Transouth Financial Corp. v. Bell

• Decision Date: 25 August 1997
• Docket Number: Civil Action No. 96-T-1747-N.
• Citation: 975 F.Supp. 1305
• Parties: TRANSOUTH FINANCIAL CORPORATION, et al., Plaintiffs, v. Ronald A. BELL, Defendant.
• Court: U.S. District Court — Middle District of Alabama

Page 1305

975 F.Supp. 1305

TRANSOUTH FINANCIAL CORPORATION, et al., Plaintiffs, v. Ronald A. BELL, Defendant.

Civil Action No. 96-T-1747-N.

United States District Court, M.D. Alabama, Northern Division.

August 25, 1997.

John Fairley McDonald, III, Copeland, Franco, Screws & Gill, P.A., Montgomery, AL, for plaintiffs.

Paul R. Cooper, Darron C. Hendley, Montgomery, AL, for defendant.

MEMORANDUM OPINION

MYRON H. THOMPSON, Chief Judge.

This case, commenced with a petition to compel arbitration and for a stay of state-court proceedings, presents the narrow but difficult question of whether this federal lawsuit should be dismissed in favor of the state lawsuit, the answer for which lies at the intersection of two federal laws, the Federal Arbitration Act, 9 U.S.C.A. §§ 1-16, and the Federal Anti-Injunction Act, 28 U.S.C.A. § 2283, and the doctrine announced by the Supreme Court in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Because adequate and complete relief is available in state court but not federal court, this court holds, based on these two federal laws and the Colorado River doctrine, that this federal lawsuit should be dismissed, albeit without prejudice.

I. BACKGROUND

Ronald A. Bell filed a lawsuit in the state circuit court of Lowndes County, Alabama, on October 4, 1996, against the following defendants: TranSouth Financial Corporation Associates Financial Life Insurance Company, Associates Insurance Company, and Associates Financial Services Company, Inc., all foreign corporations; S.J. Conner Auto Sales, an Alabama resident corporation; and Carl Knight, Jay Conner, and other Alabama residents alleged to be the agents of those corporations. Bell, who took out a series of loans from TranSouth over a period spanning several years, charged these state defendants with various acts of fraudulent misrepresentation and suppression or concealment of material facts in connection with their lending procedures and sale of credit insurance, as well as negligent hiring of the agents who handled his loans.

The foreign corporations filed notices of appearance as defendants in the state-court action, along with a motion to stay the proceedings, which that court has not yet ruled on. Because complete diversity of citizenship between Bell and all state defendants was lacking, 28 U.S.C.A. § 1332, and since no other independent basis for federal jurisdiction over that action exists, removal to federal court, 28 U.S.C.A. §§ 1441, 1446, was impossible. Instead, the foreign corporations alone filed an original action in this federal court against Bell on November 25, 1996, seeking orders, under the Federal Arbitration Act, staying the state-court litigation pursuant to 9 U.S.C.A. § 3,¹ and compelling Bell to arbitrate the claims comprising that state-court action pursuant to 9 U.S.C.A. § 4.² Invoking this court's diversity-of-citizenship jurisdiction, 28 U.S.C.A. § 1332, they argue that the final loan transaction between TranSouth and Bell included a broad and thoroughgoing arbitration clause covering the entirety of Bell's complaint against all parties.

Bell answered the complaint of the foreign corporations and on February 14, 1997, moved to dismiss the petition to compel arbitration, raising five main arguments in opposition to it.³ First, Bell contends that this court should abstain from retaining jurisdiction and instead defer to the state court's prior exercise of jurisdiction over this matter, and should not permit would-be federal plaintiffs to `end run' removal requirements in this manner. Second, Bell maintains that the Federal Anti-Injunction Act does not permit this court to enjoin the state court from proceeding with this action. Third, Bell argues that the Arbitration Act grants no authority to this court to stay the state-court action or hear the petition to compel arbitration. Fourth, Bell considers the remaining state-court parties indispensable parties who could not be joined in this action. Finally, Bell takes the position that the arbitration agreement does not govern this dispute and was fraudulently obtained.

Bell's motion to dismiss is now before the court.

II. ABSTENTION, COMITY, AND DEFERRAL

Bell contends that, under the doctrine established in Colorado River, principles of federal-state comity and wise judicial administration dictate that this court yield jurisdiction to the state court. "Principles of comity suggest that a court having jurisdiction over all matters in dispute should have jurisdiction of the case." Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 675 F.2d 1169, 1173 (11th Cir.1982). Because all the issues, including the merits of the underlying state suit and the dispute between Bell and the resident and non-resident defendants to that suit, are properly before the state court, whereas this court has only the parties to the petition to compel arbitration before it, and because "state courts, as well as federal courts, have jurisdiction over federal arbitration," id., this court, Bell argues, should abstain or defer. Here, as in Haydu, "[a]dditionally, the state court had prior jurisdiction, and convenience of the parties was served just as easily in the state court as in the federal court.... In short, federalism concerns require that a federal court tread lightly when a state proceeding is already underway." Id. Accord Ultracashmere House, Ltd. v. Meyer, 664 F.2d 1176 (11th Cir.1981).

The foreign corporations point out, quite correctly, that the governing analysis of deference and abstention by a federal court, for reasons of comity and wise judicial administration, where parallel litigation is proceeding in state court, as laid out in Colorado River, and refined in Moses H. Cone Mem. Hosp. v. Mercury Constr. Co., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (which was decided after Haydu), favors dismissal of a federal action only in "exceptional circumstances." Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246. But the factors considered relevant to the decision to dismiss are not "hard-and-fast"; instead, they must be carefully assessed and balanced. Moses H. Cone, 460 U.S. at 15-16, 103 S.Ct. at 936-37. These factors include, for example, priority of jurisdiction; which court has jurisdiction over a res; the relative inconvenience of the state and federal fora; which court is best-positioned to afford complete relief; the desirability of avoiding piecemeal litigation and, related to that, the severability of the state and federal claims and parties; and others. Id.⁴ The Supreme Court also repeatedly focused on the policies underlying the arbitration act: economy and efficiency. See generally id.; Snap-On Tools Corp. v. Mason, 18 F.3d 1261 (5th Cir.1994).

Examining the case at hand through the lens of these factors, the state court may be a slightly more convenient forum, and Bell, as the plaintiff, was certainly entitled to sue in the venue where all intended defendants could be joined. The state court had prior jurisdiction, and to the extent this federal action has already proceeded further than the action in state court, it is primarily through the initiative of the foreign corporations, wishing to avoid that forum by filing the parallel action here. Although weighing somewhat in favor of dismissal, these factors alone are not so compelling, on the facts presented, as to present the kind of exceptional circumstances that support dismissal on the basis of wise judicial administration and comity.

Another important factor, however, is piecemeal litigation and severability. If the federal court can handle all the claims among the parties, there is no danger. If the federal court and state court must handle severable parts of the action in piecemeal fashion, the danger is present, but not disastrous. However, if the claims are not easily severable, and yet both courts must become involved, particularly to afford injunctive relief, the danger looms large. The foreign corporations seem to believe that this court could, and in fact must, provide comprehensive relief, by ordering Bell to arbitrate his disputes with them as well as with the remaining state defendants, even though the latter are not, and could not be made, parties to this petition. Furthermore, they believe this court should stay the state-court action to effectuate that relief.

However, this court is not in a position to grant the foreign corporations either of these forms of relief, and thus, were this court to hear the petition to compel arbitration between the parties presently before it, further proceedings in state court would be required to resolve the status of the remaining state defendants under the arbitration agreement in question and to decide whether to stay the underlying action in light of this court's actions. This would result not only in piecemeal, but potentially duplicative or conflicting litigation.

To show why the court cannot grant all the forms of relief the foreign corporations are seeking demands a closer look at the Anti-Injunction Act, the structure of the Arbitration Act itself, and the dictates of Rule 19 of the Federal Rules of Civil Procedure. Without the full panoply of relief the foreign corporations are seeking, the dangers of piecemeal litigation on issues not easily severable, combined with the fact that the state court would still be best-positioned to afford full relief, weigh so heavily in favor of the state court's exercise of jurisdiction as to constitute exceptional circumstances under the Colorado River doctrine.

III. ANTI-INJUNCTION ACT

The foreign corporations are here asking for an injunction staying the state-court proceedings. The Anti-Injunction Act states that "A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or...