Friedman v. Cindylou Prince-Hebert

• Court: District Court, D. New Hampshire
• Decided: June 2, 1997
• Docket: CV-96-253-B
• Status: Published

Opinion

Friedman v. Cindylou Prince-Hebert CV-96-253-B 06/02/97

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Peter H. Friedman

v. Civil No. 96-253-B

Cindvlou Prince-Herbert, Trustee of the Sally Prince Revocable Trust

O R D E R

Peter Friedman filed this action in New Hampshire Superior

Court to recover accounting and litigation consulting fees

allegedly owed to him by Cindylou Prince-Herbert, trustee of the

Sally Prince Revocable Trust ("the Trust"). Prince-Herbert

removed the action to federal court and now moves for a dismissal

based on abstention due to pending related litigation in

California state court. For the reasons that follow, I deny the

motion to dismiss but order a stay in the federal proceedings

pending resolution of the California litigation.

I. BACKGROUND

In 1992, the Trust invested over $1.7 million in a Letter of

Credit "Roll" Program, which later turned out to be a fraudulent

"ponzi-type" scheme. In July 1994, the Trust filed suit in

California Superior Court for the County of Los Angeles against

Sanwa Bank ("Sanwa") for its alleged role in the scheme. Peter Friedman, who had been serving as a financial advisor for the

Trust, performed litigation consulting work for the Trust in the

California case. This work included reviewing documents produced

during discovery, editing motions for accuracy, and examining

depositions.

Although the Trust did not name Friedman as a defendant in

its California suit, the Trust refused to release Friedman from

any potential claims it had against him, contending that Friedman

recommended the Trust's participation in the Letter of Credit

scheme and collected commissions from the Trust's investments.

At some point during the California litigation, Sanwa sued

Friedman for indemnity and Friedman cross-complained against

Sanwa and one of its officers, James Lin.

On January 18, 1996, Friedman, Sanwa, and the Trust

participated in a mediation session in San Francisco, California.

As a result, the parties entered into two signed agreements

purporting to affect a global settlement of all claims and

potential claims between the parties. The document that settled

the claims between the Trust, Sanwa Bank, and Friedman is the

"three-party agreement." The settlement between the Trust and

Friedman is the "two-party agreement." The Trust contends that

the two-party agreement called for Friedman to pay $33,000 to the

2 Trust in three equal installments and provided for a mutual

release of all claims between Friedman and the Trust arising out

of the California action. It also allowed the Trust forty-five

days to evaluate any other potential claims against Friedman

after which time, if the Trust did not pursue its claims, the

Trust and Friedman would release each other from all claims.

The Trust moved to enforce the two-party agreement in the

Superior Court of California, County of Los Angeles. On March

26, 1996, while the Trust's motion was pending, Friedman brought

this action in New Hampshire. Friedman's New Hampshire action

seeks payment from the Trust of (1) $175,000 for his services as

a litigation consultant in connection with the California litiga­

tion involving Sanwa and (2) fees totaling $24,825 for various

trust administration services.

On June 26, 1996, California Superior Court Judge Lawrence

W. Crispo issued an order asserting jurisdiction over the two-

party settlement agreement and enforcing the agreement against

Friedman. Specifically, the court ordered that Friedman pay

$33,000 to the Trust and that "[u]pon payment of the third

installment, the Trust and Friedman shall exchange signed mutual

general releases . . . as to all claims, whether known or un­

known, arising out of [the California action]; the exchange shall

3 include Peter Friedman's release of this [sic] claim for $175,000

for fees regarding this transaction." Prince-Herbert v. Sanwa

Bank California, No. BC 109030 (Cal. Superior C t ., County of Los

Angeles June 26, 1996). The order also provided that Friedman

return all Trust documents in his possession to the Trust's

attorneys and that "thereafter, both Friedman and the Trust shall

hereby generally release each other from all claims." Id.

Friedman has appealed this order and the appeal is pending before

the Court of Appeal of the State of California, Second Appellate

Division, but no briefs have yet been filed.

II. DISCUSSION

Prince-Herbert has moved for a dismissal under the absten­

tion doctrine enunciated in Colorado River Water Conservation

Dist. v. United States, 424 U.S. 800 (1976). Under Colorado

River and its progeny, federal district courts may stay or

dismiss federal lawsuits in deference to parallel state proceed­

ings based on "considerations of wise judicial administration,

giving regard to conservation of judicial resources and compre­

hensive disposition of litigation." Id. at 817 (citation and

guotation omitted). A court's authority to abstain is not

absolute, however. Abstention is warranted only in "exceptional

4 circumstances" due to a strong presumption in favor of the

exercise of the jurisdiction conferred on district courts by

Congress and the Constitution. Id. at 817-19; Villa Marina Yacht

Sales, Inc. v. Hatteras Yachts, 947 F.2d 529, 533 (1st Cir.

1991) .

A. Parallel Actions

Colorado River abstention is only appropriate in cases where

the federal proceeding and the concurrent state proceeding are

"parallel." See Interstate Material Corp. v. City of Chicago,

847 F.2d 1285, 1287 (7th Cir. 1988) (noting that the Colorado

River doctrine is inapplicable in cases of non-parallel proceed­

ings) . Friedman argues that the California case and the federal

case are not parallel. For proceedings to be parallel, however,

they need not be identical. Villa Marina, 947 F.2d at 533;

Interstate Material Corp., 847 F.2d at 1288; see also Landis v.

North Am. C o ., 299 U.S. 248, 254 (1936) ("[W]e find ourselves

unable to assent to the suggestion that before proceedings in one

suit may be stayed to abide the proceedings in another, the

parties... must be shown to be the same and the issues

identical."). Instead, a "suit is ''parallel' when substantially

the same parties are contemporaneously litigating substantially

the same issues in another forum, thus making it likely that

5 judgment in one suit will have a res judicata effect in the other

suit." Calvert Fire Ins. Co. v. American Mut. Reinsurance Co.,

600 F.2d 1228, 1229 n.l (7th Cir. 1979); see also Liberty Mut.

Ins. Co. v. Foremost-McKesson, Inc., 751 F.2d 475, 477 (1st Cir.

1985). Friedman argues that abstention is inappropriate in this

case both because this case and the California case are not

parallel proceedings and because no exceptional circumstances

warrant abstention.

The order issued by Judge Crispo in the California litiga­

tion asserts jurisdiction over the Trust and Friedman to enforce

the terms of the two-party settlement agreement. The order calls

for a mutual release between Friedman and the Trust for all

claims. Friedman has conceded that Judge Crispo's order, if

affirmed, would be given res judicata effect and would bar his

New Hampshire claim. Excerpt Transcript of Hearing, No.

96-253-B, at 2 (Aug. 26, 1996 D.N.H.). Therefore, despite the

apparent dissimilarity between this action and the California

state court action, the judgment in the California case is

sufficiently broad to encompass Friedman's New Hampshire action

and makes the two cases "parallel" for the purposes of Colorado

River abstention. See Moses H. Cone Mem'1 Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 28 (1983).

6 B. Colorado River Abstention Factors

Colorado River mentioned four illustrative factors to

consider in determining whether "exceptional circumstances"

warranted abstention: (1) whether either the state or federal

court has assumed jurisdiction over a res; (2) the inconvenience

of the federal forum; (3) the desirability of avoiding piecemeal

litigation; and (4) the order in which the forums obtained

jurisdiction. Colorado River, 424 U.S. at 814. The Court has

since added two additional factors: (5) whether state or federal

law controls; and (6) the adeguacy of the state forum to protect

the parties' rights. Moses H. Cone, 460 U.S. at 25-26. In

addition to the above factors, the First Circuit has considered

the potentially "vexatious or reactive nature of the federal

lawsuit" to be a significant factor weighing in favor of absten­

tion. Villa Marina, 947 F.2d at 532; Fuller Co. v. Ramon I. Gil,

Inc., 782 F.2d 306, 309-10 (1st Cir. 1986); see also Moses H.

Cone, 460 U.S. at 17 n.20.

These factors do not comprise "a mechanical checklist."

Moses H. Cone, 460 U.S. at 16. Rather, the decision whether to

abstain from a federal action because of parallel state-court

litigation must be based "on a careful balancing of the important

factors as they apply in a given case," and "[t]he weight to be

7 given to any one factor may vary greatly from case to case,"

depending on its particular setting. Id.; see Fuller C o ., 782

F.2d at 309. Nonetheless, because of the "virtually unflagging

obligation of the federal courts to exercise the jurisdiction

given them," Colorado River, 424 U.S. at 817, I must weigh the

important factors "with the balance heavily weighted in favor of

the exercise of jurisdiction." Moses H. Cone, 460 U.S. at 16.

The first two factors, jurisdiction over a res and incon­

venience of the federal forum, do not affect a change in the

balance weighted in favor of jurisdiction. No res is involved

in these cases and I have already determined in denying Prince-

Herbert' s motion for a transfer of venue that she has failed to

demonstrate a significant hardship to litigating in New

Hampshire.

The next factor is the desirability of avoiding piecemeal

litigation. For this factor to favor an abandonment of juris­

diction, it must involve more than the "routine inefficiency"

that always accompanies parallel cases. Villa Marina, 947 F.2d

at 535-36. Here, piecemeal litigation could "severely prejudice

the rights of one of the parties." Liberty Mut. Ins. Co. v.

Foremost-McKesson, Inc., 751 F.2d at 477. If the New Hampshire

federal and California state actions were to proceed concur- rently, there is a real possibility that the two courts might

interpret the same settlement language differently, and one court

may find that Trust has released Friedman from all claims while

another court may conclude that the settlement agreement does not

bar Friedman from asserting his fees claim. See id. (deciding

that when two courts may interpret insurance policy language

differently, thereby prejudicing one party, abstention is

warranted under Colorado River); Liberty Mut. Ins. Co. v. Ward

Trucking Corp., No. Civ. A. 93-CV-3154, 1994 WL 111374, *3-4

(E.D. Pa. March 31, 1994) (abstention warranted when parallel

pursuit of two actions creates the possibility of contradictory

orders), aff'd , 47 F.3d 1161 (3d Cir. 1995). In addition, while

Colorado River abstention is usually based on a concern for

judicial economy, and not on considerations of federal-state

comity, this case presents an unusual situation in that

Friedman's federal claim is barred by order of a California state

court. Although that order is on appeal and not yet final,1 it

1 Under federal law, the pendency of an appeal does not suspend the operation of an otherwise final judgment for purposes of res judicata. Under California law, however, a judgment is not final for purposes of res judicata until the resolution of an appeal. Eichman v. Fotomat Corp., 759 F.2d 1434, 1439 (9th Cir. 1985) (citing Aqarwal v. Johnson, 603 P.2d 58, 72 n.ll (Cal. 1979); Cal. Civ. Proc. Code § 1049). In this case, California law determines whether the California judgment should be treated as final for res judicata purposes. 28 U.S.C.A. § 1738 (West would be inappropriate for this court to entertain an action by

Friedman which sought to directly enjoin the California state

court's enforcement of a settlement agreement. See Pennzoil Co.

v . Texaco, Inc., 481 U.S. 1 (1987). It would also be

inappropriate for this court to evaluate the merits of the

California state court's order, for that is a task left to the

California appellate courts. District of Columbia Court of

Appeals v. Feldman, 460 U.S. 462 (1983); Rooker v. Fidelity Trust

C o ., 263 U.S. 413 (1923); see Hale v. Harney, 786 F.2d 688, 691

(5th Cir. 1986) (applying Rooker-Feldman doctrine and noting that

federal district courts "hold no warrant to review even final

judgments of state courts, let alone those which may never take

final effect because they remain subject to revision in the state

appellate system"). Thus, the principals of comity and federal­

ism that underlie the Pennzoil and Rooker-Feldman doctrines

support abstention in this case.

The next Colorado River abstention factor is the order in

which the forums obtained jurisdiction. Not only was the

California action filed first in this case, but it was resolved

via a settlement agreement before Friedman brought the New

Hampshire action. The New Hampshire action was not filed until

1994)

10 after the Trust moved to enforce the settlement agreement in

California Superior Court. The California case has been resolved

at the trial court level, and the Superior Court's judgment order

is on appeal. In the New Hampshire case, on the other hand,

Prince-Herbert has not yet filed an answer. Therefore, the

relative progress of the cases favors abstention.

The first Moses H. Cone factor, whether state or federal law

controls, does not strongly favor abstention, because while the

interpretation of a settlement agreement does not implicate any

guestion of federal law, neither does it present a "complex

guestion[] of state law that would best be resolved by a state

court." Villa Marina, 947 F.2d at 534 (citation omitted); but

see General Reinsurance Corp. v. Ciba-Geiav Corp., 853 F.2d 78,

82 (2d Cir. 1988) (absence of federal issues favors abstention

where the bulk of litigation would necessarily revolve around the

state-law rights of the parties). Likewise, the next factor,

adeguacy of the state forum to protect the parties' rights,

counsels neither for nor against abstention. There is no reason

to believe, and Friedman does not argue, that the California

courts cannot adeguately protect his rights. See Roi as-Hernandez

v. Puerto Rico Elec. Power Auth., 925 F.2d 492, 496 (1st Cir.

1991) (adeguacy factor "operates against the surrender of

11 jurisdiction only where the state forum may not be adequate to

adjudicate the claims").

The final factor to consider is Friedman's motivation in

filing the New Hampshire action, and whether that motivation was

vexatious or reactive. The record of the California action

demonstrates such a motivation. Friedman entered into a settle­

ment accord in January 1996 which provided that the Trust would

have forty-five days to evaluate any claims against Friedman.

After the end of the forty-five day period, and after Prince-

Herbert moved for an enforcement of the settlement agreement in

California Superior Court, Friedman brought this action in New

Hampshire. One can fairly characterize the New Hampshire suit as

an attempt to undermine the two-party settlement agreement and

preemptively and collaterally attack an order by the California

court enforcing that agreement. Such a characterization is not

disputed by Friedman in his objection to Prince-Herbert's motion

to dismiss, strengthening the case for abstention.

III. CONCLUSION

Having made a "carefully considered judgment[,] taking into

account both the obligation to exercise jurisdiction and the

combination of factors counselling against that exercise," I

12 determine that abstention is warranted in this case.2 Colorado

River, 424 U.S. at 818-19. I decline, however, to dismiss

Friedman's claim, as requested by Prince-Herbert, and instead

stay the federal action pending the outcome of the California

state litigation. See Lumen Constr., Inc. v. Brant Constr. Co.,

780 F.2d 691, 697-98 (7th Cir. 1986) (noting that a stay permits

the federal court to retain jurisdiction if the state action does

not result in a final decision on the merits).

SO ORDERED.

Paul Barbadoro United States District Court

June 2, 1997

cc: Silas Little, III, Esq. Thomas B.S. Quarles, Jr., Esq.

I note that the decision to abstain from this diversity case does not conflict with the goal of diversity jurisdiction to protect out-of-state plaintiffs. See Villa Marina, 947 F.2d at 537 n.7. This action was removed to federal court by Prince- Herbert, the same party who now moves for dismissal based on abstention.