BCI Acrylic Bath Systems, Inc. v. Chameleon Power, Inc.
Filing
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MEMORANDUM Opinion and Order written by the Honorable Gary Feinerman on 5/24/2016.Mailed notice.(jlj, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BCI ACRYLIC BATH SYSTEMS, INC.,
Plaintiff,
vs.
CHAMELEON POWER, INC.,
Defendant.
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16 C 68
Judge Feinerman
MEMORANDUM OPINION AND ORDER
BCI Acrylic Bath Systems, Inc. alleges in this diversity suit that Chameleon Power, Inc.
breached their software development and services contract. Doc. 1. Chameleon has moved to
dismiss for lack of personal jurisdiction and improper venue; in the alternative, Chameleon seeks
abstention under the doctrine set forth in Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976), pending the resolution of Chameleon’s previously filed suit against
BCI in Michigan state court, Chameleon Power, Inc. v. BCI Acrylic Bath Sys., Inc., 2015150765-CB (Cir. Ct. Oakland Cnty., Mich. filed Dec. 23, 2015) (state court complaint
reproduced at Doc. 16-2 at 3-5). Doc. 16. The motion to stay is granted, and the motion to
dismiss is denied without prejudice to renewal if the stay is lifted.
Background
BCI is an Illinois corporation that manufactures and distributes acrylic bath liners, wall
surrounds, and other home products; its principal place of business is in a northern suburb of
Chicago. Doc. 1 at ¶ 1; Doc. 19-1 at ¶¶ 1-2. Chameleon is a Michigan corporation that offers
information technology (“IT”) services; its principal place of business is in Novi, Michigan.
Doc. 1 at ¶ 2; Doc. 16-1 at ¶ 1.
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On September 15, 2014, BCI and Chameleon entered into a “Software Development and
Services Agreement.” Doc. 1 at ¶ 5; Doc. 1-1. The agreement stated that Chameleon would
provide BCI with several technical services, including a “web visualization solution,” an iPad
app, photographs and stock scenes for BCI’s website, a “custom ImageMapper” photograph
upload tool, data capture, a software license, and a “[p]roduct management service for ongoing
maintenance of products by Chameleon.” Doc. 1-1 at 5. Section 17 stated that Chameleon’s
“[d]evelopment of [these] tools and services … will take approximately ninety (90 days) from
receipt of [the] signed agreement, down payment, complete receipt of products data, and final
room scenes selection from” BCI. Doc. 1 at ¶ 6; Doc. 1-1 at 3.
According to BCI, Chameleon failed to timely provide the required tools and services.
Doc. 1 at ¶ 7. As a result, Brad Dimick, BCI’s Director of Learning & Development, arranged
for Chameleon to witness the non-performing elements of its work via virtual meetings on the
web service www.gotomeeting.com. Doc. 19-1 at ¶ 10-11. On January 23, 2015, Dimick visited
Chameleon’s office in Michigan to demonstrate the problems that BCI was encountering due to
Chameleon’s alleged failure to perform. Id. at ¶ 12. BCI has paid Chameleon $35,000 under the
agreement. Doc. 1 at ¶ 9.
On December 23, 2015, Chameleon sued BCI in the Circuit Court of Oakland County,
Michigan, for breaching the agreement. Doc. 16-2 at 3-5. Chameleon alleges that it has
performed its contractual obligations and delivered the required services and products to BCI,
but that BCI had paid only approximately $33,000 of the $85,000 invoiced by Chameleon. Id. at
4. On January 5, 2016, BCI filed the present suit in this court, alleging breach of contract and
seeking the $35,000 it has paid Chameleon plus lost profits exceeding $500,000. Doc. 1 at ¶ 10.
On March 9, 2016, BCI answered the Michigan suit and filed affirmative defenses and a
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counterclaim for breach of contract. Doc. 16-2 at 12-20. Putting aside the two paragraphs in
BCI’s federal complaint alleging diversity jurisdiction and proper venue, Doc. 1 at ¶¶ 3-4, BCI’s
counterclaim in the Michigan suit is identical to its federal complaint. Compare id. at ¶¶ 1-2, 510, with Doc. 16-2 at 12-13.
Discussion
The Colorado River doctrine provides that “a federal court may stay or dismiss a suit in
exceptional circumstances when there is a concurrent state proceeding and the stay or dismissal
would promote ‘wise judicial administration.’” Caminiti & Iatarola, Ltd. v. Behnke
Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992) (quoting Colorado River, 424 U.S. at 818);
see also Freed v. JPMorgan Chase Bank, N.A., 756 F.3d 1013, 1018 (7th Cir. 2014) (same). The
Supreme Court “has cautioned that abstention is appropriate only in ‘exceptional circumstances,’
and has also emphasized that federal courts have a ‘virtually unflagging obligation … to exercise
the jurisdiction given them.’” AXA Corporate Sols. v. Underwriters Reinsurance Corp., 347
F.3d 272, 278 (7th Cir. 2003) (quoting Colorado River, 424 U.S. at 813, 817) (citation omitted).
In determining whether to abstain, the court’s task 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.” TruServ Corp. v. Flegles, Inc., 419 F.3d 584,
591 (7th Cir. 2005) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
25-26 (1983)) (internal quotation marks omitted).
The Colorado River analysis has two steps. “First, the court must determine whether the
state and federal court actions are parallel.” Freed, 756 F.3d at 1018. If the actions are parallel,
the court then weighs ten non-exclusive factors to determine whether abstention is proper. Ibid.
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A.
Whether the Federal and State Cases Are Parallel
Although state and federal suits need not be identical to be parallel, see Adkins v. VIM
Recycling, Inc., 644 F.3d 483, 498-99 (7th Cir. 2011) (“[F]or Colorado River purposes …
[p]recisely formal symmetry is unnecessary.”), the two suits here are identical. Chameleon sued
BCI in Michigan state court for breach of contract, and BCI in turn sued Chameleon in this court
for breaching the same contract and then filed a counterclaim in state court that is materially
identical to its federal claim. Neither suit includes additional claims, issues, or parties. Both
cases turn on which party breached the contract, and thus “will be resolved largely by reference
to the same evidence.” Tyrer v. City of S. Beloit, 456 F.3d 744, 752-53 (7th Cir. 2006).
Because suits are parallel “when substantially the same parties are contemporaneously
litigating substantially the same issues in another forum,” Freed, 756 F.3d at 1019, BCI’s federal
suit and Chameleon’s state court suit are parallel for Colorado River purposes. See AAR Int’l,
Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 521 (7th Cir. 2001) (“[A]ctions filed in separate fora
alleging breaches of different provisions of the same contract may frequently be deemed parallel
for Colorado River purposes.”). It bears mention BCI does not argue that parallelism is absent
here, Doc. 19 at 10-11, thus forfeiting the point. See Milligan v. Bd. of Trs. of S. Ill. Univ., 686
F.3d 378, 386 (7th Cir. 2012) (“[T]he forfeiture doctrine applies not only to a litigant’s failure to
raise a general argument … but also to a litigant’s failure to advance a specific point in support
of a general argument.”); Judge v. Quinn, 612 F.3d 537, 557 (7th Cir. 2010) (“We have made
clear in the past that it is not the obligation of this court to research and construct legal arguments
open to parties, especially when they are represented by counsel, and we have warned that
perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent
authority, are waived.”) (internal quotation marks and alterations omitted).
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B.
The Colorado River Factors
The second step in the Colorado River analysis requires examining and balancing the
following ten non-exclusive factors:
1) whether the state has assumed jurisdiction over property; 2) the
inconvenience of the federal forum; 3) the desirability of avoiding piecemeal
litigation; 4) the order in which jurisdiction was obtained by the concurrent
forums; 5) the source of governing law, state or federal; 6) the adequacy of
state-court action to protect the federal plaintiff’s rights; 7) the relative
progress of state and federal proceedings; 8) the presence or absence of
concurrent jurisdiction; 9) the availability of removal; and 10) the vexatious or
contrived nature of the federal claim.
Freed, 756 F.3d at 1018. “‘[N]o one factor is necessarily determinative’ and the careful
weighing of all factors is necessary to determine whether circumstances exist warranting
abstention.” Ibid. (quoting Colorado River, 424 U.S. at 818); see also Tyrer, 456 F.3d at 754-55.
1. Whether the state has assumed jurisdiction over property. The state court has not
assumed jurisdiction over property, so this factor weighs against abstention.
2. The inconvenience of the federal forum. Under this factor, the “proper inquiry is the
relative inconvenience of the competing fora to the parties.” AAR, 250 F.3d at 522-23 (emphasis
omitted). BCI’s principal place of business is this District, while Chameleon’s is in the
Michigan court’s jurisdiction. Because neither forum is convenient for both parties and because
each forum is equally inconvenient to the out-of-state party, this factor is neutral.
3. The desirability of avoiding piecemeal litigation. “Piecemeal litigation occurs when
different tribunals consider the same issue, thereby duplicating efforts and possibly reaching
different results.” Day v. Union Mines Inc., 862 F.2d 652, 659 (7th Cir. 1988); see also Freed,
756 F.3d at 1022. “Dual proceedings could involve … a grand waste of efforts by both the court
and parties in litigating the same issues regarding the same contract in two forums at once.”
Day, 862 F.2d at 659 (internal quotation marks omitted). “Here, the state and federal forums
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have … the same parties before them and are litigating substantially the same issues arising from
the same set of facts.” Freed, 756 F.3d at 1022. As a result, proceeding simultaneously in both
forums would ensure “duplicative and wasteful litigation with the potential of inconsistent
resolutions of the issue.” Caminiti, 962 F.2d at 701; see also Freed, 756 F.3d at 1022 (“[I]f both
state and federal proceedings were allowed to proceed, inconsistent rulings could jeopardize the
appearance and actuality of justice.”).
BCI contends that the possibility of piecemeal litigation “applies equally to both parties,”
Doc. 19 at 11, but that is not a relevant consideration for this factor, which is concerned above all
with not “duplicating the amount of judicial resources required to reach a solution.” Freed, 756
F.3d at 1022 (emphasis added); see also Adkins, 644 F.3d at 498 (“The [Colorado River]
prudential doctrine is a matter of judicial economy.”). Simultaneous proceedings would also
incent one or the other party to attempt to delay proceedings in one forum should the other forum
appear more favorable. See LaDuke v. Burlington N. R.R. Co., 879 F.2d 1556, 1560 (7th Cir.
1989). This factor strongly favors abstention.
4. The order in which jurisdiction was obtained by the concurrent forums. Chameleon
filed the state suit on December 23, 2015, Doc. 16-2 at 3-5, and BCI filed the federal suit less
than two weeks later, on January 5, 2016, Doc. 1. Where one case is filed closely on the heels of
the other, the Seventh Circuit has cautioned that this factor “is to be applied in a pragmatic,
flexible manner” and “should not be measured exclusively by which complaint was filed first.”
Caminiti, 962 F.2d at 702 (holding that suits filed one week apart did “not weigh heavily in
either direction” for purposes of this factor). In such situations, this factor tracks the seventh
Colorado River factor, with the important consideration being “how much progress has been
made in the two actions.” Ibid.
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At this point, “the state proceeding has progressed further than the federal.” Ibid.
Indeed, there were no proceedings in this court, “other than the filing of the complaint, prior to
th[is] motion.” Colorado River, 424 U.S. at 820. BCI contends that this suit has progressed as
far as the state court suit, but that is wrong, as BCI has already answered the state court
complaint and filed affirmative defenses and a counterclaim. Doc. 16-2 at 12-20. This factor
slightly favors abstention.
5. The source of governing law, state or federal. The parties dispute whether Illinois or
Michigan law governs their claims. Doc. 16 at 13; Doc. 19 at 11; Doc. 21 at 7-8. The court need
not resolve the choice-of-law issue because this factor weighs against abstention regardless of
which side is right, as state law rather than federal law will govern this suit. See Microsoftware
Computer Sys., Inc. v. Ontel Corp., 686 F.2d 531, 537 (7th Cir. 1982) (holding that the fact that
federal “jurisdiction is founded on diversity of citizenship and the law to be applied is
exclusively state law” weighs in favor of abstention), overruled on other grounds, Gulfstream
Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271 (1988).
6. The adequacy of state court action to protect the federal plaintiff’s rights. BCI
contends that Chameleon has a “home state advantage” in Michigan state court, Doc. 19 at 11,
but has offered no evidence or even any reason suggesting that the Michigan state court would be
prejudiced against it. “[T]here is no fear that [BCI’s] rights will not be adequately protected in
the state proceeding[,] as the same questions of law and fact are presented as in th[is] case and
the state court can resolve these questions just as effectively.” Clark v. Lacy, 376 F.3d 682, 688
(7th Cir. 2004); see also AXA Corporate, 347 F.3d at 280 (“AXA has insinuated that the Texas
courts will not live up to th[e] standard [of the federal court], but this is pure speculation that we
expressly disavow.”). In the exceedingly unlikely circumstance that the Michigan court does not
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adequately protect BCI’s rights, “ordinary principles of res judicata and collateral estoppel would
not prevent [BCI] from bringing [its] claims back before a federal court.” Lumen Constr., Inc. v.
Brant Constr. Co. Inc., 780 F.2d 691, 697 (7th Cir. 1985) (citing Allen v. McCurry, 449 U.S. 90,
101 (1980)); see also Freed, 756 F.3d at 1023 (acknowledging that a Colorado River stay
“allows [the plaintiff] the possibility to revive his federal litigation … in the unlikely event that
the state court action is inadequate”); Brokaw v. Weaver, 305 F.3d 660, 671 (7th Cir. 2002)
(“[N]otwithstanding the doctrine of collateral estoppel, redetermination of issues is warranted if
there is reason to doubt the quality, extensiveness, or fairness of procedures followed in prior
litigation.”) (internal quotation marks omitted).
Further, BCI severely undercut its submission that Chameleon enjoys a home-state
advantage by choosing not to remove the state court suit to the Eastern District of Michigan. If
not removable at its inception, the state court suit certainly became removable once BCI filed its
$535,000 counterclaim on March 9, 2016. See 28 U.S.C. §§ 1332(a), 1441(a)-(b); Doc. 16-2 at
12-14. Yet BCI failed to remove the state court suit either within thirty days of being served,
which it could have done if the suit was removable at its inception, or within thirty days of its
filing the counterclaim, which it could have done if the suit became removable only once it filed
the counterclaim. See 28 U.S.C. §§ 1446(b)(1), 1446(b)(3). Because BCI “decided voluntarily
to forego the opportunity to litigate in one federal forum [the Eastern District of Michigan], the
concerns underlying Colorado River are now mitigated as it seeks to litigate in another [this
District].” VRCompliance LLC v. HomeAway, Inc., 715 F.3d 570, 576 (4th Cir. 2013); see also
Microsoftware, 686 F.2d at 537 (“If MCS were concerned by prejudice in the New York state
courts, it could have removed the state court action to a federal court in New York. Indeed, any
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interest MCS had in a federal forum could have been satisfied by removing the one action
instead of creating a second.”). This factor favors abstention.
7. The relative progress of state and federal proceedings. As discussed above, the state
suit has progressed slightly further than this suit, so this factor slightly favors abstention.
8. The presence or absence of concurrent jurisdiction. Because BCI’s claims arise under
state law, Chameleon would be susceptible to suit in either Michigan or Illinois state court, so
this factor favors abstention. See Microsoftware, 686 F.2d at 537; cf. Caminiti, 962 F.2d at 70203 (holding that the state court’s inability to hear a federal claim weighed against abstention).
9. The availability of removal. “The ninth factor intends to prevent a federal court from
hearing claims that are closely related to state proceedings that cannot be removed.” Freed, 756
F.3d at 1023. As noted, the state court suit at one point was removable had BCI chosen to
remove it. But because BCI failed to do so, this factor favors abstention because this federal suit
is bound up with claims in the (now) non-removable state case.
10. The vexatious or contrived nature of the federal claims. There is no need to
comment adversely on BCI’s motives to conclude that, because its federal complaint mirrors its
state court counterclaim, the federal suit is “vexatious” and “contrived” within the meaning of
Colorado River. See Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1289 (7th Cir.
1988) (“[T]he federal suit could be considered both vexatious and contrived. … [W]e see no
reason why all claims and all parties could not have been, and still could not be, part of one
suit.”); see also Freed, 756 F.3d at 1024 (noting that the tenth “factor can weigh in favor of
abstention when the claims and parties in the federal suit could have been included in the original
state court proceeding”). That said, the fact that BCI declined to remove the state court suit to
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the Eastern District of Michigan while filing an identical suit in this District strongly suggests
that it has behaved vexatiously.
In sum, eight of the ten Colorado River factors—particularly the third, fifth, sixth, ninth,
and tenth factors—favor abstention and provide the “exceptional circumstances” necessary to
abstain under that doctrine. The Seventh Circuit routinely holds that Colorado River should be
implemented through a stay, not dismissal. See Mulholland v. Marion Cnty. Election Bd., 746
F.3d 811, 816 (7th Cir. 2014) (noting that Colorado River abstention “ordinarily calls for a stay
rather than dismissal”); Montano v. City of Chicago, 375 F.3d 593, 602 (7th Cir. 2004); CIGNA
Healthcare of St. Louis, Inc. v. Kaiser, 294 F.3d 849, 851-52 (7th Cir. 2002). Accordingly, this
suit is stayed pending resolution of the Michigan state court suit. When that suit concludes, any
party may move this court to lift the stay and proceed with this federal case in a manner
consistent with the state court’s rulings and any applicable preclusion principles. See Rogers v.
Desiderio, 58 F.3d 299, 302 (7th Cir. 1995) (“It is sensible to stay proceedings until an earlierfiled state case has reached a conclusion, and then (but only then) to dismiss the suit outright on
grounds of claim preclusion.”).
Because the case is stayed, the court need not rule on Chameleon’s motion to dismiss.
See In re LimitNone, LLC, 551 F.3d 572, 576 (7th Cir. 2008) (“[A] federal court has leeway to
choose among threshold grounds for denying audience to a case on the merits.”) (quoting
Sinochem Int’l Co. Ltd. v. Malay. Int’l Shipping Corp., 549 U.S. 422, 431 (2007)). The motion
to dismiss is therefore denied without prejudice to renewal if the stay in this case is lifted. See
Lumen, 780 F.2d at 693 (noting that, “[d]ue to its disposition of the Colorado River issue, the
[district] court did not decide whether the complaint should also be dismissed”); Ritz of Chi., Ltd.
v. Espinosa, 2009 WL 1904401, at *1 (N.D. Ill. July 2, 2009) (granting a Colorado River stay
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without resolving several motions to dismiss); M.S. Distrib. Co. v. Nat’l Record Mart, Inc., 2000
WL 1720971, at *1 (N.D. Ill. Nov. 16, 2000) (granting a Colorado River stay without resolving a
motion to dismiss for lack of personal jurisdiction or improper venue).
Conclusion
For the foregoing reasons, Defendants’ motion to stay under the Colorado River doctrine
is granted, and its motion to dismiss is denied without prejudice. This suit is stayed pending
resolution of Chameleon Power, Inc. v. BCI Acrylic Bath Systems, Inc., 2015-150765-CB (Cir.
Ct. Oakland Cnty., Mich. filed Dec. 23, 2015).
May 24, 2016
United States District Judge
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