Seneca Insurance Company, Inc. v. Strange Land, Inc. , 862 F.3d 835 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SENECA INSURANCE COMPANY, INC., No. 15-16011
Plaintiff-Third-Party-Plaintiff-
Appellant, D.C. No.
3:14-cv-00381-
v. LRH-WGC
STRANGE LAND, INC.; U.S. BANK
NATIONAL ASSOCIATION, OPINION
Defendants-Appellees,
v.
BELFOR USA GROUP, INC., DBA
Belfor Property Restoration,
Third-Party-Defendant-Appellee.
Appeal from the United States District Court
for the District of Nevada
Larry R. Hicks, District Judge, Presiding
Submitted March 17, 2017*
San Francisco, California
Filed July 5, 2017
*
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2 SENECA INS. CO. V. STRANGE LAND
Before: Kim McLane Wardlaw and Ronald M. Gould,
Circuit Judges, and Edward F. Shea,** District Judge.
Opinion by Judge Wardlaw
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
**
The Honorable Edward F. Shea, Senior United States District Judge
for the Eastern District of Washington, sitting by designation.
***
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
SENECA INS. CO. V. STRANGE LAND 3
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.
COUNSEL
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.
4 SENECA INS. CO. V. STRANGE LAND
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
SENECA INS. CO. V. STRANGE LAND 5
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, Strange Land
6 SENECA INS. CO. V. 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
(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 (1995), and Brillhart v. Excess Ins. Co. of
America, 316 U.S. 491 (1942), should apply because
Seneca’s suit seeks only declaratory relief. See Brillhart,
316 U.S. at 495 (“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
SENECA INS. CO. V. STRANGE LAND 7
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 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
8 SENECA INS. CO. V. STRANGE LAND
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. Generally “the pendency of an
action in the state court is no bar to proceedings concerning
the same matter in the Federal court having jurisdiction . . . .”
Id. at 817 (internal quotation marks omitted). The Supreme
Court has emphasized that the federal courts have a “virtually
unflagging obligation . . . to exercise the jurisdiction given
them,” including in cases involving parallel state litigation.
Id. “Abdication of the obligation to decide cases can be
SENECA INS. CO. V. STRANGE LAND 9
justified . . . only in the exceptional circumstances where the
order to the parties to repair to the state court would clearly
serve an important countervailing interest.” Id. at 813
(internal quotation marks omitted). Under “exceedingly rare”
circumstances, Smith, 418 F.3d at 1033, “considerations of
wise judicial administration, giving regard to conservation of
judicial resources and comprehensive disposition of
litigation,” may counsel in favor of abstention, Colo. River,
424 U.S. at 817 (alteration omitted) (internal quotation marks
omitted).
Colorado River and its progeny provide a multi-pronged
test for determining whether “exceptional circumstances”
exist warranting federal abstention from concurrent federal
and state proceedings. We evaluate eight factors in assessing
the appropriateness of a Colorado River stay or dismissal:
(1) which court first assumed jurisdiction over
any property at stake; (2) the inconvenience of
the federal forum; (3) the desire to avoid
piecemeal litigation; (4) the order in which the
forums obtained jurisdiction; (5) whether
federal law or state law provides the rule of
decision on the merits; (6) whether the state
court proceedings can adequately protect the
rights of the federal litigants; (7) the desire to
avoid forum shopping; and (8) whether the
state court proceedings will resolve all issues
before the federal court.
R.R. St., 656 F.3d at 978–79. These factors are not a
“mechanical checklist”; indeed, some may not have any
applicability to a case. Cone Mem’l Hosp., 460 U.S. at 16.
Rather, as instructed by the Supreme Court, we examine them
10 SENECA INS. CO. V. STRANGE LAND
in “a pragmatic, flexible manner with a view to the realities
of the case at hand.” Id. at 21. Moreover, we must carefully
balance the important factors, “with the balance heavily
weighted in favor of the exercise of jurisdiction.” Id. at 16.
The underlying principle guiding this review is a strong
presumption against federal abstention: “[O]ur 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.” Id. at 25–26. “Any doubt as to whether a factor
exists should be resolved against a stay, not in favor of one.”
Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1369 (9th
Cir. 1990). We address in turn each Colorado River factor as
it applies to this case.1
A. Jurisdiction over a res.
The district court concluded that the first Colorado River
factor, whether either court was the first to assert jurisdiction
over property at stake, “is neutral because neither court has
asserted such jurisdiction.” Although Belfor has recorded a
notice of lien on the property and lien priority as to litigants
other than Seneca and Strange Land may be an issue in the
State Action, neither the federal nor the state court has
assumed jurisdiction over any property the ownership of
which is in dispute. Indeed, the concerns that animate this
factor are not implicated here because there is no possibility
that the parallel proceedings will result in inconsistent
1
Because the district court and the parties agreed that the relative
convenience of the state and federal courts is not implicated, we do not
address that factor.
SENECA INS. CO. V. STRANGE LAND 11
dispositions of a single res. See, e.g., Colo. River, 424 U.S.
at 819 (“[T]he concern in such instances is with avoiding the
generation of additional litigation through permitting
inconsistent dispositions of property.”); see also Donovan v.
City of Dallas, 377 U.S. 408, 412 (1964); Princess Lida of
Thurn & Taxis v. Thompson, 305 U.S. 456, 467 (1939). Any
disposition of the property in the State Action will have no
bearing on the resolution of the Federal Action, where Belfor
has not raised its lien priority claim. As such, we agree with
the district court that this Colorado River factor is neutral.
B. Avoidance of piecemeal litigation.
A substantial factor in the Colorado River analysis is
whether there are special concerns associated with resolving
the issues in a piecemeal fashion via parallel proceedings.
“Piecemeal litigation occurs when different tribunals consider
the same issue, thereby duplicating efforts and possibly
reaching different results.” Am. Int’l Underwriters
(Philippines), Inc. v. Cont’l Ins. Co., 843 F.2d 1253, 1258
(9th Cir. 1988). A general preference for avoiding piecemeal
litigation is insufficient to warrant abstention, however. Any
case in which Colorado River is implicated will inevitably
involve the possibility of “conflicting results, piecemeal
litigation, and some duplication of judicial efforts,” which are
the “unavoidable price of preserving access to . . . federal
relief.” Neuchatel Swiss Gen. Ins. Co. v. Lufthansa Airlines,
925 F.2d 1193, 1195 (9th Cir. 1991) (alteration in original)
(internal quotation marks omitted). Instead, there must be
exceptional circumstances present that demonstrate that
piecemeal litigation would be particularly problematic. See
Madonna, 914 F.2d at 1369 (“A correct evaluation of this
factor involves considering whether exceptional
circumstances exist which justify special concern about
12 SENECA INS. CO. V. STRANGE LAND
piecemeal litigation. . . . This case involves ordinary contract
and tort issues and is thus unlike Colorado River where
important real property rights were at stake and where there
was a substantial danger of inconsistent judgments.”).
Colorado River itself involved multi-state regulation of water
rights in the Southwest, where water remains scarce, such that
inconsistent dispositions of those rights could trigger further
litigation. See Colo. River, 424 U.S. 819–20 (“The clear
federal policy evinced by [the McCarran Amendment] is the
avoidance of piecemeal adjudication of water rights in a river
system.”).2
The district court here reasoned that because “this case
involves multiple defendants, numerous claims, and cross-
claims, that all present complex state tort and insurance
issues,” the desire to avoid piecemeal litigation “weighs in
favor of abstention.” The district court misconstrued the
piecemeal litigation factor because it failed to identify any
special concern counseling in favor of federal abstention,
such as a “clear federal policy” of avoiding “piecemeal
adjudication of water rights” expressed via federal legislation
“recogniz[ing] the availability of comprehensive state
systems for adjudication of water rights.” Id. at 819.
Multiple defendants, claims, and cross-claims are routine in
adjudications of tort and insurance disputes—they are the
stuff of diversity jurisdiction. Nothing about this dispute
2
The McCarran Amendment, 43 U.S.C. § 666, waived federal
sovereign immunity in suits adjudicating the ownership or administration
of water rights. The Supreme Court interpreted the amendment to indicate
a congressional policy recognizing “the availability of comprehensive
state systems for adjudication of water rights as the means for achieving”
the goal of avoiding piecemeal adjudication of water rights in a river
system. Colo. River, 424 U.S. at 819.
SENECA INS. CO. V. STRANGE LAND 13
evinces a special or important rationale or legislative
preference for resolving these issues in a single proceeding.
C. The order in which the forums obtained jurisdiction.
In determining the order in which the state and federal
courts obtained jurisdiction, district courts are instructed not
simply to compare filing dates, but to analyze the progress
made in each case “in a pragmatic, flexible manner with a
view to the realities of the case at hand.” Cone Mem’l Hosp.,
460 U.S. at 21. The district court is well positioned to
understand the relative progress of each case in this practical
way. Here, the district court concluded that, “[b]ecause
neither case has progressed significantly further than the
other, and the federal action was filed more than two months
prior to the state action, this factor weighs against
abstention.” There was significant activity in each case by
the time the district court reviewed the abstention motion, but
neither court had resolved any foundational legal claims. As
a result, we agree with the district court’s conclusion that the
cases had progressed equivalent amounts, such that this factor
does not weigh in favor of abstention. Strange Land’s
arguments to the contrary—in which it contends that the State
Action was the “first filed” because Seneca amended its
original complaint and that this weighs heavily in favor of
abstention—lack merit.
D. The rule of decision.
Under Colorado River, we consider “whether federal law
or state law provides the rule of decision on the merits” (the
“rule of decision” factor). R.R. St., 656 F.3d at 978. The
“presence of federal-law issues must always be a major
consideration weighing against surrender” of jurisdiction, but
14 SENECA INS. CO. V. STRANGE LAND
“the presence of state-law issues may weigh in favor of that
surrender” only “in some rare circumstances.” Cone Mem’l
Hosp., 460 U.S. at 26 (emphasis added); see also Meredith v.
City of Winter Haven, 320 U.S. 228, 236 (1943) (“Congress
having adopted the policy of opening the federal courts to
suitors in all diversity cases involving the jurisdictional
amount, we can discern in its action no recognition of a
policy which would exclude cases from the jurisdiction
merely because they involve state law or because the law is
uncertain or difficult to determine.”). That state law provides
the rule of decision supports abstention only when the state
law questions are themselves complex and difficult issues
better resolved by a state court; it is not enough that a state
law case is complex because it involves numerous parties or
claims. See R.R. St., 656 F.3d at 980–81 (concluding that the
source of law factor is “neutral” where the complexity of the
action “stems from the number of policies and insurers, not
from the type of [state] law involved in the action”). Cases
i m p l i ca t i n g o n l y “ r o u t i n e i s s u e s o f s t a t e
law—misrepresentation, breach of fiduciary duty, and breach
of contract—which the district court is fully capable of
deciding” do not entail “rare circumstances” counseling in
favor of abstention. Madonna, 914 F.2d at 1370.
The district court concluded that the rule of decision
factor “weighs heavily in favor of abstention” because “[a]ll
claims in this case are brought pursuant to state law.” As
discussed above, the court also noted elsewhere that “this
case involves multiple defendants, numerous claims, and
cross-claims, that all present complex state tort and insurance
issues.” In so doing, the district court disregarded our
precedent requiring “rare circumstances” for this factor to
weigh in favor of abstention and failed to explain why the
relevant legal claims are “complex.” We do not find “rare
SENECA INS. CO. V. STRANGE LAND 15
circumstances” in this litigation. Rather, this is a
straightforward insurance dispute through which an insurer
seeks declaratory judgment, equitable relief, and damages
against its insured, while a third-party vendor seeks from
several parties compensation for past repair work. As in
Madonna and R.R. Street, the claims ultimately boil down to
arguments about misrepresentation, fraudulent inducement,
detrimental reliance, breach of contract, and rescission, none
of which raises the “rare circumstances” required for the rule
of decision factor to weigh toward abstention.3
E. Adequacy of the state forum and parallelism of the suits.
Under Colorado River, we consider both “whether the
state court proceedings can adequately protect the rights of
the federal litigants” (the “adequacy” factor) and “whether the
state court proceedings will resolve all issues before the
3
Strange Land cites the McCarran-Ferguson Act, 15 U.S.C. §§ 1011
et seq., as further support for the district court’s abstention decision. We
agree that this act “was an effort by Congress to protect states’ primary
regulatory role over the insurance industry,” Elliot v. Fortis Benefits Ins.
Co., 337 F.3d 1138, 1142 n.3 (9th Cir. 2003), and that it “includes an
express reverse preemption provision, 15 U.S.C. § 1012(b),” Hawthorne
Savings F.S.B. v. Reliance Ins. Co. of Ill., 421 F.3d 835, 842 (9th Cir.
2005). Yet Strange Land offers no support for its suggestion that states’
primary authority to regulate the business of insurance affects federal
courts’ ability to evaluate insurance disputes arising under state law.
Strange Land’s argument amounts to an assertion that federal courts
cannot properly apply state insurance law, something federal courts
routinely do. This argument lacks merit. Cf. id. at 841–44, 848–49
(“[T]he policy of the McCarran-Ferguson Act was to leave the regulation
of insurers to the states[;] it did not intend to divest federal courts of the
right to apply state law regarding the regulation of insurers in appropriate
diversity proceedings.” (quoting Grimes v. Crown Life Ins. Co., 857 F.2d
699, 702 (10th Cir.1988))).
16 SENECA INS. CO. V. STRANGE LAND
federal court” (the “parallelism” factor). See R.R. St.,
656 F.3d at 978–79. The adequacy factor looks to whether
the state court might be unable to enforce federal rights. See,
e.g., Cone Mem’l Hosp., 460 U.S. at 26–27 (finding state
proceedings might be inadequate because it was unclear
whether state courts would compel arbitration under the
Federal Arbitration Act); Madonna, 914 F.2d at 1370 (“This
factor involves the state court’s adequacy to protect federal
rights, not the federal court’s adequacy to protect state
rights.” (citing Cone Mem’l Hosp., 460 U.S. at 26)). The
parallelism factor provides that “the existence of a substantial
doubt as to whether the state proceedings will resolve the
federal action precludes a Colorado River stay or dismissal.”
R.R. St., 656 F.3d at 982 (internal quotation marks omitted);
see also Cone Mem’l Hosp., 460 U.S. at 28 (“When a district
court decides to dismiss or stay under Colorado River, it
presumably concludes that the parallel state-court litigation
will be an adequate vehicle for the complete and prompt
resolution of the issues between the parties. If there is any
substantial doubt as to this, it would be a serious abuse of
discretion to grant the stay or dismissal at all.”). Though
“exact parallelism . . . is not required,” substantial similarity
of claims is necessary before abstention is available. Nakash
v. Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989).
In short, the adequacy factor pertains to whether there is
an impediment to the state court protecting the litigants’
federal rights, while the parallelism factor considers whether
the parallel proceedings address “substantially similar”
claims. Each factor is more relevant when it counsels against
abstention, because while inadequacy of the state forum or
insufficient parallelism may preclude abstention, the
alternatives never compel abstention. See Cone Mem’l Hosp.,
460 U.S. at 25–26; Colo. River, 424 U.S. at 817.
SENECA INS. CO. V. STRANGE LAND 17
The district court apparently analyzed these factors in the
same section of the order, titled, “Whether the State
Proceeding is Adequate to Protect the Parties’ Rights.” This
section describes the parties and claims being raised in each
forum before explaining that “although both forums are likely
to adequately protect the rights of the parties, the state court
action is most likely to promote complete and prompt
resolution of the issues between the parties” and “Seneca
simply has not raised any reasons why the state court action
would not protect its rights.” The district court concluded
that “[t]his factor therefore weighs in favor of abstention.”
Yet sufficiently similar claims are a necessary precondition
to Colorado River abstention and should not, absent more,
add weight to the balance in favor of abstention. The district
court thus read the “parallelism” factor incorrectly:
Parallelism is necessary but not sufficient to counsel in favor
of abstention. Both the adequacy and parallelism factors here
are neutral, as neither provides “the clearest of justifications”
warranting the surrender of federal jurisdiction. Cone Mem’l
Hosp., 460 U.S. at 25–26.
F. The avoidance of forum shopping.
When evaluating forum shopping under Colorado River,
we consider whether either party improperly sought more
favorable rules in its choice of forum or pursued suit in a new
forum after facing setbacks in the original proceeding. See
Nakash, 882 F.2d at 1417 (finding forum shopping where,
after three-and-a-half years of litigation in a case that was
progressing to its detriment, one party sought a “new forum
for [its] claims”); Am. Int’l Underwriters, 843 F.2d at 1259
(finding forum shopping where, after two-and-a-half years, a
party “abandon[ed] its state court case solely because it
believe[d] that the Federal Rules of Evidence [we]re more
18 SENECA INS. CO. V. STRANGE LAND
favorable to it than the state evidentiary rules”). It typically
does not constitute forum shopping where a party “acted
within his rights in filing a suit in the forum of his choice,”
Madonna, 914 F.2d at 1371, even where “[t]he chronology of
events suggests that both parties took a somewhat
opportunistic approach to th[e] litigation,” R.R. St., 656 F.3d
at 981. See also id. at 982 (“[W]e are cautious about labeling
as ‘forum shopping’ a plaintiff’s desire to bring previously
unasserted claims in federal court.”).
The record does not reflect that either party engaged in
improper forum shopping. Nothing indicates that either side
sought to manipulate the litigation or behaved vexatiously to
wind up in the forum of its choosing. Both parties’
arguments to the contrary lack merit. Seneca suggests,
without substantiation, that the opposing parties are colluding
to delay the Federal Action and accelerate the State Action.
But the fact that various parties to the Federal Action have
tried to dismiss Seneca’s complaint does not indicate abuse
of the litigation process; indeed, Seneca amended its
complaint repeatedly in response to those motions to dismiss,
suggesting that the motions were at least worthy of response.
Strange Land similarly makes several meritless
arguments, some of which are contradictory, in support of its
view that Seneca has improperly forum shopped. If credited,
Strange Land’s arguments would suggest that Seneca seeks
to litigate exclusively in both federal and state courts.
Strange Land initially describes Seneca’s Federal Action as
an “offensive reactive suit,” indicating that Seneca filed in
federal court because it anticipated being sued in a
nonremovable state court action. But this argument is
credible only if a state court suit Strange Land filed against
Seneca would have been nonremovable. At the beginning of
SENECA INS. CO. V. STRANGE LAND 19
the litigation, the parties Seneca identified and brought into
the litigation were Strange Land (incorporated and
headquartered in Nevada), U.S. Bank (incorporated and
headquartered in California), and itself (incorporated and
headquartered in New York). Even assuming that Seneca
also deemed Belfor (incorporated in Colorado and
headquartered in Michigan) to be a necessary party, any
insurance recovery suit Strange Land might have brought
against Seneca in Nevada state court would have been
removable by Seneca to Nevada federal court. There is thus
no reason to think Seneca filed the Federal Action to avoid
being brought into a nonremovable state court suit.
At the same time, Strange Land argues that Seneca’s
choice to raise claims in the State Action constitutes forum
shopping because Seneca prefers not to be held to the higher
federal pleading standard. If Seneca preferred to be in state
court and was “forum shopping” to get there, it would
presumably have filed its original action in state court; not
requested that the state court postpone its proceedings; and
not opposed federal abstention. Such behavior would be
irrational if Seneca’s goal was to wind up in state court under
more favorable pleading standards. Thus, neither party has
a viable claim that the other engaged in forum shopping.
V.
“To determine whether a [Colorado River] stay is
warranted, the relevant factors must be balanced, with the
balance heavily weighted in favor of the exercise of
jurisdiction.” Madonna, 914 F.2d at 1372 (internal quotation
marks omitted). Most of the Colorado River factors in this
case are neutral or favor the exercise of jurisdiction by the
district court. The reasons that the district court offered to
20 SENECA INS. CO. V. STRANGE LAND
justify abstention—that the parallel proceedings will involve
piecemeal disposition of the issues, that state law provides the
rule of decision, and that the state proceeding is better suited
to promote resolution of all the issues among the parties—are
likely to be present in nearly every instance of concurrent
state and federal suits where state law provides the rule of
decision. These concerns “do not create the ‘exceptional
circumstances’ required for Colorado River deference
because they are present to this degree in many instances of
parallel federal-state litigation.” Id.; see also Neuchatel Swiss
Gen. Ins. Co., 925 F.2d at 1195. The Federal and State
Actions are parallel disputes occurring in multiple fora and
concerning substantially the same issues. Nothing about this
case is “exceptional” so as to warrant disregarding the
“virtually unflagging obligation” of a federal court to exercise
its jurisdiction. The district court’s application of Colorado
River was an abuse of its narrow discretion, essentially
transforming the strong presumption against abstention into
a presumption in favor of abstention where state law issues
predominate. We therefore VACATE the stay order and
REMAND to the district court for further proceedings.
VACATED; REMANDED.