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SR International Business Insurance Co. Ltd. v. World Trade Center Properties

August 11, 2006

SR INTERNATIONAL BUSINESS INSURANCE CO. LTD., PLAINTIFF-COUNTERCLAIM DEFENDANT,
v.
WORLD TRADE CENTER PROPERTIES, LLC, ET AL., DEFENDANTS-COUNTERCLAIMANTS.
WORLD TRADE CENTER PROPERTIES, LLC, ET AL., COUNTERCLAIMANTS,
v.
ALLIANZ INSURANCE COMPANY, ET AL., ADDITIONAL COUNTERCLAIM-DEFENDANTS.



The opinion of the court was delivered by: Michael B. Mukasey, U.S.D.J.

OPINION AND ORDER

Royal Indemnity Company, one of the insurance companies party to the ongoing litigation in this court over the amount of insurance recoverable for the destruction of the World Trade Center complex ("WTC") on September 11, 2001 ("9/11"), moves to enjoin a declaratory judgment action brought in the New York State Supreme Court ("the state action") by the Port Authority of New York and New Jersey, the Silverstein Parties,*fn1 and WTC Retail LLC (collectively, "the Insureds"). In the state action, the Insureds seek a declaration that the "Conceptual Framework" agreed upon to redevelop the WTC will not affect recovery rights under the property insurance policies binding Royal and six other insurers*fn2 (collectively, "the Insurers"). Royal, joined by Travelers, Gulf, and Wausau, asks this court to enjoin the state action pursuant to the All Writs Act, 28 U.S.C. § 1651 (2000), and exceptions to the Anti-Injunction Act, 28 U.S.C. § 2283. Because an injunction against the state action would not fall within any of the narrow exceptions to the Anti-Injunction Act, Royal's motion is denied.

I.

Familiarity with the facts giving rise to the nearly five years of coverage litigation in this court is assumed. By the time the Insureds filed the state action on June 26, 2006, this court had resolved numerous questions involving the policies and conditions binding, inter alia, all parties to the state action. Summary judgment motions are still pending, and six of the Insurers are engaged in an ongoing appraisal proceeding to determine the value of three categories of damage or expense set forth in the pertinent insurance policies.*fn3

The subject of the state action is a "Conceptual Framework" ("the Framework") agreed upon by the Insureds on April 26, 2006, to "ensure the prompt redevelopment" of the WTC. (State Action Compl. ¶ 1) Under the Framework, the Silverstein Parties would cede control of the development of the One World Trade Center site (the Freedom Tower site) and the site now occupied by the Deutsche Bank building (Site 5) to the Port Authority, while maintaining control over the development of three sites on Church Street (Sites 2, 3, and 4). (Id. ¶ 2) WTC Retail, a subsidiary of the Port Authority that may be acquired by a Silverstein-controlled entity, would develop the retail component. (Id.) The insurance proceeds still collectible under the policies in effect on 9/11 would be allocated to reflect the new division of rebuilding responsibilities. (See id. ¶ 33) Because financing of the rebuilding plan contemplated by the Framework relies on the availability of the remaining insurance proceeds, the Insureds sought assurance from the WTC insurers that the Framework would not violate anti-assignment provisions in the applicable insurance policies. (Id. ¶ 35) Ultimately, the Insureds were not satisfied with the responses they received from Royal and the six other Insurers. (See id. ¶ 36)

On June 26, 2006, the Insureds filed a declaratory judgment action against the Insurers in the Supreme Court of New York State, New York County. The Insureds' complaint contains a single cause of action and seeks a declaration that "the Conceptual Framework, and the agreements and transactions contemplated therein, will not affect adversely in any fashion plaintiffs' recovery under the World Trade Center Property Insurance Program and, in particular, that the Conceptual Framework, and the agreements and transactions contemplated therein, do not constitute an impermissible assignment that reduces the recovery available to the Insureds." (Id., Wherefore Clause, ¶ A) The complaint asks also that the Supreme Court retain jurisdiction "to assure that each of the defendant[s] complies fully with its ongoing insurance coverage obligations," and that the Court award plaintiffs the costs of bringing suit. (Id. ¶¶ B, C)

The Insurers removed the state action to this court on June 28, 2006, but it was remanded for lack of subject matter jurisdiction on August 3, 2006. See Port Auth. of N.Y. & N.J. v. Allianz Ins. Co., No. 06 Civ. 5002 (MBM), 2006 WL 2175647 (S.D.N.Y. Aug. 3, 2006).

II.

The Anti-Injunction Act provides that "[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283. "The Act is 'an absolute prohibition against enjoining state court proceedings, unless the injunction falls within one of three specifically defined exceptions.'" MLE Realty Assocs. v. Handler, 192 F.3d 259, 261 (2d Cir. 1999) (quoting Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 286 (1970)). "[S]ince the statutory prohibition against such injunctions in part rests on the fundamental constitutional independence of the States and their courts, the exceptions should not be enlarged by loose statutory construction." Atl. Coast Line R.R. Co., 398 U.S. at 287; see also Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 631 (1977) (plurality opinion) ("[T]he prohibition is not to be whittled away by judicial improvisation." (quoting Amalgamated Clothing Workers of Am. v. Richman Bros. Co., 348 U.S. 511, 514 (1955) (internal quotation mark omitted))). "Any doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy." Ret. Sys. of Ala. v. J.P Morgan Chase & Co., 386 F.3d 419, 425-26 (2d Cir. 2004) (quoting Atl. Coast Line R.R. Co., 398 U.S. at 297.

III.

Royal does not allege that Congress has expressly authorized an injunction against the state action, see generally Vendo Co., 433 U.S. at 631-639, or that an injunction is required to protect or effectuate a judgment by preventing the relitigation of an issue actually decided by this court,*fn4 see

generally MLE Realty, 192 F.3d at 261-62. Royal relies solely upon the exception to the Anti-Injunction Act that permits a federal court to enjoin a state proceeding "where necessary in aid of its jurisdiction."*fn5 28 U.S.C. § 2283.

The aid-of-jurisdiction exception to the Anti-Injunction Act implies that "some federal injunctive relief may be necessary to prevent a state court from so interfering with a federal court's consideration or disposition of a case as to seriously impair the federal court's flexibility and authority to decide that case." Atl. Coast Line R.R. Co., 398 U.S. at 295; see also Kline v. Burke Constr. Co., 260 U.S. 226, 229 (1922) ("[W]here a federal court has first acquired jurisdiction of the subject-matter of a cause, it may enjoin the parties from proceeding in a state court of concurrent jurisdiction where the effect of the action would be to defeat or impair the jurisdiction of the federal court.") The exception has been construed narrowly by the Supreme Court and the Second Circuit ---limited to cases based on in rem or quasi in rem jurisdiction, and the rare occasion when the litigation itself can be treated as a res, most notably in complex multidistrict actions on the verge of settlement. It is settled law that "a district court may not issue an injunction simply to be the first court to reach a judgment and thereby avoid issues" of preclusion and prevent duplicative litigation. Ret. Sys. of Ala., 386 F.3d at 429 (citing Vernitron Corp. v. Benjamin, 440, F.2d 105, 108 (2d Cir. 1971); see also Atl. Coast Line R.R. Co., 398 U.S. at 295 (holding that, where "state and federal courts had concurrent jurisdiction" over a dispute involving the legality of picketing by a union, "neither court was free to prevent either party from simultaneously pursuing claims in both courts").

Notwithstanding Royal's energetic effort to squeeze the WTC coverage litigation into the narrow aid-of-jurisdiction exception, "[t]he suits at issue here are in personam actions . . . disputing the interpretation of a contract" and "[t]he existence of the state court action does not in any way impair the jurisdiction of the federal court or its ability to render justice." Standard Microsystems Corp. v. Tx. Instruments Inc., 916 F.2d 58, 60 (2d Cir. 1990). Even accepting Royal's contention, still speculative at this point, that the "overlapping issues" in the state action and before this ...


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