Harley-Davidson Credit Corporation v. CZH LLC

Filing 17

MEMORANDUM AND ORDER re: 13 MOTION to Dismiss Case , or, In the Alternative, to Stay This Action filed by Defendant CZH LLC motion is DENIED. Signed by District Judge Stephen N. Limbaugh, Jr on 10/23/12. (MRS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION

HARLEY-DAVIDSON CREDIT CORP.,
Plaintiff,
vs.
CZH, LLC d/b/a BLACK DIAMOND’S.,
BOOTHEEL HARLEY-DAVIDSON,
Defendant.

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Case No. 1:12-CV-58 SNLJ

MEMORANDUM AND ORDER
Plaintiff Harley-Davidson Credit Corporation (“HDCC”) brought this action against
defendant CZH, LLC d/b/a Black Diamond’s Bootheel Harley-Davidson (“Bootheel”) for
replevin, possession of property, breach of guaranty, indemnity, and injunctive relief. Defendant
has moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), or, in the alternative,
to stay the action (#13). The matter has been fully briefed and is ripe for adjudication.
I.

Background
Plaintiff’s complaint arises out of a Customer Financing Agreement and related

agreements (the “Agreements”) between plaintiff and defendant. Defendant is a Harley-Davidson
motorcycle dealer in Scott City, Missouri; its members are Robert Hocking, Jeremy Zimbro, and
William Cabaness. Under the Agreements, plaintiff agreed to finance defendant’s the purchase of
goods and/or services from Harley-Davidson Motor Company, and, in return, defendant promised
to repay the plaintiff under the terms of the Agreements. Plaintiff alleges that, to secure
obligations under the Agreements, the defendant granted plaintiff a security interest in virtually all
of its business assets.

Cabaness and Zimbro, Inc. d/b/a Black Diamond Harley-Davidson (“Black Diamond”) is
another Harley-Davidson dealership, located in Marion, Illinois.1 Plaintiff alleges that Black
Diamond also entered into financing agreements with it and that Black Diamond also granted
plaintiff a security interest in all of its business assets to secure repayment of its obligations.
Plaintiff alleges that defendant executed a “Collateralized Guaranty” to induce plaintiff and its
affiliates to provide financing to Black Diamond.
Plaintiff alleges that Black Diamond breached its agreements with plaintiff through what it
identifies as “Fraudulent Sales Practices.” Plaintiff further alleges that, by reason of Black
Diamond’s default, the defendant is also in default. Plaintiff states that, pursuant to the
Collateralized Guaranty, upon an event of default, the plaintiff may declare as immediately
payable all or any part of the debt Black Diamond or the defendant owes. Plaintiff states that it
notified defendant of the default and demanded payment of $2,957,264.58, but that defendant has
not paid. Moreover, plaintiff alleges that it demanded that defendant surrender to plaintiff the
collateral that had secured the amounts it owes.
Plaintiff and defendant are not strangers to litigation. On February 22, 2012, the defendant
— along with Black Diamond — filed a complaint in Illinois state court against HDCC and
others. HDCC and its fellow defendants answered the complaint on March 28, 2012, and
counterclaimed against Bootheel and Black Diamond. HDCC’s counterclaim alleges many of the
same facts it alleges in the present case and seeks (1) possession of collateral from Black
Diamond, (2) replevin against Black Diamond, (3) indemnity against Black Diamond, (4)
damages for breach of contract from Black Diamond, Bootheel, and individual third party

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Jeremy Zimbro and William Cabaness are the two shareholders of Black Diamond.
Hocking was Black Diamond’s sales manager and a member of senior management.
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defendants, (5) damages for fraud from Black Diamond, Bootheel, and individual third party
defendants, (6) damages for civil conspiracy against Black Diamond, Bootheel, and individual
third party defendants,(7) damages for racketeering against Black Diamond, Bootheel, and
individual third party defendants, and (8) an order enjoining Black Diamond, Bootheel, and
individual third party defendants from disposing of HDCC’s collateral.
Defendant filed the instant motion to dismiss or stay because, it asserts, the “Prior Action”
it filed in Illinois precludes this Court’s jurisdiction. Defendant argues that the Court should
either dismiss the case or stay it pending resolution of the Prior Action.
II.

Discussion
In its motion to dismiss, defendant asserts that plaintiff’s complaint is barred by the “Prior

Pending Action Doctrine” because it is duplicative of the claims in the Illinois state court Prior
Action. In the alternative, defendant asserts that this case should be stayed pursuant to the
Colorado River Doctrine.
The prior pending action doctrine, also known as abatement, “holds that where a claim
involves the same subject matter and parties as a previously-filed action so that the same facts and
issues are presented, resolution should occur through the prior action and the second suit should
be dismissed.” United States v. Doe Run Resources Corp., No. 4:10cv1895, 2011 WL 1771007,
*2 (E.D. Mo. May 10, 2011) (internal quotations omitted) (citing Harrison v. Commercial
Woodworking Co., No. 4:08CV00082, 2008 WL 5105130, *2 n.2 (E.D. Mo. Dec. 1, 2008)). See
also Meyer v. Meyer, 21 S.W.3d 886, 889–90 (Mo. Ct. App. 2000)); State ex rel. Dunger v.
Mummert, 871 S.W.2d 609, 610 (Mo. Ct. App. 1994) (“The doctrine of abatement provides, a
prior pending action between the same parties and involving the same issues will abate a later like
action ...”).

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As a general rule, however, and as the Supreme Court has repeatedly held, “the pendency
of an action in the state court is no bar to proceedings concerning the same matter in the Federal
court having jurisdiction.” McClellan v. Carland, 217 U.S. 268, 283 (1910) (quoted in Exxon
Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 292 (2005). However, “[c]omity or
abstention doctrines may, in various circumstances, permit or require the federal court to stay or
dismiss the federal action in favor of the state-court litigation.” 544 U.S. at 292 (citing Colorado
River Water Conservation Dist. v. United States, 424 U.S. 800 (1976); Younger v. Harris, 401
U.S. 37 (1971); Burford v. Sun Oil Co., 319 U.S. 315 (1943); Railroad Comm’n of Tex. v.
Pullman Co., 312 U.S. 496 (1941)).
Abstention — where a court declines or postpones the exercise of its jurisdiction — “is the
exception, not the rule,” and is justified only in “‘exceptional circumstances where the order to the
parties to repair to the state court would clearly serve an important countervailing interest.’”
Colorado River, 424 U.S. at 813 (quoting County of Allegheny v. Frank Mashude Co., 360 U.S.
185, 188-89 (1959)).
As a threshold matter, however, the federal and state proceedings must be parallel before
Colorado River abstention is implicated. Fru-Con Const. Corp. v. Controlled Air., Inc., 574 F.3d
527, 535 (8th Cir. 2009). In the Eighth Circuit, the “pendency of a state claim based on the same
general facts or subject matter as a federal claim and involving the same parties” does not alone
constitute a parallel proceeding. Id. (citing Federated Rural Elec. Ins. Corp. v. Ark. Elec. Coop.,
Inc., 48 F.3d 294, 297 (8th Cir. 1995)). A “substantial similarity” must exist between the state
and federal proceedings: that is, there must be a “substantial likelihood that the state proceeding
will fully dispose of the claims presented in the federal court.” 574 F.3d at 535 (citing TruServ
Corp. v. Flegles, Inc., 419 F.3d 584, 592 (7th Cir. 2005)). Furthermore, “jurisdiction must be

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exercised if there is any doubt as to the parallel nature of the state and federal proceedings.” 574
F.3d at 535.
Turning to the proceedings at hand, plaintiff HDCC seeks replevin, which requires a
determination of the value of the collateral held by Bootheel and whether HDCC has a right to
replevy that collateral. In the Illinois action, HDCC counterclaims against Black Diamond, for
replevin, not Bootheel. Bootheel is the subject of HDCC’s counterclaims for breach of contract,
fraud, civil conspiracy, racketeering, and an injunction (prohibiting Bootheel from disposing of
the collateral). Bootheel, however, contends that HDCC’s right to replevin from Bootheel will be
determined in the Illinois action because Bootheel seeks a declaratory judgment that HDCC is not
a secured creditor and that HDCC should release its security interest in the assets of the Bootheel
and Black Diamond dealerships.
This Court acknowledges that, should the state court case reach a judgment before this
case, the disposition of this action may be in part governed by preclusion law. See, e.g., Exxon
Mobil Corp., 544 U.S. at 293. However, should HDCC prevail in the Illinois action, its replevin
claim against Bootheel would not be resolved. Thus, it does not appear that there is a “substantial
likelihood that the state proceeding will fully dispose of the claims presented in the federal court.”
Fru-Con, 574 F.3d at 535 (emphasis added). Because HDCC’s replevin claim against Bootheel is
pleaded in this action only (as the res of HDCC’s federal claim is located in Missouri), there is
some doubt as to whether the proceedings are parallel. This Court must exercise its jurisdiction as
a result. See id.

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Accordingly,
IT IS HEREBY ORDERED that defendant’s motion to dismiss pursuant to Federal Rule
of Civil Procedure 12(b)(1), or, in the alternative, to stay the action (#13), is DENIED.
Dated this 23rd day of October, 2012.

UNITED STATES DISTRICT JUDGE

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