Philadelphia Indemnity Insurance Co. v. Bella Vista Village Property Owners Association

          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, ...