United States District Court, Southern District of New York
September 4, 1991
NICHOLAS COLLWYN STURGE, AN UNDERWRITER AT LLOYD'S LONDON FOR HIMSELF AND THOSE OTHER UNDERWRITERS AT LLOYD'S LONDON AND CERTAIN LONDON MARKET INSURANCE COMPANIES SUBSCRIBING TO INSURANCE POLICY NUMBERED BH906187, AND JOHN CRAWLEY, AN UNDERWRITER AT LLOYD'S LONDON FOR HIMSELF AND THOSE OTHER UNDERWRITERS AT LLOYD'S LONDON SUBSCRIBING TO INSURANCE POLICY NUMBERED BJ906188, PLAINTIFFS,
DIVERSIFIED TRANSPORT CORPORATION, BERMAN ENTERPRISES, INC., KEN'S MARINE AND OIL SERVICE, CLEAN VENTURE, INC. AND MPC ENVIRONMENTAL, INC., DEFENDANTS.
The opinion of the court was delivered by: Leisure, District Judge.
OPINION AND ORDER
This is a declaratory judgment action arising out of events
surrounding an oil spill in the waters off Staten Island, New
York. Plaintiffs, a group of London underwriters and insurance
companies (collectively, the "Underwriters"), filed this action
seeking a declaration that they are not liable under insurance
policies issued to defendants Diversified Transport Corporation
("Diversified") and Berman Enterprises, Inc. ("Berman"), and
that they did not guarantee payment of costs incurred in the
cleanup of the spill by defendants Ken's Marine and Oil Service
("Ken's Marine"), Clean Venture, Inc. ("Clean Venture"), and
MPC Environmental, Inc. ("MPC").*fn1
Defendants Ken's Marine, Clean Venture and MPC (collectively,
the "moving defendants"), now move this Court for dismissal of
this action as against them, and for an award of costs and
attorneys' fees. Plaintiffs oppose the motion and have
cross-moved "for an Order to show cause why this Court should
not issue an Order enjoining [the moving defendants] from
prosecuting their action against plaintiffs in New York Supreme
Court, Richmond County, Index No. 808/91." Notice of Cross
Motion to Show Cause at 1-2.
The oil spill giving rise to this suit occurred on September
27, 1990, with the sinking of the barge Sarah Frank at the
First Marine Shipyard in Staten Island. Oil from the barge was
released into the Kill van Kull, creating an emergency
situation. The moving defendants were among the oil spill
control and cleanup contractors (collectively, the "cleanup
contractors") hired the same day to conduct an immediate
cleanup of the spill by representatives of Diversified, the
owner of the barge, Berman, the operator of the barge, and the
As a condition of commencing work, the cleanup contractors
demanded a letter of undertaking from the Underwriters, the
insurers of the barge, confirming that the insurance policy on
the vessel would cover the cleanup costs. Such a letter was
on September 28, 1990, through Salvage Association Limited
("Salvage Association"), allegedly an agent for the
Underwriters. See Notice of Motion, Exhibit A. The letter set
forth payment procedures under which bills would be approved on
behalf of the Underwriters by Salvage Association and forwarded
to London for payment directly to the cleanup contractors.
The cleanup contractors worked on the oil spill through
October 12, 1990, submitting invoices that were approved by
Salvage Association. On or about October 12, 1990, Salvage
Association informed the cleanup contractors that the
Underwriters were denying coverage under the insurance
policies, as well as any payment obligation to the contractors.
The cleanup contractors then ceased work on the spill, other
than work provided to the Coast Guard.
Settlement negotiations were entered into between the
Underwriters and the cleanup contractors. On or about January
6, 1991, the Underwriters made an offer of settlement, which
apparently was accepted by at least one of the cleanup
contractors, but was not accepted by the moving defendants.
On February 15, 1991, the moving defendants sent a letter to
the Underwriters and others notifying the recipients that if a
settlement was not reached on or before March 8, 1991, suit
would be filed in New York Supreme Court, Richmond County.
See Notice of Motion, Exhibit B. The underwriters apparently
made no response to this letter, other than the filing of this
action on March 4, 1991.
The moving defendants filed their action in state court on
March 14, 1991. The claims in the state court action include
breach of contract, misrepresentation, and account stated. The
cleanup contractors' demand for damages is based on the terms
of the letter of undertaking, lost earnings and punitive
damages. As of August 9, 1991, the date of the last submissions
to this Court, the underwriters had not yet filed an answer or
counterclaims in the state action.
Since the filing of the two lawsuits, defendant Berman has
filed a petition for reorganization with the United States
Bankruptcy Court, and thus both actions are automatically
stayed against Berman pursuant to Section 362(a) of the
Bankruptcy Code, 11 U.S.C. § 362(a).
The moving defendants now ask the Court to decline to
exercise jurisdiction over this declaratory action and to
dismiss the action as against them. Plaintiffs oppose the
motion and ask the Court to enjoin the pending state action
In 1934, Congress passed the Declaratory Judgment Act, now
codified at 28 U.S.C. § 2201-2202, which for the first time
empowered the federal courts to hear declaratory judgment
actions. Section 2201 requires that a "case of actual
controversy" exist before a party may bring a declaratory
action. "[T]he facts alleged, under all the circumstances,
[must] show that there is a substantial controversy, between
parties having adverse legal interests, of sufficient immediacy
and reality to warrant the issuance of a declaratory judgment."
Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270,
273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941). A declaratory
judgment action must have an independent basis for jurisdiction
and venue, as 28 U.S.C. § 2201 does not create an independent
basis for federal jurisdiction. See Warner-Jenkinson Co. v.
Allied Chemical Corp., 567 F.2d 184, 186 (2d Cir. 1977).
Federal Rule of Civil Procedure 57 makes all declaratory
judgment actions subject to the Federal Rules of Civil
As the Second Circuit stated recently, "Congress established
the declaratory judgment procedure so that parties who were
uncertain of their rights could adjudicate their claims without
first engaging in dubious conduct." Penguin Books USA Inc. v.
Walsh, 929 F.2d 69, 72 (2d Cir. 1991).
In United States v. Doherty, 786 F.2d 491 (2d Cir. 1986)
(Friendly, J.), the Second Circuit explored in some detail the
function of a declaratory judgment action:
The purpose of the [Declaratory Judgment Act] has
been expressed in a variety
of ways: "Essentially, a declaratory relief action
brings an issue before the court that otherwise
might need to await a coercive action brought by
the declaratory relief defendant," Mobil Oil Corp.
v. Long Beach, 772 F.2d 534, 539 (9th Cir. 1985);
the fundamental purpose of the [Declaratory
Judgment Act] is to "`avoid accrual of avoidable
damages to one not certain of his rights and to
afford him an early adjudication without waiting
until his adversary should see fit to begin suit,
after damage has accrued'," Luckenbach Steamship
Co. v. United States, 312 F.2d 545, 548 (2d Cir.
1963) (quoting E. Edelmann & Co. v. Triple-A
Specialty Co., 88 F.2d 852, 854 (7th Cir.), cert.
denied, 300 U.S. 680 [57 S.Ct. 673, 81 L.Ed. 884]
(1937)); the primary purpose of the [Declaratory
Judgment Act] is to have a declaration of rights
not already determined, not to determine whether
rights already adjudicated were adjudicated
properly, Hurley v. Lindsay, 207 F.2d 410, 411 (4th
Cir. 1953); the declaratory judgment procedure
"creates a means by which rights and obligations
may be adjudicated in cases involving an actual
controversy that has not reached the stage at which
either party may seek a coercive remedy, or in
which the party entitled to such a remedy fails to
sue for it," Wright, The Law of Federal Courts §
100, at 671 (4th ed. 1983); the declaratory
judgment procedure "enable[s] a party who is
challenged, threatened, or endangered in the
enjoyment of what he claims to be his rights, to
initiate the proceedings against his tormentor and
remove the cloud by an authoritative determination
of plaintiff's legal right, privilege and immunity
and the defendant's absence of right, and
disability," Borchard, Declaratory Judgments 280
(2nd ed. 1941).
Id. at 498-99.
Even if federal jurisdiction exists and the requirements for
a declaratory judgment action are met, it remains within the
discretion of the district court to decline to hear a
declaratory judgment action. See Brillhart v. Excess Ins. Co.
of Am., 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620
(1942); Hartford Accident & Indem. Co. v. Hop-On International
Corp., 568 F. Supp. 1569, 1571-72 (S.D.N.Y. 1983). This is
particularly the case when there is a proceeding pending in
another court, state or federal, that will resolve the
controversies between the parties. See Ven-Fuel, Inc. v.
Department of Treasury, 673 F.2d 1194, 1195 (11th Cir. 1982)
(citing Hollis v. Itawamba County Loans, 657 F.2d 746, 750 (5th
Cir. 1981) (pending state action) and Amerada Petroleum Corp.
v. Marshall, 381 F.2d 661, 663 (5th Cir. 1967), cert. denied,
389 U.S. 1039, 88 S.Ct. 776, 19 L.Ed.2d 828 (1968) (pending
federal action)). The situation must be distinguished from
non-declaratory judgment actions, in which the federal courts
have a "virtually unflagging obligation," Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817, 96
S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976), to exercise the
jurisdiction given them. See Hartford Accident, supra, 568
F. Supp. at 1571-72.
The Second Circuit has explained that a declaratory judgment
action should be entertained "`when the judgment will serve a
useful purpose in clarifying and settling the legal relations
in issue, and . . . when it will terminate and afford relief
from the uncertainty, insecurity, and controversy giving rise
to the proceeding.'" Broadview Chemical Corp. v. Loctite Corp.,
417 F.2d 998, 1001 (2d Cir. 1969), cert. denied, 397 U.S. 1064,
90 S.Ct. 1502, 25 L.Ed.2d 686 (1970) (quoting E. Borchard,
Declaratory Judgments 299 (2d ed. 1941)); see also Fort Howard
Paper Co. v. William D. Witter, Inc., 787 F.2d 784, 790 (2d
Cir. 1986). "The Declaratory Judgment Act was not intended to
enable a party to obtain a change of tribunal from a state to
federal court, and it is not the function of the federal
declaratory action merely to anticipate a defense that
otherwise could be presented in a state action." 10A C. Wright,
A. Miller & M. Kane, Federal Practice and Procedure § 2758 at
In Great American Insurance Co. v. Houston General Insurance
735 F. Supp. 581 (S.D.N.Y. 1990), this Court dismissed a declaratory
judgment action despite the fact that it had been filed before
a parallel coercive action was filed in a state court, finding
that the facts of the case demonstrated "a classic example of
a race to the courthouse." Id. at 586. The Court further held
that "the misuse of the Declaratory Judgment Act to gain a
procedural advantage and preempt the forum choice of the
plaintiff in the coercive action militates in favor of
dismissing the declaratory judgment action." Id.
The Second Circuit has also held that "[w]hen the declaratory
judgment action has been triggered by a notice [of suit]
letter, this equitable consideration may be a factor in the
decision to allow the later filed action to proceed to judgment
in the plaintiff's chosen forum." Factors Etc., Inc. v. Pro
Arts, Inc., 579 F.2d 215, 219 (2d Cir. 1978), cert. denied,
440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979).
In the instant case, the events leading to the filing of the
two actions indicate that the filing of the action before this
Court was triggered by the notice of suit given to plaintiffs
by the moving defendants. This factor militates in favor of
dismissal of this action.
Plaintiffs argue, however, that the issues presented in this
action are governed by federal maritime law, and that they
should not be deprived of this Court's expertise in that law.
The moving defendants counter that the issues are not ones of
maritime law, and that in any event, the state court has
concurrent jurisdiction over all claims that might be presented
before this Court. However, even where issues of maritime law
were unquestionably present, a district court may refuse to
entertain a declaratory judgment action when a parallel state
action is pending. See Employers Ins. of Wausau v. Gulf Island
Marine, Inc., 718 F. Supp. 17 (E.D.La. 1989).
By order dated July 25, 1991, this Court requested
supplemental briefing "on the question of whether all claims
and all issues in the action before this Court may be heard in
the pending state court action, whether or not every such issue
has been raised in the pleadings in that action to date."
Sturge v. Diversified Transport Corp., No. 91 Civ. 1520, slip
op. at 2 (S.D.N.Y. July 25, 1991). Plaintiffs' supplemental
brief, however, focuses primarily on the argument that any
claims that might be asserted in the state action could be
brought before this Court by way of joinder and counterclaim,
and that the issues raised in the instant suit are not
currently before the state court. Nowhere do plaintiffs make
the argument that their claims could not be fully resolved in
the state action.
Plaintiffs argue that because this action may involve
interpretation of the Oil Pollution Act of 1990, 33 U.S.C. § 2701
et seq., the matter should be heard in federal court.
The moving defendants point to Section 1017(c) of the Act,
which expressly provides for concurrent state jurisdiction
"over claims for removal costs or damages, as defined under
this Act." Thus, this factor does not mandate the retention of
this action in federal court.
The moving defendants argue persuasively that the
underwriters' claims in this action are essentially defenses to
the cleanup contractors' claims for payment in the state
action. Further, the Court agrees with the moving defendants
that plaintiffs' claims may be asserted in state court pursuant
to the Saving to Suitors Clause, 28 U.S.C. § 1333(1).
Finally, the Court notes that Justice Peter P. Cusick of the
New York Supreme Court has denied the motion of the plaintiffs
in this action to dismiss or stay the state action against
them, holding that "[n]o decision in the Federal Court action
will be dispositive of the instant [state court] action
whereas, full and complete resolution of the controversies
among the parties can be obtained in the [state court] action."
Marine Pollution Control, Inc. v. Various Underwriters at
Lloyd's, Index No. 808/91, slip op. at 2 (N.Y. Sup. Ct. July 1,
1991). The Court also held that bankruptcy proceedings
concerning Berman and another defendant in the state action did
not require a stay of that action against the other defendants,
but instead severed the
action against the defendants that had filed bankruptcy
While Justice Cusick's decision in the state action does not
of course restrain this Court, this Court agrees that the state
court is capable of resolving all the issues that might be
raised in the action before this Court. It is also not clear,
despite plaintiffs' contentions, that all of the controversies
among the parties can be resolved in this action for
declaratory relief. Plaintiffs give short shrift to possible
problems of joinder of parties and claims before this Court,
parties and claims that are already present in the state
action. Furthermore, it is clear that unless this Court takes
the drastic step of enjoining the state action, the parties
will be forced to litigate many of the same issues in two fora.
Plaintiffs themselves argue that this dispute "should not be
settled in a piecemeal manner in various fora." Plaintiffs'
Memorandum in Opposition at 7. While this Court agrees, the
better solution would seem to be to defer to the pending
coercive action in which all claims may be heard.
Upon consideration of all of the factors in this case, it
does not appear to this Court that rendering a declaratory
judgment in this matter would serve to clarify and settle the
legal relations among the parties, nor would it terminate and
afford relief from the controversy giving rise to the
The instant motion seeks dismissal of the claim against the
moving defendants only, which constitutes plaintiffs' second
claim for relief. Thus, plaintiffs' first claim for relief
against defendants Berman and Diversified remains before the
Court. As noted supra, this action is stayed against Berman
under Section 362(a) of the Bankruptcy Code.
While the Court disagrees with plaintiffs' contention that
this entire action must be stayed and has therefore severed and
dismissed the claim against the moving defendants, the Court
will grant plaintiffs' request for a stay of the remaining
claim pending the bankruptcy proceedings. Accordingly, this
action will be placed on the Court's suspense calendar until
further notice, or until the Court receives notice that the
automatic bankruptcy stay is no longer in effect.
Plaintiffs' motion seeking to enjoin the pending state action
The moving defendants' motion for costs and attorneys' fees
Plaintiffs' second cause of action against defendants Ken's
Marine, Clean Venture and MPC is dismissed without prejudice.
Plaintiffs' motion to enjoin the pending state action is
The moving defendants' motion for costs and attorneys' fees
This action will be placed on the Court's suspense docket
until further notice, or until the Court receives notice that
the automatic bankruptcy stay is no longer in effect.