Elmendorf Grafica, Inc. v. D.S. America (East), Inc., 94-1695

• Decision Date: 21 February 1995
• Docket Number: No. 94-1695,94-1695
• Citation: 48 F.3d 46
• Parties: ELMENDORF GRAFICA, INC., Plaintiff, Appellant, v. D.S. AMERICA (EAST), INC. d/b/a Screen (East), Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 46

48 F.3d 46

ELMENDORF GRAFICA, INC., Plaintiff, Appellant, v. D.S. AMERICA (EAST), INC. d/b/a Screen (East), Defendant, Appellee.

No. 94-1695.

United States Court of Appeals First Circuit.

Submitted Nov. 9, 1994.

Decided Feb. 21, 1995.

Jose L. Rivero Vergne, Moredo & Moredo, Ramon Rosado-Vila and Ramon Rosado-Vila Law Offices, on brief, for appellant.

Francisco M. Troncoso, Troncoso & Becker, Edward J. Underhill, Steven L. Katz, and Masuda, Funai, Eifert & Mitchell, Ltd., on brief, for appellee.

Before BOUDIN, Circuit Judge, CAMPBELL, Senior Circuit Judge, and BOYLE, Senior District Judge. ^*

LEVIN H. CAMPBELL, Senior Circuit Judge.

Elmendorf Grafica, Inc. appeals from an order of the district court granting D.S. America (East), Inc.'s motion to stay a pending federal diversity action until similar litigation in the state courts of Illinois is concluded. The United States District Court for the District of Puerto Rico accepted the recommendation of the magistrate judge that a stay was justified under principles declared in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). We vacate the stay and remand for proceedings in the district court.

I.

This case arises out of a dispute between Elmendorf Grafica, Inc., a Puerto Rico corporation with its principal place of business in Puerto Nuevo, Puerto Rico, and D.S. America (East), Inc., d/b/a Screen (East) (hereinafter "Screen"), an Illinois corporation with its principal place of business in Rolling Meadows, Illinois. On March 20, 1992, the parties entered into an equipment purchase agreement under which Elmendorf agreed to purchase computer hardware and software at a price of $120,000. Elmendorf paid $84,000 in advance, leaving a balance due of $36,000. The equipment failed to perform to its satisfaction, and Elmendorf, claiming ongoing damage to its business as a result of this failure, refused to pay.

A. The Illinois Action

On November 25, 1992, Screen sued Elmendorf for $36,000 in the Circuit Court of Cook County, Illinois. The summons and complaint in that case were served on Elmendorf's president on December 3, 1992. Instead of answering, Elmendorf filed a limited appearance. On February 2, 1993, Elmendorf moved to dismiss for want of personal jurisdiction and, after briefing and argument, the Cook County Circuit Court allowed Elmendorf's motion on May 17, 1993, and dismissed Screen's action for want of personal jurisdiction. While the court modified its order on June 8, 1993, the dismissal remained. Screen appealed to the Illinois Appellate Court, seeking to overturn the dismissal, on July 8, 1993.

The parties thereupon engaged in a war of motions in the appellate forum. On October 14, 1993, Screen filed a motion for stay of proceedings to amend record on appeal, which included a request for additional time to file its brief. The appellate court denied that motion in February 1994. Elmendorf, having strongly opposed Screen's motion, filed its own motion for leave to supplement the record on March 24, 1994, requesting additional time to file its brief. After the appellate court's disposition of this motion, Elmendorf moved for clarification on May 11, 1994. That motion was allowed on August 10, 1994, with yet another extension of time for Elmendorf to file its brief. On September 16, 1994, Elmendorf filed a third request for additional time to file its brief because its attorney was preparing for another trial and lacked the time to prepare its brief. Insofar as we are aware, the appeal has yet to be decided.

B. The Puerto Rico Action

On January 15, 1993, two months after Screen sued Elmendorf in Illinois, and a few weeks before Elmendorf moved to dismiss that action, Elmendorf sued Screen in the Superior Court of Puerto Rico, San Juan Part, alleging, inter alia, breach of contract, false advertising, and fraud stemming from the same equipment purchase agreement which was the subject of the Illinois litigation. Elmendorf requested a declaration that the agreement was null and void, damages in the amount of $684,700 plus interest, and reimbursement of the $84,000 advance payment. Screen was not served with the summons and complaint in the Puerto Rico action until June 14, 1993, one week after the Cook County Circuit Court's amended dismissal of the Illinois action for want of personal jurisdiction.

On July 13, 1993, alleging diversity of citizenship, Screen removed the Puerto Rico action to the United States District Court for the District of Puerto Rico. On September 8, 1993, Screen moved to dismiss and/or stay the Puerto Rico federal proceedings citing principles established by the Supreme Court in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) and subsequent cases. This motion was referred to a magistrate judge, who, on October 12, 1993, and in the absence of any opposition by Elmendorf, recommended a stay of proceedings pending the outcome of the Illinois litigation. Elmendorf filed its opposition on October 15, 1993, apparently before receiving word of the magistrate judge's decision, and on October 21, 1993, also filed objections to the magistrate judge's report and recommendations, along with an explanation for the delay in filing its opposition. The district court referred the matter to the magistrate judge for reconsideration in light of Elmendorf's objections.

On April 8, 1994, the magistrate judge issued a second report, again recommending a stay. Elmendorf filed objections to this second report on April 25, 1994. ¹ On May 5, 1994, the district court issued an order adopting the magistrate judge's conclusions and ordering a stay of the proceedings. Elmendorf appeals.

II.

A. A Preliminary Matter

Elmendorf argues that the district court failed to perform a de novo review of the magistrate judge's proposed findings, as required by 28 U.S.C. Sec. 636(b)(1)(C) (1988). ² The district court's order of May 5, 1994 states, "The Court, having reviewed the conclusions of the U.S. Magistrate in the two Report and Recommendations filed in this case, finds that his decisions are warranted in law and fact." Elmendorf argues that this statement is inconsistent with Sec. 636's requirement.

Elmendorf has called no authority to our attention holding that, in order to demonstrate compliance with Sec. 636's de novo review requirement, a district court must make findings and rulings of its own rather than adopting those of the magistrate judge. The statute authorizes the district court to adopt in whole as well as in part the proposed findings or recommendations of the magistrate judge. Where, as here, the magistrate judge decided on an undisputed factual record, the district court was certainly not required to rehash the magistrate judge's reasoning. The role of the magistrate judge is "to relieve courts of unnecessary work." Henley Drilling Co. v. McGee, 36 F.3d 143, 151 (1st Cir.1994), quoting Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603, 605 (1st Cir.1980).

III.

A. The Colorado River Doctrine

The Supreme Court in Colorado River established a narrow basis for district courts to stay or dismiss federal lawsuits in deference to parallel state proceedings. The Court held that, in "exceptional" circumstances, 424 U.S. at 818, 96 S.Ct. at 1246-47, a federal court could decline jurisdiction based on " 'considerations of "[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation," ' " Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 15, 103 S.Ct. 927, 936, 74 L.Ed.2d 765 (1983) (quoting Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952))).

The Court in Colorado River mentioned four illustrative factors for determining whether "exceptional circumstances" exist: (1) whether either court has assumed jurisdiction over a res; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation, and (4) the order in which the forums obtained jurisdiction. In Moses H. Cone, the Court added two additional factors: (5) whether state or federal law controls, and (6) the adequacy of the state forum to protect the parties' rights. Another factor, mentioned but not applied in Moses H. Cone, 460 U.S. at 17 n. 20, 103 S.Ct. at 937 n. 20, and counted by some courts, is the vexatious or reactive nature of the federal lawsuit, see, e.g., Fuller Co. v. Ramon I. Gil, Inc., 782 F.2d 306, 308-10 (1st Cir.1986).

In Colorado River, the Supreme Court emphasized that the stay or dismissal authorized there should be used sparingly. The Court spoke of the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them," 424 U.S. at 817, 96 S.Ct. at 1246, and cautioned that "[o]nly the clearest of justifications will warrant dismissal," id. at 819, 96 S.Ct. at 1247. The weight a court should give any single factor may vary greatly depending on the case, and "[n]o one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise is required," id. at 818-19, 96 S.Ct. at 1246-47. The district court must weigh the important factors "with the balance heavily weighted in favor of the exercise of jurisdiction," Moses H. Cone, 460 U.S. at 16, 103 S.Ct. at 937.

The decision whether to surrender jurisdiction is "necessarily left to the discretion of the district court in the first instance," id. at 19, 103 S.Ct. at 938, and the district court's decision may be reversed only for an abuse of that discretion. Such discretion must be exercised, however, within the constraints of the "exceptional-circumstances test." Id.; see also Villa Marina Yacht...