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STURGE v. DIVERSIFIED TRANSPORT CORP.

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,
v.
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.

BACKGROUND

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 shipyard.

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 provided 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 against them.

DISCUSSION

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. ...


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