## Facts

- A Mississippi wrongful-death suit alleged Boardwalk Lounge, Inc. was responsible for a patron’s death; no defense was provided and a $1.4 million default judgment was entered against Boardwalk.
- Susie Pierce Stewart (Boardwalk’s sole shareholder/officer) sued Western Heritage Insurance Company in federal court for breach of the liability policy and bad faith.
- The federal case proceeded under a scheduling order; discovery closed and a trial date was set.
- Boardwalk’s bankruptcy trustee later filed a related action in Mississippi state court involving substantially overlapping coverage allegations, plus additional claims (including against an insurance agent and fiduciary-duty theories).
- After removal and remand of the trustee’s case, the federal district court sua sponte terminated pending motions and stayed Stewart’s federal action until the trustee’s state action was resolved.
- Western appealed the stay order.

## Issues

1. Whether the district court’s indefinite stay order pending completion of a related state case was immediately appealable.
2. Whether the district court properly stayed the federal action under Colorado River abstention standards for parallel state proceedings.

## Decision

- The stay order was appealable because it effectively put the litigant “out of court” until the state case ended.
- The Fifth Circuit reversed the stay and remanded.
- The district court erred by imposing an indefinite Colorado River–type stay without the required, careful analysis and without exceptional circumstances justifying surrender of federal jurisdiction.

## Legal Principles

- Federal courts have a “virtually unflagging obligation” to exercise the jurisdiction conferred on them; abstention in favor of state litigation is permitted only in exceptional circumstances.
- An indefinite or permanent stay in deference to a parallel state proceeding is treated as Colorado River abstention and is reviewed under its stringent standards.
- Colorado River requires a considered balancing of factors such as: jurisdiction over any res, inconvenience of the federal forum, avoidance of piecemeal litigation, order of jurisdiction, governing law, and adequacy of the state forum.
- Overlap with state litigation, without more, is insufficient to justify abstention, particularly where the federal case is advanced and the parties/claims are not fully identical.

## Conclusion

The Fifth Circuit held that the district court improperly abstained by indefinitely staying a progressed federal insurance-coverage and bad-faith action in favor of related state litigation without finding exceptional circumstances or applying the required Colorado River factors, and it reversed and remanded for further proceedings.


Stewart v. W. Heritage Ins. Co., 438 F.3d 488 (5th Cir. 2006)