Rutkoski Fencing, Inc. v. Selective Insurance Company of America

Filing 15

MEMORANDUM (Order to follow as separate docket entry) re 8 MOTION to Dismiss for Failure to State a Claim or in the alternative MOTION to Stay Signed by Honorable Julia K Munley on 3/10/25. (sm)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

No. 3:23cv1451

RUTKOSKI FENCING, INC.,
Plaintiff

(Judge Munley)
V.

SELECTIVE INSURANCE
COMPANY OF AMERICA,
Defendant

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MEMORANDUM

Before the court for disposition is Defendant Selective Insurance Company
of America's motion to dismiss or in the alternative to stay the instant lawsuit filed
by Plaintiff Rutkoski Fencing, Inc. The parties have briefed their respective
positions , and the matter is ripe for disposition.
Background 1

The facts underlying plaintiff's complaint involve a project for the
construction of a data center at the Susquehanna Hyperscale Campus in
Berwick, Pennsylvania ("Project"). (Doc. 1, Campi. ,I 5). The Project owner,
Linxon US LLC ("Owner"), contracted with Energy Drilling Services, LLC ("EDS")
to serve as the general trades contractor for the Project. (!st ,I 6). The contract

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These brief background facts are derived from plaintiff's complaint and other documents on
the record. At this stage of the proceedings , we must accept all factual allegations in the
complaint as true. Phillips v. Cnty. of Allegheny, 515 F.3d 224 , 233 (3d Cir. 2008) . The court
makes no determ ination , however, as to the ultimate veracity of these assertions.

between EDS and the Owner required EDS to furnish a payment bond from a
surety company to guarantee payment to EDS's subcontractors in the event that
EDS failed to pay. (~ ,I 7). To fulfill its obligation to furnish a payment bond, on
November 5, 2021 , EDS and Defendant Selective Insurance Company of
America executed and issued a payment bond in the amount of $700,000.00
("the Bond"). (~ ,I 8, Ex. A).
Subsequently, EDS and Plaintiff Rutkowski Fencing , Inc. , entered into a
subcontract to provide labor, material , and equipment for the installation of
expanded metal fencing on the Project in exchange for payment of $452 ,080.90
from EDS. (~ ,I 9, Ex. B). During the work, EDS and Rutkoski agreed to two
change orders increasing the amount of the subcontract to $481 ,810.90. (kl ,I
10).
Rutkowski completed its work to supply and install the specified materials
pursuant to the subcontract. (~ ,I,I 11 , 12). EDS, however, failed to pay and
$481 ,810.90 remains due and owing to Rutkowski per the complaint. (~ ,I 16).
Because no payment had been received , Rutkoski served a claim on Defendant
Selective pursuant to the Bond. (~ ,I 17). Ultimately, Defendant Selective did
not pay the claim , which led to the instant lawsuit, wherein Plaintiff Rutkowski
seeks payment under the Bond .

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EDS filed for bankruptcy in the United State Bankruptcy Court, Eastern
District of Michigan. (Doc. 8-1, at ECF 5). 2 Defendant Selective then received
claims from subcontractors, suppliers and materialmen seeking payment from
the Bond because EDS never paid them. (~) The claims received by
Defendant Selective exceeded the total $700,000.00 sum of the Bond . (!.ct.:)
On July 17, 2023, Defendant Selective filed a petition for interpleader
("lnterpleader") in the Court of Common Pleas of Luzerne County, Pennsylvania.

(!.ct.:); (Doc. 11-2, "lnterpleader Campi.", ECF 5-15). The lnterpleader will allow
Defendant Selective to deposit the Bond's Penal Sum , that is the total amount of
the Bond , with the Luzerne County Court of Common Pleas, and the court will
determine how to distribute the disputed funds. (Doc. 8-1 , ECF 5). Plaintiff
Rutkoski Fencing Inc. is listed as a defendant in the lnterpleader. Thus, the
Pennsylvania state court will determine the amount plaintiff is entitled to under
the Bond.3

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For clarity, the court cites to the ECF page number assigned by the court's filing system
found on the upper right hand corner of the page .
3
The court takes judicial notice of the lnterpleader action. See FED . R. EvI0. 201 (b) (permitting
the court, at any time of the proceeding , to take judicial notice of facts that are "not subject to
reasonable dispute" in that they are either: (1) "generally known within the territorial jurisdiction
of the trial court," or (2) "can be accurately and readily determined from sources whose
accuracy cannot reasonably be questioned." Because the court takes judicial of the
lnterpleader action , it can be relied upon in determining the instant motion to dismiss or to stay.
See Buck v. Hampton Twp . Sch . Dist. , 452 F.3d 256 , 260 (3d Cir. 2006)("In evaluating a
motion to dismiss , [the court] may consider . . . any 'matters incorporated by reference or
integral to the claim , items subject to judicial notice, matters of public record , orders [and]
items appearing in the record of the case.' "). The parties do not dispute the existence or
nature of the lnterpleader.

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In response to the instant complaint, Defendant Selective filed a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b )(6) or in the alternative
to stay this case pending the resolution of the state court lnterpleader. The
parties have filed briefs in support of their positions , bringing the case to its
present posture.
Jurisdiction

The court has jurisdiction pursuant to the diversity statute, 28 U.S.C. §
1332. Plaintiff is a Pennsylvania corporation with a principal place of business in
Swoyersville, Pennsylvania. (Doc. 1, 1l 1). Defendant is a New Jersey
corporation with a principal place of business in Branchville, New Jersey. (~ 1l
2). Additionally, the amount in controversy exceeds $75 ,000. (~ 1J 3).
Because complete diversity of citizenship exists between the parties and the
amount in controversy exceeds $75,000 , the court has jurisdiction over this case.
See 28 U.S.C. § 1332 ("A district courts shall have original jurisdiction of all civil
actions where the matter in controversy exceeds the sum or value of $75,000 ,
exclusive of interest and costs , and is between . . . citizens of different states[.]").
As a federal court sitting in diversity, the substantive law of Pennsylvania applies
to the instant case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000)
(citing Erie R.R. v. Tompkins , 304 U.S. 64, 78 (1938)).

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Standard of Review

Defendants filed their motion to dismiss the compla int pursuant to Federal
Rule of Civil Procedure 12(b )(6). The court tests the sufficiency of the
complaint' s allegations when considering a Rule 12(b )(6) motion. All wellpleaded allegations of the complaint must be viewed as true and in the light most
favorable to the non-movant to determine whether, '" under any reasonable
read ing of the pleadings, the plaintiff may be entitled to relief."' Colburn v. Upper
Darby Twp., 838 F.2d 663, 665-66 (3d Cir. 1988) (quoting Estate of Bailey by
Oare v. Cnty. of York, 768 F.2d 503, 506 (3d Ci r. 1985)). The plaintiff must
describe '"enough facts to raise a reasonable expectation that discovery will
reveal evidence of' [each] necessary element" of the claims alleged in the
complaint. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008)
(quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544 , 556 (2007)). Moreover, the
plaintiff must allege facts that "justify moving the case beyond the pleadings to
the next stage of litigation ." 1.9.: at 234-35 . In evaluating the sufficiency of a
complaint the court may also consider "matters of public record , orders , exhibits
attached to the complaint and items appearing in the record of the case."
Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir.
1994) (citations omitted). The court does not have to accept legal conclusions or
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unwarranted factual inferences. See Curay-Cramer v. Ursuline Acad. of
Wilmington, Del., Inc., 450 F.3d 130, 133 (3d Cir. 2006) (citing Morse v. Lower
Merion Sch. Dist., 132 F.3d 902 , 906 (3d Cir. 1997)).
Discussion

Defendant makes two arguments. First, Selective argues that this case
should be dismissed due to the pendency of the state court lnterpleader.
Second , and in the alternative, defendant argues that this case should be stayed
pending the disposition of the state court lnterpleader. The court will address
each issue in turn.

I. Motion To Dismiss
Defendant argues that this case should be dismissed because where, as
here, multiple parties make claims against a payment bond , the proper way to
proceed is through an interpleader action. In support of its position , defendant
cites to Lewandowski v. Life Ins. Co ., 608 A.2d 1087 (Pa. Super. Ct. 1992).
Pennsylvania law provides that "[a]n interpleader is the procedural
mechanism through which adverse claimants against the money, property or
debt held by another may be required to litigate their claims in one proceeding."
~ at 1088.

"Rival claims against an insurer for insurance proceedings is a

classic candidate for interpleader .. . . An interpleader's purpose is the avoidance
of the expense and inconvenience which results from the defense of multiple
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actions arising out of identical claims of entitlement to a 'stake' of money,
property or debt." kl An interpleader action protects a defendant from "the
vexation of multiple suits or multiple liability upon the same claim." Id . at 1089
(internal quotation marks and citation omitted).
Thus, it appears that defendant is correct that an interpleader action is the
proper mechanism to resolve the various claims against the Bond . Defendant,
however, has cited to no cases, and our research has uncovered none, where a
separate case filed against a bond stakeholder is dismissed under Rule 12(b )(6)
due to the existence of an interpleader action. The court finds that the more
appropriate way to analyze the case is to determine whether the court should
abstain/stay the proceedings based upon the state court lnterpleader. This is the
second argument raised by defendant's motion .
II. Motion To Stay
Defendant next argues that the court should stay this action pending the
state court's ruling on the lnterpleader. "It is axiomatic that federal courts have a
'virtually unflagging obligation ... to exercise the jurisdiction given them ' by
Congress ." Ryan v. Johnson, 115 F .3d 193, 195 (3d Cir. 1997) (citing Colorado
River Water Dist. v. United States, 424 U.S. 800 ,817(1976)). Defendant argues
that the "Colorado River Doctrine" applies here, and staying the instant case is
appropriate. The Colorado River doctrine is a narrow exception to the court's
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obligation to exercise its jurisdiction that applies solely under "exceptional
circumstances. " Colorado River, 424 U.S. at 81 3. The doctrine allows "a federal
court to abstain , either by staying or dismissing a pending federal action , when
there is a parallel ongoing state court proceeding ." Nationwide Mut. Fire Ins. Co.
v. George V. Hamilton, Inc. , 571 F.3d 299, 307 (3d Cir. 2009).
In Colorado River, the Supreme Court announced that a district court may
abstain from exercising its jurisdiction where the parties before the district court
are engaged also in a parallel state court proceeding . The Supreme Court
supplied the following enumerated factors to examine to determine whether
abstention is appropriate: "(1) whether the state court assumed in rem
jurisdiction over property; (2) the inconvenience of the federal forum ; (3) the
desirability of avoiding piecemeal litigation ; and (4) the order in which jurisdiction
was obtained by the concurrent forums ." Ryan , 115 F.3d at 196 (citing Colorado
River, 424 U.S. at 818). Subsequently, two additional factors have emerged ,
whether federal or state law controls and whether the state court will adequately
protect the interests of the parties. Hamilton Inc, 571 F.3d at 308.
The Colorado River doctrine is an exception to "[t]he general rule regarding
simultaneous litigation of similar issues in both state and federal courts ... that
both actions may proceed until one has come to judgment, at which point that
judgment may create a res judicata or collateral estoppel effect on the other
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action ." Spring City Corp. v. American Buildings Co. , 193 F.3d 165, 172 (3d Cir.
1999) (citing University of Maryland v. Peat Marwick Main & Co., 923 F.2d 265,
275-76 (3d Cir. 1991 ). The analysis of Colorado River abstention proceeds in
two phases . First, the court must determine whether parallel state and federal
cases exist. Then the court applies the factors set forth above.
A proceeding is parallel if it involves the same parties and "substantially
identical" claims, raising "nearly identical allegations and issues. " Trent v. Dial
Med. of Fla., Inc. , 33 F.3d 217, 223 (3d Cir. 1994) (overruled in part on other
grounds). "Cases are not parallel under Colorado River abstention where the
federal court case involves claims that are distinct from those at issue in a state
court case like where parties in the two cases employ substantially different
approaches which might achieve potentially different results." Kelly v. Maxum
Specialty Ins. Grp. , 868 F.3d 274, 285 (3d Cir. 2017) (internal citation, editing
marks, and quotation marks omitted).
Here, the issue is how much plaintiff is owed under the Bond. The same
issue is before the state court in the lnterpleader. The issues, therefore, appear
to be nearly identical. Plaintiff argues that it seeks attorney's fees in the federal
action and not in the state court case, thus the issues are not identical. The
issue of attorney's fees , however, is ancillary to the main issue of how much

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plaintiff is owed under the Bond. Accordingly, the issues are substantially the
same in the two cases.
The parties in this case are also involved in the state court case in that the
plaintiff in this case is a defendant in the state court case and the defendant in
this case is the plaintiff in the state court case. 4 With substantially similar issues
and parties , the court concludes, that the two actions are parallel and will
proceed to an analysis of the abstention factors .
A. Did the State Assume in rem Jurisdiction?
The first factor to review is whether the state court assumed in rem
jurisdiction over the subject property. Ryan , 115 F.3d at 196. The parties agree
that this factor is inapplicable because this case is not an in rem action. (Doc.
11 , at ECF 18; Doc. 12, at ECF 7). Thus, this factor does not affect the court's
analysis.
B. The Inconvenience of the Federal Forum
The second Colorado River Doctrine factor is the inconvenience of the
federal forum. Ryan , 115 F.3d at 196. Physically , the federal forum is not more
inconvenient than the state forum because the Luzerne County Courthouse is not

4

The state court case does involve several more parties , other entities seeking payment under
the Bond . However, "the presence of additional parties in the state action does not destroy the
parallel nature of the cases when all of the parties in the federal action are also parties in the
state action ." Lincoln Square 1766 Assocs. , LLC v. Great Am. Ins. Co ., Civ. No. 20-4003 ;
2020 WL 6262188 at *3 (E.D . Pa. Oct. 23 , 2020) (internal quotation marks, editing marks, and
citation om itted) .

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far from the United States Courthouse for the Scranton Division of the Middle
District of Pennsylvania . Accordingly, this factor is neutral in the court's analysis.

C. Piecemeal Litigation
The third abstention factor to consider is the desirability of avoiding
piecemeal litigation . kl This factor favors abstention only where "there is
evidence of a strong federal policy that all claims should be tried in state courts."
Ryan , 115 F.3d at 197-98. "[T]he mere possibility of piecemeal litigation" fails to
meet this test. kl at 198. Here, defendant points to no strong federal policy that
the instant bond issue should be tried in state courts. Accordingly, this factor
does not favor abstention.

D. What was the order in which jurisdiction was obtained?
The fourth factor is the order in which jurisdiction was obtained by the
concurrent forums. Ryan , 115 F.3d at 196. "This factor, as with the other
Colorado River factors , is to be applied in a pragmatic, flexible manner with a
view to the realities of the case at hand . Thus, priority should not be measured
exclusively by which complaint was filed first , but rather in terms of how much
progress has been made in the two actions." Moses H. Cone Mem. Hosp. v.
Mercy Constr. Corp., 460 U.S. 1, 21 (1983).
The record reflects that defendant filed a petition for interpleader with the
Luzerne County Court of Common Pleas on July 17, 2023. (Doc. 11-2 at ECF 5).
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Approximately a month and a half later, plaintiff filed the instant complaint on
August 31 , 2023. (Doc. 1). Plaintiff evidently filed preliminary objections to the
state court petition on October 2, 2023. (Doc. 11-2, ECF 27-37). On October 19,
2023, Defendant Selective filed , what it deemed to be an "Amended Complaint"
in state court. (Doc. 11 at ECF 21 ). Plaintiff argues that the state court case
commenced at the earliest when this "Amended Complaint" was filed. Whether
the case officially commenced with the filing of the petition or the "Amended
Complaint", the state court was dealing with the lnterpleader in some form or
another a month and a half before the filing of the instant case.
Regardless, as noted by the Supreme Court in Moses, supra, the court
must go beyond which case was filed first and examine the progress made in
each case. On October 20, 2023, the defendant filed the instant motion. (Doc.
8). Since that time no substantive action has occurred in the federal case.
According to a status report filed by the defendant with the consent of
plaintiff's counsel, proceedings have occurred in the state court case. (Doc. 14).
On April 2, 2024, the Court of Common Pleas entered a Consent Order which
withdrew Plaintiff Rutkoski's preliminary objections to the state court action. (kl)
The state court held a status conference on May 1, 2024, where the parties
discussed the manner in which Rutkoski would file responsive pleadings to the
lnterpleader. (kl) On May 2, 2024, Rutkoski filed an Answer, New Matter,
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Counter Claim , and Cross- Claim in the state court case. (kU The Counterclaim
seeks relief under the same bond at issue in the instant case . (1ft) The state
court scheduled a status conference for July 1, 2024. (1ft) The record does not
reveal the result of this conference . Accordingly, it appears that more
proceedings have occurred in the state court. This factor therefore weighs in
favor of abstention and staying this case.
E. Does state law or federal law control?

The next factor to review is whether state law or federal law controls.
Hamilton Inc., 571 F.3d at 308. Here, as noted above, the court sits in diversity
jurisdiction , therefore, state substantive law applies. The parties do not ask the
court to enforce federal law. Thus , this factor weighs in favor of staying the case.
F. Will the state court adequately protect the interests of the parties?

The final factor is whether the state court will adequately protect the
interests of the parties . !ft Here, there is no indication that the state court will
not adequately protect the interests of the parties. As noted under the previous
factor, substantive federal law is not involved in this case. The Pennsylvania
court will be applying Pennsylvania law. Accordingly, this factor weighs in favor
of staying this case under the Colorado River Doctrine.
Based upon the above analysis, the factors which are not neutral or
inapplicable weigh in favor of staying this case until the state court proceedings
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have been completed. Therefore, on balance, the relevant factors weigh in favor
of abstention .
Conclusion

The court will deny the defendant's motion to dismiss this action, but will
grant the motion to stay this case until the state court proceedings have been
completed. An appropriate order follows.

Date: - - - - - - -

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