Stewart v. W Heritage Ins Co
Filing
920060126
Opinion
United States Court of Appeals Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT Charles R. Fulbruge III Clerk No. 05-60405 Summary Calendar January 26, 2006
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 present case concerns a previous lawsuit in Mississippi state court. The plaintiffs in that suit claimed that Boardwalk
Lounge, Inc. was responsible for the wrongful death of one of its patrons, Ryan Yates. Susie Pierce Stewart and ("Appellee") is
Boardwalk's Boardwalk
sole
shareholder, by
officer,
registered Insurance
agent. Company
was
insured
Western
Heritage
("Appellant"), who claims to have denied any obligation to defend or indemnify Boardwalk. No one defended the lawsuit and the Shortly
plaintiffs took a default judgment of $1.4 million.
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 Boardwalk 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 case on grounds of improper joinder. remand. Following the commencement of the trustee's suit, the Appellee 2 The Appellant removed The trustee moved to
filed two separate motions to voluntarily dismiss this action. The Appellant opposed both. party.1 Additionally, The Appellee also moved to join Dunn as a the Appellant filed a motion to join The
Boardwalk's trustee as a necessary party to this case.
magistrate judge granted that motion and ordered the Appellee to serve the trustee with process. The trustee, however, has never The court set a
been joined and is not a party to this action.2
hearing on all pending motions and a pretrial conference for early February 2005. At the hearing, the court stayed the case pending The two cases
a ruling on the remand motion in the trustee's suit. 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. Appellant appeals that order. The
II.
DISCUSSION
We review a district court's decision to stay a case pending
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). The Appellee states that it never had an opportunity to join the trustee because the district court stayed the case. 3
2
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the outcome of parallel proceedings in state court for abuse of discretion. Kelly Inv., Inc. v. Continental Common Corp., 315 F.3d 494, 497 (5th Cir. 2002). If the decision Id. rests on an
interpretation of law, our review is de novo.
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). Colorado 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 Colorado River, a district court may abstain Colorado
from a case only under "exceptional circumstances."
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 federal jurisdiction. Kelly Inv., 315 F.3d at 497; see also Wilton v. Seven Falls Co.,
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
3
515 U.S. 277, 28586 (1995).
We do not apply these factors
mechanically, but carefully balance them "with the balance heavily weighted in favor of the exercise of jurisdiction." Moses H. Cone The
Mem'l Hosp. v. Mercury Constr. Corp., 469 U.S. 1, 16 (1983). 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. first time on appeal. 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 Therefore, we review the factors for the We assume, but do not decide, that the cases
the absence of this factor is "a neutral item, of no weight in the scales." (5th Cir. Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1191 1988).4 This factor supports exercising federal
jurisdiction. B.
Murphy, 168 F.3d at 738.
Inconvenience Between Forums When courts are in the same geographic location, the
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
4
inconvenience factor weighs against abstention.
Id. at 738.
Both
the state and federal courthouses hearing these two cases are located in Jackson, Mississippi. exercising federal jurisdiction. C. Avoidance of Piecemeal Litigation The pendency of an action in state court does not bar a federal court from considering the same matter. 288 F.3d at 185. Bank One, N.A., This factor, therefore, supports
While duplicative litigation is permitted,
Colorado River prevents "piecemeal litigation, and the concomitant danger of inconsistent rulings with respect to a piece of
property." 65051.
Black Sea Inv. v. United Heritage Corp., 204 F.3d 647, 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. 498. Kelly Inv., 315 F.3d at
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 been
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
5
made in the two actions."
Murphy, 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. progressed further. jurisdiction. E. The Extent Federal Law Governs the Case "[T]he presence of state law issues weighs in favor of Id. Here, the case has clearly
For that reason, this factor favors federal
surrender only in rare circumstances." Black 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 its diversity jurisdiction. Nonetheless, the Appellee has Therefore, this
failed to show that "rare circumstances" exist. factor is "at most neutral." F. Id.
Adequacy of State Proceedings The sixth factor is either a neutral factor or one that weighs
against abstention.
Id.
The Appellant does not argue that the Under Black
state court would not adequately adjudicate the case. Sea, therefore, this is a neutral factor.
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IV. With the exception of
CONCLUSION the factor considering "piecemeal
litigation," all of the Colorado 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
narrow exception" to the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." River, 424 U.S. at 814, 817. Colorado
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.
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