(Article from Insurance Law Alert, June 2025)
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Holding
The Sixth Circuit ruled that when an action seeks both damages and declaratory relief, and there is no basis for abstention as to the damages claims, it would “most likely” be an abuse of discretion for the court to abstain on the declaratory claims. Fire-Dex, LLC v. Admiral Insurance Co., 2025 U.S. App. LEXIS 13372 (6th Cir. June 2, 2025).
Background
Fire-Dex, a manufacturer of protective equipment for firefighters, was named as a defendant in suits alleging exposure to carcinogens including PFAS. Those suits were consolidated in multidistrict litigation in South Carolina federal court. Admiral, the insurer, brought a declaratory judgment action in a federal court in Ohio, seeking a ruling as to coverage under its general liability policies. Although the district court had diversity jurisdiction, the Declaratory Judgment Act provides that district courts “may” issue declaratory relief—permissive language that allows courts to decline to exercise jurisdiction under certain circumstances. See 28 U.S.C. § 2201(a). The district court did just that and the Sixth Circuit affirmed.
Shortly thereafter, Fire-Dex sued Admiral in state court, seeking both declaratory relief as well as compensatory damages and punitive damages. Admiral removed to federal court and Fire-Dex moved to remand. The court remanded the declaratory relief claim and stayed the damages claims pending state court litigation. The Sixth Circuit vacated and remanded the matter for further proceedings.
Decision
The Sixth Circuit noted the complexity that arises in the abstention analysis where, as here, a “mixed action” seeks both coercive relief (damages) and declaratory relief. It set forth the following framework:
If the district court has jurisdiction over a claim for coercive relief, it must exercise jurisdiction over that claim unless a traditional abstention doctrine applies—regardless of whether that claim is paired with a declaratory claim. As to the other half of the mixed action, the district court retains its discretion under the Declaratory Judgment Act, but has “less discretion than normal” to refuse to hear a declaratory judgment claim in such mixed actions.
The court explained that when the coercive claim and the declaratory claim “hinge on the same substantive legal issue or issues,” then the “declaration of rights and responsibilities will usually be a logical ‘prerequisite’ to the award of damages.” Thus, abstaining under those circumstances would create a risk of piecemeal or duplicative litigation. The court therefore concluded that “when the coercive and declaratory claims in a mixed action are tightly linked, it would most likely be an abuse of discretion to abstain on the declaratory claims.”
Applying this standard, the Sixth Circuit ruled that the district court erred in abstaining. It emphasized that there was no traditional basis for abstaining as to the coercive claims and that the declaratory claims turned on the exact same legal issues. Additionally, it rejected Fire-Dex’s assertion that Thibodaux abstention applied here. Thibodaux abstention applies when a suit raises unsettled questions of state law that are “intimately involved” with a state’s “sovereign prerogative.” The court noted that the mere existence of unsettled areas of state law in this case did not justify Thibodaux abstention—if it did, then Thibodaux abstention “would swallow diversity jurisdiction” in many cases.
Comments
The Sixth Circuit’s approach aligns with that endorsed by the First Circuit. In contrast, as the Sixth Circuit noted, the Second, Fourth and Fifth Circuits have applied traditional abstention doctrines to mixed actions (unless it is determined that the coercive claim was frivolous or brought to evade the more permissive standard governing declaratory claims). The Third, Seventh and Ninth Circuits have adopted an “independent claim” test which requires a determination of whether coercive claims are independent of the declaratory claims. The Eighth Circuit has adopted an approach that turns on whether the declaratory claim constitutes “the essence of the suit.” The Sixth Circuit deemed such other approaches “unsatisfying and unmoored from Congress’s mandates.”