American Intern. Underwriters (Philippines), Inc. v. Continental Ins. Co.

• Decision Date: 13 April 1988
• Docket Number: No. 87-5893,87-5893
• Citation: 843 F.2d 1253
• Parties: AMERICAN INTERNATIONAL UNDERWRITERS, (PHILIPPINES), INC., a Philippines corporation, Plaintiff-Appellant, v. The CONTINENTAL INSURANCE COMPANY, a New Hampshire corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1253

843 F.2d 1253

AMERICAN INTERNATIONAL UNDERWRITERS, (PHILIPPINES), INC., a Philippines corporation, Plaintiff-Appellant, v. The CONTINENTAL INSURANCE COMPANY, a New Hampshire corporation, Defendant-Appellee.

No. 87-5893.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 10, 1987.

Decided April 13, 1988.

William S. Davis, Los Angeles, Cal., for plaintiff-appellant.

Carol A. Pisano, New York City, for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before O'SCANNLAIN and LEAVY, Circuit Judges, and ORRICK, Jr., ^* Senior District Judge.

ORRICK, Senior District Judge:

This case poses two important questions. First, we must decide whether exceptional circumstances exist in this case that would justify invoking the abstention doctrine articulated in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Second, we must determine whether plaintiff should be permitted to file a second action in federal court after initially choosing to litigate in state court.

Plaintiff, American International Underwriters (Philippines), Inc. ("AIU"), appeals from the dismissal of its action by the United States District Court for the Central District of California based on the abstention doctrine set forth in Colorado River. AIU originally brought suit in New York state court, alleging that defendant, The Continental Insurance Company ("Continental"), breached its obligation to plaintiff under two insurance policies. After two-and-a-half years of litigation in New York state court, AIU filed the present action in the district court, alleging the same facts and claims, but alleging jurisdiction based on diversity. ¹ The district court dismissed the complaint, citing Colorado River, and Ryder Truck Rental, Inc. v. Acton Foodservices Corp., 554 F.Supp. 277 (C.D.Cal.1983). The district court found that abstention was necessary to prevent forum shopping and duplicative litigation. We affirm.

I

In April 1984, AIU brought an action against Continental in the Supreme Court of the State of New York, County of New York. This action in the state court involved the same facts, claims, and contracts of insurance at issue in this case.

In its complaint, AIU alleged that it sustained a loss in the Philippines as a result of an investigation by the Philippine government into certain tax payments made by plaintiff in 1977 and 1978. AIU sought to recover under the insurance policies that Continental had issued to AIU.

During the two-and-a-half years the case was litigated in New York state court, seven motions were argued. The state court decided many substantive issues, including whether AIU had suffered a "loss" under the terms of the insurance policies, and whether Aetna Insurance Company ("Aetna") was a proper party to the lawsuit as the insurer subsequent to Continental. In addition, fairly extensive discovery was conducted in the state action.

As part of this discovery, AIU deposed Frederico Opinion, an investigator for the Philippine National Bureau of Investigation. After Continental objected to various questions at the deposition, AIU sought a ruling from the New York court on the objections. AIU also asked the court to rule that the deposition testimony and written report of Mr. Opinion would be admissible at trial. Although the court did not rule on this matter, AIU admits that the "arcane" New York state rules of evidence pose "evidentiary obstacles" to the admission of this evidence. Appellant's Opening Brief at 6. AIU also admits that it filed the present action in federal court to avoid these evidentiary obstacles. Id. After AIU brought the present case in the district court, the New York court stayed the state action, pending entry of a final nonappealable judgment in the federal case.

Once AIU filed its complaint in federal court, Continental immediately filed a motion to dismiss the complaint. Continental argued that the district court should abstain and defeat AIU's attempt to improperly remove the state court action to federal court. In the alternative, Continental sought to transfer the action to the United States District Court for the Southern District of New York.

The district court granted the motion to dismiss the complaint, based on the Colorado River abstention doctrine. According to the court, principles of wise judicial administration, specifically the prevention of forum shopping and the avoidance of duplicative litigation, warranted abstention. Recognizing that abstention is only to be granted in exceptional circumstances, the court nevertheless found that abstention was appropriate in this case. The court limited its opinion to the abstention issue, and did not reach the issues of removal or transfer.

The district court denied AIU's motion for reconsideration of its ruling. The court reaffirmed its earlier ruling, stating that abstention was warranted because AIU was "rule-of-evidence shopping."

II

A

The standard of review in Colorado River abstention cases is abuse of discretion. Mobil Oil Corp. v. City of Long Beach, 772 F.2d 534, 540 (9th Cir.1985). Although AIU argues that the standard of review is de novo, the main case AIU cites for this proposition does not discuss Colorado River abstention, but rather deals with the abstention doctrine announced in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). ² See Goldie's Bookstore, Inc. v. Superior Court of California, 739 F.2d 466, 468-69 (9th Cir.1984). Moreover, this Circuit has applied the abuse of discretion test in a wide variety of abstention cases. See C-Y Development Co. v. City of Redlands, 703 F.2d 375, 377 (9th Cir.1983) (and cases cited therein).

However, the abuse of discretion standard in this case should not be confused with the broader abuse of discretion test used in other matters, such as rulings on certain evidentiary issues. Mobil Oil, 772 F.2d at 540; C-Y Development, 703 F.2d at 377. In abstention cases, "discretion must be exercised within the narrow and specific limits prescribed by the particular abstention doctrine involved." Id. at 377. Thus, the district court judge in this case must have exercised discretion within the "exceptional circumstances" limits of the Colorado River abstention doctrine. See Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 19, 103 S.Ct. 927, 938, 74 L.Ed.2d 765 (1983) (hereinafter cited as "Cone ").

B

In general, abstention from the exercise of federal jurisdiction is considered "an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it." Colorado River, 424 U.S. at 813, 96 S.Ct. at 1244, quoting County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188, 79 S.Ct. 1060, 1063, 3 L.Ed.2d 1163 (1959). Federal courts have a "virtually unflagging obligation ... to exercise the jurisdiction given them." Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246.

Nevertheless, abstention is considered appropriate in a few well-defined areas to ease friction between federal and state sovereigns. Where a federal court can avoid a constitutional determination by allowing a state court to construe state law, the federal court should abstain. Railroad Commission of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941). Federal courts should also abstain when there are difficult questions of state law involving policy considerations that transcend the result in the case at the bar. See Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 29, 79 S.Ct. 1070, 1073, 3 L.Ed.2d 1058 (1959). Moreover, abstention is proper where federal jurisdiction has been invoked to restrain state criminal proceedings. Younger, 401 U.S. at 43-46, 91 S.Ct. at 750-51.

Unlike these other forms of abstention, Colorado River abstention is not based on weighty considerations of federal-state relations. Rather, Colorado River abstention is designed to promote "wise judicial administration." Colorado River, 424 U.S. at 817-18, 96 S.Ct. at 1246-47. As a result, Colorado River abstention should only be used in "exceptional" circumstances. Id. at 818, 96 S.Ct. 1246-47. Cone, 460 U.S. at 19, 103 S.Ct. at 938-39.

Several factors must be considered in deciding whether the exceptional circumstances are present that make it proper to apply Colorado River abstention. These factors are: (1) which court first assumed jurisdiction over the property in dispute; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; and (4) the order in which jurisdiction was obtained. Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246-47.

These factors are to be applied in a pragmatic and flexible way, as part of a balancing process rather than as a "mechanical checklist." Cone, 460 U.S. at 16, 103 S.Ct. at 937; see also Mobil Oil, 772 F.2d at 541. For example, in considering the order in which jurisdiction was obtained, it is important not only to determine whether the state or the federal complaint was filed first, but also to assess how much progress has been made in the two actions. Cone, 460 U.S. at 16, 103 S.Ct. 937; Mobil Oil, 772 F.2d at 542. Moreover, as part of this flexible approach, it may be important to consider additional factors not spelled out in the Colorado River opinion, such as the probable inadequacy of the state court proceedings. Cone, 460 U.S. at 26, 103 S.Ct. 942.

C

When the Colorado River analysis is applied to the facts of this case, it becomes clear that the district court judge was acting within his discretion when he abstained. Almost every factor in the Colorado River analysis indicates abstention was warranted. The facts of this case distinguish it from Mobil Oil, in which we found that the district court's decision to abstain was not warranted under the Colorado River doctrine. ³

The first factor to be considered is...