Edge Investment, LLC v. District of Columbia

          Argued January 25, 2019

          Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-00621)

          James D. Sadowski argued the cause for appellant. With him on the briefs was Richard W. Luchs.

          Creighton R. Magid argued the cause and filed the brief for appellees District of Columbia Water and Sewer Authority, et al. Curtis A. Boykin and Frederick A. Douglas entered appearances.

          Karl A. Racine, Attorney General, Office of the Attorney General for the District of Columbia, Loren L. AliKhan, Solicitor General, Caroline S. Van Zile, Deputy Solicitor General, and Sonya L. Lebsack, Assistant Attorney General, were on the brief for appellees The District of Columbia, et al.

          Before: Garland, Chief Judge, Katsas, Circuit Judge, and Williams, Senior Circuit Judge.

          OPINION

          Garland, Chief Judge

         The plaintiff in this case appeals from a decision staying proceedings on its federal complaint. The district court granted the stay pursuant to the Colorado River doctrine, which permits a federal court to stay or dismiss a federal action in favor of a concurrent action in state court under "exceptional circumstances." Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976). Because there are no exceptional circumstances here, we reverse the grant of the stay. We explain our decision in some detail in order to ensure that Colorado River is confined to its banks.

         I

         The facts underlying this appeal concern the efforts of Edge Investment, LLC -- a real estate development company -- to construct a three-story building on an undeveloped parcel of land in Washington, D.C. Edge alleges that, by 2013, it had nearly completed construction of the building after having obtained various zoning and construction clearances from District of Columbia authorities. Those included the D.C. Water and Sewer Authority ("D.C. Water") and the D.C. Department of Consumer and Regulatory Affairs (DCRA). See Compl. ¶¶ 41, 57-58.

         As it turned out, Edge's building sat atop the Northeast Boundary Tunnel Sewer, a large storm sewer that forms an important piece of the District of Columbia's sewer infrastructure. When Edge learned this in December 2013, it hired an engineering firm, which concluded that the building did not present any danger to the Tunnel Sewer. According to D.C. Water, however, subsequent inspections in 2014 revealed a crack in the Tunnel Sewer requiring demolition of the building to prevent further damage. See id. ¶¶ 77, 98, 109-11. In April 2015, DCRA issued an order to raze the building pursuant to D.C. Code § 6-801, which empowers the Mayor to remove "unsafe" structures posing a threat to public safety. Compl. Ex. N (J.A. 115). And in May 2015, a contractor for D.C. Water, Celtic Demolition, Inc., razed the building.

         On January 8, 2016, D.C. Water sued Edge, the District of Columbia, and seven other defendants for negligence in the Superior Court of the District of Columbia, seeking to recover the $3.6 million it spent to raze Edge's building and repair the Tunnel Sewer. On October 24, 2016, Edge filed counterclaims against D.C. Water, alleging that it had violated Edge's due process rights under the U.S. Constitution, engaged in a taking without just compensation in violation of the Fifth Amendment, trespassed, and negligently failed to timely notify Edge of the location of the Tunnel Sewer as required by the D.C. Code. On November 7, Edge filed a third-party complaint in Superior Court, leveling similar allegations against the District of Columbia. Edge's third-party complaint also sought to quiet title as against the District and anyone acting on its behalf, including D.C. Water. In December 2016, the District removed the Superior Court case to federal district court. Several months later, the case was remanded back to Superior Court.

         On April 6, 2017, Edge commenced the instant federal case in the U.S. District Court for the District of Columbia. Edge's complaint named the District, D.C. Water, and several additional defendants, including Celtic Demolition and D.C. Water's then general manager, George S. Hawkins. The federal complaint asserted that the individual defendants had engaged in an unlawful conspiracy under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), and that the District and D.C. Water had acted without properly delegated authority under D.C. Code § 6-801(a). The remaining causes of action substantially overlap Edge's Superior Court counterclaims and third-party complaint. See Compl. ¶¶ 251-85 (due process); id. ¶¶ 286-92 (unconstitutional takings); id. ¶¶ 335-49 (negligent supervision and negligence); id. ¶¶ 350-60 (trespass); id.¶¶ 361-65 (quiet title).

         On June 9 and 21, 2017, respectively, D.C. Water and Hawkins moved to stay or dismiss the federal case in favor of the Superior Court proceedings. The motion was based on the Supreme Court's decision in Colorado River Water Conservation District v. United States, which permits deferral under "exceptional" circumstances "due to the presence of a concurrent state proceeding." 424 U.S. at 818. On March 30, 2018, the district court granted the stay, concluding this was such an exceptional case. Edge appeals.^[1]

         II

         As the Supreme Court explained in Colorado River, "[g]enerally, as between state and federal courts, the rule is that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction." 424 U.S. at 817 (internal quotation marks omitted). This, the Court said, is a consequence of the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Id. Accordingly, "the circumstances permitting the dismissal of a federal suit due to the presence of a concurrent state proceeding" must be "exceptional." Id. at 818.^[2]

         All of the subsequent Supreme Court and D.C. Circuit cases addressing the Colorado River doctrine have stressed the unflagging obligation of the federal courts to exercise their jurisdiction, which only "exceptional circumstances" can overcome.^[3] Indeed, Moses H. Cone repeatedly referred to this as "Colorado River's exceptional-circumstances test." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16, 17, 19 (1983). So, too, have later cases. See Wilton v. Seven Falls Co., 515 U.S. 277, 279 (1995); Handy v. Shaw, Bransford, Veilleux & Roth, 325 F.3d 346, 349 (D.C. Cir. 2003); Reiman v. Smith, 12 F.3d 222, 224 (D.C. Cir. 1993).

         In Colorado River and Moses H. Cone, the Court described "some of the factors relevant" to whether a case represents the kind of exceptional circumstances required to defer to state court proceedings. Moses H. Cone, 460 U.S. at 15. Those include which "court first assum[ed] jurisdiction over property . . . [;] . . . the inconvenience of the federal forum; the desirability of avoiding piecemeal litigation; and the order in which jurisdiction was obtained by the concurrent forums." Id. (quoting Colo. River, 424 U.S. at 818). Other recognized factors are "whether federal or state law controls and whether the state forum will adequately protect the interests of the parties." Handy, 325 F.3d at 352 (citing Moses H. Cone, 460 U.S. at 25-26).

         The Court cautioned, however, that the decision to defer "does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction." Moses H. Cone, 460 U.S. at 16; see Handy, 325 F.3d at 353 (same). It emphasized that "[o]nly the clearest of justifications will warrant" deferral. Moses H. Cone, 460 U.S. at 16 (quoting Colo. River, 424 U.S. at 819) (emphasis in Moses H. Cone). And, as befits an exception so described, the Supreme Court has found sufficient justification only in the circumstances described in Colorado River itself, ^[4] while this court has never found such circumstances.

         With respect to the standard that appellate courts must apply in reviewing a district court decision to defer to parallel state proceedings, Moses H. Cone instructed as follows:

[T]he decision whether to defer to the state courts is necessarily left to the discretion of the district court in the first instance. Yet to say that the district court has discretion is not to say that its decision is unreviewable; such discretion must be exercised under the relevant standard prescribed by this Court. In this case, the relevant standard is Colorado River's exceptional-circumstances test.

460 U.S. at 19. "Whether the [district] court applied the proper legal standard in exercising [its] discretion . . . is a question of law reviewed de novo." Handy, 325 F.3d at 349; see id. at 353 (holding that "the district court's dismissal of [plaintiff's] claim constitutes legal error"). As the Supreme Court did in Moses H. Cone, we conclude that "the District Court in this case abused its discretion in granting the stay" because deferral was unwarranted under the exceptional-circumstances test. 460 U.S. at 19.

         III

         In deciding whether to grant the stay, the district court ran through a list of what it described as six "Colorado River factors." Edge Inv., LLC v. District of Columbia, 305 F.Supp.3d 22, 28 (D.D.C. 2018). Following its examination of those factors, the court stated: "In sum, the Court concludes that [one] factor . . . is irrelevant, [two] factors . . . are neutral, and [three] factors . . . favor abstention. Thus, the Court concludes that this constitutes an 'exceptional circumstance' where abstention is warranted." Id. at 35.^[5] The ...