American Home Assur. Co. v. Roxco, Ltd.

• Decision Date: 06 October 1999
• Docket Number: No. 3:99CV285LN.,3:99CV285LN.
• Citation: 81 F.Supp.2d 674
• Parties: AMERICAN HOME ASSURANCE COMPANY, Plaintiff, v. ROXCO, LTD., Loftin Constructors, Inc., Benjamin O. Turnage, Jr. and First Tennessee Bank National Association, Defendants.
• Court: U.S. District Court — Southern District of Mississippi

81 F.Supp.2d 674

AMERICAN HOME ASSURANCE COMPANY, Plaintiff, v. ROXCO, LTD., Loftin Constructors, Inc., Benjamin O. Turnage, Jr. and First Tennessee Bank National Association, Defendants.

No. 3:99CV285LN.

United States District Court, S.D. Mississippi, Jackson Division.

October 6, 1999.

James M. Mulvaney, Adam R. Schwartz and Peter W. Smith, McElroy, Deutsch & Mulvaney, Morristown, NJ, Kenneth G. Perry, Shell, Buford, Bufkin, Callicutt & Perry, Jackson, MS, Charles Clark, George R. Fair, John L. Low, IV, Watkins & Eager, Jackson, MS, for plaintiff.

Dennis C. Sweet, III, Shane F. Langston, Henry Tobias Coleman, Langston, Frazer, Sweet & Freese, Jackson, MS, Sheryl M. Bey, Baker, Donelson, Bearman & Caldwell, Jackson, MS, John C. Speer, Baker, Donelson, Bearman & Caldwel, Memphis, TN, Kenneth G. Perry, Shell, Buford, Bufkin, Callicutt & Perry, Jackson, MS, for defendants.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, Chief Judge.

This cause is before the court on the motion of defendants Roxco, Ltd. (Roxco), Loftin Constructors, Inc. (Loftin) and Benjamin O. Turnage, Jr. to dismiss or, in the alternative, stay litigation. Plaintiff American Home Assurance Company (AHA) has responded in opposition to the motion and the court, having considered the memoranda of authorities submitted by the parties, with attachments, along with additional pertinent authorities, concludes that defendants' motion should be denied for the reasons that follow.

On April 13, 1999, Roxco, a public works contracting company, together with Loftin, Roxco's parent company, and Turnage, Roxco's founder and CEO, filed suit in the Circuit Court of Jefferson County, Mississippi against a number of defendants, including American Home Assurance Company (AHA) and a number of AHA affiliates, charging, inter alia, that these defendants, which beginning in 1994 had issued performance bonds to Roxco on numerous Roxco projects, fraudulently and/or negligently misrepresented that they would underwrite Roxco's "future surety needs" so as to induce Roxco to switch surety companies; that they thereafter breached their commitment to bond Roxco's projects; breached their duties under the terms of the bond agreements; breached their duty of good faith and fair dealing, and their fiduciary duty to Roxco; tortiously interfered with Roxco's existing and prospective business relations with Roxco's primary lender, First Tennessee Bank; fraudulently induced Roxco to sign "default letters" which they then distributed to owner's of Roxco projects, which also constituted defamation of Roxco to the project owners; and finally, that defendants converted property and funds (accounts receivable) of Roxco. Roxco, Loftin and Turnage requested a declaratory judgment that a "General Agreement of Indemnity" in favor of the sureties was void, as having been procured by fraud, and sought, additionally, compensatory and punitive damages of $200,000.

The AHA defendants removed the suit to federal court — and specifically to the Southern District of Mississippi, Western Division — on April 28, 1999, claiming that one of the defendants, Southeast Bonding and Insurance Company, had been fraudulently joined to defeat diversity jurisdiction, and asserting, as well, the presence of federal question jurisdiction. In the interim, on April 23, 1999, AHA filed the present action in this court — the Southern District of Mississippi, Jackson Division — against Roxco, Loftin and Turnage, the plaintiffs in the state court (and subsequently removed) action, alleging, inter alia, breach of the indemnity agreement. AHA also named as a defendant in this suit First Tennessee Bank, which was not a party to the state court suit, seeking a declaratory judgment that AHA's security interest in certain Roxco assets has priority over First Tennessee's competing security interest.

On May 5, the various defendants filed answers to the complaint in the removed action; AHA included with its answer a counterclaim against Roxco, Loftin and Turnage asserting much the same claims and requesting much the same relief as in this action.

On May 13, Roxco, Loftin and Turnage filed the present motion, urging the court to dismiss, or alternatively, stay this litigation in keeping with the principle, recognized in numerous cases, that it is "[o]rdinarily ... uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties [since] [g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided." PPG Indus., Inc. v. Continental Oil Co., 478 F.2d 674, 679-80 (5th Cir.1973). On May 28, 1999, subsequent to their filing of the motion to dismiss or stay this case, Roxco, Loftin and Turnage filed a motion to remand in the removed case which remains pending for decision.¹

The Roxco defendants have not been especially clear as regards the legal basis for their motion to dismiss or to stay. The sole authorities they cite in their motion and accompanying brief are cases which have established and applied the standard for federal court abstention in declaratory judgment actions and actions seeking solely equitable relief where parallel state court litigation is pending. More to the point, they purport to rely on Brillhart v. Excess Insurance Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), and PPG Industries, Inc. v. Continental Oil Co., 478 F.2d 674 (5th Cir.1973), in support of their motion to dismiss or stay.² Thus, though no such specific contention appears in their motion or memorandums, one would presume that their motion is premised, in part, on a characterization of AHA's complaint as seeking solely equitable relief since the point of Brillhart and PPG is a recognition of the discretionary power of a federal court to abate an action solely for equitable relief in deference to a parallel state action. See PPG Indus., 478 F.2d at 681 (holding that "in an equity suit, the federal district court has the power to stay its hand pending the outcome of a parallel state action"); see also Dinzik v. Hanson Galleries, 553 F.Supp. 547, 548 (S.D.Tex. 1982) (citing Brillhart for proposition that "the federal court has discretion not to hear an action when a suit is pending in state court between the same parties which will dispose of the issues in dispute between the federal litigants," and citing PPG for proposition that "[t]his rule applies to cases in equity ... involving requests for declaratory and injunctive relief from the federal court.").³ However, a review of AHA's complaint in this cause discloses that AHA has not only requested equitable relief in the way of a declaratory judgment and injunction, but it has also demanded more than $50,000,000 in monetary damages for the Roxco defendants' alleged breach of their indemnity agreement. The Fifth Circuit has made it clear that where there is parallel federal and state litigation and the plaintiff's federal complaint seeks "coercive" remedies in addition to equitable relief, the Brillhart analysis does not apply and instead, the proper abstention analysis is the more restrictive "exceptional circumstances" test of Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), under which the district court's discretion to abstain is "narrowly circumscribed." Southwind Aviation, Inc. v. Bergen Aviation, Inc., 23 F.3d 948, 951 (5th Cir.1994) (quoting Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246).⁴ It is apparent, therefore, that the Roxco defendants' reliance on Brillhart and its progeny in support of its request for dismissal or a stay is misplaced.

In addition to their implicit erroneous characterization of AHA's claims, defendants' motion proceeds from another incorrect premise, namely, that there exists parallel state court litigation in favor of which this court should abstain. Given that the putative parallel state court action upon which defendants' motion is predicated is no longer a state court action at all but is instead now a federal action, having been removed from state to federal court where it remains pending, there simply is no pending state court action — parallel or otherwise — in favor of which this court might abstain. Consequently, the only abstention doctrine of potential applicability in the event the allegedly parallel litigation were still pending in state court, i.e., the Colorado River abstention doctrine, provides no basis for abstention at this time. See Noonan South, Inc. v. County of Volusia, 841 F.2d 380, 382 (11th Cir.1988) (reversing district court's Colorado River — based abstention order, observing that case "[did] not even fit within the Colorado River framework" since the putative parallel state court action in favor of which district court had abstained had been removed to federal court where it remained pending a ruling on a motion to remand); cf. Baskin v. Bath Township Bd. of Zoning Appeals, 15 F.3d 569, 571 (6th Cir. 1994) ("A necessary requirement for application of th[e] Colorado River doctrine ... is the presence of a parallel, state proceeding," and where the state court case, "as it currently exists," is not a parallel state-court proceeding, even though it could perhaps be modified so as to make it parallel to the current federal claim, Colorado River abstention is not proper).⁵

In Colorado River, the Supreme Court emphasized that as a general rule, a federal court may not abstain from jurisdiction simply because there are concurrent parallel proceedings in a state court. St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 589 (5th Cir.1994). The Court recognized that "because of the `virtual unflagging obligation of the federal courts to exercise...