Seaton Ins. Co. v. Clearwater Ins. Co.

• Decision Date: 02 September 2010
• Docket Number: C.A. No. 09-516 S
• Parties: SEATON INSURANCE COMPANY (f/k/a Unigard Mutual Insurance Company) and Stonewall Insurance Company, Plaintiffs, v. CLEARWATER INSURANCE COMPANY (f/k/a Skandia America Reinsurance Corporation), Defendant.
• Court: U.S. District Court — District of Rhode Island

736 F.Supp.2d 472

SEATON INSURANCE COMPANY (f/k/a Unigard Mutual Insurance Company) and Stonewall Insurance Company, Plaintiffs,

v.CLEARWATER INSURANCE COMPANY (f/k/a Skandia America Reinsurance Corporation), Defendant.

C.A. No. 09-516 S.

United States District Court,

D. Rhode Island.

Sept. 2, 2010.

Thomas M. Robinson, Esq., Morrison Mahoney LLP, Providence, RI, John T. Harding, Esq., Morrison Mahoney LLP, Boston, MA, for Plaintiffs.

Dana M. Horton, Esq., Robinson & Cole LLP, Providence, RI, John P. Malloy, Esq., Robinson & Cole LLP, Hartford, CT, for Defendant.

OPINION AND ORDER

WILLIAM E. SMITH, District Judge.

I. Introduction

The narrow issue before this Court is whether abstention is appropriate because a related case, first-filed by Defendant Clearwater Insurance Co. ("Clearwater" or "Defendant") against Plaintiffs Seaton Insurance Co. and Stonewall Insurance Co. ("Seaton" and "Stonewall" or collectively "Plaintiffs") regarding two reinsurance agreements, is stayed in Connecticut Superior Court. Defendant moves to dismiss or stay Plaintiffs' claims in this Court, arguing for abstention. The Court referred the matter to Magistrate Judge Lincoln Almond, who issued a Report and Recommendation ("R & R") that this Court deny Defendant's motion. For the reasons discussed below, the Court agrees with the R & R that the motion should be denied.

II. Background

In May 2009, Clearwater filed a declaratory judgment action against Plaintiffs in Connecticut Superior Court, arguing there was no coverage for losses Seaton and Stonewall incurred regarding certain asbestos-related claims. See Clearwater Ins. Co. v. Stonewall Ins. Co. and Seaton Ins. Co., Docket No. FSTCV-09-4016468-S (Conn.Super. Ct. at Stamford). Five months later, Seaton and Stonewall filed their own complaint in federal court on the basis of diversity jurisdiction, seeking monetary relief for Clearwater's alleged breaches of contract and a declaration of the respective rights and obligations of the parties. Plaintiffs' claims involve the same two reinsurance contracts at issue in the Connecticut matter; however, they also raise claims under eleven additional contracts between the parties.

In Connecticut, Seaton and Stonewall filed a motion to dismiss or stay, arguing that the less complex state case should yield to the later-filed federal case. Judge Karazin of the Connecticut Superior Court agreed and stayed the case, stating in his Order that "the federal court is the better forum." ( See R & R at 2, C.A. No. 09-516, EFC No. 18, Feb. 4, 2010, 2010 WL 3529442.) Clearwater then filed a motion to stay or dismiss the federal court action, and the R & R recommends that it be denied.

III. Standard of Review

The parties dispute whether the Court must conduct a de novo review of the R & R or merely determine whether it was "clearly erroneous or ... contrary to law." Fed. R. Civ. P. 72(a). The debate is academic, because Clearwater's objectiontargets the legal framework Judge Almond selected for the abstention analysis. Even the "clearly erroneous" standard established by 28 U.S.C. § 636(b)(1)(A) for non-dispositive decisions by a magistrate judge requires de novo review of "the magistrate judge's legal conclusions." Columbia Pictures, Inc. v. Bunnell, 245 F.R.D. 443, 446 (C.D.Cal.2007). The Court therefore reviews the legal issues governing the question of abstention de novo.

IV. Analysis

Judge Almond concluded that Clearwater failed to demonstrate the "exceptional circumstances" necessary to justify abstention under Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Abstention, Colorado River stressed, "is the exception, not the rule," and federal courts should therefore hesitate to relinquish jurisdiction. Id. Judge Almond determined that Clearwater could not show a sufficiently compelling reason to abstain pursuant to the Colorado River factors,¹ and moreover that there was no risk of duplicative litigation because the Connecticut action had been stayed.

Clearwater appears to concede that it cannot show any "exceptional circumstances" that would call for abstention under Colorado River. However, it objects that Judge Almond chose the wrong legal test for this dispute. The correct rule, it insists, appears in Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), which sets forth a "more forgiving, discretionary standard" for actions in which the litigant seeks relief under the Declaratory Judgment Act. Standard Fire Ins. Co. v. Gordon, 376 F.Supp.2d 218, 223 (D.R.I.2005) (discussing the Wilton standard). In those cases, unlike with the "exceptional circumstances" rule of Colorado River, the federal court retains "broad discretion" to abstain. Wilton, 515 U.S. at 281, 115 S.Ct. 2137. Because the case involves "inherently intertwined" claims for declaratory relief and damages ( see R & R at 4), Clearwater reasons that Wilton, and not Colorado River, should control the inquiry.

This brings the Court to the present dilemma: it is well-settled that there is a more lenient abstention standard for declaratory claims, which fall under Wilton, than for so-called "coercive" claims seeking damages or injunctive relief, which fall under Colorado River.² Which, then, of the conflicting standards applies when an action presents both types of claims? The parties expend much energy briefing this question, but it ultimately matters little. As fully explained below, even under the standard most favorable to Clearwater,Judge Almond reached the correct conclusion.

To be sure, the Court might choose from among a range of methods adopted by various federal courts to tackle the problem. Presented with mixed coercive and declaratory claims in Rossi v. Gemma, 489 F.3d 26 (1st Cir.2007), the First Circuit opted for a surgical approach, conducting a separate abstention analysis for each claim. It first found that abstention was proper for the plaintiff's § 1983 claims under the doctrine set forth in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). See Rossi, 489 F.3d at 38. Next, it considered whether to abstain from hearing Plaintiffs' state law claims for declaratory relief and damages. The Court stated that Colorado River did not apply to Plaintiffs' request for a declaratory judgment, and affirmed that it was within the district court's discretion to dismiss the claim under the Wilton standard. Id. (citing Wilton, 515 U.S. at 288-89, 115 S.Ct. 2137). As for the legal claims, Rossi left no doubt that the defendant would have to satisfy the more demanding Colorado River test to demonstrate that abstention was appropriate. However, it elected to "bypass" the abstention analysis altogether, because it found the district court had properly declined to exercise supplemental jurisdiction over the state damages claims. Id. at 39, 91 S.Ct. 746.

There are also many formulas other than Rossi's disentanglement technique. Some decisions appear to create a presumption in favor of using Wilton to assess mingled declaratory and coercive claims. See ITT Indus., Inc. v. Pacific Emp'rs Ins. Co., 427 F.Supp.2d 552, 557 (E.D.Pa.2006) ("To apply the Colorado River standard to actions containing both declaratory judgment and coercive claims without an analysis of the facts at hand would be to ignore the Supreme Court's specific recognition that declaratory judgment actions necessitate a different treatment than other types of cases.") At the other end of the spectrum, some courts find that the Wilton discretionary standard is per se supplanted by the harsher Colorado River test whenever an action includes both declaratory and non-frivolous coercive claims. See Kelly Inv., Inc. v. Cont'l Common Corp., 315 F.3d 494, 497 n. 4 (5th Cir.2002) (applying Colorado River standard to all claims); Village of Westfield, N.Y. v. Welch's, 170 F.3d 116, 124 n. 5 (2d Cir.1999) (applying Colorado River standard to all claims). Somewhere in the middle fall cases that seek to discern the "essence" of the matter. See Royal Indem. Co. v. Apex Oil Co., 511 F.3d 788, 793 (8th Cir.2008) ("essence" of the case was declaratory judgment); see also ITT Indus., 427 F.Supp.2d at 557 (deciding that the "heart" of a case that required interpreting an insurance contract was an action for declaratory relief). Still other courts proclaim that jurisdiction is discretionary for declaratory claims and mandatory for legal claims-subject to Colorado River constraints-if the legal claims can exist independently of requests for declaratory relief. See United Nat'l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1112 (9th Cir.2001) (quoting Snodgrass v. Provident Life & Accident Ins. Co., 147 F.3d 1163, 1167-68 (9th Cir.1998)); R.R. Street & Co. v. Vulcan Materials Co., 569 F.3d 711 (7th Cir.2009).

There is no need to go through all that here. The bottom line is that, regardless of the legal test, Clearwater fails to persuade the Court that abstention is warranted. That is, even if the Court concluded that the "essence" of this dispute is a declaratory judgment proceeding, and therefore that Wilton governs the abstention evaluation for the entire action, itwould still keep jurisdiction over the case.³ For purposes of analysis, the Court therefore lets Clearwater off the hook for its failure to demonstrate "exceptional circumstances"-even though a strict reading of Rossi requires the court to apply Colorado River to the legal claims-and instead applies the Wilton test to all claims.

Courts should consider five factors to determine whether abstention under Wilton is appropriate:

(1) whether the same parties are involved in both cases; (2) whether the claims made in the declaratory judgment action can be adjudicated in the state court action; (3) whether resolution of the declaratory judgment action turns on factual questions that will be litigated in the state court action; (4) whether the issues presented are governed by state or federal

...