United States District Court, W.D. Arkansas, Fayetteville Division
MEMORANDUM OPINION AND ORDER
TIMOTHY L. BROOKS UNITED STATES DISTRICT JUDGE
Before
the Court is a Motion to Dismiss, Stay, or Abstain (Doc. 7)
and Memorandum in Support (Doc. 8) by Defendant Bella Vista
Village Property Owners Association (the “POA”).
Plaintiff Philadelphia Indemnity Insurance Company
(“PIIC”) filed a Response in Opposition (Doc.
12), and the POA filed a Reply (Doc. 18). For the reasons
discussed below, the Court hereby GRANTS the
POA's Motion and STAYS the action
pending the resolution of parallel litigation in state court.
I.
BACKGROUND
In
summer 2018, a fire ignited at a property known as the
Trafalgar Road Stump Dump, located in Bella Vista, Arkansas.
The POA, which leased the site from 2004 through 2016, faces
liability for the fire from three sources. First, the
Arkansas Department of Environmental Quality
(“ADEQ”), having found hazardous materials at the
site, sought public funds to put out the fire and stabilize
the area and gave notice that it would pursue the POA, among
other parties, to recover those expenditures. To mitigate its
potential exposure, the POA entered into an agreement with
the ADEQ and hired its own contractor to perform the required
services at significantly lower cost than the price quoted to
the government. The POA has spent close to four million
dollars extinguishing the fire and stabilizing and
remediating the site. Second, the POA was named as a
defendant in a suit brought in Circuit Court in Benton
County, Parsons v. Bella Vista POA, 04CV-19-263. The
plaintiff brought suit against the POA and others to recover
public funds spent in response to the Stump Dump fire. The
case was subsequently dismissed as to the POA, but the POA
expended resources mounting a defense. Finally, the POA has
been named as a defendant in Macomber v. Samuel Care
Enterprises, Inc., 04CV-18-3332 (the
“Macomber case”), also filed in Benton
County Circuit Court. The plaintiffs in that case, residents
of Benton County, are suing the POA and others for damages
resulting from the Stump Dump fire and defendants'
alleged dumping of hazardous waste at the site. The POA, in
turn, has filed crossclaims against co-defendants who owned
or operated the Stump Dump, seeking contribution for the
money the POA expended in fulfilling its agreement with the
ADEQ. At least one former owner of the Stump Dump site has
also filed a crossclaim against the POA seeking
indemnification under a lease term that required the POA to
extend its insurance coverage to the owner of the leased
property.
Faced
with liability as a result of its settlement with the ADEQ
and the state court litigation described above, the POA
provided notice to its insurance company, PIIC, requesting
coverage pursuant to its policies. PIIC insured the POA
between 2007 and 2019, issuing fifty-five policies during
that period. In June 2019, after reviewing all of the
POA's policies, PIIC informed the POA that its insurance
policies did not provide coverage for any of the claims
described above. On June 24, 2019, the POA filed a
third-party complaint against PIIC in the Macomber
case, seeking declaratory judgment on the POA's coverage
under thirty-six of its policies from PIIC, as well as
damages for PIIC's failure to provide a defense and
indemnity.[1] Two days later, on June 26, PIIC filed its
Complaint in this Court seeking declaratory judgment that
none of the fifty-five policies it issued to the POA provide
coverage for any of the claims related to the Stump Dump
fire.
PIIC
subsequently filed a motion to dismiss in the
Macomber case, which the state court denied,
followed by an answer and counterclaim against the POA,
seeking declaratory judgment on the nineteen policies not
raised by the POA in its third-party complaint before the
state court. The POA, in turn, filed the instant Motion
before this Court asserting that the Macomber case
and this case are parallel litigation and urging this Court
to exercise its discretion under Brillhart/Wilton to
abstain in favor of allowing the state court to resolve the
dispute. The POA also argues that this Court should also stay
or dismiss these proceedings because the POA's
third-party complaint against PIIC in the Macomber
case was filed before PIIC's complaint in this Court and
because PIIC is engaging in impermissible forum shopping by
bringing this suit in federal court. PIIC responds that the
Macomber case is not parallel to its federal
Complaint, and the relevant factors weigh in favor of this
Court issuing declaratory judgment.
II.
LEGAL STANDARD
“Generally,
a federal district court must exercise its jurisdiction over
a claim unless there are exceptional circumstances for not
doing so.” Scottsdale Ins. Co. v. Detco Indus.,
Inc., 426 F.3d 994, 996 (8th Cir. 2005) (internal
quotation marks omitted). Federal courts have “the
virtually unflagging obligation . . . to exercise the
jurisdiction given them.” Colo. River Water
Conservation Dist. v. United States, 424 U.S. 800, 817
(1976). In this context, however, the Supreme Court has
expressed that the “[d]istinct features of the
Declaratory Judgment Act, we believe, justify a standard
vesting district courts with greater discretion in
declaratory judgment actions than that permitted under the
‘exceptional circumstances' test of Colorado
River and Moses H. Cone.” Wilton v.
Seven Falls Co., 515 U.S. 277, 286 (1995). Where an
action seeks declaratory judgment, “obligatory
jurisdiction yields to considerations of practicality and
wise judicial administration.” Scottsdale, 426
F.3d at 997.
“The
full scope of a district court's discretion to grant a
stay or abstain from exercising jurisdiction under the
Declaratory Judgment Act differs depending upon whether a
‘parallel' state court action involving questions
of state law is pending.” Lexington Ins. Co. v.
Integrity Land Title Co., Inc., 721 F.3d 958, 967
(2013). Thus, the determination of whether a suit for
declaratory judgment in a federal court is parallel to a
state court action is a “threshold determination for
identifying the extent of a district court's discretion
to grant a stay.” Id. at 968. “Suits are
parallel if substantially the same parties litigate
substantially the same issues in different forums.”
Scottsdale, 426 F.3d at 997 (internal quotations
omitted).
Where
parallel litigation is pending in state court, the district
court has broad discretion to abstain. “This broad
discretion is to be guided by considerations of judicial
economy, by considerations of practicality and wise judicial
administration, and with attention to avoiding gratuitous
interference with state proceedings.”
Lexington, 721 F.3d at 967 (internal quotation marks
and citations omitted). The district court should assess,
among other relevant factors, “the scope of the pending
state court proceeding and the nature of defenses open
there” by considering “whether the claims of all
parties in interest can satisfactorily be adjudicated in that
proceeding, whether necessary parties have been joined, [and]
whether such parties are amenable to process in that
proceeding.” Wilton, 515 U.S. at 283
(summarizing and affirming the factors laid out by the Court
in Brillhart v. Excess Ins. Co. of America, 316 U.S.
491 (1942)). If these factors reflect favorably on the state
court proceeding, the federal court will ordinarily abstain
because “it would be uneconomical as well as vexatious
for a federal court to proceed in a declaratory judgment suit
where another suit is pending in a state court presenting the
same issues, not governed by federal law, between the same
parties.” Brillhart, 316 U.S. at 495.
When a
district court exercises its discretion to abstain in a
declaratory judgment action because of parallel litigation,
it is generally appropriate to stay, rather than dismiss, the
federal action. See Wilton, 515 U.S. at 288 n.2
(“[W]here the basis for declining to proceed is the
pendency of a state proceeding, a stay will often be the
preferable course, because it assures that the federal action
can proceed without risk of a time bar if the state case . .
. fails to resolve the matter.”); see also Royal
Indem. Co. v. Apex Oil Co., 511 F.3d 788 (8th Cir. 2008)
(affirming the district court's decision to abstain under
Brillhart/Wilton but vacating the dismissal order
and remanding for the lower court to enter a stay).
III.
DISCUSSION
A.
Parallel Litigation
As a
threshold matter, the instant litigation is parallel with the
Macomber case in Benton County Circuit Court. Both parties
before this Court are also party to the action in state
court. In the Macomber case, the POA seeks
declaratory judgment regarding coverage for the ADEQ,
Parsons, ...