F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

S E N E C A I N S U R A N C E C O M P A

N Y , I N C ., P laintiff-Third-Party-PlaintiffAppellant
,

v

.

S T R A N G E L A N D , I N C .; U.S. B A

N K N A T I O N A L A S S O C I A T I O N , Defendants-Appellees
,

v

.

B E L F O R USA G R

O U P , I N C ., DB A B elfor Property

Restoration, Third-Party-Defendant-Appellee. N o. 15-16011

D.C. No. 3:14-cv-00381- L RH-W GC

OPI NI ON

A ppeal from the United States District Court for the District of Nevada L arry R. Hicks, District J udg e, Presiding

Submitted March 17, 2017 * San F rancisco, California

F iled J uly 5, 2017

* T h e p an el u n an im o u s ly

co n clu d es th is case is su itab le f o r d ecisio n

w ith o u t o ral arg u

m en t. S ee Fed . R. A pp . P . 3 4 (a)(2 ).S E N E C A I N S

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A N G E L A N D 2

B efore: Kim McL ane W ardlaw and Ronald M. Gould, Circuit J udg es, and Edward F . Shea, * * District J udg e.

Opinion by

J udg e W ardlaw

SUMMARY * * *

Colorado River

Abstention

The panel vacated the d i s t rict court’s order stay ing an action, p ursuant t o C o lo. River W ater Conservation Dist. v

. United States
, 424 U .S. 800, 813 (1976)
, a ga inst Strang e L and, I nc. pending the decision in a parallel sta t e c ourt p r oceeding ; and remanded to the d istrict court for furthe r proceeding s.

I n J uly 2 014, Seneca I nsur a n c e Company
, I nc. filed a complaint ag a inst Strang e L and and U.S. B ank in the instant federal a ction seeking a d eclaration of insurance oblig ations. I n October 2014, B elfor USA Group, I nc. filed an action in Nevada state court seeking compensation for its repair work f r o m S t r a ng e L and as the property owner and Seneca as the policy issuer.

The p a n e l h eld that the d istrict court correctly chose to analy z e Strang e L a n d ’s r equest for abstention in the federal

** T h e Ho n o rab le Ed w ard F. Sh ea, Sen i o r Un ited States District J u dg e f o r th e Eastern District o f

W ash in g to n , sittin g b y

d esig n atio n

.

*** T h is su m m ary co n stitu

t es n o p art o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.S E N E C A I N S

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A N G E L A N D 3

action under the Colorado River framework because Seneca
soug h t remed i e s b ey ond d eclaratory judg ment. The panel rejected Strang e L and’s arg u ment that the m o r e lenient abstention test from W

ilton v. Seven Falls Co.
, 515 U.S. 277 (1995), and Brillhart v. Excess Ins. Co. of America
, 316 U.S. 491 (1942), should apply

.

The panel evaluated the e i g h t factors in assessing the appropriatene ss of a Colorado River stay or dismissal. The panel held that the district cou r t’s a p p lication of Colorado River abstention was an abuse of its narrow d i s cretion because the case was not “ex ceptional” so as to warrant disreg arding the oblig a tion of a federal court to ex erc i s e i t s jurisdiction.

COUNSEL

J ohn P. Skalak, W ilson Elser Moskowitz Edelman & D icker L L P, L as Veg as, Nevada, for Plaintiff-Third-Party -PlaintiffAppellant.

W illiam R. Ginn, Patrick R. L everty , a nd Vernon E. L e verty , L everty & Associates L aw CHTD
, R eno, Nevada, for Defendant-Appellee Strang e L and, I nc.S E N E C A I N S

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OP INION

W A RDL AW , Circuit J udg e:

Seneca I nsurance Company
, I nc. (“S e n eca”) a ppeals the district court’s order stay

ing its action ag ainst Strang e L and, I nc. (“Strang e L and”) pending the decision in a parallel state court p roceeding

. I n situations of concurrent state and federal jurisdiction over a controversy , a district court must ex ercise its jurisdic t i o n unless “ex ceptional circumstances

. . . serv[ ing ] a

n important coun t e rvailing interest” are present. Colo. River W

ater Conservation Dist. v. United State s , 424 U

. S

. 8 00, 813 (1976). The district court ex a mined

s e v e ral Colorado River factors a nd concluded that a stay o f
t h e federal proceeding s w as justified “for the sake of wi s e judicial administration.” W e d isag ree, vacate the stay order, and remand to the district court for further proceeding s.

I.

W e recount only the factual and p rocedural history o f this insurance dispute necessary to consider the district court’s abstention order. Strang e L and owns a building in R e no, Nevada. I n 2 0 1 3
, S t rang e L and obtained a commercial insurance p olicy from Seneca to c over the property f or risk o f loss up to $2 million. U.S. B a nk, National Association (“U.S. B ank”) holds a mortg ag e on the p roperty and is an additional loss p ay ee on the policy

. B e tween May 4, 2013 and F ebruary 25, 2014, Strang e L a

nd made four property damag e c laims under its Seneca policy

. B elfor USA Group, I nc. (“B elfor”)
rep a i r e d the property d amag e; in r eturn, Strang e L a nd
p r o mised that B elfor would be entitled to the insura n c e proceeds. After invoicin g S t ra ng e L and for its work a nd failing to receive any compensation f or the repairs, B el f

o rS E N E C A I N S

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A N G E L A N D 5

caused a Notice of L i en to be r ecorded on the property on May 16, 2014. B elfor alleg es that it n otified Seneca th at Strang e L and had assig n ed to B elfor its r ig hts to the insurance
p r o ceeds, thoug h Seneca asserts that it was unawar e o f B elfor’s request for pay

ment. Seneca’s federal complaint alleg es that, upon investig ating S trang e L and’s claims, Seneca concluded that Strang e L and had made material misrep r e s entations in its p olicy application. Therefore Seneca soug ht to rescind the p olicy a nd disclaimed responsibi l i ty for the claims. According to B elfor, Seneca rejected B elfor’s request for reimbursement.

O n J u ly 21, 2 014, Seneca f iled a complaint ag ai n s t Strang e L and and U .S. B ank in the instant suit (the “F ederal Action”). Seneca described the “Nature of [the] Actio n” a s “an action f

or declaratory judg ment pursuant to 28 U .S.C. section 2201 and 28 U.S.C. section 2 2 0 2
, t o determine the rig hts and duties” a mong the parties. Seneca s oug ht, inter alia
, a “declaration” rescinding the policy because of Strang e L and’s misrepresentations, a judg ment o f indemnity ag ainst Strang e L and, and damag es ex ceeding $75,000 “for recoupment of monies wrong fully p aid to defendan t o n the first property

claim.”

On O ctober 10, 2014, B elfor filed a n action in the Second J udicial District Cour t i n Nevada (the “State Action”), seeking compensation for its repair work from Strang e L a nd

as the property owner and Sene c a a s t h e policy issuer. I n

r e s p o n s e , S e n e c a a l l ege d i t s a f f i r m a t i v e d e f

e n s e s , crossclai m s, and counterclaims in the State Action. Seneca also filed a third-party complaint for interple a d e r a nd dec l a r a t o r

y r elief a g ainst B elfor in the F ederal Action a nd

m o v ed to dismiss or stay the State Action in lig ht o f t h e pending F ederal Action. On F ebruary 1 8, 2015, Strang e L a ndS E N E C A I N S

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filed a request for abstention in the F ederal Action, which the district court g ranted on April 2 2, 2015. Seneca timely appealed.

II.

W e have jurisdiction to review a Co l o r ado River stay order pursuant to 28 U .S

. C

. § 1291. See Moses H

. Cone Mem’l H osp. v

. Mercury Constr. C orp. , 460 U.S. 1
, 9–13 (1983). “ W hether the facts of a particular case conform to the requirements f

o r a C o lorado River stay or dismissal is a question of law w hich we review d e n o v o

. ” S mith v

. Cent. Ariz. W ater Conservation Dist.
, 418 F .3d 1028, 1032 (9th Cir. 2005). I f we conclude that the Colorado River requirements have b een met, w e then review for ab u s e o f discretion the district court ’ s decision to stay or d ismiss the action. See R.R. St. & Co. v. Transp. Ins. Co.
, 656 F .3d 966, 973 (9th Cir. 2011). “[ D] iscretion must be ex ercised within the narrow a nd specific limits prescribed by the [ Colorado River ] doctrine.” Id. (second alteration in orig inal).

III.

W e first c onsider Strang e L and’s arg ument that the more lenient abstentio n t e st from W ilton v. Seven Falls Co.
, 515 U

. S

. 2 7 7 (1995), and Brillhart v. Excess Ins. Co. of America
, 3 1 6 U.S. 4 91 (1942), should apply because Se n e c a’s suit seeks only declaratory relief. See Brillhart
, 316 U.S. at 4 9 5 (“Ordinarily it would be uneconomical a s well as vex atious f

or a federal court to procee d i n a declaratory judg ment suit where another suit is pending in a state court presenting the same issues, not g overned b y federal law, between the same parties.”). So long as the suit seeks more than merely declaratory relief, however, the entireS E N E C A I N S

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action should be a n a ly zed under the Colorado River f r a m ework. “[ I ] f the same action contains claims for bo t h monetary and declaratory relief, the district court should not,

as a g eneral rule, remand or decline to entertain the claim for declaratory r elief.” R.R. S t. , 656 F .3d at 976–77 (inter n al quotation m arks omitted). T o d etermine whether a suit

ex c lusively seeks declaratory relief, we ask “whether there

are claims in the case that ex ist independ e n t o f any request for purely declaratory relie f, that is, claims that would continue to ex ist if the requ e s t for a declaration simply dropped f

rom the case.” Snodgrass v. Provide n t Life & Accident Ins. Co. , 147 F .3d 1163, 1167–68 (9th Cir. 1998).

The d istrict court c o rrectly chose to analy z e the a bstention motion under the Colorado River framework. I t i s true, a s Strang e L and notes, that Seneca’s c o mplaints describe the F ederal Action as “an action for declaratory judg ment pursuant to 28 U.S.C. section 2201 a n d 28 U.S.C. section 2202, to determine the rig hts and duties” between Seneca a nd Strang e L and. Y et in its p ray ers for reli e f a ga i n st Strang e L and in the o rig inal a

nd amended complaints, Seneca has consistently requested “a declaration rescinding the policy o f property insurance,” “ a dec l a r a t i on of the Court voiding the policy

. . . based upon breach of contract and material misrepresentations,” and “damag es, in an amount ex ceeding $75,000, for recoupment of monies paid to defendant on the first property

claim.”

Seneca’s f

iling s thus have unfailing ly soug ht d amag es, bring ing its suit squarely w i t h i n the Colorado River framework. Moreover, thoug h certain of the pray ers for relief in the F e deral Action have be en framed as seeking “declarations” by the court, Seneca is in fact pursuing rescission of the contra c t b a s ed on Strang e L and’s alleg edS E N E C A I N S

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misrepresentations—thereby altering t h e relationship of the parties—and not simply requesting that the court “ announce[ ] the rig hts and oblig ations o f the parties.” See Robert S. Thompson et al., Remedies: D a m a ge s , E q u i t y , and R e stitution 10 (4th ed. 2 009); see also J ames M. F ischer, Understanding Remedie s 6 (3d ed. 2014) (“The essential feature o f declaratory relief i s that it does not compel an immediate, specific o blig ation to do something

. . . . The full effect of the remedy lies in its educative value an d t h e f urther remedy o f

a follow up action to enfo r ce t h e rig hts, duties, a nd oblig ations recog niz ed by the c ourt

. . . .”). Those pray ers for “declaratory

” relief, in addition to the e x plicit r e quest for damag es, therefore also seek non-declaratory remedies. Even if the reque s t f

o r a declaration to determine the rig hts a nd d u t i es of the parties dropped out of the lawsuit, the o t h e r remedies soug ht would afford an ind e p e n dent basis f o r the F ederal Action. B ecause Seneca seek s remedies bey ond declaratory judg ment, the district c ourt correctly applied the Colorado River standard.

IV.

W e n e x t consider whether the district court properly stay ed the F ederal Action pending resolutio n of the State Ac tion b ased on Colorado River

. “Abstention from the

ex e r cise of federal jurisdiction is the ex ception, not the rule.” Colo. River
, 424 U.S. at 813. G enerally “the pendency of an action in the state court is no bar to proceeding s co n c erning the same matter in the F ederal court h aving jurisdiction

. . . . ” Id. at 81 7 (internal quotation marks omitted). The Supreme Court has emphasiz ed that the f ederal courts have a “virtually unflag g i n g o b l ig ation

. . . to ex e rcise the jurisdiction g iven
t h e m ,” including in cases involving parallel state litig ation

. Id. “Abdication of the oblig ation to d ecide cases ca n b eS E N E C A I N S

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A N G E L A N D 9

justified

. . . o n ly in the e x ceptional circumstances where the order to the parties to r epair to the state court would clearly

serve a n important countervailing interest.” Id

. a t 813 (internal quotation marks omitted). Under “ex ceeding ly rare” circumstances, Smith
, 418 F .3d at 1033, “consideratio n s o f wise judicial administration, g iving reg ard to conservation o f judicial resources a n d comprehensive disposition o f litig atio n , ” may c ounsel in favor of abstention, Colo. River
, 424 U.S. at 817 (alteration omitted) (internal quotation marks omitted).

Colorado River and its prog eny provide a multi-prong ed
test for d e termining w h ether “ex ceptional circumstances”

e x ist warranting federal abstention from concurrent feder al and state proceeding s. W e evaluate e ig ht factors in assessing the appropriateness of a Colorado River stay or dismissal:

(1) which court first assumed jurisdiction over any property at stake; (2) the inconvenience o f the fe d e ral f

orum; (3) the desire to avoid piecemeal litig a tion; ( 4) the order in which the forums o btained jurisdiction; (5) whether federal law or state law provides the rule o f decision on the merits ; (6) whether the state court pro c e e d ing s can adequately protect the rig hts of the federal litig ants; (7) the desire to avoid forum shopping ; and (8) whether t h e state court proceeding s will resolve all issues before the federal court.

R.R. S t. , 656 F .3d at 9 7 8

– 7 9

. T hese factors are n ot a “mechanical c h e cklist”; indeed, some may not have any

a p p l i c a b ility to a case. Cone M em’l Hosp.
, 460 U .S. at 16. Rather, as instructed by the Supreme Court, we ex amine themS E N E C A I N S

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i n “a prag matic, flex ible manner with a view to the realit i e s of the case a t hand.” Id. at 21. Moreover, we must carefully balance the important factors, “with the balance heavily weig hted in favor o f the ex ercise of jurisdiction. ” I d. at 16. T h e underly ing principle g uiding this review is a str o n g presumption a g ainst f

ederal abstention: “[ O] ur task in cases such as this is not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether th e r e e x ist ‘ex ceptional’ circumstances, the ‘clearest of justifications,’ that can suffice under Colorado River to justify the s u r render o f that jurisdiction.” Id. at 25–26. “ Any doubt a s to whether a factor

ex ists should be resolved ag ainst a stay , not in favor of one.” Travelers Indem. Co. v. Madonna
, 914 F .2d 1 364, 1369 (9th Cir. 1990). W e address in turn each Colorado River factor a s it applies to this case. 1

A. Jurisdiction over a res.

The district court concluded that the first Colorado River factor, whether either court was the first to assert jurisdiction

over property a t stake, “is neutr al b e c ause neither court has asserted such jurisdiction. ” A l t houg h B elfor has recorded a notice o f lien on the p r o p e rty a n d lien priority as to litig ants other than Seneca and Strang e L and may be an i ssue in the State Action, neither the federal nor the sta t e court has assumed jurisdiction over a n y property the ownership o f wh i c h i s in d ispute. I ndeed, the concerns that animate this factor are not implicated here because there is no possibility that the parallel proceeding s will r esult in inco nsistent

1 B ecau se th e d istrict co u rt an d th e p arties ag reed th at th e r e l a t i v e

co n v en ien ce o f th e s t a t e an d f ed eral co u

rts is n ot im

p licated
, w e d o n o t ad d ress th at f

acto r.S E N E C A I N S

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dispositions of a si n gl e r e s. See, e.g. , Colo. River
, 424 U.S.
at 819 (“[ T] he concern in such instances is with avoiding the
g eneration of additional litig ation throug h permitting inconsistent dispositions of property .”); see also Donovan v

. City of Dallas
, 377 U.S. 408, 412 ( 1 964); Princess Lida of Thurn & Taxis v. Thompson
, 305 U.S. 456, 467 (1939). Any disposition o f the property in the State A ction w i ll have no bearing on the resolution of the F ederal Action, where B elfor has not raised its lien priority c laim. A s such, we ag ree with the district court that this Colorado River factor is neutral.

B. Avoidance of piecemeal litigation.

A substantia l f

actor in the Colorado River analy sis is whether there are special concerns associated with resolving the issues in a piecemeal fashion via parallel proc ee d ing s. “Piecemeal litig ati o n o c c u r s w h e n d ifferent tribunals consider the same issue, thereby duplicating e f f orts and possibly reaching different results.” Am. Int’l Underwriters ( Philippines)

, Inc. v

. Cont’l Ins. Co.
, 8 43 F .2d 1253, 1258 (9th Cir. 1988). A g eneral preference for avoiding piecemeal litig ation is insufficient to warrant a b stention, however. Any

case in which Colorado River is imp licated will inevitably involve the possibility of “ confli c ting results, piecemeal litig ation, and some duplication of judicial efforts,” which a

re the “unavoid able p rice of preserving access to

. . . federal relief.” Neuchatel S

wiss Gen. Ins. Co. v. Lufthansa Airlines
, 92 5 F. 2 d 1193, 1195 ( 9th Cir. 1991) (alteration in orig inal) (internal q

u o t a t ion marks omitted). I nstead, there must be

ex c e ptional circumstances present that dem o n strate that piecemeal litig ation w ould be particularly prob l e m a tic. See Madonna
, 914 F .2d at 1 3 6 9 ( “A correct evaluation of this f a c t o r i n v o l v e s c o n s i d e r i n g w h e t h e r e x c e p t i o n a l circums t a n c es ex ist which justify special concern aboutS E N E C A I N S

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piecemeal litig ation.

. . . T h is case involves ordinary contract and tort iss u es a

nd is thus unlike Colorado River where importa nt real property rig h ts were at stake and where there

was a substantial dang er of inconsistent judg ments

. ” ). Colorado River itself involved multi-state reg ulation of water rig hts in the Southwest, where water remains scarce, such that inconsistent dispositions of those rig hts could trig g er f urther litig ation. See Colo. Rive r , 424 U.S. 819–20 (“The clear federal policy evinced by [ the McCarran Amendment] is the avoidance of piecemeal adjudication of w ater rig hts in a river
sy stem.”). 2

The district court h e r e r e asoned that because “this case involves multiple defendants, num e r o us claims, and crossclaims, that all present complex s t a t e t ort and insurance is s u e s , ” the desire to avoid piecemeal litig ation “weig hs in favor o f abstention.” The d istrict court m i s c onstrued the
p i e c emeal litig ation factor because it failed to identify any special concern counseling in favor of f e d e ral abstention, such as a “clear federal policy ” o f avoiding “p i e c e m eal adjudication of water rig hts” ex pressed via federal leg islation “recog n iz [ ing ] t h e availability of comprehensive state sy stems fo r a d

judication of water rig hts.” Id. at 819. Multiple defendants, c l a i m s, and cross-claims are r outine in adjudications of tort and insurance disputes

— t h e y are the stuff o f div e r sity jurisdiction. Nothing about this dispute

2 T h e M c C a r ran A m en d m en t, 4 3 U .S.C. § 6 6 6
, w aiv ed f ed eral

so v ereig n im

m u n ity in su its ad

j u d icatin g th e o w

n ersh ip o r ad m i n istratio n

o f w ater rig h t s. T h e S u

p rem e Co u rt in terp reted th e am en d m en t to in d icate

a co n g ressio n al po licy reco g n izin g “t h e av ailab ility o f co m preh en siv e state sy stem s f

or ad j u dicatio n o f w ater rig h t s as th e m ean s f o r ach iev in g ” th e g o al o f av o id i n g p i e c e m eal ad j u d i catio n o f w ater rig h ts in a riv er sy stem

. Co lo . River , 4 24 U.S. at 8 1 9

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evinces a special or important r ationale or leg islative preference for resolving

these issues in a sing le proceeding

.

C. The order in which the forums obtained jurisdiction.

I n determining the order in whic h the state and federal
courts obtained jurisdiction, d istrict courts are instructed not simply to compar e fi l i n g dates, but to analy z e the prog ress made in each case “in a pragm a t i c , flex ible manner with a view to the realities of the case at hand.” Cone Mem’l H osp. , 460 U .S. at 21. The district c o u rt i s well positioned to understand the relative prog ress of each case in this practical
way

. Here, the district court c oncluded that, “[ b] ecause neither case has prog r essed sig nificantly fu r t h e r than the other, and the f

ederal action was filed more than two months prior to the state action, t h i s factor weig hs ag ainst

a b s t e ntion.” There was sig nificant activity in each case b y the time the d istrict court reviewed the abstention motion, but neither court had resolved a ny foundational leg al claims. A s

a result, we ag ree with the district court’s conclusion that the

cases had prog ressed e q

uivalent amounts, such that this factor does not w eig h in favor of abstention. Strang e L and’s
arg uments to the contrary

—in which it contends that the State Action was t h e “ f

i rst filed” because Seneca amended its orig inal complaint and t hat this weig hs heavily in favor o f abstention—lack merit.

D. The rule of decision.

Under Colorado River
, we consider “whether federal law or state law provides the rule of decision on the merits” (the “rule of decision” factor). R .R. St.
, 656 F. 3 d at 9 78. The “presence o f federal-law issues must alway s be a major consideration weig hing against surrender” of jurisdi c t i o n, butS E N E C A I N S

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“the presence of state-law issues may weig h in favor of that surrender” only “in s o m e rare circumstances.” Cone Mem’l Hosp.
, 460 U.S. a t 26 (emphasis added); see also Meredith v

. City of W inter Haven , 320 U.S. 2 28, 2 36 (1943) ( “Cong ress having adopted the p olicy of opening the federal cour t s t o suitors in all diversi ty cases involving the jurisdictional

amo u n t , w e can discern in its action n o recog nition of a policy which would ex clu d e cases from the jurisdiction merely becaus e t hey involve state law o r because the law is uncertain or difficult to determine.”). T hat state law provides the rule of d ecision supports a bstention only when the state law questions are themselves co m p l e x and difficult issues better resolve d b y a s tate court; it is not enoug h that a state law case is complex because it involves numerous parties or claims. S ee R.R. St.
, 656 F

. 3d at 9 80–81 (concluding that the

source of law f

actor is “neutral” w here the complex ity of the action “stems from the number of policies and in s u r ers, not from the ty

p e of [ state] law involved in the action”). Cases i m p l i c a t i n g o n l y “ r o u t i n e i s s u e s o f s t a t e law—misrepresentation, breach of fiduciary d uty , and breach of contract—which the district court is fully c ap a b le o f deciding ” do n ot entail “rare circum stances” counseling in favor of abstention. Madonna , 914 F .2d at 1370.

The district court concluded that t h e r u l e of decision factor “weig

hs heavily

in favor of abstention” because “[ a ] ll claims in this case are broug ht pursuant to state law.” A s discussed above, the c ourt als o n oted elsewhere that “this

case involves multiple defendants, nu m e r o us claims, a nd cross-claims, that all p resent complex state tort and insurance issues.” I n so doing
, the district c ourt disreg arded our pre c e d ent requiring “rare circumstances” for this factor to weig h in favor of abstention and failed to ex plain why the relevant leg al claims are “complex .” W e do not find “rareS E N E C A I N S

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c ircumstances” in this litig ation. Rather, this is a

s t raig h tforward insurance dispute throug h which an insur e r seeks declaratory judgm e n t, equitable relief, a nd damag e s

a ga inst its insured, w hile a third-party vendor seeks f r o m several parties compensation for past repair work. As in Madonna and R.R. S

treet , the c laims ultimately boil down to arg uments about misreprese n t ation, fraudulent inducement, detrimental reliance, breach o f contract, and rescission, none of which raises the “rare circumstances” required for the rule of decision factor to weig h toward abstention. 3

E. Adequacy of the state forum and p a rallelism of the suits.

Under Col o r a d

o River
, we consider both “whether the
state c o u r t p roceeding s c an adequately protect the rig hts o f the federal litig ants” (the “adequacy ” factor) and “whether the
state c ourt proceeding s will resolve all i s s ues before the

3 Stran g e L an d cites t

h e McCarran

- Ferg u so n A ct, 1 5 U.S.C. § § 1 0 1 1
et seq

. , as f

u rth er su p p o rt f o r t h e d istrict co u rt’ s ab sten tio n d ecisio n

. W e

a g r e e t h at th is act “ w as an ef f o rt b y Co n g ress to p ro tect states’ p rim ary reg u lato ry ro le o v er th e in su ran ce in d u s t

ry ,” Ellio t v. Fo rtis Ben efits In s. Co

. , 3 3 7 F.3 d 1 1 3 8
, 1 1 4 2 n .3 (9 th Cir. 2 0 0 3 ), an d th at it “ i n clu d es an

ex p ress rev erse p reem

p tio n p ro v isio n , 1 5 U.S.C. § 1 0 1 2 (b ),” Ha wth o r n e S a v i n g s F

. S .B. v. Relia nce In s. Co

. o f Ill.
, 4 2 1 F.3 d 8 35
, 8 4 2 (9 th Cir. 2 0 0 5 ). Yet Stran g e L an d o f f ers n o su p p o rt f o r its su g g estio n

th at states’
p rim ary au th o rity to reg u late th e b usin ess o f in su ran ce af f ects f ed eral

co u rts’ ab i lity to ev alu ate in s u ran ce d isp u tes arisin g u n d er state law

. Stran g e L an d ’ s arg u m en t am o u n ts to an assertio n th at f ed era l c o u r t s

can n o t p ro p erly ap p ly state in su ran ce law
, so m eth in g f

ed eral co u rts

ro u tin ely d o. T h is arg u m en t l ack s m erit. Cf. id

. a t 8 4 1

– 4 4
, 8 4 8

– 4 9 (“ [T ]h e p o licy o f th e McCarran

- Ferg u so n A ct w as to leav e th e reg u latio n

o f in su rers to th e states[;] it d id n ot i n ten d to d i v est f ed eral co u rts o f th e rig h t to ap p ly state law reg ard i n g th e reg u latio n o f in su rers in ap p ro p riate d iv ersity p ro ceed in g s.” (q u otin g Grimes v. Cro wn Life In s

. Co

. , 85 7 F.2 d 6 9 9 , 7 0 2 (1 0 th

Cir.1 9 8 8))).S E N E C A I N S

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federal court” (the “ p a rallelism” factor). See R.R. St.
, 656 F .3d at 9 78–79. T h e a d equacy f actor looks to whether the state court mig h t be unable to e nforce federal r ig hts. See,
e.g. , Cone Mem’l Hosp.
, 4 60 U.S. at 26–27 (finding s tate pro c e e d ing s mig ht be inadequate because it w as unclear whether state courts would c ompel arbitration under the F ederal Arbitration Act); Madonna
, 914 F .2d at 1370 (“This factor in v o l v e s the state court’s adequacy to protect federal rig hts, not the federal cour t ’ s a dequacy to protect state rig hts.” ( citing Cone Mem’l H o s p

. , 460 U.S. at 26)). The parallelism factor provides that “the e x istence of a substantial doubt as to whether the state proceeding s will r e s olve the federal a ction p recludes a Colorado River stay or dismissal.” R.R. St. , 656 F .3d a t 982 (internal quotation marks omitted);

see also Cone Mem’l Hosp.
, 460 U.S. a t 28 (“W hen a district
court d ecides to dismiss or stay un d e r C o l orado River
, it
presuma b l y concludes that the p arallel state-court litig ation will be a n adequate vehicle for the c o m p l e t e and prompt

r e s o l u t i o n of the issues between the parties. I f there is any substantial doubt as to this, it would be a serious abuse o f discretion to g rant the stay or dismi s s a l a t all.”). Thoug h “ex a ct parallelism . . . is not required,” substantial similarity of claims is necessary before abstention is available. Nakash v. Marciano
, 882 F .2d 1411, 1416 (9th Cir. 1989).

I n short, the adequacy factor pe r tains to whether there is

an impediment to the state cour t p r o t ecting the litig ants’ federal r ig hts, while the parallelism f actor considers whether the p arallel proceeding s address “ substantially similar” claims. Each factor is more relevant when it c ounsels ag ainst abstention, because while i n a d e q uacy o f the state f

orum o r insufficient parallelism may p reclude a bstention, the alternatives never compel abstention. See Cone Mem’l H osp. , 460 U.S. at 25–26; Colo. River , 424 U.S. at 817.S E N E C A I N S

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The district court apparently analy zed these factors in the

same se c t ion of the order, titled, “W hether the State Proceeding is Adequate to Protect the Parties’ Rig hts.” This section describes the parties and claims being raised in e ach forum before ex plaining that “althoug h both forums are likely
to adequately protect the rig hts of the parties, the state court action is most likely to promote c o m p lete and prompt resolution of the issues be t w een the p a rties” and “Seneca simply has not raised any reasons w hy t h e s t ate court action would not protect its rig hts.” The district court concluded that “[ t] his factor therefore weig hs in favor of a b s t ention.” Yet sufficiently simil ar claims are a necessary precondition
to Colorado River abstention and s h o u ld not, absent more, add weig ht to the balance in f avor of a bstention. The district
court thus read th e “ p arallelism” factor incorrectly : Parallelism is necessary but not sufficient to counsel in favor of a bstention. B oth the adequacy and parallelism factors here

are neutral, as neither provides “the clearest of justifications” warranting the surrender of federal jurisdiction. Cone Mem’l Hosp. , 460 U.S. at 25–26.

F. The avoidance of forum shopping.

W h en evaluating forum shopping under Colorado River
, we consider wheth e r either party improperly soug ht more favorable r

ules in its choice o f forum or pursued suit in a new forum a f t er f a cing setbacks in the orig inal proceeding

. See Nakash
, 882 F .2d at 1417 (findin g forum shopping where, after three-and-a-half y ears of litig ation in a case that was prog r essi n g to its detriment, one party soug ht a “new forum for [ its] claims”); Am. I

nt’l Underwriters
, 843 F. 2 d at 1259 (finding forum shopping where, after two-and-a-half y ears, a party “ abandon[ ed] its state court case solely b ecau se it believe[ d] that the F ederal Rules of Evidence [ we] re m o r eS E N E C A I N S

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favorable to it than the state evidentiary rule s ” )

. I t ty pically does not con s t itute forum shopping where a party “acted

w i t h i n his rig h ts in filing a suit in the forum of his choice
, ” Madonna
, 914 F .2d at 1371, even where “[ t] he chronolog y o f
events sug g e s t s that both parties took a somewhat opportunistic approach to th[ e] litig ation,” R.R. St.
, 656 F .3d
at 9 8 1. See also id. at 982 (“[ W ] e are c autious about labeling

as ‘forum shopping ’ a plaintiff’s desire t o bring previously unasserted claims in federal court.”).

The record does not reflect that either party eng ag ed in improper forum shopping

. N othing indicates that e ither side
soug h t to manipulate the litig ation or behaved vex atiously to wind up in the forum o f its choosing

. B oth parties’
arg uments to the contr a ry lack merit. Seneca sug g ests, without substantiation, that the opposing parties are colluding
t o delay the F ederal Action and accelerate the State Acti o n

. B ut the fact that various parties to the F ederal Act i o n h a ve tried to dismiss Seneca’s complaint does n o t i n dicate abuse of the lit i gation process; indeed, Seneca amended its complaint repeatedly in response to those motions to dismiss,
sug g esting that the motions were at least worthy of response.
Strang e L and similarly makes several meritle s s arg uments, some of which are contradictory
, in support of its view that Seneca has improperly forum shopped. I f c redited, Strang e L and’s arg u ments would sug g est that Seneca seeks
to litig a te ex clusively in both federal and state courts. Strang e L and i nitially describes Seneca’s F ederal Action a s

an “offensive reactive suit,” indicati n g t h at Seneca f iled in federal court because it anticipated being sued in a nonremovable state court action. B u t this arg ument is

c r e dible only if a state court suit Strang e L and filed ag ains t Seneca would have been nonremovable. At the beg inning o fS E N E C A I N S

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the litig ation, the parties Seneca iden t i f i ed and b r o ug ht into the litig a tion were Strang e L and (incorporated a nd headquartered in N evada), U.S. B ank (incorporated a nd headquartered in California), a nd itself (incorporated a nd hea d q u artered in New York). E v en assuming that Seneca also d eemed B elf

o r (incorporated in Colorado a nd headquartered in Michig an) to be a ne c e s s a r y party , any insurance recovery suit Strang e L and mig ht h ave broug ht
ag ainst Seneca in N evada state court would have been removable by Seneca to Nevada federal court. There is thus

no reas o n t o t h ink Seneca filed the F ederal Action to avoid being broug ht into a nonremovable state court suit.

At the sa m e t i me, Strang e L and arg ues that Seneca’s choice t o r a i s e claims in the State Action constitutes forum shopping because Seneca prefers n ot to be held to the hig her federal pleading st a n d a rd. I f Seneca preferred to be in state court a nd was “forum shopping ” to g et there, it would presumably h a ve f

iled its orig inal action in state cou r t ; n o t requested that the state court postpone it s proceeding s; a nd

n o t opposed federal abstention. Such behavior would b e irrational if Seneca’s g oal was to wind up in state court under

more favorable pleading standa r d s

. Thus, n either party has a viable claim that the other eng ag ed in forum shopping

.

V.

“T o d etermine whether a [ Colorado River ] stay is warranted, the relevant facto r s m u s t be balanced, w ith the balance heavily weig hted in favor of the ex ercise o f jurisdiction.” M

a donna
, 914 F .2d at 1372 (internal quotation

mar k s o m i tted). Most of the Colorado River factors in this

case are neutral or favor the ex e rcise of jurisdiction by the district court. The reasons that t h e d i s t rict c ourt offered toS E N E C A I N S

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justify abstention—that the parallel p roceeding s will involve piecemeal d isposition of the issues, that state law p rovides the rule of decision, and that the state proceeding is better suited
to promote r esolution of a ll the issues a mong the parties—are likely to be present in n e ar ly every instance of concurrent

s tate a nd federal suits where state law provides the r u l e o f decision. These concerns “ d o not create the ‘ ex ceptional circumstances’ required for Colorado River def er e nce because they are present to this d eg re e in many instances o f parallel federal-state litig ation.” Id. ; see also Neuchatel S wiss Ge n

. I n s

. Co.
, 9 25 F .2d at 1195. T he F ederal and State Actions are parallel d i s p utes occurring in multiple fora a nd concerning substantially the same issues. Nothing about this

case is “ex ceptional” so as to warrant disreg arding the “virtually unflag g ing oblig ation” of a federal court to ex ercise its jurisdiction. The district court’s application of Colorado River was an abuse o f its narrow d iscretion, essentially transforming the strong presumption a g ainst a b s tention into

a presumption in f

avor of abstention where s t a te law issues predominate. W e there fore V ACATE the stay order a nd REMAND to the district court for further proceeding s.

VACATED; REMANDED.