FILED
                                                         United States Court of Appeals
                                    PUBLISH                      Tenth Circuit

                  UNITED STATES COURT OF APPEALS
                                                                July 18, 2012
                                                             Elisabeth A. Shumaker
                               TENTH CIRCUIT                     Clerk of Court



 MID-CONTINENT CASUALTY
 COMPANY,

             Plaintiff-Appellant,
 v.                                                     No. 11-3367
 THE VILLAGE AT DEER CREEK
 HOMEOWNERS ASSOCIATION, INC.,

             Defendant-Appellee,

 and

 DANIEL J. BARNARD; GREATER
 MIDWEST BUILDERS, LTD.,

             Defendants.


        APPEAL FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF KANSAS
                (D.C. NO. 2:09-CV-02066-EFM-DJW)


Diane K. Watkins, Wagstaff & Cartmell, LLP, Kansas City, Missouri (Vincent F.
O’Flaherty, Law Offices of Vincent F. O’Flaherty, Attorney, LLC, Kansas City,
Missouri, and Adam S. Davis, Wagstaff & Cartmell, LLP, Kansas City, Missouri,
on the briefs), for Plaintiff-Appellant.

John R. Weist (Scott C. Long with him on the brief), Long & Luder, P.A.,
Overland Park, Kansas, for Defendant-Appellee.
Before KELLY, MURPHY, and HARTZ, Circuit Judges.


MURPHY, Circuit Judge.


I.    Introduction

      Plaintiff-Appellant Mid-Continent Casualty Company (“Mid-Continent”)

brought a declaratory judgment action in the United States District Court for the

District of Kansas, seeking determination of its coverage obligations related to

construction defect litigation. Defendant-Appellee, The Village at Deer Creek

Homeowners Association, Inc. (the “Association”), moved to dismiss, requesting

that the district court not exercise jurisdiction over Mid-Continent’s action.

Weighing the five factors set forth in State Farm Fire & Casualty Co. v. Mhoon,

, 982–83 (10th Cir. 1994), the district court declined jurisdiction in

favor of resolution in Missouri state court and dismissed the action. Mid-

Continent appeals, arguing the district court’s application of the Mhoon factors

amounts to an abuse of discretion. Exercising jurisdiction pursuant to 28 U.S.C. §

1291, this court affirms.

II.   Background

      The relevant facts are not in dispute. In 2007, the Association and

numerous individual homeowners sued Greater Midwest Builders, Inc. (“Greater

Midwest”) and its president, Daniel J. Barnard, in state court in Johnson County,


                                         -2-
Kansas, alleging Greater Midwest was negligent in constructing a subdivision

development. At the time of the alleged negligent construction, Greater Midwest

was insured by Mid-Continent and State Automobile Insurance Company (“State

Auto”). Greater Midwest therefore demanded legal defense and indemnification

from Mid-Continent and State Auto. In February, 2009, with the Johnson County

suit still pending, Mid-Continent filed the action giving rise to this appeal in the

District of Kansas, seeking a declaration that the terms of its policy did not cover

any of the claims asserted against Greater Midwest in state court. On the motion

of Greater Midwest and Barnard, the district court entered an order staying

proceedings in the declaratory judgment act until the Johnson County action was

concluded.

      The Johnson County suit concluded on February 10, 2011, with a verdict

against Greater Midwest for over $7 million. On February 16, 2011, the

Association and other plaintiffs in the Johnson County action filed a petition for

equitable garnishment against State Auto, Mid-Continent, and Greater Midwest in

state court in Jackson County, Missouri (“first garnishment action”). State Auto

removed the first garnishment action to federal court in the Western District of

Missouri. There, Mid-Continent moved to sever the actions against it and State

Auto and transfer venue of the case against it to the District of Kansas. At the

same time, Mid-Continent moved to lift the October 2009 stay in the declaratory

judgment action.

                                          -3-
       The plaintiffs in the first garnishment action filed a notice of voluntary

dismissal in the Western District of Missouri. Approximately two weeks later,

they filed a second garnishment action against State Auto and Mid-Continent in

Jackson County, Missouri (“second garnishment action”). The second suit named

Greater Midwest as a plaintiff rather than a defendant. The Association then

responded to Mid-Continent’s motion to lift the stay in the declaratory judgment

action and moved to dismiss Mid-Continent’s declaratory judgment action. On

April 1, 2011, State Auto again removed the second garnishment action to the

Western District of Missouri. The plaintiffs in the second garnishment action (the

Association, Greater Midwest, and the individual homeowners) moved to remand

to the Jackson County Circuit Court, and Mid-Continent again moved to sever and

transfer venue to the District of Kansas. The Western District of Missouri

granted the motion to remand due to lack of complete diversity between the

parties. Thus, at the time the Kansas federal district court ruled on Mid-

Continent’s Motion to Lift Stay and the Association’s Motion to Dismiss in this

matter, the second garnishment action remained pending against Mid-Continent in

state court in Jackson County, Missouri. On November 17, 2011, the Kansas

district court granted the motion to dismiss.

III.   Discussion

       A. Statutory Framework




                                          -4-
      The Declaratory Judgment Act provides, in relevant part: “In a case of

actual controversy within its jurisdiction, . . . 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, whether or not further

relief is or could be sought.” 28 U.S.C. § 2201(a) (emphasis added). Because of

the Act’s use of the word “may,” the Supreme Court has held it confers upon

courts the power, but not the duty, to hear claims for declaratory judgment.

Wilton v. Seven Falls Co., 

, 286–87 (1995); Pub. Affairs Assoc., Inc.

v. Rickover, 

, 112 (1962) (“The Declaratory Judgment Act was an

authorization, not a command. It gave the federal courts competence to make a

declaration of rights; it did not impose a duty to do so.”). In determining whether

to exercise their discretion, district courts should consider the following factors:

      [1] whether a declaratory action would settle the controversy; [2]
      whether it would serve a useful purpose in clarifying the legal
      relations at issue; [3] whether the declaratory remedy is being used
      merely for the purpose of procedural fencing or to provide an arena
      for a race to res judicata ; [4] whether use of a declaratory action
      would increase friction between our federal and state courts and
      improperly encroach upon state jurisdiction; and [5] whether there is
      an alternative remedy which is better or more effective.

(quotations omitted). The parties agreed below, and agree

now on appeal, that the Mhoon factors are the appropriate rubric for the district




                                          -5-
court to consider whether to exercise jurisdiction over Mid-Continent’s

declaratory action. 1

      B.     Standard of Review

      While the parties agree that the standard of review is abuse of discretion,

Mid-Continent also notes that a district court can abuse its discretion when its

decision is based on clearly erroneous factual findings or the misapplication of

legal standards. See Kiowa Indian Tribe of Okla. v. Hoover, 

, 1165

(10th Cir. 1998). When reviewing for abuse of discretion, the court “must

carefully scrutinize the district court's exercise of its discretion, but we may not

substitute our own judgment for that of the trial court.” 

        Mid-Continent states on appeal that the Mhoon factors are “not the
exclusive list of considerations” which must guide the district court’s analysis.
However, Mid-Continent points to no additional considerations for the district
court to examine that are not already encompassed by the Mhoon factors. For
example, Mid-Continent states the district court should consider “whether the
declaratory judgment will (1) clarify or settle the legal relations in issue and (2)
terminate or afford relief from the uncertainty giving rise to the proceeding.” At
one time, these two considerations were central to a declaratory judgment analysis
in this circuit. See Kunkel v. Cont’l Cas. Co., 

, 1275 (10th Cir.
1989). Following the Sixth Circuit’s lead, this court has since expanded the list
of relevant factors to five. See State Farm Fire & Cas. Co. v. Mhoon, 

, 983 (10th Cir. 1994). However framed, it is incumbent upon Mid-Continent
to demonstrate the district court abused its discretion in declining to exercise
jurisdiction. 

done so.

       Mid-Continent also notes the Declaratory Judgment Act does not prohibit
the district court from deciding a purely legal question relating to the
interpretation of an insurance contract. See 

. The issue,
however, is not whether the district court was permitted to exercise jurisdiction
over Mid-Continent’s action, but whether it abused its discretion in declining to
do so. 

.

                                         -6-
alteration omitted). The obligation not to substitute this court’s judgment for that

of the district court is especially important when reviewing a district court’s

analysis of the Mhoon factors:

      While imposing on the trial court the obligation to weigh these
      various factors when deciding whether to hear a declaratory
      judgment action, this circuit has repeatedly over the years held that
      on appeal it will not engage in a de novo review of all the various
      fact-intensive and highly discretionary factors involved. Instead, it
      will only ask whether the trial court’s assessment of them was so
      unsatisfactory as to amount to an abuse of discretion.

. An abuse of discretion has been characterized as “an

arbitrary, capricious, whimsical, or manifestly unreasonable judgment.” RoDa

Drilling Co. v. Siegal, 

, 1208 (10th Cir. 2009) (quotation omitted).

Put differently, “[u]nder the abuse-of-discretion standard, a trial court’s decision

will not be disturbed unless the appellate court has a definite and firm conviction

that the lower court made a clear error of judgment or exceeded the bounds of

permissible choice in the circumstances.” Oklahoma ex rel. Edmondson v. Tyson

Foods, Inc., 

, 1232 (10th Cir. 2010) (quotation omitted).

      C.     Mhoon Factors

             1.    Factors 1 and 2 — Whether the Declaratory Judgment Action
                   Would Settle the Controversy or Clarify the Legal Relations At
                   Issue 2

      2
       Although Mid-Continent addresses the district court’s analysis of the first
and second Mhoon factors separately, its arguments as to each factor are
substantially the same. That is, Mid-Continent argues the district court
misapplied the second factor by failing to acknowledge a circuit split and by
                                                                      (continued...)

                                         -7-
      The district court considered the first two Mhoon factors together and

concluded each favored dismissal. The court concluded exercise of its

declaratory judgment jurisdiction would be unnecessarily duplicative and

uneconomical because the second equitable garnishment action in Jackson County

would resolve all issues presented in Mid-Continent’s federal declaratory

judgment action, whereas the declaratory judgment action would not resolve all

issues presented in the state equitable garnishment action. Both parties agreed the

Jackson County action would require the state court to determine whether Mid-

Continent must indemnify Greater Midwest under the terms of Greater Midwest’s

insurance policy. By contrast, several claims in the second equitable garnishment

action would remain unresolved after resolution of the declaratory judgment

action. For example, the equitable garnishment action includes claims for bad

faith failure to settle, breach of fiduciary duty, and breach of contract.

Additionally, the district court noted the declaratory judgment action would not

resolve the issue of State Auto’s liability.

      Mid-Continent argues the district court’s analysis of the first Mhoon factor

amounted to an abuse of discretion for six reasons. These arguments, whether

considered individually or collectively, fall far short of demonstrating the district

court abused its discretion. First, the district court concluded the first two factors


      2
       (...continued)
giving undue consideration to the interests of non-party State Auto.

                                          -8-
weighed against exercising jurisdiction because the declaratory judgment action

“[w]ould not dispose of all of the claims in the state court case.” Mid-Continent

argues this conclusion constituted an abuse of discretion because, correctly

construed, the first two Mhoon factors permit the district court to consider only

whether the federal declaratory judgment action would resolve the issues

presented in the action itself. This argument is easily rejected because Mid-

Continent presents no justification as to why the standard it advocates is correct

and the one applied by the district court is incorrect. 3

      3
        Some courts have resolved the first two Mhoon factors in favor of
exercising jurisdiction when a declaratory judgment action would settle the
immediate controversy between the parties to the action. See, e.g., Nw. Pac.
Indem. Co. v. Safeway, Inc., 

, 1120 (D. Kan. 2000). Other
courts have resolved the first two Mhoon factors against exercising jurisdiction
when the declaratory judgment action would leave unresolved other, related
issues in parallel state court proceedings. See, e.g., Qwest Commc’ns Int’l, Inc. v.
Thomas, 

, 1207 (D. Colo. 1200). Relying on a case from the
Sixth Circuit, Mid-Continent argues these two approaches constitute a “split of
authority” as to the scope of the first two Mhoon factors. See Scottsdale Ins. Co.
v. Flowers, 

, 555 (6th Cir. 2008). As the Sixth Circuit has itself
acknowledged, however, the seemingly differing standards applied in different
cases “might . . . be explained by their different factual scenarios.” 

the likelihood a declaratory judgment will resolve the
immediate dispute between the parties may tip the scales in favor of exercising
jurisdiction. In others, the existence of outstanding claims in a parallel state court
action may counsel a different conclusion. Especially relevant may be whether
the state court action would necessarily resolve the issues in the declaratory
judgment action. Here, while the declaratory judgment action would settle the
controversy between Mid-Continent and Greater Midwest over the scope of Mid-
Continent’s coverage obligations, that issue would also be resolved in the
Missouri equitable garnishment action. By contrast, the issues in the Missouri
equitable garnishment action would not necessarily be resolved in the declaratory
                                                                       (continued...)

                                           -9-
      Mid-Continent also argues the district court misapplied the first factor by

being overly concerned with piecemeal and duplicative litigation. Mid-Continent

contends such concern was misplaced because any piecemeal litigation was the

result of the district court’s own stay order. The district court granted Greater

Midwest’s motion to stay the declaratory judgment action on October 13, 2009.

Mid-Continent did not move for reconsideration of the stay order or seek any

other relief from the order until March 10, 2011, when it moved to lift the stay.

The propriety of the original stay order is therefore not before this court on

appeal. Moreover, the district court’s decision not to revisit the propriety of its

own stay order when weighing the Mhoon factors is not arbitrary, whimsical, or

manifestly unreasonable.

      Mid-Continent also argues the district court incorrectly concluded that

resolving the declaratory judgment action would leave certain issues in the

equitable garnishment action unresolved. In support of this argument, Mid-

Continent notes that if the district court had concluded Mid-Continent had no

coverage obligations under Greater Midwest’s policy, all of the claims in the

equitable garnishment action would necessarily fail as a matter of law. The


      3
       (...continued)
judgment action. To the extent Mid-Continent’s argument could be read as a
challenge to the weight the district court accorded to the different considerations
relevant to the first two Mhoon factors, we reject it because the district court’s
assessment was not “so unsatisfactory as to amount to an abuse of discretion.”

.

                                         -10-
district court, however, did not act unreasonably, let alone manifestly

unreasonably, in weighing the first two Mhoon factors without assuming Mid-

Continent would prevail on the merits. It was certainly within the bounds of

permissible choice for the district court to consider the possibility that issues in

the equitable garnishment action would be left unresolved if it exercised

jurisdiction over the declaratory judgment action, even if that possibility was not

certain.

      The fourth reason Mid-Continent argues the district court erred in applying

the first two Mhoon factors was that it was unduly concerned with the interests of

non-party State Auto. After thoroughly reviewing the district court’s order,

however, this court concludes the interests of State Auto played, at most, a minor

role in the district court’s decision. In its discussion of the first two Mhoon

factors, for instance, the district court mentions State Auto in only one sentence.

Thus, assuming without deciding that a district court could abuse its discretion in

declining jurisdiction over a declaratory judgment action by being too concerned

with the interests of nonparties, such was not the case here. Mid-Continent cites

no binding authority indicating the consideration of the interests of nonparties

automatically constitutes an abuse of discretion. It does cite an unpublished

district court opinion from the Northern District of Oklahoma for the proposition

that it is entirely permissible in construction insurance coverage cases for a

district court to hear a declaratory judgment action brought by one insurer while a

                                          -11-
state court action proceeds against another insurer. When reviewing for abuse of

discretion, however, this court cannot reverse simply because a district court

failed to make an entirely permissible choice. See 

. 4

      Mid-Continent’s fifth argument charges that the district court overlooked a

concession by Greater Midwest and the Association that the declaratory judgment

action would settle the controversy between the parties. In its memorandum in

support of its motion to stay the declaratory judgment action pending the outcome

of the Johnson County suit, Greater Midwest stated:

      [T]hough a declaratory judgment action may be an appropriate means
      to settle the controversy between the parties regarding the scope of
      coverage afforded under the Policy for the Underlying Litigation,
      because the coverage issues are dependent on a resolution of the
      same factual issues involved in the Underlying Litigation, this matter
      should be stayed pending a resolution of those issues in the
      Underlying Litigation.

The Association adopted Greater Midwest’s arguments on the motion to stay as

its own. Mid-Continent argues the first part of this statement amounted to a

concession that its declaratory judgment action would satisfy the first Mhoon

factor. By its plain terms, however, Greater Midwest’s motion states only that

Mid-Continent’s action may be an appropriate means to settle the controversy



      4
       Similarly, Mid-Continent argues that dismissing a declaratory judgment
action merely because of the presence of alternative claims in another proceeding
encourages parties to “manipulate the outcome of the Mhoon analysis by clever or
cumulative pleadings.” Mid-Continent fails to explain how such manipulation
occurred here. See Infra Part III.C.3.

                                        -12-
between the parties. This court can therefore discern no error in the district

court’s failure to construe this statement as a binding admission.

       Finally, Mid-Continent argues the district court erroneously relied on an

unpublished district court case which is distinguishable from the case at bar. In

its discussion of the first two Mhoon factors, the district court cited National

Casualty Co. v. Robert E. Grundmeyer, Inc., No. 4:10CV1538, 

(E.D. Mo. Feb. 28, 2011). The district court relied on National Casualty, not as

binding precedent, but as an illustration of the principle that federal courts should

generally decline jurisdiction over declaratory judgment actions if “[a] final

judgment in state court will necessarily resolve all issues before [the district

court] and the other issues arising out of the same transactions thus allowing

comprehensive disposition of litigation.” State Farm Mut. Auto Ins. Co. v.

Scholes, 

, 1155 (10th Cir. 1979). Mid-Continent does not challenge

that proposition of law here. Its attempts to distinguish National Casualty on

other grounds therefore fall short of demonstrating an abuse of discretion on the

part of the district court.

              2.     Factor 3 — Whether the Declaratory Remedy is Being Used
                     Merely for the Purpose of “Procedural Fencing” or “To
                     Provide an Arena for a Race to Res Judicata”

       Considering the third factor, the district court noted that while accusations

of procedural fencing typically involve questionable actions on the part of the

party seeking a declaratory judgment, see St. Paul Fire & Marine Ins. Co. v.

                                         -13-
Runyon, 

, 1170 (10th Cir. 1995), the analysis can also be used to

examine the motives of state court plaintiffs. Before the district court, Mid-

Continent argued Greater Midwest and the Association engaged in procedural

fencing by (1) failing to notify the district court when the Johnson County lawsuit

had concluded, (2) filing the equitable garnishment action in Jackson County

while the declaratory judgment action was still pending, and (3) voluntarily

dismissing and refiling the equitable garnishment action. The district court

concluded the Association provided adequate explanations for each of these

actions and, therefore, the third Mhoon factor did not favor either party.

      On appeal, Mid-Continent argues the district court misapplied the third

Mhoon factor by (1) giving insufficient consideration to the “timeliness” of the

actions of Greater Midwest and the Association, (2) giving insufficient

consideration to Greater Midwest’s purported acknowledgment that the

declaratory judgment action would settle the controversy, (3) placing insufficient

significance on the failure of Greater Midwest and the Association to notify the

district court that the Johnson County lawsuit had concluded, and (4) misapplying

the “first to file” rule. Regarding the first of these arguments, Mid-Continent

argues the district court should have concluded the Association engaged in

procedural fencing by allowing the declaratory judgment action to proceed for

eight months before seeking a stay and by filing its equitable garnishment action

just six days after the Johnson County suit had concluded. As 

at

                                        -14-
Part III.C.1, however, the propriety of the original stay order is not before this

court. Further, as Mid-Continent acknowledges, the Association had the right to

file its equitable garnishment immediately after obtaining a judgment in the

Johnson County suit. Most importantly, the district court did not dismiss Mid-

Continent’s declaratory judgment action based on the order in which the various

actions were filed. Mid-Continent has thus failed to demonstrate the district court

abused its discretion by not inferring nefarious intent on the part of the

Association when weighing the third Mhoon factor. Mid-Continent’s second

argument regarding the third Mhoon factor relies on a misreading of Greater

Midwest’s motion to stay. 

Part III.C.1.

      Regarding Mid-Continent’s third argument, the district court at no point

ordered the Association or Greater Midwest to advise it when the first Kansas

lawsuit was completed. Further, the district court concluded Mid-Continent was

aware the Kansas lawsuit had concluded and presumably therefore could have

advised the court itself. Mid-Continent challenges this second conclusion, noting

that Greater Midwest was represented by personal counsel, not the counsel Mid-

Continent had selected for them, in both the state proceedings and in the

declaratory judgment action. The Association argues that, at the very least, Mid-

Continent had constructive notice of the conclusion of the first state court action

because it took place in open court. This court agrees. Moreover, even if it were

possible that Mid-Continent was unaware the Kansas lawsuit had concluded, the

                                         -15-
district court did not abuse its discretion by concluding this possibility was

insufficient to establish procedural fencing.

      Mid-Continent’s final argument under the third Mhoon factor is that the

district court misapplied the first-to-file rule. Before the district court, Mid-

Continent argued the court should exercise jurisdiction over its declaratory

judgment action because it was filed two years before the equitable garnishment

action in the Missouri state court. The district court noted that the first-to-file

rule traditionally only applies to multiple actions brought in different federal

courts of coordinate jurisdiction and equal rank. On appeal, while acknowledging

the first-to-file rule is not directly applicable, Mid-Continent obliquely asserts the

principles promoted by the rule—comity and noninterference with the affairs of

other courts—would be furthered if the district court exercised jurisdiction over

its declaratory judgment action. Mid-Continent provides no support for this

assertion, however. In any case, this argument is better considered in the context

of the fourth Mhoon factor.

             3.     Factor 4 — Whether Use of a Declaratory Action Would
                    Increase Friction Between Federal and State Courts and
                    Improperly Encroach Upon State Jurisdiction

      In analyzing the fourth Mhoon factor, the district court concluded the

Missouri state court is better situated to determine Mid-Continent’s coverage

obligations because the action would involve a matter of state law, i.e., the

interpretation of an insurance contract. The district court concluded this was true

                                          -16-
regardless of whether Kansas or Missouri law controls because both it and the

Missouri state courts are capable of applying the appropriate choice of law rules.

If Missouri law does indeed control, the district court noted, the Missouri state

courts are uniquely suited to resolve the dispute. Moreover, following from its

discussion of the first two Mhoon factors, the district court concluded exercising

jurisdiction posed a grave risk of interference with the Missouri state proceedings,

which involved additional claims and parties not joined in the declaratory

judgment action.

      Mid-Continent argues the district court’s concerns that it would unduly

interfere with the Missouri state courts were ill-founded. Mid-Continent alleges

that at the time the stay order was entered the declaratory judgment action was

sufficiently developed that dispositive motions could have been filed. It further

alleges that the Johnson County lawsuit resolved most of the facts necessary to

decide the declaratory judgment action. Assuming these representations are true,

at most they establish the district court could have reached a different conclusion

under the fourth Mhoon factor. They fall far short of demonstrating the district

court’s decision was arbitrary, capricious, whimsical, or manifestly unreasonable,

or otherwise exceeded the bounds of permissible choice under the circumstances.

See 

; RoDa Drilling 

.

             4.    Factor 5 — Whether there is an Alternative Remedy Which is
                   Better or More Effective


                                        -17-
      The district court’s discussion of the fifth Mhoon factor followed from its

consideration of the first four. The court concluded the Missouri courts were

simply better situated to provide complete relief to all parties involved in the

coverage dispute. Mid-Continent’s arguments that the district court misapplied

this factor are thus dependent on its arguments under the first four factors. For

the reasons set 

Part III.C.1–3 this court concludes these arguments are

not well-taken. The district court’s analysis of the Mhoon factors was carefully

reasoned and appropriate under the circumstances. Mid-Continent’s arguments

amount to little more than an invitation to re-weigh the Mhoon factors or to

substitute this court’s judgment for that of the district court. Such review is

precluded by longstanding precedent. 5 See 

.

IV.   Conclusion

      For the foregoing reasons, this court affirms the order of the district court

granting the Association’s motion to dismiss. Mid-Continent’s motion for

expedited consideration is denied as moot.




      5
        Because we conclude the district court properly dismissed the declaratory
judgment action, we need not decide whether the district court abused its
discretion in denying Mid-Continent’s motion to lift the stay in that action.

                                         -18-