SE Property Holdings, LLC v. Parks et al
ORDER granting 25 Motion to Stay as set out. This action is stayed until 4/1/15. The parties are to file a joint status report by 10/1/14. Signed by Judge Kristi K. DuBose on 7/24/2014. (cmj)
UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF ALABAMA
SE PROPERTY HOLDINGS, LLC,
WILLIAM PARKS; REGINA PARKS;
PARKS FAMILY, LLC; and 1307, LLC,
CASE NO. 14-0050-KD-N
This action is before the Court on defendants William and Regina Parks’ motion to stay
proceeding pending resolution of Baldwin County Circuit Court actions (doc. 25) and the
response in opposition filed by plaintiff SE Property Holdings, LLC (SEPH) (doc. 29). Upon
consideration and for the reasons set forth herein, the motion is GRANTED.
In 2006, along with thirty-five other investors, William and Regina Parks executed
Continuing Unlimited Guaranty Agreements to guarantee Water’s Edge, LLC’s two loans with
Vision Bank, SEPH’s predecessor, for the development of a marina in Fort Morgan, Alabama.
In 2008, the Parks executed an Acknowledgment, Ratification and Consent to reaffirm this
obligation and an increase in the loans. Water’s Edge defaulted on its loans. In June 2010 Vision
Bank demanded payment from the Parks and the other guarantors pursuant to their guarantee
agreements. (Doc. 21; Doc. 21-7; Doc. 21-8) In 2010, Vision Bank filed suit on the loan and the
guarantee agreements in the Circuit Court of Baldwin County, Alabama. See Vision Bank v.
Water’s Edge, et al., Civil Action No. 2010-901862.
In 2007, along with ten other investors, the Parks executed Continuing Guaranty
Agreements to guarantee Riverfront LLC’s loan with Vision Bank for the development of a
condominium at Orange Beach, Alabama. Riverfront defaulted on its loan. In August 2010,
Vision Bank demanded payment from the Parks and the other guarantors pursuant to their
guarantees. (Doc. 21; Doc. 21-11) In 2010, Vision Bank filed suit on the loan and the guarantee
agreements in the Circuit Court of Baldwin County Alabama. See Vision Bank v. Riverfront,
LLC, et al., Civil Action No. 2010-902197.
In September 2009, the Parks formed Parks Family, LLC and they were the sole
members. In February 2010, they transferred six parcels of real property to this LLC. In March
2010, the Parks formed 1307 LLC and they were the sole members. That same month, they
transferred one parcel of real property to this LLC.
In February 2014, SEPH filed this action pursuant to the Alabama Uniform Fraudulent
Transfer Act, Ala. Code. § 8-9A-1, (AUFTA) to avoid and set aside conveyances of real property
in Baldwin County, Alabama. (Doc. 21, amended complaint) SEPH alleges that the transfers to
the LLCs were fraudulently made to place these parcels of real property beyond reach because
the Parks owe SEPH an amount in excess of $20,000,000.00 for the Waters Edge and Riverfront
loans and owe Wells Fargo an amount of about $195,000.00. SEPH seeks a judgment avoiding
the transfers of real property. The Parks now move the Court to stay this action pending
resolution of the two underlying actions in the Baldwin County Circuit Court. (Doc. 25) SEPH
opposes the motion. (Doc. 29)
The Parks argue that SEPH’s fraudulent transfer claims depend on whether they owe
SEPH on the Water’s Edge and Riverfront guarantee agreements. The Parks assert that these
same debts are the subject of two actions pending in the Baldwin County Circuit Court.
The Parks state that the Water’s Edge action is set for trial in September 2014, following
extensive litigation beginning in 2010. In that action, the Parks challenge the validity of the
same guarantee agreements that form the basis of SEPH’s claims of fraudulent transfer in this
action. The Parks have asserted affirmative defenses and counterclaims, including a
counterclaim to rescind or cancel the guarantees and for release from the obligation. They also
seek declaratory judgment that the guarantees are unenforceable and that SEPH is prohibited
from any action based on the guarantees.
The Parks also state that the Riverfront action is set for trial in March 2015 and has been
subject to similar extensive litigation beginning in 2010. SEPH seeks to enforce the Parks’
guarantee agreements. The Parks asserted the same or similar affirmative defenses and
counterclaims and added seven counterclaims which if successful would result in a rescission or
cancellation of the guarantee agreements..
The Parks argue that their liability for the guarantee agreements that form the basis of this
fraudulent transfer action is contingent on the Baldwin County Circuit Court’s decisions in
Waters Edge and Riverfront. They argue that in the interest of judicial economy under the
doctrine of abstention established in Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976), the action in this Court should be stayed pending the decisions.
Colorado River authorizes a federal court to dismiss or stay an action where there is an
ongoing parallel action in state court, but only under “exceptional circumstances” because the
general rule is that “the pendency of an action in the state court is no bar to proceedings
concerning the same matter” in federal court and federal courts have a “virtually unflagging
obligation to exercise their jurisdiction.” Jackson-Platts v. General Elec. Capital Corp., 727 F.3d
1127, 1140 (11th Cir. 2013); Moorer v. Demopolis Waterworks and Sewer Bd., 374 F.3d 994,
997 (11th Cir. 2004); Ambrosia Coal & Constr. Co. v. Pages Morales, 368 F.3d 1320, 1328
(11th Cir. 2004). Abstention under the Colorado River doctrine is an “extraordinary and narrow
exception to the duty of a District Court to adjudicate a controversyproperly before it.” Colorado
River, 424 U.S. at 813. The principles of abstention in Colorado River “rest on considerations of
‘[w]ise judicial administration, giving regard to conservation of judicial resources and
comprehensive disposition of litigation.’” Colorado River, 424 U.S. at 817 (citation omitted).
Overall, applying Colorado River to stay a federal action “in deference to parallel state
proceedings is an extraordinary step that should not be taken absent a danger of a serious waste
of judicial resources.” Noonan South, Inc. v. Volusia County, 841 F.2d 380, 383 (11th Cir.1988).
A parallel state action involves “substantially the same parties and substantially the same
issues.” Ambrosia Coal, 368 F.3d at 1330. “There is no clear test for deciding whether two cases
contain substantially similar parties and issues. But…the balance…begins titled heavily in favor
of the exercise of the [federal] court’s jurisdiction…if there is any substantial doubt about
whether two cases are parallel the court should not abstain.” Acosta v. James A. Gustino, P.A.,
478 Fed.Appx. 620, 622 (11th Cir. 2012). In this circuit, “a stay, not a dismissal, is the proper
procedural mechanism for a district court to employ when deferring to a parallel state-court
proceeding under the Colorado River doctrine.” Moorer, 374 F.3d at 997.
The Parks argue that the proceedings are parallel because they involve substantially the
same parties and the same underlying financial transactions. The Parks argue that the Baldwin
County Circuit Court must “determine the issues before it, particularly whether the Parks are
liable to SEPH under the guaranty agreements, before theCourt is able to determine whether the
Guarantor Defendants are liable for fraudulent conveyance.” (Doc. 25-2, p. 9)
SEPH argues that the actions are not parallel. SEPH asserts that it and the Parks are only
three of more than fifty parties in the state court proceedings and that Parks Family, LLC and
1307, LLC are not parties to either state court proceeding. SEPH argues that this proceeding
does not involve the same causes of action as the state proceedings and does not involve the
same issues because the defendants here have not yet answered or otherwise put their dispute of
the debt before this Court. SEPH also argues that it does not seek the same type of relief here as
in the state court, instead it “seeks to set aside certain fraudulent transfers of real property so that
the Parkses will not have rendered themselves collection-proof when a final judgment is entered
in the state court proceeding.” (Doc. 29, p. 5)
Before reaching the factors for Colorado River abstention, the Court first must resolve
whether the actions are parallel. In that regard, the parties are substantially the same. SEPH and
the Parks are parties to this action and both state court actions, even though there are numerous
other parties in the two state court actions and the Parks Family, LLC and 1307, LLC are not
parties in the state court actions. The parties need not be identical. See Ambrosia Coal, 368 F. 3d
at 1330 (“The Federal Case and the Puerto Rico Case involve substantially the same parties,
although some of the defendants in the Federal Case ... are not parties to the Puerto Rico Case.”)
At least part of the claims and issues in the state court actions are substantially the same
as this action. A decision regarding the validity and enforceability of the Parks’ guarantee
agreements will dictate the results of those claims and issues in all three actions. SEPH argues
that the proceedings are unrelated because it does not seek to hold the Parks liable on SEPH’s
breach of contract claims, or rather breach of guarantee claims, to recover the loaned money, but
rather this is an action to avoid certain conveyances of real property. However, to void a
conveyance under the AUFTA, SEPH “must prove three elements: (1) it or another creditor was
defrauded; (2) the debtor intended to defraud by actual or constructive fraud; and (3) [SEPH’s]
claim “could have been satisfied or partially satisfied by the conveyed property.” Strategic WellSite Materials & Logistics, LLC v. Frac Master Sands, LLC, 2013 WL 1282053, *3 (N.D. Ala.
Mar. 25, 2013) (citations omitted). Thus, SEPH must establish that it is a creditor of the Parks.
Under Alabama law, “[a]nyone is a creditor, under [the AFTA], who has a right by law to
demand, either presently or upon future contingency, the fulfillment of any obligation or
contract.” Id. (citations omitted). Thus, a “contingent claim, is as fully protected, as a claim that
is certain and absolute”. Id. (citations omitted). Arguably, SEPH is a “creditor” since it has made
demand for payment based upon the guarantee agreements. However, if the Parks are successful
in the state court actions and obtain rescission or cancellation of the guarantee agreements, then
SEPH would not be a “creditor” as contemplated under the Act. Therefore, even though SEPH is
not asserting a claim for breach of the guarantee agreements in this action, the enforceability of
the guarantee agreements is at issue. Also, although the Parks and the LLC’s have not yet
answered SEPH’s complaint, the Parks’ motion indicates that they would probably challenge the
enforceability of the guarantee agreements in this action. The remaining claims and issues that
the Parks allege exist in the state court actions1 are problematic in that those have no apparent
parallel in this action. However, for purposes of the Colorado River analysis, the Court will
assume that the actions are sufficiently similar.
The Eleventh Circuit identified six factors for the district courts to consider when
assessing whether exceptional circumstances exist that render Colorado River abstention proper:
In addition to their counterclaims for rescission and cancellation of the guarantee
agreements, the Parks state that they have asserted “numerous affirmative defenses” including
but not limited to SEPH’s capacity to sue, the lack of good faith and fair dealing on the part of its
predecessor Vision Bank, failure to mitigate, equitable defenses, legal defenses, defenses to
contract formation, and fraud. (Doc. 25-1, p. 3, 5) The Parks and the LLC’s have not answered
and thus have not counterclaimed or asserted any affirmative defenses.
1) whether any court has assumed jurisdiction over property, 2) the relative inconvenience of the
fora, 3) the potential for piecemeal litigation, 4) the temporal order in which each forum obtained
jurisdiction, 5) whether state or federal law governs, and 6) whether the state court is adequate to
protect the parties' rights. Ambrosia Coal, 368 F.3d at 1331. Additionally, “the vexatious or
reactive nature of either the federal or the state litigation may influence the decision whether to
defer to a parallel state litigation under Colorado River.” Id. (citing Moses H. Cone Mem'l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 17 n. 20 (1983). “[T]he factors must be considered
flexibly and pragmatically, not as a mechanical checklist.” Ambrosia Coal, 368 F.3d at 1332
(citing Moses H. Cone, 460 U.S. at 28). “The weight of each factor varies on a case-by-case
basis, depending on the particularities of that case. One factor alone can be the sole motivating
reason for the abstention.” Moorer, 374 F.3d at 997. Overall, the district courts “must weigh
these factors with a heavy bias in favor of exercising jurisdiction.” TranSouth Financial Corp. v.
Bell, 149 F.3d 1292, 1295 (11th Cir.1998).
The first factor, whether any court has assumed jurisdiction over the property, does not
weigh in favor of abstention. The real property in this action that allegedly has been fraudulently
conveyed is not the same real property that is the subject of the two actions in the Baldwin
County Circuit Court. Thus, this Court has assumed jurisdiction over the property.
The second factor, the relative inconvenience of the fora, does not weigh in favor of
abstention. The parties do not dispute that both courts are equally convenient. Jackson-Platts,
727 F. 3d at 1141 (“. . . the federal forum and the state forum are equally convenient; this factor
thus cuts against abstention.”).
The third factor, piecemeal litigation sufficient to merit abstention must be “abnormally
excessive or deleterious.” Jackson-Platts, 727 F. 3d at 1142. SEPH argues that litigating the
issue of the Parks’ liability in state and federal court is not the sort of abnormally excessive
piecemeal litigation anticipated in Colorado River. SEPH points out that the AUFTA anticipates
provisional litigation of necessary because it provides for voiding a transfer as fraudulent where
a creditor’s claim is disputed and has not been reduced to a judgment, such as in this action. Ala.
Code § 8-9A-4 & 5.
The Parks argue that piecemeal litigation may be abnormally excessive or deleterious
where resolution of the state court action may moot the issues before the district court.
Specifically, the Parks argue that SEPH must establish its creditor status in order to establish the
debtor-creditor relationship necessary to bring an action for fraudulent transfer under the
AUFTA. They argue that the potential for conflicting decisions and waste of judicial resources
outweighs any prejudice or hardship to SEPH should a stay be entered until the state court
actions are resolved.
The third factor weighs in favor of abstention. The risk of conflicting decisions exists in
that this Court and the Baldwin County Circuit Court may come to different decisions as to
SEPH’s status as a creditor. The potential waste of judicial resources exists since it is reasonably
probable that the Baldwin County Circuit Court actions will be resolved before this action
because the cases are set for trial in September 2014 and March 2015. Importantly, the Baldwin
County Circuit Court actions may be resolved in a manner that could moot the issue of SEPH’s
status as a creditor. See Mobile County Water, Sewer and Fire Protection Authority, Inc. v.
Mobile Area Water and Sewer System, 2007 WL 2460754, *4 (S. D. Ala. 2007) (citing Maharaj
v. Secretary for Dept. of Corrections, 432 F. 3d 1292, 130-6 (11th Cir. 2005) (finding that a stay
should be denied because there was not a reasonable possibility that resolution of the state court
action would moot the issues before the court); Amason & Associates, Inc. v. Columbus Land
Development, LLC, 2014 WL 467509 (N.D. Ala. 2014) (finding “significant potential” that the
Mississippi state court action that encompassed one claim brought in the federal action between
two of the parties would “moot the issues pending before” it).
The fourth factor, the temporal order in which each forum obtained jurisdiction, weighs
in favor of abstention to the extent that the enforceability of the guarantee agreement is at issue.
The parties have been litigating in the two state court actions for approximately four years.
Extensive discovery has transpired and trials are set for September 2014 and March 2015.
Moreover, the Court looks to the “progress of the proceedings and whether the party availing
itself of the federal forum should have acted earlier.” Jackson-Platts, 727 F. 3d at 1142. The
Parks formed Parks Family, LLC in September 2009 and transferred the six parcels of real
property to this LLC in March 2010. The Parks formed 1307 LLC in March 2010 and that same
month, transferred one parcel of real property to this LLC. Vision Bank, SEPH’s predecessor
made demand on the default of the Water’s Edge loan in June 2010 and demand on the default of
the Riverfront loan in August 2010. (Docs. 21-7, 21-8, 21-11) Thus, SEPH or its predecessors
could presumably have acted earlier instead of waiting until February 2014 to file this action.
The fifth factor, whether state or federal law governs, does not weigh in favor of
abstention. Abstention is favored “only where the applicable state law is particularly complex or
best left for state courts to resolve.” See Jackson-Platts, 727 F. 3d at 1143 (citation omitted)
(finding that Florida’s Uniform Fraudulent Transfer Act was not the “kind of complex law that
raises thorny and difficult state law questions[.]”) Resolution of an action based upon the
AUFTA is not complex or difficult or presenting issues such that it should be left for the
Alabama courts to decide. Moreover, the district court routinely addresses issues and claims
based upon Alabama law. Id. (“[F]ederal courts are regularly called upon to resolve state law
claims of fraud, including claims arising under Florida’s UFTA.”)
The sixth factor, whether the state court is adequate to protect the parties' rights, it does
not weigh in favor of abstention. See Jackson-Platts, 727 F. 3d at 1141 (“. . . the federal forum
and the state forum are equally convenient; this factor thus cuts against abstention.”). The
parties have been in litigation for approximately four years. Neither party has advanced any
argument that the Baldwin County Circuit Court is not an adequate forum to protect their
respective rights. While other claims and issues may exist in the state court litigation, of primary
importance to this Court is that the litigation may resolve the question of whether the guarantee
agreements are enforceable and whether SEPH is a creditor. The state circuit court is an
adequate forum to resolve these questions.
While several factors do not weigh in favor of abstention, the Court finds that the
potential for piecemeal litigation and the duration of the actions in the Baldwin County Circuit
Court weigh heavily in favor of granting the Parks’ motion to stay. Accordingly, for the reasons
set forth herein, the motion to stay is GRANTED and this action is STAYED until April 1,
2015. The parties are ORDERED to file a joint status report on or before October 1, 2014, to
advise the Court as to the status of the underlying litigation. See Ortega Trujillo v. Conover &
Co. Communications, Inc., 221 F.3d 1262, 1264 (11th Cir. 2000) (finding that a district court
may stay an action “pending the resolution of related proceedings in another forum.” However,
the “district court must limit properly the scope of the stay” and the stay “must not be
DONE and ORDERED this the 24th day of July 2014.
s/ Kristi K. DuBose
KRISTI K. DuBOSE
UNITED STATES DISTRICT JUDGE
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