Day v. Union Mines Inc.

Decision Date21 November 1988
Docket NumberNo. 87-1694,87-1694
Citation862 F.2d 652
PartiesParvin E. DAY, Ronald E. Snider, Allan L. Hanft, Carl E. Bozsa, Charles R. Pruett, a/k/a Ronald Pruett, Michael Day, Deborah Forsythe, Joseph J. Church, and Howard Paper Mills, Inc., Plaintiffs-Appellants, v. UNION MINES INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

David P. List, J. Andrew Schlickman and Robert P. Biskup, Sidley & Austin, Chicago, Ill., for plaintiffs-appellants.

Daniel C. Emerson, Bose, McKinney & Evans, Indianapolis, Ind., for defendant-appellee.

Before WOOD, Jr. and CUDAHY, Circuit Judges, and WILL, Senior District Judge. *

WILL, Senior District Judge.

This is an appeal from the district court's order staying proceedings pending resolution of state court litigation between the same parties. Although the district court did not mention by name the case of Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) in its stay order, the authority for this type of stay is governed by that case and its progeny. After considering the record below in light of the factors laid out in Colorado River and subsequent cases, we affirm the district court's decision.

I. Statement of Facts.

Plaintiffs-appellants were the sole shareholders (the "Shareholders") of Bicknell Minerals, Inc. ("Bicknell"), an Indiana coal mining company. They sold their stock to defendant-appellee Union Mines Inc. ("UMI"), a Maryland corporation, through a stock purchase agreement dated February 5, 1981 (the "Stock Purchase Agreement"). The Stock Purchase Agreement required payment of $2,000,000 to the Shareholders, and also included a clause providing for payment of the purchase price out of cash flow. The interpretation of that clause is the subject of the complaint in this federal action.

The February 5, 1981 sale did not, however, end the relationship between UMI and the Shareholders, a relationship which progressively took on a more hostile character. Before and after the sale, Bicknell was managed by the Parday Corporation which is solely owned by one of the Shareholders, Parvin E. Day, according to the terms of a mine management services agreement (the "Management Agreement"). A dispute between UMI and Parvin E. Day arose over the rights to a certain piece of real estate (the "Haseman tract"), which Mr. Day had purchased for Bicknell. This dispute was the subject of a suit filed by Bicknell and UMI in the Superior Court of Knox County, Indiana on May 11, 1981. On May 29, 1981, Bicknell terminated the Management Agreement with Parday Corporation allegedly because of hostile actions by the Shareholders. Parday Corporation and the Shareholders brought a breach of contract action in state court on August 4, 1981 against UMI, Bicknell and Union Miniere, S.A. (UMI's parent company) based on the termination of the Management Agreement. A final state court action was brought by Parday Corporation on September 19, 1984 to enforce liens on the mine for royalty payments withheld by UMI and Bicknell. As is apparent from the foregoing, the parties now seeking a federal adjudication originally filed suits in the Indiana state courts.

The three separate state actions were consolidated in the Superior Court of Knox County, Indiana and after a series of counterclaims and supplemental complaints now include several other claims by both sides of wrongdoing in the contractual relations between the parties. The Shareholders counterclaimed that the Stock Purchase Agreement was void as a result of undue influence and economic duress. A supplemental complaint was filed by UMI and Bicknell against the Shareholders alleging certain breaches of representations and warranties as to Bicknell's compliance with federal and state laws and to the truth of the technical and financial data provided by the Shareholders to UMI. The Shareholders' second amended counterclaim sought to enforce an alleged oral agreement made prior to the Stock Purchase Agreement which required that UMI pay the $2,000,000 at the closing rather than at such time as there was positive cash flow.

Discovery has been conducted regarding many of these issues and some of the disputes raised in state court have been disposed of. The dispute regarding the Haseman Tract was resolved by an agreement to extend indefinitely the temporary restraining order issued by the Superior Court on May 11, 1981. The Superior Court granted on January 26, 1981 UMI's motion for summary judgment on the Shareholders's second amended counterclaim and found that the Stock Purchase Agreement was enforceable. On July 15, 1985, the Indiana Court of Appeals affirmed the trial court's decision in Day v. Bicknell Minerals, Inc., 480 N.E.2d 567 (Ind.Ct.App.1985). The Superior Court granted UMI and Bicknell leave on September 22, 1987 to file its second amended complaint which included in Count III a request for a declaratory judgment that the Stock Purchase Agreement required payment only after Bicknell generated a positive cash flow. On November 6, 1987, UMI and Bicknell filed in state court a motion for summary judgment on Count III of their second amended complaint.

The appeal of the federal district court's stay order was argued before us on December 1, 1987. In January 1988, the Honorable Edward C. Theobald, the judge who had handled the state court litigation since 1981, recused himself because his daughter had joined the firm representing UMI in this action. He certified the case to the Indiana Supreme Court for the appointment of a new judge. Acting on UMI's interlocutory appeal of Judge Theobald's entry of partial summary judgment against UMI and Bicknell on the issue of the alleged breach of the Management Agreement, the Indiana Court of Appeals reversed on April 14, 1988. (Union Miniere, S.A. v. Parday Corp., 521 N.E.2d 700 (Ind.Ct.App.1988)). The original trial date had been continued indefinitely because of UMI's interlocutory appeal. That court's remand of the issue to the trial court removes all barriers to the state court disposition of the issues pending only the appointment of a new judge. The parties agree that we should take judicial notice of these post oral argument developments in our decision.

The Shareholders have made two attempts to have their claims resolved in federal court. Early in the proceedings, the Shareholders attempted unsuccessfully to remove them to the United States District Court for the Southern District of Indiana. That attempt failed because four of the Shareholders are Indiana citizens and because Bicknell is an Indiana Corporation. The present action was originally filed by them in Colorado on December 6, 1985 but was transferred to the Southern District of Indiana. Diversity exists in Indiana only because Bicknell has been dropped as a defendant. The complaint seeks to establish that the positive cash flow of the Stock Purchase Agreement is simply a timing provision and not a condition precedent to payment of the $2,000,000 or that, if it is a condition precedent, the condition is excused due to UMI's failure to operate the mine properly.

II. Analysis.
A. Whether the concurrent suits are parallel.

The decision to stay proceedings pending resolution of a parallel state action is reversed only for an abuse of the district court's discretion. Will v. Calvert Fire Insurance Co., 437 U.S. 655, 665, 98 S.Ct. 2552, 2558, 57 L.Ed.2d 504 (1978); Ill. Bell Tel. Co. v. Ill. Commerce Comm'n, 740 F.2d 566, 569 (7th Cir.1984). To determine whether the court here abused its discretion we must first determine whether the federal and state suits are parallel. Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1287 (7th Cir.1988) (citations omitted). Next, we consider the factors listed inColorado River and its progency to determine whether there are exceptional circumstances permitting a stay "for reasons of wise judicial administration ..." Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246.

Suits are " 'parallel' when substantially the same parties are contemporaneously litigating substantially the same issues in another forum." Calvert Fire Ins. Co. v. Am. Mut. Reins. Co., 600 F.2d 1228, 1229 n. 1 (7th Cir.1979). The two parties to the federal action, the Shareholders and UMI, are the real parties in interest in virtually every aspect of the state proceedings. The Shareholders were all either employees or officers of Parday Corporation, which is solely owned by Mr. Day, so that even the dispute regarding the Management Agreement closely involved the Shareholders. The more difficult question is whether substantially the same issue raised in federal court was present in state court at the time of the district court stay. A related question is whether the amendments to the state court pleadings made subsequent to the stay should have any impact on our decision.

The precise issue raised in the district court--the proper interpretation of the payment provision in the Stock Purchase Agreement--was not present in state court at the time the stay was entered. However, "we look not for formal symmetry between the two actions, but for a substantial likelihood that the state litigation will dispose of all claims presented in the federal case." Lumen Constr., Inc. v. Brant Constr. Co., Inc., 780 F.2d 691, 695 (7th Cir.1985) (citations omitted). This test requires a district court judge to make a determination as to what issues will be resolved based on the status of the state litigation at the time the stay is requested. 1

The resolution of the state claims included in the pleadings at the time the stay was entered theoretically would not necessarily have disposed of the payment provision issue in federal court. But the federal lawsuit like the state lawsuit centers on the proper interpretation of the Stock Purchase Agreement and the performance of the parties thereunder. It is true that the question of...

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