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Arkwright-Boston Manufacturers Mutual Insurance Co. v. City of New York

May 14, 1985


Appeal by insurance company subrogees that instituted an action against several New York defendants in the United States District Court for the Southern District of New York (Haight, J.) from an order that declined, in light of numerous claims pending in state court arising from the same loss, to exercise jurisdiction and dismissed plaintiffs' complaint.

Cardamone and Pierce, Circuit Judges, and Metzner, District Judge.*fn*

Author: Cardamone

CARDAMONE, Circuit Judge:

In 1976 the Supreme Court crafted a new exceptional-circumstances test for determining -- absent any of the three accepted bases for federal-court abstention -- whether federal litigation should be stayed out of deference to parallel litigation commenced in state court. Colorado River Water Conservation District v. United States, 424 U.S. 800, 817-20, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). Seven years later in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983), the Court reaffirmed and elaborated on this exceptional-circumstances test. Id. at 13-19. The principal issue before us is whether the district court abused its discretion by abstaining from the exercise of its diversity jurisdiction because of exceptional circumstances.


The facts are undisputed and we set them forth briefly. At 1:00 a.m. on Wednesday, August 10, 1983, near the intersection of West 37th Street and Seventh Avenue in New York City's Garment Center, a 12-inch underground water main burst. The City of New York owned and maintained the main, which was located near a tunnel or viaduct belonging to the New York City Transit Authority (Transit Authority). Water flooded an underground substation owned and operated by Consolidated Edison Company of New York (Con Edison). The substation and its transformers caught fire, causing an electric power blackout in the surrounding 12-block area. Power was not restored until early Saturday, August 13.

Leslie Fay Company (Leslie Fay) and Gimbel Brothers, Inc. (Gimbel), along with thousands of others, occupied buildings in the blacked-out area. Leslie Fay is a New York partnership with its principal place of business in New York City. It manufactures and distributes clothing and maintains sales showrooms in three buildings in the Garment Center. The blackout occurred during the Garment Center's Market Week, when out-of-town buyers were in New York to order their spring lines. Because of the power failure Leslie Fay was forced to close its showrooms. Gimbel is a New York corporation and owns the well-known department store, which is also located in the area affected by the blackout. Plaintiff closed its department store on the Wednesday and Thursday following the power failure. With the use of generators it reopened on Friday, but did only a small portion of its normal business.

Plaintiff Arkwright-Boston Manufacturers Mutual Insurance Company (Arkwright-Boston) is incorporated in Massachusetts and authorized to do business in New York. It provided business interruption insurance for Leslie Fay, which submitted a $764,251 claim for lost business. Arkwright-Boston paid the claim and was subrogated to the full extent of Leslie Fay's loss. Plaintiffs Protection Mutual Insurance Company (Protection Mutual) and Commercial Union Insurance Company (Commercial Union) are incorporated in Illinois and Massachusetts respectively. They are authorized to do business in New York and as co-insurers provided business interruption insurance for Gimbel. Gimbel submitted a claim for its losses which amounted to $424,846. Because the policy had a $100,000 deductible, plaintiffs paid Gimbel $324,846 and became subrogated to Gimbel's rights in that amount. Defendants New York City, the Transit Authority, and Con Edison are all New York entities.


Arkwright-Boston, Protection Mutual and Commercial Union commenced their respective subrogation actions in the United States District Court for the Southern District of New York (Haight, J.) on August 10, 1984 for damages resulting from the blackout. Arkwright-Boston as Leslie Fay's subrogee sued to recover the sum of $746,251. Protection Mutual and Commercial Union sought to recover the $324,846 that they paid of the $424,846 loss sustained by Gimbel. The claims alleged that the business losses resulted from the three defendants' negligence. The plaintiffs invoked diversity jurisdiction. On the same day that the instant federal litigation was commenced, Gimbel instituted an action in New York Supreme Court against the same three defendants seeking to recover its $100,000 deductible. The federal and state court complaints contain essentially identical allegations. When the City moved to dismiss the federal suit 15 actions were pending in New York in which various plaintiffs were seeking to recover in excess of one million dollars that they allegedly lost as a result of the blackout. Since the record on appeal was closed, 35 more lawsuits seeking additional damages have been instituted in the New York state courts. In these state actions 12 defendants are named as being responsible, in whole or in part, for the losses arising from the blackout.

In September 1984 defendants Transit Authority and the City moved to dismiss the federal action because of plaintiffs' failure to join Gimbel as an indispensable party, or, alternatively on abstention grounds. Several weeks later plaintiffs served discovery requests on the City. No other proceedings have been taken in this federal action. It appears that little has been done by way of discovery in the state actions either. Some state litigants have moved to assign all of the state actions to one judge. At the time the district court issued its order, that motion was pending before a single New York Supreme Court Justice, who has been designated to supervise all discovery in the blackout litigation. The motion has since been granted. Independently of the state suits, the Comptroller of the City of New York has conducted pre-litigation investigations and hearings with respect to the over 300 claims filed against the City. Such action is required by statute before commencement of a suit against that municipality.

The district court rejected defendants' contention that Gimbel was an indispensable party and, in a well-reasoned opinion, determined also to abstain from the exercise of its diversity jurisdiction. As a result it dismissed plaintiffs' complaint, prompting this appeal. We affirm.


The City and the Transit Authority asserted that Gimbel is an indispensable party, within the meaning of Fed.R.Civ.P. 19(a), to the federal suit instituted by Protection Mutual and Commercial Union. Were Gimbel, as a New York corporation, to be joined as a party plaintiff in the present action against the three New York defendants, the federal court would lose subject matter jurisdiction as there must be complete diversity of citizenship between the parties. ...

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