Geomat and Sons, Inc. v. Hong Kong and Shanghai Banking Corporation, Ltd.

• Court: District Court, D. Guam
• Decided: March 25, 2011
• Docket: 1:10-cv-00001
• Status: Unknown

Opinion

1 2 3 4 5 6 DISTRICT COURT OF GUAM 7 TERRITORY OF GUAM 8 9 GEOMAT & SONS, INC. Civil Case No. 10-00001 10

Plaintiff, 11 vs. 12 13 HONG KONG AND SHANGHAI ORDER RE: DEFENDANT’S BANKING CORPORATION LTD., MOTION TO DISMISS 14 Defendant. 15 16 This case is before the court on the Defendant, Hong Kong and Shanghai Banking 17 Corporation, Ltd.’s Motion to Dismiss Amended Complaint. Docket No. 26. Pursuant to Local 18 Rule 7.1(e)(3), this matter is appropriate for decision without the need for oral argument.1 After 19 reviewing the parties’ submissions, as well as relevant caselaw and authority, the court GRANTS the 20 Defendant’s motion in the alternative and HEREBY STAYS the action for the following reasons.2 21 I. FACTUAL BACKGROUND 22 On or about August 9, 1995, Hong Kong and Shanghai Banking Corporation, Ltd. (“HSBC”) 23 and Kallingal, P.C. (together with a business entity named “GK Joint Venture”), entered into a loan 24 25 1Local Civ.R. 7.1(e)(3) states “[i]n cases where the parties have requested oral argument, such oral argument may be taken off calendar by Order of the Court, in the discretion of the Court, 26 and a decision rendered on the basis of the written materials on file.” 27 2In its Reply, the Defendant moved in the alternative, to stay the proceedings under the 28 doctrine of abstention. 1 agreement to finance the construction of a 18,000 sq. ft. mall known as the Monticello Plaza, located 2 next to Cost-U-Less. See Docket No. 26, Declaration of Joyce C.H. Tang (“Tang Decl.”), Exh. B. 3 The loan was secured by, among other things, a Note, a Mortgage on the Barrigada Property 4 executed by Kallingal, P.C. in favor of HSBC, and personal guarantees made by Drs. George and 5 Matilda Kallingal (collectively “Loan Documents”). Id., Exh. C. 6 Thereafter, Kallingal P.C. defaulted on the loan payments, and the parties entered into 7 settlement or forbearance negotiations. See HongKong & Shanghai Banking Corp. v. Kallingal 8 (“HSBC”), 2005 Guam 13, ¶¶ 2-15. Dr. George Kallingal signed a letter agreement with HSBC 9 dated October 24, 2002 (“Workout Agreement”), which set forth alternative repayment obligations 10 under the loan in light of the default. See Docket No. 26, Tang Decl., Exh. D. HSBC alleges that 11 it intended the letter agreement to be a general statement of the basic repayment terms and not a final 12 agreement, and that a later formal forbearance agreement would be executed by the parties to the 13 Loan Documents setting forth the repayment terms and necessary and required terms. See HSBC, 14 2005 Guam 13, ¶ 14. 15 Drs. George and Matilda Kallingal (the “Kallingals”) failed to execute the forbearance 16 agreement, and HSBC consequently filed an action in the Superior Court of Guam against them to 17 collect under their personal guarantees. See Docket No. 26, Tang Decl., Exh. B. The Superior Court 18 case was docketed as Civil Case No. 89-03. Id. The Kallingals filed an Answer and Counterclaim 19 on February 19, 2003, arguing in their counterclaim that they and HSBC entered into an October 24, 20 2002 letter Workout Agreement which modified the terms of the loan, and that HSBC breached the 21 Workout Agreement by interfering with the Kallingals’ attempts to seek dismissal of a then-pending 22 bankruptcy action, by proceeding with foreclosure of the property securing the loan when the 23 property was needed by the Kallingals to pay its obligations to HSBC, and by suing the Kallingals 24 on the guarantees. See Docket No. 15, Tang Decl., Exh. E. 25 In addition to filing the complaint in the Superior Court on the guarantees, HSBC sought to 26 foreclose on the Barrigada Property, by private sale. See HSBC, 2005 Guam 13, ¶ 14. In response 27 to the foreclosure notice, the Kallingals moved in the Superior Court for a preliminary injunction 28 to stop the foreclosure. Id., ¶¶ 14-15. The Superior Court granted the Kallingals a preliminary 1 injunction, which HSBC thereafter appealed to the Guam Supreme Court. Id. The Supreme Court 2 affirmed the lower court’s decision in an opinion issued on August 30, 2005. Id. 3 After the appeal, HSBC filed a Supplemental Complaint in the Superior Court, bringing in 4 as a new party Kallingal, P.C., alleging the Kallingals’ actions arising after the suit was filed 5 constituted a default under the original loan documents as well as the Workout Agreement (which 6 was an agreement that the Kallingals insisted, over the objection of HSBC, was enforceable and 7 modified the parties’ original loan agreements). See Docket No. 15, Tang Decl., Exh. F. In the 8 Supplemental Complaint, HSBC alleged a cause of action against Kallingal, P.C. seeking 9 acceleration of the loan and judicial foreclosure of the Mortgage on the Barrigada Property, as well 10 as a cause of action against the Kallingals under the personal guarantees. Id. The Kallingals filed 11 a counterclaim to the Supplemental Complaint, seeking declaratory relief against the parties’ rights 12 under their agreements relating to the loan, damages for breach of the Workout Agreement regarding 13 payment under the loan, and for the compensatory and punitive damages based on tort. See Docket 14 No. 15, Tang Decl., Exh. G. 15 Thereafter, and while the case was still pending in the Superior Court, HSBC filed a notice 16 of nonjudicial foreclosure on the Barrigada Property based on a new default under the loan, and the 17 Workout Agreement, which occurred after the Supplemental Complaint was filed. See Docket No. 18 15, Tang Decl., Exh. H. In response, the Kallingals filed a motion for a TRO and preliminary 19 injunction seeking to prevent HSBC from foreclosing on the property. Id., Exh. I. After lengthy 20 briefing on the motion, and hearing, the Superior Court issued a Decision and Order on August 4, 21 2009, granting the Kallingals’ motion for a preliminary injunction prohibiting HSBC from 22 foreclosing on the property for one year, and directing the Kallingals to make certain payments 23 toward the loan balance. Id., Exh. J. 24 The Kallingals appealed the Superior Court’s August 4, 2009 Decision to the Supreme Court. 25 See Docket No. 15, Tang. Decl., Exh. K. The Kallingals submitted a statement of issues in the 26 appeal, one of which was the validity of the Barrigada Mortgage in light of the Workout Agreement. 27 Id., Exh. L. HSBC filed a motion to dismiss the appeal on the ground that the decision appealed 28 from was an interlocutory order over which the Supreme Court lacked jurisdiction. Id., Exh. M. The 1 Supreme Court granted the motion in an order issued on May 7, 2010. Id. 2 After filing the appeal in the Supreme Court, on January 12, 2010, the Plaintiff herein, 3 Geomat & Sons, Inc. (“Geomat”), represented by attorney Ron Moroni (“Attorney Moroni”) filed 4 the present suit in this court. Throughout the proceedings in the local courts, the Kallingals have 5 argued that the Workout Agreement was a novation that superseded and cancelled the Barrigada 6 Mortgage.3 This is the same issue in which Geomat seeks a declaratory judgment in its amended 7 complaint filed in this case. See Docket No. 25. In addition, HSBC has asserted a claim seeking 8 judicial foreclosure of the Mortgage on the Barrigada Property in the Superior Court of Guam case. 9 Again, with the filing of an amended complaint by Geomat there is a concurrent and competing quiet 10 title over the same Barrigada Property in this case. 11 HSBC now seeks to dismiss the Amended Complaint before this court on the basis of prior 12 exclusive jurisdiction, or alternatively, to dismiss or stay these federal proceedings under the 13 doctrine of abstention. 14 II. PROCEDURAL BACKGROUND 15 Geomat initiated this case by filing its complaint on January 12, 2010. Docket No. 1. The 16 Defendant named in the Complaint is HSBC. Id. HSBC filed its answer on February 22, 2010. 17 Docket No. 11. 18 On June 11, 2010, HSBC filed a Motion to Dismiss. Docket No. 14. On July 29, 2010, 19 Geomat filed its Opposition to the Motion. Docket No. 20. HSBC filed its Reply on August 6, 20 2010. Docket No. 23. 21 On July 29, 2010, Geomat also filed a First Motion to Amend/Correct Complaint. Docket 22 No. 19. Therein, Geomat sought to correct the captioned name from Geomat, Inc. to Geomat & 23 Sons, Inc. and to add an Exhibit A which was mistakenly not attached to the initial Complaint. This 24 motion was granted by the Magistrate Judge on September 13, 2010. Docket No. 24. And, Geomat 25 26 3 HSBC points out that neither Kallingal, P.C. nor the Kallingals have ever once in the local 27 proceedings, in its various arguments challenging the validity of the Barrigada Mortgage or the claims asserted against them by HSBC, raised the fact that Kallingal, P.C. transferred the Barrigada 28 Property to Geomat & Sons, Inc. See Docket No. 15, Tang Decl., at ¶ 5. 1 filed its Amended Complaint on September 21, 2010 reflecting the corrected name. Docket No. 25. 2 Because the motion to dismiss as to the original complaint was rendered moot, HSBC filed 3 a Motion to Dismiss the Amended Complaint. Docket No. 26. On October 18, 2010, Geomat filed 4 its Opposition. Docket No. 27. HSBC filed its Reply on October 25, 2010. Docket No. 30. 5 III. JURISDICTION AND VENUE 6 All of Geomant’s causes of action are within the court’s diversity jurisdiction. See 28 U.S.C. 7 § 1332; see also Docket No. 25 at ¶¶3 and 4. Jurisdiction should depend on the facts when the 8 complaint was filed. Smith v. Sperling, 354 U.S. 91, 93 n.1 (1957). 9 Venue is proper in this judicial district, the District of Guam, because all of the events or 10 omissions giving rise to Plaintiff’s claims occurred here. See 28 U.S.C. § 1391. 11 IV. ANALYSIS 12 A. “Prior Exclusive Jurisdiction” 13 HSBC argues that this action should be dismissed because there is an in rem foreclosure 14 action in the Superior Court giving it exclusive jurisdiction to proceed in this matter. Docket No. 15 26. 16 The doctrine of prior exclusive jurisdiction prohibits a court from “assuming in rem 17 jurisdiction over a res that is already under the in rem jurisdiction of another court.” United States 18 v. One 1985 Cadillac Seville, 866 F.2d 1142, 1145 (9th Cir. 1989). The purpose of the doctrine is 19 twofold; first “to protect the judicial processes of the court first assuming jurisdiction” Penn Gen. 20 Cas. Co. v. Pennsylvania ex rel. Schnader, 294 U.S. 189, 195 (1935) and second, to promote comity 21 between courts and to avoid the “logical and practical difficulty of two courts simultaneously vying 22 for possession or control of the same property.” United States v. $79,123.49, 830 F.2d 94, 97 (7th 23 Cir.1987). “The jurisdiction of one court must of necessity yield to the other.” Penn General, 294 24 U.S. at 195. 25 The Supreme Court expressed the rule in these terms: 26 [I]f the two suits are in rem or quasi in rem, requiring that the court or its officer have possession or control of the property which is the subject of the suit in order to 27 proceed with the cause and to grant the relief sought, the jurisdiction of one court must of necessity yield to that of the other. To avoid unseemly and disastrous 28 conflicts in the administration of our dual judicial system, . . . and to protect the 1 judicial processes of the court first assuming jurisdiction, . . . the principle, applicable to both federal and state courts, is established that the court first assuming 2 jurisdiction over the property may maintain and exercise that jurisdiction to the exclusion of the other. (Citations omitted.) 3 Penn General, 294 U.S. at 195. 4 In the present case the two suits relate to substantially the same subject matter. When this 5 action was filed in this court, HSBC had already commenced a “foreclosure action” in the Superior 6 Court of Guam. Without serious question, a proceeding to foreclose upon a mortgage is an action 7 in rem or quasi in rem.4 See e.g. Ridgway v. Salrin, 105 P.2d 1024, 1027 (Cal. Dist. Ct. App. 1940) 8 (“It has been uniformly held in California that the foreclosure of a mortgage is, in its nature, a 9 proceeding in rem against the mortgaged property, . . ..”); ABN AMRO Mortg. Group, Inc. v. 10 McGahan, 931 N.E.2d 1190, 1196 (Ill. 2009) (“Consistent with the foregoing authorities, we 11 conclude that a mortgage foreclosure proceeding must be deemed a quasi in rem action. One of the 12 pivotal differences between in rem and quasi in rem actions is whether the defendant is the property 13 or a named person.”); In re St.Clair, 251 B.R. 660, 668 (Bankr. D.N.J. 2000) (“Under New Jersey 14 law ‘[a] foreclosure action is purely quasi-in-rem, affording relief only against the secured 15 property.’”); P.I.E. Employees Federal Credit Union v. Bass, 759 P.2d 1144, 1150, n.4 (Utah 1988) 16 (“A proceeding to foreclose upon a mortgage is considered an action in rem or quasi in rem under 17 Utah law.”). 18 B. Whether the Supplemental Complaint was Properly Served. 19 Geomat claims the doctrine of “prior exclusive jurisdiction” does not apply because 20 Kallingal, P.C. was never brought into the Superior Court of Guam case. Additionally, it claims 21 that the Superior Court has never asserted jurisdiction over the Barrigada Property. 22 When the Superior Court case was filed on January 30, 2003, HSBC only named the 23 Kallingal as defendants. See Docket No. 20, Exh. 1. Kallingal P.C., the corporation which owned 24 25 4 An “action in rem” is defined as “an action determining the title to property and the rights 26 of the parties, not merely among themselves, but also against all persons at any time . . .” Black’s 27 Law Dictionary 34 (9th ed. 2009). An “action quasi in rem” is defined as “an action brought against the defendant personally, with jurisdiction based on an interest in property, the objective to deal with 28 the particular property or to subject the property to the discharge of the claims asserted.” Id. 1 the Barrigada Property at the time was not named. In addition, the initial complaint did not contain 2 a claim for judicial foreclosure. Id. 3 Two years later, in November 2005, HSBC moved to file a Supplemental Complaint to add 4 parties and additional claims in the Superior Court.5 See Docket No. 20, Exh. 2. Attorney Ron 5 Moroni, who represented the Kallingals filed a non-opposition to the motion. See Docket No. 30, 6 Exh. A. The Superior Court granted the motion, and allowed HSBC to file its Supplemental 7 Complaint. Geomat claims that HSBC, however, never issued a summons with respect to the 8 Supplemental Complaint and never actually brought Kalllingal P.C. in as a defendant in the case. 9 Geomat’s counsel, Attorney Moroni, states that he was unable to find any indication in his 10 own files that a summons had been issued or ever served on Kallingal P.C. See Docket No. 20, 11 Declaration of Ron Moroni (“Moroni Decl.”), ¶¶ 8-9. Moreover, the docket report does not indicate 12 that any summons was ever issued with respect to the Supplemental Complaint or that any process 13 was ever served on Kallingal P.C. See Docket No. 21, Moroni Decl., Exh. 6. 14 On January 3, 2006, Attorney Moroni filed an Answer to the Supplemental Complaint. See 15 Docket No. 20, Moroni Decl., Exh. 3. Geomat claims that Attorney Moroni only filed an answer 16 on behalf of the individual defendants, Drs. George and Matilda Kallingal. Geomat asserts that 17 counsel neither answered nor entered an appearance on behalf of Kallingal P.C. Throughout the 18 remainder of the litigation in the Superior Court, the Kallingals continued to appear by counsel, 19 Attorney Moroni. 20 Geomat contends there was never an appearance made by Kallingal P.C. because it was not 21 properly served. For example, an “Ex Parte Motion for Temporary Restraining Order and 22 Preliminary Injunction” filed by Defendants Drs. George and Matilda Kallingal on April 23, 2009, 23 did not mention Kallingal P.C. See Docket No. 20, Moroni Decl., Exh. 4. On September 1, 2009, 24 the Kallingals filed a “Notice of Appeal.” Id., Exh. 5. Again, Geomat contends that the appeal was 25 only on behalf of the Kallingals. 26 27 5 Specifically, HSBC added “the George and Matilda Kallingal, P.C.” as a party and added 28 mortgage foreclosure claims. See Docket No. 20, Opposition, Exh. 2. 1 The Superior Court only obtains jurisdiction over parties properly served with a summons 2 and complaint: 3 7 GCA § 14108. When Jurisdiction of an Action is Acquired. 4 From the time of the service of the summons and of a copy of the complaint in a civil action, where service of a copy of the complaint is required, or 5 of the completion of the publication when service by publication is ordered, the court is deemed to have acquired jurisdiction of the parties, and to have control of all the 6 subsequent proceedings. ... The voluntary appearance of a defendant is equivalent to personal service of the summons and a copy of the complaint upon him. 7 The Supreme Court of Guam has held that it adopts a “rule of strict compliance of statutory 8 service requirements.” Pineda v. Pineda, 2005 Guam 10, ¶ 18 (“[W]e join the majority of 9 jurisdictions that have adopted a rule of strict compliance of statutory service requirements.”). 10 Geomat claims that under the Guam Rules of Procedure,6 Rule 4(m) HSBC had 180 days 11 from the filing of the Supplemental Complaint, to serve a copy of the Complaint and Summons on 12 Kallingal P.C. Rule 4(m) provides: 13 Time Limit for Service. If service of the summons and complaint are not made 14 upon a defendant within 180 days after the filing of the complaint, the court, upon motion or on its own initiative after notice to the plaintiff, shall dismiss the action 15 without prejudice as to that defendant or direct that service be effectuated within a specified time; provided that if the plaintiff shows good cause for the failure, the 16 court shall extend the time for service an appropriate period. (Emphasis added). 17 Guam R. Civ. P. 4(m). 18 Additionally, Geomat argues that its conclusion is consistent with HSBC’s actions since the 19 filing of its Supplemental Complaint. For example, the Supplemental Complaint was filed almost 20 five years ago. Yet since that time, HSBC has made no attempt to move forward with a “judicial” 21 foreclosure of the property. Rather, in 2009, HSBC filed a notice of nonjudicial foreclosure on the 22 Barrigada Property.7 See Docket No. 15, Tang Decl., Exh. H. Geomat states that this confirms that 23 24 6 The Guam Rules of Civil Procedure were based on the Federal Rules of Civil Procedure. See Hart v. Hart, 2008 Guam 11 ¶ 12 (2008) (recognizing that has Guam uses a “rules of civil 25 procedure based system that . . . is based on a framework of the Federal Rules of Civil Procedure.”) 26 7 Judicial Foreclosure is defined as “[a] costly and time consuming foreclosure method by 27 which the mortgaged property is sold through a court proceeding requiring many standard legal steps such as the filing of a complaint, service of process, notice, and a hearing. Black’s Law Dictionary 28 719 (9th ed. 2009). 1 even HSBC recognized that there was no judicial foreclosure action pending in the Superior court. 2 If there was, HSBC’s attempt at nonjudicial foreclosure would have been an improper interference 3 with the court’s jurisdiction over the property. “An election of remedies must be made between 4 judicial foreclosure and nonjudicial foreclosure.” Thurman v. Fed. Deposit Ins. Corp., 889 F.2d 5 1441, 1445 (5th Cir. 1989) rehearing denied. 6 Therefore, Geomat argues that the doctrine of “prior exclusive jurisdiction” does not apply 7 because the action in the Superior Court case remains an in personam action against the Kallingals. 8 It is not an in rem procedure against Kallingal P.C. or against the Barrigada property because no 9 summons had ever been issued or served on the corporation or the property. 10 In reply, HSBC challenges Geomat’s statement that Kallingal, P.C. was never served. 11 Attorney Moroni has always represented to the court and to HSBC’s counsel he represented the 12 Kallingals personally, as well as Geomat and Kallingal P.C. See Docket No. 30, Tang. Decl, at ¶ 13 3. In addition to the representations made to the court, Attorney Moroni signed numerous 14 documents as the attorney representing all of the “Defendants” and affirmatively stating that he 15 represents Kallingal P.C. For example: 16 1. 9/12/05 Letter from Attorney Moroni to Ms. Tang stating “[i]t seems to me that under the agreement, Kallingal P.C. was obligated to make payments each month 17 of $8,000.00 Their checks constituted an offer of performance and fulfilled the obligation.” See Docket No. 30, Tang. Decl., Exh. B. 18 2. 1/16/06 Ex Parte Motion for Protective Order and to Quash Subpoena”– “GEOMAT, 19 Inc. and Defendants, Dr. George Kallingal and Dr. Matilda Kallingal, and Kallingal, P.C., hereby moves this court....” See Docket No. 30, Tang. 20 Decl., Exh. C at 1. 21 3. 2/24/06 Motion to Preclude Evidence filed by Attorney Moroni on behalf of the Kallingals and the Kallingal, P.C.– “Defendants, hereby move this court for 22 an order pursuant to Rule 37(d) . . . .” See Docket No. 30, Tang. Decl., Exh. D at 1. 23 4. 6/6/06 Mem. of Points and Authority in Support of Defendants Second Motion to 24 Preclude Evidence – “On February 01, 2006, the Defendants served on 25 Nonjudicial or Power-of-Sale Foreclosure is defined as “[a] foreclosure process by which, 26 according to the mortgage instrument and a state statute, the mortgaged property is sold at a 27 nonjudicial public sale by a public official, the mortgagee, or a trustee, without the stringent notice requirements, procedural burdens, or delays of a judicial foreclosure. Black’s Law Dictionary 719 28 (9th ed. 2009). 1 Plaintiff a notice of deposition to Rule 30(b)6.” See Docket No. 30, Tang. Decl., Exh. E at 1. 2 5. 11/29/06 Decision and Order re: HSBC’s Ex Parte Motion to Compel Compliance with 3 Court’s Order for Production of Documents– “Attorney Ronald P. Moroni appeared on behalf of Defendants, Dr. George Kallingal, Dr. Matilda 4 Kallingal, and the George and Matilda Kallingal, P.C.” See Docket No. 30, Tang. Decl., Exh. F at 1. 5 6. 12/6/06 Motion to Strike Affidavits filed by Attorney Moroni– “Defendants, hereby 6 move this court to strike all affidavits, declarations . . . .” See Docket No. 30, Tang. Decl., Exh. G at 1. 7 7. 8/4/09 Decision and Order re: Defendants’ Motion to Supplement Complaint and 8 Motion for Continued Temporary Restraining Order – “Attorney Ron Moroni appearing on behalf of the Defendants.” See Docket No. 30, Tang. Decl., 9 Exh. H at 1. 10 Not only have there been representations in the Superior Court case that Attorney Moroni 11 represented Kallingal P.C. but the Supreme Court of Guam has issued an opinion recognizing said 12 representation. The Supreme Court, in reciting the factual record and particularly the parties’ 13 dealings with regard to the loan and mortgage, stated “[i]n a November 22, 2002 letter, Mr. Moroni, 14 who by then had been hired to represent both the Kallingal P.C. and the Kallingals personally, 15 agreed to the terms of what is now called the ‘second workout agreement.’” HSBC, 2005 Guam 13, 16 ¶ 10. Furthermore, the Guam Supreme Court detailed the various arguments set forth by Kallingal 17 P.C. as folows: 18 HSBC asserts that the Forbearance Agreement merely embodied the terms of the settlement agreement that the parties had already agreed upon, while Kallingal P.C. 19 contends that the Forbearance Agreement contained materially different terms such as to materially alter the agreement between the parties. Kallingal P.C. argues it was 20 simply complying with the terms of its version of the Settlement Agreement, which the Bank then breached. 21 Id. at ¶ 28. 22 HSBC asserts that since the initiation of the Superior Court case in 2003, and at all relevant 23 times thereafter, it was understood by the parties and the court that Attorney Moroni represented the 24 Kallingals, personally, as well as Kallingal, P.C. It was apparent to the lower court and to HSBC 25 that Attorney Moroni’s filing of a non-opposition to HSBC’s motion to supplement the complaint, 26 to add Kallingal, P.C. as a party and to add the mortgage foreclosure claims, was on behalf of his 27 clients the Kallingals and Kallingal, P.C. 28 1 This relationship is evident from an Order issued on December 22, 2005, wherein the 2 Superior Court of Guam granted HSBC’s motion to supplement the complaint: 3 Therefore, IT IS ORDERED that: 4 1. The Plaintiff HSBC is granted leave to file a supplemental complaint in substance and for as set forth in the proposed supplemental pleading attached to the Motion. 5 2. The Defendants the Kallingal P.C. and Drs. George and Matilda Kallingal shall have 6 20 days after service of the Supplemental Complaint within which to file an answer. (Emphasis added). 7 See Docket No. 30, Tang. Decl., Exh. I. 8 The Order did not direct HSBC to serve a summons on the Kallingals or Kallingal, P.C. The 9 Order only required HSBC to serve the Supplemental Complaint on the Defendants. A summons 10 directs a party to file an answer and the Order by the Superior Court did just that– it directed the 11 Defendants to file an answer within 20 days of service of the Supplemental Complaint. HSBC states 12 that it served the Supplemental Complaint on the Kallingals and Kallingal, P.C. through their 13 attorney, Attorney Moroni. See Docket No. 15, Tang. Decl., Exh. F. There is no indication that 14 Attorney Moroni refused to receive service of the Supplemental Complaint on behalf of his clients 15 the Kallingals or Kallingal, P.C. 16 Moreover, after being served with the Superior Court’s December 22, 2005 Order and 17 Supplemental Complaint, Attorney Moroni filed an answer to the Supplemental Complaint on 18 January 4, 2006. See Docket No. 15, Tang. Decl., Exh. G. The Answer was presumably filed in 19 response to service of the Supplemental Complaint on him. Additionally, in the Answer, the 20 Defendants did not at any time mention that they were contesting service, whether on behalf of the 21 Kallingals or Kallingal P.C. “Defendants can waive the defect of lack of personal jurisdiction by 22 appearing generally without first challenging the defect in a preliminary motion, or in a responsive 23 pleading. Jurisdiction attaches if a defendant makes a voluntary general appearance, as by filing 24 an answer through an attorney.” Jackson v. Hayakawa, 682 F.2d 1344, 1347 (9th Cir. 1976) 25 (citations omitted). 26 After reviewing the filings, the court finds that the Superior Court had jurisdiction over 27 Kallingal, P.C. because the amended complaint was either properly served or, if not properly 28 1 served, Kallingal, P.C. waived any defect in service or personal jurisdiction by appearing generally 2 and by not raising this defense in earlier proceedings. “It is uniformly recognized that instances 3 where service has been declared jurisdictional, (such as personal service of a complaint or 4 summons), a defect in personal service can be waived.” Long-Term Bank of Japan v. Superior 5 Court of Guam, 2003 Guam 10, at ¶ 43 (citing City of S. Pasedena v. Mineta, 284 F.3d 1154, 1156 6 (9th Cir .2002) (“[M]ost jurisdictional objections-such as defects in personal jurisdiction, venue or 7 service of process-are waived unless asserted early in the litigation.”) (citations omitted)).8 8 In addition, Guam Rules of Civil Procedure 5 requires that all pleadings filed subsequent to 9 the original complaint be served on each party. See Guam R. Civ. P. 5(a). The rule further requires 10 that service under Rule 5 must be made on the attorney if a party is represented by an attorney unless 11 the court orders that service be made on the party itself. See Guam R. Civ. P. 5(b)(1).9 The 12 Superior Court’s December 22, 2005 Order required that the Kallingals and Kallingal P.C. answer 13 the Supplemental Complaint within 20 days after service of the Supplemental Complaint upon them. 14 The Order did not specify that the service be made personally on the parties. Accordingly, service 15 on their attorney Mr. Moroni was permitted, and was in fact required under Guam Rules of Civil 16 Procedure 5(b)(1). 17 Moreover, in their Answer, the Defendants specifically responded to Count Four of the 18 Supplemental Complaint, namely, the claim for foreclosure of Kallingal P.C.’s Mortgage. See 19 Docket No. 15, Tang. Decl., Exh. G. In responding to the Supplemental Complaint, including the 20 claim for judicial foreclosure on the Barrigada Property, the Defendants’ Answer was in fact filed 21 by Attorney Moroni on behalf of all the Defendants named in the Supplemental Complaint. The 22 23 8 The court finds counsel’s arguments disingenuous and is dismayed with Attorney Moroni’s 24 representation that he was not acting as counsel on behalf of Kallingal P.C. 25 9 Rule 5. Service and Filing of Pleadings and Other Papers. 26 (b) Making Service. 27 (1) Service under Rules 5(a) and 77(d) on a party represented by an attorney is made on the 28 attorney unless the court orders service on the party. 1 record establishes that Attorney Moroni represented all Defendants and acted with regard to all 2 throughout the local proceedings. Id., at Exhs. A-H. 3 Additionally, in their answer to the Supplemental Complaint, the Defendants filed a 4 counterclaim against HSBC, and in the allegations specifically stated that they, the Defendants, were 5 not obligated under the note, mortgage, or loan documents. See Docket No. 15, Tang. Decl., Exh. 6 G. Since Kallingal, P.C. was the party that executed the note, mortgage and loan agreements, 7 presumably the “defendants” that were responding to the Supplemental Complaint included 8 Kallingal, P.C. 9 To further highlight this point is the fact that HSBC filed a motion for summary judgment 10 in the Superior Court on all counts of the Supplemental Complaint, including the claim to foreclose 11 the mortgage held on the Barrigada Property. See Docket No. 30, Tang Decl., Exh. K. In their 12 opposition to the motion the Defendants did not claim or assert that the foreclosure claim was non- 13 existent due to any jurisdictional defect with regard to service of the Supplemental Complaint. Id., 14 Exh. L. 15 Instead of objecting to personal jurisdiction over Kallingal, P.C., the Answer to the 16 Supplemental Complaint responded to the foreclosure claim, the Counterclaim filed in response to 17 the Supplemental Complaint questioned whether the note, mortgage and loan documents were valid 18 as against the Defendants, and later in response to HSBC’s summary judgment motion on the 19 foreclosure claim, the Defendants failed to raise any defect in personal jurisdiction with regard to 20 the foreclosure claim. See Docket No. 30, Tang Decl., Exh. L. Under these circumstances, 21 Kallingal P.C. clearly waived any defect as to personal jurisdiction. Taitano v. Lujan, 2005 Guam 22 26, ¶¶ 24-25 (“[The defendant’s] failure to promptly raise the issue of personal jurisdiction, the 23 participation of [the defendant] in the lawsuit, his submission to the ultimate judgment of the court, 24 and his defense in this appeal of that judgment, constitutes a waiver of the affirmative defense of 25 personal jurisdiction.”). 26 C. Was Service on Kallingal, P.C.’s Attorney Proper Service Under Guam Rules of Civil Procedure, Rule 4. 27 HSBC argues that not only was service proper under Guam R. Civ. P. 5(b)(1), as previously 28 1 discussed, but under the circumstances, it was also proper under Guam R. Civ. P. 4. Specifically, 2 Attorney Moroni held himself out as a proper agent to receive service. 3 It is true that service of the Supplemental Complaint was made on Attorney Moroni. 4 Normally, an attorney is not authorized to receive service of process solely by reason of the 5 attorney’s status as counsel. Durbin Paper Stock Co. v. Hossain, 97 F.R.D. 639, 639 (S.D.Fla.1982) 6 see also Stone v. Bank of Commerce, 174 U.S. 412, 421 (1899) (holding attorney cannot “accept 7 service of process which commences the action without any authority to do so from his principal”). 8 As explained in United States v. Bosurgi, 343 F. Supp. 815 (D.C.N.Y. 1972), while “[a]n 9 attorney, solely by reason of his capacity as an attorney, does not thereby become his client’s agent 10 authorized by ‘appointment ... to receive service of process’” such service on the attorney is 11 permitted where it “appear[s] that the attorney was authorized, either expressly or impliedly, to 12 receive service of process for his client.” Id. at 817. If “agency is to be implied, it must be implied 13 from all the circumstances accompanying the attorney's appointment which indicate the extent of 14 authority the client intended to confer.” Id. at 818. 15 The Bosurgi court found that service on the defendant’s attorney was proper. There, the 16 United States filed a tax lien against a settlement fund and filed a suit on the lien in the New York 17 federal District Court. Specifically, attorneys for SAICI, a company asserting a claim to the fund, 18 commenced an action in New York State Supreme Court against the Bosurgis and Benedict 19 Ginsberg, claiming that the settlement fund “is the property of and accountable to [SAICI], and 20 seeking to have Ginsberg pay over the escrow fund to SAICI.” Bosurgi, 343 F.Supp. 815 at 817. 21 SAICI did not name the United States as a party to the state proceeding. Thereafter, the United 22 States was granted leave to amend the federal complaint to add SAICI as a party. Id. 23 The United States served process of the complaint on the attorneys representing SAICI in 24 the state court lawsuit. Id. SAICI challenged the service as invalid, but the district court disagreed 25 holding that service on the attorney was permissible. Id. The court held: 26 It is beyond question that SAICI’s attorneys were retained to assert its alleged right to, and to obtain possession of, the $215,000.FN8 This retainer necessarily required 27 the attorneys to resist the claims to the fund asserted by other parties, including the United States Government. Receipt of process by the attorney in this suit, which 28 involves relative rights to the settlement fund, was a necessary incident of the 1 attorney's effort to establish SAICI’s claim to the settlement fund by opposing the claims of the government, as well as those of the other claimants.FN9 Litigation with 2 the United States must have been intended as within the scope of the attorney's authority, since to obtain the fund for SAICI, its attorneys would inevitably have to 3 face and overcome the claim of the United States. In June 1971, when SAICI's attorneys brought the state court action, the government had already asserted its lien 4 against the fund. The fund was held in escrow subject to any further order of this court with regard to the United States and any other claimants; and the custodian 5 named by this court was named as a defendant in SAICI’s state court suit. In sum, upon the facts here presented, SAICI’s attorneys were impliedly authorized to 6 receive service of process on behalf of SAICI, a defendant in this suit, which, insofar as SAICI is here involved, seeks to determine its rights, if any, to the settlement 7 fund-the very object for which they were initially appointed. 8 Id. at 818 (footnotes omitted). The court went on to explain: 9 It is appropriate to note that in the instant litigation service upon SAICI's attorneys was not only adequate, but probably optimal. As one court noted in similar 10 circumstances: 11 “There is no fear ... that service of the summons and complaint upon [the attorney] would not be brought home to each principal. This is 12 at times a matter of concern in these problems of service of process through claimed authorized agent. That service of process upon their 13 lawyer would bring notice of the lawsuit to [the principals] seems beyond argument and is evident here from the motion itself in their 14 behalf to quash the service. Also, a lawyer endowed with all the authority given as here to act and appear is about the best candidate 15 one could choose to insure notice of a pending lawsuit.” 16 Id.(quoting United States v. Davis, 38 F.R.D. 424, 425-426 (N.D.N.Y. 1965). 17 Similarly here, Attorney Moroni was actively negotiating on behalf of Kallingal, P.C. with 18 respect to the claims against Kallingal P.C. in the District Court bankruptcy case filed prior to the 19 Superior Court action. See Docket No. 30, Tang Decl., Exh. M. Part of the settlement of the 20 bankruptcy case involved release of the Barrigada Property to the control of Kallingal, P.C. and 21 thereafter the Kallingals as owners of Kallingal, P.C. Id., Exh. J (Appellee’s Brief, pp. 11-12) 22 (“Between the time of the issuance of the Temporary Restraining Order and the Hearing on the 23 Preliminary Injunction, the Kallingals successfully negotiated a dismissal of the Kallingal P.C. 24 Bankruptcy . . . As a result of the dismissal, the property of the P.C. was returned to the control of 25 the Kallingals.”). The Kallingals have asserted throughout the local court proceedings that they 26 attempted to enter into a settlement with HSBC whereby HSBC would release the mortgage on the 27 Barrigada Property, property that was tied up in the Kallingal, P.C. Bankruptcy Proceeding. See 28 Docket No. 15, Tang Decl., Exh. G. 1 It seems clear to this court that the Kallingals and Kallingal, P.C. retained Attorney Moroni 2 for purposes of challenging any enforcement of the mortgage held by HSBC. Under these 3 circumstances, Attorney Moroni was “authorized to receive service of process on behalf of 4 Kallingal, P.C., a defendant in the Superior Court lawsuit, which, insofar as Kallingal, P.C. was 5 involved, seeks to determine HSBC’s rights to foreclose on the mortgage, which was one of the 6 subjects at issue in the Kallingal P.C. Bankruptcy, and for which Attorney Moroni was initially 7 appointed to negotiate. See Bosurgi, 343 F.Supp. at 818. The service was intended to give notice 8 to the sole owners and principals of Kallingal, P.C., the Kallingals, who were represented throughout 9 these proceedings by Attorney Moroni. Accordingly, service of the Supplemental Complaint on 10 Kallingal, P.C. was proper under Guam R. Civ. P. 4. 11 Because Kallingal P.C. was properly served with the Supplemental Complaint, the Superior 12 Court in fact has jurisdiction over the pending mortgage foreclosure claim. 13 D. Colorado River Abstention Doctrine.10 14 HSBC argues in the alternative that abstention is appropriate because similar if not identical 15 issues raised herein are pending in the Superior Court (and have been for the last 7 years). The 16 abstention doctrine explained in Colorado River Water Conservation District v. United States 424 17 U.S. 800, 818-819 (1976) is used to determine whether to stay a federal action in favor of pending 18 state court proceedings involving the same subject matter. “Abstention from the exercise of federal 19 jurisdiction is the exception, not the rule.” Id. at 813. 20 The doctrine of abstention, under which a District Court may decline to exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to 21 the duty of a District Court to adjudicate a controversy properly before it. Abdication of the obligation to decide cases can be justified under this doctrine only in the 22 exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest. 23 Id. (citation and quotation marks omitted). 24 25 10 “Although the doctrine is sometimes referred to as an abstention doctrine, the Supreme Court has rejected this categorization. ... Unlike abstention, which rests on ‘regard for federal-state 26 relations’ and ‘considerations of proper constitutional adjudication,’ Colorado River rests on 27 ‘considerations of “‘[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.’ ” Attwood v. Mendocino Coast Dist. Hosp., 28 886 F.2d 241, 243 (9th Cir. 1989) (quotations and citations omitted). 1 Colorado River abstention is available in order to foster the important objective of “[w]ise 2 judicial administration, giving regard to conservation of judicial resources and comprehensive 3 disposition of litigation.” Id. at 817 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 4 U.S. 180, 183 (1952)). The principles of Colorado River are to be applied “only in situations 5 involving the contemporaneous exercise of concurrent jurisdictions, either by the federal courts or 6 by state and federal courts.” Kirkbride v. Continental Cas. Co., 933 F.2d 729, 734 (9th Cir.1991) 7 (citations and quotation marks omitted). 8 Several factors must be considered when determining whether Colorado River abstention 9 by the federal court would be appropriate. 10 It has been held, for example, that the court first assuming jurisdiction over property 11 may exercise that jurisdiction to the exclusion of other courts.... [A] federal court may also consider such factors as the inconvenience of the federal forum; the 12 desirability of avoiding piecemeal litigation; and the order in which jurisdiction was obtained by the concurrent forums. No one factor is necessarily determinative; a 13 carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counseling against that exercise is 14 required. Only the clearest of justifications will warrant dismissal. 15 424 U.S. at 818-19 (citations omitted). 16 Because of the flexible approach called for by the Supreme Court, this list of factors is not 17 exclusive, and others may be considered. Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989). 18 The factors relevant to a given case are to be subjected to a balancing test: 19 [T]he decision whether to dismiss a federal action because of parallel state-court litigation does not rest on a mechanical checklist, but on a careful balancing of the 20 important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction. The weight to be given to any one factor may 21 vary greatly from case to case, depending on the particular setting of the case. 22 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983). 23 The application of the Colorado River doctrine requires a court to first address the threshold issue 24 of whether there are parallel state and federal proceedings involving the same matter. See id. “Exact 25 parallelism” between the actions is not required; instead, the actions need only be “substantially 26 similar.” Nakash, 882 F.2d at1416. If the threshold question of similarity is answered in the 27 affirmative, the court must then determine whether the sort of “exceptional circumstances” 28 warranting a stay or dismissal are present. In analyzing the Colorado River abstention doctrine, the 1 Ninth Circuit has generally enumerated six factors for determining whether circumstances exist to 2 warrant abstention: 3 (1) whether either the state or federal court has exercised jurisdiction over a res; 4 (2) the inconvenience of the federal forum; 5 (3) the desirability of avoiding piecemeal litigation; 6 (4) the order in which the forums obtained jurisdiction; 7 (5) whether federal or state law controls the decision on the merits; 8 (6) whether the state court can adequately protect the rights of the parties; and 9 (7) whether forum shopping is at issue. 10 40235 Washington Street Corp. v. Lusardi, 976 F.2d 587, 588-589 (9th Cir. 1992); see also Nakash, 11 888 F.2d at 1417. The first prong of the Colorado River abstention test is dispositive. The Ninth 12 Circuit has held that “in proceedings in rem or quasi in rem, the forum that first assumes custody 13 of the property at issue has exclusive jurisdiction to proceed.” Id. 14 After weighing the relevant Colorado River factors against the “balance heavily weighted 15 in favor of the exercise of jurisdiction,” abstention seems appropriate. Cone, 460 U.S. at 16. First, 16 no question exists that there is a parallel proceeding that has been filed first in the Superior Court 17 foreclosure action involving the same real property, that has been ongoing for years. The Superior 18 Court foreclosure action is an ongoing in rem or quasi in rem proceeding. Likewise the later filed 19 federal quiet title action in this court is a quasi in rem proceeding concerning the same piece of 20 property. 21 Second, the case filed in the Superior Court was filed first and has been ongoing for years. 22 Third, the proceedings in both cases are in rem or quasi in rem. Lastly, there is the risk of piecemeal 23 litigation should this court rule on the matter, thereby duplicating efforts and possibly leading to 24 inconsistent rulings as to the parties’ respective rights to the Barrigada Property. “[P]iecemeal 25 litigation is a factor that can support a stay under the exceptional circumstances test. ‘Piecemeal 26 litigation occurs when different tribunals consider the same issue, thereby duplicating efforts and 27 possibly reaching different results.’” Travelers Indemnity Co. v. Madonna, 914 F.2d 1364, 1369 (9th 28 Cir. 1990) (quoting Amer. Int'l Underwriters, 843 F.2d 1253, 1258 (9th Cir. 1988)). There clearly 1 || are “exceptional” circumstances warranting abstention under Colorado River, as a result, this court 2 || stays its exercise of jurisdiction 3 V. CONCLUSION 4 Based on the foregoing, the court finds that the Superior Court of Guam has in rem 5 || jurisdiction over the res— the Barrigada property. Therefore, this court’s federal jurisdiction must 6 || yield under both the prior exclusive jurisdiction doctrine and the Colorado River abstention doctrine. 7 || Accordingly, the court STAYS this federal action under the doctrine of abstention.'’ The parties are 8 || directed to notify the court upon completion of the local court litigation. 9 SO ORDERED. 10 /s/ Frances M. Tydingco-Gatewood 11 har. Chief Judge □ Dated: Mar 25, 2011 12 mA 13 14 15 16 17 18 19 20 21 22 23 24 25 26 "' The court understands the Ninth Circuit’s preference for district courts to stay a case 27 || rather than dismiss it under Colorado River. See Coopers v. Lybrand v. Sun-Diamond Growers, 912 F.2d 1135, 1138 (9th Cir. 1990) (“[D]istrict courts must stay, rather than dismiss, an action when 28 || they determine that they should defer to the state court proceedings under Colorado River.”). Page 19 of 19