Court Opinion

ID: 73119
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:55:33+00
Date Added: 2024-06-11T09:39:11.974869
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         IN THE UNITED STATES COURT OF APPEALS
                FOR THE ELEVENTH CIRCUIT
                     ________________       FILED
                                                 U.S. COURT OF APPEALS
                          No. 97-6767              ELEVENTH CIRCUIT
                                                        08/12/98
                       _________________
                                                    THOMAS K. KAHN
                                                         CLERK
             D.C. Docket No. CV-96-T-1747-N-MHT

TRANSOUTH FINANCIAL
CORPORATION; ASSOCIATES
FINANCIAL SERVICES
COMPANY, INC. ET AL.,
                                                    Plaintiffs-Counter-
                                                Defendants-Appellants-
                                                       Cross-Appellee.

                              versus

RONALD A. BELL,
                                                    Defendant-Counter-
                                                    Claimant-Appellee-
                                                      Cross-Appellant.

                    _____________________

           Appeals from the United States District Court
               for the Middle District of Alabama
                   ______________________
                       (August 12, 1998)
Before CARNES and HULL, Circuit Judges, and HENDERSON, Senior
Circuit Judge.

CARNES, Circuit Judge:

     Appellants TranSouth Financial Corp. (“TranSouth”), Associates

Financial Life Insurance Company (“AFLIC”), Associates Insurance

Company (“AIC”), and Associates Financial Services Company, Inc

(“AFSC”), appeal the district court’s order dismissing their complaint,

which sought to compel appellee Ronald Bell to arbitrate his claims against

them, and denying their request for a stay of the concurrent state court

action Bell had instituted against them. The dismissal was based upon the

district court’s conclusion that, in the interest of comity and federalism, it

should abstain from exercising its jurisdiction over the case in favor of the

concurrent state court proceeding.

     We agree with the appellants that the district court abused its

discretion by abstaining from exercising its jurisdiction over the complaint,

but we agree with Bell that the Federal Anti-Injunction Act, 28 U.S.C. §

2283, prohibited the district court from enjoining the concurrent state court

                                      1
proceedings. Accordingly, we reverse the district court’s order insofar as

it dismissed TranSouth’s complaint, but we affirm the district court’s order

insofar as it declined to enjoin the concurrent state court proceedings.

                           I. BACKGROUND

     Bell took out loans with TranSouth on four separate occasions. Bell

alleges that TranSouth, through its agents, Jay Conner and Carl Knight, told

him that he would be able to get these loans only if he purchased credit life

insurance through appellant Associates Financial Life. Bell also contends

that the cost of this life insurance was added to his loans without his

consent.

     On September 17, 1996, Bell and TranSouth entered into an

agreement to refinance the last of Bell’s loans. That agreement included

an arbitration clause under which they agreed to arbitrate:

           without limitation, all claims and disputes arising
           out of, in connection with, or relating to:
                 - your loan from us today;
                 - any previous loan from us and any previous
                 retail installment sales contract or loan
                       assigned to us;

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                - all the documents relating to this or any
                previous loan or retail installment sale
           contract;
                ....
                - any claim or dispute based on an allegation
           of fraud or misrepresentation;
                - any claim or dispute based on a federal or
                state statute; and
                - any claim or dispute based on an alleged tort.

The arbitration clause also provided that Bell and TranSouth would

arbitrate any disputes between Bell and any of TranSouth’s affiliates,

employees, or agents.

     On October 4, 1996, Bell filed a lawsuit in Alabama state court

against TranSouth, AFLIC, AIC, and AFSC, as well as Jay Conner, S.J.

Conner Auto Sales, and Carl Knight, whom Bell alleges acted as agents for

TranSouth. The complaint alleged several claims of fraud and

misrepresentation arising out of the loan transactions and the life insurance

that Bell alleges he was forced into purchasing.

     Appellants filed this action on November 25, 1996, seeking an order

from the district court compelling Bell to arbitrate his claims and an order

staying the state court proceedings. Bell filed his answer on December 30,

                                     3
1996. In it, he admitted signing the arbitration agreement but pled several

defenses, including fraud in the inducement. On January 21, 1997, Bell

amended his answer to include a counterclaim alleging fraud by the

appellants in procuring the arbitration agreement. On February 14, 1997,

Bell filed a motion to dismiss the complaint, contending that the district

court should refrain from exercising its jurisdiction under principles of

comity and abstention.

     By order dated August 25, 1997, the district court granted Bell’s

motion and dismissed the complaint without prejudice, holding that it

would abstain from exercising its jurisdiction under the doctrine of

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

96 S. Ct. 1236 (1976). The appellants filed a timely appeal from that

decision. Bell then filed a timely cross-appeal from the district court’s

dismissal of his fraud claim and his demand for a jury trial on the validity

of the arbitration agreement. In addition to their appeal to this Court, the

appellants filed a motion to compel arbitration in the state court on

September 3, 1997.

                                     4
                    II. STANDARD OF REVIEW

     We review for abuse of discretion a district court’s dismissal on

Colorado River abstention grounds. See American Bankers Ins. Co. of Fla.

v. First State Ins. Co., 891 F.2d 882, 884 (11th Cir. 1990). We review

de novo a district court’s determination that the Federal Anti-Injunction

Act, 28 U.S.C. § 2283, prevents it from enjoining a state proceeding. See

Peterson v. BMI Refractories, 124 F.3d 1386, 1390 (11th Cir. 1997).

                            III. ANALYSIS

A.   DID THE DISTRICT COURT ABUSE ITS DISCRETION BY
     DISMISSING TRANSOUTH’S PETITION TO COMPEL
     ARBITRATION?

     The district court dismissed the appellants’ complaint pursuant to the

abstention doctrine that the Supreme Court announced in Colorado River

Water Conservation Dist. v. United States, 424 U.S. 800, 96 S. Ct. 1236

(1976), which allows a federal court to dismiss a case when a concurrent

state proceeding provides a more appropriate forum. As modified by the

Supreme Court in Moses H. Cone Memorial Hospital v. Mercury Constr.

Co., 460 U.S. 1, 103 S. Ct. 927 (1983), the Colorado River doctrine

                                    5
requires federal courts to consider six factors in determining whether

abstention in favor of a concurrent state proceeding is appropriate: (1) the

order in which the courts assumed jurisdiction over property; (2) the

relative inconvenience of the fora; (3) the order in which jurisdiction was

obtained and the relative progress of the two actions; (4) the desire to avoid

piecemeal litigation; (5) whether federal law provides the rule of decision;

and (6) whether the state court will adequately protect the rights of all

parties. See id. at 16-26, 103 S. Ct. at 937-42. The Supreme Court

indicated that these criteria could not be applied according to a rigid

formula; no one factor is dispositive. See id. However, a federal court

considering abstention must weigh these factors with a heavy bias in favor

of exercising jurisdiction, see id. at 16, 103 S. Ct. at 937, since federal

courts have a “virtually unflagging obligation” to exercise jurisdiction

where it exists. Colorado River, 424 U.S. at 817, 96 S. Ct. at 1246.

     In a recent Colorado River abstention decision, we applied the Moses

H. Cone factors to a scenario materially indistinguishable from this case.

In First Franklin Fin. Corp. v. McCollum, 144 F.3d 1362 (11th Cir. 1998),

                                      6
the federal court defendant, Gary McCollum, filed a state court action

against First Franklin and one of its employees, alleging several fraud-

related claims. Shortly thereafter, First Franklin filed concurrent state and

federal court petitions seeking to compel McCollum to arbitrate his claims.

The district court relied on Colorado River abstention to dismiss the federal

court petition, reasoning that concerns of comity and federalism warranted

deferral to the previous state court action brought by McCollum. See First

Franklin, 144 F.3d at 1363.

     We vacated and remanded, holding that several of the Moses H. Cone

factors weighed in favor of exercising federal jurisdiction. First, we noted

that the “piecemeal litigation” factor did not weigh against exercising

jurisdiction because no piecemeal litigation would ensue with regard to the

arbitrability of the dispute, the only question before the federal court. In

addition, we pointed out that any piecemeal litigation that might result from

a decision on arbitrability would be the result of the parties’ voluntary

actions and the strong federal policy favoring arbitration. See id. at 1364.

     Second, we noted in First Franklin that priority of jurisdiction and the

                                      7
timing and progress of the concurrent suits weighed against abstention. As

discussed in Moses H. Cone, this factor requires the court to consider not

only the chronological order in which the parties initiated the concurrent

proceedings, but the progress of the proceedings and whether the party

availing itself of the federal forum should have acted earlier. See Moses H.

Cone, 430 U.S. at 21-22, 103 S. Ct. at 939-40. First Franklin had filed its

suit at nearly the earliest opportunity, shortly after McCollum indicated his

refusal to arbitrate by filing his state court lawsuit. Furthermore, the state

court had not ruled on First Franklin’s motion to compel arbitration at the

time the district court decided to abstain from exercising jurisdiction. As

a result, there had been no progress in the state court to weigh in favor of

federal court deferral. See id. at 1364-65. Therefore, we concluded that the

relative timing and progress of the concurrent proceedings in First Franklin

did not weigh in favor of abstention.

     Third, we noted in First Franklin that the law of decision weighed

against abstention, since the Federal Arbitration Act, 9 U.S.C. §§ 3-4

governs motions to compel arbitration. We reasoned that resolution of the

                                      8
underlying dispute being governed by federal law is a factor that strongly

suggests a federal court should exercise its jurisdiction. See id. at 1365.

The final factor that we deemed to be relevant was the availability of

complete relief in the state forum. We recognized that the state court’s

ability to eventually grant complete relief weighed slightly in favor of

abstention.   See id.      However, that one factor was insufficient to

counterbalance the other considerations. In sum, we concluded in First

Franklin that the factors not favoring abstention -- avoiding piecemeal

litigation, progress of the concurrent proceedings, and the federal nature of

the relevant law -- coupled with the absence of any factor weighing

strongly in favor of abstention required us to conclude that the district court

abused its discretion by abstaining. See id.

      This case is not materially different from First Franklin. Both cases

involve parallel state and federal proceedings. In both cases, the state court

plaintiff filed his complaint first, alleging several fraud-related claims, and

soon thereafter one or more of the defendants in the state court action filed

motions to compel arbitration in both state and federal court. In both cases,

                                      9
the district court decided to abstain from exercising its jurisdiction, even

though the state court had not issued a ruling on the arbitrability issue.

Given these similarities, the same Moses H. Cone factors that this Court

applied in First Franklin weigh against abstention here as well. As we said

in First Franklin, “this case is so close to Moses H. Cone, and the factors

weigh sufficiently against abstention, that the district court abused its

discretion in abstaining.” Id.

       The district court in this case did not have the benefit of the First

Franklin decision when it ruled. We are confident that if it had, the court

would not have abstained. In light of First Franklin, we must vacate the

district court’s order of dismissal on abstention grounds, and remand this

case to the district court for a decision on the appellants’ motion to compel

Bell to arbitrate his claims against them.1

       1
         Our decision in Old Republic Union Ins. Co. v. Tillis Trucking Co., 124 F.3d 1258 (11th
Cir. 1997), does not conflict with our analysis here. In Old Republic, we affirmed a district court’s
refusal on Younger abstention grounds to entertain a declaratory judgment action where there was
a concurrent state action. The federal plaintiff sought to have the federal court pass on the
constitutionality of Alabama’s wrongful death statute. See id. at 1261. We found that Younger
abstention was appropriate because “important state interests [were] involved,” and those interests
favored allowing the Alabama state courts to pass on the validity of state law. Id. We also found
that abstention in that case was supported by the fact that the federal action was brought under the
Declaratory Judgment Act, which “confer[s] on federal courts unique and substantial discretion in

                                                 10
B.     DID THE DISTRICT COURT PROPERLY DENY THE
       APPELLANTS’ MOTION FOR A STAY OF THE STATE COURT
       PROCEEDINGS?

       Appellants also contend that the district court should have entered an

order staying the state court proceedings pending the outcome of their

federal suit seeking to compel arbitration. In denying their request for a

stay, the district court relied on the prohibitions of the Federal Anti-

Injunction Act, 28 U.S.C. § 2283.

       The Federal Anti-Injunction Act prohibits a federal court from

enjoining a state court proceeding except in three narrowly defined

circumstances: (1) where there is an express congressional authorization

to enjoin state proceedings; (2) where an injunction is necessary to protect

a judgment that a federal court has rendered; and (3) where an injunction

deciding whether to declare the rights of litigants.” Id. at 1260 (citing Wilson v. Seven Falls Co.,
515 U.S. 277, 286-87 (1995)).

        The present case, by contrast, is not a declaratory judgment action. Instead, these appellants
seek to enforce federal arbitration rights created by a federal statute, the FAA. As a result, no
compelling state interest exists in having the state courts, instead of the federal courts, decide this
case. Moses H. Cone indicates that, in arbitration cases, federal courts have a “virtually unflagging
obligation . . . to exercise the jurisdiction given them.” Moses H. Cone, 460 U.S. at 15, 103 S. Ct.
at 937. That Old Republic implicated Younger abstention, while this case involves Colorado River
abstention underscores the differences that distinguish Old Republic from the present case.

                                                  11
is necessary to aid the federal court’s jurisdiction over an action. See 28

U.S.C. § 2283. Those exceptions are to be narrowly construed. See, e.g.,

Atlantic Coast Line Ry. Co. v. Brotherhood of Locomotive Eng’rs, 398
U.S. 281, 287, 90 S. Ct. 1739, 1743 (1970).

      The appellants contend that this case falls within the third exception,

namely, that an injunction is necessary “in aid of [the court’s] jurisdiction.”

Citing Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 641-42, 97 S. Ct.
2881, 2893 (1977)(plurality opinion of Rehnquist, J.), the district court held

to the contrary, because it believed the “aid of jurisdiction” exception

applies exclusively to in rem proceedings. In Vendo Co., then-Justice

Rehnquist’s plurality opinion stated that the “aid of jurisdiction” exception

was intended to apply to in rem proceedings, and not to interfere with the

balance of concurrent jurisdiction in personam actions. See id. However,

that opinion did not command a majority of the Court, and Justice

Blackmun’s concurrence, joined by one other justice, does not adopt that

position. See id. at 643, 97 S. Ct. at 2893-94 (Blackmun, J., concurring in

the result). We are not obligated to follow the plurality opinion in Vendo

                                      12
Co., because plurality opinions of the Supreme Court do not bind this

Court. See, e.g., United States v. Stewart, 65 F.3d 918, 924 (11th Cir.

1995), cert. denied, 516 U.S. 1134, 116 S. Ct. 958 (1996).

      We are obligated to follow a prior decision of this Court, see Bonner

v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), and we

do have a decision holding that the “aid of jurisdiction” exception can be

applied to in personam actions when necessary to protect a federal court’s

jurisdiction over a case. See Peterson v. BMI Refractories, 124 F.3d 1386,

1395 (11th Cir. 1997) (holding that “aid of jurisdiction” exception to anti-

injunction act could be invoked to stay state court proceedings where the

case had been removed from state court). The district court did not have

the benefit of the Peterson decision when it issued its order in this case, but

that decision is now law of the circuit.

      That the “aid of jurisdiction” exception applies to some in personam

actions, however, does not necessarily mean that it applies to this case. In

Peterson, we held that a stay of the state court proceedings was appropriate

because the civil rights action initiated in the state court had been removed

                                      13
to federal court on diversity grounds, depriving the state court of

jurisdiction over the matter. See Peterson, 124 F.3d at 1395. In the present

case, jurisdiction is proper in both courts. When there are concurrent

jurisdiction state and federal proceedings arising out of the same

transaction or occurrence, ordinarily neither forum should interfere with the

other’s exercise of jurisdiction.      See Atlantic Coast Line R.R. v.

Brotherhood of Locomotive Eng’rs, 398 U.S. 281, 295, 90 S. Ct. 1739,

1747 (1970) (“In short, the state and federal courts had concurrent

jurisdiction in this case, and neither court was free to prevent either party

from simultaneously pursuing claims in both courts.”). The “aid of

jurisdiction” exception applies only when an injunction is “necessary to

prevent a state court from so interfering with a federal court’s consideration

or disposition of a case as to seriously impair the federal court’s flexibility

and authority to decide that case.” Id.

      In support of their position that the “aid of jurisdiction” exception

applies here, appellants note that district courts have granted an injunction

staying state court proceedings under this exception after determining that

                                      14
the underlying dispute was arbitrable. See, e.g., Pervel Indus. v. TM

Wallcovering, Inc., 675 F. Supp. 867 (S.D.N.Y. 1987), aff’d 871 F.2d 7 (2d

Cir. 1989). In Pervel, the district court found that the “aid of jurisdiction”

exception allowed it to stay parallel state court proceedings after granting

an order compelling arbitration. See id. at 870.

     In the present case, however, no court has found the underlying

dispute arbitrable and compelled the parties to arbitrate their claims. That

distinction may be an important one, because when a federal district court

grants a motion to compel arbitration it retains jurisdiction to confirm or

vacate the resulting arbitration award under 9 U.S.C. §§ 9-10. When a

federal court has ordered arbitration, a stay of the state court action may be

necessary to insure that the federal court has the opportunity to pass on the

validity of the arbitration award. In this case, however, that concern simply

does not exist because the district court has not yet ruled on the motion to

compel arbitration. Cf. Amalgamated Clothing Workers of America v.

Richman Bros., 348 U.S. 511, 515-16, 75 S. Ct. 452, 455 (1955) (Anti-

                                     15
Injunction Act exceptions do not apply merely because state court action

involves legal area preempted by federal law).

       If the district court orders arbitration, a stay of the state court

proceedings might be appropriate at that point because continued state

proceedings could jeopardize the federal court’s ability to pass on the

validity of the arbitration proceeding it has ordered.2 However, we need

not decide that question because the premised condition, an order

compelling arbitration, does not exist now.                          Therefore, the “aid of

jurisdiction” exception to the Anti-injunction Act is inapplicable at present.

See Lou v. Belzberg, 834 F.2d 730, 740 (9th Cir. 1987) (“The mere

existence of a parallel action in state court does not rise to the level of

interference with federal jurisdiction necessary to permit injunctive relief

under the ‘necessary in aid of’ exception.”). Accordingly, we hold that no

exception to the Anti-Injunction Act is applicable to this case and affirm

       2
        If the district court grants appellants’ motion to compel arbitration, and the appellants renew
their motion for a stay of the state court proceedings, the district court can reconsider that motion
then.

                                                  16
the district court’s denial of TranSouth’s motion for a stay of the parallel

state court proceedings in this case.

C.   SHOULD THE DISTRICT COURT HAVE DISMISSED BELL’S
     CROSS-APPEAL?

     In his cross-appeal, Bell claims that the district court should not have

dismissed his jury demand on the arbitrability issue and the separate fraud

claim contained in his counterclaim. The district court dismissed Bell’s

counterclaim when it dismissed the entire case. Because we have held the

district court should not have dismissed the case on abstention grounds, the

entire case is to be remanded to the district court. Bell’s contention about

his jury demand and fraud claim are premature insofar as this Court is

concerned. The district court is free to reconsider these matters on remand.

                          IV. CONCLUSION

     For the reasons stated above, the district court’s order granting Bell’s

motion to dismiss is VACATED, but its denial of TranSouth’s motion for

                                        17
a stay of the state court proceedings is AFFIRMED.      The case is

REMANDED for further proceedings consistent with this opinion.

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