Rail Switching Services, Inc. v. Pemiscot County Port Authority
MEMORANDUM AND ORDER re: 6 MOTION to Dismiss Case filed by Defendant Pemiscot County Port Authority. IT IS HEREBY ORDERED that defendant's motion to dismiss (ECF #6) is GRANTED and plaintiff's complaint is DISMISSED. Signed by District Judge Stephen N. Limbaugh, Jr on 7/11/14. (CSG)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
RAIL SWITCHING SERVICES, INC.,
PEMISCOT COUNTY PORT AUTHORITY, )
Case No. 1:13CV157 SNLJ
MEMORANDUM AND ORDER
This matter is before the Court on the defendant’s motion to dismiss. The motion
has been fully briefed and is ready for disposition. For the following reasons, the Court
will grant the motion.
There is an ongoing controversy between Pemiscot County Port Authority (Port
Authority) and Rail Switching Services, Inc. (RSSI) as to the validity of a Rail Line
Operating Agreement executed February 29, 2012 (the “2012 Agreement”) by J. Michael
Carr, president of RSSI, and by David P. Madison, executive director of Port Authority.
Port Authority, formed by Pemiscot County under Missouri Revised Statute § 68.010, et
seq., owns a railroad line that extends approximately five miles from the BNSF Railway
Company (“BNSF”) rail line at Hayti, Missouri, onto the Port Authority’s property.
After the expiration of an October 2008 car storage agreement executed by
representatives of Pioneer Resources, Inc. (now known as RSSI) and Port Authority,
Michael Carr and David Madison executed the 2012 Agreement.
In May 2012, Port Authority executed a lease of land to Marquis Missouri
Terminal, Inc. (“MMT”), to enable it to build a rail service facility. In August 2012, the
Port Authority granted track usage rights to MMT. In October 2012, BNSF began
transporting loaded cars to MMT’s leased property. RSSI contends that the 2012
Agreement signed by Carr and Madison prohibits MMT from using Port Authority’s
railroad line and permits only RSSI to deliver oil cars from BNSF to MMT. Port
Authority contends that the 2012 Agreement signed by Carr and Madison is void ab
initio, because it was not authorized in writing by the Port Authority’s Board of
Commissioners in violation of section 432.070 RSMo.1
On April 19, 2013, Port Authority filed a complaint for declaratory judgment in
this Court (“prior federal action”). On May 15, 2013, RSSI filed, with its answer, a
counterclaim against Port Authority for breach of contract. RSSI subsequently filed a
motion for leave to amend its answer and its counterclaim against Port Authority to add a
claim for tortious interference. On August 26, 2013, the Court dismissed the prior federal
action because Port Authority had failed to establish that the amount in controversy
exceeded $75,000.00, exclusive of interest and costs. Port Authority then filed its
petition for declaratory judgment in the Circuit Court of Pemiscot County (“Pemiscot
Section 432.070 RSMo states, “No county, city, town, village, school township, school
district or other municipal corporation shall make any contract, unless the same shall be
within the scope of its powers or be expressly authorized by law, nor unless such contract
be made upon a consideration wholly to be performed or executed subsequent to the
making of the contract; and such contract, including the consideration, shall be in writing
and dated when made, and shall be subscribed by the parties thereto, or their agents
authorized by law and duly appointed and authorized in writing.”
County lawsuit”) on August 27, 2013. RSSI was served with the petition and summons
in the Pemiscot County lawsuit on August 28, 2013.
On August 30, 2013, RSSI filed, in federal court, a motion to clarify or reconsider,
asserting that its counterclaims in the prior federal action presented an independent basis
for invoking the Court’s subject matter jurisdiction. RSSI asked that the Court clarify or
amend its Dismissal Order and return the case to its docket for further proceedings
regarding RSSI’s counterclaim. The Court denied RSSI’s motion on October 9, 2013.
The Court found that whether to retain jurisdiction over RSSI’s counterclaim was a
matter for the Court’s discretion guided by considerations of judicial economy,
convenience, fairness, and comity. Pemiscot County Port Authority v. Rail Switching
Services, Inc., case no. 1:13-CV-00060-CEJ, ECF # 31. The Court found that the factor
of judicial economy weighed against retaining jurisdiction, that the factors of
convenience and fairness were neutral, and that the final factor, comity, weighed against
retaining jurisdiction. Id. The Court noted that the outcome of the parties’ dispute
depends upon whether the Port Authority is a “municipal corporation” as defined by state
law and stated that “it is more appropriate to have this issue, which concerns the identity
of governing entities created and defined by state law, decided by the state courts.” Id.
On October 29, 2013, RSSI filed the present action for breach of contract and
tortious interference arising out of the same occurrence as the prior federal action. Port
Authority filed this motion to dismiss because of the pending state court action.
While RSSI’s motion to clarify or reconsider was pending in the prior federal
court action, it filed a motion to dismiss on September 27, 2013, in the Pemiscot County
lawsuit. RSSI claimed that Port Authority could not maintain a declaratory judgment
action under Missouri law because it had an adequate remedy at law by asserting an
affirmative defense to RSSI’s counterclaim in the prior federal action. RSSI alleged its
counterclaim was still pending in the prior federal action. RSSI’s motion was denied by
the state trial court. RSSI petitioned the Missouri Court of Appeals, Southern District,
for a Writ of Prohibition, which was subsequently denied. Thereafter, RSSI filed a Writ
of Prohibition in the Supreme Court of Missouri. Meanwhile, RSSI submitted a “Motion
for Leave to File its Answer and Counterclaims Out of Time,” which the trial court
granted. On March 21, 2014, RSSI filed its answer and counterclaims for breach of
contract and tortious interference in the Pemiscot County lawsuit. The Supreme Court of
Missouri denied the Writ of Prohibition on April 29, 2014.
Legal Standard – Motion to Dismiss
The purpose of a Rule 12(b)(6) motion to dismiss for failure to state a claim is to
test the legal sufficiency of a complaint so as to eliminate those actions “which are fatally
flawed in their legal premises and designed to fail, thereby sparing litigants the burden of
unnecessary pretrial and trial activity.” Young v. City of St. Charles, 244 F.3d 623, 627
(8th Cir. 2001) (quoting Neitzke v. Williams, 490 U.S. 319, 326-27 (1989)). “To survive
a motion to dismiss, a claim must be facially plausible, meaning that the ‘factual content
. . . allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.’” Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The Court must “accept the
allegations contained in the complaint as true and draw all reasonable inferences in favor
of the nonmoving party.” Id. (quoting Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir.
2005)). “Further, documents attached to or incorporated within a complaint are
considered part of the pleadings, and courts may look at such documents for all
purposes.” Brown v. Medtronic, Inc., 628 F.3d 451, 459-60 (8th Cir. 2010); Great Plains
Trust Co. v. Union Pacific R. Co., 492 F.3d 986, 990 (8th Cir. 2007).
Port Authority seeks dismissal arguing that RSSI’s claims alleged in this action are
compulsory counterclaims in the Pemiscot County lawsuit and may not be maintained
separately in this Court. Additionally, Port Authority argues that RSSI’s complaint
should be dismissed under the Colorado River abstention doctrine in order to avoid
duplicative litigation in federal court of a matter more properly decided in the parallel
litigation in the Circuit Court of Pemiscot County. In response, RSSI contends that its
breach of contract and tortious interference claims are not compulsory counterclaims to a
peremptorily filed declaratory judgment claim and argues that this Court should not
abdicate its unwavering obligation to exercise diversity jurisdiction under the Colorado
River abstention doctrine.
To determine whether the complaint should be dismissed because of preclusion
under state counterclaim requirements, the Court must look to Missouri law. Bankcard
Systems, Inc. v. Miller/Overfelt, Inc., 219 F.3d 770, 773 (8th Cir. 2000). Under Missouri
law, any claim that is compulsory must be asserted in the same litigation. Id. Missouri
Rule of Civil Procedure 55.32(a) provides:
A pleading shall state as a counterclaim any claim that at the time of
serving the pleading the pleader has against any opposing party, if it arises
out of the transaction or occurrence that is the subject matter of the
opposing party’s claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction.
Thus, a claim is compulsory when it meets two requirements. First, the claim must “at
the time of serving the pleading, arise from the same transaction or occurrence as the
original claim,” meaning that the counterclaim is “logically related to the claim in a broad
sense.” Bankcard Systems, 219 F.3d at 773. “[T]he term ‘transaction’ is to be applied in
its broadest sense, to include all facts and circumstances constituting the foundation of
the claim.” Id. Second, the claim “must be brought by one party against an opposing
party, not involving any third parties over whom the court cannot acquire jurisdiction.”
The purpose of the compulsory counterclaim rule is to bring “all logically related
claims into a single litigation, through the penalty of precluding the later assertion of
omitted claims.” State ex rel. J.E. Dunn, Jr. & Assocs, Inc. v. Schoenlaub, 668 S.W.2d
72, 75 (Mo. banc 1984) (quoting Cantrell v. City of Caruthersville, 221 S.W.2d 471
(1949)). Dismissal of a federal action is proper where the claim should have been
asserted in a pending state action because the claim would “requir[e] a reexamination of
the same events of the state court action in a later litigation.” Bankcard Systems, 219
F.3d at 774.
RSSI’s claim for breach of contract is a compulsory counterclaim under Missouri
law. Both Port Authority’s declaratory judgment action and RSSI’s claims in the instant
action arise out of the 2012 Agreement and require adjudication as to the validity and
enforceability of that contract. RSSI’s claim arises from the same contract that Port
Authority seeks to be declared void ab initio. Declaring whether there was a valid
contract will be critical in resolving RSSI’s breach of contract claim. The determination
of either the state court action or the instant action will affect the outcome, factually and
legally, of the other.
Additionally, RSSI’s claim for tortious interference is a compulsory counterclaim
under Missouri law. “The scope of compulsory counterclaims, however, is not limited
‘to only those claims which are of the same nature or seek the same relief.’” Bankcard
Systems, 219 F.3d at 773 (quoting Schoenlaub, 668 S.W.2d at 75). RSSI’s claim arises
out of the 2012 Agreement and the surrounding circumstances and is a logically related
There is no question that RSSI’s claims are asserted by a party against an opposing
party – RSSI and Port Authority are both parties in the state and federal actions. Further,
no third party is needed in order for RSSI to assert its claims as counterclaims in the
Pemiscot County lawsuit. Therefore, all of the criteria under Rule 55.32(a) are met,
making RSSI’s claims compulsory counterclaims. Although RSSI argues that its claims
are not compulsory counterclaims, it admits that both actions stem from the same
contractual relationship. To hear RSSI’s claims for breach of contract and tortious
interference separately “would defeat the function of Rule 55.32(a) by requiring a
reexamination of the same events of the state court action in a later litigation.” Id. at 773774.
Further, RSSI argues that their claims cannot be compulsory counterclaims to the
state action because declaratory judgment may not be invoked where the plaintiff has
another adequate legal remedy. RSSI cites several cases which state that declaratory
judgment is inappropriate where the plaintiff has another adequate legal remedy, that is,
that the plaintiff could assert its claim as a defense in an action brought by the defendant.
See Huff v. Dewey & Lebouef, LLP, 340 S.W.3d 623, 627 (Mo. App. W.D. 2011);
Preferred Physicians Mut. Mgmt. Grp., Inc. v. Preferred Physicians Mut. Risk Retention
Grp., 916 S.W.2d 821, 824 (Mo. App. W.D. 1995) (citing State ex rel. U.S. Fire Ins. Co.
v. Terte, 176S.W.2d 25, 30 (Mo. banc 1943)); Lane v. Lensmeyer, 158 S.W.3d 218, 223
(Mo. banc 2005). However, RSSI’s reliance on these cases is misplaced. The difference
between the present lawsuit and these cases is that in the cited cases, the declaratory
judgment action was filed after an action at law. In this case, the declaratory judgment
was filed in Pemiscot County before RSSI filed the present suit in federal court.
RSSI erroneously claims that the prior federal action was still pending at the time
Port Authority filed for declaratory judgment in the Pemiscot County lawsuit. Clearly,
however, at the time Port Authority filed its state action, the prior federal action had been
dismissed by the Court. Therefore, Port Authority could not have asserted its issue as a
defense in the prior federal action or in the instant action as it did not yet exist. Port
Authority did not have an adequate remedy at law prior to filing its suit for declaratory
Finally, during the time that the Writ of Prohibition was pending before the
Missouri Supreme Court, RSSI filed its answer and asserted its counterclaims in the
Pemiscot County lawsuit. Since the purpose of Rule 55.32 is to bring together all
logically related claims into one lawsuit, State ex rel. J.E. Dunn, Jr., 668 S.W.2d at 75
(quoting Cantrell, 221 S.W.2d at 471), litigation across multiple jurisdictions would
defeat the rule’s purpose.
Colorado River abstention doctrine
Port Authority contends that the Colorado River abstention doctrine provides an
additional basis for dismissal. RSSI argues, however, that under the Colorado River
abstention doctrine, this Court should retain jurisdiction of its claims. In Colorado River
Water Conversation District v. United States, 424 U.S. 800, 813 (1976), the Supreme
Court stressed that federal courts have a “virtually unflagging obligation to exercise the
jurisdiction given them,” even when there is a pending state court action on the same
subject matter. Nonetheless, a court may abstain under Colorado River from exercising
jurisdiction if (1) “parallel state and federal actions exist” and (2) “exceptional
circumstances warrant abstention.” Cottrell v. Duke, 737 F.3d 1238, 1245 (8th Cir.2013)
(quoting Fru–Con Constr. Corp. v. Controlled Air, Inc., 574 F.3d 527, 534 (8th
In order for proceedings to be parallel, “a substantial similarity must exist between
the state and federal proceedings, which similarity occurs when there is a substantial
likelihood that the state proceeding will fully dispose of the claims presented in federal
court.” Id. A court compares the “sources of law, required evidentiary showings,
measures of damages, and treatment on appeal” when determining whether two
proceedings are parallel. Id.
In this case, the proceedings are parallel. The state and federal proceedings
involve the same parties, the same circumstances, and the same disputes. RSSI’s claims
in this action are compulsory counterclaims in the state action and have, in fact, been pled
as counterclaims in the state action.
Because the Court determines that these proceedings are parallel, it must address
whether exceptional circumstances warrant abstention. Fru–Con Constr., 574 F.3d at
534. Several factors are to be evaluated in determining the existence of “exceptional
(1) whether there is a res over which one court has established jurisdiction, (2) the
inconvenience of the federal forum, (3) whether maintaining separate actions may
result in piecemeal litigation, unless the relevant law would require piecemeal
litigation and the federal court issue is easily severed, (4) which case has prioritynot necessarily which case was filed first but a greater emphasis on the relative
progress made in the cases, (5) whether state or federal law controls, especially
favoring the exercise of jurisdiction where federal law controls, and (6) the
adequacy of the state forum to protect the federal plaintiff's rights.
Federated Rural Elec. Ins. Corp. v. Ark. Elec. Coops., Inc., 48 F.3d 294, 297 (8th Cir.
This Court finds that all of the factors for determining whether exceptional
circumstances exist are either neutral or favor the state action. Specifically, the Court
believes that retaining jurisdiction of this action would lead to piecemeal litigation at its
best, or inconsistent verdicts at its worst. If the state and federal proceedings were to
continue as they now stand, both courts will have to consider the same evidence and
laws. The courts could reach different results. This risk of piecemeal litigation weighs in
favor of abstention. Accordingly, the Court finds that exceptional circumstances warrant
In sum, the Court finds that RSSI’s claims are compulsory counterclaims under
Missouri law and more properly suited for resolution in the Pemiscot County lawsuit.
Allowing RSSI’s claims to proceed in this Court would defeat the purpose of Rule
55.32(a) by not bringing together all logically related claims for resolution. Abstention
of jurisdiction in this Court is warranted under the circumstances.
IT IS HEREBY ORDERED that defendant’s motion to dismiss (ECF #6) is
GRANTED and plaintiff’s complaint is DISMISSED.
Dated this 11th day of July, 2014.
STEPHEN N. LIMBAUGH, JR.
UNITED STATES DISTRICT JUDGE
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