Bank of Okla., N.A. v. Tharaldson Motels II, Inc.

• Decision Date: 25 November 2009
• Docket Number: Case No. 1:09-cv-030.
• Citation: 671 F.Supp.2d 1058
• Parties: BANK OF OKLAHOMA, N.A., Plaintiff, v. THARALDSON MOTELS II, INC., a North Dakota corporation, Defendant.
• Court: U.S. District Court — District of North Dakota

671 F.Supp.2d 1058

BANK OF OKLAHOMA, N.A., Plaintiff, v. THARALDSON MOTELS II, INC., a North Dakota corporation, Defendant.

Case No. 1:09-cv-030.

United States District Court, D. North Dakota, Southwestern Division.

November 25, 2009.

COPYRIGHT MATERIAL OMITTED

Benjamin E. Thomas, Wold Johnson, Fargo, ND, John D. Clayman, Frederic Dorwart, Tulsa, OK, for Plaintiff.

Sidney J. Spaeth, Vogel Law Firm, Fargo, ND, John T. Moshier, Martin A. Aronson, Morrill & Aronson, PLC, Phoenix, AZ, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS AND MOTION TO STAY PROCEEDINGS

DANIEL L. HOVLAND, District Judge.

Before the Court is the Defendant's "Motion to Dismiss or, Alternatively, to Stay Proceeding Pending Outcome of Parallel Litigation in Nevada State Court" filed on July 6, 2009. See Docket No. 8. The Plaintiff filed a response in opposition to the motion on August 5, 2009. See Docket No. 24. The Defendants filed a reply brief on September 4, 2009. See Docket No. 28. Oral argument was held on November 18, 2009. For the reasons set forth below, the Court denies the Defendant's motion.

I. BACKGROUND

The plaintiff, Bank of Oklahoma, N.A., is a financial services company engaged in commercial lending activities for the development of commercial, retail, and residential real estate development and construction. The defendant, Tharaldson Motels II, Inc., is a developer and operator of select service and extended service hotels across the country. The Plaintiff and the Defendant are involved in a complex real estate development project in Las Vegas, Nevada known as "Manhattan West." See Docket No. 1. Manhattan West was designed and approved as a mixed-use community featuring more than 600 condominiums in an eleven-story tower and several mid-rise buildings, and more than 200,000 square feet of shops, restaurants, and office and hotel space.

Manhattan West's developer was Gemstone Development West, LLC, a Nevada limited liability company. Scott Financial Corporation, a North Dakota corporation, agreed to loan up to $110-million to Gemstone Development West for the development. Scott Financial obtained funding for the loan through a banking syndicate that included 29 financial institutions. The Plaintiff was one of those institutions and had agreed to fund $24-million on the project. According to the complaint, the Defendant executed a guaranty for the benefit of the Plaintiff in January 2008, which was a condition of the Plaintiff's funding. A provision in the guaranty provides:

10. This Guaranty shall be construed according to and will be enforced under the substantive and procedural ... laws of the State of North Dakota. [The Defendant] Guarantor hereby consents to the exclusive personal and venue jurisdiction of the state and federal courts located in Burleigh County, North Dakota in connection with any controversy related in any way to this Guaranty, and waives any argument that venue in such forums is not convenient.

See Docket No. 1-1.

On January 13, 2009, Club Vista Financial Services, LLC, Tharaldson Motels II, and Gary D. Tharaldson filed a state court action in Clark County, Nevada against Scott Financial Corporation, Brad Scott, the Bank of Oklahoma, Gemstone Development West, and Asphalt Products Corporation, alleging, in part, fraud, breach of fiduciary duty, and breach of contract. See Docket Nos. 11 and 12. On June 12, 2009, the Plaintiff filed a complaint in federal district court in North Dakota alleging that the $110-million loan is in default and the Defendant has refused to honor its contractual commitments under the terms of the guaranty. See Docket No. 1.

The Defendant contends this case should be dismissed pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure or, in the alternative, stayed pending the outcome of the litigation in Nevada state court. The Plaintiff argues the federal court should retain jurisdiction.

II. STANDARD OF REVIEW

Rule 8(a) of the Federal Rules of Civil Procedure sets forth the federal pleading requirements for civil cases. Rule 8(a) provides that pleadings must contain: "(1) a short and plain statement of the grounds for the court's jurisdiction"; (2) "a short and plain statement of the claim showing that the pleader is entitled to relief"; and (3) "a demand for the relief sought." Fed. R.Civ.P. 8(a).

Rule 12(b)(1) of the Federal Rules of Civil Procedure mandates the dismissal of a claim if there is a lack of subject-matter jurisdiction. It is well-established that "a district court `has authority to consider matters outside the pleadings when subject matter jurisdiction is challenged under Rule 12(b)(1).'" Harris v. P.A.M. Transp., Inc., 339 F.3d 635, 637 n. 4 (8th Cir.2003) (quoting Osborn v. United States, 918 F.2d 724, 728 n. 4 (8th Cir. 1990) (citing Land v. Dollar, 330 U.S. 731, 735 n. 4, 67 S.Ct. 1009, 91 L.Ed. 1209 (1947))). Unlike a motion to dismiss under 12(b)(6), looking at matters outside the pleadings does not convert a Rule 12(b)(1) motion to a motion for summary judgment. Harris, 339 F.3d at 637 n. 4. The Eighth Circuit has explained that the difference between the two rules "is rooted in the unique nature of the jurisdictional question." Osborn, 918 F.2d at 729 (quoting Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.1981)). "[A] district court has `broader power to decide its own right to hear the case than it has when the merits of the case are reached.'" Id. Jurisdictional issues, whether they involve questions of law or fact, are for the court to decide.

III. LEGAL DISCUSSION

The Defendant contends this Court should abstain or, in the alternative, stay from exercising jurisdiction over the case because of the pending claims in Nevada state court. "Generally, as between state and federal courts, the rule is that `the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction.'" Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) (quoting McClellan v. Carland, 217 U.S. 268, 282, 30 S.Ct. 501, 54 L.Ed. 762 (1910)). This rule stems from the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Colorado River, 424 U.S. at 817, 96 S.Ct. 1236. Several abstention doctrines have been articulated by the Supreme Court as exceptions to this rule, one of which is the Colorado River doctrine.

Colorado River abstention is premised on notions of "`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)). Case law has clarified that the Colorado River doctrine allows abstention when two requirements are met: 1) parallel state and federal actions, and 2) exceptional circumstances. Fru-Con Constr. Corp. v. Controlled Air, Inc., 574 F.3d 527, 534 (8th Cir.2009) (plurality opinion) (citing Colorado River, 424 U.S. at 817-18, 96 S.Ct. 1236); see also Baskin v. Bath Twp. Bd. of Zoning Appeals, 15 F.3d 569, 571 (6th Cir.1994) (indicating that the presence of parallel proceedings is a prerequisite for the application of Colorado River abstention).

A. PARALLEL STATE AND FEDERAL ACTIONS

The Eighth Circuit requires more precision than "substantially similar parties litigating substantially similar issues" in determining whether state and federal proceedings are parallel for purposes of the Colorado River doctrine. Fru-Con, 574 F.3d at 535. The Eighth Circuit has clarified that:

The pendency of a state claim based on the same general facts or subject matter as a federal claim and involving the same parties is not alone sufficient. Rather, a substantial similarity must exist between the state and federal proceedings, which similarity occurs when there is a substantial likelihood that the state proceeding will fully dispose of the claims presented in the federal court. This analysis focuses on matters as they currently exist, not as they could be modified. Moreover, in keeping with the Supreme Court's charge to abstain in limited instances only, jurisdiction must be exercised if there is any doubt as to the parallel nature of the state and federal proceedings.

Id. (internal citations omitted). A threshold issue is whether parallel proceedings were pending in the Nevada state court at the time the plaintiff brought its action in federal district court. Fru-Con, 574 F.3d at 537 (citing Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 996 (8th Cir. 2005)).

The Plaintiff argues that the only similarity between the state and federal actions is they both involve the same general business venture. The Defendant argues that both actions raise the question of the enforceability of the guaranty and are mirror images of each other. The Nevada state court action was filed five months before the Plaintiff filed this complaint in federal district court. The action in Nevada involves multiple parties, including the Plaintiff and the Defendant. Parallel does not mean identical, and the mere presence of additional parties or issues in one of the cases does not necessarily preclude a finding that they are parallel. See AAR Int'l, Inc. v. Nimelias Enterprises S.A., 250 F.3d 510, 518 (7th Cir.2001).

The amended complaint in the Nevada state court action alleges, in part, that the guaranty between the Plaintiff and the Defendant was entered into based on fraud and/or mistake, and requests that the Nevada state court declare the Defendant's obligations under the guaranty to be invalid, not legally binding, and/or unenforceable. See Docket No. 9. Therefore, the enforceability of the guaranty between the Bank of Oklahoma and Tharaldson Motels II, Inc. is at issue in the Nevada state court action.

In Fru-Con, a recent Eighth Circuit plurality opinion, a contractor and a subcontractor entered into an agreement that contained law and forum...