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R.R. Street & Co. Inc.; National Union Fire Insurance v. Transport Insurance Company

September 2, 2011

R.R. STREET & CO. INC.; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, INDIVIDUALLY AND AS SUBROGEE OF R.R. STREET & CO. INC.,
PLAINTIFFS-APPELLANTS,
v.
TRANSPORT INSURANCE COMPANY, DEFENDANT-APPELLEE.
TRANSPORT INSURANCE COMPANY, A CORPORATION, PLAINTIFF-APPELLEE,
v.
R.R. STREET & CO. INC., A CORPORATION; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, A CORPORATION, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Central District of California Christina A. Snyder, District Judge, Presiding D.C. No. 2:09-cv-06045-CAS-FMO, D.C. No. 2:09-cv-08368-CAS-FMO

The opinion of the court was delivered by: Beezer, Circuit Judge:

FOR PUBLICATION

OPINION

Argued and Submitted June 7, 2011-Pasadena, California

16763

Before: Robert R. Beezer, Stephen S. Trott, and Pamela Ann Rymer, Circuit Judges.

Opinion by Judge Beezer

OPINION

This dispute emerges from a web of state and federal litigation over liability for damages and defense costs in certain environmental tort suits. The appeal before us concerns two cases that mirror each other: (1) an action for damages that the Appellants brought in federal court and (2) a declaratory judgment action that the Appellee brought in state court, which Appellants later removed to federal court. The district court declined to entertain these actions, by dismissing the former and remanding the latter, in light of a related third action that had been pending for several years in state court. We must examine the propriety of this decision.

Considering the particular circumstances of this case, we conclude that the district court had discretion under Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995), and Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942), to remand the declaratory judgment action, and that the action for damages fell within the scope of Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). We therefore affirm.

I

BACKGROUND

Vulcan Materials Company ("Vulcan") manufactures a dry-cleaning solvent called perchloroethylene ("PerSec").*fn1

Between the 1960s and the 1990s, R.R. Street & Co. Inc. ("Street") distributed PerSec. During this time, Vulcan named Street as an additional insured under its insurance policies, including an excess liability coverage policy that Transport Insurance Company ("Transport") issued to Vulcan in 1981 (the "1981 Policy"). Since the 1990s, a number of lawsuits have been filed against Vulcan and Street alleging damage caused by the sale, distribution, use or handling of PerSec (collectively the "Tort Actions"). Street and Vulcan separately defended these actions. Since 2005, the companies and their insurers have engaged in an ongoing dispute over liability for damages and defense costs in the Tort Actions.

A. The Vulcan Action

In January 2005, Transport filed a lawsuit in the Los Angeles County Superior Court seeking a declaration of its coverage obligations to Vulcan under four consecutive insurance policies, including the 1981 Policy. In August 2006, two other insurance carriers filed similar actions against Vulcan and its primary insurers in the same court. In January 2007, these cases were consolidated into a single complex proceeding (the "Vulcan Action") in Los Angeles County Superior Court.

In the meantime, Street sought reimbursement from Vulcan for defense costs and damages in the Tort Actions. In February 2008, Street and its insurer, National Union Fire Insurance Company of Pittsburgh, PA ("National Union"), filed a breach of contract and indemnity action against Vulcan in the Northern District of Illinois to recover these amounts (the "Illinois Action"). See R.R. Street & Co. v. Vulcan Materials Co., 569 F.3d 711 (7th Cir. 2009). (We refer to Street and National Union collectively as "Street/National Union.") In the Illinois Action, Street/National Union claimed that Vulcan was liable to Street based on an indemnification provision in the parties' distribution contract. Id. at 713.

In April 2008, Vulcan filed the state court equivalent of a third-party complaint against Street/National Union in the Vulcan Action; Vulcan hoped to resolve all indemnification claims related to the Tort Actions in a single proceeding. Vulcan's complaint against Street/National Union mirrored the Illinois Action; in addition, Vulcan sought a declaration that its insurers were liable for any obligation Vulcan owed to Street/National Union.

With the same claims pending in an Illinois federal court and a California state court, Vulcan and Street/National Union waged a battle to determine which court would hear the claims between them.*fn2 The state court agreed to stay the claims against Street/National Union in the Vulcan Action and decide them at a later stage of the litigation.

At no point did Transport intervene in the Illinois Action, and prior to the cases on appeal, no claims had been filed between Street and Transport in the Vulcan Action or elsewhere.*fn3 Nevertheless, the parties and the court were aware of the dormant claims between Street and Transport. In a January 2009 supplemental brief on preliminary issues in the Vulcan Action, National Union argued that the superior court's initial determinations would not apply to any of Street's potential claims under the 1981 Policy because Street was in a different position than Vulcan.

At a March 2009 status hearing, the parties discussed Street's status as an additional insured under the 1981 Policy. Street indicated that it had made a demand for coverage under the 1981 Policy, which Transport had rejected, but it had not yet filed any claims against Transport in court because the underlying Tort Actions were still pending. Street argued that any coverage decisions regarding Vulcan should not apply to Street because Street was covered by different primary insurance policies, was in a different position than Vulcan in relation to the Tort Actions and had not participated in discovery or case management related to Transport's claims against Vulcan. The state court postponed this issue, stating that it would decide later whether Street would be bound by a decision regarding Vulcan's coverage under the 1981 Policy.

In April 2009, the state court issued an order in the Vulcan Action deciding three preliminary legal issues concerning the scope of Transport's liability to Vulcan under the 1981 Policy. The court determined the scope of Transport's duty to defend under the policy, interpreted the phrase "underlying insurance," and addressed whether horizontal exhaustion applied to Vulcan's claims under the policy. The court's interpretation of the 1981 Policy favored Transport's position, so Vulcan appealed the decision to the California Court of Appeals.

B. The Federal and Removed Actions

On August 18, 2009, while Vulcan's appeal was pending, Street/National Union filed an action for damages against Transport (the "Federal Action") in the Central District of California. In the Federal Action, Street/National Union asserted claims for breach of contract, subrogation, equitable contribution and unjust enrichment under the 1981 Policy, seeking damages and defense costs incurred in the Tort Actions.

A few days later, on August 20, 2009, Street/National Union and Vulcan agreed to dismiss the claims between them in the Vulcan Action. As of that date, Street was no longer a party to the Vulcan Action. Upon learning that Street/National Union had filed the Federal Action and had been voluntarily dismissed from the Vulcan Action, the state court judge urged Transport to either amend its complaint to name Street/National Union as defendants in the Vulcan Action or file a separate action against Street/National Union that could be consolidated with the Vulcan Action.

On November 10, 2009, Transport filed a declaratory judgment action against Street and National Union in Los Angeles County Superior Court (the "Removed Action"). Transport's action mirrors the Federal Action. Transport also filed in the state court a notice stating that its declaratory judgment action is related to the Vulcan Action.

On November 12, 2009, Transport filed in the district court a motion to stay or dismiss the Federal Action in light of the Vulcan Action and the Removed Action, which were then separately pending in state court. On November 16, 2009, before the district court ruled on Transport's motion and before the state court consolidated the Removed Action with the Vulcan Action, Street removed Transport's action to federal court. A few weeks later, the state court entered an order relating the cases in the event that the Removed Action was remanded to state court.

The Federal Action and the Removed Action were assigned to the same judge, and Transport quickly moved for remand of the Removed Action as well as dismissal of the Federal Action. On February 8, 2010, the district court granted both of Transport's motions. Noting the similarities between the two actions in federal court and the Vulcan Action, the district court exercised its discretion under the Declaratory Judgment Act to remand the Removed Action, and the court dismissed the Federal Action pursuant to the principles announced in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). Based on the ...


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