Seneca Ins. Co. v. Strange Land, Inc.

• Citation: 862 F.3d 835
• Decision Date: 17 March 2017
• Docket Number: No. 15-16011,15-16011
• Parties: SENECA INSURANCE COMPANY, INC., Plaintiff-Third-Party-Plaintiff-Appellant, v. STRANGE LAND, INC.; U.S. Bank National Association, Defendants-Appellees, v. Belfor USA Group, Inc., dba Belfor Property Restoration, Third-Party-Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

862 F.3d 835

SENECA INSURANCE COMPANY, INC., Plaintiff-Third-Party-Plaintiff-Appellant,
v.
STRANGE LAND, INC.; U.S. Bank National Association, Defendants-Appellees,
v.
Belfor USA Group, Inc., dba Belfor Property Restoration, Third-Party-Defendant-Appellee.

No. 15-16011

United States Court of Appeals, Ninth Circuit.

Submitted March 17, 2017^* , San Francisco, California

John P. Skalak, Wilson Elser Moskowitz Edelman & Dicker LLP, Las Vegas, Nevada, for Plaintiff-Third-Party-Plaintiff-Appellant.

William R. Ginn, Patrick R. Leverty, and Vernon E. Leverty, Leverty & Associates

862 F.3d 839

Law CHTD, Reno, Nevada, for Defendant-Appellee Strange Land, Inc.

Before: Kim McLane Wardlaw and Ronald M. Gould, Circuit Judges, and Edward F. Shea,^** District Judge.

OPINION

WARDLAW, Circuit Judge:

Seneca Insurance Company, Inc. ("Seneca") appeals the district court's order staying its action against Strange Land, Inc. ("Strange Land") pending the decision in a parallel state court proceeding. In situations of concurrent state and federal jurisdiction over a controversy, a district court must exercise its jurisdiction unless "exceptional circumstances ... serv[ing] an important countervailing interest" are present. Colo. River Water Conservation Dist. v. United States , 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). The district court examined several Colorado River factors and concluded that a stay of the federal proceedings was justified "for the sake of wise judicial administration." We disagree, vacate the stay order, and remand to the district court for further proceedings.

I.

We recount only the factual and procedural history of this insurance dispute necessary to consider the district court's abstention order. Strange Land owns a building in Reno, Nevada. In 2013, Strange Land obtained a commercial insurance policy from Seneca to cover the property for risk of loss up to $2 million. U.S. Bank, National Association ("U.S. Bank") holds a mortgage on the property and is an additional loss payee on the policy. Between May 4, 2013 and February 25, 2014, Strange Land made four property damage claims under its Seneca policy. Belfor USA Group, Inc. ("Belfor") repaired the property damage; in return, Strange Land promised that Belfor would be entitled to the insurance proceeds. After invoicing Strange Land for its work and failing to receive any compensation for the repairs, Belfor caused a Notice of Lien to be recorded on the property on May 16, 2014. Belfor alleges that it notified Seneca that Strange Land had assigned to Belfor its rights to the insurance proceeds, though Seneca asserts that it was unaware of Belfor's request for payment. Seneca's federal complaint alleges that, upon investigating Strange Land's claims, Seneca concluded that Strange Land had made material misrepresentations in its policy application. Therefore Seneca sought to rescind the policy and disclaimed responsibility for the claims. According to Belfor, Seneca rejected Belfor's request for reimbursement.

On July 21, 2014, Seneca filed a complaint against Strange Land and U.S. Bank in the instant suit (the "Federal Action"). Seneca described the "Nature of [the] Action" as "an action for declaratory judgment pursuant to 28 U.S.C. section 2201 and 28 U.S.C. section 2202, to determine the rights and duties" among the parties. Seneca sought, inter alia , a "declaration" rescinding the policy because of Strange Land's misrepresentations, a judgment of indemnity against Strange Land, and damages exceeding $75,000 "for recoupment of monies wrongfully paid to defendant on the first property claim."

On October 10, 2014, Belfor filed an action in the Second Judicial District Court in Nevada (the "State Action"),

862 F.3d 840

seeking compensation for its repair work from Strange Land as the property owner and Seneca as the policy issuer. In response, Seneca alleged its affirmative defenses, crossclaims, and counterclaims in the State Action. Seneca also filed a third-party complaint for interpleader and declaratory relief against Belfor in the Federal Action and moved to dismiss or stay the State Action in light of the pending Federal Action. On February 18, 2015, Strange Land filed a request for abstention in the Federal Action, which the district court granted on April 22, 2015. Seneca timely appealed.

II.

We have jurisdiction to review a Colorado River stay order pursuant to 28 U.S.C. § 1291. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 9–13, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). "Whether the facts of a particular case conform to the requirements for a Colorado River stay or dismissal is a question of law which we review de novo." Smith v. Cent. Ariz. Water Conservation Dist. , 418 F.3d 1028, 1032 (9th Cir. 2005). If we conclude that the Colorado River requirements have been met, we then review for abuse of discretion the district court's decision to stay or dismiss the action. See R.R. St. & Co. v. Transp. Ins. Co. , 656 F.3d 966, 973 (9th Cir. 2011). "[D]iscretion must be exercised within the narrow and specific limits prescribed by the [Colorado River ] doctrine." Id. (second alteration in original).

III.

We first consider Strange Land's argument that the more lenient abstention test from Wilton v. Seven Falls Co. , 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), and Brillhart v. Excess Ins. Co. of America , 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), should apply because Seneca's suit seeks only declaratory relief. See Brillhart , 316 U.S. at 495, 62 S.Ct. 1173 ("Ordinarily 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."). So long as the suit seeks more than merely declaratory relief, however, the entire action should be analyzed under the Colorado River framework. "[I]f the same action contains claims for both monetary and declaratory relief, the district court should not, as a general rule, remand or decline to entertain the claim for declaratory relief." R.R. St. , 656 F.3d at 976–77 (internal quotation marks omitted). To determine whether a suit exclusively seeks declaratory relief, we ask "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." Snodgrass v. Provident Life & Accident Ins. Co. , 147 F.3d 1163, 1167–68 (9th Cir. 1998).

The district court correctly chose to analyze the abstention motion under the Colorado River framework. It is true, as Strange Land notes, that Seneca's complaints describe the Federal Action as "an action for declaratory judgment pursuant to 28 U.S.C. section 2201 and 28 U.S.C. section 2202, to determine the rights and duties" between Seneca and Strange Land. Yet in its prayers for relief against Strange Land in the original and amended complaints, Seneca has consistently requested "a declaration rescinding the policy of property insurance," "a declaration of the Court voiding the policy ... based upon breach of contract and material misrepresentations," and "damages, in an amount exceeding $75,000, for recoupment

862 F.3d 841

of monies paid to defendant on the first property claim."

Seneca's filings thus have unfailingly sought damages, bringing its suit squarely within the Colorado River framework. Moreover, though certain of the prayers for relief in the Federal Action have been framed as seeking "declarations" by the court, Seneca is in fact pursuing rescission of the contract based on Strange Land's alleged misrepresentations—thereby altering the relationship of the parties—and not simply requesting that the court "announce[ ] the rights and obligations of the parties." See Robert S. Thompson et al., Remedies: Damages, Equity, and Restitution 10 (4th ed. 2009); see also James M. Fischer, Understanding Remedies 6 (3d ed. 2014) ("The essential feature of declaratory relief is that it does not compel an immediate, specific obligation to do something.... The full effect of the remedy lies in its educative value and the further remedy of a follow up action to enforce the rights, duties, and obligations recognized by the court...."). Those prayers for "declaratory" relief, in addition to the explicit request for damages, therefore also seek non-declaratory remedies. Even if the request for a declaration to determine the rights and duties of the parties dropped out of the lawsuit, the other remedies sought would afford an independent basis for the Federal Action. Because Seneca seeks remedies beyond declaratory judgment, the district court correctly applied the Colorado River standard.

IV.

We next consider whether the district court properly stayed the Federal Action pending resolution of the State Action based on Colorado River . "Abstention from the exercise of federal jurisdiction is the exception, not the rule." Colo. River , 424 U.S. at 813, 96 S.Ct. 1236. Generally "the...