Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-02213/USCOURTS-ca8-05-02213-0/pdf.json

Parties Involved:
Consolidated Container Company
Appellee
Mountain Pure
Appellant
Portola Packaging
Appellee
Stone Container Corporation
Appellee
Turner Holdings
Appellee

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-2213

___________

Mountain Pure, LLC, *

*

Plaintiff - Appellant, *

*

v. *

* Appeal from the United States 

Turner Holdings, LLC; Portola * District Court for the Eastern 

Packaging, Inc.; Stone Container * District of Arkansas.

Corporation; Consolidated Container *

Company, LLC, *

*

Defendants - Appellees. *

___________

Submitted: February 17, 2006

Filed: March 10, 2006 

___________

Before BYE, HEANEY, and MELLOY, Circuit Judges.

___________

BYE, Circuit Judge.

Mountain Pure, LLC, appeals the district court's order dismissing its tort claims

against Turner Holdings, LLC, Portola Packaging, Inc., Stone Container Corporation,

and Consolidated Container Company, LLC, on grounds of res judicata and

abstention. We reverse.

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1

Mountain Pure also sued Affiliated Foods Southwest, the wholesaler it

contracted with for distribution of its products. Additionally, the state lawsuit

involved claims between Mountain Pure, Affiliated, and Turner Holdings relating to

miscellaneous equipment. Those claims are not part of the federal court proceedings.

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I

Mountain Pure bottles and sells water and juice. Turner Holdings, Portola

Packaging, Stone Container and Consolidated Container (suppliers) provided

Mountain Pure with jugs, bottle caps and cardboard boxes used in the packaging of

its products. Mountain Pure alleges it encountered problems with each of these

components and sued the suppliers in Arkansas state court for breach of contract.1

The suppliers entered denials and counter claimed alleging Mountain Pure owed

money on outstanding account balances. The suppliers moved for summary judgment

on Mountain Pure's contract claims. Just before the summary judgment hearing,

Mountain Pure amended its complaint to include tort claims against the suppliers. At

the hearing, the state court indicated it intended to grant the suppliers' motions to

dismiss Mountain Pure's contract claims. Before a written order dismissing the

claims was entered, however, Mountain Pure moved to non-suit its contract and tort

claims. The district court granted the motion to non-suit and dismissed the claims

without prejudice.

 

After voluntarily dismissing the contract and tort claims, Mountain Pure refiled

them in federal court. The suppliers then returned to state court and asked the court

to amend its earlier judgment to reflect the court's intention to dismiss the contract

claims on the merits, with prejudice. The court agreed, granted summary judgment

on the contract claims, and amended the judgment. Later, the state court found for

the suppliers on their counter claims and awarded damages against Mountain Pure.

Thereafter, the parties voluntarily non-suited the remaining state claims and Mountain

Pure appealed the award of damages. The Arkansas Court of Appeals dismissed the

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2

Mountain Pure does not appeal the dismissal of its contract claims.

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appeal, holding it was interlocutory because the non-suited tort claims were dismissed

without prejudice and could be refiled.

Back in federal court, the suppliers filed motions to dismiss Mountain Pure's

contract and tort actions on the basis of res judicata and abstention. The district court

found the contract claims had been fully adjudicated on the merits and held they were

barred by the doctrine of res judicata. It also held the tort claims were barred by res

judicata because they arose out of the same nucleus of operative facts and could have

been pursued in the state court action. Mountain Pure moved for reconsideration,

pointing out the tort claims were dismissed without prejudice to its right to refile

them, and the Arkansas Court of Appeals had held there had been no final

adjudication of the state court action. The district court rejected Mountain Pure's

arguments and reaffirmed its earlier ruling, adding that even if res judicata did not

apply, it would abstain from hearing the case. On appeal, Mountain Pure argues the

district court erred in applying res judicata to the tort claims,2

 and by applying the

abstention doctrine. 

II

The parties agree this diversity action is governed by Arkansas state law, Erie

R.R. v. Tompkins, 304 U.S. 64, 78 (1938), and that our review of the district court's

interpretation of state law is de novo, Burlington N. R. Co. v. Farmers Union Oil Co.

of Rolla, 207 F.3d 526, 534 (8th Cir. 2000).

A

Mountain Pure first argues the district court erred when it concluded the tort

claims were barred by res judicata. The suppliers argue Mountain Pure's contract and

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tort claims arose out of the same nucleus of operative facts and should have been

pursued together in the state court action. They contend Mountain Pure improperly

split its cause of action by refiling the non-suited tort claims in federal court. We

disagree.

 

Under the claim-preclusion aspect of res judicata, a valid and final judgment

rendered on the merits bars another action by the plaintiff against the defendant on

the same claim or cause of action. Magness v. Commerce Bank, 853 S.W.2d 890,

893 (Ark. Ct. App. 1993). Res judicata prohibits the relitigation of claims which

were actually litigated in the first suit and those which could have been litigated. Id.

at 893-94. If subsequent litigation is based on the same events as the previous

lawsuit, res judicata applies even if the later suit raises new legal issues and seeks

additional remedies. Id. at 894. Res judicata, however, only applies when the party

against whom the earlier decision is being asserted had a fair and full opportunity to

litigate the issue in question. Cater v. Cater, 846 S.W.2d 173, 176 (Ark. 1993). 

Identical cases between the same parties can be pending in a federal district

court and a state court at the same time. Carter v. Owens-Ill., Inc., 551 S.W.2d 209,

209 (Ark. 1977). In such instances, the first forum to dispose of the case enters a

final judgment binding on the parties. Id. at 210. Conversely, a person having only

a single cause of action is usually not permitted to split it and maintain more than one

suit for different parts of the action; if the rule is violated the adjudication reached on

the first action is, under res judicata, a bar to the maintenance of the second suit.

Coleman's Serv. Ctr., Inc. v. FDIC, 935 S.W.2d 289, 298 (Ark. Ct. App. 1996). Thus,

in Eiermann v. Beck, 252 S.W.2d 388, 389-90 (Ark. 1952), a plaintiff who obtained

rescission of a contract to purchase a restaurant plus consequential damages could not

later sue for other damages resulting from the defendant's fraud. Similarly, in

Lisenbey v. Farm Bureau Mutual Insurance Co. of Arkansas, Inc., 431 S.W.2d 484,

485 (Ark. 1968), the Arkansas Supreme Court held claims resulting from the loss of

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personalty and realty in one fire covered by one insurance policy constituted one

cause of action. 

Needless to say, the rule against the splitting of a single cause of action

is intended to keep defendants from being harassed by a multiplicity of

suits and to lighten the already overcrowded dockets of the trial courts.

In finding the existence of a single cause of action we have placed some

emphasis upon the fact that the several claims arise from a single

transaction. In the case at bar we are firmly of the view that the fire

created only one cause of action and that the plaintiffs ought not to be

permitted to subdivide that cause of action, thereby burdening the

defendant and the courts with the waste of time and expense that attends

a needless jury trial.

431 S.W.2d at 485 (internal citation omitted).

The suppliers' attempt to invoke the doctrine of res judicata in this instance

fails, however, because there is no valid final adjudication or judgment with respect

to the claims Mountain Pure brought in state court. Thus, Mountain Pure's second

suit filed in federal court does not violate the rule against splitting a cause of action

and res judicata does not apply.

 

Despite the lack of a final judgment, the district court concluded Mountain

Pure's contract claims were barred by res judicata, and, because the tort claims arose

out of the same nucleus of operative facts, they too were barred. It concluded the

absence of a final order was irrelevant because when Mountain Pure attempted to

appeal the state court decision, it did not appeal the adverse ruling on the contract

claims. Rather, it limited its appeal to the suppliers' counter claims. In so reasoning,

the district court implies Mountain Pure waived the requirement under res judicata

of a final judgment. We disagree. The appeal Mountain Pure attempted to take was

premature and it could not have waived the finality requirement by failing to appeal

an issue it was prevented from appealing. 

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The suppliers, quoting State Office of Child Enforcement v. Willis, 59 S.W.3d

438, 441 n.1 (Ark. 2001), argue an Arkansas "plaintiff cannot non-suit certain claims

against a defendant in order to circumvent Rule 54(b). The underlying reason is that

the principle of res judicata requires all claims against a defendant arising out of

common facts to be brought, and non-suiting certain claims would lead to piecemeal

appeals and splitting a cause of action." We agree Arkansas law prohibits a plaintiff

from circumventing Rule 54(b) by non-suiting certain claims. This principle,

however, does nothing to aid the suppliers' cause. It merely recognizes what the

Arkansas Court of Appeals held – Mountain Pure could not render the state court's

judgment final by non-suiting the remainder of its claims. Even assuming Mountain

Pure attempted to circumvent Rule 54(b), the failed attempt merely highlights the fact

that no valid final judgment has been entered. Because there has been no valid final

judgment entered in the state law proceedings, res judicata does not bar Mountain

Pure's federal suit.

 

Even assuming res judicata applies, the doctrine does not bar a subsequent

action where, in an earlier action, a court has made an express reservation of right as

to future litigation. Cater, 846 S.W.2d at 176. An express reservation of rights as to

litigation on a certain item preserves the subject for future adjudication. Miles v.

Teague, 476 S.W.2d 245, 247 (Ark. 1972). Accordingly, 

[a] determination by the court that its judgment is "without prejudice"

(or words to that effect) to a second action on the omitted part of the

claim, expressed in the judgment itself, or in the findings of fact,

conclusions of law, opinion, or similar record, unless reversed or set

aside, should ordinarily be given effect in the second action.

Coleman's Serv. Ctr., Inc., 935 S.W.2d at 296 (quoting Restatement (Second) of

Judgments, § 26(1)(b) (1982)). 

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The suppliers concede the state court expressly reserved Mountain Pure's tort

claims by dismissing them without prejudice. Therefore, res judicata is no bar to

refiling them in federal court. Furthermore, this exception to res judicata would save

Mountain Pure's tort claims even if the state court judgment had been final. The

district court order implies the exception only applies if Mountain Pure seeks to refile

the claims in state court, but we find nothing to support the conclusion. Res judicata

does not bar Mountain Pure from refiling its tort claims, and it cannot be prevented

from electing to file them in federal court instead of state court.

B

As an alternative basis for dismissing Mountain Pure's claims, the district court

stated it would abstain from exercising jurisdiction under Colorado River Water

Conservation District v. United States, 424 U.S. 800 (1976). Specifically, the court

held it would abstain because Mountain Pure could refile its claims in state court and

allowing parallel actions to proceed in state and federal court would be a waste of

judicial resources. The court further concluded the case 1) was originally filed in

state court, 2) involved only issues of state law, 3) the state court action had

progressed much further, and 4) Mountain Pure's rights would be adequately

protected in state court. On appeal, Mountain Pure argues the district court abused

its discretion by refusing to exercise jurisdiction. 

We review the district court's decision to dismiss the federal proceedings for

abuse of discretion. Moses H. Cone Mem. Hosp. v. Mercury Constr., 460 U.S. 1, 19

(1983); United States Fid. & Guar. Co. v. Murphy Oil USA, 21 F.3d 259, 263 (8th

Cir. 1994) (USF & G). However, the discretionary nature of the decision does not

mean it can be made "as a matter of whim or personal disinclination." USF & G, 21

F.3d at 261 (quoting Pub. Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962)

(per curiam)). Federal courts have a "virtually unflagging obligation . . . to exercise

the jurisdiction given them," Colorado River, 424 U.S. at 817, even when there is a

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pending state court action involving the same subject matter, id. at 813-14, 817.

"Abdication of the obligation to decide cases can be justified under [the abstention]

doctrine[s] only in the exceptional circumstances where the order to the parties to

repair to the State court would clearly serve an important countervailing interest."

Moses H. Cone, 460 U.S. at 14 (quoting Colorado River, 424 U.S. at 813) (internal

quotation and citation omitted) (emphasis added).

Determining whether exceptional circumstances exist requires evaluation of the

following factors (the Colorado River/Moses H. Cone factors).

 

(1) whether there is a res over which one court has established

jurisdiction, (2) the inconvenience of the federal forum, (3) whether

maintaining separate actions may result in piecemeal litigation, unless

the relevant law would require piecemeal litigation and the federal court

issue is easily severed, (4) which case has priority – not necessarily

which case was filed first but a greater emphasis on the relative progress

made in the cases, (5) whether state or federal law controls, especially

favoring the exercise of jurisdiction where federal law controls, and (6)

the adequacy of the state forum to protect the federal plaintiff's rights.

USF & G, 21 F.3d at 263.

These factors are not intended to be exhaustive, nor are they mechanically

applied. Rather, they are pragmatically applied to advance the "clear federal policy"

of avoiding piecemeal adjudication. Moses H. Cone, 460 U.S. at 16, 21. When

examining the factors, "the balance [is] heavily weighted in favor of the exercise of

jurisdiction." Id. at 16. 

[W]e emphasize that our task in cases such as this is not to find some

substantial reason for the exercise of federal jurisdiction by the district

court; rather, the task is to ascertain whether there exist "exceptional"

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circumstances, the "clearest of justifications," that can suffice under

Colorado River to justify the surrender of that jurisdiction. 

Id. at 25-26.

Bearing these instructions in mind, we turn to the Colorado River/Moses H.

Cone factors to determine whether this case presents "the clearest of justifications

[that alone] will warrant" abstention. Colorado River, 424 U.S. at 819.

The first two factors are of little consequence to our discussion. The parties

agree the court has jurisdiction over the res and that this factor does not weigh into

the "exceptional circumstances" calculation. Further, there is no appreciable

difference in the level of inconvenience between the two fora. Thus, as noted by the

district court, this factor is not relevant to the existence of exceptional circumstances.

The district court concluded factor number three – the desire to avoid

piecemeal litigation – weighed heavily in favor of abstention, and, as the Supreme

Court cases make clear, it is the predominant factor. See, e.g., Moses H. Cone, 460

U.S. at 16, 21. The policies underlying Colorado River abstention are "considerations

of '[w]ise judicial administration,' giving regard to conservation of judicial resources

and comprehensive disposition of litigation." 424 U.S. at 817 (quoting Kerotest Mfg.

Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952)). We respect these

considerations by favoring the most complete action. See, e.g., USF & G, 21 F.3d at

263 (abstaining in favor of state action which, unlike stayed federal action, included

"all parties in a declaratory judgment action involving multiple insurers and

overlapping coverage."); Employers Ins. of Wausau v. Mo. Elec. Works, 23 F.3d

1372, 1375 (8th Cir. 1994) (holding in dispute involving two insurers, the federal

action against only one insurer should be stayed in favor of state action involving

both).

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Here, the likelihood of piecemeal litigation is less troubling. The district court

abstained because there was a possibility Mountain Pure could refile its tort claims

in state court, thereby giving rise to a duplicative parallel state court proceeding.

Such a possibility, however, exists in every diversity action which could be filed in

both federal and state court. Additionally, the course of the proceedings in no way

suggests Mountain Pure intends to refile the tort claims in state court. Once

Mountain Pure non-suited its tort claims and refiled them in federal court, it made no

further attempts to litigate them in state court. We conclude the tort claims are not

the subject of an ongoing parallel proceeding in state court and the mere possibility

of such a proceeding does not represent the type of exceptional circumstance

sufficient to justify abstention. 

 

The district court next noted the state court action was filed first and "has

progressed much further than this action." Accordingly, it concluded this factor

weighed heavily in favor of abstention. The state court action was filed first. But

"priority should not be measured exclusively by which complaint was filed first, but

rather in terms of how much progress has been made in the two actions." Moses H.

Cone, 460 U.S. at 21. If we consider the state court's handling of the contract claims,

it is apparent the state action has progressed further than the federal court action. If,

however, we consider the tort claims in isolation, the two cases stand on relatively

equal footing. In the state court action, the tort claims were dismissed soon after the

amended complaint was filed. In the federal action, the suppliers moved for dismissal

of Mountain Pure's complaint without ever submitting answers. Therefore, neither

court has attempted to address the merits of the tort claims. We conclude this factor

does not support a finding of exceptional circumstances sufficient to justify the

district court's refusal to exercise jurisdiction.

 

Next, it is undisputed this action is governed by state law. The presence of

state law issues, however, only weighs in favor of abstention in rare circumstances.

Moses H. Cone, 460 U.S. at 26. There is nothing about this case which makes it

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unusual from similar diversity cases handled by federal courts everyday. Thus, this

issue does not weigh in favor of abstention.

Finally, we see nothing to indicate the federal court cannot adequately protect

the plaintiff's rights. The federal court is fully capable of adjudicating all of the

issues involved and the adequacy of the federal forum weighs against abstention. 

III

 Because no valid final judgment has been entered in the state court action, the

district court erred by holding res judicata barred Mountain Pure's federal claims.

Even assuming res judicata did apply, Arkansas excepts from its grasp claims

specifically reserved by a court's dismissal "without prejudice." Finally, the factors

considered by the court in deciding to abstain do not constitute exceptional

circumstances sufficient to excuse it from exercising jurisdiction. Accordingly, we

reverse the judgment of the district court and remand for further proceedings

consistent with this opinion. 

 ______________________________

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