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

United States Court of Appeals, Ninth Circuit

July 5, 2017

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.

          Submitted March 17, 2017 [*] San Francisco, California

         Appeal from the United States District Court for the District of Nevada D.C. No. 3:14-cv-00381-LRH-WGC Larry R. Hicks, District Judge, Presiding

          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 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.

         SUMMARY [***]

         Colorado River Abstention

         The panel vacated the district court's order staying an action, pursuant to Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976), against Strange Land, Inc. pending the decision in a parallel state court proceeding; and remanded to the district court for further proceedings.

         In July 2014, Seneca Insurance Company, Inc. filed a complaint against Strange Land and U.S. Bank in the instant federal action seeking a declaration of insurance obligations. In October 2014, Belfor USA Group, Inc. filed an action in Nevada state court seeking compensation for its repair work from Strange Land as the property owner and Seneca as the policy issuer.

         The panel held that the district court correctly chose to analyze Strange Land's request for abstention in the federal action under the Colorado River framework because Seneca sought remedies beyond declaratory judgment. The panel rejected Strange Land's argument that the more lenient abstention test from Wilton v. Seven Falls Co., 515 U.S. 277 (1995), and Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942), should apply.

         The panel evaluated the eight factors in assessing the appropriateness of a Colorado River stay or dismissal. The panel held that the district court's application of Colorado River abstention was an abuse of its narrow discretion because the case was not "exceptional" so as to warrant disregarding the obligation of a federal court to exercise its jurisdiction.

          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 (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"), 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, ...


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