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The Port Authority of New York and New Jersey v. Kraft Power Corporation

March 13, 2012

THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY, PLAINTIFF,
v.
KRAFT POWER CORPORATION, F/K/A W.A. KRAFT CORP., AMERICAN EMPLOYERS' INSURANCE COMPANY, COMMERCIAL UNION INSURANCE COMPANY N/K/A ONEBEACON AMERICAN INSURANCE COMPANY. CRUM & FORSTER. UNITED ST ATES FIRE INSURANCE COMPANY, EGERTON-WALLACE ASSOCIATES, INC. F/K/A CHILD SAVORY -HAWARD, INC. F/K/A SAVORY-HAWARD INSURANCE AGENCY, INC., , WILLIAM GALLAGHER ASSOCIATES INSURANCE AGENCY, INC., DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge:

OPINION & ORDER

Before the Court is a motion to dismiss the Amended Complaint pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure. The Port Authority of New York and New Jersey ("PA") seeks declaratory judgment regarding its rights and Kraft Power Corporation's ("Kraft") obligations under the contracts between them.*fn1 For the following reasons, the motion to dismiss is denied, and the case is stayed awaiting resolution of the lawsuit presently pending in the state court in New Jersey.

I.BACKGROUND

This case arises out of a pending personal injury lawsuit in state court in New Jersey for exposure to asbestos. Jacqueline Do, the plaintiff in the New Jersey action, asserts that she was exposed to asbestos brought home on the clothing and person of her late husband who was employed by Kraft and worked at PA sites pursuant to maintenance contracts between Kraft and PA. Ms. Do has named Kraft, PA, and numerous other parties as defendants, and the defendants have in turn brought cross-claims against one another. PA now sues in the Southern District of New York for declaratory judgment to determine the indemnity obligations of Kraft for the claims brought against PA by third parties alleged to have arisen from the performance of the maintenance contracts, including those brought by Ms. Do in the New Jersey action.

II.DISCUSSION

A.Dismissal under the First-to-File Doctrine

Kraft moves to dismiss pursuant to Rule 12(b)(3) and argues that this district is the wrong forum for the present action because the Do case was filed first, and therefore the New Jersey action takes precedence. PA responds that the issues before the Court here and the state court in New Jersey are dissimilar, rendering the first-to-file rule inapplicable, or, in the alternative, that the exceptions under the rule apply. The parties have made a not uncommon mistake in misapplying the first-to-file doctrine to concurrent state/federal litigation. The first-to-file doctrine applies where there is concurrent federal litigation, not where a federal court contends with concurrent state litigation. This is not, I might add, a new concept. See Violet Pot, LLC v. Lowe's Companies, Inc., Civil No. 06-4138(NLH), 2007 WL 894187, at *2 (D.N.J. 2007) ("[W]here two federal lawsuits are pending that address the same parties and issues, the 'first-filed' rule comes into play. The first-filed rule provides that in all cases of federal concurrent jurisdiction, the court which first has possession of the subject must decide it." (emphasis added) (internal quotation marks omitted) (citing Crosley Corp. v. Hazeltine Corp., 122 F.2d 925, 929 (3d Cir. 1941))). Put another way, the cases relied on by both parties in their briefs are instances of concurrent federal jurisdiction and are inapplicable here.

Accordingly, Kraft's motion to dismiss is denied.

B.Abstention-The Proper Analytical Framework

Abstention under Colorado River and Brilhart/Wilton spells out when "a federal court may stay or dismiss an action on the sole ground that there is a similar action pending in state court in which the controversy between the parties can be resolved." 17A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 4247 (rev. 3d ed. 2011).

i.Which Standard Applies A district court may consider and decline jurisdiction in a declaratory judgment action sua sponte. DDR Const. Services, Inc. v. Siemens Industry, 770 F. Supp. 2d 627, 655 (S.D.N.Y. 2011). Generally speaking, the abstention doctrine holds only "a few 'extraordinary and narrow exception[s]' to a federal court's duty to exercise its jurisdiction." Woodford v. Cmty. Action Agency of Greene County, Inc., 239 F.3d 517, 522 (2d Cir. 2001) (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976)). The Declaratory Judgment Act, however, confers upon federal courts "unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942)); see also 28 U.S.C.A. § 2201 ("[A district court] may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." (emphasis added)). Where courts are faced with a declaratory judgment action and there is a pending action in state court, under Brillhart/Wilton they may exercise considerable discretion in deciding whether to stay or dismiss the claims. However, when an action includes both declaratory and non-declaratory claims, a district court must determine which standard applies-the heightened standard under Colorado River or the discretionary standard under Brillhart/Wilton.

There is a circuit split in the standard that district courts should employ when faced with actions that potentially include both declaratory and non-declaratory claims. See generally R.R. Street & Co. v. Vulcan Materials Co., 569 F.3d 711 (7th Cir. 2009). In some circuits, Brillhart/Wilton may apply to the entire action where the claims seeking non-declaratory relief are dependent on the declaratory claims. See id. at 716--17. While the Second Circuit has not yet addressed this specific issue, it has stated, in a footnote, that the discretionary standard under Brillhart/Wilton does not apply to an entire federal action where the plaintiff does not seek purely declaratory relief. Village of Westfield v. Welch's, 170 F.3d 116, 124 n.5 (2d Cir. 1999). What is unresolved in this circuit is what constitutes "purely declaratory relief."

PA seeks declaratory judgment as to its contractual relationship with Kraft, that is, does Kraft have a duty to defend and indemnify PA against claims by third parties arising under the maintenance contract between Kraft and PA, and did Kraft have a duty to purchase comprehensive liability insurance and to name PA as a beneficiary. Amended Compl. ¶¶ 43--54. A complicating factor, however, is that PA fails to lay out distinct claims for anything other than declaratory relief but does mention damages and indemnification as part of the relief that the Court might deem appropriate in adjudicating the declaratory judgment action.*fn2 Damages may be awarded pursuant to the Declaratory Judgment Act itself. See, e.g., Fred Ahlert Music Corp. v. Warner/Chappell Music, Inc., 155 F.3d 17, 25 (2d Cir. 1998). Costs and expenses that PA did request are "contingent upon a threshold finding" of Kraft's obligations under the contract and "stem from the underlying request for declaratory relief." Gen. Star Intern. Indem. Ltd. v. Chase Manhattan Bank, No. 01 CIV. 11379 AGS, 2002 WL 850012 at *5 (S.D.N.Y. May 3, 2002). PA's complaint, therefore, must be read as to seek only the declaratory relief as articulated in its two counts.

This view is bolstered by PA's own characterization of its suit. PA, in its brief opposing Kraft's motion to dismiss, states that [t]his declaratory judgment action seeks to establish The Port Authority's rights under the terms of contracts . . . which required Kraft to not only indemnify The Port Authority against all claims . . . arising or alleged to arise out of or in connection with the performance ...


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