Federal Court May Decline Or Postpone To Exercise Jurisdiction Without Colorado River Exceptional Circumstances, But Must Stay The Action If Potential Non-Parallel Proceedings Or Statute of Limitations Issues Exist
01/02/08
Insured filed state court action against various insurance companies seeking declaration of the parties’ respective rights and responsibilities on account of insured releasing contaminants into the soil. Insurer then filed action in federal court pursuant to the Declaratory Judgment Act, 28 USC 2201, 2202 “seeking adjudication of the parties’ rights and obligations under certain insurance policies.” Insured then amended its state court action naming the same parties named in Insurer’s federal action and moved to dismiss the federal action as duplicative of the state court action. District court agreed and dismissed the federal action on grounds that state and federal actions were parallel. Appeal followed. Although rare, federal courts may sometimes refrain from exercising jurisdiction over a case properly filed in federal court. “The doctrine of abstention, under which a District Court may decline to exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it.” Federal courts have a “virtual unflagging obligation . . . to exercise jurisdiction given them.” Under the Colorado River doctrine, a federal court should only abstain from a case in which there are parallel state proceedings for “exceptional circumstances.” However, the Colorado River doctrine does not apply to actions under the Declaratory Judgment Act, where federal courts have more discretion which arises out of the Act’s language that a court “may declare the rights and other legal relations . . .” For a district court to abstain under the Declaratory Judgment Act the parallel state court action must present “the same issues, not governed by federal law, between the same parties” and the court must evaluate “whether the claims of all parties of interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined and whether such parties are amenable to process in that action. After considering these factors, a federal court may abstain from exercising jurisdiction because “ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where” a parallel state court proceeding is pending.” However, “where the basis for declining to proceed is the pendency of a state proceeding, a stay will often be the preferable course, because it assures that the federal action can proceed without risk of a time bar if the state case . . . fails to resolve the matter in controversy. Royal Indem. Co. v. Apex Oil Co., Docket Nos. 06-3454, 3461 & 3469 ,(C.A.8 (Mo.) 1/2/2008)
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