Court Opinion

ID: 20141
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:31:31+00
Date Added: 2024-06-11T12:03:51.422981
License: Public Domain

UNITED STATES COURT OF APPEALS

                           FOR THE FIFTH CIRCUIT

                      ________________________

                            No. 99-10375
                         (Summary Calendar)
                      ________________________

BLACK SEA INVESTMENT, LTD.,

                                Plaintiff-Counter Defendant-Appellant,

                                     versus

UNITED HERITAGE CORPORATION,

                                    Defendant-Counter Claimant-Appellee.

      _____________________________________________________

           Appeal from the United States District Court
                for the Northern District of Texas
      _____________________________________________________

                               March 9, 2000

Before POLITZ, WIENER, and STEWART, Circuit Judges.

WIENER, Circuit Judge:

     In this diversity case arising out of a contract dispute,

Plaintiff-Appellant    Black       Sea   Investments,    Ltd.   (“Black   Sea”)

appeals the district court’s granting the motion of Defendant-

Appellee United Heritage Corporation (“United Heritage”) to stay

and administratively close the underlying federal action.                   The

district   court   ruled    that    a    stay   was   appropriate   under   the

abstention doctrine announced by the Supreme Court in Colorado

                                         1
River Water Conservation District v. United States.1                    As we find

that       the   district     court’s   ruling     is    inconsistent    with    the

“virtually unflagging obligation of the federal courts to exercise

the jurisdiction given them,”2 we reverse and remand the case to

the district court for further proceedings.

                                          I.

                               Facts and Proceedings

       Black Sea purchased from United Heritage 352,491 shares of

United Heritage stock.          The purchase agreement placed restrictions

on Black Sea’s ability to sell the stock.                 It also promised Black

Sea additional “rachet” shares of stock in the event that Black Sea

sold its initial holdings for less than a specified price per

share. During the following year, Black Sea sold all of its shares

of United Heritage stock.          Black Sea reported the sales to United

Heritage, and a dispute immediately ensued. Black Sea claimed that

it was entitled to receive 312,297 “rachet” shares of United

Heritage stock; United Heritage claimed that Black Sea’s sale of

the stock violated the terms of the purchase agreement.

       The parties immediately entered into settlement negotiations,

but about        one   week   later,    while    the    negotiations    were    still

ongoing, United Heritage filed suit in state court in Texas.

       1
           424 U.S. 800 (1976)
       2
           Id at 817.

                                          2
United Heritage       did   not   have    Black   Sea   served   with     process,

however, allegedly because it did not want to disturb the ongoing

negotiations.        Unaware of the state suit, Black Sea filed a

diversity action against United Heritage in federal district court,

seeking injunctive and declaratory relief.              Black Sea had United

Heritage served with process the same day.

       Several weeks later, United Heritage filed a motion to stay

the federal suit, arguing that the district court should abstain

from   exercising     jurisdiction       over   Black   Sea’s    claims    out   of

deference to the parallel state litigation.                Early the following

year, the district court granted United Heritage’s motion, finding

that (1) the issues involved in Black Sea’s federal action are

purely issues of state law, (2) the state court provides an equally

convenient forum for the litigation of Black Sea’s claims, and (3)

allowing the federal action to proceed would result in wasteful,

duplicative    litigation.        Approximately      six     months   later,     the

district court clarified its ruling, specifying that its granting

of a stay was based on the Colorado River abstention doctrine.

This appeal followed.

                                         II.

                                    Analysis

A.     Standard of Review

       We   review   a   district   court’s       decision    whether     to   stay

                                          3
proceedings for abuse of discretion.3                  To the extent that such a

decision rests on an interpretation of law, however, our review is

de novo.4

B.    Colorado River Abstention

      The Colorado River abstention doctrine is based on principles

of federalism, comity, and conservation of judicial resources.5 It

represents        an   “extraordinary      and    narrow     exception”   to    the

“virtually unflagging obligation of the federal courts to exercise

the   jurisdiction       given   them.”6         The    Supreme   Court   has   not

prescribed a “hard and fast rule” governing the appropriateness of

Colorado River abstention, but it has set forth

                six factors that may be considered and weighed
                in     determining     whether     exceptional
                circumstances exist that would permit a
                district    court   to    decline    exercising
                jurisdiction: (1) assumption by either court
                of jurisdiction over a res; (2) the relative
                inconvenience of the forums; (3) the avoidance
                of piecemeal litigation; (4) the order in
                which jurisdiction was obtained by the
                concurrent forums; (5) whether and 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   federal

      3
          Murphy v. Uncle Ben’s, Inc., 168 F.3d 734, 737 (5th Cir.
1999).
      4
          Id.
      5
       Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1189 (5th
Cir. 1988).
      6
          Colorado River, 424 U.S. at 813, 817.

                                        4
             jurisdiction.7

In   assessing    the   propriety   of       abstention    according    to   these

factors, a federal court must keep in mind that “the balance

[should     be]   heavily   weighted         in   favor   of   the   exercise   of

jurisdiction.”8      Paying heed to this admonition in applying the

Colorado River factors to this case, we conclude that the balance

tips decisively against abstention.

      (1) Assumption by Either Court of Jurisdiction Over a Res

      The case “does not involve any res or property over which any

court, state or federal, has taken control. ... [T]he absence of

this factor weighs against abstention.”9

      (2) Relative Inconvenience of the Forums

      The federal and state courts are in approximately the same

      7
       Murphy, 168 F.3d at 738.       The Supreme Court has also
emphasized the determinative role of a clear federal policy with
respect to the appropriate application of these factors. A “clear
federal policy ... [of] avoidance of piecemeal adjudication of
water rights in a river system” was “the most important factor” in
the Supreme Court’s decision to abstain in Colorado River. See
Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 16
(1983). Conversely, a clear Congressional policy “to move parties
to an arbitrable dispute out of court and into arbitration as
quickly and as easily as possible” —— a policy that was most
readily given effect in federal court —— decisively weighed against
abstention in Moses H. Cone Mem. Hosp.. Id at 22-23.
      8
          Moses H. Cone Mem. Hosp., 460 U.S. at 16.
      9
          Murphy, 168 F.3d at 738.

                                         5
geographic location within the state. This factor therefore weighs

against abstention.10

      (3) Avoidance of Piecemeal Litigation

      The district court expressly granted a stay primarily to avoid

wasteful,        duplicative     litigation.       But   “[t]he    prevention   of

duplicative litigation is not a factor to be considered in an

abstention        determination.”11       Duplicative     litigation,   wasteful

though it may be, is a necessary cost of our nation’s maintenance

of   two    separate     and   distinct       judicial   systems   possessed    of

frequently overlapping jurisdiction. The real concern at the heart

of the third Colorado River factor is the avoidance of piecemeal

litigation, and the concomitant danger of inconsistent rulings with

respect to a piece of property.12               When, as here, no court has

assumed jurisdiction over a disputed res, there is no such danger.

This factor therefore weighs against abstention.13

                 (4) Order in Which Jurisdiction Was Obtained

      “[P]riority       should    not   be    measured   exclusively    by   which

complaint was filed first, but rather in terms of how much progress

      10
           Id.
      11
           Evanston Ins. Co., 844 F.2d at 1192.
      12
           Id.
      13
           Id.

                                          6
has been made in the two actions.”14      Even though, in the instant

case, the state suit was filed first,     no action has been taken by

the state court with respect to that suit.       Indeed, the defendant

had not even been served when it filed the subsequent federal suit.

The situation in the United States District Court is much the same:

The parties have devoted substantial energy to jurisdictional

posturing, but no progress has been made on the merits of the case.

As the state and federal suits are proceeding at approximately the

same pace, this factor weighs against abstention.15

     (5) Whether State or Federal Law Will Be Applied

     The    instant   case   involves   only   issues   of   state   law.

Nevertheless, “[t]he absence of a federal-law issue does not

counsel in favor of abstention.”16      “[O]ur 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 circumstances,’ the

‘clearest of justifications,’ that can suffice under Colorado River

to justify the surrender of that jurisdiction.”17            Thus, “the

presence of state law issues weighs in favor of surrender only in

     14
          Moses H. Cone Mem. Hosp., 460 U.S. at 21.
     15
          Murphy, 168 F.3d at 738-39.
     16
          Evanston Ins. Co., 844 F.2d at 1193.
     17
          Moses H. Cone Mem. Hosp., 460 U.S. at 942.

                                   7
rare circumstances.”18

     The district court improvidently accorded great weight to this

factor.     It particularly emphasized that “the dispute involved

issues of state law that had only recently been addressed by the

Texas Supreme Court” and that the parties disagreed “as to the

effect of     the   Texas   Supreme   Court’s    ruling.”   Without   more,

however, a mere lack of clarity in applicable state law does not

counsel in favor of abstention.           This factor is therefore at most

neutral with respect to the propriety of abstaining under Colorado

River.

     (6) Adequate Protection in State Court

     There is no indication in the instant case that Black Sea’s

interests would not be adequately protected in state court.           It is

clear, however, that this factor “can only be a neutral factor or

one that weighs against, not for, abstention.”19              This factor

therefore remains neutral.

     All of the Colorado River abstention factors are either

neutral with respect to abstention or counsel against it. In light

of the heavy weighting of the balance in favor of the exercise of

jurisdiction, Colorado River abstention in the instant case is

     18
          Evanston Ins. Co., 844 F.3d at 1193.
     19
          Id at 1193.

                                      8
clearly inappropriate. The district court abused its discretion in

granting a stay based on the Colorado River abstention doctrine.

C.   Brillhart Abstention

     United Heritage contends that this case is not governed by the

Colorado River abstention doctrine, but rather by the abstention

doctrine announced by the Supreme Court in Brillhart v. Excess

Insurance Co. of America, 316 U.S. 491 (1942).                 This argument is

raised    by    United   Heritage    for   the   first     time     on   appeal.

Nevertheless, we will address the issue, as it (1) is substantially

related    to   Colorado   River    abstention   and     (2)    speaks   to     the

propriety of assuming federal jurisdiction over the instant case.

     Brillhart abstention is applicable “[w]hen a district court is

considering     abstaining    from    exercising    jurisdiction         over    a

declaratory judgment action.”20       “In contrast, when actions involve

coercive relief the trial court must apply the standards enunciated

by the Court in Colorado River.”21         United Heritage concedes that

Black Sea has requested both declaratory and injunctive relief, but

argues that Brillhart is nevertheless applicable because Black

Sea’s claims for coercive relief are merely “ancillary” to its

request for declaratory relief.        This Circuit has rejected similar

     20
       Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23 F.3d
948, 950 (5th Cir. 1994).
     21
          Id at 951.

                                      9
arguments on at least two occasions.22       When a party seeks both

injunctive     and   declaratory   relief,   the      appropriateness    of

abstention must be assessed according to the doctrine of Colorado

River; the only potential exception to this general rule arises

when a party’s request for injunctive relief is either frivolous or

is made solely to avoid application of the Brillhart standard.23

As there is no indication that Black Sea’s request for injunctive

relief is either frivolous or made in an effort to avoid the

Brillhart    doctrine,   the   appropriateness   of   abstention   in   the

instant case is properly assessed under Colorado River only.

                                   III.

                                Conclusion

     For the reasons states above, the judgment of the district

court is reversed and the case is remanded for further proceedings.

REVERSED AND REMANDED

     22
       See PPG Industries, Inc. v. Continental Oil Co., 478 F.2d
      th
674 (5 Cir. 1973); Southwind Aviation, Inc. v. Bergen Aviation,
Inc., 23 F.3d 948 (5th Cir. 1994).
     23
          See PPG Industries, 478 F.2d at 679.

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