Aptim Corp. v. McCall

• Citation: 888 F.3d 129
• Decision Date: 17 April 2018
• Docket Number: No. 17-30772,17-30772
• Parties: APTIM CORPORATION, Plaintiff–Appellee, v. Dorsey Ron MCCALL, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

888 F.3d 129

APTIM CORPORATION, Plaintiff–Appellee,

v.Dorsey Ron MCCALL, Defendant–Appellant.

No. 17-30772

United States Court of Appeals, Fifth Circuit.

FILED April 17, 2018

Phyllis Guin Cancienne, Christopher G. Morris, Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Baton Rouge, LA, Lauren Aguiar, Litigation Counsel, Skadden, Arps, Slate, Meagher & Flom, L.L.P., New York, NY, for Plaintiff–Appellee.

Erin Murphy, Lauren Nicole Beebe, Michael Dallas Lieberman, Kirkland & Ellis, L.L.P., Washington, DC, Cleo Fields, Fields Law Firm, Julie Moffett McCall, Richard Franklin Zimmerman, Jr., Esq., Kantrow, Spaht, Weaver & Blitzer, A.P.L.C., Baton Rouge, LA, for Defendant–Appellant.

Before REAVLEY, SMITH, and OWEN, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

The Shaw Group ("Shaw") sued Dorsey McCall, its former employee, in state court for allegedly violating noncompete and nonsolicitation agreements. After being acquired in part by Aptim Corporation ("Aptim"), Shaw sought to dismiss its state action while Aptim pursued a federal-court action to enforce the arbitration clause in McCall's employment contract. The federal district court declined to abstain, it compelled arbitration, and it stayed the state-court proceeding. We find no error and affirm.

I.

McCall resigned from Shaw in January 2016. He then began working for an affiliate of Bernhard Capital Partners Management LP and later became the CEO of Allied Power Management, LLC ("Allied"), a direct competitor of Shaw's. Believing that McCall had violated the noncompete and nonsolicitation agreements in his employment contract, Shaw sued McCall in state court.¹ Those agreements state that arbitration will occur in New Orleans and that the employer may file for injunctive relief from a judicial authority without waiving the right to arbitrate the underlying dispute.

On June 15, 2017, Shaw sued in state court, requesting injunctive relief and damages. The state court issued a Joint Protective Order.² On June 30, Aptim acquired Shaw's capital services segment, which included the rights to McCall's employment agreement. Aptim and Shaw moved to substitute Aptim in the state-court action on July 6, which McCall opposed on July 10. On July 17, Aptim and Shaw withdrew their motion for substitution. That same day, Aptim filed a demand for arbitration with the American Arbitration Association, and Shaw filed both an amended petition, deleting its request for damages, and a motion to dismiss the amended petition with prejudice. McCall filed an opposition to the motion for voluntary dismissal, an answer to Shaw's complaint, a reconventional demand, a petition for declaratory judgment, a motion to consolidate, and a motion for constructive contempt against Aptim for demanding arbitration in violation of the protective order, though Aptim was not then a party to the case.

On August 21, Aptim, without Shaw, sued in federal court to compel arbitration and to stay the state-court proceeding, seeking arbitration on the same contractual violations that Shaw had raised in state court: that McCall had breached his noncompete agreement by working for Allied and his nonsolicitation agreement by poaching fifteen of Shaw's senior employees. Before the federal court ruled, the state court on September 1 issued an order joining Aptim in the state-court action effective June 30 (the day the motion for substitution had been originally filed); finding that Aptim and Shaw had waived their arbitration rights by initiating the state-court action; and granting McCall's motion to stay arbitration.

On September 19, the federal district court ordered Aptim and McCall to arbitrate their dispute and stayed the state-court action as between Aptim and McCall. On September 25, the court clarified its order to state that all persons and entities in privity with Aptim and McCall must submit to arbitration, thus staying the state-court litigation by McCall against Shaw. On appeal, McCall asserts the federal district court erred by declining to abstain under Colorado River Water Conservation District v. United States , 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), erred by compelling the parties to arbitrate, and violated the Anti-Injunction Act by enjoining the state-court proceedings.

II.

A Colorado River abstention analysis begins with a heavy thumb on the scale in favor of exercising federal jurisdiction, and that presumption is overcome only by "exceptional circumstances." Stewart v. W. Heritage Ins. Co. , 438 F.3d 488, 491 (5th Cir. 2006). Federal courts have a "virtually unflagging obligation ... to exercise the jurisdiction given them." Colo. River , 424 U.S. at 817, 96 S.Ct. 1236. Even so, a court may choose to abstain, awaiting the conclusion of state-court proceedings in a parallel case, based on principles of "[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." Id. (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co. , 342 U.S. 180, 183, 72 S.Ct. 219, 96 L.Ed. 200 (1952) ).

Whether to abstain is not a question answered by the recitation of "a mechanical checklist" but instead rests "on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 16, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). To determine whether exceptional circumstances are present, the court considers the following six factors:

(1) assumption by either court of jurisdiction over a res, (2) relative inconvenience of the forums, (3) avoidance of piecemeal litigation, (4) the order in which jurisdiction was obtained by the concurrent forums, (5) to what extent federal law provides the rules of decision on the merits, and (6) the adequacy of the state proceedings in protecting the rights of the party invoking federal jurisdiction.

Stewart , 438 F.3d at 491. We review for abuse of discretion the district court's decision whether to abstain, and we exercise de novo review to the extent that the decision turns on an interpretation of law. Black Sea Inv., Ltd. v. United Heritage Corp. , 204 F.3d 647, 649–50 (5th Cir. 2000).

McCall asserts that there are exceptional circumstances because the state court issued a ruling on the question of arbitrability before the federal court ruled. This case, however, is subject to the same discretionary balancing of the Colorado River factors as any other abstention inquiry.

A.

The first factor weighs against abstention. Because this is an in personam action, there is no res . An absence of property is not "a merely neutral item, of no weight in the scales."³ Instead, it "supports exercising federal jurisdiction."⁴

B.

The second factor is neutral. The relative convenience of the forums "primarily involves the physical proximity of the federal forum to the evidence and witnesses." Evanston , 844 F.2d at 1191. The question requires finding not that the state court is a "better" or "more convenient" forum but that the "inconvenience of the federal forum is so great" as to warrant abstention. Id. at 1192. "When courts are in the same geographic location, the inconvenience factor weighs against abstention." Stewart , 438 F.3d at 492. The state courthouse is in Baton Rouge, and the federal district court is in New Orleans. Both Allied and Shaw are headquartered in Baton Rouge, and McCall resides closer to Baton Rouge than to New Orleans. The 80-mile distance does not compare to the 300-mile distance in Colorado River .⁵ The two courthouses are within the same geographic location for all practical purposes. Because nothing in this case demonstrates that the inconvenience of the federal forum is "so great," Evanston , 844 F.2d at 1191, this factor is neutral at best.

C.

The third factor weighs against abstention. Given the strong federal policy favoring arbitration, the concern about piecemeal litigation "is not applicable in the FAA context." Safety Nat'l Cas. Corp. v. Bristol-Myers Squibb Co. , 214 F.3d 562, 565 (5th Cir. 2000). Piecemeal litigation is a different concern from the worry of obtaining conflicting judgments in parallel actions involving the same parties and the same questions. The remedy for conflicting judgments is not abstention, but the application of res judicata . Kelly Inv., Inc. v. Cont'l Common Corp. , 315 F.3d 494, 498 (5th Cir. 2002).

D.

The fourth factor, regarding the order in which jurisdiction was obtained, slightly favors abstention. The inquiry centers more on the progress made in the relative forums, not on the date of initial filing. Moses H. Cone , 460 U.S. at 21, 103 S.Ct. 927. If the progress made is just "jurisdictional posturing" with little progress on the merits, the factor "weighs against abstention." Black Sea Inv. , 204 F.3d at 651. This factor is difficult to weigh, as the parties characterize the timeline and progress quite differently. And it is unusual in our abstention jurisprudence to confront a case in which the same side filed both the state and federal actions, though Aptim was not a party to the state suit when it filed in federal court.

Numerous motions were filed in state court before the federal case began. The state and federal action were filed on June 15 and August 21, respectively. Aptim was not joined in the state action until September 1, which was more than a week after it filed its federal action and was several weeks after it and Shaw had withdrawn the motion to substitute and Shaw had attempted to dismiss the suit entirely on July 17.

Despite the number of filings, the state action was not necessarily progressing. When the federal suit was filed at the end of August, the state court had not ruled on any of Shaw's July 17 motions, none of which concerned the merits. Shaw sought to dismiss before any rulings had been issued and only one month after filing. In fact, Shaw even sought and was granted mandamus from...