PPG Industries, Inc. v. Continental Oil Company

• Decision Date: 07 June 1973
• Docket Number: No. 72-3148.,72-3148.
• Citation: 478 F.2d 674
• Parties: PPG INDUSTRIES, INC., Plaintiff-Appellant, v. CONTINENTAL OIL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

478 F.2d 674 (1973)

PPG INDUSTRIES, INC., Plaintiff-Appellant, v. CONTINENTAL OIL COMPANY, Defendant-Appellee.

No. 72-3148.

United States Court of Appeals, Fifth Circuit.

May 9, 1973.

Rehearing Denied June 7, 1973.

Oliver P. Stockwell, Fred H. Sievert, Jr., Lake Charles, La., Raymond A. Cook, Alfred H. Ebert, Jr., Houston, Tex., David A. Cort, Richard C. Packard, Pittsburgh, Pa., for plaintiff-appellant.

Austin W. Lewis, Gene W. Lafitte, New Orleans, La., John C. Snodgrass, Keith W. Blinn, Harry M. Reasoner, John E. Kennedy, Joseph C. Johnson, Houston, Tex., for defendant-appellee.

Before BELL and THORNBERRY, Circuit Judges, and GROOMS, District Judge.

THORNBERRY, Circuit Judge.

Appellant PPG Industries (PPG) filed this diversity action below in a Louisiana federal court against appellee Continental Oil Company (Conoco) for a declaration of the parties' rights under a gas sale contract and for an injunction to restrain Conoco from performing certain acts which would constitute a breach of the contract or impair Conoco's ability to perform it. On Conoco's motion the district court stayed further proceedings pending final determination of an action for a declaratory judgment previously filed by Conoco against PPG and one other party in a Texas state court which raised the same issues as the federal suit. PPG appeals from the stay order under 28 U.S.C.A. § 1292(b), having obtained the requisite certificate from the district court and permission from this court to take this interlocutory appeal.¹ We affirm the ruling of the district court.

Under a 1963 contract, last amended in 1969, Conoco agreed to sell to PPG on a continuing basis until 1987 large quantities of natural gas which PPG needed for operation of its large chemical plant at Lake Charles, Louisiana. PPG planned to rely heavily on this gas to support expanded operations at the Lake Charles plant, and it so informed Conoco when the contract was amended in 1969. By 1972, however, Conoco had realized that the contract had become "impossible or commercially impracticable of performance because of the drastic national shortage of natural gas and government regulation,"² and it notified PPG that in 1973 or 1974 it would be unable to supply the amounts of gas agreed upon. PPG and Conoco representatives arranged to meet on May 22, 1972 to discuss the contract and to seek solutions to the problem caused by the gas shortage. On May 10, 1972, about two weeks before the meeting, Conoco filed suit in a state district court in Harris County, Texas against PPG and Olin Corporation, another of its major gas customers, for a declaratory judgment that its failure to supply the amounts of gas originally contemplated would not be a breach of its contractual duties. Subsequently, Olin Corporation was granted a severance, and Conoco amended its original petition to add other gas customers as declaratory defendants.

Since the filing of the original Texas suit by Conoco, PPG has undertaken several manuevers designated to relocate the litigation on the contractual questions in Louisiana, where it believes the applicable choice-of-law rule ³ and the substantive contracts law ⁴ are more favorable, and Conoco has battled—successfully so far—to confine the litigation to the Texas forum. PPG has sought three times to remove the Texas, suit to a federal court in Texas, which might then transfer the case to a federal court in Louisiana; finding a slightly different set of defendants on each removal attempt due to severances of some defendants and additions of others, the federal district court in Texas each time remanded to the state court, either because the requisite diversity did not exist between Conoco and each of the defendants or because one of the declaratory defendants was a Texas resident. See 28 U.S.C.A. § 1441. PPG also filed suit on May 31, 1972 against Conoco in a Louisiana court in Calcasieu Parish, but that court dismissed the action in deference to the Texas court, which had issued a temporary restraining order prohibiting PPG from proceeding further in the Calcasieu Parish suit.

The instant action for declaratory and injunctive relief,⁵ filed by PPG on June 29, 1972 in the federal district court in Lakes Charles, Louisiana represents PPG's latest tactic to gain access to a Louisiana forum, and the district court's order staying further proceedings pending the outcome of the Texas suit is the barrier which presently blocks this route. Whether the stay order was properly entered depends on the answers to two questions: (1) Whether the district court had discretionary power to stay further proceedings in a diversity suit for declaratory and injunctive relief in deference to a pending state declaratory judgment action, and (2) if so, whether the district court properly exercised its discretion in this case. Upon consideration, we believe both questions must be answered in the affirmative.

I. Discretionary Power to Stay

Where federal action and a parallel state action involving the same controversy are both proceedings in rem or quasi in rem, so that the granting of effective relief requires possession or control of the res, the court which first assumes jurisdiction acquires exclusive jurisdiction and deprives the other court of power to decide the case. Princess Lida of Thurn and Taxis v. Thompson, 1939, 305 U.S. 456, 466, 59 S.Ct. 275, 280, 83 L.Ed. 285. This virtually mechanical in rem rule does not apply to actions in personam, however, such as the instant federal action and the corresponding Texas suit, which do not center about an identifiable res. Where both suits are in personam, as here, each court may proceed to adjudicate the controversy independently despite the pendency of a similar suit in the other court:

Each court is free to proceed in its own way and in its own time, without reference to the proceedings in the other court. Whenever a judgment is rendered in one of the courts and pleaded in the other, the effect of that judgment is to be determined by the application of the principles of res adjudicata by the court in which the action is still pending in the orderly exercise of its jurisdiction, as it would determine any other question of fact or law arising in the progress of the case.

Kline v. Burke Construction Company, 1922, 260 U.S. 226, 230, 43 S.Ct. 79, 81, 67 L.Ed. 226. Thus, the district court below clearly had power to proceed in the instant case. This power is not at issue here. The issue is whether in view of the pendency of a parallel state proceeding, the district court could properly stay its hand when it had power to proceed.

PPG, to support its argument that the stay order was improper, relies principally on Meredith v. City of Winter Haven, 1943, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9. In that case the plaintiffs, invoking the federal court's diversity jurisdiction, sought a declaration that under Florida law the City of Winter Haven could not retire certain bonds without providing for the payment of deferred interest coupons and an injunction restraining the City from doing so, as well as other declaratory and injunctive relief. The Court of Appeals had directed that the action be dismissed and the plaintiffs be left to litigate their claims in state courts because no federal questions were presented and the questions of state law were unsettled. The Supreme Court reversed, holding that difficulty of questions of state law could not alone justify refusal to exercise the diversity jurisdiction conferred on the federal courts by Congress. The Court stressed initially that the prayer for declaratory relief, which accompanied the prayer for injunctive relief, did not stamp the suit with a special overriding declaratory character or eclipse the prayer for an injunction. It noted that a declaration of rights is normally a prerequisite to an award of injunctive relief and concluded that, although the court of appeals had referred to the suit as one for declaratory judgment, it should properly be treated as "ordinary equity suit." 320 U.S. at 231, 64 S.Ct. at 9. The Court then affirmed the mandatory nature of diversity jurisdiction conferred on the federal courts by Congress and made clear that in equity suits only "exceptional circumstances" could justify a discretionary refusal to exercise that jurisdiction:

The diversity jurisdiction was not conferred for the benefit of the federal courts or to serve their convenience. Its purpose was generally to afford to suitors an opportunity in such cases, at their option, to assert their right in the federal rather than in the state courts. In the absence of some recognized public policy or defined principle guiding the exercise of the jurisdiction conferred, which would in exceptional cases warrant its non-exercise, it has from the first been deemed to be the duty of the federal courts, if their jurisdiction is properly invoked, to decide questions of state law whenever necessary to the rendition of a judgment. . . . When such exceptional circumstances are not present, denial of that opportunity by the federal courts merely because the answers to the questions of state law are difficult or uncertain or have not yet been given by the highest court of the state, would thwart the purpose of the jurisdictional act.

The exceptions relate to the discretionary powers of courts of equity. An appeal to the equity jurisdiction conferred on federal district courts is an appeal to the sound discretion which guides the determinations of courts of equity.

320 U.S. at 234, 64 S.Ct. at 11. The Court listed several established policies which would warrant the exercise of discretion to withhold equitable relief in some circumstances, including the policies against federal intervention in state criminal prosecutions and federal interference with the collections of state taxes, and the abstention doctrine established in Railroad Commission v. Pullman Company, 1941, 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed....