PRECEDENTIAL

     UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT

                  _____________

                   No. 15-3618
                  _____________


              RONALD KELLY;
     PATRICE KELLY, individually and as h/w

                         v.

   MAXUM SPECIALTY INSURANCE GROUP;
  THE CARMAN CORPORATION; THE CARMAN
              GROUP, INC;
THE CARMAN GROUP, LLC; SERGIUS B. CARMAN

          Maxum Specialty Insurance Group,
                         Appellant
                _____________

   On Appeal from the United States District Court
      for the Eastern District of Pennsylvania
                 (No. 2:14-cv-07149)
     District Judge: Honorable Joel H. Slomsky

             Argued: November 3, 2016
Before: CHAGARES, HARDIMAN, and SCIRICA, Circuit
                    Judges.

                 (Filed: August 21, 2017)

Sina Bahadoran (ARGUED)
Michele A. Vargas
Hinshaw & Culbertson LLP
2525 Ponce de Leon Boulevard
4th Floor
Miami, FL 33134

      Counsel for Appellant Maxum Specialty Insurance
      Group

John Reed Evans (ARGUED)
Selective Law Group, LLC
760 West Sproul Road
Suite 301
Springfield, PA 19064

      Counsel for Appellees The Carman Corporation, The
      Carman Group, Inc., The Carman Group, LLC, and
      Sergius B. Carman

Michael O. Pansini
Steven M. Mezrow
Gregory J. Kowalski (ARGUED)
Pansini & Mezrow
1525 Locust Street, 15th Floor
Philadelphia, PA 19102

      Counsel for Appellees Ronald and Patrice Kelly




                            2
                        ____________

                          OPINION
                        ____________

CHAGARES, Circuit Judge.

       This case presents a situation familiar to our district
courts. Two related lawsuits are pending — one each in state
and federal court. The state action seeks to determine a
defendant’s liability for an alleged harm, and the federal action
seeks only a declaratory judgment on an insurer’s obligation to
defend and indemnify the defendant. The District Court here
exercised its discretion to abstain from entertaining the
declaratory action under the Declaratory Judgment Act, 28
U.S.C. §§ 2201–02 (“DJA”), largely because it determined that
the state court action concerning liability and the declaratory
judgment action were parallel proceedings. The District Court
further concluded that the remaining factors guiding the
consideration of whether it should entertain the declaratory
action weighed against retaining jurisdiction.

       Whether a state action parallels a federal action — in
which case a district court has significant discretion under the
DJA to decline a lawsuit seeking only declaratory relief — is a
question that has divided the district courts in this Circuit.
Although the question is not dipositive to a court’s decision to
abstain, it is important, and is one that courts must address. We
hold that contemporaneous state and federal proceedings are
parallel for purposes of the DJA when they are substantially
similar, and the two proceedings here were not. We further
hold that the lack of parallel state and federal proceedings — a
significant factor favoring hearing the case — is not




                               3
outweighed by other factors. For the reasons that follow, we
will reverse the District Court’s order and remand.

                              I.

       In 2007, appellee Ronald Kelly’s car collided with
another vehicle driven by a drunk driver. The driver had been
drinking at a bar, Princeton Tavern, owned by BBK Tavern,
Inc. (“Princeton Tavern”), which was insured under a dram
shop liability policy issued by State National Insurance
Company (“State National”). The insurance policy had been
procured by appellee Carman Corporation (“Carman”),
Princeton Tavern’s insurance broker.

        In 2009, Ronald and Patrice Kelly (collectively, “the
Kellys”) sued Princeton Tavern in state court seeking damages
for injuries and economic losses caused by the collision. Kelly
v. Siuma, Case No. 090503424 (Phila. Cty., Pa. Ct. Com. Pl.
May Term 2009). The Kellys eventually obtained a default
judgment against Princeton Tavern and settled for $5 million.

       When that lawsuit was filed, Princeton Tavern alerted
its broker, Carman, and requested that Carman notify State
National of the insurer’s obligation under the dram shop policy
to defend and indemnify Princeton Tavern. Carman did not do
this. Lacking notice of the lawsuit, State National refused to
cover Princeton Tavern’s legal liability. After the Kellys
secured the judgment, Princeton Tavern assigned to them the
rights to sue Carman for its failure to notify State National
about the litigation.

       In July 2013, the Kellys sued Carman in state court for
negligence and breach of contract. Ronald & Patrice Kelly, as




                              4
assignees of BBK Tavern, Inc. v. The Carman Corp., Case No.
4825 (Phila. Cty., Pa. Ct. Com. Pl. July Term 2013) (the “Tort
Action”). While that case was proceeding, the Kellys filed a
separate state-court action against Carman and its professional
liability insurer, appellant Maxum Specialty Insurance Group
(“Maxum”), seeking a declaratory judgment that Maxum was
obligated to defend and indemnify Carman against the Tort
Action claims. 1 Kelly v. Maxum Specialty Ins. Grp., Case No.
233 (Phila. Cty., Pa. Ct. Com. Pl. Dec. Term 2014) (the
“Declaratory Action”).

        Maxum removed the Declaratory Action to the District
Court under 28 U.S.C. § 1441, asserting diversity jurisdiction
pursuant to 28 U.S.C. § 1332. Although the Kellys and
Carman are Pennsylvania citizens, Maxum — a Georgia
company — argued that the Kellys and Carman are together
interested in securing Maxum’s coverage for Carman’s
potential liability. Therefore, according to Maxum, diversity
of citizenship (and thus federal jurisdiction) would exist once
Carman was properly realigned to join the Kellys as a plaintiff.

        The Kellys moved to remand the Declaratory Action to
state court. They argued that they and Carman do not have the
same interests and should not be realigned to secure diversity
jurisdiction. They also requested alternatively that the District
Court exercise its discretion under the DJA to decline


       1
         After filing the Declaratory Action, the Kellys sought
to stay discovery in the Tort Action to allow the issue of
coverage to be resolved. Carman opposed the Kellys’ request,
arguing that it was premature to address coverage prior to the
resolution of Carman’s liability.




                               5
jurisdiction. Maxum opposed the motion, and Carman filed a
response in support of remand. 2

       Weighing the factors for deciding whether to abstain
from entertaining declaratory judgment actions set forth in
Reifer v. Westport Insurance Corp., 

, 143-46 (3d
Cir. 2014), the District Court sided with the Kellys and
Carman. The Court’s conclusion rested heavily on its
determination that the still-pending state Tort Action
constituted a parallel proceeding to the Declaratory Action. By
order issued on September 29, 2015, the District Court
declined to hear the lawsuit and remanded the action to state
court. With the motion resolved, the Court did not address
whether realignment of the parties to secure diversity
jurisdiction was proper. Maxum timely appealed.

                              II.

                              A.

      A district court’s discretionary remand in a declaratory
judgment action is a final decision that is appealable under 28
U.S.C. § 1291. 3 

. We review the

      2
         After removal, Maxum also moved to dismiss the
Declaratory Action, arguing that the Kellys lacked standing to
sue Maxum and that Maxum did not owe coverage to Carman.
The District Court granted remand and did not reach the
motion to dismiss.
       3
         Under existing caselaw, the District Court was
permitted to consider and grant a discretionary remand under
the DJA before determining whether it possessed subject
matter jurisdiction. “[A] federal court has leeway to choose




                              6
among threshold grounds for denying audience to a case on the
merits.” Sinochem Int’l Co. v. Malay. Int’l Shipping Corp.,

, 431 (2007) (quoting Ruhrgas AG v. Marathon
Oil Co., 

, 584 (1999)); see also 

(holding
that courts may dismiss a case on forum non conveniens
grounds before considering jurisdiction). Deciding to abstain
from entertaining a request for declaratory relief “conclusively
determines an issue that is separate from the merits” and results
in the court “disassociat[ing] itself from the case entirely.” See

-34 (quoting Quackenbush v. Allstate
Ins. Co., 

, 714 (1996)). Because the District
Court’s remand “d[id] not entail any assumption by the court
of substantive ‘law-declaring power,’” Sinochem 

(quoting 

), ascertaining
jurisdiction was not necessary before taking that action. Cf. 

(observing that a federal court need not “decide whether
the parties present an Article III case or controversy before
abstaining under [another abstention doctrine]”); GDG
Acquisitions, LLC v. Gov’t of Belize, 

, 1028
(11th Cir. 2014) (reviewing the district court’s decision to
abstain based on international comity principles even though it
“did not reach the question of whether foreign sovereign
immunity precluded subject matter jurisdiction”); Tony Alamo
Christian Ministries v. Selig, 

, 1248 (8th Cir.
2012) (“[W]e may affirm on abstention grounds without first
resolving the standing issues.”); Pub. Citizen v. U.S. Dist.
Court for D.C., 

, 1348 (D.C. Cir. 2007)
(“Sinochem thus firmly establishes that certain non-merits,
nonjurisdictional issues may be addressed preliminarily.”).
        We note that had the District Court decided not to
abstain, it would have needed to assure itself that jurisdiction
existed before proceeding any further. See Emp’rs Ins. of




                                7
District Court’s decision for abuse of discretion. 

In doing so, we review legal questions, including the question
of whether state court and federal court proceedings are
parallel, de novo. See Nationwide Mut. Fire Ins. Co. v. George
V. Hamilton, Inc., 

, 307 (3d Cir. 2009).

                               B.

        The Kellys seek a declaratory judgment, a remedy made
available to the federal courts by the DJA. 4 That statute
provides that federal courts “may declare the rights and other
legal relations of any interested party seeking such declaration,


Wausau v. Crown Cork & Seal Co., 

, 47 (3d Cir.
1990) (remanding a case to the district court which had stayed
a lawsuit brought under the DJA without first considering
jurisdiction).
       4
         Although courts often refer to a court’s “jurisdiction”
under the DJA, the statute is not a jurisdictional grant. Rather,
the Supreme Court has characterized the DJA as procedural,
affording a remedial option in a case over which a court must
have an independent basis for exercising jurisdiction. Skelly
Oil Co. v. Phillips Petroleum Co., 

, 671 (1950).
       Relatedly, we agree with the District Court that because
federal courts apply federal procedural law in federal actions,
the DJA and not state declaratory judgment law supplies the
procedural law that governs this case. This is notwithstanding
the fact that the relief sought in the removed Declaratory
Action was requested under the Pennsylvania Declaratory
Judgments Act, 42 Pa. Cons. Stat. §§ 7531, et seq. See Reifer
v. Westport Ins. Corp., 

, 134 n.4 (3d Cir. 2014);
Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 

, 261 n.3 (4th Cir. 2013).




                               8
whether or not further relief is or could be sought.” 28 U.S.C.
§ 2201(a) (emphasis added). Granting a declaratory judgment
is therefore discretionary and a court may abstain from
entertaining an action seeking only declaratory relief. 5 

(citing Brillhart v. Excess Ins. Co. of Am., 

, 494 (1942)); Wilton v. Seven Falls Co., 

, 282 (1995) (“[D]istrict courts possess discretion in
determining whether and when to entertain an action under the
[DJA], even when the suit otherwise satisfies subject matter
jurisdictional prerequisites.”); see also Rarick v. Federated
Serv. Ins. Co., 

, 229 (3d Cir. 2017) (clarifying the
extent of a court’s discretion where a litigant seeks both
declaratory and non-declaratory relief).

       The discretion courts exercise in actions seeking only
declaratory relief is “substantial” but nonetheless “bounded
and reviewable.” 

. On the one hand,
courts may abstain based on “considerations of practicality and
wise judicial administration.” 

. On the
other hand, the “wholesale” dismissal of certain types of cases
brought under the DJA is improper, as litigants should not be
unjustifiably denied the right to obtain an authorized remedy
in federal court. See 

.
       We have directed courts deciding whether to entertain a
declaratory action to weigh certain enumerated and other

       5
         It bears repeating the admonition, well noted in the
caselaw, that this discretion is “unique and substantial” and is
an exception to the otherwise “virtually unflagging obligation”
of federal courts to “exercise the jurisdiction conferred on them
by Congress.” Wilton v. Seven Falls Co., 

, 284,
286 (1995) (citing Colo. River Conservation Dist. v. United
States, 

, 813, 817-18 (1976)).




                               9
factors “bearing on the usefulness of the declaratory judgment
remedy, and the fitness of the case for [federal] resolution.” 

(quoting 

). This type of
“uniform approach” is intended to “clarify for parties and
district courts the relevant considerations to sound and
reasoned discretion, as well as help properly focus our abuse
of discretion review.” 

       Courts should first determine whether there is a
“parallel state proceeding.” 

146. Although the
existence of a parallel state proceeding is but one factor for
courts to consider, it is a significant factor that is treated with
“increased emphasis.” 

see also Sherwin-Williams
Co. v. Holmes Cty., 

, 394 (5th Cir. 2003) (noting
that “the presence or absence of a pending parallel state
proceeding is an important factor”); Aetna Cas. & Sur. Co. v.
Ind-Com Elec. Co., 

, 423 (4th Cir. 1998) (“[T]he
existence of [a parallel state] proceeding should be a significant
factor in the district court’s determination. But it is not
dispositive.”). We have held, as a result, that “the absence of
pending parallel state proceedings militates significantly in
favor of exercising jurisdiction, although it alone does not
require such an exercise.” 

. Inversely,
the existence of a parallel state proceeding “militates
significantly in favor of declining jurisdiction.” 

       Courts should then weigh other factors. Specifically, if
a state parallel proceeding does not exist, then “as part of
exercising sound and reasoned discretion, district courts
declining jurisdiction should be rigorous in ensuring
themselves that the lack of pending parallel state proceedings
is outweighed by opposing factors.” 

.
When state parallel proceedings do exist, “district courts




                                10
exercising jurisdiction should be rigorous in ensuring
themselves that the existence of pending parallel state
proceedings is outweighed by opposing factors.” 

Courts should give the following and other factors 6
“meaningful consideration . . . to the extent they are relevant”:

       (1) the likelihood that a federal court declaration
       will resolve the uncertainty of obligation which
       gave rise to the controversy;
       (2) the convenience of the parties;
       (3) the public interest in settlement of the
       uncertainty of obligation;
       (4) the availability and relative convenience of
       other remedies;


       6
          We have advised that this list of factors is not
exhaustive and that other considerations might be relevant in
the appropriate case. See 

. For
instance, we noted in Reifer that our decision in State Auto
Insurance Cos. v. Summy, 

(3d Cir. 2000), might
supply additional guidance in insurance cases. 

. And we have summarized United States v.
Pennsylvania Department of Environmental Resources, 

(3d Cir. 1991), as providing that declining a
declaratory judgment action may not be prudent “when the
issues include[] federal statutory interpretation, the
government’s choice of a federal forum, an issue of sovereign
immunity, or inadequacy of the state proceeding.” 

. Whichever factors the district court
determines to be applicable, “[t]he weighing of these factors
should be articulated in a record sufficient to enable our abuse
of discretion review.” 

.




                               11
       (5) a general policy of restraint when the same
       issues are pending in a state court;
       (6) avoidance of duplicative litigation;
       (7) prevention of the use of the declaratory action
       as a method of procedural fencing or as a means
       to provide another forum in a race for res
       judicata; and
       (8) (in the insurance context), an inherent
       conflict of interest between an insurer’s duty to
       defend in a state court and its attempt to
       characterize that suit in federal court as falling
       within the scope of a policy exclusion.

With this framework in mind, we review the District
Court’s decision.

                              III.

                               A.

       The District Court first concluded that the Kellys’ Tort
Action against Carman and their Declaratory Action against
Carman and Maxum constituted parallel proceedings.
According to the Court, the Tort Action “directly implicate[s]
Maxum’s obligations to defend and indemnify [Carman]” —
also at issue in the Declaratory Action — as “the question of
coverage . . . will necessarily arise in the state court action
before it is completed.” 7 Appendix (“App.”) 11. Maxum
challenges this determination, arguing that it is not a party to

       7
          The Court also found salient the fact that the
declaratory judgment action sought only “an interpretation of
state law.” App. 11.




                               12
the Tort Action, the question of coverage had not been raised
in state court, and it may never be raised given the possibility
of the Kellys losing the lawsuit.

       When faced with similar facts, our district courts have
divided as to how to determine whether a state action for
damages and a related federal proceeding over insurance
coverage are parallel. The District Court here essentially
followed others in this Circuit which have held that, for
purposes of the DJA, a state proceeding parallels a federal
action where there is the potential that the federal claims might
be satisfactorily adjudicated in state court. App. 10-11; see
also App. 353 (District Court noting “you certainly have the
potential for a parallel proceeding in the other case”). Under
this approach, the federal court is free to decline to entertain
the insurer’s declaratory judgment action because the issue of
a defendant’s insurance coverage eventually could arise in an
underlying state negligence action.

       We disagree with this approach. Proceedings are not
parallel merely because they have the potential to dispose of
the same claims. Defining “parallel state proceeding” so
broadly balloons a court’s discretion to decline a DJA action
beyond the measured bounds we set forth in our prior
decisions. Although the existence or non-existence of parallel
proceedings is only one of many factors a court must consider,
it is a significant factor, and we must correct the error
propagating among some of the district courts in this Circuit.
We hold that the mere potential or possibility that two
proceedings will resolve related claims between the same
parties is not sufficient to make those proceedings parallel;




                               13
rather, there must be a substantial similarity in issues and
parties between contemporaneously pending proceedings. 8

       Review of relevant precedent compels this conclusion.
A parallel state proceeding is a pending matter “involving the
same parties and presenting [the] opportunity for ventilation of
the same state law issues.” 9 

; see also

       8
          Strict identity between parties and claims is not
necessary for pending proceedings to be substantially similar,
although that will be the most usual circumstance in which a
court finds parallel proceedings to exist.           “Substantial
similarity” only means that the parties involved are closely
related and that the resolution of an issue in one will
necessarily settle the matter in the other. See, e.g., Fru-Con
Constr. Corp. v. Controlled Air, Inc., 

, 535 (8th
Cir. 2009) (“[Substantial similarity] occurs when there is a
substantial likelihood that the state proceeding will fully
dispose of the claims presented in the federal court.” (citing
TruServ Corp. v. Flegles, Inc., 

, 592 (7th Cir.
2005))); Scottsdale Ins. Co. v. Detco Indus., Inc., 

,
997 (8th Cir. 2005) (holding that state tort actions and a related
federal insurance declaratory judgment action were not
parallel, even though “the issues in each proceeding may
depend on some of the same facts,” because the state lawsuits
“involve parties, arguments, and issues different from those in
federal court proceedings”).
       9
         In both Brillhart and Wilton, the Supreme Court cases
discussing a court’s discretion under the DJA, state court
proceedings had already reached the garnishment stage and
featured insurance coverage as an issue and the insurer as a
party. Accordingly, neither case concerned a court’s decision
to abstain in deference to a non-parallel state action. See




                               14
State Auto Ins. Cos. v. Summy, 

, 134 (3d Cir.
2000) (describing a parallel proceeding as one in which “the
same issues are pending”). Germane factors include the scope
of the state court proceeding, the claims and defenses asserted,
and whether necessary parties had been or could be joined. See

; see also Md. Cas. Co. v. Consumers
Fin. Serv., Inc., of Pa., 

, 515 (3d Cir. 1938)
(explaining that a court may abstain from issuing a declaratory
judgment that is “being sought merely to determine issues
involved in cases already pending,” but not “if the controversy
between the parties will not necessarily be determined in” that
pending action). Such analysis contemplates comparing the
state and federal action as they contemporaneously exist, not
as they might eventually be.

(refraining from “delineat[ing] the
outer boundaries of [courts’] discretion in other cases, for
example, . . . cases in which there are no parallel state
proceedings”). Regardless, the Supreme Court’s guidance is
instructive.
        Some district courts have seized this “opportunity”
language from the Supreme Court to conclude that potentiality
is sufficient to render a proceeding parallel, but other language
makes the Court’s intended meaning at least ambiguous. For
comparison, see 

(explaining it would
be “uneconomical as well as vexatious for a federal court to
proceed in a declaratory judgment suit where another suit is
pending in a state court presenting the same issues . . . between
the same parties”), and 

(discussing
parallel proceedings as those which are already “underway in
state court”). The body of law applying Brillhart and Wilton,
discussed more infra, makes clearer that potentiality is not
sufficient to render a proceeding parallel.




                               15
       We employ a substantially consistent definition of
parallelism when considering abstention in other
circumstances. For instance, determining whether a state and
federal action are parallel is necessary when deciding whether
to abstain under the doctrine articulated in Colorado River
Water Conservation District v. United States, 

(1976). 10 In that context, we have recognized simply that
“cases are parallel when they involve the same parties and
claims.” Ryan v. Johnson, 

, 196 (3d Cir. 1997).
More specifically, parallel proceedings are those that are “truly

       10
           Colorado River abstention is a good comparator
because it applies in circumstances “where the presence of
concurrent state proceedings may indicate that a district court
should abstain from the ‘contemporaneous exercise of
concurrent jurisdiction[]’ due to principles of ‘[w]ise judicial
administration, giving regard to conservation of judicial
resources and comprehensive disposition of litigation.’” Nat’l
City Mortg. Co. v. Stephen, 

, 83-84 (3d Cir. 2011)
(alterations in original) (quoting Trent v. Dial Med. of Fla.,
Inc., 

, 223 (3d Cir. 1994)) (surveying the various
abstention doctrines). These are some of the same concerns
that animate the discretion afforded by the DJA. Cf. 10B
Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure § 2759 n.22 (4th ed. 2008)
(noting the “parallel between federal abstention doctrine and
the court’s discretion to decline to entertain a declaratory
judgment action”). By no means are we equating the doctrines;
although tests for employing both require evaluating similar
factors, the “district court’s discretion under the [DJA] is
significantly greater than under Colorado River.” Pa. Dep’t of
Envtl. 

.




                               16
duplicative,” that is, when the parties and the claims are
“identical,” or at least “effectively the same.” Trent v. Dial
Med. of Fla., Inc., 

, 223-24 (3d Cir. 1994),
superseded by statute on other grounds as recognized in Nat’l
City Mortg. Co. v. Stephen, 

, 83 (3d Cir. 2011); see
also 

(identifying the first question
in Colorado River abstention analysis as whether “there is a
parallel state proceeding that raises ‘substantially identical
claims [and] nearly identical allegations and issues’”
(alteration in original) (quoting Yang v. Tsui, 

,
204 n.5 (3d Cir. 2005))). Cases are not parallel under Colorado
River abstention where the “federal court case involves claims
that are distinct from those at issue in a state court case,” like
where parties in “the two cases employ[] substantially different
‘approaches’ [which] might ‘achieve potentially different
results.’” 

(quoting Complaint of Bankers
Tr. Co. v. Chatterjee, 

, 41 (3d Cir. 1980)); see also
Univ. of Md. at Balt. v. Peat Marwick Main & Co., 

, 276 (3d Cir. 1991) (holding that abstention is
inappropriate where there is a “lack of identity of all issues”
between lawsuits and “no theoretical obstacle to both actions
proceeding independently”).

        Therefore, at least under Colorado River, a state
proceeding does not parallel a federal proceeding just because
there is the potential that issues in the latter may arise in the
former. The proceedings must involve substantially similar
parties and claims at the time the federal court is deciding
whether to abstain. Indeed, other courts to have addressed this
question agree. See, e.g., Fru-Con Constr. Corp. v. Controlled
Air, Inc., 

, 535 (8th Cir. 2009) (“This
[parallelism] analysis focuses on matters as they currently
exist, not as they could be modified.” (citing Baskin v. Bath




                               17
Twp. Bd. of Zoning Appeals, 

, 572 (6th Cir.
1994))); Fox v. Maulding, 

, 1081 (10th Cir. 1994)
(declining to consider “how the state proceedings could have
been brought in theory” in favor of “examin[ing] the state
proceedings as they actually exist to determine whether they
are parallel to the federal proceedings”); McLaughlin v. United
Va. Bank, 

, 935 (4th Cir. 1992) (reversing
abstention on the grounds that the federal and state actions
were not parallel after observing that, notwithstanding the
“changing nature” of the underlying state actions, “[the
plaintiff]’s personal rights, as asserted in the federal diversity
case, are not now protected in state proceedings” (emphasis
added)).

       A similar rule — that proceedings are not parallel
merely because of potentiality — is warranted to guide
abstention under the DJA. Cf., e.g., Lexington Ins. Co. v.
Integrity Land Title Co., 

, 971 (8th Cir. 2013)
(concluding that the actions were not parallel because although
the same issues raised in federal court “could have arisen” in
pending state proceedings, it was not “likely that the state-court
actions actually would clarify and resolve the issues presented
in federal court”). A contrary rule risks hollowing the DJA’s
remedial grant.       Declaratory judgments allow parties
prospectively to settle concrete questions concerning their
legal rights and duties; foreclosing that remedy because the
questions may eventually be answered in another forum
undermines the utility of the declaratory action. Cf. 

, 229-30 (explaining that the DJA allows parties
to “clarify legal relationships” and “make responsible
decisions about the future,” goals which should not be
“subvert[ed]” by the court’s discretion to decline the lawsuit
(quoting Step-Saver Data Sys., Inc. v. Wyse Tech., 

643, 649 (3d Cir. 1990))); Sears, Roebuck & Co. v. Zurich Ins.
Co., 

, 590 (7th Cir. 1970) (observing that the
dismissal of a DJA lawsuit over insurance coverage, an issue
which had not arisen in the related state proceeding, “is leaving
the controversy between [the parties] unsettled with a lack of
clarification of the legal relations in issue”). Moreover, district
courts applying a potentiality standard would possess virtually
unbounded discretion to deny litigants seeking declaratory
judgments access to federal court, as they could abstain from a
case based only on speculation about how another action will
proceed. Cf. New Beckley Mining Corp. v. Int’l Union, United
Mine Workers of Am., 

, 1074 (4th Cir. 1991)
(“[Abstention doctrine] does not give federal courts carte
blanche to decline to hear cases within their jurisdiction merely
because issues or factual disputes in those cases may be
addressed in past or pending proceedings before state
tribunals.” (quoting United States v. SCM Corp., 

, 417 (D. Md. 1985))).

        Rather than sanctioning such a broad standard, we
conclude that requiring a district court to consider whether the
proceeding before it is substantially similar to a
contemporaneous state proceeding will better enable the court
to weigh the interests underlying its significant discretion and
a litigant’s entitlement to seek declaratory relief in federal
court. 11 See 

; Md. Cas. Co., 101

       11
          Some Courts of Appeals have, in dicta, used language
suggesting a broader understanding of “parallel proceeding”
which incorporates potentiality. See, e.g., Golden Eagle Ins.
Co. v. Travelers Cos., 

, 754 (9th Cir. 1996)
(“[T]he absence of a parallel state proceeding is not necessarily
dispositive [to the question of whether a district court 

(stating that abstention is appropriate where a
declaratory judgment is “being sought merely to determine
issues involved in cases already pending”).

                                B.

        It is clear that the two proceedings here are not parallel.
Maxum is not a party to the Tort Action, and the questions of
whether Carman’s insurance policy with Maxum covers
Carman’s potential liability and whether Carman is in fact
liable to the Kellys are distinct. 12 The issue of coverage is not


abstain under the DJA]; the potential for such a proceeding
may suffice.”), overruled on other grounds by Gov’t Emps.
Ins. Co. v. Dizol, 

(9th Cir. 1998) (en
banc). Such language, however, has been employed in the
context of determining that the absence or presence of a
parallel state proceeding does not per se require a district court
to entertain or decline a declaratory judgment action. See
id.; see also, e.g., Sherwin-Williams 

(citing Golden Eagle when counting the Court of Appeals for
the Ninth Circuit as among those courts which do not employ
a per se rule). We too reject such a bright-line per se rule, as
we have already discussed; and we read the discussion
in Golden Eagle to pertain to the varied circumstances in
which it is appropriate for a district court to abstain as opposed
to a technical definition of parallelism. To the extent that
another court holds that a state proceeding parallels a federal
proceeding based only on the possible issues which it could
potentially encompass, we respectfully disagree.
        12
            It is possible that, in certain circumstances,
determining the issue of coverage will rely on questions central
to the underlying liability proceeding. See, e.g., Nationwide




                                20
necessary to the resolution of the state action — we cannot at
this point predict the course which that lawsuit will take.

        This is not a novel disposition, as we have previously
encountered similar facts. In Maryland Casualty Co., an
individual brought an auto injury claim against a company in
state court, and the company’s insurer sought a declaratory
judgment of nonliability under the policy in federal 

. We held that the issues involved in the state
and federal lawsuits — the extent of the company’s liability to
the injured persons and the extent of coverage owed by the
insurer to the company, respectively — were distinct. 

We concluded that the company was entitled to have
its rights settled in federal court, and that the district court
“exceeded its discretionary power i[n] dismissing the petition
for a declaratory judgment.” 

Similarly, in Terra
Nova Insurance Co. v. 900 Bar, Inc., although we eventually
affirmed the district court’s decision to stay the case, we noted
that a state tort action and the insurer’s federal declaratory
judgment action over coverage were non-parallel. 

, 1219 & n.4 (3d Cir. 1989). Several of our sister Courts


Mut. Ins. Co. v. Lowe, 

, 276-77 (E.D. Pa.
2000) (staying a declaratory action in which the insurer
disclaimed coverage on the basis that the plaintiffs were the
defendant’s employees, an issue already in dispute in a pending
state lawsuit). Even if the proceedings are not parallel as we
have defined it, such may be the type of situation which
nevertheless warrants a court’s abstention. But this is not the
case here, where Maxum’s coverage arguments are predicated
on the timing of the Kellys’ claim and the identity of the
insurer, issues entirely independent of whether Carman was
negligent.




                               21
of Appeals have reached the same conclusion in comparable
circumstances. See, e.g., Scottsdale Ins. Co. v. Detco Indus.,
Inc., 

, 997 (8th Cir. 2005) (holding that a state tort
lawsuit and the insurer’s federal coverage declaratory lawsuit
were not parallel because although the issues may “depend on
some of the same facts,” the state proceeding involved “parties,
arguments, and issues different from those in the federal
[suit]”); Nautilus Ins. Co. v. Winchester Homes, Inc., 

, 380 (4th Cir. 1994) (“We are satisfied that there is no
significant overlap in the issues of fact that must be decided to
resolve these two separate and independent legal
controversies.”); Am. States Ins. Co. v. D’Atri, 

,
763 (6th Cir. 1967) (rejecting the argument that an insurer’s
obligation to defend and indemnify its insured against a tort
claim was “inextricably bound up with” the question of the
insured’s liability to the tort claimant); Sears, Roebuck & 

(same).

      In sum, there is no substantial similarity between the
Tort Action and Declaratory Action, and the District Court’s
conclusion that they are parallel was in error.

        We reiterate that a strict definition of parallelism need
not hobble a district court’s unique leeway to decline from
issuing declaratory relief. Although “the existence or non-
existence of pending parallel state proceedings” is important in
a court’s assessment, it is not dispositive. 

; see also 

(“As our non-exhaustive, multi-
factor test makes clear, there are many potential considerations
that properly inform a district court’s sound and reasoned
discretion.”). We therefore must turn to consider the District
Court’s weighing of all the relevant factors.




                               22
                              IV.

        After finding a parallel state proceeding, the District
Court considered the remaining Reifer factors and counted four
as weighing against exercising jurisdiction and four as neutral.
The factors the Court found to favor the motion to remand
included the third, fifth, sixth, and eighth factors; the factors
the Court found to be neutral included the first, second, fourth,
and seventh factors. Because there were no factors supporting
the District Court’s exercise of jurisdiction in its view, and
because of its conclusion that there existed a parallel state
proceeding, the District Court declined jurisdiction and granted
the motion to remand. In doing so, the District Court abused
its discretion. Insofar as the state Tort Action and this
Declaratory Action were not parallel, the District Court should
have considered the remaining factors as prescribed in Reifer
to “be rigorous in ensuring [itself] that the lack of pending
parallel state proceedings is outweighed by opposing factors.”

The lack of pending parallel state proceedings here
was not outweighed by opposing factors.

      First, a declaratory judgment by the District Court
would resolve the uncertainty that prompted filing of the
Declaratory Action. The Kellys filed their complaint “seeking
[a] declaratory judgment to obtain an adjudication that
Defendant, Maxum Specialty Insurance Group, is obligated to
provide a defense and indemnification to its insureds . . . .”
App. 37. Declaratory relief by the District Court would
unquestionably clarify and settle the dispute regarding
Maxum’s obligations under the insurance policy.

      Second, none of the parties will be inconvenienced by
having this matter adjudicated in the federal forum. The




                               23
District Court considering the Declaratory Action sits in the
same city as the court in which the Kellys originally filed suit.

       Third, the parties do not aver that any public interest is
at stake other than the usual interest in the fair adjudication of
legal disputes, an interest which the District Court is well-
equipped to address. 13

      Fourth, the parties do not argue that other remedies
would be adequate, let alone more convenient. The state and


       13
            The District Court found that the third factor
supported declining jurisdiction “because a state court is better
suited” to decide this case. App. 12-13. Apparently relying
upon comity concerns, the Court observed in its analysis that
“federal courts usually prefer that state courts are offered the
first opportunity to interpret and apply state law” and that the
public interest is served by having a state court resolve state-
law disputes. App. 12. But we rejected the same catch-all
analysis in Reifer. 

(noting that instead of
declining jurisdiction because of “the importance of respecting
the ability of the [state] court system” to enforce state law,
“[w]e would have preferred the District Court to squarely
address the alleged novelty of [the] state law claims”). The
parties do not contend that there is an unsettled question of
state law or important policy issue implicated by the coverage
claims here. Absent this, there is little reason for a federal court
to be reluctant about deciding this case. See 

(“Federal and state courts are equally capable of applying
settled state law to a difficult set of facts.” (alteration omitted)
(quoting Heritage Farms Inc. v. Solebury Twp., 

,
747 (3d Cir. 1982))).




                                24
federal courts are equally able to grant effective relief in these
circumstances.

       Fifth, the issue of Maxum’s obligations under its
insurance policy with Carman is not pending in a state court.
Maxum is not even a party in the pending state court action and
the insurance coverage dispute cannot be fully resolved
without Maxum. As a result, the general policy of restraint
does not apply in the present case.

       Sixth, and relatedly, there is no reason at this juncture
to be concerned about duplicative litigation as the issues in the
two proceedings are distinct. Arguably, settling the dispute in
the District Court may avoid duplicative litigation, considering
that the parties have already begun to litigate the issue of
coverage in the federal forum.

        Seventh, there is no issue here of “procedural fencing”
or a “race for res judicata.” App. 13. The Kellys initiated both
the Tort Action and Declaratory Action and there has been no
concern expressed that removal of the Declaratory Action was
driven by an improper motive.

       Eighth, and finally, there is no indication that a conflict
exists for Maxum related to any obligations it has to defend
Carman in the Tort Action. Maxum is not a party to the Tort
Action; nor is there reason to believe it should or might be a
party, given that it disclaimed coverage and given that Carman
in fact opposed the Kellys’ motion seeking time to allow
Maxum to join the proceeding.

                 *       *      *      *       *




                               25
       We hold, contrary to the District Court, that the state
Tort Action and the Declaratory Action in federal court are not
parallel proceedings. The nonexistence of a parallel state
proceeding weighed significantly in favor of the District Court
entertaining rather that remanding the Declaratory Action, but
did not require it. Rather, before declining to consider the
Declaratory Action, the District Court, in exercising its
discretion, had to ensure itself that the factors enunciated in
Reifer outweighed the lack of a parallel state proceeding.
These factors did not outweigh the lack of a parallel state
proceeding in this case. As a result, “considerations of
practicality and wise judicial administration,” 

, counsel against abstention, and we conclude that the
District Court abused its discretion in granting the motion to
remand.

                              V.

        Before the case proceeds, however, the District Court
must determine whether it possesses jurisdiction to hear the
case. See Steel Co. v. Citizens for Better Env’t, 

,
93-102 (1998) (holding that courts must consider their
jurisdiction before they reach the merits of a case). Maxum
asserts that diversity jurisdiction will exist under 28 U.S.C. §
1332 once the Court realigns the parties according to their
interest in securing Maxum’s coverage of Carman’s potential
liability to the Kellys. Indeed, “[i]n determining the alignment
of the parties for jurisdictional purposes, . . . courts have a
‘duty’ to ‘look beyond the pleadings and arrange the parties
according to their sides in the dispute.’” Dev. Fin. Corp. v.
Alpha Hous. & Health Care, Inc., 

, 159 (3d Cir.
1995) (quoting Indianapolis v. Chase Nat’l Bank, 

,
69 (1941)). To do so, the court must identify the “principal




                              26
purpose of the suit” and look at “the facts as they existed at the
time the action was commenced . . . to determine the position
of the parties.” Emp’rs Ins. of Wausau v. Crown Cork & Seal
Co., 

, 45-46 (3d Cir. 1990) (quoting 

).

       Having decided to abstain from entertaining the
Declaratory Action, the District Court declined to consider
Maxum’s argument. Therefore, we will remand for the Court
to decide whether it has subject matter jurisdiction over the
action. See 

                               VI.

       For the foregoing reasons, we will reverse the District
Court’s order and remand this action for further proceedings
consistent with this opinion.




                               27