Federated Rural Elec. Ins. Corp. v. Arkansas Elec. Cooperatives, Inc.

• Decision Date: 27 March 1995
• Docket Number: No. 94-2342,94-2342
• Citation: 48 F.3d 294
• Parties: FEDERATED RURAL ELECTRIC INSURANCE CORPORATION, Appellant, v. ARKANSAS ELECTRIC COOPERATIVES, INC., Appellee. ARKANSAS ELECTRIC COOPERATIVES, INC., Appellee, v. FEDERATED RURAL ELECTRIC INSURANCE CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 294

48 F.3d 294

FEDERATED RURAL ELECTRIC INSURANCE CORPORATION, Appellant, v. ARKANSAS ELECTRIC COOPERATIVES, INC., Appellee.

ARKANSAS ELECTRIC COOPERATIVES, INC., Appellee, v. FEDERATED RURAL ELECTRIC INSURANCE CORPORATION, Appellant.

No. 94-2342.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 14, 1994.

Decided Feb. 16, 1995.

Rehearing and Suggestion for Rehearing

En Banc Denied March 27, 1995.

Jim L. Julian, Little Rock, AR, argued for appellant.

Charles L. Schlumberger, Little Rock, AR, argued for appellee.

Before MAGILL and BEAM, Circuit Judges, and SHANAHAN, ^* District Judge.

MAGILL, Circuit Judge.

Federated Rural Electric Insurance Corp. (Federated) appeals the district court's order staying its suit against Arkansas Electric Cooperatives, Inc. (AECI) until a state court suit between the same parties has been resolved. Federated argues that the district court abused its discretion by granting the stay because it failed adequately to consider the factors involved in defining the "exceptional circumstances" required for application of the Colorado River-Moses H. Cone abstention ¹ doctrine. We agree, and therefore reverse and remand to the district court.

I. BACKGROUND

This case arises from a dispute over whether the insurer or the insured is required to pay for environmental cleanup costs under a series of comprehensive general liability (CGL) insurance policies. AECI is an Arkansas corporation that purchased a series of yearly CGL policies from Federated, a Wisconsin corporation, from 1971 to the present. ² These policies contain a clause that obligates Federated to "pay on behalf of [AECI] all sums which [AECI] shall become obligated to pay as damages." This circuit has held that clauses of this type do not obligate the insurer (Federated) to pay cleanup costs under CERCLA or RCRA. Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977 (8th Cir.) (en banc), cert. denied, 488 U.S. 821, 109 S.Ct. 66, 102 L.Ed.2d 43 (1988) (NEPACCO ). The issue in this appeal arises because the parties have attempted to choose a forum for their litigation based upon whether or not it applies NEPACCO. J.A. at 382.

In July 1988, AECI received notice from the EPA that it might be a potentially responsible party in connection with a removal action sponsored by the EPA in Saline County, Arkansas. AECI gave notice to Federated and made a demand under the CGL insurance policies. Federated informed AECI that environmental remediation costs were not covered by any of the policies. The EPA eventually named AECI as a potentially responsible party, and AECI ultimately entered into an Administrative Order on Consent obligating it to pay environmental response costs that totalled approximately $565,000 in November 1992. In February 1993, Federated formally denied coverage of the environmental response costs under the policies. This denial of coverage triggered the filing of three lawsuits.

The first action was filed by AECI in Saline County Circuit Court in July 1993. Apparently aware of the diversity of citizenship that existed between the parties to the lawsuit, AECI split its cause of action in an attempt to prevent removal of the suit to federal court (and application of NEPACCO ). ³ The suit was styled as a claim for damages arising from Federated's refusal to provide coverage under a single CGL policy that covered the period between October 1, 1976, and October 1, 1977, generating damages that were less than the $50,000 jurisdictional amount required by 28 U.S.C. Secs. 1332 and 1441(a). Apparently seeking application of NEPACCO, Federated attempted to remove the case to district court. AECI predictably moved to remand, and AECI's motion was granted because the case did not involve a claim that satisfied the jurisdictional amount. In January 1994, AECI filed a motion for partial summary judgment in the Saline County action, which Federated opposed partly on the basis that it needed to conduct further discovery. At the July 26 summary judgment hearing, the Saline County court stayed proceedings pending the Arkansas Supreme Court's decision in Grantors to the Diaz Refinery PRP Committee Site Trust v. Sentry Insurance, No. 94-00027. The Diaz Refinery case involves the same "as damages" interpretation issue, but has been temporarily stayed. It is not unlikely that this temporary stay will effectively become permanent, as the only remaining appellee in Diaz Refinery is currently in receivership.

Federated was quite naturally disturbed by these developments in the Saline County action, since they created a risk of liability on the CGL policies that would be highly unlikely if the policies were adjudicated in federal court. Since the Saline County action involved only one policy, and there were still several outstanding policies (and over $500,000 of potential cleanup cost liability), Federated filed a second action in federal district court in December 1993. This action sought declaratory judgment that Federated had no liability for cleanup costs under any of the policies other than the 1976-77 policy involved in the Saline County action.

Not to be outdone, on January 5, 1994, AECI served Federated with a complaint that was filed on October 11, 1993, in the Pulaski County Circuit Court. This action involved several policies other than the 1976-77 policy. AECI's motion for partial summary judgment on the "as damages" issue (and others) and a motion to dismiss, or in the alternative, to abstain, accompanied this complaint. Federated removed this action to district court and consolidated it with its pending federal action. Federated also counterclaimed, seeking a declaration that it had no liability under any policy (including the 1976-77 policy). The result of all this procedural wrangling was that the consolidated actions in district court came to involve all policies issued by Federated to AECI. The Saline County action, which was the only other independent action, involved only the 1976-77 policy. Federated opposed AECI's motions and filed a cross-motion for summary judgment based on NEPACCO. In an order that was highly critical of NEPACCO, but that did not once mention Colorado River, Moses H. Cone, or any of the relevant factors, the district court granted AECI's motion to abstain. The district court did not rule on any of the remaining motions. Federated timely appealed.

II. DISCUSSION

A. Abstention

We review the district court's decision to stay the federal proceedings for abuse of discretion. Moses H. Cone Memorial Hosp. v. Mercury Constr., 460 U.S. 1, 19, 103 S.Ct. 927, 938-39, 74 L.Ed.2d 765 (1983); United States Fidelity & Guar. Co. v. Murphy Oil USA, 21 F.3d 259, 263 (8th Cir.1994) (USF & G ). However, the discretionary nature of the decision whether to abstain does not mean that the decision to abstain can be made "as a matter of whim or personal disinclination." USF & G, 21 F.3d at 261 (quoting Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 581-82, 7 L.Ed.2d 604 (1962) (per curiam)). The federal courts have a "virtually unflagging obligation ... to exercise the jurisdiction given them." Colorado River Water Conserv. Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1248, 47 L.Ed.2d 483 (1976). This obligation does not evaporate simply because there is a pending state court action involving the same subject matter. Id. at 813-14, 817, 96 S.Ct. at 1244-45, 1246. Nor does the potential for conflict justify the staying of the exercise of federal jurisdiction. Id. at 816, 96 S.Ct. at 1245-46. Rather:

[a]bdication of the obligation to decide cases can be justified under [the abstention] doctrine[s] only in the exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest.

Moses H. Cone, 460 U.S. at 14, 103 S.Ct. at 936 (quoting Colorado River, 424 U.S. at 813, 96 S.Ct. at 1244) (internal quotation and citation omitted) (emphasis added).

Determination of the existence of "exceptional circumstances" requires evaluation of several factors (the Colorado River/Moses H. Cone factors), as follows:

(1) whether there is a res over which one court has established jurisdiction, (2) the inconvenience of the federal forum, (3) whether maintaining separate actions may result in piecemeal litigation, unless the relevant law would require piecemeal litigation and the federal court issue is easily severed, (4) which case has priority--not necessarily which case was filed first but a greater emphasis on the relative progress made in the cases, (5) whether state or federal law controls, especially favoring the exercise of jurisdiction where federal law controls, and (6) the adequacy of the state forum to protect the federal plaintiff's rights.

USF & G, 21 F.3d at 263. These factors are not intended to be exhaustive, nor are they to be mechanically applied. Rather, they are to be pragmatically applied in order to advance the "clear federal policy" of avoiding piecemeal adjudication. Moses H. Cone, 460 U.S. at 16, 21, 103 S.Ct. at 937, 939-40.

In examining these factors, "the balance [is] heavily weighted in favor of the exercise of jurisdiction." Moses H. Cone, 460 U.S. at 16, 103 S.Ct. at 937. And:

we emphasize that our task in cases such as this is not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether there exist "exceptional" circumstances, the "clearest of justifications," that can suffice under Colorado River to justify the surrender of that jurisdiction.

Moses H. Cone, 460 U.S. at 25-26, 103 S.Ct. at 942 (emphasis in original). Bearing these instructions in mind, we turn to the Colorado River/Moses H. Cone factors to determine whether this case presents "the clearest of justifications [that alone] will warrant" abstention. Colorado River, 424 U.S. at 819, 96 S.Ct. at 1247.

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