Reality Technology, Inc. v. Countertrade Products, Inc. et al

Filing 57

ORDER denying 29 Defendants' Motion to Dismiss. By Judge Philip A. Brimmer on 5/27/11.(mnf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 10-cv-01791-PAB-KLM
REALITY TECHNOLOGY, INC., a Colorado Corporation,
Plaintiff,
v.
COUNTERTRADE PRODUCTS, INC., a Colorado Corporation,
JOE CALABRIA , an individual,
JOE BOGLINO, an individual,
SHARON NORWELL, an individual, and
RODNEY ANDERSON, an individual,
Defendants.

ORDER DENYING MOTION TO DISMISS

This matter is before the Court on defendants CounterTrade Products Inc., Joe
Calabria, Joe Boglino and Sharon Norwell’s motion to dismiss [Docket No. 29]. The
motion is fully briefed and ripe for disposition.
I. BACKGROUND
This case arises out of a soured business relationship between plaintiff Reality
Technology, Inc. (“Reality”) and defendant CounterTrade Products, Inc.
(“CounterTrade”). According to Reality’s complaint, both it and CounterTrade
participated in a Small Business Administration (“SBA”) set-aside program. Reality is a
small business that provides information technology services, while CounterTrade is a
small business that resells and supplies computers and related products. The
individual defendants Calabria, Boglino, Norwell, and Anderson are all employees of

CounterTrade. Reality alleges that CounterTrade operated a scheme to illegally profit
from federal procurement contracts under the SBA program and induced Reality to
enter into an illegal and unconscionable contract. Reality brings Lanham Act claims
based on trademark infringement and unfair competition, Racketeer Influenced Corrupt
Organizations Act (“RICO”) claims, a claim under the Colorado Organized Crime
Control Act, Colo. Rev. Stat. § 18-17-104, a claim for violation of the Uniform
Commercial Code, common law claims for fraud, and a common law claim for
intentional interference with prospective business relations.
Defendants seek to dismiss or stay this case pursuant to Colorado River Water
Conservation District v. United States, 424 U.S. 800 (1976), arguing that the Court
should decline to exercise jurisdiction over the case due to a concurrently pending
parallel state proceeding. Defendants explain that plaintiff originally filed suit against
CounterTrade as well as the SBA in this Court in December 2009 and that
CounterTrade brought counterclaims and third-party claims against Reality in that suit.
United States District Judge Richard P. Matsch dismissed that case without prejudice
for lack of subject matter jurisdiction after plaintiff’s dismissal of the SBA. In order to
proceed with its claims, CounterTrade filed a complaint in the District Court for the City
and County of Denver in June 2010. Reality then filed its complaint in this case in July
2010. Shortly after filing this case, Reality moved to stay the state case, but the motion
was denied. Defendants now argue that the Court should abstain from exercising its
jurisdiction over this case in light of the pending state court case.

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II. STANDARD OF REVIEW
The Colorado River doctrine allows federal courts to “dismiss or stay a federal
action in deference to pending parallel state court proceedings” where the federal court
would otherwise have concurrent jurisdiction with the state court. Fox v. Maulding, 16
F.3d 1079, 1080 (10th Cir. 1994) (citing Colorado River, 424 U.S. at 817). In such a
situation, the federal court may exercise its discretion and stay or dismiss the federal
suit “for reasons of wise judicial administration.” Id. at 1081 (quoting Colorado River,
424 U.S. at 817-18). Application of the doctrine is appropriate only in “exceptional”
circumstances in light of the “virtually unflagging obligation of the federal courts to
exercise the jurisdiction given them.” Id.
In order to defer to a state court under the doctrine, a federal court must first
assess whether the state court suit is in fact “parallel” to the federal suit. “Suits are
parallel if substantially the same parties litigate substantially the same issues in
different forums.” Id. (quoting New Beckley Mining Corp. v. Int’l Union, UMWA, 946
F.2d 1072, 1073 (4th Cir. 1991)). In the Tenth Circuit, a court assessing whether state
and federal proceedings are parallel should consider the actual posture of the state
proceedings, instead of considering “how the state proceedings could have been
brought in theory.” Id. If the proceedings are parallel, the court “must then determine
whether deference to state court proceedings is appropriate” by looking at a series of
nonexhaustive factors laid out in Colorado River: “(1) whether either court has assumed
jurisdiction over property; (2) the inconvenience of the federal forum; (3) the desirability
of avoiding piecemeal litigation; and (4) the order in which the courts obtained

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jurisdiction.” Id. at 1082. Other relevant factors may be “the vexatious or reactive
nature of either the federal or the state action,” “whether federal law provides the rule of
decision,” “the adequacy of the state court action to protect the federal plaintiff’s rights,”
and “whether the party opposing abstention has engaged in an impermissible forumshopping.” Id. (citations omitted).
If the federal court finds that the doctrine applies, the preferred remedy in the
Tenth Circuit is a stay of the federal case instead of a dismissal. Id. at 1083. “In the
event the state court proceedings do not resolve all federal claims, a stay preserves an
available federal forum in which to litigate the remaining claims, without plaintiff having
to file a new federal action.” Health Care & Retirement Corp. of America v. Heartland
Home Care, Inc., 324 F. Supp. 2d 1202, 1204 (D. Kan. 2004) (citing Fox, 16 F.3d at
1083). If the state court case fully resolves the dispute, dismissal of the federal case
may then be appropriate. See id.
III. ANALYSIS
As a threshold matter, before assessing the Colorado River factors, the Court
must determine whether the Denver District Court case filed by CounterTrade (the
“state case”) is parallel to the instant federal action. The two cases are parallel if the
state case, as it actually exists, involves substantially the same parties and substantially
the same issues as the instant action. See Fox, 16 F.3d at 1081. The Court concludes
that the cases are not parallel because they do not involve substantially the same
issues.

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Reality brings claims in the instant federal case which are not present in the state
case as it currently stands. In the state case, CounterTrade brings claims for breach of
contract, unjust enrichment, conversion, civil theft, and breach of guaranty, all related to
Reality’s alleged breach of the parties’ Teaming Agreement and non-payment. See
Docket No. 29-4. The docket in the state case shows that on March 24, 2011, after
being ordered by the Denver District Court to do so, Reality filed its answer to
CounterTrade’s complaint. In its answer, obtained by the Court from the Denver District
Court records, Reality raised the affirmative defenses of illegality and fraud, arguing that
the Teaming Agreement is unenforceable. See Answer and Jury Demand of
Defendants Reality Technology, Inc., Ivan Drinks, Sr. and Ivan Drinks, Jr., Denver
District Court Case No. 2010CV4999 at 4-7. Reality declined to bring any
counterclaims in its answer, but purported to reserve the right to bring counterclaims in
the event that this Court stayed or dismissed the instant action. See id. at 7-8. By
contrast, in this action, Reality has brought thirteen claims for relief. These claims
include claims for unfair competition and trademark infringement under the Lanham Act
as well as civil RICO claims. These claims raise issues unrelated to Reality’s alleged
breach of the Teaming Agreement and the Agreement’s enforceability. Therefore, the
two cases present substantially distinct issues. See Fox, 16 F.3d at 1081. Because of
these distinct issues, resolution of the state case as it is currently postured would not
resolve Reality’s claims in the instant case and a stay under Colorado River is
inappropriate. See Grynberg v. GreyWolf, Inc., Civil No. 07-cv-01742-LTB-BNB, 2008
WL 687363 at *2 (D. Colo. Mar. 11, 2008) (finding cases not parallel where plaintiff’s

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affirmative defenses in state case formed the factual basis for plaintiff’s claims in
federal case, but determination of state case would not be determinative of federal
case); compare Int’l Asset Mgmt., Inc. v. Holt, 487 F. Supp. 2d 1274, 1283-84 (N.D.
Okla. 2007) (finding cases parallel where federal case was subsumed in the state
case).
Reality undoubtedly could bring the claims brought in this case as counterclaims
in the state case, but this possibility is not relevant to the Court’s analysis. Fox
specifically instructs courts not to consider how “the state proceedings could have been
brought in theory.” See 16 F.3d at 1081. Although the Court is mindful that Reality
appears to have obstinately delayed the state case in order to avoid asserting
counterclaims, as the cases stand now they are not parallel under Fox. Therefore, an
examination of the Colorado River factors is unnecessary and the Court will deny
defendants’ motion to dismiss.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that defendants’ Motion to Dismiss [Docket No. 29] is DENIED.

DATED May 27, 2011.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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