Court Opinion

ID: 72976
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:51:13+00
Date Added: 2024-06-11T14:58:58.683007
License: Public Domain

[PUBLISH]

             IN THE UNITED STATES COURT OF APPEALS

                     FOR THE ELEVENTH CIRCUIT
                      ________________________

                              No. 97-6966
                         Non-Argument Calendar
                       ________________________

                   D. C. Docket No. CV 97-AR-2567-M

FIRST FRANKLIN FINANCIAL CORP.,

                                                           Plaintiff-Appellant,

                                  versus

GARY MCCOLLUM,

                                                          Defendant-Appellee.

                       ________________________

                Appeal from the United States District Court
                   for the Northern District of Alabama
                      _________________________

                              (June 8, 1998)

Before COX, BIRCH and MARCUS, Circuit Judges.

PER CURIAM:
      1st Franklin Financial Corporation appeals from the dismissal of its petition to

compel Gary McCollum to participate in arbitration, pursuant to the Federal

Arbitration Act (FAA), 9 U.S.C. §§ 3-4. McCollum sued 1st Franklin and one of its

former employees, Kevin Dingle, in the circuit court of Etowah County, Alabama,

alleging several fraud-related claims arising from a loan transaction. Eighteen days

after McCollum sued, 1st Franklin filed concurrent petitions in the Etowah County

circuit court and in federal district court to force McCollum to arbitrate his claims

pursuant to an arbitration clause in the loan agreement and a separate arbitration

agreement. The district court dismissed the petition without prejudice, abstaining

“[u]nder principles of comity and federalism.” (R.-9, at 2.) 1st Franklin represents

that (as of the date of its opening brief) the state court has not ruled on the motion to

compel arbitration. 1st Franklin now appeals the dismissal. Abstentions such as this

are reviewed for abuse of discretion. See Moses H. Cone Mem. Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 19, 103 S. Ct. 927, 938 (1983). We vacate and remand.

      A threshold issue McCollum raises is whether the district court had subject

matter jurisdiction. As McCollum correctly points out, the FAA alone does not supply

jurisdiction, see id. at 25 n.32, 103 S. Ct. at 942 n.32, and no federal question appears

in this action. It appears that diversity jurisdiction exists, however, because the

petition here (without contradiction) describes the petitioner as a corporation

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organized under Georgia law with its principal place of business in Georgia, names

the respondent as a citizen of Alabama, and claims an amount in controversy

exceeding $75,000. That plainly satisfies 28 U.S.C. § 1332’s demands.             See 28

U.S.C. § 1332(a)(1), (b), (c)(1).

      McCollum asserts to the contrary first that diversity jurisdiction is lacking

because the state-court action is not removable due to Dingle’s Alabama citizenship.

We disagree. As a matter of both § 1332’s language and common sense, whether

another action is removable or not does not affect jurisdiction in this, an independent

action. Furthermore, McCollum’s sole authority for this proposition is both weak and

distinguishable. McCollum relies on a footnote in Ultracashmere House, Ltd. v.

Meyer, 664 F.2d 1176, 1181 n.6 (11th Cir. 1981), which observes that “[t]he

[underlying] action was removable under 28 U.S.C. § 1441 on the basis of diversity

of citizenship; were it not, this court would clearly be without jurisdiction to entertain

the present proceeding.” First, this language does not state a rule that an action must

be removable in order for a district court to have jurisdiction to compel parties to the

action to arbitrate. Rather, it seems more like an observation in support of the court’s

conclusion in that case that abstention was appropriate, it appearing that the arbitration

petition was an eleventh-hour end-run around legitimate state-court rulings. See id.

at 1181. And the observation was perfectly true in that case, because there were the

                                            3
same two parties in both the underlying action and the action seeking to compel

arbitration. Thus, if diversity was lacking in the state-court action, it would be lacking

in the federal-court action as well. Here, of course, the observation is not true. The

state-court action has three parties, but only two are parties to this action seeking an

order compelling arbitration.      It is perfectly consistent, therefore, for removal

jurisdiction to lack in one, but subject matter jurisdiction to be present in the other.

      McCollum makes a second, related contention based on a phrase taken out of

context from Moses H. Cone. There, the Court mentioned that for a federal court to

have jurisdiction over a petition to compel arbitration, it must have jurisdiction over

the “underlying dispute.” 460 U.S. at 25 n.32; 103 S. Ct. at 942 n.32. Again, this

statement, while controlling, does not imply a lack of federal subject matter

jurisdiction here. The “underlying dispute” that 1st Franklin seeks to arbitrate is not

McCollum’s quarrel with 1st Franklin’s codefendant Dingle, but McCollum’s quarrel

with 1st Franklin. Although 1st Franklin accuses McCollum of suing Dingle just to

defeat removal, for present purposes we assume that McCollum honestly believes that

Dingle is for some reason independently liable to McCollum. So there are two

“underlying disputes,” McCollum v. Dingle and McCollum v. 1st Franklin, even

though both may arise from the same transaction. 1st Franklin seeks to arbitrate only

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McCollum v. 1st Franklin, and there is undoubtedly diversity in that underlying

dispute. There is, therefore, federal subject matter jurisdiction over the petition.

      Once such jurisdiction exists, federal courts have a “virtually unflagging

obligation” to exercise it. Moses H. Cone, 460 U.S. at 15, 103 S. Ct. at 936 (quoting

Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.

Ct. 1236, 1246 (1976), in turn quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co.,

342 U.S. 180, 183, 72 S. Ct. 219, 221 (1952)). That means that dismissal is warranted

in light of a concurrent state court action only when a balancing of relevant factors,

“heavily weighted in favor of the exercise of jurisdiction,” shows the case to be

exceptional. See id. at 16, 103 S. Ct. at 937; see American Bankers Ins. Co. v. First

State Ins. Co., 891 F.2d 882, 884 (11th Cir. 1990). In this case, the factors weigh

almost identically as they did in Moses H. Cone. That case, therefore, requires us to

conclude that the district court abused its discretion.

      Colorado River and Moses H. Cone identify six factors relevant to whether a

federal court should exercise concurrent jurisdiction when a parallel state action is

pending. See American Bankers Ins. Co., 891 F.2d at 884. The parties agree that two

(relative convenience of the fora and whether one court has established jurisdiction

over property) are irrelevant here. That leaves four factors, and as in Moses H. Cone

they point to exercising jurisdiction. The first is the potential for piecemeal litigation.

                                            5
Moses H. Cone, 460 U.S. at 19-20, 103 S. Ct. at 939. McCollum makes much of this,

but here as in Moses H. Cone the factor has “no force.” Id. The federal proceeding

has only two possible outcomes: an order compelling arbitration, or an order refusing

to compel arbitration and dismissing the petition. See 9 U.S.C. § 4. No piecemeal

litigation of the merits can occur either way, see Snap-On Tools Corp. v. Mason, 18

F.3d 1261, 1267 (5th Cir. 1994), and even if arbitration results, that is piecemeal

litigation that the parties and federal policy have together made mandatory. See

Moses H. Cone, 460 U.S. at 20, 103 S. Ct. at 939.

       The second factor, the order in which the tribunals obtained and exercised

jurisdiction, also weighs against discretionary dismissal. Although McCollum filed

the state court action about three weeks before 1st Federal filed its federal-court

petition, there is no suggestion in the record that 1st Federal could have done so much

earlier than that, cf. id. at 21, 103 S. Ct. at 939-40, or that 1st Federal could have

known before McCollum sued in state court that he would not honor the arbitration

agreement. Furthermore, no activity had occurred in state court before the filing of

the federal petition or even before the district court ruled. As in Moses H. Cone, “[i]n

realistic terms, the federal suit was running well ahead of the state suit at the very time

the District Court decided to refuse to adjudicate the case.” Id. at 22, 103 S. Ct. at

940. Indeed, because the state court had not acted, 1st Federal’s filing of a similar

                                            6
petition in state court simultaneously with this petition — a fact that arguably might

distinguish this case from Moses H. Cone — is of little moment.

      The third factor, the law to be applied, also points to exercising jurisdiction.

The petition was brought pursuant to the Federal Arbitration Act, 9 U.S.C. § 3-4, and

thus any legal interpretation will be of federal law. As in Moses H. Cone, the law to

be interpreted does not supply the extraordinary circumstance required for a federal

court to refuse to exercise jurisdiction. See id. at 26-27, 103 S. Ct. at 942.

      The fourth factor, the adequacy of the state court to protect 1st Federal’s rights,

brings up what may be the only material difference between this case and Moses H.

Cone. The Moses H. Cone Court noted that state-court procedures there were not

adequate to protect the rights of the party seeking arbitration. In particular, the Court

worried that the language of 9 U.S.C. § 4, which requires a “United States district

court” to compel arbitration in certain circumstances, would on its face seem not to

apply in state court. See id. at 27, 103 S. Ct. at 942. The U.S. Supreme Court did not

answer the question of § 4’s applicability, but the Alabama Supreme Court has

accepted that an Alabama court may compel arbitration under § 4, as long as the

underlying transaction involves interstate commerce. See, e.g., Old Republic Ins. Co.

v. Lanier, 644 So. 2d 1258, 1260 (Ala. 1994). Thus, state court remedies may be

adequate here. But there are counterconsiderations. First, the state court has

                                           7
apparently not ruled on 1st Federal’s motion, effectively undermining the federal

policy embodied in the FAA in favor of swift enforcement of arbitration agreements.

See Moses H. Cone, 460 U.S. at 22, 103 S. Ct. at 940. Second, the Moses H. Cone test

permits abstention only when some factor weighs heavily in favor of relinquishing

jurisdiction. See American Bankers Ins. Co., 891 F.2d at 884. The mere fact that 1st

Federal may possibly get relief at some point from the state court does not provide the

“clearest of justifications,” Moses H. Cone, 460 U.S. at 25, 103 S. Ct. at 942, needed

to warrant refusing to exercise jurisdiction.

      In short, this case is so close to Moses H. Cone, and the factors here weigh

sufficiently against abstention, that the district court abused its discretion in

abstaining.

      For the foregoing reasons, the dismissal is vacated and the action is remanded

for further proceedings.

      VACATED AND REMANDED.

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