PRECEDENTIAL

   UNITED STATES COURT OF APPEALS
        FOR THE THIRD CIRCUIT
             ___________

                 No. 15-3606
                 ___________

  BRYAN RARICK, Individually and on behalf
    of a class of similarly situated persons

                       v.

FEDERATED SERVICE INSURANCE COMPANY,

                                 Appellant
                  __________

 On Appeal from the United States District Court
     for the Eastern District of Pennsylvania
            (D.C. No. 2-13-cv-03286)
 District Judge: Honorable Joseph F. Leeson, Jr.
                  ___________
                   ___________

                   No. 16-1328
                   ___________

               TERRY EASTERDAY;
 LINDA EASTERDAY, h/w individually and on behalf
       of a class of similarly situated persons

                         v.

THE FEDERATED MUTUAL INSURANCE COMPANY,

                                   Appellant
                    __________

   On Appeal from the United States District Court
      for the Eastern District of Pennsylvania
              (D.C. No. 5-14-cv-01415)
   District Judge: Honorable Lawrence F. Stengel
                    ___________

             Argued November 2, 2016
  Before: CHAGARES, HARDIMAN, and SCIRICA,
                  Circuit Judges.

              (Filed: March 28, 2017)




                         2
Charles E. Spevacek [Argued]
William M. Hart
Tiffany M. Brown
Julia J. Nierengarten
Meagher & Geer
33 South Sixth Street, Suite 4400
Minneapolis, MN 55402
        Attorneys for Defendants-Appellants

James C. Haggerty [Argued]
Suzanne T. Tighe, Esq.
Haggerty Goldberg Schleifer & Kupersmith
1835 Market Street, Suite 2700
Philadelphia, PA 19103
      Attorneys for Plaintiffs-Appellees
                       ____________

                OPINION OF THE COURT
                     ____________

HARDIMAN, Circuit Judge.

        In Brillhart v. Excess Insurance Company of America,

(1942), the Supreme Court held that federal
courts have broad discretion to decline to hear actions arising
under the Declaratory Judgment Act. Decades later the Court
reminded federal courts that they have a “virtually unflagging
obligation” to exercise jurisdiction over actions seeking legal
relief. Colo. River Water Conservation Dist. v. United States,

, 817 (1976). But this “unflagging obligation”
does not undermine the discretion inherent in the Declaratory
Judgment Act as interpreted in Brillhart. See Wilton v. Seven
Falls Co., 

, 286–88 (1995).




                              3
        What about complaints that seek both declaratory and
legal relief? Our sister courts of appeals and district courts
within the Third Circuit have disagreed over the legal
standard applicable in such cases. The United States District
Court for the Eastern District of Pennsylvania in the two
appeals we consider here adopted a “heart of the matter” test
and, after finding that the essence of each action was
declaratory, declined to exercise jurisdiction. In our view, the
heart of the matter test is problematic because it enables
plaintiffs to avoid federal subject matter jurisdiction through
artful pleading. Accordingly, we will vacate the orders of the
District Court and remand the cases for further proceedings.

                               I

                               A

      A resident of Pennsylvania, Brian Rarick worked for a
company that insured its vehicles under a business
automobile policy provided by Federated Service Insurance
Company, a Minnesota corporation. Under that policy,
Rarick’s employer waived uninsured motorist coverage for
most of its employees, including Rarick.

       In his complaint, Rarick alleged that he suffered
injuries after he crashed a company car insured by Federated
Service when an unidentified vehicle forced him off the road.
Rarick reported the accident and submitted a claim to
Federated Service for uninsured motorist benefits, in
accordance with the Pennsylvania Motor Vehicle Financial
Responsibility Law, 75 Pa. Cons. Stat. §§ 1701, et seq.
Federated Service denied the claim, citing its waiver of
uninsured motorist coverage for employees like Rarick.




                               4
       After his claim was denied, Rarick filed a class action
lawsuit in the Court of Common Pleas of Philadelphia
County, Pennsylvania. Rarick sought, inter alia, a judgment
declaring that Pennsylvania’s Motor Vehicle Financial
Responsibility Law required Federated Service to provide
Rarick with uninsured motorist coverage. Rarick also
requested damages for breach of contract alleging—in nearly
identical language to his prayer for declaratory relief—that
Federated Service breached its contract by failing to provide
him with uninsured motorist coverage.

       Federated Service removed Rarick’s civil action to the
District Court under 28 U.S.C. §§ 1441 (removal) and 1332
(diversity jurisdiction). After the removal, no related case
remained pending in state court. Later, the District Court
issued an order to show cause why it should not remand the
case to the Court of Common Pleas consistent with its
discretion under the Declaratory Judgment Act.

        The District Court adopted a “heart of the matter” test
to determine whether it had discretion to decline jurisdiction.
The Court determined that the crux of the litigation was
declaratory because Rarick sought a declaration that he is
entitled to uninsured motorist benefits. The Court then
considered whether it should decline jurisdiction over the
entire case under our decision in Reifer v. Westport Insurance
Corp., 

(3d Cir. 2014). Under Reifer, the absence
of a pending state case created a rebuttable presumption in
favor of jurisdiction. In light of “the nature and novelty of the
state law issues,” the Court found the presumption was
rebutted, so it declined jurisdiction and remanded the case to
the Court of Common Pleas. Rarick v. Federated Serv. Ins.
Co., 

, at *5 (E.D. Pa. Sept. 28, 2015).
Federated Service appealed.



                               5
                              B

       Terry Easterday, a resident of Pennsylvania, worked
for an affiliate of Federated Service called Federated Mutual
Insurance Company, which is a Minnesota company.
Federated Mutual had a business automobile policy that
waived underinsured motorist coverage.

       In his complaint, Easterday alleged that he sustained
injuries in two rear-end collisions while driving a car owned
and insured by Federated Mutual. Easterday submitted
insurance claims seeking tort damages and he later sought
recovery of underinsured motorist benefits from Federated
Mutual. The company denied Easterday’s claim citing the
waiver of underinsured motorist benefits.

       Easterday, along with his wife Linda, sued in the Court
of Common Pleas of Philadelphia County, Pennsylvania. The
Easterdays sought, inter alia, a declaration that Pennsylvania
law required Federated Mutual to provide underinsured
motorist coverage. The Easterdays also requested damages
for breach of contract, alleging—in nearly identical language
to their prayer for declaratory relief—that Federated Mutual
breached its contract by failing to provide Easterday with
underinsured motorist coverage.

       Federated Mutual removed the case to the District
Court under 28 U.S.C. §§ 1441 (removal) and 1332 (diversity
jurisdiction). After the removal, no related case remained
pending in state court. At a Rule 16 conference in the District
Court, Easterday raised the issue of subject matter
jurisdiction.




                              6
       In light of the factual similarities between the two
cases, the District Court followed Rarick, 

.
The Court found that the heart of the matter was declaratory
because “[t]he crux of th[e] litigation is whether the insurance
policy in question provides coverage to the plaintiffs.”
Easterday v. Federated Mut. Ins. Co., 

, *4
(E.D. Pa. Feb. 9, 2016). The Court then turned to Reifer to
determine whether it should decline jurisdiction. As in
Rarick, the Court found that although there was no pending
parallel state court proceeding, it should nonetheless decline
jurisdiction because of the novel nature of the state law claim
and the absence of a federal interest. 

appealed.

                               II

       The District Court had jurisdiction in both cases under
28 U.S.C. §§ 1441 and 1332. We have appellate jurisdiction
under 28 U.S.C. § 1291. See 

(holding
that “a remand order entered pursuant to the [Declaratory
Judgment Act] is an appealable final decision”). We typically
review a district court’s decision to decline jurisdiction under
the Declaratory Judgment Act for abuse of discretion. 

However, when a district court declines jurisdiction
of non-declaratory matters, we “review[] the underlying legal
questions de novo but the court’s decision to abstain for abuse
of discretion.” Nat’l City Mortg. Co. v. Stephen, 

,
82 (3d Cir. 2011) (citations omitted). Here, we must first
decide whether the District Court applied the appropriate
legal standard to ascertain its discretion to decline
jurisdiction. We review that question of law de novo.




                               7
                               III

                                A

       A federal district court’s discretion to decline
jurisdiction depends on whether the complaint seeks legal or
declaratory relief. When an action seeks legal relief, federal
courts have a “virtually unflagging obligation” to exercise
jurisdiction. Colo. 

. There are but a few
“extraordinary and narrow exception[s]” to this rule. 

       When an action seeks declaratory relief, however,
federal courts may decline jurisdiction under the Declaratory
Judgment Act. 28 U.S.C. § 2201(a) (“In a case of actual
controversy within its jurisdiction, . . . any court of the United
States . . . may declare the rights and other legal relations of
any interested party seeking such declaration . . . .” (emphasis
added)). Courts have greater discretion to decline jurisdiction
over actions for declaratory judgments because they seek an
adjudication of rights and obligations prior to the enforcement
of a remedy. See Skelly Oil Co. v. Phillips Petroleum Co., 

, 671–72 (1950); see also Step-Saver Data Sys., Inc.
v. Wyse Tech., 

, 649 (3d Cir. 1990) (“The idea
behind the [Declaratory Judgment Act] was to clarify legal
relationships so that plaintiffs (and possibly defendants) could
make responsible decisions about the future.”); 10B Charles
A. Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ.
§ 2751 (4th ed.) (“[The Act] gives a means by which rights
and obligations may be adjudicated in cases involving an
actual controversy that has not reached the stage at which
either party may seek a coercive remedy and in cases in
which a party who could sue for coercive relief has not yet
done so.”). The Supreme Court first confirmed federal courts’



                                8
discretion to decline jurisdiction over declaratory judgment
actions in 

–96, and reaffirmed this
discretion in 

.

                                B

        Before today “[w]e have never ruled on the legal
standard a district court must apply when addressing whether
it may decline jurisdiction when both declaratory and legal
relief are claimed.” 

n.5. Federal courts
opining on the matter have developed three main approaches.

        The United States Courts of Appeals for the Second,
Fourth, and Fifth Circuits have adopted a bright line rule that
prioritizes a federal court’s duty to hear claims for legal relief
over its discretion to decline jurisdiction to hear declaratory
judgment actions. Under that rule, “[t]he Colorado River
standard applies to all mixed claims—even when the ‘claims
for coercive relief are merely “ancillary” to [a party’s] request
for declaratory relief.’” VonRosenberg v. Lawrence, 

, 735 (4th Cir. 2015), as amended (Apr. 17, 2015)
(alterations in original) (quoting Black Sea Inv., Ltd. v. United
Heritage Corp., 

, 652 (5th Cir. 2000)); see also
New Eng. Ins. Co. v. Barnett, 

, 397 (5th Cir.
2009) (per curiam) (“[W]hen an action contains any claim for
coercive relief, the Colorado River abstention doctrine is
ordinarily applicable.” (citation omitted)); Vill. of Westfield v.
Welch’s, 

, 124 n.5 (2d Cir. 1999). These courts
generally have found that Colorado River’s “unflagging
obligation” to entertain legal claims supersedes any discretion
to decline jurisdiction over a declaratory claim in the same
suit. See 

(depriving access to
a federal forum simply because there is a request for
declaratory relief “seems especially unwarranted given that



                                9
nearly all claims, including those for damages or injunctive
relief, effectively ask a court to declare the rights of the
parties to the suit”).

        The United States Courts of Appeals for the Seventh
Circuit and Ninth Circuit have taken a slightly different
approach, applying an independent claim test, which balances
the court’s duty to hear legal claims with its discretion to
decline jurisdiction over claims for declaratory relief. Under
this test, the district court first determines whether claims
seeking legal relief are independent of claims for declaratory
relief. R.R. St. & Co., Inc. v. Vulcan Materials Co., 

, 716–17 (7th Cir. 2009). “Non-declaratory claims are
‘independent’ of a declaratory claim when they are alone
sufficient to invoke the court’s subject matter jurisdiction and
can be adjudicated without the requested declaratory relief.”

(citing United Nat’l Ins. Co. v. R&D Latex Corp.,

, 1113 (9th Cir. 2001)). If the legal claims are
dependent on the declaratory claims, the court may decline
jurisdiction over the entire action. 

But if they
are independent, the court must adjudicate the legal claims
unless there are exceptional circumstances as described in
Colorado River. 

legal claims are independent,
courts generally will not decline the declaratory judgment
action in order to avoid piecemeal litigation. R.R. St. & 

–16. “Where the [legal] claims are not
independent, the district court has discretion under
Wilton/Brillhart to abstain from hearing the entire action.” 

       Finally, district courts in the Third Circuit, following
the approach taken by the United States Court of Appeals for
the Eighth Circuit in Royal Indem. Co. v. Apex Oil Co., 

(8th Cir. 2008), primarily have applied the “heart of



                              10
the matter” or “essence of the lawsuit” test. Under that test,
the court “examines the relationship between the claims, and
determines what the ‘essence of the dispute’ concerns.” Elec.
Claims Processing, Inc. v. M.R. Sethi, M.D., S.C., 

, at *3 (W.D. Pa. Jan. 22, 2013) (quoting ITT Indus.,
Inc. v. Pac. Emp’rs. Ins., 

, 566–67 (E.D.
Pa. 2006)). This approach seeks to “balance between the
various interests at stake” by examining the crux of the
litigation. 

Gas of Pa. v. Am. Int’l Grp.,

, at *2 (W.D. Pa. Jan. 27, 2011)). Courts
applying this test have found that the “administrative,
jurisprudential, and other concerns” of mixed action litigation
make it “fundamentally reasonable to pull a dependent
coercive claim within the ambit of the discretion afforded its
declaratory counterpart.” Columbia Gas, 

, at
*2. On this view, to allow an ancillary or dependent legal
claim to eliminate the court’s discretion under the Declaratory
Judgment Act, “would be the tail wagging the dog.” 

Commons E. P’ship v. Abex Corp., 997 F.
Supp. 585, 592 (D.N.J. 1998)).

                              C

        The District Court in both cases under review here
adopted the “heart of the matter” test. In Rarick, the Court
was persuaded that the “Supreme Court’s specific recognition
that declaratory judgment actions necessitate a different
treatment than other types of cases” required the court to
analyze the facts of a mixed claim before deciding whether it
should decline jurisdiction. 

, at *4 (quoting
ITT Indus., 

). Using similar
reasoning, the District Court in Easterday adopted the heart
of the matter test because it found “that the outcome of the
plaintiffs’ claims for breach of contract and bad faith are



                              11
dependent on how the insurance policies are interpreted for
the declaratory judgment claim.” 

, at *3 n.2.

       After careful consideration of the various tests applied
in the decisions mentioned, we hold that the independent
claim test is the most appropriate one. When a complaint
contains claims for both legal and declaratory relief, a district
court must determine whether the legal claims are
independent of the declaratory claims. If the legal claims are
independent, the court has a “virtually unflagging obligation”
to hear those claims, subject of course to Colorado River’s
exceptional circumstances. Colo. 

–19.
If the legal claims are dependent on the declaratory claims,
however, the court retains discretion to decline jurisdiction of
the entire action, consistent with our decision in 

–46.

       The independent claim test is superior to the others
principally because it prevents plaintiffs from evading federal
jurisdiction through artful pleading. Although Rarick and
Easterday included declaratory claims in their complaints,
they requested a legal remedy—damages—for breach of
contract. Because both cases satisfied the requirements for
diversity jurisdiction, Rarick and Easterday could have
obtained their desired relief in federal courts without
requesting a declaratory judgment. By including a declaratory
claim in their pleadings, however, Rarick and Easterday
invited the District Court to avoid Colorado River’s “virtually
unflagging obligation” in favor of the more expansive
discretion afforded under Reifer.

       This outcome is inconsistent with the purpose of the
Declaratory Judgment Act, which is to “clarify legal
relationships” in order to help putative litigants “make



                               12
responsible decisions about the future.” Step-Saver Data 

. The Declaratory Judgment Act was intended
to “enlarge[] the range of remedies available in the federal
courts” by authorizing them to adjudicate rights and
obligations even though no immediate remedy is requested.
Skelly Oil 

(emphasis added). The heart
of the matter test enables plaintiffs to subvert this goal by
using the Declaratory Judgment Act to avoid federal subject
matter jurisdiction over claims that are ripe for adjudication
and in which the plaintiffs seek immediate relief.

        Another virtue of the independent claim test is that it
gives district courts the flexibility that the bright line test
precludes. We agree with the Seventh Circuit when it opined:
“we do not think the mere fact that a litigant seeks some non-
frivolous, non-declaratory relief in addition to declaratory
relief means that a district court’s Wilton/Brillhart discretion
to decline to hear the declaratory claim should be supplanted
by the narrow Colorado River doctrine.” R.R. Street & Co,

. We also agree that while the bright line
test is more easily applied by courts, “it unduly curtails a
district court’s ‘unique and substantial discretion’ to abstain
from hearing claims for declaratory relief.” 

515 U.S. at 286).

                              IV

       We hold that the independent claim test is the
applicable legal standard for review of a complaint that seeks
both legal and declaratory relief. In these cases, both
Plaintiffs’ legal claims were independent of their declaratory
claims. Accordingly, we will vacate the judgments of the
District Court and remand the cases for a determination




                              13
whether exceptional circumstances exist under Colorado
River.




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