UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________
No. 99-10375 (Summary Calendar) ________________________
BLACK SEA INVESTMENT, LTD.,
Plaintiff-Counter Defendant-Appellant,
versus
UNITED HERITAGE CORPORATION,
Defendant-Counter Claimant-Appellee.
_____________________________________________________
Appeal from the United States District Court for the Northern District of Texas _____________________________________________________
March 9, 2000
Before POLITZ, WIENER, and STEWART, Circuit Judges.
WIENER, Circuit Judge:
In this diversity case arising out of a contract dispute,
Plaintiff-Appellant Black Sea Investments, Ltd. (“Black Sea”)
appeals the district court’s granting the motion of Defendant-
Appellee United Heritage Corporation (“United Heritage”) to stay
and administratively close the underlying federal action. The
district court ruled that a stay was appropriate under the
abstention doctrine announced by the Supreme Court in Colorado
1 River Water Conservation District v. United States.1 As we find
that the district court’s ruling is inconsistent with the
“virtually unflagging obligation of the federal courts to exercise
the jurisdiction given them,”2 we reverse and remand the case to
the district court for further proceedings.
I.
Facts and Proceedings
Black Sea purchased from United Heritage 352,491 shares of
United Heritage stock. The purchase agreement placed restrictions
on Black Sea’s ability to sell the stock. It also promised Black
Sea additional “rachet” shares of stock in the event that Black Sea
sold its initial holdings for less than a specified price per
share. During the following year, Black Sea sold all of its shares
of United Heritage stock. Black Sea reported the sales to United
Heritage, and a dispute immediately ensued. Black Sea claimed that
it was entitled to receive 312,297 “rachet” shares of United
Heritage stock; United Heritage claimed that Black Sea’s sale of
the stock violated the terms of the purchase agreement.
The parties immediately entered into settlement negotiations,
but about one week later, while the negotiations were still
ongoing, United Heritage filed suit in state court in Texas.
1 424 U.S. 800 (1976) 2 Id at 817.
2 United Heritage did not have Black Sea served with process,
however, allegedly because it did not want to disturb the ongoing
negotiations. Unaware of the state suit, Black Sea filed a
diversity action against United Heritage in federal district court,
seeking injunctive and declaratory relief. Black Sea had United
Heritage served with process the same day.
Several weeks later, United Heritage filed a motion to stay
the federal suit, arguing that the district court should abstain
from exercising jurisdiction over Black Sea’s claims out of
deference to the parallel state litigation. Early the following
year, the district court granted United Heritage’s motion, finding
that (1) the issues involved in Black Sea’s federal action are
purely issues of state law, (2) the state court provides an equally
convenient forum for the litigation of Black Sea’s claims, and (3)
allowing the federal action to proceed would result in wasteful,
duplicative litigation. Approximately six months later, the
district court clarified its ruling, specifying that its granting
of a stay was based on the Colorado River abstention doctrine.
This appeal followed.
II.
Analysis
A. Standard of Review
We review a district court’s decision whether to stay
3 proceedings for abuse of discretion.3 To the extent that such a
decision rests on an interpretation of law, however, our review is
de novo.4
B. Colorado River Abstention
The Colorado River abstention doctrine is based on principles
of federalism, comity, and conservation of judicial resources.5 It
represents an “extraordinary and narrow exception” to the
“virtually unflagging obligation of the federal courts to exercise
the jurisdiction given them.”6 The Supreme Court has not
prescribed a “hard and fast rule” governing the appropriateness of
Colorado River abstention, but it has set forth
six factors that may be considered and weighed in determining whether exceptional circumstances exist that would permit a district court to decline exercising jurisdiction: (1) assumption by either court of jurisdiction over a res; (2) the relative inconvenience of the forums; (3) the avoidance of piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) whether and to what extent federal law provides the rules of decision on the merits; and (6) the adequacy of the state proceedings in protecting the rights of the party invoking federal
3 Murphy v. Uncle Ben’s, Inc., 168 F.3d 734, 737 (5th Cir. 1999). 4 Id. 5 Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1189 (5th Cir. 1988). 6 Colorado River, 424 U.S. at 813, 817.
4 jurisdiction.7
In assessing the propriety of abstention according to these
factors, a federal court must keep in mind that “the balance
[should be] heavily weighted in favor of the exercise of
jurisdiction.”8 Paying heed to this admonition in applying the
Colorado River factors to this case, we conclude that the balance
tips decisively against abstention.
(1) Assumption by Either Court of Jurisdiction Over a Res
The case “does not involve any res or property over which any
court, state or federal, has taken control. ... [T]he absence of
this factor weighs against abstention.”9
(2) Relative Inconvenience of the Forums
The federal and state courts are in approximately the same
7 Murphy, 168 F.3d at 738. The Supreme Court has also emphasized the determinative role of a clear federal policy with respect to the appropriate application of these factors. A “clear federal policy ... [of] avoidance of piecemeal adjudication of water rights in a river system” was “the most important factor” in the Supreme Court’s decision to abstain in Colorado River. See Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 16 (1983). Conversely, a clear Congressional policy “to move parties to an arbitrable dispute out of court and into arbitration as quickly and as easily as possible” —— a policy that was most readily given effect in federal court —— decisively weighed against abstention in Moses H. Cone Mem. Hosp.. Id at 22-23. 8 Moses H. Cone Mem. Hosp., 460 U.S. at 16. 9 Murphy, 168 F.3d at 738.
5 geographic location within the state. This factor therefore weighs
against abstention.10
(3) Avoidance of Piecemeal Litigation
The district court expressly granted a stay primarily to avoid
wasteful, duplicative litigation. But “[t]he prevention of
duplicative litigation is not a factor to be considered in an
abstention determination.”11 Duplicative litigation, wasteful
though it may be, is a necessary cost of our nation’s maintenance
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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________
No. 99-10375 (Summary Calendar) ________________________
BLACK SEA INVESTMENT, LTD.,
Plaintiff-Counter Defendant-Appellant,
versus
UNITED HERITAGE CORPORATION,
Defendant-Counter Claimant-Appellee.
_____________________________________________________
Appeal from the United States District Court for the Northern District of Texas _____________________________________________________
March 9, 2000
Before POLITZ, WIENER, and STEWART, Circuit Judges.
WIENER, Circuit Judge:
In this diversity case arising out of a contract dispute,
Plaintiff-Appellant Black Sea Investments, Ltd. (“Black Sea”)
appeals the district court’s granting the motion of Defendant-
Appellee United Heritage Corporation (“United Heritage”) to stay
and administratively close the underlying federal action. The
district court ruled that a stay was appropriate under the
abstention doctrine announced by the Supreme Court in Colorado
1 River Water Conservation District v. United States.1 As we find
that the district court’s ruling is inconsistent with the
“virtually unflagging obligation of the federal courts to exercise
the jurisdiction given them,”2 we reverse and remand the case to
the district court for further proceedings.
I.
Facts and Proceedings
Black Sea purchased from United Heritage 352,491 shares of
United Heritage stock. The purchase agreement placed restrictions
on Black Sea’s ability to sell the stock. It also promised Black
Sea additional “rachet” shares of stock in the event that Black Sea
sold its initial holdings for less than a specified price per
share. During the following year, Black Sea sold all of its shares
of United Heritage stock. Black Sea reported the sales to United
Heritage, and a dispute immediately ensued. Black Sea claimed that
it was entitled to receive 312,297 “rachet” shares of United
Heritage stock; United Heritage claimed that Black Sea’s sale of
the stock violated the terms of the purchase agreement.
The parties immediately entered into settlement negotiations,
but about one week later, while the negotiations were still
ongoing, United Heritage filed suit in state court in Texas.
1 424 U.S. 800 (1976) 2 Id at 817.
2 United Heritage did not have Black Sea served with process,
however, allegedly because it did not want to disturb the ongoing
negotiations. Unaware of the state suit, Black Sea filed a
diversity action against United Heritage in federal district court,
seeking injunctive and declaratory relief. Black Sea had United
Heritage served with process the same day.
Several weeks later, United Heritage filed a motion to stay
the federal suit, arguing that the district court should abstain
from exercising jurisdiction over Black Sea’s claims out of
deference to the parallel state litigation. Early the following
year, the district court granted United Heritage’s motion, finding
that (1) the issues involved in Black Sea’s federal action are
purely issues of state law, (2) the state court provides an equally
convenient forum for the litigation of Black Sea’s claims, and (3)
allowing the federal action to proceed would result in wasteful,
duplicative litigation. Approximately six months later, the
district court clarified its ruling, specifying that its granting
of a stay was based on the Colorado River abstention doctrine.
This appeal followed.
II.
Analysis
A. Standard of Review
We review a district court’s decision whether to stay
3 proceedings for abuse of discretion.3 To the extent that such a
decision rests on an interpretation of law, however, our review is
de novo.4
B. Colorado River Abstention
The Colorado River abstention doctrine is based on principles
of federalism, comity, and conservation of judicial resources.5 It
represents an “extraordinary and narrow exception” to the
“virtually unflagging obligation of the federal courts to exercise
the jurisdiction given them.”6 The Supreme Court has not
prescribed a “hard and fast rule” governing the appropriateness of
Colorado River abstention, but it has set forth
six factors that may be considered and weighed in determining whether exceptional circumstances exist that would permit a district court to decline exercising jurisdiction: (1) assumption by either court of jurisdiction over a res; (2) the relative inconvenience of the forums; (3) the avoidance of piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) whether and to what extent federal law provides the rules of decision on the merits; and (6) the adequacy of the state proceedings in protecting the rights of the party invoking federal
3 Murphy v. Uncle Ben’s, Inc., 168 F.3d 734, 737 (5th Cir. 1999). 4 Id. 5 Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1189 (5th Cir. 1988). 6 Colorado River, 424 U.S. at 813, 817.
4 jurisdiction.7
In assessing the propriety of abstention according to these
factors, a federal court must keep in mind that “the balance
[should be] heavily weighted in favor of the exercise of
jurisdiction.”8 Paying heed to this admonition in applying the
Colorado River factors to this case, we conclude that the balance
tips decisively against abstention.
(1) Assumption by Either Court of Jurisdiction Over a Res
The case “does not involve any res or property over which any
court, state or federal, has taken control. ... [T]he absence of
this factor weighs against abstention.”9
(2) Relative Inconvenience of the Forums
The federal and state courts are in approximately the same
7 Murphy, 168 F.3d at 738. The Supreme Court has also emphasized the determinative role of a clear federal policy with respect to the appropriate application of these factors. A “clear federal policy ... [of] avoidance of piecemeal adjudication of water rights in a river system” was “the most important factor” in the Supreme Court’s decision to abstain in Colorado River. See Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 16 (1983). Conversely, a clear Congressional policy “to move parties to an arbitrable dispute out of court and into arbitration as quickly and as easily as possible” —— a policy that was most readily given effect in federal court —— decisively weighed against abstention in Moses H. Cone Mem. Hosp.. Id at 22-23. 8 Moses H. Cone Mem. Hosp., 460 U.S. at 16. 9 Murphy, 168 F.3d at 738.
5 geographic location within the state. This factor therefore weighs
against abstention.10
(3) Avoidance of Piecemeal Litigation
The district court expressly granted a stay primarily to avoid
wasteful, duplicative litigation. But “[t]he prevention of
duplicative litigation is not a factor to be considered in an
abstention determination.”11 Duplicative litigation, wasteful
though it may be, is a necessary cost of our nation’s maintenance
of two separate and distinct judicial systems possessed of
frequently overlapping jurisdiction. The real concern at the heart
of the third Colorado River factor is the avoidance of piecemeal
litigation, and the concomitant danger of inconsistent rulings with
respect to a piece of property.12 When, as here, no court has
assumed jurisdiction over a disputed res, there is no such danger.
This factor therefore weighs against abstention.13
(4) Order in Which Jurisdiction Was Obtained
“[P]riority should not be measured exclusively by which
complaint was filed first, but rather in terms of how much progress
10 Id. 11 Evanston Ins. Co., 844 F.2d at 1192. 12 Id. 13 Id.
6 has been made in the two actions.”14 Even though, in the instant
case, the state suit was filed first, no action has been taken by
the state court with respect to that suit. Indeed, the defendant
had not even been served when it filed the subsequent federal suit.
The situation in the United States District Court is much the same:
The parties have devoted substantial energy to jurisdictional
posturing, but no progress has been made on the merits of the case.
As the state and federal suits are proceeding at approximately the
same pace, this factor weighs against abstention.15
(5) Whether State or Federal Law Will Be Applied
The instant case involves only issues of state law.
Nevertheless, “[t]he absence of a federal-law issue does not
counsel in favor of abstention.”16 “[O]ur task in cases such as
this is not to find some substantial reason for the exercise of
federal jurisdiction by the district court; 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.”17 Thus, “the
presence of state law issues weighs in favor of surrender only in
14 Moses H. Cone Mem. Hosp., 460 U.S. at 21. 15 Murphy, 168 F.3d at 738-39. 16 Evanston Ins. Co., 844 F.2d at 1193. 17 Moses H. Cone Mem. Hosp., 460 U.S. at 942.
7 rare circumstances.”18
The district court improvidently accorded great weight to this
factor. It particularly emphasized that “the dispute involved
issues of state law that had only recently been addressed by the
Texas Supreme Court” and that the parties disagreed “as to the
effect of the Texas Supreme Court’s ruling.” Without more,
however, a mere lack of clarity in applicable state law does not
counsel in favor of abstention. This factor is therefore at most
neutral with respect to the propriety of abstaining under Colorado
River.
(6) Adequate Protection in State Court
There is no indication in the instant case that Black Sea’s
interests would not be adequately protected in state court. It is
clear, however, that this factor “can only be a neutral factor or
one that weighs against, not for, abstention.”19 This factor
therefore remains neutral.
All of the Colorado River abstention factors are either
neutral with respect to abstention or counsel against it. In light
of the heavy weighting of the balance in favor of the exercise of
jurisdiction, Colorado River abstention in the instant case is
18 Evanston Ins. Co., 844 F.3d at 1193. 19 Id at 1193.
8 clearly inappropriate. The district court abused its discretion in
granting a stay based on the Colorado River abstention doctrine.
C. Brillhart Abstention
United Heritage contends that this case is not governed by the
Colorado River abstention doctrine, but rather by the abstention
doctrine announced by the Supreme Court in Brillhart v. Excess
Insurance Co. of America, 316 U.S. 491 (1942). This argument is
raised by United Heritage for the first time on appeal.
Nevertheless, we will address the issue, as it (1) is substantially
related to Colorado River abstention and (2) speaks to the
propriety of assuming federal jurisdiction over the instant case.
Brillhart abstention is applicable “[w]hen a district court is
considering abstaining from exercising jurisdiction over a
declaratory judgment action.”20 “In contrast, when actions involve
coercive relief the trial court must apply the standards enunciated
by the Court in Colorado River.”21 United Heritage concedes that
Black Sea has requested both declaratory and injunctive relief, but
argues that Brillhart is nevertheless applicable because Black
Sea’s claims for coercive relief are merely “ancillary” to its
request for declaratory relief. This Circuit has rejected similar
20 Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23 F.3d 948, 950 (5th Cir. 1994). 21 Id at 951.
9 arguments on at least two occasions.22 When a party seeks both
injunctive and declaratory relief, the appropriateness of
abstention must be assessed according to the doctrine of Colorado
River; the only potential exception to this general rule arises
when a party’s request for injunctive relief is either frivolous or
is made solely to avoid application of the Brillhart standard.23
As there is no indication that Black Sea’s request for injunctive
relief is either frivolous or made in an effort to avoid the
Brillhart doctrine, the appropriateness of abstention in the
instant case is properly assessed under Colorado River only.
III.
Conclusion
For the reasons states above, the judgment of the district
court is reversed and the case is remanded for further proceedings.
REVERSED AND REMANDED
22 See PPG Industries, Inc. v. Continental Oil Co., 478 F.2d th 674 (5 Cir. 1973); Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23 F.3d 948 (5th Cir. 1994). 23 See PPG Industries, 478 F.2d at 679.