The opinion of the court was delivered by: Leisure, District Judge.
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
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. ...