IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 92-1808 _______________
ROYAL INSURANCE COMPANY OF AMERICA and ROYAL LLOYDS OF TEXAS, Plaintiffs-Appellees,
VERSUS
QUINN-L CAPITAL CORPORATION, et al.,
Defendants-Appellants.
_________________________
Appeal from the United States District Court for the Northern District of Texas _________________________
(September 27, 1993)
Before WISDOM, DAVIS, and SMITH, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
The facts of this case are set forth in Royal Ins. Co. of Am.
v. Quinn-L Capital Corp., 960 F.2d 1286 (5th Cir. 1992)
("Royal I"). Following remand in Royal I, the district court
entered final judgment against defendant Quinn-L Capital Corp.
("Quinn-L"), granting summary judgment in favor of plaintiffs
Royal Insurance Company of America and Royal Lloyds of Texas
(collectively, "Royal") and entering a permanent injunction that
barred Quinn-L and the defendant investors from relitigating any
of the claims or issues decided in either this declaratory judgment action or the first declaratory judgment action.
I.
Quinn-L argues that the federal courts do not have
jurisdiction for three reasons. First, Quinn-L contends that the
district court did not have ancillary jurisdiction over the
affirmative defenses of waiver, estoppel, and negligence. Second,
Quinn-L contends that no diversity jurisdiction exists. Third,
Quinn-L asserts that the district court had no jurisdiction to
grant summary judgment while an appeal was pending before this
court.
A.
In Royal I, we recognized that the district court had
ancillary jurisdiction to issue an anti-suit injunction to protect
or effectuate its prior judgments. 960 F.2d at 1292. Quinn-L
argues that the district court lacked jurisdiction to grant
summary judgment on the waiver, estoppel, and negligence claims
because those claims are outside the scope of the first
declaratory judgment action. Royal contends that we held in the
first action that the district court had ancillary jurisdiction
over the entire controversy and that this holding is law of the
case.
Before addressing the merits of the jurisdictional argument,
we must decide whether law of the case principles apply to appeals
of preliminary injunctions. We decide that issue here because
2 Royal relies upon the law of the case doctrine in addressing
numerous points of error raised by Quinn-L. Quinn-L argues that
the doctrine has no application in preliminary injunction
proceedings.
The law of the case doctrine was developed to "maintain
consistency and avoid [needless] reconsideration of matters once
decided during the course of a single continuing lawsuit." 18
CHARLES A. WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 4478, at 788
(1981). "These rules do not involve preclusion by final judgment;
instead, they regulate judicial affairs before final judgment."
Id. Under this doctrine, we will follow a prior decision of this
court without reexamination in a subsequent appeal unless "(i) the
evidence on a subsequent trial was substantially different,
(ii) controlling authority has since made a contrary decision of
the law applicable to such issues, or (iii) the decision was
clearly erroneous and would work manifest injustice." North Miss.
Communications v. Jones, 951 F.2d 652, 656 (5th Cir.), cert.
denied, 113 S. Ct. 184 (1992). The doctrine extends to those
issues "decided by necessary implication as well as those decided
explicitly." Dickinson v. Auto Ctr. Mfg. Co., 733 F.2d 1092, 1098
(5th Cir. 1983) (citation, quotation marks, and emphasis omitted).
We disagree with Quinn-L's suggestion that law of the case
principles have no application to an interlocutory appeal of the
granting of a preliminary injunction. As in any other
interlocutory appeal, our decision constitutes law of the case.
1B JAMES W. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 0.404[4.))7], at II-
3 37 (2d ed. 1993). Obviously, the doctrine extends only to matters
actually decided. Id. at II-37 to II-38. As to decisions of law,
the interlocutory appeal will establish law of the case.
As to factual determinations, however, an interlocutory
appeal of a preliminary injunction often will not establish law of
the case. To obtain a preliminary injunction, the movant need
only show a substantial likelihood of success on the merits. We
review a district court's findings of fact supporting the grant of
a preliminary injunction for clear error. Royal I, 960 F.2d at
1297. Because the standard of review for factual determinations
on direct appeal is higher than the standard applied during an
interlocutory appeal of a preliminary injunction, the
interlocutory appeal normally will not establish law of the case
on factual matters.
Contrary to Quinn-L's suggestion, however, the reason this
result does not obtain is not because law of the case principles
are inapplicable. Rather, the lesser standard of review applied
during an appeal of a preliminary injunction necessarily means
that the factual issues differ from those on direct appeal. Such
a difference often will result only from the higher standard of
review applied during the direct appeal.
With this background in mind, we now address Royal's
contentions that we previously held that the district court had
ancillary jurisdiction over the entire controversy and that this
alleged holding is law of the case. In Royal I, we held that the
district court has "ancillary jurisdiction over the present
4 controversy." 960 F.2d at 1292. Read in context, this means that
we held only that the district court had ancillary jurisdiction to
issue an anti-suit injunction under the "protect or effectuate its
judgments" exception to the Anti-Injunction Act (the "Act"),
28 U.S.C. § 2283 (1988). 960 F.2d at 1299. We also held that the
district court should have limited the scope of that injunction to
exclude the claims that arose after the first declaratory judgment
action. Id.
In other words, we held that the district court had ancillary
jurisdiction to issue an injunction but that the Act bars a
portion of the injunction. We did not have to decide, and did not
decide, the jurisdictional issue as to the claims of waiver,
estoppel, and negligence, as Quinn-L obtained a reversal on the
merits as to those claims.1 Here, the jurisdictional issue is
squarely presented, and we must decide it.
We conclude that the district court did not have ancillary
jurisdiction to address the waiver, estoppel, and negligence
claims. As noted above, the district court has ancillary
jurisdiction2 to protect or effectuate its judgments. This
jurisdiction extends no further than necessary to achieve that
purpose. But "[w]hile . . . the . . . Act is not a grant of
1 It is uncertain whether it was proper for us to pretermit the jurisdictional issue in Royal I while reversing the preliminary injunction as to the waiver estoppel and negligence claims. Because of our holding today on diversity jurisdiction, we need not address this. 2 What was referred to formerly as "ancillary jurisdiction" is now included within the category of "supplemental jurisdiction." See Pub. L. No. 101-650, 104 Stat. 5113 (codified at 28 U.S.C.A. § 1367 (West Supp. 1993)). The amendment applies only to actions filed on or after December 1, 1990, so it is inapplicable to the instant case.
5 jurisdiction, no independent basis of jurisdiction is required for
a federal court to entertain an application to enjoin relitigation
in state court. The jurisdiction that the federal court had when
it entered its original judgment is enough to support its issuance
of an injunction." Mooney Aircraft Corp. v. Foster (In re Mooney
Aircraft), 730 F.2d 367, 374 (5th Cir. 1984) (citing 17 WRIGHT ET
AL., supra, § 4276, at 345 (1978)).
In Mooney, we noted that where a bankruptcy court seeks to
enjoin claims that were not encompassed in a prior judgment, no
ancillary jurisdiction exists. 730 F.2d at 374. Under Mooney,
the district court must have an independent basis for jurisdiction
over Quinn-L's waiver, estoppel, and negligence claims, as those
claims were not raised in the prior declaratory judgment
proceeding and are not barred by that proceeding under res
judicata principles.
Thus, we agree with Quinn-L that ancillary jurisdiction
extends no further than the scope of the first judgment. The
basis for allowing the federal courts to exercise ancillary
jurisdiction in issuing anti-suit injunctions is to allow them to
protect their prior judgments; where new claims are involved, the
policy basis for ancillary jurisdiction disappears. We therefore
conclude that ancillary jurisdiction to issue anti-suit
injunctions normally will not allow a federal court to exercise
jurisdiction over new claims not addressed in the judgment the
6 court is seeking to protect.3
3 Of course, if the first action bars the new claims because of res judicata principles, ancillary jurisdiction exists as to those claims.
7 B.
Next, we must decide whether diversity jurisdiction exists in
this case. Royal is an unincorporated association that sells
insurance under a so-called "Lloyd's plan." For purposes of
ascertaining whether the federal courts have diversity
jurisdiction, an unincorporated association is considered to have
the citizenship of its members. Carden v. Arkoma Assocs., 494
U.S. 185, 195-96 (1990). This case turns on the question of who
constitutes a "member" of a Lloyd's plan insurance association.
None of the underwriters is a citizen of Texas, while at least one
attorney in fact is a resident.
A Lloyd's plan insurer consists of a group of underwriters
who join together to issue insurance through an attorney in fact
or other representative. TEX. INS. CODE ANN. §§ 18.01)02 (West
1981). Ordinarily, such insurers provide insurance for risks for
which American insurance companies otherwise would not issue
policies. ROBERT E. KEETON & ALAN I. WIDISS, INSURANCE LAW § 2.1(a)(1)
(West 1988) (practitioner's ed.). Under the Lloyd's plan, the
insured typically obtains insurance from one or more members of
the Lloyd's group; each member accepts responsibility for a
portion of the risk, and liability among the members is several
but not joint. Jones v. Hollywood Style Shop, 62 S.W.2d 167, 167
(Tex. Civ. App. )) San Antonio 1933, no writ); KEETON & WIDISS,
supra, § 2.1(a)(1). In other words, the individual member is
responsible only for the portion of the risk that it chooses to
insure.
8 The Lloyd's group underwriters appoint an attorney in fact to
act for them under a power of attorney. TEX. INS. CODE ANN.
§ 18.01-1 (West 1981). The attorney in fact has the power to
issue policies of insurance, "authorized by and acting for such
underwriters . . . ." Id. The attorney in fact is "in effect the
chief executive and managing agent of the enterprise. . . ."
Grace v. Rahlfs, 508 S.W.2d 158, 161 (Tex. Civ. App. )) El Paso
1974, writ ref. n.r.e.).
Quinn-L contends that the attorney in fact is akin to a
general partner of a general partnership and that the underwriters
are akin to limited partners. We do not find the analogy relevant
to our inquiry, as the degree of control exercised by an
individual over an entity is irrelevant to the question of whether
he is a member of the entity. Carden, 494 U.S. at 192.
Analogies to other types of state-created entities likewise
are not especially helpful. The only relevant inquiry is the
identification of the members of this particular entity.
Normally, we should examine an entity's definition of "member."
Here, such an inquiry is unnecessary, as the relationship of the
attorney in fact to a Lloyd's group is described by statute.
We agree with Royal that the attorney in fact is not a member
of a Lloyd's group insurance association; only underwriters are
members of the organization. As noted above, the attorney in fact
acts as an agent for the Lloyd's group. Grace, 508 S.W.2d at 161.
Under Texas law, the attorney in fact must be authorized by the
underwriters to execute insurance polices and acts for those
9 underwriters by so doing. TEX. INS. CODE ANN. § 18.01-1 (West
1981). Moreover, the attorney acts under powers of attorney from
the underwriters, id., who also dictate, in the articles of
agreement, where the principal office of all attorneys will be,
id. § 18.02. Thus, for purposes of determining whether diversity
jurisdiction exists, we conclude that the members of a Lloyd's
group are the underwriters alone.4
Because attorneys in fact are not members of Lloyd's plan
insurance associations, we look only to the citizenship of the
underwriters to determine whether diversity jurisdiction exists.
Here, because none of the underwriters is a Texas citizen,
complete diversity exists.
C.
Finally, we must consider Quinn-L's contention that the
district court lacked jurisdiction to grant summary judgment while
the interlocutory appeal in Royal I was pending. A district court
loses jurisdiction over all matters validly before a court of
appeals. Dayton Indep. Sch. Dist. v. U.S. Mineral Prods. Co.,
906 F.2d 1059, 1063 (5th Cir. 1990). The district court does not
have the power to "alter the status of the case as it rests before
the Court of Appeals." Id. Quinn-L argues that the summary
4 Our conclusion is not altered by the fact that Texas law requires that the Lloyd's group appoint a resident of Texas as an attorney in fact if it wishes to issue insurance policies in Texas. See TEX. INS. CODE ANN. § 18.02 (West 1981). Texas could have required one or more underwriters to be a resident of the state but chose only to require the attorney in fact to be a resident. Texas's election to require an association to employ an agent within the state to conduct the association's business does not make the agent any more or less an agent.
10 judgment determined a matter within our jurisdiction.
This case does not fall within the scope of Dayton, a case in
which the district court made a ruling that mooted an
interlocutory appeal. In other words, the district court's action
interfered with our jurisdiction to decide the issues before us.
Here, the district court's continuing jurisdiction during the
pending interlocutory appeal did not interfere with our ability to
decide the issues presented in Royal I. Accordingly, the district
court had jurisdiction to enter summary judgment.
II.
Quinn-L argues that the declaratory judgment and permanent
injunction must be vacated because they violate the Act, which
provides as follows: "A court of the United States may not grant
an injunction to stay proceedings in a State court except as
expressly authorized by Act of Congress, or where necessary in aid
of its jurisdiction, or to protect or effectuate its judgments."
28 U.S.C. § 2283 (1988). The Act is "an absolute prohibition
against enjoining state court proceedings unless the injunction
falls within one of [the] three specifically defined exceptions."
Atlantic Coast Line R.R. v. Brotherhood of Locomotive Eng'rs, 398
U.S. 281, 286 (1970). The Court also has warned that "the
exceptions should not be enlarged by loose statutory
construction." Id. at 287.
Here, the district court rendered a declaratory judgment on
the waiver, negligence, and estoppel claims and enjoined
11 defendants from proceeding therewith in state court. On its face,
then, this judgment falls squarely within the "protect or
effectuate its judgments" exception to the Act. We have stated,
however, that "[i]f an injunction would be barred by § 2283, this
should also bar the issuance of a declaratory judgment that would
have the same effect as an injunction." Texas Employers' Ins.
Ass'n v. Jackson, 862 F.2d 491, 506 (5th Cir. 1988) (en banc)
(citation and quotation marks omitted), cert. denied, 490 U.S.
1035 (1989). Quinn-L argues that because we held in Royal I that
the Act barred the preliminary injunction as to the waiver,
estoppel, and negligence claims, Jackson necessarily bars the
declaratory judgment and permanent injunction on those claims.
In Jackson, the plaintiff sought relief under the Longshore
and Harbor Workers' Compensation Act (LHWCA) using the normal
administrative process. Before that process was complete, he sued
his employer's LHWCA insurer in state court, alleging, inter alia,
deceptive trade practices, fraud, bad faith, and intentional
infliction of emotional distress. The insurer filed a plea in bar
asserting LHWCA preemption. The state court denied the petition,
and extensive discovery was conducted. Later, the insurer filed a
declaratory judgment action in federal court seeking an injunction
against prosecution of the state court suit.
The district court granted the injunction on the basis of the
"protect or effectuate its judgments" exception to the Act. The
panel reversed and barred the grant of injunctive relief but
allowed the declaratory judgment to stand. Texas Employers' Ins.
12 Ass'n v. Jackson, 820 F.2d 1406 (5th Cir. 1987). The en banc
court held that the declaratory judgment was invalid as well,
because it was "plain that the only purpose and effect of TEIA's
federal suit was to defeat Jackson's state suit against it and to,
in effect, overrule the state trial court's denial of TEIA's plea
in bar." 862 F.2d at 491. Expressing our concern over the
apparent attempt to interfere with a state proceeding, we observed
that "[t]o allow declaratory relief in these circumstances would
be to transform section 2283 from a pillar of federalism
reflecting the fundamental constitutional independence of the
states and their courts, to an anachronistic, minor technicality,
easily avoided by mere nomenclature or procedural sleight of
hand." Id.
As we noted above, we stated in Jackson that if "an
injunction would be barred by § 2283, this should also bar the
issuance of a declaratory judgment that would have the same effect
as an injunction." 862 F.2d at 506. Our inquiry here then
depends upon the resolution of two issues. First, we must decide
whether the Act would prevent the federal courts from issuing an
injunction under the facts of this case. If it would not, then
Jackson does not apply. Second, if an injunction would be barred,
we must decide whether Jackson is distinguishable.
To decide whether the Act would bar an injunction on the
waiver, estoppel, and negligence claims, we must address a
question that is res nova in this circuit. Quinn-L injected these
claims into the federal proceedings before it had filed any state
13 court actions on these claims. In other words, Royal filed a
declaratory judgment action seeking an anti-suit injunction prior
to the commencement of any state proceedings. Before a state
court suit is filed, the Act has no application, and a federal
court may enjoin parties from ever filing suit in state court.
Jackson, 862 F.2d at 507 (citing 17 WRIGHT ET AL., supra, § 4222, at
506-07 (1988)).
A circuit split exists on the question of whether the Act has
any application where the injunction is sought before a state suit
has been filed but is not issued until after a state suit was
filed. Three circuits have adopted the rule that the Act does not
apply where the federal suit is filed first. See Barancik v.
Investors Funding Corp., 489 F.2d 933, 937 (7th Cir. 1973);
National City Lines v. LLC Corp., 687 F.2d 1122, 1127 (8th Cir.
1982); Hyde Park Partners, L.P. v. Connolly, 839 F.2d 837, 842 n.6
(1st Cir. 1988). Two circuits, on the other hand, have held that
the Act should be applied to the case as it stands, regardless of
the order in which the actions were filed. Roth v. Bank of the
Commonwealth, 583 F.2d 527, 533 (6th Cir. 1978), cert. dismissed,
442 U.S. 925 (1979); see also Standard Microsystems Corp. v. Texas
Instruments, 916 F.2d 58, 61-62 (2d Cir. 1990) (disapproving of
the reasoning in Barancik)).
The leading case holding that the Act does not apply when the
federal suit is filed first is Barancik, in which the court
reasoned that the Act does not apply because the applicability of
the Act should be determined at the time the federal court's
14 injunctive powers are invoked. 489 F.2d at 937. The court was
concerned that otherwise a litigant could defeat a well-founded
motion for an anti-suit injunction by filing a suit in state
court. Id. The thrust of this reasoning is weakened, however, by
the fact that a federal district court often issues a temporary
restraining order (TRO) against filing a state court suit while it
is considering a motion for a preliminary injunction seeking such
relief. Such an action goes a long way to avoid the danger raised
by the Barancik court.
The Barancik court felt that using TRO's would encourage the
liberal granting of the kind of protective orders that the statute
was designed to prevent. We also disagree with this analysis,
which assumes the district court will decide the issue wrongly and
that granting a TRO will prejudice the decision on the merits.
Such logic proves too much, as no TRO would be justified under
this reasoning. Although the issuance of a TRO should not be
automatic and is subject to, inter alia, the requirements of FED.
R. CIV. P. 65(b),5 the TRO is a useful tool where appropriate.
The Barancik court, moreover, held that the Act does not
5 Rule 65(b) reads in relevant part as follows: A temporary restraining order may be granted without written or oral notice to the adverse party or that party's attorney only if (1) it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or that party's attorney can be heard in opposition, and (2) the applicant's attorney certifies to the court in writing the efforts, if any, which have been made to give the notice and the reasons supporting the claim that notice should not be required. Every temporary restraining order granted without notice shall be indorsed with the date and hour of issuance; shall be filed forthwith in the clerk's office and entered of record; shall define the injury and state why it is irreparable and why the order was granted without notice . . . .
15 apply where the federal suit is filed first. In this class of
cases, then, Barancik eviscerates the statutory bar against anti-
suit injunctions. The Barancik court also expressed concern that
the court might have to take action without notice to the opposing
party. We find this reasoning to be questionable as well, as it
assumes that district courts will ignore the requirements of rule
65(b).
We subscribe to what we think is the better view )) that the
Act applies regardless of when the federal and state suits were
filed. The plain language of the statute contains no exception
for a situation in which the federal suit was filed first. As the
Roth court notes, 583 F.2d at 533, the Supreme Court has held that
the statute provides an absolute prohibition on injunctions unless
one of the three exceptions applies.
The Court repeatedly has emphasized that those exceptions are
exclusive and that federal courts may not craft new ones. Any
doubts should be resolved in favor of denying the injunction.
Roth, 583 F.2d at 533 (citing Atlantic Coast Line R.R., 398 U.S.
at 286-87). Given the Court's consistently narrow interpretation
of the Act, the presumption in favor of denying an injunction, and
the absence of language in the statute suggesting that its
application depends upon the time of filing of the state suit, we
think Roth provides the better analysis. We conclude, therefore,
that the Act applies whenever a state suit is pending, regardless
of when it was filed.
Because the Act applies even when the federal suit is filed
16 first, we now must address Quinn-L's contention that our holding
in Jackson mandates reversal here. Royal argues that because the
federal suit was filed first in this case, Jackson is
distinguishable and hence is not controlling here.6 To resolve
this question, we return to policy concerns underlying our
decision in Jackson.
At oral argument, the parties characterized Jackson as a new
type of abstention. We agree with this characterization, as no
language in the Act or the Declaratory Judgment Act, 28 U.S.C.
§§ 2201, 2202 (1982), specifically commands the result in
Jackson.7 As we recently recognized, our decision in Jackson was
based upon principles of federalism and comity. Travelers Ins.
Co. v. Louisiana Farm Bureau Fed'n, 996 F.2d 774, 776 (5th Cir.
1993).8
In Jackson, the federal suit offended principles of comity
and federalism because the plaintiff sought an overruling of a
state court decision on LHWCA preemption. 862 F.2d at 505. Here,
Royal has not attempted to interfere with the state courts.
Instead, it sued to enforce a prior federal judgment, and Quinn-L
6 We reject Quinn-L's suggestion that Royal is judicially estopped from claiming that Jackson does not apply to the facts of this case. Royal merely offered a legal opinion regarding Jackson's application. As Royal properly argues, a statement of opinion on the law does not create a judicial estoppel. Sturm v. Boker, 150 U.S. 312, 336 (1893). 7 See ERWIN CHERMERINSKY, FEDERAL JURISDICTION § 12.1, at 593 (1989) ("The term abstention refers to judicially created rules whereby federal courts may not decide some matters before them even though all jurisdictional and justiciability requirements are met."). 8 See also Garrett v. Hoffman, 441 F. Supp. 1151, 1155-56 (E.D. Pa. 1977) (declaratory judgment should be barred only where judgment would lead to unseemly interference with state court litigation).
17 injected new state claims into the federal action. Royal sought
relief in federal court nearly six months before the state actions
against Royal were filed. Moreover, significant proceedings took
place during that time, including the filing of Royal's original
and amended complaints, the filing of Quinn-L's answer, and the
district court's consideration and denial of two motions for
dismissal based on the lack of jurisdiction. The only
interference results from the potential for a race to judgment.9
Where the federal case is filed substantially prior to the
state case, and significant proceedings have taken place in the
federal case, we perceive little, if any, threat to our
traditions of comity and federalism. See Moses H. Cone Hosp., 460
U.S. at 21-22 (fact that substantial proceedings have occurred is
a relevant factor to consider in deciding whether to abstain). In
fact, by filing a state suit after a federal action has been
filed, the state plaintiff can be viewed as attempting to use the
state courts to interfere with the jurisdiction of the federal
courts. We agree with Royal that if we were to hold that Jackson
applied in this scenario, litigants could use Jackson as a sword,
rather than a shield, defeating federal jurisdiction merely by
filing a state court action. Neither Jackson nor the concerns
underlying it mandate such a result.
Citing Hawaii Housing Auth. v. Midkiff, 467 U.S. 229, 238
9 A race to judgment often is condoned. See Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15 (1983) (approving of parallel proceedings in all but exceptional circumstances); PPG Indus. v. Continental Oil Co., 478 F.2d 674, 677 (5th Cir. 1973) (citing Kline v. Burke Constr. Co., 260 U.S. 206, 230 (1922)).
18 (1984), Quinn-L argues that abstention doctrines apply regardless
of when the state suit is filed. See also Hicks v. Miranda, 422
U.S. 332, 349 (1975). We find this contention flawed for two
reasons. First, Quinn-L mischaracterizes Midkiff. There, the
Court noted that if substantial proceedings have occurred in
federal court, that court need not abstain. 467 U.S. at 238. In
other words, in some cases the date on which the state court suit
was filed can make a difference in the application of the
abstention doctrine. Where substantial proceedings have begun,
the federal court is allowed to proceed to prevent the state from
employing abstention as a means to delay litigation.
Second, we find other types of abstention distinguishable.
For example, in the case of Younger10 abstention, the Court was
concerned with federal court interference with a state's ability
to function. By blocking proceedings involving state governments,
federal courts could interfere unduly with the state's ability to
govern. These federalism concerns are implicated no matter when
the federal and state suits are filed: A state's ability to
conduct proceedings is compromised if the officials conducting
those proceedings are involved in discovery in federal court.
In Jackson, on the other hand, the filing of the federal suit
demonstrated an attempt to overrule a decision by a state trial
court. Federalism and comity concerns arose only because a
litigant attempted to use the federal courts to interfere with
ongoing state court proceedings. Thus, while the time of filing
10 Younger v. Harris, 401 U.S. 37 (1971).
19 of the federal and state suits is irrelevant to the application of
the Act, it can be an important consideration in determining
whether to abstain under Jackson.
We conclude, however, that federal courts need not abstain
from declaratory judgment actions under Jackson where the federal
suit is filed substantially prior to any state suits, significant
proceedings have taken place in the federal suit, and the federal
suit has neither the purpose nor the effect of overturning a
previous state court ruling. We recently characterized the rule
in Jackson as applying only where "a declaratory defendant has
previously filed a cause of action in state court against the
declaratory plaintiff." Travelers, 996 F.2d at 776 (emphasis
added). Even where the state court suit is filed first, a class
of exceptions to the Jackson rule exists. Id. at 776-79. Our
decision today, declining to extend the rule to a case in which
the federal suit has been the subject of significant proceedings
before the state suit is even filed, comports with the policy
concerns that prompted our decision in Jackson.11
11 The investors also argue that we should not give effect to the federal district court's declaratory judgment under the circumstances of this case, even though the federal court's judgment was rendered first. This is because, the investors argue, the federal court injunction prevented the state court from reaching judgment first. The district court rendered its summary judgment on December 20, 1990, about 3½ months after the investors filed their state court actions on September 4, 1990. The state court set a tentative trial date for December 10 but, given the complexity of this action, we find it extremely unlikely that the state court could have tried this case and rendered judgment before December 20. We are persuaded, therefore, that the state court would not have entered judgment before the December 20 judgment of the federal district court, even if the federal court's October 30, 1990, injunction had not issued. Accordingly, we need not decide, in this case, whether the possibility that the state trial and judgment would have occurred first could be relevant under other circumstances.
20 III.
Quinn-L next contends that Royal was collaterally estopped
from pursuing the second declaratory judgment action because it
originally sought to reopen the first declaratory judgment action
by filing a motion on January 3, 1990. In the February 28, 1990,
order denying the request to reopen the first action, the district
court stated the following: "Because this case has been closed
and the issues may be litigated in the current state court
litigation, the Court DENIES the Motion." Quinn-L argues that
this order is determinative with respect to the forum in which the
coverage issues are to be decided.
Quinn-L cites New Orleans Pub. Serv. Co. v. Majoue, 802 F.2d
166 (5th Cir. 1986), for that proposition. In Majoue, the
defendant removed a state court suit, but the district court
remanded it. The defendant later filed a federal declaratory
action directed to the state claims. We stated that the original
order remanding the case was "res judicata as to the forum." Id.
at 168.
We find Majoue distinguishable. A decision to remand to
state court may not be appealed, and the district court may not
later change its mind. Id. at 167. In Majoue, we relied upon the
language of 28 U.S.C. § 1447(d) (1988), which states that a remand
order is not reviewable on appeal or otherwise. By filing a
declaratory judgment action, the party was attempting to attack
the district court's remand order collaterally, an action that is
prohibited by statute.
21 Here, on the other hand, the declaratory judgment is not an
attempt to attack the prior order collaterally, nor does any
statute prohibit the action. Moreover, as Royal argues, Majoue
involved an attempt to evade a final judgment. Here there is no
final judgment that could have any res judicata effect. We
reason, accordingly, that the February 28, 1990, order does not
collaterally estop Royal from pursuing this matter.
IV.
We next address Quinn-L's contention that the declaratory
judgment and injunction must be vacated because the investors were
not parties to the first declaratory judgment and because Royal I
is not preclusive on the issue of coverage for negligently caused
mental anguish and bodily injury. Royal argues that our decision
in Royal I is law of the case as to both issues. Quinn-L
disagrees and also argues that our decision was clearly
erroneous.12
First, Quinn-L claims that the investors are not bound by the
first declaratory judgment because they were not in privity with
Quinn-L. We disagree with Royal's contention that Royal I
establishes as law of the case that the investors were in privity
with Quinn-L. As we noted in Royal I, the issue of privity is a
question of fact for the trial court. 960 F.2d at 1297. Because
12 We reject Quinn-L's contention that it did not have a full and fair opportunity to litigate these issues. See Allen v. McCurry, 449 U.S. 90, 95 (1980). Quinn-L had more than adequate representation and ample opportunity to litigate the coverage question.
22 the appeal was interlocutory, we reviewed that finding only for
clear error. Id. Here, on the other hand, we review the district
court's findings de novo, because that court has rendered summary
judgment. As we discussed above, law of the case may not be
established on issues of fact where a later appeal involves a more
demanding standard of review.
Reviewing the district court's decision de novo, we affirm.
There is no material issue of fact as to privity, and the district
court properly held that Quinn-L is the investors' virtual
representative.
Second, Quinn-L contends that our Royal I decision was
clearly erroneous on the question of the scope of the first
declaratory judgment. Here, we agree with Royal that our prior
holding is law of the case, and we will not set it aside unless it
is "clearly erroneous and would work manifest injustice." North
Miss. Communications v. Jones, 951 F.2d 652, 656 (5th Cir.), cert.
denied, 113 S. Ct. 184 (1992). The res judicata effect of a prior
judgment is an issue of law that depends upon an interpretation of
the court's opinion. See Chick Kam Choo v. Exxon Corp., 486 U.S.
140, 148 (1988). Our decision in Royal I establishes a finding of
law on the scope of the first declaratory judgment. In this
situation, an interlocutory appeal establishes law of the case.
Nor do we perceive a reason to revisit Royal I. Quinn-L
argues that in Royal I we ignored the requirement that an issue
must be actually litigated and decided for issue preclusion to
apply. See Jackson, 862 F.2d at 500. Quinn-L contends that the
23 question of whether an accident had occurred was not litigated.
The term "occurrence" is defined in the policies as "an
accident . . . which results in bodily injury or property
damage . . . ." Quinn-L contends that a finding of no
"occurrence" by the district court could mean either (1) that the
pleading does not allege an "accident" or (2) that the accident
alleged in the pleading is not alleged to have caused either
"property damage" or "bodily injury." We agree with Quinn-L's
characterization of a finding of "no occurrence": That finding
could have either meaning.
Quinn-L goes on to contend that we assumed in Royal I that
the first declaratory judgment determined that there had been no
accident. Quinn-L argues that this issue was never litigated in
the first declaratory judgment action. We disagree.
The district court made separate findings in the first
declaratory judgment action, to the effect that the pleadings do
not allege an "occurrence," "property damage," or "personal
injury" as defined by the policies. If the finding of no
occurrence does not constitute a finding that no accident
occurred, there would have been no need to enter a separate
finding that no property damage or personal injury had occurred.
The only reasonable reading of the first declaratory judgment
opinion is that the court decided both that there was no accident
and that no property damage or personal injury had occurred.13
13 See also Royal I, 960 F.2d at 1295 nn. 10, 11 (discussing footnote 3 of partial summary judgment opinion, which acknowledged mental anguish as (continued...)
24 Moreover, this allegation actually was litigated. In its
motion for summary judgment, Royal requested that the court make
separate findings that no "occurrence" had been alleged and,
additionally, that no "personal injury" or "property damage" had
been alleged. Again, if Royal was seeking to litigate only the
absence of personal injury or property damage, it would not have
needed to ask for both findings.
In addition, Quinn-L's counterclaim placed the issue of
whether an "occurrence" was alleged before the district court.
The district court obviously felt that the issue was before it, as
it concluded that despite the allegation of mental anguish (an
injury Royal conceded would be covered), no "occurrence" had been
alleged. Finally, Quinn-L contends that we erred in Royal I
by ignoring the "actually decided" requirement for collateral
estoppel. Quinn-L claims that the issue of coverage for mental
anguish was not "actually decided" by the court in the first
declaratory judgment action. We disagree. As we explained in
Royal I, the district court expressly indicated that any mental
anguish was not caused by an occurrence within the meaning of the
policy. 960 F.2d at 1295 & nn. 10, 11. The court did actually
decide the issue.
13 (...continued) personal injury but still concluded that such injury was not caused by an "occurrence").
25 V.
Essentially for the reasons given by the district court, we
agree that no material issue of fact exists as to the claims of
waiver, estoppel, and negligence, and we affirm the district
court's grant of summary judgment on those claims. We find
Quinn-L's claim that the district court should have recused itself
to be completely without merit and therefore affirm on that issue.
AFFIRMED.