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FRANKLIN COMMONS EAST PSHP. v. ABEX CORP.

February 10, 1998

FRANKLIN COMMONS EAST PARTNERSHIP, Plaintiff,
v.
ABEX CORPORATION, a Delaware Corporation, Defendant, and PNEUMO ABEX CORPORATION, a Delaware Corporation, Third Party Plaintiff, v. ARGONAUT INSURANCE COMPANY, A California Corporation, LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts Corporation, MARYLAND CASUALTY COMPANY, a Maryland Corporation, Third-Party Defendants



The opinion of the court was delivered by: WALLS

 Walls, District Judge

 This matter comes before the Court upon motions by third-party defendants Maryland Casualty Company ("Maryland Casualty"), Liberty Mutual Company ("Liberty Mutual"), and Argonuat Insurance Company ("Argonuat") to dismiss or, in the alternative, to stay the third-party claims of third-party plaintiff Pneumo Abex Corporation ("Abex") in deference to a lawsuit previously filed in California state court. *fn1" Maryland Casualty and Abex have also moved for Rule 11 sanctions against each other.

 Pursuant to Rule 78 of the FRCP, the Court decides this motion without oral argument. For the reasons that follow, this action is stayed pending the resolution of the California action and all motions for sanctions are denied.

 Background

 A. New Jersey Action

 In December 1995, plaintiff Franklin Commons East Partnership ("FCEP") filed suit against defendant Abex Corporation *fn2" asserting claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq. ("CERCLA"), the New Jersey Spill Compensation and Control Act ("Spill Act") and the common law. FCEP claims that Abex is responsible for the environmental contamination of a property owned and used by FCEP in Mahwah, New Jersey (the "FCEP site"). Abex has a program of comprehensive general liability insurance that allegedly provides protection from such lawsuits. Among its insurers are third-party defendants Maryland Casualty, Liberty Mutual, and Argonaut. According to Abex, it notified these insurers of the FCEP litigation at the time it answered the complaint, and demanded that they defend and indemnify Abex in the lawsuit. The insurers denied Abex's claims.

 On June 11, 1996, Abex filed a third-party complaint against these insurers seeking a declaratory judgment that they were obligated to defend and indemnify it. The complaint further charges that by refusing to defend and indemnify Abex, the insurers breached their contractual obligations and did so knowingly and in bad faith. In response, third party defendants Maryland Casualty, Liberty Mutual, and Argonuat now move to dismiss the complaint or, alternatively, to stay this action in favor of a lawsuit previously commenced by Abex in California state court.

 B. The California Action

 The California lawsuit is a comprehensive action brought by Abex as one of a number of allegedly interrelated corporate entities against approximately fifty primary and excess insurers in Los Angeles Superior Court on November 20, 1992. That action seeks a declaration of the plaintiffs' rights under a number of insurance contracts with a number of insurers, including the insurers and policies involved in the federal case. The California lawsuit encompasses more than fifty environmental hazardous waste sites in twenty states, including the FCEP site and the Abex location that is the alleged origin of the contamination.

 C. The Parties' Contentions

 Maryland Casualty argues that the third-party complaint should be dismissed or stayed in deference to the California litigation because: (1) Abex should be judicially estopped from bringing this third-party complaint based on its representations to the California Court that California is the only proper forum for resolution of its claims regarding the FCEP and other hazardous waste sites; (2) the doctrine of forum non conveniens mandates dismissal; (3) Pneumo Abex has failed to join necessary and indispensable parties as defined by Rule 19 of the FRCP; and (4) this Court should abstain from hearing this matter under the Colorado River doctrine. Maryland Casualty has also moved for Rule 11 sanctions against Pneumo Abex because it claims that the third party-complaint is frivolous and was filed in bad faith.

 Defendant Liberty Mutual joins with Maryland Casualty, and argues in addition that the third-party complaint should be dismissed or stayed under the Declaratory Judgment Act, 28 U.S.C. § 220. The company contends that the Act permits a federal district court to decline to hear suits for declaratory judgments in favor of pending state actions, and argues that for reasons of judicial economy, such a course of action is appropriate here.

 In response, Abex claims that the federal action involves claims separate and distinct from those in state court. Abex points out that the FCEP CERCLA suit is not part of the state court action, and the California lawsuit does not contain the bad faith claim. With specific reference to the claim of bad faith, Abex contends that while "ideally, [it] would have responded to this wrongful denial of its contractual rights by adding new allegations and claims to the California coverage action[,] such a course was not available . . . . because in the California action 'substantive amendments had been forbidden . . . .'" Abex Br. at 2 (quoting Transcript of Proceedings, September 19, 1995, p.39, 1. 25 - 40, 1.1). Abex therefore complains that the third-party defendants are engaged in a scheme to deny it its day in court on those issues. Abex has also cross-moved for sanctions against Maryland Casualty on the ground that Maryland Casualty's Rule 11 motion is frivolous.

 Defendants argue that Abex's contentions merely obscure the relevant issues. They point out that the instant case involves the same parties, insurance policies and properties as the action in California state court. They maintain that it is of no moment that the FCEP federal claim could not be brought in state court because both actions involve the same contractual obligations regardless of any specific triggering event. Defendants contend that "[a] straightforward comparison of the New Jersey third party complaint and the California Fourth Amended Complaint reveals that the FCEP breach of contract, duty to defend and duty to indemnify claims are the same." Maryland Cas. Repl. Br. at 3.

 The insurers do admit that Abex's bad faith claim is unique to the federal action, but point out that, contrary to Abex's assertion, the California court did not absolutely preclude further amendment of the state complaint; it simply required plaintiffs to seek leave of court before any further amendment. See California Case Management Order # 2. Defendants contend that Abex had all of the information necessary to bring its bad faith claim in California and its failure to have done so in a timely fashion constitutes waiver. They therefore argue that through this action, Abex is simply attempting an end-run around the California court to avoid having to argue the issue of its alleged waiver there.

 Standard of Review

 Because the parties ask the Court to consider documents outside of the pleadings, the Court converts these motions to dismiss to motions for summary judgment pursuant to Rule 12(b) of the FRCP.

 Summary judgment is appropriate where the moving party establishes that there is no genuine issue of material fact and that it is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The movant must show that if the evidence submitted were reduced to evidence admissible in court, it would be insufficient to permit the non-moving party to carry its burden of proof. Celotex v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).

 Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts in question." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. Sound Ship Building Co. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir.), cert. denied, 429 U.S. 860, 50 L. Ed. 2d 137, 97 S. Ct. 161 (1976).

 At the summary judgment stage, the court's function is not to weigh the evidence and determine the truth of the matter, but rather it is to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). In making this determination, the Court must ...


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