G.C. and K.B. Investments, Inc. v. Wilson

Citation326 F.3d 1096
Decision Date23 April 2003
Docket NumberNo. 00-56627.,No. 01-55988.,No. 01-55991.,No. 01-55733.,00-56627.,01-55733.,01-55988.,01-55991.
PartiesG.C. AND K.B. INVESTMENTS, INC., a Louisiana Corporation, Plaintiff-Appellee, v. Stuart WILSON; Irene Wilson, Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Geordan Goebel, Van Nuys, CA, argued the cause and filed briefs for the appellants.

Barry R. Schlom, Los Angeles, CA, argued the cause and filed a brief for the appellee.

Appeal from the United States District Court for the Central District of California; Virginia A. Phillips, District Judge, Presiding. D.C. No. CV-00-00148-VAP.

Before: HUG, BRUNETTI and O'SCANNLAIN, Circuit Judges.

O'SCANNLAIN, Circuit Judge.

In this case, we deal with the interplay between federal and state courts in a bitter and protracted dispute involving the enforcement of an arbitration award.

I

In January 1992, Stuart and Irene Wilson entered into a written agreement in California with Arrowhead Oil Corporation ("AOC") for the sale of certain franchise rights for the ownership and operation of a car care service business to be opened in Hawaii. AOC was a Lake Arrowhead, California-based regional sub-franchisor of SpeeDee Oil Change Systems ("SpeeDee"), a Louisiana Corporation, and in due course, the Wilsons opened their SpeeDee franchise, SpeeDee Oil of Maui, Inc, in Kahului, Hawaii. In 1993, AOC filed for bankruptcy, and SpeeDee took over the regional sub-franchise.

In 1994, the California Department of Corporations, after receiving complaints of unfair and deceptive sales practices (not necessarily related to this litigation), filed suit against SpeeDee and AOC. The state alleged that SpeeDee and AOC failed to disclose material facts in their Uniform Franchise Offering Circular, and made material misrepresentations with regard to franchise offerings, in violation of California securities law. In 1997, a California court entered judgment against SpeeDee and AOC, enjoining them from further sales in violation of state law. Subsequently, SpeeDee assigned its franchisor rights to G.C. & K.B. Investments, Inc. ("GC&KB"), also a Louisiana corporation.

SpeeDee's form franchise agreement contained an arbitration clause, requiring the franchisee to submit any claim or dispute arising under the agreement to binding arbitration. The agreement provided that arbitration was to be the sole dispute resolution method, and was to be conducted pursuant to the rules of the American Arbitration Association ("AAA"). The arbitration clause called for arbitration at the AAA office "located nearest the office of the[franchisor's] Region." The agreement also provided that litigation "to enforce any arbitration award ... shall be held in San Bernardino County, California, or the federal court located nearest thereto."

The Wilsons allege that in the years following the opening of their franchise in Hawaii, SpeeDee repeatedly reneged on oral promises to the Wilsons to provide corporate support. As a result, the Wilsons stopped paying royalties and advertising funds due, and stopped reporting sales and related information to GC&KB. GC&KB filed with the AAA a demand for arbitration, which was set for February 9, 2000, in New Orleans, Louisiana, and the Wilsons were served with notice of the proceedings in accordance with AAA procedures. The Wilsons read the franchise agreement to require arbitration in California, not Louisiana. Objecting to the Louisiana arbitration on that basis, they refused to participate.

While the Wilsons chose not to make an appearance in the Louisiana arbitration, they did make various attempts to prevent the arbitration from going forward. First, they filed a motion to enjoin the arbitration in the ongoing litigation between the California Department of Corporations against SpeeDee and AOC for violations of state franchise law, but that motion was denied. Second, the Wilsons filed suit in Hawaii state court, seeking relief from the franchise agreement. The Hawaii court denied the Wilsons' application for a temporary restraining order, and denied their motion for a preliminary injunction.

The Wilsons' attempts to prevent the arbitration from going forward having failed, the Louisiana arbitrator, in February, 2000, granted an award in favor of GC & KB on its claim. GC & KB then, on March 14, 2000, filed an application for an order confirming its arbitration award in United States District Court for the Central District of California, pursuant to the arbitration agreement and to the Federal Arbitration Act ("FAA"). See 9 U.S.C. § 9.1 The Wilsons opposed, claiming that the California courts had already determined the agreement was illegal, and hence the arbitration award was invalid. On August 14, 2000, the federal district court confirmed the award, and the Wilsons timely appealed.

The Hawaii state courts issued two orders that would form the basis for a subsequent attack on the federal court's confirmation of the arbitration award in favor of GC & KB. The first of these was issued on June 27, 2000, forty-seven days prior to the federal court's judgment confirming the Louisiana arbitration award, and was issued in response to a motion filed by GC & KB requesting dismissal, or alternatively to compel arbitration, of the Wilsons' second amended complaint in the Hawaii litigation. The Hawaii court denied the motion to dismiss, but granted the motion to compel arbitration. The Hawaii court, however, read the agreement to provide for arbitration of those claims in California, not Louisiana, and so ordered.

The second arose out of GC & KB's attempt to enforce its federal court judgment against the Wilsons in Hawaii state court, which enjoined such proceedings in an October 18, 2000 order because it found that such request was inconsistent with the order of arbitration entered June 27, 2000.

Armed with these two Hawaii state court orders, the Wilsons filed a "motion for limited remand" in district court, so that the district court might consider a Rule 60(b) motion.2 The Wilsons claimed that, taken together, the June and October orders issued in Hawaii invalidated the Louisiana arbitration award, hence rendering invalid the district court's entry of judgment on that award. The district court denied the motion, stating that the Hawaii court's October 18, 2000 order "does not decide that the arbitration award is either void or moot [but] merely temporarily enjoins [GC & KB] from enforcing the award."

The Wilsons then went back to Hawaii state court and asked for an order "clarifying" its June 27, 2000 order, and urged it to find that the Louisiana arbitration was void and vacated. GC & KB then sought an injunction in federal district court, seeking to prevent the Wilsons from interfering any further with its attempts to enforce its judgment, which was promptly granted in March, 2001. Notwithstanding the injunction, the Wilsons filed another post-judgment motion in district court, this time a Rule 60(b) motion for relief from judgment,3 essentially repeating the argument they made in their prior motion for limited remand.

In the meantime, the Hawaii state court duly issued its clarification order, holding that the federal district court had no subject matter jurisdiction over the dispute, and the Louisiana arbitration award was void and vacated. Thereafter, the federal district court denied the Wilsons' Rule 60(b) motion, and granted GC & KB's motion for Rule 11 sanctions against the Wilsons and their attorneys.

In these consolidated appeals, the Wilsons timely challenge four decisions made by the district court: the confirmation of the arbitration award, the issuance of a permanent injunction, the denial of the Rule 60(b) motion, and the imposition of Rule 11 sanctions.

II

We first consider the Wilsons' challenge of the district court's entry of judgment confirming the default arbitration award.

A

The Wilsons assert that the Rooker-Feldman doctrine divested the district court of jurisdiction to enter judgment on the arbitration award. The Rooker-Feldman doctrine evolved from the Supreme Court's decisions in D.C. Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983), and Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923), and it rests on the principle that "a United States District Court has no authority to review final judgments of a state court in judicial proceedings." Feldman, 460 U.S. at 482, 103 S.Ct. 1303; Rooker, 263 U.S. at 416, 44 S.Ct. 149. The doctrine is not constitutionally based, but "arises out of a pair of negative inferences drawn from two statutes: 28 U.S.C. § 1331, which establishes the district court's original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States; and 28 U.S.C. § 1257, which allows Supreme Court review of final judgments or decrees rendered by the highest court of a State in which a decision could be had." In re Gruntz, 202 F.3d 1074, 1078 (9th Cir.2000) (en banc) (internal quotations omitted); Dubinka v. Judges of the Sup. Ct. of the State of Cal. for the Co. of Los Angeles, 23 F.3d 218, 221 (9th Cir.1994).4 While the language of 28 U.S.C. § 1257 applies only to final judgments of a state's highest court, we have previously held that the Rooker-Feldman doctrine applies to the decisions of lower state courts also, even those interlocutory in nature.5 Doe & Associates v. Napolitano, 252 F.3d 1026, 1030 (9th Cir.2001).

The Rooker-Feldman doctrine prohibits a federal district court from hearing two types of claims. First, a federal district court cannot engage in direct appellate review of state court determinations that have previously been adjudicated in any state court. Worldwide Church v. McNair, 805 F.2d 888, 890 (9th Cir.1986) (federal district courts have "no authority to review the final...

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