATION, Defendant-Appellee.
No. 848.
Docket 94-7691.
United States Court of Appeals,

Second Circuit.
Argued Nov. 30, 1994.
Decided April 4, 1995.
Vacated Oct. 2, 1995.
Decided Jan. 12, 1996.
Richard W. Palmer, New York City (Michael B. McCauley, Frank P.

DeGiulio, H. Coleman Switkay, Palmer Biezup & Henderson, Harold R.
Tyler, Jr., William F. Cavanaugh, Jr., Lisa C. Cohen, Patterson, Belknap,
Webb & Tyler, of counsel), for Plaintiffs-Appellants.
James H. Carter, Sullivan & Cromwell, New York City, for DefendantAppellee.
Before MAHONEY, McLAUGHLIN and HEANEY, * Circuit Judges.
PER CURIAM:
In Youell v. Exxon Corp., 48 F.3d 105 (2d Cir.1995), we reversed the district
court's dismissal of an action brought by the insurers for Exxon Corporation
(the "Underwriters") against Exxon Corporation ("Exxon"), seeking a
declaratory judgment that they did not have to reimburse Exxon for certain
losses incurred when its oil tanker, the Exxon Valdez, was wrecked. Driven
primarily by the important federal question at issue in this case, we held that,
under Colorado River Water Conservation District v. United States, 424 U.S.
800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and Moses H. Cone Memorial
Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d
765 (1983), the district court abused its discretion by dismissing the declaratory
judgment action in deference to the Texas state court proceeding; we therefore
reinstated the Underwriters' declaratory judgment suit. See Youell, 48 F.3d at
114.
Two months after our decision in Youell, the United States Supreme Court
decided Wilton v. Seven Falls Co., --- U.S. ----, 115 S.Ct. 2137, 132 L.Ed.2d
214 (1995). In Wilton, the Court held that a district court's decision to stay or
dismiss a declaratory judgment action in deference to a parallel state court
proceeding is governed by the discretionary standard set forth in Brillhart v.
Excess Insurance Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942),
rather than the "exceptional circumstances" test developed in Colorado RiverMoses H. Cone. See Wilton, --- U.S. at ----, 115 S.Ct. at 2144.
Exxon, relying on Wilton, petitioned the Supreme Court for a writ of certiorari.
The Supreme Court granted certiorari, and vacated Youell, remanding the case
to us for reconsideration in light of Wilton. See Exxon Corp. v. Youell, --- U.S.
----, 116 S.Ct. 43, 133 L.Ed.2d 9 (1995) (mem.).
On remand from the Supreme Court, we once again reverse the district court's
dismissal of the Underwriters' declaratory judgment action. Even when made
under the more discretionary Brillhart doctrine, a decision to abstain in this case
would constitute an abuse of discretion in light of the important federal question
presented.
BACKGROUND
5
We briefly summarize the facts below. A more detailed account appears in our
initial opinion. See Youell, 48 F.3d at 107-08.
The Underwriters subscribed to a series of Global Corporate Excess insurance

agreements (collectively, the "Agreement") with Exxon covering the period
from November 1988 through October 1989. The Agreement insured Exxon
and some of its subsidiaries against certain risks incurred during their global
activities.
7
In March 1989, while skippered by Captain Joseph Hazelwood, the Exxon

Valdez ran aground near Valdez, Alaska and spilled 10.8 million gallons of oil
into Prince William Sound. Having suffered prodigious losses as a result of the
mishap, Exxon sought reimbursement of some $2 billion from the Underwriters
under the Agreement. Believing that Hazelwood was drunk at the time of the
grounding and that Exxon knew he was an alcoholic, the Underwriters denied
Exxon coverage.
Exxon sued the Underwriters in a Texas state court, alleging that they had
breached the Agreement and the covenant of good faith and fair dealing, and
had also violated Texas insurance law. The Underwriters, in turn, filed their
own suit against Exxon in the United States District Court for the Southern
District of New York (Loretta A. Preska, Judge ), seeking a declaratory
judgment that they were not liable to Exxon. Invoking the Colorado RiverMoses H. Cone abstention doctrine, the district court dismissed the
Underwriters' action, finding that exceptional circumstances warranted
deference to the Texas state proceedings. See Youell v. Exxon Corp., 1994 WL
376068 (S.D.N.Y. July 19, 1994). We reversed, holding that because of the
important federal question presented, it was an abuse of discretion under
Colorado River- Moses H. Cone for the district court to abstain. See Youell, 48
F.3d at 114.
Upon Exxon's petition, the Supreme Court granted certiorari, vacated our
judgment, and remanded with instructions to reconsider our opinion in light of
Wilton. See Exxon Corp., --- U.S. at ----, 116 S.Ct. at 43. We solicited and
received letter briefs from both parties. Having reviewed them, we see no need
to disturb our initial decision.
DISCUSSION
10
In Wilton, the Supreme Court resolved a clash among the circuits concerning
whether a district court's decision to dismiss a federal declaratory judgment
action in favor of parallel state litigation is governed by the discretionary
standard of Brillhart v. Excess Insurance Co., 316 U.S. 491, 62 S.Ct. 1173, 86
L.Ed. 1620 (1942), or the "exceptional circumstances" test set forth in Colorado
River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct.
1236, 47 L.Ed.2d 483 (1976), and Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765
(1983). The Supreme Court endorsed the Brillhart test, finding that "[d]istinct
features of the Declaratory Judgment Act ... justify a standard vesting district
courts with greater discretion in declaratory judgment actions than that
permitted under the 'exceptional circumstances' test of Colorado River and
Moses H. Cone." Wilton, --- U.S. at ----, 115 S.Ct. at 2142. In so holding, the
Court overturned precedent in this and other circuits. See, e.g., Lumbermens
Mut. Casualty Co. v. Connecticut Bank & Trust Co., 806 F.2d 411, 413 (2d
Cir.1986); Employers Ins. of Wausau v. Missouri Elec. Works, Inc., 23 F.3d
1372, 1374 n. 3 (8th Cir.1994).
11
On remand, therefore, we consider afresh whether application of the more

discretionary Brillhart test alters our initial decision to reinstate the
Underwriters' declaratory judgment action. We conclude that it does not.
12
Under Colorado River- Moses H. Cone abstention, a district court may decline
to exercise jurisdiction over a case only under exceptional circumstances that
relate to federal-state comity. See Wilton, --- U.S. at ---- - ----, 115 S.Ct. at
2141-42. The Brillhart abstention doctrine, on the other hand--now clearly
applicable to declaratory judgment actions such as the one before us--gives the
district court broader discretion to determine "whether and when to entertain an
action ..., even when the suit otherwise satisfies subject matter jurisdictional
prerequisites." Id. at ----, 115 S.Ct. at 2140. Hence, under Brillhart, the question
for a district court presented with a declaratory judgment suit, is " 'whether the
questions in controversy between the parties to the federal suit, and which are
not foreclosed under the applicable substantive law, can better be settled in the
proceeding pending in the state court.' " Id. (quoting Brillhart, 316 U.S. at 495,
62 S.Ct. at 1176).
13
Although Brillhart did not exhaustively catalog the factors governing a district
court's exercise of its discretion to hear a declaratory judgment suit, "it did
provide some useful guidance in that regard." Id. For example, in determining
whether the claims before it "can better be settled" in the state proceedings, the
district court should examine the scope of the parallel state litigation and the
nature of the defenses available there. Brillhart, 316 U.S. at 495, 62 S.Ct. at
1176. It should also consider "whether the claims of all parties in interest can
satisfactorily be adjudicated in that [state] proceeding, whether necessary
parties have been joined, whether such parties are amenable to process in that
proceeding, etc." Id.
14
Though Brillhart left the exact contours of a district court's discretion to be

molded by future cases, it "indicated that, at least where another suit involving
the same parties and presenting opportunity for ventilation of the same state
law issues is pending in state court, a district court might be indulging in

'[g]ratuitous interference,' if it permitted the federal declaratory action to
proceed." Wilton, --- U.S. at ----, 115 S.Ct. at 2141 (quoting Brillhart, 316 U.S.
at 495, 62 S.Ct. at 1176) (emphasis added). Underlying the Brillhart decision
was the Court's concern that it was being called upon to pronounce
independently upon state law. "To do so," the Court held, "would be to
disregard the limitations inherent in our appellate jurisdiction. It is not our
function to find our way through a maze of [state] statutes and decisions...."
Brillhart, 316 U.S. at 497, 62 S.Ct. at 1176.
15
To resolve novel questions of federal law, however, is quintessentially our

obligation. We were aware that the Supreme Court had granted certiorari in
Wilton when we filed our initial opinion. Nevertheless, we expressly noted that
the instant case was "fundamentally distinct from Wilton because ... federal law
supplies a rule of decision. Wilton, in contrast, involved state law only." Youell,
48 F.3d at 109 n. 1.
16
We adhere to that view. The issue here--whether maritime losses caused by an

insured's recklessness are fortuitous--"is a novel issue of federal admiralty law"
that "is truly a brooding omnipresence." Id. at 114. Federal adjudication of this
issue will not constitute "[g]ratuitous interference with the orderly and
comprehensive disposition of [the] state court litigation." Brillhart, 316 U.S. at
495, 62 S.Ct. at 1176. Nor can this issue "better be settled" in Texas state court:
"[A] federal question of first impression must all but demand that the federal
court hear the case.... While we loathe wasting judicial resources, it would be
worse to cede federal review of an issue of federal law merely because Exxon
won the race to judgment in state court." Youell, 48 F.3d at 111-12, 114.
Moreover, it bears emphasis that the Wilton Court specifically declined "to
delineate the outer boundaries of [Brillhart ] discretion in ... cases raising issues
of federal law." Wilton, --- U.S. at ----, 115 S.Ct. at 2144.
17
Were we to remand this case for the district court to apply an abstention
analysis employing its broader discretion under Brillhart, we assume that it
would again abstain in deference to the Texas litigation. Nonetheless, we would
review that decision for an abuse of discretion. See id. at ----, 115 S.Ct. at 2144.
And, based on the novel federal admiralty question presented in this case, we
would again hold that a decision to dismiss the Underwriters' declaratory
judgment action constituted an abuse of that discretion. Thus, because a remand
would be pointless, we reverse the district court's judgment of dismissal, and
reinstate the declaratory judgment action.
CONCLUSION
18
We reverse the district court's judgment of dismissal, and reinstate the

declaratory judgment action.
19
REVERSED.
Honorable Gerald W. Heaney, of the United States Court of Appeals for the
Eighth Circuit, sitting by designation

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74 F.

John Richard Ludbrooke YOUELL, an underwriter at Lloyd's

United States Court of Appeals,

Richard W. Palmer, New York City (Michael B. McCauley, Frank P.

The Underwriters subscribed to a series of Global Corporate Excess insurance

In March 1989, while skippered by Captain Joseph Hazelwood, the Exxon

On remand, therefore, we consider afresh whether application of the more

Though Brillhart left the exact contours of a district court's discretion to be

law issues is pending in state court, a district court might be indulging in

To resolve novel questions of federal law, however, is quintessentially our

We adhere to that view. The issue here--whether maritime losses caused by an

We reverse the district court's judgment of dismissal, and reinstate the

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