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Town of Charlton v. Selective Insurance Company of America

February 4, 2010

TOWN OF CHARLTON, PLAINTIFF,
v.
SELECTIVE INSURANCE COMPANY OF AMERICA, DEFENDANT.
SELECTIVE INSURANCE COMPANY OF AMERICA, THIRD PARTY PLAINTIFF,
v.
SCHMIDT & SCHMIDT, INC., WALTER R. SCHMIDT, AND MARY ANN SCHMIDT, THIRD PARTY DEFENDANTS,



MEMORANDUM-DECISION AND ORDER

On February 17, 2009, Plaintiff, Town of Charlton ("Town"), filed a complaint in the Supreme Court of the State of New York, County of Saratoga ("the state action") against Defendant and Third-Party Plaintiff, Selective Insurance Company of America ("Selective"). See Dkt. No. 1 Ex. A. On March 23, 2009, Selective filed a Notice of removal pursuant to 28 U.S.C. § 1441 et. seq. and 28 U.S.C. § 1332(a)(1). Dkt. No. 1. On April 9, 2009, Selective filed a Third-Party Complaint against Schmidt & Schmidt, Inc., Walter R. Schmidt, Jr., and Mary Ann Schmidt (collectively, "Schmidt"). Presently before the Court is Town's Motion for the Court to abstain from exercising jurisdiction and to remand the case to state court. Dkt. No. 7 ("Town's Mot.").

I. BACKGROUND

In July 2006, Town, a municipality of the State of New York, contracted with general contractor, Schmidt, a New York domicilliary, for the construction of a town hall. See generally Mem. of Law in Supp. of Pl.'s Mot. for the Ct. to Abstain from Exercising Jurisdiction and to Remand to State Ct. (Dkt. No. 7-1) ("Town's Mem.). The construction project was divided into two phases with Schmidt to perform both. See generally Mem. of Law in Opp'n to Pl.'s Mot. for the Ct. to Abstain from Exercising Jurisdiction and to Remand to State Ct. and in Supp. of Selective's Cross-mot. to Stay the Federal Action (Dkt. No. 16-1) ("Selective's Mem."). Selective, a foreign corporation licensed to do business in New York, issued a performance bond ("the bond") for Phase I of the project, naming Schmidt as Contractor and Town as owner. Id. at 3. Schmidt allegedly failed to perform, and Town terminated the contract. Town's Mem. at 2. On January 28, 2008, Schmidt sued Town in the Supreme Court of New York, County of Saratoga for breach of contract. Id. Town responded with a counterclaim for expenses incurred as a result of Schmidt's alleged breach. Id.

On December 10, 2008, Town commenced a third-party action against Selective alleging the latter's failure to perform its obligations under the bond. Selective's Mem. at 5. Town's third-party action was withdrawn for failure to comply with state law requirements. Id. Selective was, thus, never party to the state action.

On February 17, 2009, Charlton filed a new complaint in a separate state court action, alleging Selective failed to perform under the bond and seeking damages in the sum of $850,000. Id. Selective removed this new complaint pursuant to 28 U.S.C. 1441 et. seq. and 28 U.S.C. 1332(a)(1). Notice of Removal (Dkt. No. 1).Selective then filed a third-party Complaint against Schmidt seeking indemnification if Selective were to incur loss as a result of its issuing the bond. Dkt. No. 6.

All parties agree that there is overlap between the state action and the federal action and that Selective can be found liable to Town only if Schmidt is deemed to have breached its obligations to Town. See generally Town's Mem.; Selective's Mem; Mem. of Law in Opp'n to Pl.'s Mot. for the Ct. to Abstain from Exercising Jurisdiction and to Remand the Case to State Ct. (Dkt. No. 14) ("Schmidt Mem"). If Schmidt is found liable, the federal action would adjudicate additional issues concerning the interpretation of the bond, an issue not in front of the state court.

On April 14, 2009, Town filed the instant Motion with this Court. Town admits that the Court has jurisdiction over the federal action but requests that the Court abstain from exercising jurisdiction and remand the case to New York state court. See generally Town's Mem.

II. DISCUSSION

A. The Abstention Doctrine

Town requests that the Court abstain from exercising jurisdiction over the federal action and thereby dismiss the case. Town Mot. at 2. Town alleges that, if this Court does not abstain from exercising jurisdiction over the federal action, (1) the parties may be exposed to overlapping and inconsistent liabilities in state and federal court; and (2) a second, unnecessary federal court trial would likely be required. Pl.'s Reply Mem. of Law in Further Supp. of Pl.'s Mot. for the Ct. to Abstain from Exercising Jurisdiction and to Remand the Case to State Ct. (Dkt. No. 18) at 2.

The doctrine of abstention traditionally encompasses three categories,*fn1 none of which are applicable here. The Supreme Court, however, has identified a fourth, prudential category,granting district courts the right to abstain for purposes of "'wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'" Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)(quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952)). The Supreme Court has identified six factors ("the Colorado River factors"*fn2 ) that district courts should consider in determining whether abstention is warranted. These are:

(1) the assumption of jurisdiction by either court over any res or property,

(2) the inconvenience of the federal forum,

(3) the avoidance of piecemeal ...


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