## Facts

- A Canadian insurer issued liability policies covering 1991–1994 to a Canadian corporation as the first named insured and to its U.S. affiliate as an additional insured.
- During the policy period, the U.S. affiliate faced multiple U.S. products-liability suits alleging injuries from defects in its firearms and munitions.
- The insurer provided defenses, negotiated settlements, and paid settlement amounts on the U.S. affiliate’s behalf.
- After the underlying suits ended, the insurer sought reimbursement of defense expenses and payment of deductibles allegedly owed under the policies.
- The insurer first sued the Canadian insured in a Quebec court to recover under the policies.
- The insurer later filed a diversity action in the Southern District of New York against the U.S. affiliate seeking the same categories of amounts.
- The U.S. affiliate moved to dismiss the federal case based on the pending Canadian action and its consent to Canadian jurisdiction.

## Issues

1. Whether a federal court may dismiss a diversity action on international comity grounds due to a parallel foreign proceeding absent “exceptional circumstances.”
2. Whether the pendency of a related Canadian action, corporate affiliation between the Canadian and U.S. insureds, the U.S. defendant’s consent to Canadian jurisdiction, and the adequacy of Canadian courts collectively justify dismissal rather than continuing to exercise federal jurisdiction.
3. Whether, if any deference to the foreign proceeding is warranted, a stay is preferable to dismissal.

## Decision

- The Second Circuit vacated the dismissal and remanded.
- The court held the district court abused its discretion by dismissing without identifying exceptional circumstances sufficient to justify declining jurisdiction.
- The court concluded that parallel foreign litigation, consent to foreign jurisdiction, corporate affiliation, and the foreign forum’s adequacy did not overcome the federal courts’ obligation to exercise jurisdiction.
- The court directed reconsideration under an exceptional-circumstances framework and noted that a stay may be more appropriate than dismissal.

## Legal Principles

- Federal courts have a “virtually unflagging obligation” to exercise jurisdiction conferred by Congress, including diversity jurisdiction.
- Dismissal or abstention in favor of parallel foreign proceedings is permitted only in exceptional circumstances; the mere existence of related foreign litigation ordinarily is insufficient.
- International comity generally tolerates simultaneous domestic and foreign proceedings; routine parallel civil litigation does not itself create a conflict requiring dismissal.
- Exceptional treatment may be more plausible in limited contexts such as foreign insolvency proceedings where centralized, in rem control is central.
- When concerns about duplication or inconsistent outcomes exist but do not amount to exceptional circumstances, a stay is typically a less drastic option than dismissal.

## Conclusion

The Second Circuit required federal courts to continue exercising diversity jurisdiction despite related foreign litigation unless truly exceptional circumstances justify declining it, and it indicated that a stay—rather than dismissal—is the preferred tool when some deference to a foreign proceeding is appropriate.


Royal & Sun All. Ins. Co. of Can. v. Century Int'l Arms, Inc., 466 F.3d 88 (2d Cir. 2006)