Argonaut Ins. Co. v. Town of Greenburgh

ARGONAUT INSURANCE CO., Plaintiff, v. TOWN OF GREENBURGH, NEW YORK, et al., Defendants.

No. 19-CV-9100 (KMK)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 23, 2020

OPINION & ORDER

Appearances:

Michael F. Metzger, Esq.

William F. Stewart, Esq.

Stewart Smith

West Conshohocken, PA

Counsel for Plaintiff

Allan R. Wolff, Esq.

Ethan W. Middlebrooks, Esq.

Anderson Kill P.C.

New York, NY

Counsel for Defendants

KENNETH M. KARAS, District Judge:

Plaintiff Argonaut Insurance Co. ("AIC") brings this diversity Action against Defendants Town of Greenburg (the "Town"), Town Board Supervisor Francis X. Sheehan ("Sheehan"), and Town Board Member Paul J. Feiner ("Feiner") (collectively, "Defendants") pursuant to the Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201(a), seeking a declaration that Plaintiff has no duty to defend or indemnify Defendants in an underlying federal lawsuit brought by S&R Development Estates, LLC ("S&R") (the "October 2016 S&R Action" or the "Underlying Action"). (See generally Compl. (Dkt. No. 1).) Before the Court is Defendants' Motion To Dismiss or Stay (the "Motion"). (See Not. of Mot. (Dkt. No. 28).) For the following reasons, Defendants' Motion is denied.

I. Background

A. Factual Background

The following facts, drawn from the Complaint and exhibits attached thereto, are taken as true for purposes of the instant Motion.

1. The 2007 S&R Action

In May 2006, S&R purchased a 2.3-acre parcel of land located at 1 Dromore Road in the unincorporated Edgemont section of the Town ("the Property"). (Compl. ¶ 22.)¹ The Property is located in close proximity to Central Avenue, a main thoroughfare, and at the time of purchase, was zoned as part of the Central Avenue Mixed Use Impact District ("CA"). (Id. ¶¶ 22-24.) The CA zoning designation allowed for development of multi-family residential complexes, and S&R intended to develop a multi-unit residential complex on the Property. (Id.)

However, after a campaign by several Town officials and members of the public, on February 26, 2007 the Town Department of Community Development and Conservation rezoned the Property from CA to "R-20," classifying the parcel as a "one family residence district" pursuant to the Town Code. (Id. ¶¶ 25-39.) Following an unsuccessful appeal to the Town's Zoning Board of Appeals ("TZBA"), S&R filed suit on December 7, 2007 in the Southern District of New York against the Town, Feiner, Sheehan, and others, contesting the new zoning designation under several provisions of federal and state law (the "2007 S&R Action"). (Id. ¶¶ 40-53.) On September 26, 2008 the district court dismissed the 2007 S&R Action, ruling that S&R's federal claims were not ripe because S&R had not yet applied for a variance following the rezoning, and declining to exercise jurisdiction over the remaining state law claims. (Id. ¶¶ 55.)² At the time, the Town was insured by National Union Insurance Company of Pittsburg, Pa. ("National Union"). (Id. ¶¶ 41-42.) In accordance with its policy, National Union paid for the Town's defense in the S&R 2007 Action. (Id. ¶ 56.)

2. The 2009 S&R Action

On December 18, 2008, S&R petitioned the TZBA for a use variance to build a "four-story, 87-bedroom, multi-family, affordable rental housing development on the Property." (Id. ¶ 57.) Meeting resistance, on January 27, 2009, S&R initiated an Article 78 proceeding in state court (the "2009 S&R Action") challenging the R-20 zoning designation, and naming the Town, Feiner, and Sheehan, among others, as Defendants. (Id. ¶¶ 61-62; see also Compl. Ex. E ("2009 S&R Action Pet.") (Dkt. No. 1-5).) The Town's resistance continued, and on March 4, 2009, the Town Planning Board ("TPB") asserted that the TZBA could not yet consider issuing a variance because the TPB had a prior "responsibility for making the environmental findings necessary to issue the use variance on . . . the Property." (Id. ¶ 58.) Accordingly, on March 12, 2009, the TZBA "announced that it would not review S&R's application for a use variance until the TPB made its environmental determinations." (Id. ¶ 59.) On January 10, 2012, Judge Gerald E. Loehr of the New York Supreme Court, Westchester County, issued a Decision and Order "overturning the [TZBA's] decision that the Property was in the R-20 Zone." (Compl. ¶ 69.) Moreover, Judge Loehr held that the Town's zoning determination was "not based on evidence and was arbitrary and capricious and based on community pressure and bad faith." (Id.; Compl. Ex. F. ("January 10, 2012 Order"), at 8 (Dkt. No. 1-6).)

3. The Ross Proceeding

Approximately one month later, on February 15, 2012, S&R filed an application for approval of a plan to develop "45 affordable housing units in one multi-family building on the Property." (Id. ¶ 73.) In response, on February 28, 2012, the Town Board unanimously adopted a resolution instructing the Town's Comprehensive Plan Steering Committee ("TCPSC") to review the Town Zoning Map and make "any amendments thereto since 1980 and recommend changes to the Town Board." (Id. ¶ 74; see also Underlying Action FAC ¶ 143.) The TCPSC then determined that the Property should have been zoned as R-20 (rather than CA), thus precluding S&R's planned development. (Id. ¶ 75.) Additionally, on March 20, 2012, the Town applied to the Appellate Division for a temporary restraining order to prevent the TBP from addressing S&R's site plan application. (Id. ¶ 77.) The Appellate Division denied the Town's request on April 4, 2012. (Id. ¶ 78.)

One month later, on May 4, 2012, four residents of the Scarsdale Woods Condominiums ("Scarsdale Woods"), a complex adjoining the Property, commenced an Article 78 proceeding ("the Ross Proceeding") against the Town, the TPB, and S&R, claiming "to be aggrieved by Judge Loehr's Decision and Order in the [2009 S&R] Action." (Id. ¶ 79.) In particular, the Scarsdale Woods residents "sought an injunction to halt the Town Planning Board's review of S&R's site plan for affordable multi-family housing on the neighboring Property." (Id.) Additionally, on May 17, 2012, the Edgemont Community Council ("ECC"), a community activist group opposed to S&R's development plans for the Property, held a meeting with Sheehan, Feiner, and several other Town officials among the attendees. (Id. ¶ 80.) As later alleged by S&R, during the ECC meeting, Feiner stated that "[he] would support the Scarsdale Woods petitioners." (Id. ¶ 81; Underlying Action FAC ¶ 152.) Further, Feiner allegedly asserted that despite Judge Loehr's Order, "the Town was moving ahead" with its "second attempt to change the . . . official zoning status of the Property from CA to R-20 and expected adoption of that change in July 2012." (Compl. ¶ 82; Underlying Action FAC ¶ 152.) He further stated that the Town's goal was to "make sure that the school district is protected," and that "the entire Town Board has directed the Town Attorney, the Town Attorney's office, to do everything possible to make sure that we are successful. We want to make sure it is not a multiple dwelling use." (Compl. ¶ 83; Underlying Action FAC ¶ 153.)

On May 25, 2012, the Town Board held a special meeting to consider, inter alia, changes to the zoning map and the Town Code to facilitate blocking the S&R development. (Compl. ¶ 84.) At the TPB meeting on June 20, 2012, S&R delivered a "detailed presentation of its site plan for developing the Property as multi-family affordable housing." (Id. ¶ 85.) However, as later alleged by S&R, the TPB "directed S&R to undertake numerous time consuming and expensive tasks as a condition of continuing to review its site plan" in order to delay and provide "ample time to effect the rezoning of the Property." (Id. ¶ 86; Underlying Action FAC ¶ 157.) S&R also alleges that in June 2012, the Town Attorney "conceded to S&R that he and the Town's staff thought that multi[-]family housing was an appropriate use of the Property but stated that politics and the Town Board's decision-making were being driven by Edgemont's opposition of the Development." (Compl. ¶ 87; see also Underlying Action FAC ¶ 158.) On July 18, 2012, the TPB approved rezoning the Property from CA to R-20. (Id. ¶ 88.)

In November 2012, Judge Loehr granted S&R's motion to dismiss the Scarsdale Woods residents' petition, finding that their claims were "barred by collateral estoppel and that the Town's recent second re-zoning of the Property to R-20 was ineffective." (Id. ¶ 90.) On February 19, 2013 the Town appealed that ruling. (Id. ¶ 91.) The same day, the Appellate Division denied the Town's application to stay Judge Loehr's orders in both the Ross Proceeding and the 2009 S&R Action. (Id. ¶ 92.) On April 10, 2013, the Appellate Division denied the Town's appeal of Judge Loehr's dismissal of the Scarsdale Woods residents' petition, thus concluding the Ross Proceeding. (Id. ¶ 93.) On December 26, 2013, the Appellate Division similarly denied the Town's appeal of Judge Loehr's January 10, 2012 Order (in the 2009 S&R Action), thereby "affirm[ing] Judge Loehr's holding that the [S&R] Property was in the CA Zone for multi-family housing." (Id. ¶ 94.)

4. The January 2013 S&R Action

On January 11, 2013, S&R filed another state court action in New York Supreme Court, Westchester County, its third lawsuit against the Town, Feiner, and Sheehan (the "January S&R 2013 Action"). (Id. ¶¶ 95-96.)³ S&R alleged that the Town, Feiner, Sheehan and others engaged in a continuous effort to block S&R's development of the Property despite judicial orders, including through manipulation of the zoning map. (Id. ¶¶ 97-104; see also Compl. Ex. I ("January 2013 Verified Pet.") ¶¶ 3, 11-117 (Dkt. No. 1-9).) On August 13, 2013, Judge Susan Cacace ruled that the Town's rezoning of the Property violated S&R's rights as determined by Judge Loehr in the 2009 S&R Action, and that the Town's actions were "arbitrary and capricious and in bad faith." (Compl. ¶ 106; see also Compl. Ex. J ("August 12, 2013 Order"), at 6 (Dkt. No. 1-10).) On August...