Opinion
99 Civ. 9050 (RWS)
January 26, 2000
GURSKY EDERER, LOUIS S. EDERER, ESQ., and BARRY M. BORDETSKY, ESQ. Of Counsel, for Plaintiff.
EDWARD I. SUSSMAN, ESQ., for Defendant.
OPINION
Defendant Acciai Speciali Terni, USA Inc. ("AST") has moved to dismiss or stay this action pending resolution of a related New York State Court action (the "State Action"). Plaintiff EMS Industrial Corp. ("EMS") has cross-moved to enjoin the State Action from proceeding. For the reasons set forth below, this action will be stayed, with leave granted to EMS to move to dissolve upon any of the conditions described below. EMS's cross-motion will be denied.
The Parties
EMS is a Florida corporation.
AST is a New York corporation.
Prior Proceedings
On May 25, 1999, AST filed its complaint in the State Action, seeking (1) a declaratory judgment as to certain contractual rights and obligations of AST and defendants in the State Action, EMS and Rafael Momene ("Momene"), the principal of EMS; (2) damages of $50,000 for diversion of sales by EMS; and (3) damages for overpayments to EMS of $16,752. EMS and Momene filed their answer in the State Action on July 22, 1999. On July 27, 1999, AST made discovery requests in the State Action, and on September 10, AST filed a request for judicial intervention and for a preliminary conference.
EMS filed its complaint in this action on August 19, 1999. AST's instant motion was filed on October 1, 1999, and EMS's cross-motion was filed on October 14. Answer and reply papers were received through November 10, 1999, when oral argument was heard.
FACTS
On December 4, 1996, and December 12, 1997, AST, a producer of industrial metal products, entered into written agreements with "Rafael Momene Industrial Corporation." The agreements appointed "Rafael Momene EMS Industrial Corporation" as AST's exclusive sales representative in Central and South America. AST commission checks under the agreements were made payable to Momene individually.
The parties dispute whether the agreement was renewed for a third year.
On May 21, 1999, counsel for Momene and EMS sent AST a letter stating EMS's dissatisfaction with AST's alleged failure to fill orders placed by EMS and Momene for their South American clientele, and with AST's allegedly unilateral "termination" of its sales representative agreement with EMS and Momene. The letter also threatened litigation unless AST paid EMS and Momene $400,000 and released EMS and Momene from obligations under the agreements. By way of letter dated May 28, 1999, AST rejected the offer in EMS's May 21 letter. AST also indicated its belief that Momene had refused to continue as AST's representative due to dissatisfaction with the commission arrangement. On May 26, 1999, as indicated above, AST had filed the State Action.
DISCUSSION
Generally speaking, "federal courts have a `virtually unflagging obligation' to exercise their jurisdiction." Burnett v. Physician's Online, Inc., 99 F.3d 72, 76 (2d Cir. 1996) (quoting Colorado River Water Conservation District v. United States, 424 U.S. 800, 817 (1976)). However, a district court has the discretion to abstain from exercising jurisdiction over an action where a concurrent state proceeding is pending based upon "considerations of `[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'" Colorado River, 424 U.S. at 817 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952)). "To determine whether Colorado River abstention is appropriate, the district court must weigh six factors, with the `balance heavily weighted in favor of the exercise of jurisdiction.'" Burnett, 99 F.3d at 76 (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983)). In Colorado River, the Supreme Court set forth four factors to take into account in deciding whether a federal court may abstain in favor of a parallel state action: (1) the assumption of jurisdiction over any res or property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; and (4) the order in which the concurrent forums obtained jurisdiction. See Colorado River, 424 U.S. at 818. In Moses H. Cone, the Court added two more factors to the Colorado River abstention analysis: (5) the source of the applicable law; and (6) the adequacy of procedures in the state court to protect the federal plaintiff's rights. See Moses H. Cone, 460 U.S. at 23-26.
Notably, "[n]o one factor is necessarily determinative." Colorado River, 424 U.S. at 818. Moreover, "[t]he weight to be given to any one factor may vary greatly from case to case, depending on the particular setting of the case." Moses H. Cone, 460 U.S. at 16. Thus, the six factors do not present a mechanical or exhaustive checklist. The district court is obligated to undertake a careful balancing of the applicable factors, but the decision to abstain is in the sound discretion of the district court. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. City of New York, 762 F.2d 205, 210 (2d Cir. 1985). As this Court has noted, the federal courts frequently follow Colorado River by abstaining from exercising jurisdiction in deference to parallel state actions. See Mann v. Alvarez, No. 96 Civ. 2641 (RWS), 1996 WL 535540, at *2 (S.D.N.Y. Sept. 20, 1996) (citing Weinstock v. Cleary, Gottlieb, Steen Hamilton, 815 F. Supp. 127, 131 (S.D.N.Y. 1993)).
APPLICATION OF THE SIX FACTORS
The first two factors are irrelevant to this inquiry. There is no res over which either this Court or the state court has assumed jurisdiction. Nor is the federal forum more inconvenient than the state forum, as their respective courthouses are located right next door to one another in lower Manhattan.
The third factor — the desirability of avoiding piecemeal litigation — favors abstention. The relief EMS seeks in the instant action can be asserted as counterclaims in the State Action.
EMS maintains that the converse is also true: AST can assert as counterclaims in the instant action all the relief it seeks in the State Action. However, piecemeal litigation will continue. This Court does not possess the power to enjoin the State Action from proceeding. Under the Anti-Injunction Act, 28 U.S.C. § 2283, "[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." Parallel in personam actions involving a contractual dispute do not fall within the scope of the exceptions. See Standard Microsystems Corp. v. Texas Instruments Inc., 916 F.2d 58 (2d Cir. 1990) ("The suits at issue here are in personam actions, brought on successive business days in two different courts, disputing the interpretation of a contract. The existence of the state court action does not in any way impair the jurisdiction of the federal court or its ability to render justice. It is well-settled that such circumstances as these do not justify invocation of the exceptions of the Anti-Injunction Act.") (citing Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 642, 97 S. Ct. 2881, 2893, 53 L. Ed.2d 1009 (1977); Kline v. Burke Construction Co., 260 U.S. 226, 230, 43 S. Ct. 79, 81 (1922); Vernitron Corp. v. Benjamin, 440 F.2d 105, 108 (2d Cir. 1971); Heyman v. Kline, 456 F.2d 123, 131-32 (2d Cir. 1972)).
The Supreme Court has acknowledged that the most important factor in its decision to approve the dismissal of the Colorado River action was the "'clear federal policy . . . [of] avoidance of piecemeal adjudication.'" Moses H. Cone, 460 U.S. at 16 (quoting Colorado River, 424 U.S. at 819); see also Arkwright-Boston, 762 F.2d at 211 (danger of piecemeal litigation was the "paramount consideration"); American Alliance Ins. Co. v. Eagle Ins. Co., 961 F. Supp. 652, 656 (S.D.N.Y. 1997). As this Circuit said in Arkwright-Boston:
As the suits all arise out of the [same set of facts], they should be tried in one forum. Maintaining virtually identical suits in two forums under these circumstances would waste judicial resources and invite duplicative effort. Plainly, avoidance of piecemeal litigation is best served by leaving these suits in the state court.
Arkwright-Boston, 762 F.2d at 211.
The fourth factor — the order of filing — likewise favors abstention. The State Action was filed first, and, although it is in its early stages, it has proceeded further than the instant action. An answer has been filed in the State Action, and discovery demands have been made. This is minimal, but nevertheless contributes very slightly to the balance favoring abstention.
The fifth factor — the source of the applicable law — likewise favors abstention. New York state law governs this dispute, not federal law.
Finally, the sixth factor also favors abstention. It is well-recognized that New York State courts have adequate procedures for the protection of EMS's rights. See, e.g., Arkwright-Boston, 762 F.2d at 211.
THE BALANCE OF FACTORS FAVORS ABSTENTION
This Court's "discretion to abstain must be exercised within the `narrow and specific limits' prescribed by the particular abstention doctrine involved." Village of Westfield v. Welch's, 170 F.3d 116, 125 (2d Cir. 1999) (quoting Dittmer v. County of Suffolk, 146 F.3d 113, 116 (2d Cir. 1998)). This case favors exercise of that discretion under the six factors of Colorado River and Moses H. Cone, as analyzed above. Factors three, four, five, and six favor abstention. Factors one and two are neutral, thereby weighing only slightly against abstention. The balance in this case clearly favors abstention, particularly as factor three, the avoidance of piecemeal litigation, strongly favors abstention, as in Colorado River. The parties must be directed to concentrate their efforts in one forum. As indicated by the grant of the stay, that forum will be the New York State court.
However, should circumstances be presented to demonstrate the inadequacy of the New York State forum under Colorado River and Moses H. Cone, leave is granted for an application to dissolve the stay. Towards that possibility, all discovery in the State Action will be admissible in this action, and it is assumed that the State Action will proceed expeditiously.
CONCLUSION
The motion of AST for a stay under Colorado River is granted, discovery in the State Action will be admissible in this action should the stay be dissolved, and leave is granted to apply for such a dissolution should the circumstances warrant.
It is so ordered.