United States Court of Appeals

Fifth Circuit



## FILED

January 26, 2006

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 05-60405

Summary Calendar

SUSIE PIERCE STEWART,

Plaintiff - Appellee,

v.

WESTERN HERITAGE INSURANCE COMPANY,

Defendant - Appellant.

Appeal from the United States District Court

for the Southern District of Mississippi

Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.

BENAVIDES, Circuit Judge:

The parties ask this Court to determine whether the district

court correctly stayed this lawsuit pending the outcome of a

related state court proceeding. We hold that the lower court

erred, and therefore REVERSE and REMAND.

I. FACTUAL AND PROCEDURAL BACKGROUND

The prese nt case concerns a previous lawsuit in Mississippi

state court. The plaintiffs in that suit claimed that Boardwalk2

Lounge, Inc. was responsible for the wrongful death of one of its

patrons, Ryan Yates. Susie Pierce Stewart (“Appellee”) is

Boardwalk’s sole shareholder, officer, and registered agent.

Boardwalk was insured by Western Heritage Insurance Company

(“Appellant”), who claims to have denied any obligation to defend

or indemnify Boardwalk. No one defended the lawsuit and the

plaintiffs took a default judgment of $1.4 million. Shortly

thereafter, Boardwalk and the Appellee filed for bankruptcy.

On October 23, 2003, the Appellee filed this lawsuit alleging

breach of insurance contract and bad faith in the United States

District Court for the Southern District of Mississippi. The case

proceeded in federal court with the entry of a case management

order followed by a motion for summary judgment filed by the

Appellant. The discovery deadline expired in October 2004, and the

court set a trial date of February 14, 2005.

Meanwhile, on July 6, 2004, the trustee for Bo ardwalk filed

suit in the Circuit Court of Hinds County, Mississippi. The

complaint named the Appellant, the Appellee, Phillip Dunn (an

insurance agent), and others who were later dismissed from the

suit. The state complaint mirrors the federal suit except that it

also includes claims against the Appellee and Appellant for breach

of fiduciary duty and claims against Dunn. The Appellant removed

the case on grounds of improper joinder. The trustee moved to

remand.

Following the commencement of the trustee’s suit, the Appellee1 If Dunn is joined, it would defeat diversity jurisdiction

as both the Appellee and Dunn hail from Mississippi. See

Cornhill Ins. PLC, v. Valsamis, Inc. , 106 F.3d 80, 84 (5th Cir.

1997).

2 The Appellee states that it never had an opportunity to

join the trustee because the district court stayed the case.

3 filed two separate motions to voluntarily dismiss this action. The

Appellant opposed both. The Appellee also moved to join Dunn as a

party. 1 Additionally, the Appellant filed a motion to join

Boardwalk’s trustee as a necessary party to this case. The

magistrate judge granted that motion an d ordered the Appellee to

serve the trustee with process. The trustee, however, has never

been joined and is not a party to this action. 2 The court set a

hearing on all pending motions and a pretrial conference for early

February 2005. At the hearing, the court stayed the case pending

a ruling on the remand motion in the trustee’s suit. The two cases

were before different judges.

On March 22, 2005, the trustee’s suit was remanded on the

grounds that Dunn had been properly joined. On March 31, 2005, the

court in this case, acting sua sponte

, entered an order that

“terminated” all pending motions and stayed the case pending the

resolution of the trustee’s suit in Mississippi state court. The

Appellant appeals that order.

II. DISCUSSION

We review a district court’s decision to stay a case pending3 If the suits are not parallel, the federal court must

exercise jurisdiction. Republicbank Dallas, N.A. v. McIntosh

, 828 F.2d 1120, 1121 (5th Cir. 1987).

4 the outcome of parallel proceedings in state court for abuse of

discretion. K elly Inv., Inc. v. Continental Common Corp.

, 315 F.3d

494, 497 (5th Cir. 2002). If the decision rests on an

interpretation of law, our review is de novo. Id.

A district court’s decision to enter a permanent stay is

governed by Colorado River Water Conservatory District v. United

States

, 424 U.S. 800, 813 (1976). C olorado River applies when

suits are parallel, having the same parties and the same issues.

Diamond Offshore Co. v. A&B Builders, Inc.

, 302 F.3d 531, 540 (5th

Cir. 2002). 3 Under C olora do River , a district court may abstain

from a case only under “exceptional circumstances.” C olorado

River

, 424 U.S. at 813 (describing abstention as “an extraordinary

and narrow exception to the duty of a District Court to adjudicate

a controversy properly before it”).

In deciding whether “exceptional circumstances” exist, the

Supreme Court identified six relevant factors:

1) assumption by either court of jurisdiction over a res,

2) relative inconvenience of the forums, 3) avoidance of

piecemeal litigation, 4) the order in which jurisdiction

was obtained by the concurrent forums, 5) to what extent

federal law provides the rules of decision on the merits,

and 6) the adequacy of the state proceedings in

protecting the rights of the party invoking fe d eral

jurisdiction.

Kelly Inv.

, 315 F.3d at 497; see also Wilton v. Seven Falls Co.

,4 This holding in Evanston Insurance conflicts with the

holding in Bank One, N.A. v. Boyd , 288 F.3d 181, 185 (5th Cir.

2002) (“The first factor is not relevant to the present case as

neither the state nor federal district court have assumed

jurisdiction over any res or property.”) Because Evanston

Insurance predated Bank One , the former controls our analysis.

E.g.

, Southard v. Texas Bd. of Criminal Justice , 114 F.3d 539,

549 (5th Cir.1997). The first factor, therefore, is relevant

even if no res exists in the case. Murphy v. Uncle Ben’s, Inc.

, 168 F.3d 734, 738 (5th Cir. 1999)

.

5 515 U.S. 277, 285–86 (1995). We do not apply these factors

mechanically, but carefully balance them “with the balance heavily

weighted in favor of the exercise of jurisdiction.” M oses H. Cone

Mem’l Hosp. v. Mercury Constr. Corp. , 469 U.S. 1, 16 (1983). The

balancing is done on a case-by-case basis. Id.

The district court did not apply the Colorado River test when

it stayed this case. Therefore, we review the factors for the

first time on appeal. We assume, but do not decide, that the cases

are parallel.

A. Res at Issue

Neither the state nor federal court has assumed jurisdiction

over any res in this case. We have rejected the contention that

the absence of this factor is “a neutral item, of no weight in the

scales.” Evanston Ins. Co. v. Jimco, In c. , 844 F.2d 1185, 1191

(5th Cir. 1988). 4 This factor supports exercising federal

jurisdiction. Murphy , 168 F.3d at 738.

B. Inconvenience Between Forums

When courts are in the same geographic location, the5 While the current captions suggest that different parties

exist, the record is clear that the magistrate intended to have

the trustee joined and the Appellee is attempting to join Dunn.

These efforts and the ability of the trustee to file a crossclaim could moot these piecemeal characteristics.

6 inconvenience factor weighs against abstention. I d. at 738. Both

the state and feder al courthouses hearing these two cases are

located in Jackson, Mississippi. This factor, therefore, supports

exercising federal jurisdiction.

C. Avoidance of Piecemeal Litigation

The pendency of an a ction in state court does not bar a

federal court from considering the same matter. B ank One, N.A.

,

288 F.3d at 1 85. While duplicative litigation is permitted,

Colorado River prevents “piecemeal litigation, and the concomitant

danger of incon sistent rulings with respect to a piece of

property.” B lack Sea Inv. v. United Heritage Corp.

, 204 F.3d 647,

650–51. Again, no property is at issue in this case. The

potential, however, does exist for some piecemeal litigating as the

state court is the only forum hearing the breach of fiduciary duty

claims and claims against Dunn. For the remaining issues, a plea

of res judicata after the completion of one suit could eliminate

the problem of inconsistent judgments. K elly Inv.

, 315 F.3d at

498. Nonetheless, as the litigation presently exists, the third

factor favors abstention. 5

D. The Order in Which Jurisdiction Was Obtained

The inquiry under this factor is “how much progress has been7

ma de in the two actions.” M urphy

, 168 F.3d at 738. The federal

lawsuit progressed through an entire case management order, had a

summary judgment motion pending at the time of the stay, and a

trial date. With regard to the state proceeding, it is undisputed

that no trial date exists, and the record suggests that little, if

any, discovery has taken place. We have suggested that this factor

only favors abstention when the federal case has not proceeded past

the filing of the complaint. Id. Here, the case has clearly

progressed further. For that reason, this factor favors federal

jurisdiction.

E. The Extent Federal Law Governs the Case

“[T]he presence of state law issues weighs in favor of

surrender only in rare circumstances.” B lack Sea Inv.

, 204 F.3d at

651 (reversing stay in case where state law governed). This case

involves only issues of state law as it is being heard by the court

under i ts diversity jurisdiction. Nonetheless, the Appellee has

failed to show that “rare circumstances” exist. Therefore, this

factor is “at most neutral.” Id.

F. Adequacy of State Proceedings

The sixth factor is either a neutral factor or one that weighs

against absten tion. I d. The Appellant does not argue that the

state court would not adequately adjudicate the case. Under B lack

Sea , therefore, this is a neutral factor.8 IV. CONCLUSION

With the exception of the fact or considering “piecemeal

litigation,” a ll of the C olorado River factors weigh against

abstention or remain neutral. Given that we must balance these in

favor of the exercise of jurisdiction, abstention in this case is

inappropriate. The facts do not overcome the “extraordinary and

n arrow exception” to the “virtually unflagging obligation of the

federal courts to exercise the jurisdiction given them.” C olorado

River , 424 U.S. at 814, 817. Because abstention is prohibited by

Colorado River , we need not address the Appellant’s argument that

the federal and state cases are not parallel.

For the reasons above, the district court abused its

discretion in staying this case. Therefore, we REVERSE and REMAND

for proceedings consistent with this opinion.