21-2733 Admiral Ins. Co. v. Niagara Transformer Corp.

United States Court of Appeals For the Second Circuit

August Term 2021

Argued: May 3, 2022 Decided: January 6, 2023

No. 21-2733

ADMIRAL INSURANCE COMPANY,

Plaintiff-Appellant,

v.

NIAGARA TRANSFORMER CORPORATION,

Defendant-Appellee. *

Appeal from the United States District Court for the Southern District of New York No. 20-cv-4041, Andrew L. Carter, Jr., Judge.

Before: CALABRESI, CABRANES, and SULLIVAN, Circuit Judges.

In this declaratory-judgment action, Admiral Insurance Co. (“Admiral”) seeks a declaration that it need not defend or indemnify its historical insured, Niagara Transformer Corp. (“Niagara”), in potential litigation between Niagara and nonparties Monsanto Co., Pharmacia LLC, and Solutia Inc. (collectively, “Monsanto”) over harms caused by polychlorinated biphenyls that Monsanto had sold to Niagara in the 1960s and 1970s. Admiral now appeals from the order of the district court (Carter, J.) dismissing its action for lack of a justiciable “case of

* The Clerk of Court is respectfully directed to amend the official case caption as set forth above. actual controversy” within the meaning of the Declaratory Judgment Act (the “DJA”),

(a). In reaching this jurisdictional ruling, the district court principally relied on (1) the fact that Monsanto has not commenced or explicitly threatened formal litigation against Niagara, and (2) its assessment that Monsanto would not be likely to prevail in such litigation.

While the district court properly concluded that it lacked jurisdiction to declare Admiral’s duty to indemnify Niagara, it did not adequately distinguish between that duty (which is triggered by a determination of the insured’s liability to the third party) and the insurer’s separate duty to defend its insured (which is triggered by the third party’s filing suit against the insured). Because a declaratory-judgment action concerning either duty becomes justiciable upon a “practical likelihood” that the duty will be triggered, see, e.g., Associated Indem. Corp. v. Fairchild Indus., Inc.,

(2d Cir. 1992), the justiciability of Admiral’s duty-to-defend claim turns on the practical likelihood that Monsanto will file suit against Niagara – not on whether Monsanto has already in fact done so or explicitly threatened to do so. As a result, we AFFIRM the district court’s order dismissing Admiral’s action to the extent that it sought a declaration of Admiral’s duty to indemnify Niagara, and REMAND, pursuant to our practice under United States v. Jacobson,

(2d Cir. 1994), for the district court to determine – as relevant to its jurisdiction to declare Admiral’s duty to defend Niagara – whether there exists a practical likelihood that Monsanto will file suit against Niagara. Consistent with that practice, appellate jurisdiction will be restored to this panel after the district court has supplemented the record and reconsidered its prior decision on remand.

Should the district court determine on remand that it has jurisdiction to declare Admiral’s duty to defend Niagara, it may nevertheless decline to exercise such jurisdiction. To that end, we clarify the standard governing a district court’s discretion to decline jurisdiction under the DJA. We previously held in Continental Casualty Co. v. Coastal Savings Bank,

(2d Cir. 1992), and Broadview Chemical Corp. v. Loctite Corp.,

(2d Cir. 1969) – that a district court must exercise jurisdiction if the issuance of a declaratory judgment would serve a useful purpose in settling the legal relations in issue or afford relief from the uncertainty giving rise to the proceeding. But our caselaw following Wilton v. Seven Falls Co.,

2

(1995), has treated the factors established by Broadview as only two among other factors that district courts should balance in determining whether to exercise jurisdiction under the DJA. Our caselaw suggests, and we now clarify, that district courts have discretion to decline jurisdiction upon the application of an open-ended, multi-factor balancing test in which no one factor necessarily mandates the exercise of jurisdiction.

AFFIRMED IN PART AND REMANDED IN PART.

JUSTIN N. KINNEY (Michael S. Chuven, on the brief), Kinney Lisovicz Reilly & Wolff PC, New York, NY, for Plaintiff-Appellant Admiral Insurance Company.

RODMAN E. HONECKER, Windels Marx Lane & Mittendorf, LLP, New York, NY, for Defendant-Appellee Niagara Transformer Corporation.

RICHARD J. SULLIVAN, Circuit Judge:

In this declaratory-judgment action, Admiral Insurance Co. (“Admiral”)

sought a declaration that it need not defend or indemnify its historical insured,

Niagara Transformer Corp. (“Niagara”), in potential litigation between Niagara

and nonparties Monsanto Co., Pharmacia LLC, and Solutia Inc. (collectively,

“Monsanto”) over harms caused by polychlorinated biphenyls (“PCBs”) that

Monsanto had sold to Niagara in the 1960s and 1970s. Admiral now appeals from

the order of the district court (Carter, J.) dismissing its action for lack of a

justiciable “case of actual controversy” within the meaning of the Declaratory

3 Judgment Act (the “DJA”),

(a). In reaching this jurisdictional

ruling, the district court relied principally on (1) the fact that Monsanto has not

commenced or explicitly threatened formal litigation against Niagara, and (2) its

assessment that Monsanto would not be likely to prevail in such litigation.

While the district court properly concluded that it lacked jurisdiction to

declare Admiral’s duty to indemnify Niagara, it did not adequately distinguish

between that duty (which is triggered by a determination of the insured’s liability

to the third party) and the insurer’s separate duty to defend its insured (which is

triggered by the third party’s filing suit against the insured). Because a

declaratory-judgment action concerning either duty becomes justiciable upon a

“practical likelihood” that the duty will be triggered, see, e.g., Associated Indem.

Corp. v. Fairchild Indus., Inc.,

(2d Cir. 1992), the justiciability of

Admiral’s duty-to-defend claim turns on the practical likelihood that Monsanto

will file suit against Niagara – not on whether Monsanto has already in fact done

so or explicitly threatened to do so. As a result, we AFFIRM the district court’s

order dismissing Admiral’s action to the extent that it sought a declaration of

Admiral’s duty to indemnify Niagara, and REMAND, pursuant to our practice

under United States v. Jacobson,

(2d Cir. 1994), for the district court to

4 determine – as relevant to its jurisdiction to declare Admiral’s duty to defend

Niagara – whether there exists a practical likelihood that Monsanto will file suit

against Niagara. Consistent with that practice, appellate jurisdiction will be

restored to this panel after the district court has supplemented the record and

reconsidered its prior decision on remand.

Should the district court determine on remand that it has jurisdiction to

declare Admiral’s duty to defend Niagara, it may nevertheless decline to exercise

such jurisdiction. To that end, we clarify the standard governing a district court’s

discretion to decline jurisdiction under the DJA. We previously held in Continental

Casualty Co. v. Coastal Savings Bank,

(2d Cir. 1992), and Broadview

Chemical Corp. v. Loctite Corp.,

(2d Cir. 1969), that a district court must

exercise jurisdiction if the issuance of a declaratory judgment would serve a useful

purpose in settling the legal relations in issue or afford relief from the uncertainty

giving rise to the proceeding. But our caselaw following Wilton v. Seven Falls Co.,

(1995), has treated the factors established by Broadview as only two

among other factors that district courts should balance in determining whether to

exercise jurisdiction under the DJA. Our caselaw suggests, and we now clarify,

that district courts have discretion to decline jurisdiction upon the application of

5 an open-ended, multi-factor balancing test in which no one factor necessarily

mandates the exercise of jurisdiction.

I. BACKGROUND

Defendant-Appellee Niagara is a manufacturer of electrical transformers

and the historical insured of Plaintiff-Appellant Admiral. Throughout the 1960s

and 1970s, Niagara purchased PCBs from nonparty Monsanto for use in its

transformers. PCBs are highly toxic and carcinogenic chemical compounds, the

manufacture, processing, and distribution of which are now largely banned under

federal statute. See

(e)(2)(A), (3)(A); see also

(imposing strict regulations on the storage, handling, and disposal of PCBs and

PCB waste materials). Monsanto’s sales of PCBs to Niagara were made pursuant

to a “Special Undertaking” agreement, which provided that Niagara would

“defend, indemnify, and hold harmless Monsanto . . . from and against any and

all liabilities, claims, damages, [etc.] arising out of . . . the . . . use, sale[,] or

disposition of such PCB[]s by, through[,] or under [Niagara].” J. App’x at 19.

Monsanto also required Niagara to maintain “adequate insurance protection.”

. In keeping with this agreement, Niagara purchased a general liability policy

from Admiral that ran from 1976 to 1977.

6 Beginning in 2009, various individuals, businesses, municipalities, and

states commenced actions against Monsanto in state and federal courts across the

country, asserting claims for personal injuries, environmental clean-up costs,

property damage, and other harms allegedly caused by exposure to or

contamination by PCBs originally manufactured by Monsanto. In August 2016,

after losing an eight-figure judgment in one such case (and while countless other

such cases were in active litigation or settlement negotiations, with still more being

filed anew), Monsanto sent Niagara a letter, through counsel, “demand[ing]” that

Niagara “defend, indemnify[,]and hold harmless” Monsanto “in connection with

all current and future PCB-related litigation wherein . . . Monsanto is, or will be,

named as a defendant, and for the amount of any resulting judgments (if any) and

settlements, to the full extent required by the Special Undertaking.”

.

Monsanto further stated that “Niagara . . . will be held liable for the amount of the

resulting settlements or judgments (if any) [in the PCB-related actions against

Monsanto,] as well as the incurred costs, expert witness fees, attorney’s fees, and

all other reasonable expense incurred in defending [such] actions.”

(emphasis

added). Appended to this letter was a chart enumerating forty-six relevant cases

pending against Monsanto. Niagara responded with a letter from its own counsel,

7 denying any and all liability to Monsanto. To date, Monsanto has not commenced

formal legal action against Niagara.

In early 2020, Niagara learned that Magnetek, Inc. – another industrial

manufacturer that had sourced PCBs from Monsanto pursuant to a contract

substantially identical to the Special Undertaking – had been sued by Monsanto

but was able to obtain coverage from its historical insurance carrier. This

prompted Niagara to further investigate and to ultimately identify Admiral as its

own historical liability insurance carrier from the 1970s. Thus, in March 2020,

Niagara gave Admiral notice of Monsanto’s underlying demands and tendered its

own “demand[]” that Admiral “defend and indemnify Niagara . . . in connection

with any and all claims made by Monsanto.”

. One month later, Admiral

denied coverage for reasons including Niagara’s putative failure to timely notify

Admiral of Monsanto’s underlying demands. 1

Shortly thereafter, in May 2020, Admiral filed its complaint in district court,

seeking a declaration that it has no obligation to defend or indemnify Niagara in

connection with the claims asserted in or arising out of Monsanto’s 2016 demand

1Additionally, in June 2020, Niagara discovered through media reports of Bayer AG settlements of certain PCB-related litigation that sought recovery from Monsanto. Niagara was not involved in the settlement discussions, and neither Bayer nor Monsanto sought indemnification from Niagara for the settlement.

8 letter. On September 1, 2020, Niagara moved to dismiss the complaint for lack of

subject-matter jurisdiction, arguing principally that Admiral’s action did not

present a justiciable “case of actual controversy” under the DJA.

(a). The same day, Admiral cross-moved for summary judgment. On

September 29, 2021, the district court issued an opinion and order granting

Niagara’s motion to dismiss and thus declining to reach the merits of Admiral’s

cross-motion for summary judgment. The district court concluded that there was

no “case or controversy” under the DJA because there was no “practical

likelihood” that “Niagara will incur liability . . . to Monsanto in connection with

the PCB-related litigation.” Sp. App’x at 9–10. For support, the district court

noted, among other things, that (1) “to date, Monsanto ha[d] filed no lawsuit

against Niagara” and “never explicitly threatened to sue Niagara,” and (2)

“questions over the validity, scope, and enforceability of the Special Undertaking”

remain.

.

Admiral timely appealed.

II. STANDARD OF REVIEW

On appeal from a dismissal for lack of subject-matter jurisdiction, we review

the district court’s legal conclusions de novo, Amidax Trading Grp. v. S.W.I.F.T.

9 SCRL,

(2d Cir. 2011), and its factual findings for clear error, Zappia

Middle E. Constr. Co. v. Emirate of Abu Dhabi,

(2d Cir. 2000). In so

doing, “we draw all facts – which we assume to be true unless contradicted by

more specific allegations or documentary evidence – from the complaint and from

the exhibits attached thereto,” and “we construe all reasonable inferences . . . in

[the non-movant’s] favor.” Amidax Trading Grp.,

.

III. DISCUSSION

A. Justiciability

1. Applicable Law

Article III of the Constitution limits the “judicial Power of the United States”

to “Cases” and “Controversies.” U.S. Const. art. III, §§ 1–2; see Spokeo, Inc. v. Robins,

(2016) (“[N]o principle is more fundamental to the judiciary’s

proper role in our system of government than the constitutional limitation of

federal-court jurisdiction to actual cases or controversies.” (emphasis added;

citation omitted)). As a corollary, federal courts may not “decide abstract

questions,” Socialist Lab. Party v. Gilligan,

(1972), or “give opinions

advising what the law would be upon a hypothetical state of facts,” Chafin v.

Chafin,

(2013) (internal quotation marks and alteration omitted).

10 The DJA provides that “[i]n 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, whether or not

further relief is or could be sought.”

(a) (emphasis added). In other

words, the DJA “creates 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.” United States v. Doherty,

(2d Cir. 1986) (citation omitted); see

at 498–99 (“[T]he

declaratory[-]judgment procedure enables a party who is . . . threatened . . . in the

enjoyment of what he claims to be his rights[] to initiate the proceedings against

his tormentor and remove the cloud by an authoritative determination of the

plaintiff’s legal right . . . and the defendant’s absence of right . . . .” (internal

quotation marks and alteration omitted)). The Supreme Court has “explained that

the phrase ‘case of actual controversy’ in the [DJA] refers to the [same] type of

‘Cases’ and ‘Controversies’ that are justiciable under Article III.” MedImmune, Inc.

v. Genentech, Inc.,

(2007) (citing Aetna Life Ins. Co. v. Haworth,

(1937)). Thus, the DJA “does not expand the subject[-]matter

jurisdiction of the federal courts,” Nike, Inc. v. Already, LLC,

(2d Cir.

11 2011) (emphasis added), aff’d,

(2013); rather, the “relevant inquiry for

[the DJA’s case-of-actual-controversy] prerequisite is coextensive with the analysis

applicable to the ‘case[-]or[-]controversy’ standard embodied in Article III,” Dow

Jones & Co. v. Harrods, Ltd.,

(S.D.N.Y. 2002) (emphasis

added), aff'd,

(2d Cir. 2003).

“The difference between an abstract question and a ‘controversy’

contemplated by the [DJA] is necessarily one of degree, and it would be difficult,

if it would be possible, to fashion a precise test for determining in every case

whether there is such a controversy.” Md. Cas. Co. v. Pac. Coal & Oil Co.,

(1941); cf. Socialist Lab. Party,

(“It is axiomatic that the

federal courts do not decide abstract questions . . . .”). “Basically,” however, the

critical “question . . . is whether . . . there is a substantial controversy, between

parties having adverse legal interests, of sufficient immediacy and reality to warrant

the issuance of a declaratory judgment.” MedImmune,

(quoting Md.

Cas. Co.,

) (emphasis added); see also Aetna Life Ins.,

(explaining that an “actual controversy” within the meaning of the DJA “must

be a real and substantial controversy admitting of specific relief through a decree

of a conclusive character”). “That the liability may be contingent does not

12 necessarily defeat jurisdiction of a declaratory[-]judgment action. Rather, courts

should focus on the practical likelihood that the [relevant] contingencies will occur.”

Emps. Ins. of Wausau v. Fox Ent. Grp., Inc.,

(2d Cir. 2008) (quoting

E.R. Squibb & Sons, Inc. v. Lloyd’s & Cos.,

(2d Cir. 2001)) (emphasis

added; alteration omitted); see also Associated Indem. Corp. v. Fairchild Indus., Inc.,

(2d Cir. 1992) (same). “Indeed, litigation over insurance

coverage” – like the dispute before us here – “has become the paradigm for

asserting jurisdiction despite future contingencies that will determine whether a

controversy ever actually becomes real.” E.R. Squibb & Sons,

(citation omitted).

When applying the practical-likelihood standard in insurance coverage

disputes, we must account for the fact that “an insurer’s duty to defend is . . .

distinct from [its] duty to indemnify,” Euchner-USA, Inc. v. Hartford Cas. Ins. Co.,

(2d Cir. 2014), and that insurance law applies “very different

presumptions to each,” CGS Indus., Inc. v. Charter Oak Fire Ins. Co.,

(2d Cir. 2013) (internal quotation marks omitted). 2 Thus, we agree with Judge Cote

2To be clear, our decisions in Euchner-USA and CGS Industries drew this distinction in the context of applying New York insurance law in cases where its applicability was undisputed. See Euchner-USA,

(“The parties agree that New York law controls whether [the

13 that district courts must “distinguish between the duty to defend and the duty to

indemnify in determining whether each issue posed in a declaratory[-]judgment

action is ripe for adjudication.” Atl. Cas. Ins. Co. v. Value Waterproofing, Inc.,

(S.D.N.Y.), aff’d sub nom. Atl. Cas. Ins. Co. v. Greenwich Ins. Co.,

(2d Cir. 2013); accord Columbia Cas. Co. v. Ga. & Fla. RailNet, Inc.,

, 110–11 (5th Cir. 2008); Lear Corp. v. Johnson Elec. Holdings Ltd.,

(7th Cir. 2003); Nationwide Ins. v. Zavalis,

, 693–94 (7th Cir.

1995). Because “the duty to defend is triggered by the filing of a lawsuit while the

duty to indemnify is triggered by a determination of liability,” a district court’s

jurisdiction to declare an insurer’s duty to defend and its duty to indemnify turn

on different inquiries – each involving the practical likelihood that the triggering

insurer] had a duty to defend [a third party’s] action [against the insured]. In New York, an insurer’s duty to defend is ‘exceedingly broad’ and distinct from the duty to indemnify.” (quoting Auto. Ins. Co. of Hartford v. Cook,

(2006))); CGS Indus., 720 F.3d at 76–77 (“The parties agree that New York law governs this action. . . . New York law distinguishes between the duty to indemnify and the duty to defend . . . .”). Here, by contrast, choice of law is a disputed issue: while Admiral contends that New York law governs its dispute with Niagara, Niagara contends that either New Jersey or Missouri law “may apply.” Niagara Br. at 22. But for purposes of our analysis on this point, the parties’ choice-of-law dispute is of no moment, as both New Jersey and Missouri courts recognize the same distinction between the duty to defend and the duty to indemnify as do New York courts. See, e.g., Mem'l Props., LLC v. Zurich Am. Ins. Co.,

(2012) (“The duty to defend and the duty to indemnify are distinct; an insurance company’s duty to defend is neither identical [to] nor coextensive with its duty to indemnify.” (internal quotation marks omitted)); Piatt v. Ind. Lumbermen’s Mut. Ins. Co.,

(Mo. 2015) (en banc) (“A liability insurer’s duties to defend and indemnify are distinct. . . . The duty to defend is broader than the duty to indemnify.”).

14 event will occur. Atl. Cas. Ins. Co.,

(citing Columbia Cas.

Co., 542 F.3d at 110–11). With respect to the duty to defend, the district court must

find a practical likelihood that a third party will commence litigation against the

insured. With respect to the duty to indemnify, the court must find a practical

likelihood that the third party will prevail in such litigation. Accordingly, a district

court “may” well have jurisdiction to “issue a declaratory judgment on [an

insurer’s] duty to defend,” even “while holding that the duty to indemnify is not

ripe for adjudication.” Id.

2. Application

Applying these principles here, we find that the district court correctly

determined that it lacked jurisdiction to issue a declaratory judgment on Admiral’s

duty to indemnify Niagara, but did not adequately perform the necessary and

separate analysis for determining its jurisdiction to declare Admiral’s duty to

defend Niagara.

In the decision below, the district court properly focused its analysis on the

“practical likelihood” of Monsanto’s taking actions that would resolve

“contingencies” embedded in the coverage dispute between Admiral and Niagara.

Sp. App’x at 9 (explaining that the justiciability of Admiral’s declaratory-judgment

action “turns on whether there exists a practical likelihood that [certain]

15 contingencies will occur”). However, the district court’s framing of the relevant

“contingencies” – and its assessment of what it would take for Admiral to establish

the requisite “likelihood that th[ose] contingencies will occur,” id. at 10 – failed to

sufficiently account for the “distinct[ion]” between “an insurer’s duty to defend”

and its “duty to indemnify,” Euchner-USA,

.

Despite repeated references to multiple “contingencies,” the district court

only articulated one: “[t]he contingency here is whether Niagara will incur liability

for defense and indemnity to Monsanto in connection with the PCB-related

litigation.” Sp. App’x at 9 (emphasis added). The district court “conclude[d]” that,

“[b]ecause it is unknown whether Monsanto will ever pursue future litigation

against Niagara and the validity and scope of the Special Undertaking is also

undetermined, future litigation that may require Admiral to indemnify Niagara is

unlikely.” Id. at 14 (emphasis added; internal quotation marks and alterations

omitted). Accordingly, the district court found that Admiral “has failed to show

that there is a practical likelihood that” the relevant “contingencies will occur.” Id.

at 10. 3 Meanwhile, the district court appears not to have assessed the practical

likelihood of whether Monsanto will sue Niagara – and instead, simply relied on

3 It bears emphasizing that the district court did not state what the other “contingencies” were.

16 the fact that “[t]o date, Monsanto has not [already] filed suit against Niagara” or

“explicitly threatened” to do so. Id. at 5 (emphasis added).

On the one hand, because “the duty to indemnify is triggered by a

determination of liability,” Atl. Cas. Ins,

, the district court’s

finding that it is practically “unlikely” that “Niagara will incur liability . . . to

Monsanto,” Sp. App’x at 9, 14, was sufficient to justify its conclusion that it lacked

jurisdiction to declare Admiral’s duty to indemnify. And we find no clear error in

that underlying finding, see Zappia Middle E. Constr.,

, given the

district court’s careful analysis of the “undetermined” status of the “validity and

scope of the Special Undertaking” upon which Monsanto’s theory of Niagara’s

liability was premised, Sp. App’x at 14. We therefore affirm the district court’s

jurisdictional ruling on the duty-to-indemnify component of Admiral’s

declaratory-judgment action.

On the other hand, because “the duty to defend is triggered by the filing of

a lawsuit,” Atl. Cas. Ins.,

, the district court’s jurisdiction to

declare Admiral’s duty to defend Niagara properly turns on the question of

whether there exists a “practical likelihood” that Monsanto will file suit against

Niagara, Associated Indem.,

(citation omitted). That question is

17 distinct, of course, from the questions of whether Monsanto has already filed suit or

explicitly threatened to file suit against Niagara. Thus, the mere fact that “[t]o date,

Monsanto has n[either] filed suit against Niagara” nor “explicitly threatened” to

do so, Sp. App’x at 5, is insufficient to justify concluding that there is no justiciable

“case of actual controversy,”

(a), over Admiral’s duty to defend

Niagara. Rather, the relevant question is whether “the facts alleged, under all the

circumstances,” evince a practical likelihood that Monsanto will sue Niagara.

MedImmune,

(quoting Md. Cas. Co.,

).

Although it may be true that “[d]istrict courts in this Circuit generally” do

“find [that] a practical likelihood exists in insurance declaratory[-]judgment

actions where there is a separate, underlying third-party action against the

insured” already pending, Sp. App’x at 11, that is a sufficient – rather than

necessary – condition for finding jurisdiction to declare an insurer’s duty to defend

an insured. Indeed, we have explicitly clarified that, in this context, the mere

“threat of future litigation remains relevant in determining whether an actual

controversy exists.” Nike,

. And applying that principle, we have

routinely exercised subject-matter jurisdiction over insurers’ declaratory-

judgment actions that were filed – and decided by district courts – before the

18 relevant third party had filed suit against the insured. See, e.g., Am. Ins. Co. v.

Fairchild Indus., Inc.,

, 438–39 (2d Cir. 1995). 4

We therefore remand, pursuant to our practice under United States v.

Jacobson,

(2d Cir. 1994), for the district court to “reconsider its prior

conclusion” regarding the justiciability of the duty-to-defend component of

Admiral’s declaratory-judgment action, Florez v. CIA,

(2d Cir.

2016). In particular, we instruct the district court on remand to assess the

“practical likelihood,” Emps. Ins. of Wausau,

(citation omitted), that

Monsanto will commence formal litigation against Niagara to vindicate the

positions staked out in the 2016 Demand Letter.

4 The district court considered American Insurance Co. “inapposite” because “[a]side from the fact that justiciability was not the issue before the court in that case, . . . it was evident that a practical likelihood of liability existed” there. Sp. App’x at 13. With regard to the district court’s passing comment that “justiciability was not the issue before the court in that case,” we emphasize that because “[a]n appellate federal court” always “must satisfy itself not only of its own [subject-matter] jurisdiction, but also of that of the lower courts in a cause under review,” Mitchell v. Maurer,

(1934), justiciability is always implicitly at issue – even where “neither party has questioned [it],” Liberty Mut. Ins. Co. v. Wetzel,

(1976). See also Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle,

(1977) (“[W]e are obliged to inquire [nostra] sponte whenever a doubt arises as to the existence of federal jurisdiction.” (emphasis added)). Thus, the very fact that we decided American Insurance Co. on the merits, without “inquir[ing] [nostra] sponte” into a potential defect in justiciability, suggests that we found that case to be a justiciable controversy. Mt. Healthy,

. And “[w]hile such . . . sub silentio jurisdictional ruling[s]” are not strictly “binding precedent in this [C]ourt,” we have recognized their significant instructive value. Brooks v. Flagg Bros., Inc.,

(2d Cir. 1977), rev’d on other grounds,

(1978).

19 “In the interests of judicial economy and orderly resolution of this matter,

we find prudent a limited remand” under Jacobson to allow the district court to

conduct this inquiry “in the first instance, and to conduct any further fact-finding

that may be required” to that end. Florez,

(citation omitted). Once

it has done so, the district court may “then return its determination to [this panel]

for consideration without the need for a new notice of appeal, briefing schedule,

and reassignment to a new panel unfamiliar with the case.”

5

B. Discretion to Decline Jurisdiction Under the DJA

Of course, should the district court determine on remand that it has

jurisdiction to declare Admiral’s duty to defend Niagara, it may nevertheless

decline to exercise such jurisdiction. That is because the DJA provides only that

federal courts “may declare the rights and other legal relations of an[] interested

party seeking such declaration” in “a case of actual controversy” – not that they

must so declare.

(a) (emphasis added). We “have consistently

5 Once the district court has issued its decision on remand, “either party may restore jurisdiction to this panel by filing a letter with the Clerk of this Court” within thirty days after the district court’s entry of such order, “set[ting] forth the grounds for claiming error in the [d]istrict [c]ourt’s decision and attach[ing] a copy of [its] order.” Florez,

. “Upon the filing of such a letter, the opposing party may file a response . . . within fourteen days.”

But “[i]f neither party files an initial letter within thirty days of the [district-court] order’s entry, appellate jurisdiction will be restored automatically, and an order affirming the [d]istrict [c]ourt will issue immediately.”

20 interpreted this permissive language as a broad grant of discretion to district

courts to refuse to exercise jurisdiction over a declaratory action that they would

otherwise be empowered to hear.” Dow Jones & Co. v. Harrods Ltd.,

(2d Cir. 2003). Nevertheless, because there appears to be considerable

confusion among the district courts of this Circuit regarding just how broad that

discretion really is, we write to clarify the legal standard that governs district

courts’ discretion to decline to issue declaratory judgments in “case[s] of actual

controversy” that are otherwise “within [their] jurisdiction.”

(a).

In Broadview Chemical Corp. v. Loctite Corp., we held that “[t]he two principal

criteria guiding the policy in favor of rendering declaratory judgments are

(1) when the judgment will serve a useful purpose in clarifying and settling the

legal relations in issue, and (2) when it will terminate and afford relief from the

uncertainty, insecurity, and controversy giving rise to the proceeding.”

(2d Cir. 1969) (quoting Edwin Borchard, Declaratory Judgments 299 (2d

ed. 1941)). We further held that “[i]t follows as a general corollary to this rule that

if either of these objectives can be achieved[,] the action should be entertained and

21 the failure to do is error.”

6 We reaffirmed that holding in 1992, when we held

that “a [district] court must entertain a declaratory[-]judgment action: (1) when

the judgment will serve a useful purpose in clarifying and settling the legal

relations in issue, or (2) when it will terminate and afford relief from the

uncertainty, insecurity, and controversy giving rise to the proceeding. . . . If either

prong is met, the action must be entertained.” Cont’l Cas. Co. v. Coastal Sav. Bank,

(2d Cir. 1992) (citing Broadview,

) (emphasis

added). Under that rigid, mandatory standard, district courts’ “discretion” to

decline jurisdiction under the DJA was – for all intents and purposes – discretion

in name only. It is difficult, after all, to imagine a scenario in which the issuance

of a declaratory judgment would not “serve a useful purpose in clarifying . . . the

6 We note that Broadview’s holding is actually not a “general corollary” to the “rule” enunciated by Professor Borchard in Declaratory Judgments, the source from which Broadview derived its factors.

. Borchard identified the “useful[-]purpose” factor and the “termination” factor and then stated that “when neither of the[] results [contemplated by those factors] can be accomplished, the court should decline to render the declaration prayed.” Borchard, supra, at 299 (emphasis added). It does not follow from that statement that if either the “useful purpose” or “termination” factor is satisfied, then the court must render the declaration sought. To conclude as much – as Broadview did – is to succumb to the “fallacy of denying the antecedent.” Crouse- Hinds Co. v. InterNorth, Inc.,

, 702 n.20 (2d Cir. 1980) (“The proposition that ‘A implies B’ is not the equivalent of ‘non-A implies non-B,’ and neither proposition follows logically from the other. The process of inferring one from the other is known as the ‘fallacy of denying the antecedent.’” (citing John Cooley, A Primer of Formal Logic 7 (1942))). Thus, according to Borchard, it is entirely possible that either factor could be satisfied, and a district court could still permissibly decline to entertain the action.

22 legal relations in issue” or “afford relief from the uncertainty . . . giving rise to the

proceeding.” Cont’l Cas.,

.

Shortly after we decided Continental Casualty, the Supreme Court handed

down a decision casting significant doubt on our cribbed view of the discretion

afforded to district courts under the DJA. In Wilton v. Seven Falls Co., the Court

repeatedly emphasized “the unique breadth of [district courts’] discretion to

decline to enter a declaratory judgment.”

(1995); see also

,

282–83, 286–88 (using similar language). Along the way, the Court also rejected

arguments that closely mirrored the holdings of Broadview and Continental

Casualty, namely, that “[d]istrict courts must hear declaratory judgment cases

absent exceptional circumstances,” and that “district courts may decline [to do so

only] if no beneficial purpose is thereby served or if equity otherwise counsels.”

(emphasis in original; citation omitted).

Candidly, our post-Wilton caselaw has been less than a model of clarity in

its treatment of the Broadview/Continental Casualty factors. In Dow Jones (decided

six years after Wilton), we did not expressly address the mandatory character of

the Broadview prongs. We did, however, cite Wilton for the general proposition

that “district courts” have “broad . . . discretion” under the DJA “to refuse to

23 exercise jurisdiction over a declaratory action that they would otherwise be

empowered to hear.”

(citing Wilton, 515 U.S. at 282–83). And we characterized

the Broadview factors merely as “factors that this . . . [C]ircuit[] ha[s] developed to

guide the exercise of discretion in [DJA] cases.” Dow Jones,

(emphasis

added). Without much analysis, we also noted that the district court in Dow Jones

had “balanced” the two Broadview factors alongside three additional “factors

that . . . other circuits have developed to guide the exercise of discretion in [DJA]

cases,” including: “whether the proposed remedy is being used merely for

‘procedural fencing’ or a ‘race to res judicata’”; “whether the use of a declaratory

judgment would increase friction between sovereign legal systems or improperly

encroach on the domain of a state or foreign court”; and “whether there is a better

or more effective remedy.”

at 359–60 (citing NUCOR Corp. v. Aceros Y Maquilas

de Occidente, S.A. de C.V.,

(7th Cir. 1994); Grand Trunk R.R. Co. v.

Consol. Rail Corp.,

(6th Cir. 1984)) (emphasis added). We did not

specify, however, whether we were adopting the “other circuits[’]” factors. In the

end, we ultimately affirmed the district court’s decision to “decline to exercise

discretionary jurisdiction over the action,” based on its “detailed analysis” of “all”

“five . . . factors.”

.

24 In New York v. Solvent Chemical Co.,

(2d Cir. 2011), we added to

the confusion. There, we stated that “a district court must inquire” into all five

factors laid out in Dow Jones. Id. at 26 (emphasis added). But this consolidation of

factors collapsed Dow Jones’s distinction between the Broadview factors, comprising

“this Court[’s] . . . test,” and those factors that were components of “[o]ther

circuits[’] . . . test[s].” Dow Jones,

(emphasis added). 7

And then, just a year later, we muddied the waters even further by reverting

to Dow Jones’s categorization of the five factors – stating that the first two factors

(again, the Broadview factors) constitute “our test” while the next three are merely

“additional factors” that “[o]ther circuits have added” into their tests. Niagara

Mohawk Power Corp. v. Hudson River-Black River Regul. Dist.,

(2d

Cir. 2012) (emphasis added). Thus, for all our tinkering, we have still not clearly

stated whether the Broadview/Continental Casualty factors remain mandatory after

Wilton.

7Although we stated in Solvent Chemical that “a district court must inquire” into all five factors, we did not say that a district court must entertain a declaratory-judgment action if any one of those factors was satisfied. 664 F.3d at 26 (emphasis added). Rather, we simply concluded that “in th[at particular] case,” the combined effect of all “[t]he[] factors” was to “require [the] district court to issue a declaratory judgment.” Id. (emphasis added).

25 Not surprisingly, this lack of clear guidance has resulted in a significant split

of authority among the district courts of our Circuit. While most have continued

to apply the Broadview/Continental Casualty mandatory standard in strict fashion, 8

many others have treated our post-Wilton decisions as abandoning that standard

and replacing it with an open-ended, multi-factor balancing test. 9 See ICBC

8 See, e.g., Paul Rudolph Found. v. Paul Rudolph Heritage Found., No. 20-cv-8180 (CM),

, at *9 (S.D.N.Y. Sept. 30, 2021); Am. Empire Surplus Lines Ins. Co. v. Uplift Elevator of NY Inc., No. 20-cv-3246 (PGG),

, at *8 (S.D.N.Y. May 26, 2021); Roller v. Red Payments L.L.C., No. 19-cv-5285 (GRB),

, at *5 (E.D.N.Y. Feb. 11, 2021); Disability Rts. N.Y. v. N.Y. State Dep’t of Corr. & Cmty. Supervision, No. 18-cv-980 (GTS),

, at *23 (N.D.N.Y. Sept. 24, 2019), partial reconsideration granted on other grounds,

(N.D.N.Y. Nov. 4, 2020); H&H Env’t Sys., Inc. v. Evanston Ins. Co., No. 18-cv-06315 (EAW),

, at *5 (W.D.N.Y. Mar. 12, 2019); Dubov v. Lewis, No. 18-cv-3854 (PAE),

, at *2 (S.D.N.Y. Mar. 6, 2019); Trs. of N.Y.C. Dist. Council of Carpenters Pension Fund v. Champion Int’l Constr. Corp., No. 18-cv-5881 (JGK),

, at *2 (S.D.N.Y. Oct. 30, 2018); Am. Time Exch., LLC v. Tissot SA, No. 17-cv-4737 (VM),

, at *3 (S.D.N.Y. Sept. 27, 2017); Armstrong Pump, Inc. v. Hartman, No. 10-cv-446S (HBS),

, at *23 (W.D.N.Y. Sept. 8, 2017); Intrepidus, LLC v. Bivins, No. 15-cv-7721 (LTS),

, at *6 (S.D.N.Y. Apr. 28, 2017); Simoniz USA, Inc. v. Dollar Shave Club, Inc., No. 16-cv-688 (VAB),

, at *6 (D. Conn. Dec. 9, 2016); Ace Arts, LLC v. Sony/ATV Music Pub., LLC,

(S.D.N.Y. 2014); Precimed Inc. v. ECA Med. Instruments, No. 13-cv-761 (HBS),

, at *8 (W.D.N.Y. Jan. 28, 2014), adopted in relevant part, No. 13-cv-761 (RJA),

(W.D.N.Y. May 12, 2014); Daebo Int’l Shipping Co. v. Ams. Bulk Transp. Ltd., No. 12-cv-7960 (PAE),

, at *3 (S.D.N.Y. May 17, 2013); Chevron Corp. v. Salazar, No. 11-cv-691 (LAK),

, at *5 n.35 (S.D.N.Y. Aug. 17, 2011). 9 See, e.g., Rapillo v. CitiMortgage, Inc., No. 15-cv-5976 (KAM),

, at *6 n.8 (E.D.N.Y. Mar. 5, 2018) (“Subsequent decisions from the Supreme Court and the Second Circuit indicate that the[] two [Broadview/Continental Casualty] factors are not mandatory.”); McCullough v. World Wrestling Ent., Inc., No. 15-cv-1074 (VLB),

, at *16 (D. Conn. July 21, 2016) (“disagree[ing] with” litigant’s “argu[ment] that the Second Circuit has never explicitly abrogated its [mandatory] language in Broadview Chem[ical] Corp that if either of the first two factors [is] met[,] a district court must not decline to exercise jurisdiction”); Lafarge Can. Inc. v. Am. Home Assurance Co., No. 15-cv-8957 (RA),

, at *9 (S.D.N.Y. Mar. 31, 2018) (“Continental Casualty Co. . . . was decided before the Supreme Court gave the district courts ‘unique and

26 Standard Sec., Inc. v. Luzuriaga,

, 738 n.1 (S.D.N.Y. 2016)

(discussing other district courts’ confusion over whether “Continental Casualty’s

mandatory standard” – that is, its “test mandating [the exercise of] jurisdiction

when either of the two [Broadview] factors is met” – remains viable).

Despite their lack of clarity, our post-Wilton decisions are best read as

having abandoned the mandatory standard we had previously announced in

Broadview and Continental Casualty. None of those decisions has referred to, let

alone endorsed, Broadview’s or Continental Casualty’s language mandating that a

district court must entertain a declaratory-judgment action if either Broadview

factor is satisfied. Indeed, while we have occasionally cited Broadview and

Continental Casualty following Wilton for the two “factors” or “prongs” that they

enumerated, it has been more than thirty years since any of our cases has invoked

Continental Casualty’s “must be entertained” language,

, or even

Broadview’s “should be entertained” language,

. See Albradco, Inc.

v. Bevona,

(2d Cir. 1992). Meanwhile, all have identified other

factors that district courts either may, see Dow Jones, 346 F.3d at 359–60; Niagara

substantial’ DJA discretion in Wilton . . . , and the Second Circuit thus applied a standard more stringent [in Continental Casualty Co.] than courts do today.” (quoting Wilton, 515 U.S. at 289–90)); Ray Legal Consulting Grp. v. Gray,

(S.D.N.Y. 2014) (characterizing the two Broadview/Continental Casualty factors merely as ones that “courts should consider”).

27 Mohawk Power,

, or must, see Solvent Chem., 664 F.3d at 26, consider

alongside the two Broadview factors – which would hardly make sense unless they

were implicitly holding that the Broadview factors are no longer dispositive in their

own right. Through it all, our post-Wilton cases have consistently emphasized that

district courts have “broad . . . discretion . . . to refuse to exercise jurisdiction over

a declaratory action that they would otherwise be empowered to hear.” Dow Jones,

; see also Niagara Mohawk Power,

, 106 n.7 (similarly

referring to district courts’ “broad discretion”). And it would hardly constitute

meaningful discretion – much less broad discretion – to insist that district courts

“must” exercise their jurisdiction to issue a declaratory judgment whenever one

would “serve a useful purpose in clarifying . . . the legal relations in issue” or

“afford relief from the uncertainty . . . giving rise to the proceeding.” Cont’l Cas.,

.

Thus, consistent with our post-Wilton decisions, we now clarify that even in

circumstances “when [a declaratory] judgment [would] serve a useful purpose in

clarifying and settling the legal relations in issue” or “terminate and afford relief

from the uncertainty, insecurity, and controversy giving rise to the proceeding,”

Cont’l Cas.,

(citing Broadview,

), district courts retain

28 “broad discretion” to decline jurisdiction under the DJA, Niagara Mohawk Power,

n.7. We further clarify that the following considerations, “to the

extent they are relevant” in a particular case, Reifer v. Westport Ins. Corp.,

(3d Cir. 2014), should inform a district court’s exercise of such discretion:

(1) “whether the [declaratory] judgment [sought] will serve a useful purpose in

clarifying or settling the legal issues involved”; (2) “whether [such] a judgment

would finalize the controversy and offer relief from uncertainty”; (3) “whether the

proposed remedy is being used merely for procedural fencing or a race to res

judicata”; (4) “whether the use of a declaratory judgment would increase friction

between sovereign legal systems or improperly encroach on the domain of a state

or foreign court”; (5) “whether there is a better or more effective remedy,” Niagara

Mohawk Power,

(citations omitted); and (6) whether concerns for

“judicial efficiency” and “judicial economy” favor declining to exercise

jurisdiction, Reifer,

(citation omitted); see infra note 10

(collecting additional cases applying this factor).

Inherent in district courts’ “broad . . . discretion” to decline jurisdiction

under the DJA, Dow Jones,

, is a similarly broad discretion to weigh

the factors we have enumerated here. Thus, no one factor is sufficient, by itself, to

29 mandate that a district court exercise – or decline to exercise – its jurisdiction to

issue a declaratory judgment. Likewise, “[t]hese factors are non-exhaustive,”

Reifer,

, with district courts retaining wide latitude to address other

factors as relevant to the ultimate question of whether “the normal principle that

federal courts should adjudicate claims [over which they have] jurisdiction”

should “yield[] to considerations of practicality and wise judicial administration”

in a particular case, Wilton,

.

Nevertheless, district courts’ “broad discretion” to weigh these and other

relevant factors is not altogether “unfettered.” Niagara Mohawk Power,

. To the contrary, there are “three principal ways” in which “an abuse of

discretion can occur” in this context: (1) “when a relevant factor that should have

been given significant weight is not considered”; (2) “when an irrelevant or

improper factor is considered and given significant weight”; and (3) “when all

proper factors, and no improper ones, are considered, but the court, in weighing

those factors, commits a clear error of judgment.” Ameritas Variable Life Ins. Co. v.

Roach,

(11th Cir. 2005) (internal quotation marks omitted); see

also Dow Jones,

(“The Supreme Court has . . . made it clear that this

30 broad discretion is reviewed deferentially, for abuse of discretion.” (citing Wilton,

; Brillhart v. Excess Ins. Co.,

, 494–95 (1942))).

This framework is faithful to the permissive language of the DJA, see

(a), and is consistent with Wilton’s command to afford district courts

broad deference in declaratory-judgment actions. It is also in step with the law of

each of our sister circuits. 10

IV. CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s ruling that it

lacked jurisdiction to declare Admiral’s duty to indemnify Niagara; and

10 The Third, Fourth, Fifth, Sixth, Seventh, Eighth, Tenth, Eleventh, Federal, and D.C. Circuits have all held that district courts’ discretion to decline jurisdiction under the DJA is “guide[d]” by an open-ended, multi-factor balancing test in which district courts “should meaningfully consider” a variety of factors – no one of which mandates the exercise of jurisdiction. Reifer,

& n.13, 146 & n.22 (emphasis added; citation omitted); accord Centennial Life Ins. Co. v. Poston,

, 256–58 (4th Cir. 1996); Sherwin-Williams Co. v. Holmes County,

, 389–91 (5th Cir. 2003); W. World Ins. Co. v. Hoey,

, 758–61 (6th Cir. 2014); Amling v. Harrow Indus. LLC,

, 379–80 (7th Cir. 2019); Scottsdale Ins. Co. v. Detco Indus., Inc.,

, 996–99 (8th Cir. 2005); United States v. City of Las Cruces,

, 1186–92 (10th Cir. 2002); Ameritas Variable Life Ins., 411 F.3d at 1330–32; Warsaw Orthopedic, Inc. v. Sasso,

, 1229–32 (Fed. Cir. 2020); Morgan Drexen, Inc. v. CFPB,

, 695–98 (D.C. Cir. 2015). The Ninth Circuit has adopted a substantively similar test, see Huth v. Hartford Ins. Co. of the Midwest,

, 802–04 (9th Cir. 2002), albeit with the modest qualification that a “[d]istrict [c]ourt cannot decline to entertain [a declaratory-judgment] action as a matter of whim or personal disinclination,”

(citation omitted). The First Circuit has taken an even more broadly permissive view of district courts’ discretion under the DJA. See DeNovellis v. Shalala,

(1st Cir. 1997) (holding simply that “[district] courts have broad discretion to decline to enter a declaratory judgment,” without enumerating specific factors that district courts must consider in exercising such discretion).

31 REMAND, pursuant to our practice under Jacobson, see

, for the district

court to determine (1) whether there is a justiciable “case of actual controversy,”

(a), over Admiral’s duty to defend Niagara, and (2) if so, whether

to exercise its discretion – as guided by the framework clarified above – to decline

jurisdiction. Consistent with Jacobson, appellate jurisdiction will be restored to this

panel after the district court has supplemented the record and reconsidered its

prior decision on remand.

32