United States ex rel. Wright v. Fidelity & Deposit Co. of Maryland (In re North American Oil & Gas Co.)

130 B.R. 482, 5 Tex.Bankr.Ct.Rep. 450, 1991 Bankr. LEXIS 1155
CourtUnited States Bankruptcy Court, W.D. Texas
DecidedAugust 13, 1991
DocketBankruptcy No. 88-10358-C; Adv. No. 91-1080-C
StatusPublished
Cited by1 cases

This text of 130 B.R. 482 (United States ex rel. Wright v. Fidelity & Deposit Co. of Maryland (In re North American Oil & Gas Co.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States ex rel. Wright v. Fidelity & Deposit Co. of Maryland (In re North American Oil & Gas Co.), 130 B.R. 482, 5 Tex.Bankr.Ct.Rep. 450, 1991 Bankr. LEXIS 1155 (Tex. 1991).

Opinion

DECISION AND ORDER ON MOTION OF PLAINTIFF FOR STAY OF PROCEEDINGS

LEIF M. CLARK, Bankruptcy Judge.

CAME ON for consideration the Application For Stay Of Proceeding In Another Court And For Damages Pursuant To 28 U.S.C. § 1927 filed by Plaintiff Stanley W. Wright, Liquidating Trustee, and the response of Defendant Fidelity Deposit Company of Maryland.

FACTUAL BACKGROUND

This adversary proceeding concerns the liability of Fidelity and Deposit Company of Maryland (Fidelity”) on the bond of Robert James Moffitt, the former Chapter 11 Trustee in this case. Stanley W. Wright (“Wright”), the Liquidating Trustee under the confirmed plan in this case, sued on the bond on behalf of creditors of the estate, for damages arising from the alleged acts and omissions of Moffitt while he was acting as the trustee in the case.

Moffitt has himself filed for bankruptcy under Chapter 7 in the Southern District of Texas, Houston Division. In that case, Wright has objected to Moffitt’s attempt to discharge his obligations to this estate, including (1) the obligation of Moffitt to repay to this estate approximately $118,000 in fees which this court ordered repaid to the estate by way of a disgorgement, and a sanction of $25,000, and (2) damages incurred by the estate as a result of Moffitt’s malfeasance or misfeasance as a trustee. That action is brought pursuant to Section 523 of the Bankruptcy Code. Fidelity also objected to Moffitt’s discharging any debt which he might owe to Fidelity as a result of Fidelity’s having to pay on the bond, as a result of any judgment which might be entered in this adversary proceeding.

Fidelity has sought to intervene in Wright’s objection to dischargeability in the Southern District of Texas case. As part of that proposed intervention, Fidelity wishes to assert a counterclaim for declaratory relief, requesting the bankruptcy court in Moffitt’s bankruptcy to determine that Moffitt is not liable to Wright. The thrust of that counterclaim is to obtain precisely the same relief as Wright had already requested when he initiated this adversary proceeding in the Western District of Texas.

By this motion, Wright seeks to enjoin Fidelity’s attempt to raise by counterclaim in the Southern District of Texas adversary proceeding the same issues as have already been joined in this adversary proceeding in the Western District of Texas. Fidelity resists, on grounds of judicial economy.

ANALYSIS

A. The injunction of proceedings question.

“Generally, where a suit has been properly filed in one court, the filing of an identical suit in a second court does not deprive the first court of jurisdiction.” In re Burley, 738 F.2d 981, 988 (9th Cir.1984); see Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200 (1952). See Fed.R.Bankr.P.Rule 9025 (“whenever the Code or these rules require or permit the giving of security by a party, and security is given in the form of a bond or stipulation or other undertaking with one or more sureties, each surety submits to the jurisdiction of the court, and liability may be determined in an adversary proceeding governed by the rules in Part VII”). Normally, the first court asked to adjudicate a matter has priority over a subsequent lawsuit involving the same facts. Orthmann v. Apple River Campground, Inc., 765 F.2d 119, 121 (8th Cir.1985) (courts follow a “first to file” rule that where two courts have concurrent jurisdiction, the first court in which jurisdiction attaches has priority to consider the case). See also Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp., 804 F.2d 338, 343 (5th Cir.1986) (relying on [484]*484Cowden Manufacturing Co. v. Koratron Co., 422 F.2d 371, 372 (6th Cir.1970), cert. denied, 398 U.S. 959, 90 S.Ct. 2173, 26 L.Ed.2d 544 (1970)) (circuit court will reverse a district court’s decision not to enjoin another proceeding only if the district court abused its discretion).

The district courts clearly do have the discretion to enjoin filing of related lawsuits in other United States district courts. Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-84, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952); Municipal Energy, 804 F.2d at 343; Schauss v. Metals Depository Corp., 757 F.2d 649, 654 (5th Cir.1985); cf. Donovan v. City of Dallas, 377 U.S. 408, 84 S.Ct. 1579, 12 L.Ed.2d 409 (1964) (pendency of an action in a state court is no bar to proceedings concerning the same matter in the federal court having jurisdiction). By virtue of Section 157(a), the bankruptcy courts have similar authority. 28 U.S.G. § 157(a). The general purpose is to avoid duplicative litigation. Municipal Energy, 804 F.2d at 343. However, “a careful considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise is required.” Colorado River Water Conservation District v. United States, 424 U.S. 800, 818-19, 96 S.Ct. 1236, 1247, 47 L.Ed.2d 483 (1976).1

When two actions involving the same parties and issues are pending in two districts, a court may also decline to enjoin the second proceeding, if “the balance of convenience” is sufficiently compelling to outweigh the priority otherwise afforded to prior actions. Unilease Computer Corp. v. Major Computer Inc., 126 F.R.D. 490 (S.D.N.Y.1989). The Unilease court isolated six factors it found relevant to making this determination, including (1) the adequacy of relief available in the alternative forum, (2) promotion of judicial efficiency, (3) the identity of parties and issues in two actions, (4) the likelihood of prompt resolution in alternative forum, (5) convenience of the parties, counsel, and witnesses, and (6) the possibility of prejudice to any party. Id.

Fidelity maintains that, in this case, judicial economy dictates that Fidelity be allowed to proceed with its counterclaim in Houston, on grounds that the same parties are involved in both actions, that the dis-chargeability action has to be decided by the Houston court anyway, that the same facts and transactions will be involved in the dischargeability action in Houston, that the same witnesses will have to be called in both cases, and that, therefore, it would be a more efficient use of judicial resources to try the entire matter before the bankruptcy judge in Houston.

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130 B.R. 482, 5 Tex.Bankr.Ct.Rep. 450, 1991 Bankr. LEXIS 1155, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-ex-rel-wright-v-fidelity-deposit-co-of-maryland-in-re-txwb-1991.