         IN THE UNITED STATES COURT OF APPEALS

                 FOR THE FIFTH CIRCUIT



                      No. 91-3154



IN THE MATTER OF: MAGNOLIA MARINE
TRANSPORT CO., INC.
MISSISSIPPI MARINE TRANSPORT COMPANY,

                              Third Party Plaintiff,

                        versus

LAPLACE TOWING CORPORATION, ET AL.,

                              Third Party Defendants,

BARBARA BORDELON FRYE and
E.N. BISSO & SONS, INC.,

                              Claimants-Appellants,

                        versus

MAGNOLIA MARINE TRANSPORTATION, INC., ET AL.,

                              Defendants-Appellees.

                       * * * * *

MAGNOLIA MARINE TRANSPORTATION, ET AL.,

                              Plaintiffs-Appellees,

                        versus

BARBARA BORDELON FRYE, ETC., and
E.N. BISSO & SONS, INC.,

                              Defendants-Appellants.



   Appeals from the United States District Court for
           the Eastern District of Louisiana

                    (June 25, 1992)
Before REAVLEY, HIGGINBOTHAM and DEMOSS, Circuit Judges.

REAVLEY, Circuit Judge:

     The district court has decided that the underwriters of a

vessel owner's marine insurance policy has standing under the

Limited Liability Act to demand that the federal court interpret

whether the policy limited the underwriters' liability to the

amount of the owner's liability.       The district court then refused

to permit claimants to proceed in state court against the owner

and underwriters without specifically conceding the right of the

underwriters to litigate policy interpretation in the admiralty

court.   The district court consequently stayed prosecution of

claims against the shipowner and the underwriters in the state

court, and declined to dismiss the underwriters' declaratory

judgment suit.   We hold that underwriters may not require this

federal accommodation, and that limitation of liability protects

only the shipowner.

                            I. BACKGROUND

     On February 3, 1988, on the Mississippi River south of Baton

Rouge, the M/V SAM LEBLANC collided with a barge in tow of the

M/V ERGONOT and then with a second vessel.      Captain Joseph Frye,

master of the SAM LEBLANC, drowned as a result of this accident.

On February 17, 1988 Barbara Frye (Frye), the captain's widow,

sued E.N. Bisso & Son, Inc. (Bisso), her late husband's employer,

in Louisiana state court.   She soon joined as a defendant in that

action Magnolia Marine Transport Co., Inc. (Magnolia), owner of


                                   2
the ERGONOT and owner pro hac vice of a barge that struck the SAM

LEBLANC.    She later joined Magnolia's marine insurance

underwriters in a direct action under Louisiana law.    Magnolia

filed its suit in admiralty to limit liability in the federal

district court in August 1988, and Frye and Bisso timely filed

claims.    The district court set the limitation trial for August

27, 1990.    The Louisiana court set Frye's suit for trial on

February 19, 1991.

     On August 22, 1990 the federal court stayed the limitation

action pending the resolution of Frye's state-court suit.      Two

days later, after Frye had notified the court that she planned to

file a direct action in state court, Magnolia and its

underwriters filed a declaratory judgment suit in the same

federal district court seeking a declaration that Magnolia's

underwriters are entitled to limitation of liability under Crown

Zellerbach Corp. v. Ingram Indus., Inc., 783 F.2d 1296 (5th

Cir.), cert. denied, 479 U.S. 821 (1986).    The declaratory

judgment suit was consolidated with the limitation suit.

Pursuant to the motions of Frye and Bisso to stay or dismiss the

declaratory judgment suit, the court considered whether the

insurers were entitled under Magnolia's policy to limit their

liability to Magnolia's liability.

     In January 1991, one month before the scheduled state-court

trial date, the district court ruled that the interpretation of

Magnolia's insurance policy is "necessarily a function of" the

limitation suit, and that moving ahead with the federal


                                  3
declaratory judgment suit would not jeopardize Frye's right to

common law remedies under the saving-to-suitors clause.      Magnolia

Marine Transport Co. v. Frye, 755 F.Supp. 149, 152 (E.D. La.

1991).   The court also found the stipulations of Frye and Bisso

defective for failing to protect Magnolia's underwriters and to

concede that the federal court is the only proper forum to

determine whether the underwriters policy permits them to limit

liability to the shipowner's liability.     Id. at 152-53.   The

court enjoined the state-court trial of claims against Magnolia

and its underwriters and denied the claimants' motion to dismiss

the declaratory judgment suit.   Id.

                          II. DISCUSSION

     The Limited Liability Act, 46 U.S.C. §181 et seq. (the Act,

or the Limitation Act), provides that the liability of a

shipowner for any damage arising from a maritime casualty which

is occasioned without the privity or knowledge of the shipowner

shall not exceed the value of the vessel at fault together with

her pending freight.   46 U.S.C. §183(a).   Federal courts have

exclusive admiralty jurisdiction of suits brought under the Act,

but "saving to suitors . . . all other remedies to which they are

otherwise entitled."   28 U.S.C. § 1333.    This statutory framework

has created "recurring and inherent conflict" between the saving-

to-suitors clause of §1333, with its "presumption in favor of

jury trials and common law remedies," and the "apparent exclusive

jurisdiction" vested in admiralty courts by the Act.     In re




                                 4
Dammers & Vanderheide & Scheepvaart Maats Christina B.V., 836

F.2d 750, 754 (2d Cir. 1988).

     When a shipowner files a federal limitation action, the

limitation court stays all related claims against the shipowner

pending in any forum, and requires all claimants to timely assert

their claims in the limitation court.     Id. at 755.   The court

takes jurisdiction to entertain those claims without a jury,

Waring v. Clarke, 46 U.S. (5 How.) 441, 458-60, 466, 12 L.Ed. 226

(1847), and ensures that the shipowner who is entitled to

limitation is not held to liability in excess of the amount

ultimately fixed in the limitation suit (the limitation fund).

Lake Tankers Corp. v. Henn, 354 U.S. 147, 152-53, 77 S.Ct. 1269,

1272 (1957).   The court's primary concern is to protect the

shipowner's absolute right to claim the Act's liability cap, and

to reserve the adjudication of that right in the federal forum.

Langnes v. Green, 282 U.S. 531, 543, 51 S.Ct. 243, 247 (1931).

     Lake Tankers makes "crystal clear" that the Act is directed

at maritime misfortunes where the losses claimed exceed the value

of the vessel and freight.    354 U.S. at 151, 77 S.Ct. at 1272.

Where the claim does not exceed that value, the saving-to-suitors

clause dictates that the admiralty court must allow suits pending

against the shipowner in a common law forum, in this case the

state court, to proceed.     Id., at 150-54; 77 S.Ct. at 1271-73;

Dammers & Vanderheide, 836 F.2d at 755.    But even when the claim

does exceed that value, the claimant still may prefer the state

court, for example if the claimant possesses a related claim


                                   5
against a party who is not protected by the Act.    See, e.g., In

re Complaint of McDonough Marine Service, Div. of Marmac Corp.,

749 F.Supp. 128, 130 (E.D. La. 1990) (claim against barge

manufacturer).   Consequently, the claimant may decide to reduce

the claim pending against the shipowner in the admiralty court to

the value of the limitation fund.

     The claimant who wishes to pursue a state court claim in

this manner must first make certain stipulations in the admiralty

court to preserve the shipowner's rights.   The claimant must

stipulate that the admiralty court reserves exclusive

jurisdiction to determine all issues related to the shipowner's

right to limit liability, and that no judgment against the

shipowner will be asserted to the extent it exceeds the value of

the limitation fund.   Upon the claimant's filing sufficient

stipulations, the admiralty court should allow the claimant to

proceed even when the claim exceeds the limitation fund.

Langnes, 282 U.S. at 540-41, 51 S.Ct. at 247; In Re Two "R"

Drilling Co., 943 F.2d 576, 578 (5th Cir. 1991).

     When the shipowner is beset by multiple claimants, admiralty

courts also are concerned that there be one federal forum for the

resolution of all competing claims.    See In re Complaint of

Midland Enterprises, Inc., 886 F.2d 812, 815 (6th Cir. 1989).

But even in multiple-claimant cases, admiralty courts still

should allow state court claims to proceed under proper

stipulations.    See Dammers & Vanderheide, 836 F.2d at 755-60.

Multiple claimants may reduce their claims to the equivalent of a


                                  6
single claim by agreeing and stipulating as to the priority in

which the claimants will receive satisfaction against the

shipowner from the limited fund.       S&E Shipping Corp. v.

Chesapeake & O. R. Co., 678 F.2d 636, 644 (6th Cir. 1982).       Under

such stipulations, "the state court proceeding could have no

possible effect on the [shipowner's] claim for limited liability

in the admiralty court . . . ."        Lake Tankers, 354 U.S. at 152-

53, 77 S.Ct. at 1272-73.   In that circumstance, "the provisions

of the Act . . . do not control.       Id.




                                   7
     Frye and Bisso filed stipulations in this case,1 and

Appellees Magnolia and its underwriters do not contest that these

stipulations adequately protect Magnolia's interests.   Rather,

the underwriters urge that the stipulations are incomplete

because the claimants failed to concede the underwriters' right

to litigate their liability in the limitation action.   The

underwriters further contend that the federal court has exclusive

jurisdiction to interpret their marine insurance policy.    The

district court agreed with the underwriters' arguments, and

therefore decided to lift the stay of the limitation suit,


      1
         The claimants filed the following stipulations:
     1.   Claimants stipulate that in the event there is
     judgment(s) in any state court actions, in excess of
     $230,000, which is the value that . . . Magnolia has
     placed on the limitation fund, plus pending freight, in
     no event will the claimants, separately or together,
     execute or enforce any judgment(s) insofar as same
     would expose Magnolia to liability in excess of
     $230,000, plus pending freight.
     2.   Claimants concede that this court has exclusive
     jurisdiction to determine Magnolia's statutory right,
     as vessel owner or owner pro hac vice, to exoneration
     from or limitation of liability under 46 U.S.C. § 183
     et seq., and, relatedly, the proper value of the
     limitation fund.
     3.   Claimants waive res judicata with respect to all
     claims relating to the issue of Magnolia's statutory
     right of exoneration from or limitation of liability,
     based on any judgment(s) in state court.
     4.   Claimants stipulate that the claim of E.N. Bisso &
     Son, Inc. shall have irrevocable priority over all
     other claims.
     5.   Claimants stipulate that Barbara Bordelon Frye's
     claim shall have irrevocable priority over all other
     claims, once E.N. Bisso & Son's claim is satisfied.
     6.   Claimants specifically reserve their right to
     challenge in this court the value of the limitation
     fund, which Magnolia has averred is $230,000, plus
     pending freight.


                                8
proceed with the declaratory judgment suit, and enjoin the

claimant's state court suit against Magnolia and the

underwriters.

A.   THE ADMIRALTY PROCEEDING   AND THE   UNDERWRITERS

     We first note that the Act itself affords the underwriters

no right of limitation.         Maryland Casualty Co. v. Cushing, 347

U.S. 409, 421-22, 433, 74 S.Ct. 608, 615 (1954). See also 3

Benedict on Admiralty § 45 at 5-37 (December 1989) (only "owner"

or "charterer" may limit liability).             Therefore, the underwriters

have no statutory basis to demand shelter in the claimants'

stipulations which are required to protect the shipowner's

rights.   Two "R" Drilling, 943 F.2d at 578; Dammers &

Vanderheide, 836 F.2d at 756-57.              A maritime insurer's right to

limit its liability depends upon the terms of its contract of

insurance.

     The district court stated its opinion that the

     claimants cannot stipulate that their claims do not
     exceed the value of Magnolia Marine's vessel without
     also applying that stipulation to Magnolia Marine's
     insurers . . . [and] a resolution of the policy
     language in favor of the insurers would mean those
     insurers have the same standing to limit their
     liability as do their assureds.

Magnolia Marine, 755 F.Supp. at 152-53 (footnote omitted)

(emphasis added).    The district court erroneously assumed that a

liability-limiting term in a marine insurance policy gives the

underwriters standing under the Act to assert limitation




                                          9
defensively and require protective stipulations from claimants.2

Because the underwriters' rights are purely contractual, and the

validity of the liability-limiting term in the policy at issue is

disputed, the underwriters are not entitled to a stipulation in

their favor.   Only if the disputed term were already adjudicated

in their favor could the underwriters colorably demand such a

stipulation, based on the judgment interpreting the policy and

not on the Act.

     The underwriters also argued below that they are entitled to

a federal forum for interpretation of the alleged liability-

limiting term of Magnolia's insurance policy.    On appeal, the

underwriters repeatedly refer to the exclusive jurisdiction of

federal courts to interpret marine policies.    It is true that

admiralty jurisdiction encompasses issues arising from marine

insurance contracts.   Insurance Co. v. Dunham, 78 U.S. (11 Wall.)

1, 24, 20 L.Ed. 90, 97 (1871); Offshore Logistics Services., Inc.

v. Mutual Marine Office, Inc., 639 F.2d 1168, 1170 (5th Cir. Unit

A 1981); International Sea Food Ltd. v. M/V Campeche, 566 F.2d

482, 485 (5th Cir. 1978); but cf. Wilburn Boat Co. v. Fireman's

Fund Ins. Co., 348 U.S. 310, 313-14, 75 S.Ct. 368, 374 (1955)

     2
        Crown Zellerbach, read in the context of Olympic Towing
Corp. v. Nebel Towing Co., 419 F.2d 230 (5th Cir. 1969), which
Crown Zellerbach overruled, establishes that a liability-limiting
term in a marine insurance policy gives rise to a valid policy
defense, and that a direct-action plaintiff may not successfully
challenge such a policy term on the grounds that the term
contravenes either Louisiana's direct action statute, or
Louisiana's law regarding personal defenses. 783 F.2d at 1301-
02. Crown Zellerbach does not hold that an insurer is entitled
to literal standing under the Limitation Act.


                                10
(noting broad regulatory power Congress reserved to states

concerning insurance).    And the claimants do not dispute that the

underwriters' policy in this case is a contract within the

admiralty jurisdiction.

     The district court concluded that the underwriters can

demand the federal forum to interpret their policy, but we know

of no authority for this proposition.    Rather, federal courts

have jurisdiction over contract actions, including those arising

from marine insurance policies, concurrent with any other common

law courts having jurisdiction for that purpose.     See 1 Benedict

on Admiralty §122 at 8-6, §123 at 8-10 (1992).    And "[s]tate law

governs construction of marine insurance contracts except where

it is displaced by admiralty law."     Employers Ins. of Wausau v.

Trotter Towing Corp., 834 F.2d 1206, 1210 (5th Cir. 1988).     Thus,

both the Louisiana court and the federal court have jurisdiction

to interpret Magnolia's insurance policy.

     The underwriters also argue that policy interpretation

belongs in federal court because this case poses a conflict

between admiralty law and state law.    The underwriters contend

that this conflict arises because direct action could allow the

claimants to recover damages against the underwriters in excess

of the limitation fund if their policy lacks a liability-limiting

term.   Interpretation of the disputed term thus brings this

conflict to bear.   And where admiralty law and state law

conflict, federal law must prevail.     Wilburn Boat, 348 U.S. at




                                 11
314, 75 S.Ct. at 370.         Consequently, the underwriters argue,

this conflict mandates exclusive federal jurisdiction.

        We disagree.    To date, the Supreme Court has found no

conflict between the Louisiana direct action statute and federal

law.        Cushing, 347 U.S. at 423, 74 S.Ct. at 615.   And we think

that, because the Limitation Act protects only the owner, the Act

does not preclude the claimant from recovering more than the

value of the limitation fund from a party not entitled to claim

the Act's protection.        If an insurer fails to contract for the

right to limit liability, its direct action liability may exceed

the value of the limitation fund without transgressing admiralty

law.3       But interpreting the Louisiana marine insurance contract

at issue in this declaratory judgment action is a task for the

Louisiana courts.

        The underwriters further argue that the interpretation of a

marine insurance policy is necessarily related to limitation, and

therefore should be undertaken by the admiralty court.        While the

stipulations filed in this case properly acknowledge exclusive

admiralty jurisdiction of all issues "related to" limitation, we

think that this language compels the federal forum only as to

issues affecting the shipowner's right to limitation, such as

ownership, privity, knowledge, and valuation.        See Guillot v.

Cenac Towing Co., 366 F.2d 898, 906 (5th Cir. 1966) (noting


        3
        While Louisiana law may dictate special contours for the
drafting of an effective liability-limiting policy term, we find
it inconceivable, as a matter of contract law, that a shipowner
and an insurer would not attempt to include such a term.

                                     12
hazard that extra-limitation proceeding may trespass on "the

exclusive domain of the Admiralty in adjudicating . . . privity

and knowledge . . . .").   And the fact that an insurance policy's

liability-limiting term may refer to the federal limitation

court's decision does not make the interpretation of that term

"necessarily related" to the owner's limitation rights so as to

bring policy interpretation within the exclusive federal

jurisdiction.

     Nor do we think that Crown Zellerbach affords insurers the

right to an exclusive federal forum or to a concursus of claims.

The district court said:

     Magnolia and its insurers argue that the policy
     language is necessarily a limitation issue.    If the
     state court determines that the [relevant language] is
     contained in the policy, the state proceeding can go no
     further, since Magnolia Marine and its insurers would
     all then be entitled to attempt to limit their
     liability in this court. [citing Crown Zellerbach].
     Conversely, in the event that the state court
     determines the [relevant language] is not contained in
     the policy, Magnolia and its insurers would be subject
     to a potential judgment without having had the benefit
     of attempting to limit liability, an exclusively
     federal remedy. . . . Depending on the construction of
     the particular policy language, an insurer may be
     subject to the protections of the Limitation Act . . .
     .

Magnolia Marine, 755 F.Supp. at 152 (emphasis added).     While the

district court recognized the problem of protecting the

shipowner's insurance when a claimant has a direct action, see

Cushing, 347 U.S. at 423-27, 74 S.Ct. at 615-17 (Clark, J.,

concurring) (describing problem), the district court erred in




                                13
attempting to solve that problem by merging Magnolia's statutory

limitation rights with the insurers' contractual rights.4

     The claimants' stipulations sufficiently protect Magnolia's

rights and acknowledge the proper federal jurisdiction.

Therefore the district court should allow the claimants to

proceed with their state court action, under the saving-to-

suitors clause.      But because the stipulations do not protect

Magnolia from the potential depletion of its insurance coverage,

the claimants must first take steps to preserve that coverage, as

we discuss next.

C.   PRESERVATION   OF   SHIPOWNER'S INSURANCE COVERAGE



     4
           The court cited McDonough Marine, 749 F.Supp. at 133,
in support of its conclusion that the insurers enjoy Limitation
Act standing. In that case, wrongful-death plaintiffs sued the
barge owner and the barge manufacturer in state court. The
manufacturer filed its cross-claim against the owner in the
owner's subsequent limitation action. The manufacturer then
asked the admiralty court to stay the state court claims against
the manufacturer because of the exclusive jurisdiction and
concursus provisions of the Act. The McDonough court determined
that it could not enjoin proceedings "in which claimants seek
remedies against parties not subject to the Limitation Act's
protections." Id. at 133.
     The district court in this case also noted McDonough's
discussion of In re Brent Towing Co., 414 F.Supp. 131 (N.D. Fla.
1975). Brent Towing dealt with claimants' efforts to lift the
stay of their state court claims against a vessel insurer in
Florida, which does not permit a separate direct action against
insurers. Id. at 132-33. Apparently lacking the necessary
stipulations, the Brent Towing court was forced to stay
claimants' state court proceedings against the owner, and then
against the insurer as well because the insurer could not be sued
apart from the owner. So neither Brent Towing nor McDonough
supports the underwriters' right to demand limitation, concursus,
exclusive federal jurisdiction, or stay of state court
proceedings in a case where stipulations adequately protect the
shipowner.


                                         14
     Although Congress intended the Limitation Act to benefit the

shipping industry, it declined to extend protection to many

categories of industry actors.    Cushing, 347 U.S. at 421-22, 433,

74 S.Ct. at 615, 621.    See also 3 Benedict on Admiralty § 45 (Act

does not protect time charterers, ship agents, masters, seamen,

etc.).   In fact, the Act does not promise shipowners freedom from

liability, but only limited liability.    Lake Tankers, 354 U.S. at

152-53, 77 S.Ct. at 1272-73.

     Magnolia argues that it may contract for freedom from

liability by purchasing insurance, and therefore insurance policy

interpretation is necessarily related to limitation.   Indeed, a

majority of the Cushing court recognized that a shipowner is

entitled to insure its investment, and that depriving the

shipowner of its insurance would conflict with the policy of

limited liability.   See Cushing, 347 U.S. at 418-19 (Frankfurter,

J.); id at 424 (Clark, J., concurring).   We recognize that

Magnolia might lose insurance protection if Louisiana furnishes

Frye a direct action.5   Assuming that the underwriters somehow

are unable to limit their liability contractually, and assuming

that Magnolia is entitled to limitation, then a judgment in the

direct action for damages against the underwriters, for an amount

exceeding both the limitation fund and the policy coverage, could



     5
        We profess no opinion on the availability of direct
action against a marine underwriter in Louisiana under the type
of contract at issue in this case, because that question is not
before us on appeal.


                                 15
encroach upon the coverage available to Magnolia.6   If this

judgment is entered before the limitation action, the judgment

could effectively deplete Magnolia's coverage below the amount of

the limitation fund.   Cushing, 347 U.S. at 418-19, 74 S.Ct. at

613; Guillot, 366 F.2d at 904.

     Recognizing the problem, this court has safeguarded

shipowners' policy rights in a direct action case by following

Justice Clark's recommended procedure.7   To avoid depletion of

the owner's coverage, this court has required the limitation

     6
        If an underwriter's policy capped coverage at $100,000
and the admiralty court limited the insured shipowner's liability
to $5,000, then a claim of $110,000 might endanger coverage in a
direct action in the following manner. If the state-court direct
action proceeded first to a judgment of liability and damages in
the amount of $110,000, and the insurer paid the policy limit of
$100,000 in satisfaction of that judgment, then the underwriter
would have no further liability to the shipowner. The claimant
could then proceed in the admiralty court against the shipowner
to recover the additional $10,000. If the admiralty court then
set the shipowner's liability at $5,000, the shipowner would be
liable to pay the claimant $5,000, but could no longer recover
from the underwriter. The shipowner would have received the
protection of the Limitation Act, but not the protection of his
insurance coverage because it was depleted in the direct action.
     7
        Justice Clark protected the shipowner's coverage by
"requir[ing] that the limitation proceeding be concluded first
and the owner's liability settled under it. The . . .
[underwriters] could then discharge this liability, to the extent
their policies covered it, by paying into the limitation
proceeding the proper sum. The door would then be left open for
prosecution of direct actions against the insurance companies on
the remaining coverage of the policies. 347 U.S. at 425. In
Coleman v. Jahncke Service, Inc., 341 F.2d 956, 960 (5th Cir.
1965), this court recognized that Cushing requires, if nothing
else, that shipowners be protected from losing their insurance
coverage when that coverage is threatened by a direct action.
And Cushing "establishes a procedure to be followed by lower
courts in handling similar cases until the Supreme Court further
clarifies the issues." Ex parte Tokio Marine & Fire Ins. Co.,
322 F.2d 113, 115-16 n.6 (5th Cir. 1963).


                                 16
action to precede the direct action.         Guillot, 366 F.2d at 905.

Structuring the litigation according to Cushing and Guillot

avoids potential unfairness by giving the limitation court the

first opportunity to allocate insurance proceeds to cover as much

risk as the shipowner contracted to shift to insurers.          And this

approach avoids expanding the Limitation Act's coverage beyond

what Congress has stated and our authorities have sanctioned.

     Consequently, we require the district court to continue the

stay of Frye's state court suit against Magnolia and its

underwriters, until the court has taken such steps as it deems

necessary to protect Magnolia's contractual rights.         We recognize

that Justice Clark's Cushing chronology is not the only possible

strategy, and that other methods may achieve an equivalent

result.   For example, the court might permit claimants to

stipulate Magnolia's priority claim to insurance proceeds in the

event that Magnolia is entitled to limitation and the insurers

are subject to direct action.

D.   THE DECLARATORY JUDGMENT ACTION

     We sua sponte consider whether we have authority to review

the district court's denial of the claimants' motion to dismiss

the declaratory judgment suit.         Originally, Magnolia's

underwriters filed a separate suit under the Declaratory Judgment

Act, claiming the right to the federal forum for the

interpretation of Magnolia's policy.         The district court

consolidated that suit with Magnolia's suit for limitation of

liability.   In the consolidated proceeding, the district court


                                       17
entered its order granting the injunction from which the

claimants appeal.   This same order also vacated the stay of the

limitation proceeding and denied, on the merits, the claimants'

motion to dismiss the declaratory judgment suit.    In this order,

the district court explained that it decided to reopen the

limitation proceedings and enjoin the state court proceedings for

three reasons: (1) the underwriters have the right to seek

limitation of their liability in federal court; (2)

interpretation of the underwriters' insurance policy is

necessarily a function of the limitation proceeding; and (3) the

claimants failed to file stipulations protecting the

underwriters' limitation rights.     All three of these reasons are

predicated upon the right of the underwriters to their

declaratory judgment as a product of their limitation of

liability rights.   We have rejected that predicate.   The ground

for denying the dismissal of the declaratory judgment suit, being

precisely the same, must be likewise rejected in this decision.

     28 U.S.C. §1292(a)(1) provides the basis for appeal of

interlocutory injunctions entered in the course of limitation

proceedings, Treasure Salvors, Inc. v. Unidentified Wrecked and

Abandoned Sailing Vessel, 640 F.2d 560, 565 (5th Cir. 1981), and

the claimants brought this appeal under that authority.    And "an

order granting or refusing an injunction brings before the

appellate court the entire order, not merely the propriety of

injunctive relief, and [the appellate court] may decide the

merits" so long as concerned "only with the order from which the


                                18
appeal is taken."     Marathon Oil Co. v. United States, 807 F.2d

759, 764 (9th Cir. 1986).    But our jurisdiction is not limited to

the specific order appealed from, Deckert v. Independence Shares

Corp., 311 U.S. 282, 287, 61 S.Ct. 229 (1940), and we may review

all matters which "establish the immediate basis for granting

injunctive relief."    See C. Wright, A. Miller, E. Cooper & E.

Gressman, Federal Practice and Procedure §3921 (1977).8

     In this case, the district court initially enjoined the

state court proceedings according to the Limitation Act.    The

court lifted this injunction, but later reinstated it after

deciding that the underwriters could claim the Act's protection

for themselves and litigate policy coverage in federal court as

part of Magnolia's limitation suit.    To consider the claimants'


     8
        Federal appellate courts have invoked the doctrine of
pendent appellate jurisdiction to consider issues contained in
collateral orders that are related to an appealable order, once
the court has taken jurisdiction of the appealable order and
found "sufficient overlap in the factors relevant to [the
appealable and nonappealable] issues to warrant [the] exercise of
plenary authority over the appeal." San Filippo v. U.S. Trust
Co., 737 F.2d 246 (2nd Cir. 1984), quoting Sanders v. Levy, 558
F.2d 636, 643 (2nd Cir. 1976), rev'd on other grounds,
Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 98 S.Ct. 2380
(1978); Scarlett v. Seaboard Coast Line R. Co., 676 F.2d 1043,
1052 (5th Cir. 1982). In Marathon Oil Co. v. United States, 807
F.2d 759, (9th Cir. 1986), the court ruled that orders separate
from an injunction-granting order would be considered on appeal
if "inextricably bound up" with the injunction. Id. at 764. An
order may be inextricably bound up with the injunction if the
injunction requires the appellant to comply with that order, Id.,
or if "separate consideration would involve sheer duplication of
effort by the parties and [the] court," Patterson v. Portch, 853
F.2d 1399, 1403 (7th Cir. 1988), or if the propriety of the
injunction depends on the correctness of issues resolved in the
other order summary, as in Sierra Club v. Department of
Transportation, 948 F.2d 568, 571 (9th Cir. 1991) (judgment
issues upon which injunction was grounded are appealable).

                                  19
appeal of the injunction under these circumstances, we have no

alternative but to consider whether Magnolia's underwriters had

legal justification to demand a federal forum and limitation of

liability.     The fact that the underwriters raised these issues

pursuant to a declaratory judgment did not preclude the district

court from considering these issues in granting the injunction,

and does not now prevent us from reviewing the district court's

decision to grant it.     The district court's erroneous sanction of

the underwriters' claims was the immediate basis for enjoining

other proceedings against Magnolia.     The fact that the district

court's order denying the motion to dismiss the separate

declaratory judgment suit would not be appealable apart from the

injunction does not affect our ruling.     Because we think that the

district court erred in denying the claimants' motion to dismiss,

we reverse.9

     The district court's decision to grant declaratory relief is

discretionary, and we review that decision for abuse of

discretion.     Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d

599, 601 & n.2 (5th Cir. 1983).     We first note that the district

court erred as a matter of law when it refused to dismiss the

declaratory judgment action based on the conclusion that the

underwriters have the same standing as the insured shipowner to




     9
        We think that our jurisdiction of the injunction allows
us to resolve all of the issues raised by the declaratory
judgment suit. We choose to reverse rather than to remand a suit
with no controversy remaining.

                                  20
limit liability, and to demand the federal forum to adjudicate

policy limitation.

     In Rowan Cos. v. Griffin, 876 F.2d 26 (5th Cir. 1989), this

court set out the factors for district courts to consider in

deciding whether to grant declaratory relief, or to stay or

dismiss a declaratory judgment suit in deference to a state court

action involving the same parties and issues.   The court may deny

declaratory relief

     because of a pending state court proceeding in which
     the matters in controversy between the parties may
     fully litigated, . . . because the declaratory
     complaint was filed in anticipation of another suit and
     is being used for the purpose of forum shopping, . . .
     because of possible inequities in permitting the
     plaintiff to gain precedence in time and forum, . . .
     or because of inconvenience to the parties or the
     witnesses.

Id. at 29 (citations omitted).   "Fundamentally, the district

court should determine whether the state action provides an

adequate vehicle for adjudicating the claims of the parties and

whether the federal action serves some purpose beyond mere

duplication of effort."   PPG Indus., Inc. v. Continental Oil Co.,

478 F.2d 674, 682 (5th Cir. 1973), citing Brillhart v. Excess

Ins. Co., 316 U.S. 491, 62 S.Ct. 1173 (1942).   The district court

should consider denying declaratory relief to avoid "[g]ratuitous

interference with the orderly and comprehensive disposition of a

state court litigation" if "the claims of all parties . . . can

satisfactorily be adjudicated in [the state court] proceeding."

Brillhart, 316 U.S. at 495, 62 S.Ct. at 1176.




                                 21
     In this case, Frye's notice to the court of her intent to

file a direct action against the underwriters in state court

immediately preceded and prompted the underwriters' filing of

their declaratory judgment suit.     The underwriters are parties to

the state court suit, and the issues pertaining to liability,

direct action, and policy limitation may be fully adjudicated in

that action.   These parallel suits may duplicate the litigation

of a difficult, unresolved question of Louisiana law regarding

the availability of direct action under a marine insurance policy

such as the one at issue in this case.    And litigation of policy

coverage in the state court could be structured in a manner that

will not unduly inconvenience the parties.10

     Divested of their contentions regarding Limitation Act

standing and exclusive federal jurisdiction, the underwriters

demand declaratory judgment solely to obtain their preferred

forum in which to anticipate a defense that they could adequately

raise against Frye in Louisiana court.    This is inadequate to

support the decision to entertain a declaratory judgment.     See,

e.g., Mission, 706 F.2d at 602-03 (no declaration where

convenient alternative forum capable of resolving issues in

dispute); Dresser Indus., Inc. v. Ins. Co. of North America, 358

F.Supp. 327, 330 (N.D. Tex.), aff'd, 475 F.2d 1402 (5th Cir.



     10
        We anticipate that the federal court will resolve the
limitation action first and, if necessary, take steps to protect
the shipowner's insurance coverage. Then the state court will
try the issues of policy limitation, liability, direct action,
and damages.

                                22
1973) (no declaratory judgment suit merely to obtain change of

tribunal).

     In this case, the district court was aware that a state

court suit was pending which would involve the same parties and

issues as the proposed declaratory judgment action, and that

interpretation of Magnolia's insurance policy is governed by

state law.   The district court abused its discretion when it

chose not to stay or dismiss the declaratory judgment action to

avoid duplicative and piecemeal litigation.



                             CONCLUSION

     In sum, we hold that the district court erred by enjoining

the prosecution of Frye's Louisiana suit, for the reason that the

claimant's stipulations did not extend to the shipowner's

underwriters.   The district court further abused its discretion

by declining to stay or dismiss the underwriters' declaratory

judgment action.   We confirm, however, that Magnolia's

contractual rights should be protected if necessary by enjoining

the state court suit until the limitation action is resolved.

     We need not address whether Louisiana law affords Frye a

direct action against the underwriters on a policy of marine

insurance.   The issue was not presented to the trial court and is

not properly before us.

     The injunction remains, pending remand and reconsideration

by the district court.

     REVERSED AND REMANDED


                                 23
DeMOSS, Circuit Judge, DISSENTING:



     In the published opinion (Magnolia Marine Transport Co. v.

Frye, 755 F. Supp. 149 (E.D. La. 1991) from which this appeal has

been taken, the Trial Court concluded its opinion by taking the

following actions:

          "IT IS ORDERED that the motion of defendants in
     Civil Action No. 90-3053 to dismiss the declaratory
     judgment action is DENIED.

          "IT IS FURTHER ORDERED that the stay previously
     ordered in Civil Action No. 89-1361 on August 22, 1990,
     is VACATED and clerk is DIRECTED to re-open Civil
     Action No. 89-1361 and restore said case to the Court's
     docket.

          "IT IS FURTHER ORDERED that all other proceedings
     in this matter, including the pending state court
     action, involving Magnolia Marine and/or its insurers
     are hereby ENJOINED pursuant to Rule F(3) of the Sup-
     plemental rules for Certain Admiralty and Maritime
     Claims, pending further orders of this Court.

          "IT IS FURTHER ORDERED that plaintiff insurers in
     the declaratory judgment action file their motion for
     summary judgment on the issue of whether the insurance
     policy language allows them to limit their liability
     within thirty (30) days of receipt of this Order."


     Because I believe the Trial Court was correct in ordering

each of these actions, but perhaps did not articulate sufficient

reasons for its actions, I respectfully DISSENT from the forego-

ing opinion of the panel majority and file the following explana-

tion:

     A.   Denial of the motion to dismiss the declaratory
               judgment action

     While ordinarily a denial of a motion to dismiss is not an

appealable order, I accept for the purposes of this appeal the

                               24
portion of the panel opinion which sustains our appellate juris-

diction of this action by the Trial Court under 28 U.S.C.

1292(a)(1).   I disagree completely, however, with the panel

opinion that the Trial Court abused its discretion by refusing to

dismiss the declaratory judgment action.

     First of all as the Trial Court stated in footnote 2 on page

151 of its published opinion:

          "Because the Court is, by this Order, lifting
          the stay of the limitation case and enjoining
          further state court proceedings, the motion
          to dismiss the declaratory judgment suit on
          the basis of the pending state court action
          is moot."

     That makes eminent good sense to me.   To dismiss the

declaratory action, and at the same time enjoin the prosecution

of the state court proceeding in which allegedly the same issues

contemplated by the declaratory judgment action could be tried,

certainly would not contribute to the efficient disposition of

the legal issues between the parties.   More importantly, there

were unique circumstances involved in this case which are not

involved in the typical case where appellate courts have reviewed

the circumstances under which the federal district court may

entertain a declaratory judgment suit: i.e. (i) at the time the

declaratory judgment action was filed in the U.S. District Court,

the limitations of liability action of Magnolia Marine was

already pending in that same U.S. District Court; and the

consequent fact that all of the parties, other than the plaintiff

underwriters in the declaratory judgment action, were already

present before the same U.S. District Court; (ii) the fact that

                                25
from August 3, 1988, when Magnolia Marine first filed its

limitation of liability suit until August 22, 1990, the state

court proceeding was stayed by reason of the automatic stay order

issued by the U.S. District Court and that all discovery

depositions between the parties, regarding the circumstances of

the collision and the insurance coverages involved, were taken

pursuant to subpoenas issued by the U.S. District Court in the

limitation of liability proceedings; (iii) the fact that at the

time the marine underwriters filed their declaratory judgment

action in the federal court, they had not been brought into the

state court proceeding by Plaintiff Frye; (iv) the fact that the

state district court and the federal district court are separated

by only 10 blocks in downtown New Orleans, which is the venue

selected by the plaintiff Frye; and (v) the fact that whether in

the federal district court or the state district court, the

issues regarding policy coverage in the declaratory judgment

action would be governed by the same state law, i.e., the

Louisiana Direct Action Statute.

     For all of these reasons I think it was clearly within the

discretion of the Trial Court to choose to entertain the

declaratory judgment action which is precisely what the Federal

Declaratory Judgment Statute says he may do.

     B.   Reopening of the Limitation of Liability Proceeding

     The second action which the Trial Court took is not really

addressed in the panel opinion, except to the extent that it is

necessarily the other side of the coin of the dispute about the


                               26
Trial Court's issuance of the stay of the state court proceeding.

However, one cannot read the portion of the Trial Court's opinion

on page 151 which relates to the circumstances of the conference

on August 22, 1990, without sensing that the Trial Court feels

that counsel for all parties failed to properly advise the Court

as to the propriety of the actions which the Court took on that

day.

       C.   The Stay of the State Court Proceeding

       In assessing the propriety of the Trial Court's action in

staying the state court proceedings, there are two circumstances

which are determinative and must be kept clearly in mind: first,

in exercising the injunctive power, the Trial Court relied

expressly and exclusively on Rule F(3) of the Supplemental Rules

for Certain Admiralty and Maritime Claims and not on any general

injunctive power derivative from the pendency of the declaratory

judgment action in the same consolidated matter as the panel

opinion infers; and second, there were two claimants in the

limitation of liability proceeding, Mrs. Frye for the death of

her deceased husband Joseph, and Bisso for the damages to its

vessel; and the aggregate of their claims exceeded the value of

the Magnolia Marine vessel which is the subject of the limitation

of liability proceeding.    In short, the exercise of the

injunctive power was attendant to the standard and historic

powers given to the federal district court in limitation of

liability proceedings; and this was what is characterized as a

multiple-claims-inadequate-fund case.    Since the decision in


                                 27
Pershing Auto Rentals, Inc. v. William C. Gaffney, et al., 279

F.2d 546 (5th Cir. 1960, John R. Brown), the law of this Circuit

has been fixed that trial of all claims must occur in the

limitation of liability proceeding when multiple claims either

exceed the fund or there is reasonable apprehension that they

will.   There are only two special circumstances when a federal

court may permit a claimant or claimants to first try the issue

of liability vel non and damages in actions outside of the

limitation of liability proceeding: first, where there is only

one claimant, Langnes v. Green, 282 U.S. 531, 51 Sup. Ct. 243, 75

L. Ed. 520); and second, where there are multiple claimants who

stipulate that their claims in the aggregate do not exceed the

value of the vessel tendered in the limitation of liability

proceeding, Lake Tankers Corp. v. Henn, 354 U.S. 147, 77 Sup. Ct.

1269, 1 L.Ed. 2d 1246 (1957).   The Trial Court in our present

case recognized that neither of these special situations

permitting trial outside of the limitation of liability

proceeding exist in the present case.   If the Trial Court had

simply terminated its discussion at that point, his ruling on

this action would have been unassailable, but the Trial Court

went on to discuss the need for the stipulations filed in this

case to address rights of the marine underwriters.   It was that

additional language which prompted the panel majority to spend an

inordinate amount of time explaining (i) why marine underwriters

are not entitled to the benefits of the Limitation of Liability

Act; (ii) why the marine underwriters are not entitled to


                                28
concursus of claims; and (iii) why the District Court erred in

"merging Magnolia's statutory limitation rights with the

insurer's contractual rights," all of which is unnecessary and

immaterial.   Bottom line, this Circuit has never approved the

form and content of a stipulation to be filed by a claimant in a

multiple-claim-

inadequate-fund case because all of those cases are to be first

tried in the limitation of liability proceeding.    To the extent

that the panel opinion seems to say that the Trial Court should

devise an alternate form of stipulation, I suggest that the panel

is making new law inconsistent with settled precedent in this

Circuit.

     Furthermore, the stay order as issued by the Trial Court

prohibits state court actions against "Magnolia Marine and/or its

insurers".    There is clear and express authority in this Circuit

for that injunctive relief applying to both the shipowner,

Magnolia Marine, and its marine insurers.     Guillot v. Cenac

Towing Co., 366 F.2d, 898 (1966).     Speaking for this Court in

that case, Judge John R. Brown stated:

           "That means that as to the direct action
           against the insurers of the shipowner as
           such, the injunction was proper and the trial
           thereof must be stayed until disposition of
           the limitation proceedings." at p.905.

Consequently, even it the panel majority is correct that the

Trial Court erred in not dismissing the marine insurers

declaratory judgment action, the Frye and Bisso claimants are

still not entitled to try first their suit against the marine


                                 29
underwriters in a state court proceeding under the Louisiana

Direct Action Statute.

     Finally, I want to register my disagreement with the

inference, which the panel opinion attempts to create on page 12

of its opinion, that the issues to be litigated in the Federal

Limitation of Liability Proceeding relate only to "issues

affecting the shipowner's right to limitation, such as ownership,

privity knowledge, and valuation.     See Guillot v. Cenac Towing,

366 F.2d 898, 906 (5th Cir. 1966)."    First of all, the Guillot

opinion, as mentioned above, should have been cited by the panel

majority (but was not) for the proposition that the injunctive

relief issued by the District Court under Rule F(3) against any

direct action in the state court was proper equally as to the

marine insurers as to the owner of the vessel involved in the

limitation of liability proceeding.    Rather the panel opinion

selects a phrase out of the second part of the Guillot opinion

dealing with the propriety of a simultaneous state court action

against the corporate officers of the Shipowner and converts that

selected phrase from a specific recognition, of two elements

(privity and knowledge) which are clearly exclusive to the

limitation of liability proceeding, to a general classification

of all exclusive elements which it is not.    In my view, the

elements of "fault and liability" are absolutely essential

elements of the determination of the shipowner's right to limit

liability.   Certainly in this case involving collisions in

Louisiana waters between three navigating vessels and the


                                30
potential of a direct action in state court against marine

underwriters, the words of Justice Clark in effecting the

compromise in Cushing are controlling and determinative:

     "Our only interest is to make certain that such actions
     [against insurance companies under the Louisiana Direct
     Action Statute] do not interfere with the Federal
     Limitation Proceeding. To do this we need only require
     that the limitation proceeding be concluded first and
     the owner's liability settled under." p.425 (emphasis
     added)

     I believe, therefore, that the panel opinion "muddies" what

I thought would have been the "settled waters" of our Circuit's

juris prudence that trial in the limitation of liability

proceeding would encompass all issues relevant to a determination

of whether the shipowner is entitled to be exonerated from or

limited as to its liability for the casualty involved.    I think

the panel opinion is in error in suggesting that such a

determination can be made "only as to issues affecting the

shipowner's right to limitation, such as ownership, privity,

knowledge, and valuation" without including all issues regarding

liability.




                               31
