Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-01081/USCOURTS-azd-2_10-cv-01081-0/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

M&I Marshall & Ilsley Bank, a

Wisconsin banking corporation, 

Plaintiff, 

vs.

Glen J. Lerner, an individual, 

Defendant. 

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No. CV-10-1081-PHX-DGC

ORDER

M&I Marshall & Ilsley Bank (“M&I”) loaned Glen Lerner more than $2 million to

finance his purchase of real property located in Scottsdale, Arizona. The property has been

sold through a short-sale transaction. M&I claims that there was no agreement to forgive the

balance due under the loan, and that the deficiency owed by Lerner is more than $1 million.

On May 3, 2010, Lerner filed suit in state court against M&I and several other

defendants involved in his purchase of the Scottsdale property. Lerner v. M&I Marshall &

Ilsley Bank, No. CV2010-014467 (Ariz. Super. Ct. May 3, 2010). Lerner’s amended

complaint in the state action asserts fraud and civil conspiracy claims. M&I has moved in

state court to dismiss the claims.

M&I commenced this action against Lerner on May 18, 2010. The complaint asserts

a claim for breach of the promissory note. Doc. 1. The Court’s subject matter jurisdiction

is based on diversity of citizenship and the more than $1 million sought by M&I. See id.; 28

U.S.C. 1332.

Lerner has filed a motion to dismiss or stay the action. Doc. 11. The motion is fully

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briefed. Docs. 12, 13. Oral argument has not been requested. For reasons stated below, the

Court will deny the motion.

Lerner seeks dismissal pursuant to the Colorado River doctrine. Doc. 11 at 1. That

doctrine suggests deference to state court jurisdiction based on considerations of wise judicial

administration, including conservation of judicial resources and comprehensive disposition

of litigation. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817

(1976). Where Colorado River deference is found to be appropriate, the district court “must

stay rather than dismiss an action so that the federal forum remains open if the state forum

proves inadequate.” Fru-Con Constr. Corp. v. Sacramento Municipal Util. Dist., No. CIV.

S-05-583 LKK/GGH, 2009 WL 3049050, at *1 (E.D. Cal. Sept. 18, 2009); see Coopers &

Lybrand v. Sun-Diamond Growers of Cal., 912 F.2d 1135, 1137 (9th Cir. 1990); Attwood v.

Mendocino Coast Dist. Hosp., 886 F.2d 241 (9th Cir. 1988). The Court therefore will deny

Lerner’s motion to the extent he seeks dismissal. See Vedatech, Inc. v. St. Paul Fire &

Marine Ins. Co., No. C 04-1249 VRW, 2005 WL 1513130, at *23 (N.D. Cal. June 22, 2005).

The Court will also deny the request for a stay. The general rule is that “‘the

pendency of an action in the state court is no bar to proceedings concerning the same matter

in the Federal court having jurisdiction[.]’” Colorado River, 424 U.S. at 817 (citation

omitted). This rule stems from the “virtually unflagging obligation of the federal courts to

exercise the jurisdiction given them.” Id. Under Colorado River, therefore, a district court

having jurisdiction may defer to state court jurisdiction “only in ‘exceptional’ circumstances,

and such circumstances are ‘exceedingly rare.’” Wojtunik v. Kealy, No. CV 03-2161-PHXPGR, 2009 WL 805816, at *3 (D. Ariz. Mar. 26, 2009) (quoting Smith v. Cent. Ariz. Water

Conservation Dist., 418 F.3d 1028, 1033 (9th Cir. 2005)); see AmerisourceBergen Corp. v.

Roden, 495 F.3d 1143, 1155 (9th Cir. 2007) (Ferguson, J., concurring).

It is a serious abuse of discretion to grant a stay under Colorado River where there is

“any substantial doubt” as to whether “the parallel state-court litigation will be an adequate

vehicle for the complete and prompt resolution of the issues between the parties.” Moses H.

Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 28 (1983); see Intel Corp. v.

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Advanced Micro Devices, Inc., 12 F.3d 908, 912-13 & n.7 (9th Cir. 1993). The Court cannot,

on the present record, be confident that the state action will adequately address and resolve

the issues raised in this federal action. M&I does not assert its claim for breach of

promissory note in the state action (Doc. 12 at 3), nor may Lerner seek rescission of the note

given that the underlying security – the Scottsdale property – has been sold (Doc. 13 at 2).

Lerner asserts that he brought his state claims to avoid the very contract liability at

issue here, and that an award of damages in the state action would nullify M&I’s right to the

deficiency sought in this case. Doc. 13 at 2. But Lerner does not account for the possibility

that he may not succeed on his state claims. If M&I were to prevail in state court, by way

of its motion to dismiss or otherwise, it would still need to proceed with this action to obtain

the deficiency it seeks under the promissory note.

Moreover, “‘the possibility that the state court proceeding might adequately protect

the interests of the parties is not enough to justify the [Court’s] deference to the state

action.’” Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1370 (9th Cir. 1990) (emphasis

added) (citation omitted). This factor is important only “‘when it weighs in favor of federal

jurisdiction.’” Id.

The Court’s task “is not to find some substantial reason for the exercise of

federal jurisdiction[.]” Moses H. Cone, 460 U.S. at 25 (emphasis in original) Instead, the

Court must determine “whether there exist ‘exceptional’ circumstances, the ‘clearest of

justifications,’ that can suffice under Colorado River to justify the surrender of that

jurisdiction.” Id. at 25-26. Because “a stay is as much a refusal to exercise federal

jurisdiction as a dismissal,” id. at 28, and because the Court does not have “full confidence”

that the state action will affirmatively and finally end the litigation, Gulfstream Aerospace

Corp. Mayacamas Corp., 485 U.S. 271, 277 (1988), the Court will deny the stay request. See

Holder v. Holder, 305 F.3d 854, 868-70 (9th Cir. 2002); Intel Corp., 12 F.3d at 912-13;

Wojtunik, 2009 WL 805816, at *3.

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IT IS ORDERED:

1. Defendant Glen Lerner’s motion to dismiss or stay (Doc. 11) is denied.

2. The Court will set a case management conference by separate order. 

DATED this 9th day of August, 2010.

Case 2:10-cv-01081-DGC Document 14 Filed 08/09/10 Page 4 of 4