Cessna Finance Corporation v. JS CJ3, LLC et al

Filing 23

MEMORANDUM AND ORDER denying 8 Motion to Dismiss; denying 8 Motion to Stay Case. Signed by District Judge Eric F. Melgren on 3/20/2019. (cm)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

CESSNA FINANCE CORPORATION,
Plaintiff,

vs.

Case No. 18-1095-EFM-TJJ

JS CJ3, LLC and JETSUITE, INC.,
Defendants.

MEMORANDUM AND ORDER
This matter comes before the Court on Defendants JS CJ3, LLC (“JS”) and Jetsuite, Inc.’s
(“Jetsuite”) Motion to Dismiss or Stay Cessna Finance Corporation’s (“Cessna Finance”) claim
for breach of contract. For the following reasons, Defendants’ Motion to Dismiss or Stay (Doc.
8) is denied.
I.

Factual and Procedural Background

Simply stated, this case involves a contract dispute between Cessna Finance and JS and
Jetsuite. JS borrowed money from Cessna Finance to purchase eight aircraft from Cessna Aircraft
Company (“Cessna Aircraft”). JS executed eight Promissory Notes and Security Agreements
memorializing its obligations to Cessna Finance, and Jetsuite executed documents promising to be
a guarantor of JS’s financial obligations. Cessna Finance alleges that Jetsuite and JS failed to
make payments pursuant to these agreements and are now in breach of contract.

Eight days before Cessna Finance filed its breach of contract claim against Defendants in
Kansas, JS and Jetsuite filed their own lawsuit in California Superior Court (“the California
lawsuit”) against Textron Aviation, Inc. (“Textron”),1 Cessna Aircraft, Cessna Finance, and Don
Beverlin. In the California lawsuit, JS and Jetsuite alleged that Beverlin—acting on behalf of
Cessna Aircraft and Cessna Finance—fraudulently induced JS and Jetsuite into purchasing the
aircraft by failing to disclose certain defects common to the aircraft. Based on this alleged
fraudulent conduct, JS and Jetsuite filed suit in California seeking, among other remedies,
recession of the purchase contracts entered into with Cessna Aircraft, as well as recession of the
Promissory Notes, Security Agreements, and Guaranties that are at issue in this case.
When Defendants filed the present Motion to Dismiss or Stay, all the parties in the Kansas
lawsuit—JS, Jetsuite, and Cessna Finance—were also parties to the California lawsuit. But that
has since changed. The California Superior Court determined that it lacked personal jurisdiction
over Cessna Finance and dismissed the company from the California lawsuit. JS and Jetsuite have
appealed that ruling, and their appeal is still waiting to be heard by the California Court of Appeals.
On March 12, 2019, this Court conducted a hearing on Defendants’ Motion. At that
hearing, JS and Jetsuite acknowledged that their first two arguments for dismissal—one based on
California’s compulsory counterclaim rule and the other on the first-filed lawsuit doctrine—were
contingent on Cessna Finance being a party to the California lawsuit. Accordingly, because
Cessna Finance has been dismissed from the California lawsuit, JS and Jetsuite shifted their
argument exclusively to their request for a stay under the Colorado River doctrine. JS and Jetsuite
urge the Court to stay this case until JS and Jetsuite’s fraud claims in California are resolved.

1

Textron is the successor in interest to Cessna Aircraft Company.

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Cessna Finance, in response, argues that the California lawsuit has no bearing on its claims against
Defendants in Kansas. Furthermore, Cessna Finance argues that Kansas is the only appropriate
jurisdiction to litigate its claims, based on a forum selection clause contained in the parties’
contracts.
II.

Legal Standard

Generally, “the pendency of an action in the state court is no bar to proceedings concerning
the same matter in the Federal court having jurisdiction.”2 Indeed, federal courts have a “virtually
unflagging obligation . . . to exercise the jurisdiction given them.”3 In Colorado River, however,
the Supreme Court held that under limited circumstances it may be appropriate for a federal court
to stay or dismiss a lawsuit based on parallel proceedings in state court.4 Federal and state suits
are parallel when “substantially the same parties” are litigating “substantially the same issues” in
both cases.5 Courts must “examine the state proceedings as they actually exist to determine
whether they are parallel to the federal proceedings, resolving any doubt in favor of exercising
federal jurisdiction.”6 “If the cases are not parallel, the court must exercise jurisdiction. On the
other hand, ‘if a federal court determines the state and federal proceedings are parallel, it must

2

Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976).

3
D.A. Osguthorpe Family P’ship v. ASC Utah, Inc., 705 F.3d 1223, 1233 (10th Cir. 2013) (citation and
quotations omitted).
4
5
6

Colorado River, 424 U.S. at 817-18.
Allen v. Bd. of Educ., Unified Sch. Dist. 436, 68 F.3d 401, 403 (10th Cir. 1995) (citation omitted).
Id. (internal citations and quotations omitted).

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then determine whether deference to state court proceedings is appropriate under the particular
circumstances.’ ”7
In Colorado River, the Supreme Court provided the following factors to consider in
deciding if deference to a state court proceeding is appropriate under the circumstances: “(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 jurisdiction.”8 Additional factors to be considered include which forum’s law governs
the dispute, the reactive or vexatious nature of either lawsuit, and the adequacy of the state court
action to protect the federal plaintiff’s rights.9 “No single factor is dispositive,” and “any doubt
should be resolved in favor of exercising federal jurisdiction.”10
III.

Analysis

Before the Court can consider the Colorado River factors, it must first make a threshold
determination that this lawsuit and the California lawsuit are parallel proceedings. As discussed
above, proceedings are parallel when they involve substantially the same parties and raise
substantially the same issues.11 Defendants direct the Court to two District of Kansas decisions—

7

BNSF Ry. Co. v. Brown, 250 F.R.D. 544, 546 (D. Kan. 2008) (quoting Fox v. Maulding, 16 F.3d 1079, 1082
(10th Cir. 1994)).
8

Fox, 16 F.3d at 1082 (citing Colorado River, 424 U.S. at 818).

9

Id. (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 18, 23, 28 (1983)).

10

Id. (citations omitted).

11

See Allen, 68 F.3d at 403.

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Foxfield Villa Associates, LLC v. Regnier12 and Health Care and Retirement Corp. of America v.
Heartland Home Care, Inc.13—that are pertinent to this topic.
In Foxfield Villa, the plaintiffs sued Bank of Blue Valley (“BOBV”) in Kansas state court
for conduct arising out of a financial transaction. Almost an entire year after initiating the state
court action, the same plaintiffs filed suit in federal court, raising nearly identical claims against
BOBV under Kansas common law, and adding a federal claim under the Racketeer Influenced and
Corrupt Organizations Act (“RICO”). Also named in the federal lawsuit were BOBV’s Board of
Directors, BOBV’s holding company Blue Valley Ban Corp (“Ban Corp.”), and members of Ban
Corp.’s Board of Directors. The defendants in the federal lawsuit filed a motion to stay pursuant
to Colorado River, and the district court granted the motion.14
The court in Foxfield Villa held that the state and federal proceedings were parallel—a
conclusion neither party disputed. Although the court recognized that the parties were not identical
in the state and federal proceedings, they were substantially the same. Importantly, both BOBV
and the plaintiffs were parties to each lawsuit. The federal action involved additional defendants,
but the court held that the plaintiffs “cannot avoid application of the Colorado River doctrine
simply by adding additional parties in the federal suit—especially when the additional parties are
so closely affiliated with the defendant present in both cases.”15

12

918 F. Supp. 2d 1192 (D. Kan. 2013).

13

324 F. Supp. 2d 1202 (D. Kan. 2004).

14

Foxfield Villa, 918 F. Supp. 2d at 1204.

15

Id. at 1197.

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Similarly, in Heartland Home Care, the court concluded that the state and federal
proceedings were parallel. In that case, Heartland Home Care, Inc. (“Heartland”) filed suit in
Kansas state court against Health Care and Retirement Corporation of America (“HCRA”) for
unlawfully soliciting business under Heartland’s name in violation of Kansas law. Almost three
months after Heartland brought its suit, HCRA filed a complaint in federal court, alleging, among
other things, trademark infringement against Heartland. Heartland sought dismissal of the federal
action based on the ongoing proceedings in state court.16
As an additional wrinkle, and relevant to the inquiry here, HCRA argued that the state court
proceeding was not against HCRA, but against one of its affiliates—Heartland Home Health Care
and Hospice. But the court was unpersuaded by this argument. The court noted that HCRA and
its affiliate were represented by the same law firm in both the state and federal proceedings.
Through this law firm, HCRA and its affiliate both claimed ownership of the disputed “Heartland”
trademark.17 Even if HCRA was not technically a party to the state court action, HCRA had not
showed that its interests in the state court lawsuit differed from those of its affiliate.18 Indeed, the
court later explained that either “HCRA and its affiliate are the same entity or HCRA does business
in Kansas through its affiliate.”19 Based on the close relationship between HCRA and its affiliate,
the court concluded that the state and federal lawsuits involved substantially the same parties.20

16

Heartland Home Care, 324 F. Supp. 2d at 1203–04.

17

Id. at 1204.

18

Id.

19

Id. at 1207.

20

Id. at 1204-05.

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Upon consideration of the relevant caselaw, the Court concludes that this case and the
California lawsuit do not involve substantially the same parties, and are therefore not parallel
proceedings. Unlike Foxfield Villa, where BOBV was a defendant in the state and federal lawsuit,
Cessna Finance is a party only to this lawsuit. The Court recognizes that JS and Jetsuite hope the
California Court of Appeals will reverse the order dismissing Cessna Finance from the California
lawsuit, but the Court must examine the state proceedings as they actually exist, and Cessna
Finance is not presently a party to that suit.
Neither is Cessna Finance sufficiently intertwined with either defendant in the California
lawsuit to conclude that the parties are substantially the same. Cessna Finance—in contrast to
HCRA in Heartland Home Care—has demonstrated that its interests differ from the interests of
Textron and Cessna Aircraft. Even if Cessna Aircraft and Textron are found liable for having
fraudulently induced JS and Jetsuite into executing the documents related to the sale of the aircraft,
Cessna Finance would still be entitled to enforce the terms of its financial documents unless JS
and Jetsuite demonstrate that those contracts were fraudulently induced as well. Put another way:
proving that Cessna Aircraft fraudulently induced Defendants into purchasing the aircraft is
different than proving Cessna Finance fraudulently induced Defendants into financing that
purchase.
The Court concludes that the parties to the California lawsuit are not substantially the same
as the parties to this lawsuit. Accordingly, the California lawsuit is not a parallel proceeding, and
this case must be allowed to proceed.

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IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss or Stay (Doc. 8) is
DENIED.
IT IS SO ORDERED.
Dated this 20th day of March, 2019.

ERIC F. MELGREN
UNITED STATES DISTRICT JUDGE

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