Derr v. Swarek

• Decision Date: 09 September 2014
• Docket Number: No. 13–60904.,13–60904.
• Citation: 766 F.3d 430
• Parties: Till S. DERR; Kai Derr; Katja Derr; Margret Derr, Plaintiffs–Appellants, v. Thomas L. SWAREK; Thomas Anthony Swarek, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

766 F.3d 430

Till S. DERR; Kai Derr; Katja Derr; Margret Derr, Plaintiffs–Appellants,

v.Thomas L. SWAREK; Thomas Anthony Swarek, Defendants–Appellees.

No. 13–60904.

United States Court of Appeals, Fifth Circuit.

Sept. 9, 2014.

Kenneth Bryan Rector, Counsel, Wheeless, Shappley, Bailess & Rector, L.L.P., Vicksburg, MS, for Plaintiffs–Appellants.

John C. Henegan, Esq., Paul Michael Ellis, Lee Davis Thames, Benjamin McRae Watson, Butler Snow, L.L.P., Ridgeland, MS, for Defendants–Appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before DAVIS, SMITH, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

Thomas L. Swarek and Thomas Anthony Swarek (“the Swareks”) sued Herman Derr (“Derr”) and Derr Plantation, Inc. (“DPI”) in the Chancery Court of Issaquena County, Mississippi (“Chancery Court”), alleging that Derr and his corporation breached a contract for the sale of Mississippi farmland. Derr died while the action was pending and, after years of stagnation in the Chancery Court, Derr's wife and children—Till, Kai, Katja, and Margret Derr (“Derr Heirs” or “Heirs”)—sued the Swareks in the German Regional Court in Dusseldorf, Germany, seeking a declaratory judgment that they were not liable for any claims arising from the putative land contract. After the initiation of the German lawsuit but before the decision of the Regional Court, the Swareks dismissed all of their claims against Derr with prejudice and withdrew a pending motion to substitute the Derr Heirs in the Mississippi action. The German Regional Court dismissed the Derr Heirs' claim but the German Higher Regional Court reversed. The German appellate court granted the Derr Heirs a declaratory judgment of non-liability and assessed the Swareks, as the losing party, nearly $300,000 in court costs. The Derr Heirs returned to Mississippi and attempted to enforce the German order for costs in federal district court. The district court refused to recognize the German judgment and the Derr Heirs appealed. For the reasons that follow, we affirm.

Facts and Proceedings

In February of 2005, the Swareks made an offer to DPI, a Mississippi corporation, and Derr, one of its principals, to lease and then purchase a large plot of farmland owned by DPI in Issaquena County, Mississippi. On February 15, 2005, the Swareks met with Derr in Germany and the parties signed a “Lease/Buy/Sell” agreement—Derr in both his corporate and individual capacities—that the Swareks contend constituted a binding contract for the lease and sale of the farmland. On March 1, 2005, the Swareks filed a complaint and lis pendens notice in the Chancery Court of Issaquena County against DPI and Derr alleging breach of the agreement and seeking specific performance and compensatory and punitive damages in the amount of $6,675,000. DPI filed an answer and counterclaim, and Derr moved to dismiss for lack of personal jurisdiction.

Derr passed away in February of 2006. His counsel filed a suggestion of death on May 12, 2006, and the Swareks moved to substitute his estate on June 6, 2006. On DPI's motion, the case was stayed on June 4, 2008, until DPI's interlocutory appeal challenging the decision of the Chancery Court to transfer venue to the Circuit Court of Issaquena County could be resolved. On March 9, 2009, while the Mississippi litigation was stayed, the Derr Heirs filed a complaint in German Regional Court against the Swareks seeking a declaratory judgment that the Swareks had no claims against them arising from the Lease/Buy/Sell agreement signed by Derr. According to the complaint in the German action, Till Derr and Kai Derr, through a German parent corporation, became the sole shareholders of DPI.

On November 2, 2009, the Swareks filed a second motion to substitute with the Chancery Court, seeking to replace the estate of Herman Derr with the Derr Heirs. The same day, a supplemental motion to dismiss for lack of personal jurisdiction was filed on Derr's behalf. On May 10, 2010, the Swareks voluntarily dismissed with prejudice all of their claims against Derr in the Mississippi action and withdrew both of their still-pending motions to substitute for Derr his estate and the Derr Heirs.¹

On August 31, 2010, the German Regional Court dismissed the Derr Heirs' complaint for a declaratory judgment of non-liability. The Regional Court found that because the action in the Mississippi Chancery Court addressed the Heirs' claims and must be recognized in Germany, the Heirs “lack[ed] the required legitimate interest in a declaratory judgment, but in any event lack [ed] the need for legal protection.” On appeal, the German Higher Regional Court reversed and awarded the Derr Heirs almost $300,000 in court costs as the prevailing party. The Higher Regional Court found that a declaratory judgment of non-liability was necessary because the Swareks' dismissal of their claims against Derr “constitute[d] a unilateral statement,” which would not extinguish their claims under German law and which did not “provide the same legal protection as results from a negative declaratory cross-action.” The Higher Regional Court further held that the question of whether res judicata applied to the Swareks' voluntary dismissal of their claims with prejudice against Derr in the Chancery Court could “remain open” because if the Swareks were to file another action against the Derr Heirs, the Heirs would be required to prove that res judicata barred the claim.

The Derr Heirs filed suit in federal district court to enforce the German judgment for costs. The district court refused to grant comity to the judgment of the German Higher Regional Court and granted the Swareks' motion for judgment on the pleadings. The court found that the Derr Heirs' liability had already been resolved by the Swareks' dismissal with prejudice in the Chancery Court and, even if the dismissal was not effective, the purpose of the German litigation was to interfere with the Mississippi proceedings and the resulting judgment should not be enforced.

Standard of Review

“This Court reviews a district court's grant of judgment on the pleadings under Rule 12(c)de novo.” Doe v. MySpace, Inc., 528 F.3d 413, 418 (5th Cir.2008). The question on appeal is whether the district court properly denied enforcement of the German judgment for costs. A court's decision to grant or deny comity is reviewed for abuse of discretion. In re Vitro S.A.B. de C. V., 701 F.3d 1031, 1042 (5th Cir.2012).² Because federal jurisdiction was invoked by way of diversity of citizenship, we apply Mississippi law governing the recognition of foreign judgments. See Khreich, 915 F.2d at 1000 (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)).

Discussion

The district court refused to extend comity to the German judgment on two independent grounds. The court first ruled that the German judgment was unnecessary because the issue of the Derr Heirs' liability under the Lease/Buy/Sell agreement had already been determined by the Swareks' dismissal with prejudice of their claims against Derr. The court then held that even if the Swareks' dismissal of claims against Derr did not preclude them from bringing a future action against the Derr Heirs, the Heirs' purpose in initiating the German lawsuit was to interfere with the Mississippi litigation and the German Higher Regional Court should have left the issue to be resolved in the Chancery Court.³

Filing a mirror-image lawsuit in a foreign court while domestic litigation is pending is not sufficient, on its own, to preclude recognition of a foreign judgment, and the district court erred in denying comity on this ground. But because the Swareks' dismissal of their claims against Derr in the Chancery Court constituted a judgment on the merits under Mississippi law, the Swareks were precluded under the doctrine of res judicata from re-litigating those claims against Derr or his privies, the Derr Heirs. The German court's refusal to recognize, or even consider, the Mississippi judgment that protected the Derr Heirs from any liability arising from the Lease/Buy/Sell agreement resulted in a superfluous declaration of non-liability that the Heirs had already secured in Mississippi. As the German declaratory judgment and attendant cost award issued only because the German court ignored the res judicata effect of the Swareks' dismissal with prejudice, the district court did not abuse its discretion in refusing to extend comity to the judgment.

I. The mere initiation of a foreign parallel proceeding is not a ground upon which a court may refuse to enforce the resulting foreign judgment.

Judgments of a foreign country, unlike judgments of a sister state, are not entitled to the protection of full faith and credit under Article IV, Section 1 of the United States Constitution, but are enforced on the basis of comity. Khreich, 915 F.2d at 1004. Comity is “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws.” Hilton v. Guyot, 159 U.S. 113, 164, 16 S.Ct. 139, 40 L.Ed. 95 (1895). Mississippi courts enforce foreign judgments “not as a matter of obligation but out of deference and mutual respect.” Ables, 948 So.2d at 425.

In determining whether a foreign judgment is deserving of recognition, the Mississippi Supreme Court receives guidance from the Restatement (Second) of Conflict of Laws § 98. See Laskosky v. Laskosky, 504 So.2d 726, 729 (Miss.1987). The Restatement provides that a foreign judgment rendered by a court of competent jurisdiction will be enforced if

there has been opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or...