Woodland Investor Member, LLC v. Soldier Creek, LLC et al
MEMORANDUM AND ORDER denying 18 defendants' Motion to Dismiss. Signed by District Judge J. Thomas Marten on 10/3/2011. (mss)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
WOODLAND INVESTOR MEMBER, L.L.C.,
Case No. 11-CV-2013-JTM
SOLDIER CREEK, L.L.C., et. al.,
MEMORANDUM AND ORDER
Before the court is defendants’ Motion to Dismiss (or, in the Alterative, Stay Proceedings)
pursuant to Fed. R. Civ. P. 12(b)(1) and (6) (Dkt. No. 18). For the following reasons, the court
denies the motion.
I. Factual Background
This case arises out of an agreement between Soldier Creek, L.L.C. (“Soldier Creek”) and
plaintiff’s predecessor-in-interest, National Equity Fund Assignment Corporation (“NEFAC”).
NEFAC and Soldier Creek entered into an Amended and Restated Operating Agreement (“Operating
Agreement”) around May 2007, for the development and management of Woodland Park, L.L.C.
(“Woodland Park”). The purpose of the Operating Agreement was to acquire, construct, own,
finance, lease and operate a low income housing project to be known as “Woodland Park at Soldier
NEFAC agreed, with conditions, to provide certain capital contributions to Woodland Park,
and took a ninety-nine percent ownership interest in it. Soldier Creek agreed to meet certain
conditions related to the management and construction of the project. Hersh Development Co.,
L.L.C., George M. Hersh, II, Brian C. Hersh, and John M. Hersh all executed a “Guaranty
Agreement” for the benefit of NEFAC and Woodland Park, guarantying some of Soldier Creek’s
obligations under the Operating Agreement.
On or about November 9, 2007, NEFAC transferred its right, title and interest in Woodland
Park, the Operating Agreement, and the Guaranty Agreement to National Affordable Housing Fund
I, L.P. (“NAHF”). On or about December 30, 2010, NAHF transferred its right, title and interest in
Woodland Park to the plaintiff, Woodland Investor Member L.L.C. (“WIM”).
WIM brought this action on January 10, 2011, alleging Soldier Creek breached the Operating
Agreement when “Breakeven Operations” did not occur by February 1, 2009. WIM alleges that
pursuant to the Operating Agreement, the breach requires Soldier Creek to purchase WIM’s interest
in Woodland Park, and that Soldier Creek has not done so. WIM also alleges that under the Guaranty
Agreement, WIM is entitled to recover from Hersh Development, George Hersh, Brian Hersh, and
John Hersh, for Soldier Creek’s breach. Soldier Creek has brought a counterclaim alleging breach
by WIM’s predecessor-in-interest NEFAC.
Soldier Creek moves to dismiss or stay proceedings in light of parallel state proceedings,
citing Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976). Soldier
Creek notes that on July 31, 2009, Woodland Park’s general contractor, Neighbors Construction Co.,
Inc., (“Neighbors”) sued Woodland Park, NEFAC, Soldier Creek, and various others1 seeking a
JRMA Architects, Inc., James R. Marshall, Hersh Development Co, L.L.C., National Equity Fund, Inc.,
Wells Fargo Bank, N.A., Shawnee County Board of County Commissioners, and Kansas Housing Resources
mechanic’s lien and declaratory judgment for nonpayment of services rendered under Neighbors’s
contract with Woodland Park.2
On May 13, 2011, following a stay to allow resolution of claims subject to arbitration, the
state court confirmed an arbitration award in favor of Neighbors. Soldier Creek argues that
Neighbors’s claims in its suit against Woodland Park and NEFAC are essentially the same as those
in Soldier Creek’s counterclaim against WIM under the Operating Agreement between Soldier
Creek and NEFAC, and now NEFAC’s successor-in-interest WIM.
II. Legal Standard
Soldier Creek seeks dismissal under the Colorado River abstention doctrine. Parties often
present Colorado River abstention in the form of a Fed. R. Civ. P. 12(b) motion to dismiss. See, e.g.,
Empr’s Mut. Cas. Co. v. Miner, 6 F. Supp.2d 1232 (D. Kan. 1998). However, a motion to abstain
based on a concurrent case pending in state court does not fall under any enumerated provision of
12(b). Health Care & Retirement Corp. of Am. v. Heartland, 324 F. Supp.2d 1202, 1203 n.1 (D.
Kan. 2004). Further, such a motion does not seek summary judgment on a claim and, therefore, is
not governed by Fed. R. Civ. P. 56. Id.
Abstention from the exercise of federal jurisdiction is the exception, not the rule. Colorado
River, 424 U.S. at 813. The doctrine of abstention is an extraordinary and narrow exception to the
duty of a district court to adjudicate a controversy properly before it. Cnty. of Allegheny v. Frank
Mashuda Co., 360 U.S. 185, 188 (1959). Generally, as between state and federal courts, the rule is
that “the pendency of an action in the state court is no bar to proceedings concerning the same
The Complaint also alleged fraud, Kansas Property Payment Act violations, breach of good faith and fair
dealing, negligence, unjust enrichment, quantum meruit, attachment, conspiracy, and breach of contract.
matter” in a federal court with jurisdiction. Colorado River, 424 U.S. at 817 (citing McClellan v.
Carland, 217 U.S. 268, 282 (1964)). Federal courts have a “virtually unflagging” obligation to
exercise the jurisdiction given them. Id.
The Colorado River doctrine3 allows federal courts to “dismiss or stay a federal action in
deference to pending parallel state court proceedings” when the federal court would otherwise have
contemporaneous and concurrent jurisdiction with the state court. Fox v. Maulding, 16 F.3d 1079,
1080 (10th Cir. 1994). This may be done based on principles of “[w]ise judicial administration,
giving regard to conservation of judicial resources and comprehensive disposition of litigation.” See
Colorado River, 424 U.S. at 817 (citing Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S.
180, 183 (1952)).
Thus, in order for a stay or dismissal to even be considered under the Colorado River
doctrine, the pending state suit must be parallel to the federal suit. “Suits are parallel if substantially
the same parties litigate substantially the same issues in different forums.” Fox, 16 F.3d at 1081
(citing New Beckley Mining Corp. v. Int’l Union, United Mine Workers of Am., 946 F.2d 1072, 1073
(4th Cir. 1991)).
If the state and federal suits are parallel, a second stage of inquiry remains. The federal court
may only stay or dismiss the federal suit “for reasons of wise judicial administration” Id. (quoting
Colorado River, 424 U.S. at 817). Such abstention from the federal courts’ jurisdictional mandate
is appropriate only in exceptional cases that satisfy the standard prescribed in Colorado River.
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 19 (1983). A court may abstain
upon consideration of a non-exhaustive number of factors, including: (1) the inconvenience of the
The Colorado River doctrine is not a true form of abstention but is often treated as a variety of it. Fox v.
Maulding, 16 F. 3d 1079, 1080 (10th Cir. 1994).
federal forum; (2) the desirability of avoiding piecemeal litigation; (3) the order in which the courts
assumed jurisdiction; and (4) whether either court has assumed jurisdiction over the property. Moses
H. Cone, 460 U.S. at 15-16; Colorado River, 424 U.S. at 818; Fox, 16 F.3d at 1082. Other factors
that have been considered are the vexatious or reactive nature of the federal action, whether federal
law provides the rule of decision, and the adequacy of the state court action to protect the federal
plaintiff’s rights. Moses H. Cone, 460 U.S. at 17 n.20, 23, 28.
No one factor is necessarily determinative. Colorado River, 424 U.S. at 818. The weight
given to any one factor may vary greatly from case to case. Moses H. Cone, 460 U.S. at 16. The
factors are to be applied in a pragmatic, flexible manner with a view to the realities of the case at
hand. Id. at 21. Only the clearest of justifications will warrant dismissal. Colorado River, 424 U.S.
at 819. A stay is as much a refusal to exercise federal jurisdiction as a dismissal. Moses H. Cone,
460 U.S. at 28.
As an initial matter, Neighbors’s suit against Woodland Park and NEFAC is not parallel to
WIM’s suit against Soldier Creek. In order to be parallel, substantially the same parties must be
litigating substantially the same issues. Fox, 16 F.3d at 1081. Soldier Creek argues NEFAC, NAHF,
and WIM are affiliated and controlled by the same organization, and are, thus, substantially the same
party. WIM argues that, although NEFAC, Woodland Park, and Soldier Creek are all defendants in
Neighbors’s suit, other parties are joined in that lawsuit that are not joined here, and vice versa. This
court assumes that due to WIM’s ninety-nine percent interest in Woodland Park, the interests of
WIM and Woodland Park are congruent to the extent necessary to consider Colorado River
abstention. See Lumen Constr., Inc. v. Brant Constr. Co., Inc., 780 F.2d 691, 695 (7th Cir. 1985).
If we assume the litigating parties are substantially the same, Soldier Creek’s motion still
fails because the parties are not litigating substantially the same issues. In the state case, Neighbors
seeks compensation for a breach involving non-payment by Woodland Park in a construction
contract. In this case, WIM seeks damages for an alleged breach of its Operating Agreement with
Soldier Creek, and Soldier Creek claims WIM’s predecessor-in-interest breached first.
These disputes involve different contracts with very different issues. A large portion of
Neighbors’s construction contract dispute has been arbitrated. Whether NEFAC or any of its
successors-in-interest breached its Operating Agreement with Soldier Creek has neither been an
issue nor a defense in Neighbors’s dispute with Woodland Park, as far as the court can discern. If
a possible breach of the Operating Agreement was at issue during arbitration, the state court noted
it could not consider the evidence presented to the arbitrator in Woodland Park’s application to
vacate the arbitrator’s findings.
But, for the purposes of discussion, even if the parties are the same in the two suits, and
substantially the same issues are being litigated, this court is not convinced “exceptional
circumstances” exist sufficient to defer its jurisdiction over this action. Soldier Creek has not argued
the federal forum is inconvenient, or that this litigation is vexatious. See Moses H. Cone, 460 U.S.
at 17 n.20; Colorado River, 424 U.S. at 818. The state court action, a complaint by Neighbors on
its separate construction contract, is quite likely insufficient to protect WIM’s ability to make a
claim against Soldier Creek based on the Operating Agreement.
Soldier Creek argues at length that granting its motion for a dismissal or stay will avert
piecemeal litigation. Soldier Creek, quoting from Romine v. Compuserve, 160 F.3d 337, 341 (6th
Cir. 1998), says that “[p]iecemeal litigation occurs when different courts adjudicate the identical
issue, thereby duplicating judicial effort and potentially rendering conflicting results.” Dkt. No. 23,
at 5 (emphasis added). While legally sound, this gives the game away. Even Soldier Creek admits
in its supporting memo that the ultimate cause directly at issue in the Neighbors case “may be
dispositive or, at the very least, inform on the parties claims regarding breach of the Operation
Agreement.” Dkt. No. 23, at 3. If the ultimate cause in the Neighbors case may not be dispositive
in this case, it follows that the issue is not identical. These uncertain odds are not enough under the
Colorado River doctrine in which “[o]nly the clearest of justification will warrant dismissal.” See
Colorado River, 424 U.S. at 819.
Certain factors weigh in favor of Soldier Creek’s motion: state law would provide the rule
on this contract action, the state court may well have assumed jurisdiction before this federal court
did, and the state court has acquired jurisdiction over property in which the parties have interest.4
Nevertheless, the movant has not met its significant burden. See id. For the foregoing reasons,
Soldier Creek’s motion is denied. See Reinhardt v. Kelly, 164 F.3d 1296, 1303 (10th Cir. 1999)
(“[S]uits in federal court are not easily swept away by Colorado River.”).
IT IS ACCORDINGLY ORDERED this 3rd day of October 2011, that defendants’ Motion
to Dismiss (or, in the Alterative, Stay Proceedings) (Dkt. No. 18) is denied.
s/ J. Thomas Marten
J. THOMAS MARTEN, JUDGE
Property liens have been asserted by Neighors, and Wells Fargo Bank has brought action in state court to
foreclose on its construction loan for the Woodland Park property.
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