Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00411/USCOURTS-caed-2_06-cv-00411-12/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

GENERAL STEEL DOMESTIC

SALES, LLC, dba GENERAL

STEEL CORPORATION,

NO. CIV. S-06-411 LKK/KJM

Plaintiff,

v. O R D E R

JOHN W. SUTHERS, et al.,

Defendants.

 /

This is a RICO and § 1983 action brought by plaintiff General

Steel against various defendants who allegedly conspired together

to ruin plaintiff’s business and induce governmental entities to

prosecute plaintiff for consumer law violations. Previously, on

March 2, 2007, the court dismissed several defendants for lack of

personal jurisdiction and stayed the case pursuant to Younger.

Pending before the court is plaintiff’s motion to remove the stay,

brought on the basis of changed circumstances, and a motion to

transfer the action to Colorado under 28 U.S.C. § 1404(a) for

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convenience and in the interests of justice. 

The Denver Boulder Better Business Bureau (“BBB”) and other

BBB-affiliated defendants have filed an opposition to the motion

to vacate the order of abstention, joined by defendants Gannett Co.

and Yost. Included in the BBB’s opposition is a motion to stay on

an alternate grounds, pursuant to Colorado River. All defendants

agree that if the court were to lift the abstention, transfer would

be appropriate. The court resolves the matter upon the parties’

papers and after oral argument. For the reasons explained below,

the court grants the motion to lift the abstention only as to

Younger and transfers this action to the District of Colorado, to

further order as it believes is appropriate.

I. Background

The background set forth in the court’s March 2, 2007 order

is incorporated herein by reference. As the court previously

stated, “[t]he crux of plaintiff’s complaint is that defendants

allegedly conspired together to create the false impression that

General Steel, which is in the business of selling steel buildings,

was violating consumer protection laws and engaging in unfair

business practices and illegal advertising.” Order at 3. 

After dismissing certain defendants for lack of personal

jurisdiction, the court abstained under Younger v. Harris, 401 U.S.

37 (1971), based on three state court actions: one filed by the

Colorado Attorney General against General Steel, one filed by the

Sacramento District Attorney against General Steel, and one filed

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1

 Although there was a fourth state court action filed by

General Steel against Steelwise LLC and various former General

Steel employees, there were no important state interests implicated

in that case, and it is therefore not a basis for Younger

abstention.

2

 As part of the settlement agreement, General Steel agreed

to continuation of the injunction entered after a bench trial and

to pay $4.5 million in consumer restitution.

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by General Steel against the BBB.1 Pursuant to a stipulation filed

on April 5, 2007, the Colorado Attorney General and the Sacramento

District Attorney, among other defendants, were dismissed from this

action. All parties remaining in this action appear to agree that,

if there is any basis for maintaining the stay under Younger, it

derives from the Colorado state court action filed by General Steel

against the BBB (the “BBB state court action”).

In granting defendants’ motion to abstain, this court found

that plaintiff’s federal action would interfere with the ongoing

BBB state court action because the state court judge had, at the

time, ordered a stay of that case; accordingly, permitting this

suit to go forward would have allowed plaintiff to circumvent that

order. Order at 18. The judge in the BBB action ordered a stay

because if the factual findings and conclusions of law in the

separate state court action brought by the Colorado Attorney

General against General Steel became final for purposes of

collateral estoppel, this would dispose of at least some of General

Steel’s claims against the BBB.

The action brought by the Colorado Attorney General concluded

on March 8, 2007, when the state court executed a consent decree.2

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General Steel then moved to lift the stay in the BBB action, which

was granted on July 10, 2007. Accordingly, the stay that this

court originally relied upon in abstaining under Younger has since

been lifted. BBB has filed a motion for summary judgment in the

BBB action on July 17, 2007 asserting collateral estoppel on the

basis of the Colorado Attorney General action. That motion is

presently pending and an opposition has not yet been filed.

II. Analysis

A. Younger Abstention

Younger abstention is appropriate where there are ongoing

state judicial proceedings that implicate important state

interests, where the state proceedings provide an adequate

opportunity to raise federal claims, and where the exercise of

federal court jurisdiction would interfere with those proceedings.

Middlesex County Ethics Committee v. Garden State Bar Ass’n, 457

U.S. 423, 432 (1982); Gilbertson v. Albright, 381 F.3d 965, 978

(9th Cir. 2004). On March 2, 2007, the court found these elements

satisfied and stayed the case. General Steel now argues that the

court should remove the stay because (1) BBB has opposed efforts

by General Steel to raise its federal claims in the BBB state court

action, and (2) circumstances have changed such that the original

reason for the stay no longer applies.

1. Ability to Assert Federal Claims in State Court Action

The first asserted basis for the motion does not lie and may

be dispensed with quickly. General Steel argues that because BBB

has indicated that it will object to General Steel’s motion for

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leave to amend its state court complaint in order to assert its

federal claims, it has played “fast and loose” with this court.

Earlier, BBB argued in its original abstention motion before this

court that there were adequate opportunities to raise General

Steel’s federal claims in state court.

The fact that BBB is now opposing (or plans to oppose) General

Steel’s efforts to amend its complaint to assert federal claims has

nothing to do with the adequacy of its original opportunity to do

so. As this court explained in its previous order, the relevant

issue for purposes of Younger abstention is whether a party was

given an adequate opportunity to assert its federal claim, not

whether the opportunity was actually exercised or was exercised in

a timely manner. See Gilbertson, 381 F.3d at 975 (holding that a

party’s “failure to avail himself of the opportunity does not mean

that the state procedures are inadequate”). Accordingly, the court

rejects General Steel’s argument that the stay should be removed

on this basis.

2. Changed Circumstances

The second asserted reason for the motion -- that the original

reason for the stay no longer applies -- is more serious. General

Steel notes that the stay in the BBB state court action (which

prompted this court’s stay) has been lifted. BBB responds that,

notwithstanding this fact, this court’s abstention is still

appropriate because allowing this case to go forward would require

a federal court to adjudicate the collateral estoppel issue

presently pending before the BBB state court. BBB maintains that

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the collateral estoppel issue implicates important state interest,

because, among other things, it raises the question of whether

parties may stipulate that a judgment does not have preclusive

effect, which BBB asserts is precisely what the Colorado Attorney

General and General Steel did in the state court action between

them.

BBB argues that “any court that addresses General Steel’s

civil rights and RICO claims asserted here will necessarily have

to resolve the same issue of collateral estoppel that is now being

adjudicated in the Colorado BBB action.” Opp’n at 15. But the

mere fact that a federal court may rule upon this one narrow issue

does not mean that it would necessarily interfere with a state

court proceeding. To the contrary, in a system that tolerates

concurrent jurisdiction, federal and state courts may frequently

rule on the same issues. Without more, this single overlap in

adjudication is not sufficient to implicate “important state

interests” under Younger.

The only other possible federal-state conflict is that there

might be an actual disagreement over how to resolve the collateral

estoppel issue. For example, BBB seems to argue that if the state

court were to find collateral estoppel applicable, and dismiss

General Steel’s claims against BBB, but this court were to find

collateral estoppel inapplicable, and thereby permit General Steel

to pursue its claims against BBB, such action would interfere with

the state court order.

This is, to say the least, a fairly speculative possibility,

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3

 The court passes no judgment on the merits of the collateral

estoppel issue.

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which is insufficient grounds for Younger abstention. See

AmerisourceBergen Corp. v. Roden, 495 F.3d 1143, 1151 (9th Cir.

2007) (“the district court’s finding of an abstention-worthy

conflict based on a potential for conflict was erroneous”)

(emphasis in original). BBB’s argument rests on the two-fold

assumption that federal-state conflict will arise because (1) the

state court will find collateral estoppel applicable, and (2) this

court will find it inapplicable. But a state court order barring

General Steel’s claims on the basis of collateral estoppel has not

yet been issued; indeed, General Steel has not yet even filed

opposition papers to the motion.3

 This not-yet-existing conflict

is insufficient grounds for abstention. 

Moreover, even if this court were inclined to analyze the

merits of the collateral estoppel issue -- which is what General

Steel has urged this court to undertake -- it would first wait for

the state court to adjudicate its pending motion that raises the

same issue. If the state court were to find collateral estoppel

inapplicable, and permit General Steel to pursue its claims against

BBB, there would be no risk for any alleged federal interference

with state court proceedings. On the basis of present

circumstances, however, a continued stay under Younger is

unwarranted.

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B. Colorado River Abstention

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4

 In its original motion to abstain, BBB also raised this

argument, but the court did not rule on it because the court found

sufficient grounds to abstain under Younger.

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 Although the initial motion to transfer was brought pursuant

to 28 U.S.C. § 1404(a) -- which provides that the court may

transfer an action for the convenience of parties and witnesses and

in the interests of justice -- in light of the defendants’ nonopposition to the motion to transfer, the court also has authority

to transfer the action pursuant to 28 U.S.C. § 1404(b) -- which

permits transfer upon consent or stipulation of the parties.

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BBB also argues that the court should continue the present

stay on the basis of Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976).4 The court declines to address

this issue. The only obstacle to transferring the action is this

court’s original stay imposed pursuant to Younger. Once that

obstacle has been removed, the case can and should be transferred.5

Any further action in this case, including resolution of the

Colorado River issue, would more appropriately be undertaken by the

transferee court.

III. Conclusion

For the reasons explained above, the court GRANTS the motion

to remove abstention only as to the Younger issue and GRANTS the

motion to transfer this action to the District of Colorado pursuant

to 28 U.S.C. § 1404(a) & (b).

IT IS SO ORDERED.

DATED: October 9, 2007.

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