National Music Museum: America's Shrine to Music v. Johnson et al
Filing
17
ORDER denying 13 Motion to Stay. Signed by U.S. District Judge Karen E. Schreier on 12/9/2014. (KC)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
CIV. 14-4113
NATIONAL MUSIC MUSEUM:
AMERICA’S SHRINE TO MUSIC,
ORDER DENYING
MOTION TO STAY
Plaintiff,
vs.
ROBERT JOHNSON and
LARRY MOSS,
Defendants.
Defendant, Larry Moss, moves the court to stay this action pursuant to
the Colorado River abstention doctrine. Plaintiff, National Music Museum:
America’s Shrine to Music (NMM), opposes the motion. For the following
reasons, the motion to stay is denied.
FACTUAL BACKGROUND
NMM is a South Dakota nonprofit corporation located in Vermillion,
South Dakota. Defendant Robert Johnson is a Tennessee resident who collects
rock music instruments and other collectibles. Moss, also a Tennessee
resident, is also engaged in the business of rock collectibles.
On February 12, 2008, Moss and Johnson executed an agreement
whereby Johnson would convey four guitars to Moss in exchange for $120,000.
Docket 13-1 at 13-14. Moss tendered a $70,000 down payment upon delivery
of two guitars, with the balance of $50,000 payable on receipt of the remaining
two guitars. Id. One of the guitars not initially delivered was a Martin D-35
guitar formerly owned by Elvis Presley (the Elvis guitar). On February 6, 2013,
Johnson donated the Elvis guitar to NMM pursuant to a sales-donation
agreement. Docket 5-1.
Moss sent an email to NMM on December 10, 2013, in which he claimed
that he had purchased the Elvis guitar from Johnson and that Johnson had no
right to transfer the Elvis guitar to NMM. Docket 13-1 at 18-19. Moss sent
another email, dated January 16, 2014, requesting that NMM retain the Elvis
guitar until its ownership could be resolved. Id. at 18.
Johnson filed suit against Moss in Tennessee state court on January 27,
2014, claiming damages for libel and defamation. Docket 13-1 at 1-3. Moss
filed a counterclaim seeking specific performance, damages for breach of
warranty relating to the National Steel guitar,1 breach of contract for
nondelivery of the two undelivered guitars including the Elvis guitar, and fraud
based on Johnson’s representations about both his ability to convey all four
guitars and the provenance of the National Steel guitar. Id. at 4-12.
On July 7, 2014, NMM filed suit in circuit court in Clay County, South
Dakota, requesting a declaratory judgment with respect to the ownership of the
Elvis guitar, alternatively seeking damages against Johnson, and asserting that
the doctrines of estoppel, waiver, and assumption of the risk bar Moss’s claim
to ownership of the Elvis guitar. Docket 1-1. Moss subsequently removed
NMM’s action to this court based on this court’s diversity jurisdiction. Docket
1. Following removal, Moss answered the complaint and moved the court to
The National Steel guitar was one of the two guitars initially conveyed
in exchange for $70,000. Docket 13-1 at 13.
1
-2-
stay this proceeding pending a determination in Tennessee state court of the
respective rights of Moss and Johnson to the Elvis guitar. Docket 13. Johnson
has yet to appear before this court in this matter.
DISCUSSION
In Colorado River Water Conservation District v. United States, 424 U.S.
800 (1976), the Supreme Court addressed “principles . . . which govern in
situations involving the contemporaneous exercise of concurrent jurisdictions,
either by federal courts or by state and federal courts.” Id. at 817. “These
principles rest on consideration of ‘[w]ise judicial administration, giving regard
to conservation of judicial resources and comprehensive disposition of
litigation.’ ” Id. (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S.
180, 183 (1952)). Although federal courts have a “virtually unflagging
obligation . . . to exercise the jurisdiction given them,” exceptional
circumstances permit a federal court to abstain from exercising jurisdiction
when a concurrent state-court action is also pending. Id. at 817-18.
To determine whether exceptional circumstances exist, a court should
evaluate the following factors:
(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 priority—
not 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.
-3-
Mountain Pure, LLC v. Turner Holdings, LLC, 439 F.3d 920, 926 (8th Cir. 2006)
(quotation marks omitted). “These factors are not intended to be exhaustive,
nor are they mechanically applied.” Id. When applying the Colorado River
factors, “ ‘the balance [is] heavily weighted in favor of the exercise of
jurisdiction.’ ” Id. (alteration in original) (quoting Moses H. Cone Mem. Hosp. v.
Mercury Constr., 460 U.S. 1, 16 (1983)). Ultimately, a court’s task “is not to find
some substantial reason for the exercise of federal jurisdiction . . . 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.” Moses H. Cone, 460 U.S. at 25-26 (italics in
original).
A state action must be parallel to the federal case before a federal court
may decline to exercise its jurisdiction under Colorado River based on the
pendency of the state-court action. See Cottrell v. Duke, 737 F.3d 1238, 1245
(8th Cir. 2013) (“The threshold question is whether the state and federal
proceedings are parallel.”). “Jurisdiction must be exercised if there is any doubt
as to the parallel nature of the state and federal proceedings.” Fru-Con Constr.
Corp. v. Controlled Air, Inc., 574 F.3d 527, 535 (8th Cir. 2009).
The Declaratory Judgment Act gives courts “unique and substantial
discretion in deciding whether to declare the rights of litigants.” Wilton v. Seven
Falls Co., 515 U.S. 277, 286 (1995). Therefore, federal courts have broader
discretion in deciding whether to abstain in actions seeking declaratory relief.
Id. (“Distinct features of the Declaratory Judgment Act, we believe, justify a
standard vesting district courts with greater discretion in declaratory judgment
-4-
actions than that permitted under the ‘exceptional circumstances’ test of
Colorado River and Moses H. Cone.”).
When a declaratory judgment action in federal court is parallel to a statecourt action, the Eighth Circuit has stated:
[F]or a district court to have discretion to abstain . . . the state
court proceeding must present “the same issues, not governed by
federal law, between the same parties,” and the federal court must
evaluate “whether the claims of all parties in interest can
satisfactorily be adjudicated in that proceeding, whether the
necessary parties have been joined, whether such parties are
amenable to process in that proceeding, etc.”
Royal Indem. Co. v. Apex Oil Co., 511 F.3d 788, 796 (8th Cir. 2008) (quoting
Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 495 (1942)). When a
parallel state-court proceeding is not pending, a federal court has limited
discretion to abstain from exercising jurisdiction over a declaratory judgment
action, but still has more discretion than it would under the rigorous Colorado
River test. See Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 998-99
(8th Cir. 2005) (adopting a six-part test falling between Wilton and Colorado
River).
In this case, Moss takes the position that because this is a declaratory
judgment action and the Tennessee proceeding is parallel, this court should
exercise its broad discretion under Wilton and decline to exercise its
jurisdiction thereby allowing Johnson and Moss to resolve their contract issues
in Tennessee state court. Alternatively, Moss contends that judicial efficiency
and avoidance of piecemeal litigation would support abstention under the
Scottsdale or Colorado River standards. NMM argues that because it seeks
relief in addition to declarative relief, the action is not declarative. NMM further
-5-
asserts that this action is not parallel to the Tennessee state-court proceeding.
As a result, NMM urges the court that it must apply Colorado River and
because the actions are not parallel this court may not abstain. To determine
which test to apply—Wilton, Scottsdale, or Colorado River—the court must
answer the threshold questions of (1) whether this action is parallel with the
Tennessee state-court proceeding, and (2) whether this action is declaratory in
nature.
I.
Parallel Proceedings
“In the Eighth Circuit, 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 the federal court.’ ” Cottrell, 737 F.3d at 1245 (quoting FruCon Constr. Corp., 574 F.3d at 535). Courts look to “ ‘sources of law, required
evidentiary showings, measures of damages, and treatment upon appeal’ for
each claim.” Id. (quoting Fru-Con Constr. Corp., 574 F.3d at 536).
In the Tennessee action, Johnson has asserted Tennessee state-law tort
claims for libel and defamation against Moss. Docket 13-1 at 1-3. In a
counterclaim, Moss requests (1) specific performance of the sales agreement by
Johnson; (2) damages for breach of warranty relating to the National Steel
guitar; and (3) damages for breach of contract based on nondelivery of two
guitars, including the Elvis guitar. Additionally, Moss alleges that Johnson’s
representations were fraudulent regarding his ability to convey the four guitars
and the provenance of the National Steel guitar. Docket 13-1 at 4-12. The
-6-
counterclaim is also based on state-law claims under Tennessee law. NMM is
not a party to the state-court action.
In this action, NMM asserts that it acquired valid, legal title to the Elvis
guitar under South Dakota’s adoption of the Uniform Commercial Code (UCC),
and requests a declaration of its ownership. Alternatively, NMM requests
damages from Johnson for breach of the sales-donation agreement (Docket 5-1)
based on alleged deceit. NMM also argues that Moss is barred by the doctrines
of estoppel, waiver, and assumption of the risk from claiming an ownership
interest in the Elvis guitar.
The Tennessee action involves Tennessee law as applied to the sales
agreement between Johnson and Moss. This case involves South Dakota law
applied to the sales-donation agreement between Johnson and NMM. NMM is
not a party to the state-court action, and the state-court action does not
address NMM’s interest in the Elvis guitar. The state-court action also
encompasses significant conduct that has no relevance to the issue presented
in this action. The parties are not substantially similar between the two actions
and the claims and sources of law are different.
To establish his tort claims in the state-court action, Johnson must
introduce evidence sufficient to show libel or defamation under Tennessee law.
See, e.g., Sullivan v. Baptist Mem. Hosp., 995 S.W.2d 569, 571 (Tenn. 1999)
(discussing the requirements for a defamation claim, including a published
statement, knowledge that the statement is false, and reckless disregard for the
truth or negligence in failing to ascertain the truth). To prevail on his
counterclaims in the state-court action alleging breach of the sales agreement,
-7-
Moss must introduce evidence relating to the sales agreement between himself
and Johnson. Moss must also introduce evidence that the National Steel
guitar—a guitar not involved in this federal action—is not the guitar Johnson
claimed when he sold it to Moss.
In this case, NMM must introduce evidence relating to the sales-donation
agreement, which agreement is not involved in the state-court litigation. NMM
must also introduce evidence to establish its position that it was a purchaser
in good faith or buyer in the ordinary course. See Continental Grain Co. v.
Heritage Bank, 548 N.W.2d 507, 512-13 (S.D. 1996) (Konenkamp, J., specially
concurring) (discussing the requirements of proving the “purchaser for value”
and “good faith” elements under SDCL 57A-2-403). NMM need not introduce
any evidence that Moss engaged in libelous or defamatory conduct, nor must
NMM concern itself with the National Steel guitar. Ultimately, the evidentiary
showings required in the state-court action bear little resemblance to the
evidentiary showings required in this action.
The measures of damages are also dissimilar. In this case, NMM seeks
declaratory relief. In the event NMM does not obtain the declaratory relief it
requests, it seeks damages from Johnson based on Johnson’s alleged
misrepresentation in inducing NMM to enter the sales-donation agreement.
Those damages will be measured under South Dakota law. Damages in the
state-court action, however, will be determined in part based on Tennessee tort
law, which has no application in this case, and in part on the sales agreement
between Johnson and Moss. Both the state-court action and this action seek to
resolve the question of who has title to the Elvis guitar, and both Moss and
-8-
NMM argue that they rightfully own the Elvis guitar. But in light of the
dissimilarities in the remainder of the actions, the fact that both suits involve
competing claims of title to the Elvis guitar is not enough to establish that the
two proceedings are parallel.2 Although the relief requested here by NMM may
affect the availability of the specific performance remedy requested in Moss’s
state-court counterclaim, the remaining aspects of the proceedings are not
similar. Furthermore, although resolution of the state court proceeding may
change the posture of this action, or vice-versa, there is not a substantial
likelihood that resolution of the state court proceeding will “fully dispose of” the
issues before this court. Cottrell, 737 F.3d at 1245. Therefore, this proceeding
is not parallel to the Tennessee proceeding.
The reality that these proceedings are not parallel is underscored by
Moss’s reply brief, in which he states that he is only requesting a temporary
stay of this proceeding, and once the Tennessee proceeding is complete, this
court can take up the issues presented by NMM. See Docket 16 at 2. A stay
based on Colorado River abstention necessarily contemplates that a federal
court will play no further role in the action and it would be an abuse of
discretion for this court to grant a stay under Colorado River if the court
anticipates taking further substantive action in this case. Moses H. Cone, 460
U.S. at 28 (“When a district court decides to dismiss or stay under Colorado
River, it presumably concludes that the parallel state-court litigation will be an
adequate vehicle for the complete and prompt resolution of the issues between
the parties. If there is any substantial doubt as to this, it would be a serious
abuse of discretion to grant the stay or dismissal at all. Thus, the decision to
invoke Colorado River necessarily contemplates that the federal court will have
nothing further to do in resolving any substantive part of the case, whether it
stays or dismisses.” (internal citations omitted)). Moss’s argument that the
court should grant a stay before reopening the case and resolving the merits of
NMM’s complaint demonstrates that there is not a substantial likelihood that
the state-court proceeding will completely resolve the issues presented in this
action.
2
-9-
II.
Declaratory Action
The Declaratory Judgment Act allows federal courts to grant any “further
necessary or proper relief based on” the court’s declaratory judgment decree.
28 U.S.C. § 2202. Applying that language, the Eighth Circuit has held that “a
court may still abstain in a case in which a party seeks damages as well as a
declaratory judgment so long as the further necessary or proper relief would be
based on the court’s decree so that the essence of the suit remains a
declaratory judgment action.” Royal Indem. Co., 511 F.3d at 793-94. Thus, the
fact that NMM seeks damages from Johnson in the event NMM does not have
title to the Elvis guitar does not compel the conclusion that this is not a
declaratory judgment action.
In Horne v. Firemen’s Retirement System of St. Louis, 69 F.3d 233 (8th
Cir. 1995), the Eighth Circuit found that the plaintiff’s suit seeking a
declaration that a mandatory retirement age constituted unlawful
discrimination was “most aptly characterized as one for declaratory judgment”
because although the plaintiff suffered a threatened harm, he had not suffered
any actual harm. See Horne, 69 F.3d at 236. In Royal Indemnity Co., the Eighth
Circuit held that declaratory relief ordering contribution from other parties
“ar[o]se out of the district court’s determination of the rights and
responsibilities of the various insurers and, therefore, would clearly constitute
‘further necessary or proper relief[.]’ ” Royal Indem. Co., 511 F.3d at 794. Thus,
“[t]he damages Royal Indemnity Company [sought were] not independent of the
requested declaratory judgment, but [were] closely linked with it.” Id.
- 10 -
In this matter, NMM requests that the court declare it to be the owner of
the Elvis guitar. In the alternative, NMM requests damages against Johnson.
NMM has not suffered harm yet because it still has the Elvis guitar, although
the state-court action threatens NMM’s interest in the Elvis guitar.
Furthermore, any damages awarded to NMM would be closely linked with this
court’s resolution of NMM’s request for declarative relief. Based on those facts,
the court concludes that NMM’s action is best characterized as an action for
declaratory and other necessary and proper relief.3
III.
Application
Because this is a declaratory judgment action but the state and federal
proceedings are not parallel, the court applies the following six-factor test:
(1) whether the declaratory judgment sought will serve a useful
purpose in clarifying and settling the legal relations in issue; (2)
whether the declaratory judgment will terminate and afford relief
from the uncertainty, insecurity, and controversy giving rise to the
federal proceeding; (3) the strength of the state’s interest in having
the issues raised in the federal declaratory judgment action
decided in the state courts; (4) whether the issues raised in the
federal action can more efficiently be resolved in the court in which
the state action is pending; (5) whether permitting the federal
action to go forward would result in unnecessary entanglement
between the federal and state court systems, because of the
presence of overlapping issues of fact or law; and (6) whether the
declaratory judgment action is being used merely as a device for
procedural fencing—that is, to provide another forum in a race for
res judicata or to achieve a federal hearing in a case otherwise not
removable.
3
If the court were to characterize this action as one for damages rather
than essentially a declaratory judgment action, it would be bound to apply the
Colorado River standard. Because there is no parallel proceeding, the court
would not be permitted to abstain from exercising its jurisdiction over this
case. Because the court is not abstaining under the more relaxed Scottsdale
standard, the threshold question of whether this is a declaratory judgment
action does not alter the outcome in this instance.
- 11 -
Scottsdale, 426 F.3d at 998 (internal quotation marks omitted). “This test
allows the district court greater discretion than the exceptional circumstances
test, but less discretion than it would have under the Wilton standard.” Id.
Applying those factors, the first two factors weigh in favor of exercising
jurisdiction. A declaratory judgment from this court would clarify NMM’s rights
in the Elvis guitar, which would completely resolve NMM’s legal issue.
Additionally, clarification of whether NMM is entitled to the Elvis guitar would
alleviate any uncertainty over whether Moss can obtain specific performance in
the Tennessee proceeding.
Moss contends that exercise of jurisdiction by this court would create
greater uncertainty due to the risk of inconsistent judgments. The
determination of NMM’s ownership rights has little impact on litigation or
judgment in the Tennessee tort and contract actions. One of Moss’s claims in
the Tennessee proceeding alleges Moss is entitled to damages because Johnson
failed to convey the Elvis guitar as promised in the sales agreement. Even if
Moss could no longer obtain specific performance and obtain title to the Elvis
guitar as a result of a judgment in favor of NMM in this court, Moss has a
damages remedy available to him in the Tennessee court.
The third factor also weighs in favor of an exercise of jurisdiction. This
declaratory action involves the application of South Dakota law to the question
of whether NMM can assert title to the Elvis guitar under the UCC and
potentially a damages claim against Johnson.4 Although Tennessee does have
Even if Tennessee law applies to that agreement, the validity of such an
agreement is unlikely to present an unsettled issue of Tennessee law. Federal
4
- 12 -
an interest in resolving claims applying Tennessee law to the contract between
Johnson and Moss, that contract is not at the center of this dispute.
The fourth and fifth factors also weigh in favor of exercising jurisdiction.
It is unlikely that a Tennessee court could grant any relief to NMM. Therefore,
it is possible that a Tennessee court could not resolve the issue before this
court. Because these actions are not parallel, there is not a significant risk of
inefficiency or entanglement based on overlapping issues of law or fact. Moss’s
only argument with respect to these factors relates to the risk of inconsistent
judgments. But the only potential inconsistency between what this court might
do and what the Tennessee court might do would occur if the Tennessee court
granted Moss’s request for specific performance. In that event, Moss would
then have to litigate the issue before this court, namely, whether his title to the
Elvis guitar under the sales agreement could defeat NMM’s title to the Elvis
guitar under the sales-donation agreement. Therefore, staying this action
would not resolve that issue more efficiently.
With respect to the sixth factor, Moss does not suggest, and the court
sees no evidence, that this action was filed as a device for procedural fencing.
Accordingly, the sixth factor does not weigh in favor of abstention.
Even if the court found that the factors weighed in favor of abstention
based on the Scottsdale test, the court would not be required to abstain. See
Lexington Ins. Co. v. Integrity Land Title Co., 721 F.3d 958, 972 (8th Cir. 2013)
(“Our review of cases addressing abstention in the context of the Declaratory
Judgment Act reveals that it is relatively uncommon for reviewing courts to
courts regularly apply the laws of other states in diversity actions.
- 13 -
find discretion abused when a district court elects to exercise jurisdiction.”). In
cases where the Eighth Circuit has found it inappropriate for a district court to
entertain a declaratory judgment action, important distinguishing
considerations such as an unsettled question of state law or inappropriate
forum shopping were present. See id. at 972-74 (discussing cases). No such
considerations are present here. As a result, even if the Scottsdale factors
weighed in favor of abstention, the court would exercise its discretion and not
abstain.
CONCLUSION
The Tennessee proceeding is not parallel to this proceeding. Even though
the court has limited discretion to abstain in these circumstances, after
weighing the factors in Scottsdale, the court concludes that abstention is
inappropriate. Accordingly, it is
ORDERED that defendant Larry Moss’s motion to stay proceedings
(Docket 13) is denied.
Dated December 9, 2014.
BY THE COURT:
/s/Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
- 14 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?