SureTec Ins. Co. v. New Faze Development, et al.,, No. 2:2008cv03036 - Document 66 (E.D. Cal. 2009)
Court Description: ORDER denying 47 Counter-Motion for Order of Abstention signed by Judge Morrison C. England, Jr on 8/31/09. (Kaminski, H)
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SureTec Ins. Co. v. New Faze Development, et al., Doc. 66 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 SURETEC INSURANCE COMPANY, INC., a Texas corporation, NO. 2:08-cv-03036-MCE-JFM 11 Plaintiff, 12 v. ORDER 13 14 NEW FAZE DEVELOPMENT, INC., et al., 15 Defendants. 16 17 ----oo0oo---Plaintiff initiated this indemnity action seeking to, inter 18 alia, recover losses it anticipates incurring as a result of 19 issuing payment and performance bonds in connection with one of 20 Defendants’ development projects. 21 Defendants’ Counter-Motion for Order of Abstention1, through 22 which Defendants seek a stay of the instant proceedings under 23 Colorado River Water Conservation Dist. v. United States, 424 24 U.S. 800 (1976). 25 is denied. Presently before the Court is For the following reasons, Defendants’ Motion 26 27 28 1 Because oral argument will not be of material assistance, the Court ordered this matter submitted on the briefing. E.D. Cal. Local Rule 78-230(h). 1 Dockets.Justia.com BACKGROUND 1 2 3 Plaintiff agreed to provide surety bonds on behalf of Nuevo 4 Partners, an affiliate of Defendants, in connection with a local 5 construction project. 6 agreement, Defendants, along with Nuevo Partners, executed a 7 General Indemnity Agreement (“GIA”) under which they agreed to 8 indemnify Plaintiff against liability for losses and expenses 9 incurred by Plaintiff as a result of executing the bonds. 10 contracting parties also agreed, upon demand, to deposit 11 collateral with Plaintiff to discharge or cover losses or 12 anticipated losses. 13 As part of the consideration for this The Nuevo Partners, later filed for Chapter 11 Bankruptcy. 14 Plaintiff alleges the bankruptcy filing constituted a default 15 under the terms fo the GIA. 16 Subsequently, A. Teichert & Son, Inc., d.b.a. Teichert 17 Construction (“Teichert”) made demands upon Nuevo Partners for 18 payment of labor, materials, etc. 19 recorded a Mechanic's Lien and then sent to Plaintiff a notice of 20 intent to make a claim in the amount of $446,837.11 against the 21 bonds. 22 work as obligated on the project, exposing Plantiff to liability. 23 On October 16, 2008, Teichert According to Plaintiff, Nuevo Partners failed to complete As a result, Plaintiff sent letters to Defendants demanding 24 that they indemnify Plaintiff from any losses it might sustain. 25 Plaintiff directed Defendants to either pay Teichert and arrange 26 for completion of the work or deposit collateral in the amount of 27 $500,000 with Plaintiff. 28 /// To date, Defendants have done neither. 2 1 Accordingly, on December 15, 2008, Plaintiff filed the instant 2 action alleging claims for breach of contract, quia temet, 3 specific performance, and declaratory relief. 4 Approximately one month later, on January 13, 2009, Teichert 5 initiated a state action against Defendants, included Plaintiff 6 as a defendant, and alleged causes of action for breach of 7 contract, foreclosure or mechanic’s lien and bond recovery. 8 Defendants now move to stay the instant action until the state 9 action is resolved. 10 ANALYSIS 11 12 13 According to Defendants, when Teichert recorded its 14 Mechanic's Lien and sent a demand letter to Plaintiff as to the 15 bonds, “[r]easonable handling of these claims, for maximum 16 economy and benefit to the Courts and parties, would have 17 involved (a) Teichert filing an action in the Superior Court, 18 including a cause of action against Plaintiff for payment under 19 the Bonds, in response to which (b) Plaintiff would bring a 20 cross-complaint in the Superior Court against Defendants herein 21 asserting their indemnity obligations.” 22 one month before Teichert eventually filed a state court action, 23 Plaintiff initiated the instant litigation in this Court. 24 Defendants now ask this Court to abstain from exercising its 25 jurisdiction until the state court action is resolved. 26 /// 27 /// 28 /// 3 Instead, approximately 1 “Under Colorado River, considerations of wise judicial 2 administration, giving regard to conservation of judicial 3 resources and comprehensive disposition of litigation, may 4 justify a decision by the district court to stay federal 5 proceedings pending the resolution of concurrent state court 6 proceedings involving the same matter. 7 required; it is enough if the two proceedings are substantially 8 similar.” 9 (internal citations and quotations omitted). Exact parallelism is not Holder v. Holder, 305 F.3d 854, 867 (9th Cir. 2002) “But because 10 ‘[g]enerally, as between state and federal courts [with 11 concurrent jurisdiction], the rule is that the pendency of an 12 action in the state court is no bar to proceedings concerning the 13 same matter in the Federal court having jurisdiction[,]’ the 14 Colorado River doctrine is a narrow exception to ‘the virtually 15 unflagging obligation of the federal courts to exercise the 16 jurisdiction given them.” 17 at 817). 18 Id. (quoting Colorado River, 424 U.S. Thus, as a threshold matter, Colorado River applies when a 19 federal court is asked to exercise jurisdiction over a matter in 20 which there are parallel state court proceedings underway. 21 Defendants argue here that the state court action constitutes 22 parallel litigation because it concerns the same underlying 23 construction project, the same parties, the same approximate 24 amount of money damages, and arises under the same state’s laws. 25 Additionally, Plaintiff’s potential recovery here is derivative 26 of any recovery Teichert might obtain in state court. 27 disagrees, arguing that the state court proceedings will not 28 resolve the issues raised in federal court. 4 Plaintiff 1 Plaintiff is correct because the state court proceeding revolves 2 around the subcontract and the bonds. 3 involves the instant parties’ indemnity agreement. 4 parallelism requirement is not met. 5 The federal action instead Thus, the Additionally, the remaining factors critical to a Colorado 6 River analysis weigh in favor of the exercise of this Court’s 7 jurisdiction as well: 1) whether the state court has assumed 8 jurisdiction over any res or property; 2) whether the federal 9 forum is less convenient to the parties; 3) avoidance of 10 piecemeal litigation; 4) the order in which jurisdiction was 11 obtained; 5) whether the source of governing law is state or 12 federal; 6) the adequacy of state court proceedings to protect 13 the federal plaintiff’s rights; and 7) whether exercising 14 jurisdiction will promote forum shopping. 15 U.S. at 818-19; Moses H. Cone Memorial Hosp. v. Mercury Const. 16 Corp., 460 U.S. 1, 19-26 (1983); Holder, 305 F.3d at 870. 17 Colorado River, 424 First, though Plaintiff claims the state court has assumed 18 jurisdiction over property by way of Teichert’s Mechanic’s lien, 19 Plaintiff’s claim in this court does not concern that property 20 and seeks only funds it anticipates recovering under the 21 indemnity agreement. 22 neutral as the burdens and benefits of litigating in Sacramento 23 state court versus federal court are virtually the same. 24 Furthermore, concerns regarding the avoidance of piecemeal 25 litigation are not present here because, though related, the 26 issues litigated in this Court are not the same as those before 27 the district court. 28 /// Next, the convenience of the forum is 5 1 Additionally, despite Defendants’ argument that the state court 2 action should be deemed filed as of the date the Mechanic’s Lien 3 was recorded, the federal action was actually filed first and has 4 progressed further than the state action. 5 source of applicable law is state not federal, both courts have 6 the ability to competently address Plaintiff’s instant claims. 7 Finally, nothing in the record indicates that Plaintiff, in 8 filing the instant action, engaged in improper forum shopping. 9 Moreover, though the In sum, even if the above balancing produced a closer 10 result, Colorado River abstention is proper only under rare 11 circumstances not present here. 12 rights to initiate the instant litigation in this Court under 13 this Court’s diversity jurisdiction. 14 on those rights and await the filing of a state court action in 15 which Plaintiff could then file a cross-complaint for indemnity. 16 Accordingly, this Court will not abstain. Plaintiff was well within its It was not required to sit 17 CONCLUSION 18 19 20 21 22 23 Defendants’ Counter-Motion for Order of Abstention (Docket No. 47) is DENIED. IT IS SO ORDERED. Dated: August 31, 2009 24 25 26 _____________________________ MORRISON C. ENGLAND, JR. UNITED STATES DISTRICT JUDGE 27 28 6
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