From R.R. Street & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., 2009 U.S. App. LEXIS 13780 (7th Cir. June 25, 2009):

Under what is known as the Wilton/Brillhart abstention doctrine, district courts possess significant discretion to dismiss or stay claims seeking declaratory relief, even though they have subject matter jurisdiction over such claims. R.R. Street & Company, Inc. ("Street") and National Union Fire Insurance Company of Pittsburgh, PA ("National Union") sued Vulcan Materials Company ("Vulcan") in this diversity action for declaratory relief and money damages related to Vulcan's refusal to defend and indemnify Street in several underlying lawsuits. Relying on the Wilton/Brillhart doctrine, Vulcan moved to dismiss the action or, alternatively, to stay the action pending resolution of a California state court action in which all three parties were involved. The district court granted Vulcan's motion, dismissing the plaintiffs' claims for both declaratory and non-declaratory relief based on the Wilton/Brillhart abstention doctrine. Street and National Union appeal. Because we conclude that the district court lacked discretion under the Wilton/Brillhart doctrine to dismiss the non-declaratory claims and should have exercised its discretion under that doctrine to retain the declaratory claim, we reverse and remand.

***

There is no doubt that a court may dismiss or stay an action under the Wilton/Brillhart abstention doctrine where solely declaratory relief is sought. [Wilton v. Seven Falls Co., 515 U.S. 277, 288, 290 (1995)]; Sta-Rite Indus., Inc. v. Allstate Ins. Co., 96 F.3d 281, 287 (7th Cir. 1996); see Brillhart, 316 U.S. at 492, 495. But where, as here, both declaratory and non-declaratory relief is sought, does the Wilton/Brillhart standard even apply, and, if so, under what circumstances? This issue has received different treatment in the courts of appeals that have addressed it and is one of first impression in this court.

The Fifth Circuit has adopted a strict bright-line approach: When an action includes a claim for declaratory relief along with any non-frivolous claim for coercive relief, Wilton/Brillhart abstention is completely inapplicable to all claims, and the Colorado River doctrine governs instead.... The Second and Tenth Circuits have agreed with the Fifth Circuit's approach, albeit in dicta....

[Footnote 4] The Fourth Circuit's approach is roughly similar to the Fifth Circuit's. When a declaratory claim is joined with non-declaratory claims, the Wilton/Brillhart standard does not apply to the non-declaratory claims.... Whether the district court retains discretion under Wilton/Brillhart to abstain from hearing the declaratory claim is a point on which the Fourth Circuit's case law is unclear...

In contrast, the Ninth Circuit first determines "whether there are claims in the case that exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case." ... If independent non-declaratory claims are present, then "the district court is without discretion to . . . decline to entertain these causes of action. Indeed, the district court has a 'virtually unflagging' obligation to exercise jurisdiction over these claims." ... Non-declaratory claims are "independent" of a declaratory claim when they are alone sufficient to invoke the court's subject matter jurisdiction and can be adjudicated without the requested declaratory relief.... Regarding the declaratory claim, "[t]he district court should not, as a general rule . . . decline to entertain the claim for declaratory relief. If a federal court is required to determine major issues of state law because of the existence of non-discretionary claims, the declaratory action should be retained to avoid piecemeal litigation." ... Thus, under the Ninth Circuit's approach, concern for judicial economy significantly limits the discretion afforded by Wilton/Brillhart over a declaratory claim when independent non-declaratory claims are present. Where the non-declaratory claims are not independent, the district court has discretion under Wilton/Brillhart to abstain from hearing the entire action...

[Footnote 5] The Eighth Circuit has adopted the "essence of the lawsuit" approach, under which a federal court is not obligated "automatically to apply the exceptional circumstances test articulated in Colorado River" when both non-declaratory and declaratory relief are sought.... Instead, because the Act authorizes a court to grant "[f]urther necessary or proper relief based on a declaratory judgment or decree," 28 U.S.C. § 2202, the district court may abstain from non-declaratory claims under Wilton/Brillhart "so long as the further necessary or proper relief would be based on the court's decree so that the essence of the suit remains a declaratory judgment action" .... The independence of non-declaratory claims from declaratory claims hinges on whether the grant of declaratory relief is a necessary predicate to the grant of non-declaratory relief.... Thus, the Eighth Circuit's approach is similar to the Ninth Circuit's, except that the jurisdictional independence of the non-declaratory claims does not appear to be a consideration.

With respect to the Fifth Circuit (and the courts of appeals that follow that circuit's approach), we do not think the mere fact that a litigant seeks some non-frivolous, non-declaratory relief in addition to declaratory relief means that a district court's Wilton/Brillhart discretion to decline to hear the declaratory claim should be supplanted by the narrower Colorado River doctrine. While that approach is commendable for its ease of application by both litigants and courts, it unduly curtails a district court's "unique and substantial discretion" to abstain from hearing claims for declaratory relief. Wilton, 516 U.S. at 286. And, unlike the Fifth and Fourth Circuits, we do not believe that a district court is required to adjudicate all non-frivolous claims seeking non-declaratory relief irrespective of their independence from the declaratory claim. ... [O]nly when non-declaratory claims are viable in federal court regardless of the declaratory claim does a district court have an obligation to hear such claims.

We therefore think the Ninth Circuit's approach is preferable and adopt the following test: Where state and federal proceedings are parallel and the federal suit contains claims for both declaratory and non-declaratory relief, the district court should determine whether the claims seeking non-declaratory relief are independent of the declaratory claim. If they are not, the court can exercise its discretion under Wilton/Brillhart and abstain from hearing the entire action. But if they are, the Wilton/Brillhart doctrine does not apply and, subject to the presence of exceptional circumstances under the Colorado River doctrine, the court must hear the independent non-declaratory claims. The district court then should retain the declaratory claim under Wilton/Brillhart (along with any dependent non-declaratory claims) in order to avoid piecemeal litigation.

[Footnote 6] A claim for non-declaratory relief is "independent" of the declaratory claim if: 1) it has its own federal subject-matter-jurisdictional basis, and 2) its viability is not wholly dependent upon the success of the declaratory claim. If a claim satisfies this test, then the district court's "virtually unflagging obligation" to exercise jurisdiction over a non-declaratory claim is triggered.

In other words, this test requires a court to adjudicate nondeclaratory claims if it "determine[s] . . . there are claims in the case that exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case." R&D Latex Corp., 242 F.3d at 1112 (quoting Snodgrass, 147 F.3d at 1167-68) (emphasis added). Otherwise, if, after factoring out the requested declaratory relief, there are no viable non-declaratory claims, then the district court may abstain from the entire action under Wilton/Brillhart without running afoul of its near-unwavering obligation to hear claims within its jurisdiction.

[Footnote 7] The Supreme Court counsels that a stay is often the preferable course where the basis for abstaining is the pendency of a state-court proceeding. Wilton, 515 U.S. at 288 n.2.