Evans Transp. Co. v. Scullin Steel Co.

• Decision Date: 30 November 1982
• Docket Number: No. 82-1230,82-1230
• Citation: 693 F.2d 715
• Parties: EVANS TRANSPORTATION COMPANY, Plaintiff-Appellant, v. SCULLIN STEEL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 715

693 F.2d 715

EVANS TRANSPORTATION COMPANY, Plaintiff-Appellant, v. SCULLIN STEEL COMPANY, Defendant-Appellee.

No. 82-1230.

United States Court of Appeals,

Seventh Circuit.

Argued Sept. 28, 1982.

Decided Nov. 30, 1982.

Robert R. Tepper, Rosenthal & Schanfield, Chicago, Ill., for plaintiff-appellant.

Richard K. Wray, Arnstein, Gluck & Lehr, Chicago, Ill., for defendant-appellee.

Before WOOD, ESCHBACH and POSNER, Circuit Judges.

POSNER, Circuit Judge.

For the third time in recent months we are faced with the difficult question of a federal court's power to decline to exercise its diversity jurisdiction because a parallel proceeding is pending in a state court. See Microsoftware Computer Systems, Inc. v. Ontel Corp., 686 F.2d 531 (7th Cir.1982); Voktas, Inc. v. Central Soya Co., 689 F.2d 103 (7th Cir.1982).

In 1978 Scullin Steel Company contracted to sell Southern Iron and Equipment Company steel rail-car castings manufactured in Scullin's plant in Missouri. Southern is a division of Evans Transportation Company and the castings were for Evans' use in manufacturing railroad cars. The contract was to run through 1983 but Southern stopped buying castings from Scullin sometime in 1981, allegedly because they were defective. In September 1981 Scullin brought a damages suit for fraud and breach of contract in a Missouri state court, naming as the defendant however Evans Products Company. Evans Transportation is a wholly owned subsidiary of Evans Products; and some of the correspondence between the parties to the contract, on the buyer's side, had been signed by officers of Evans Products--who were at the same time officers of Evans Transportation--on Evans Products stationery.

One month later Evans Transportation brought this damages suit in an Illinois federal district court against Scullin, alleging that Scullin rather than Evans Transportation or Evans Products had broken the contract, by shipping defective castings. Federal jurisdiction was based on diversity of jurisdiction. Evans Transportation is an Illinois corporation with its principal place of business in Illinois. Scullin is a Delaware corporation with its principal place of business in Missouri; this makes Scullin a citizen of both Delaware and Missouri for diversity purposes, see 28 U.S.C. Sec. 1332(c).

Evans Products moved to dismiss the Missouri suit on the ground that it was not a party to the contract sued on. Scullin moved to dismiss, or in the alternative stay, this suit on the ground that it would be inconvenient to have to defend it while prosecuting the Missouri action. In January 1982 the court below dismissed the suit "with leave to reinstate should it become apparent that the Missouri action cannot resolve the controversy between the parties." 530 F.Supp. 787, 789 (N.D.Ill.1982). Evans Transportation appealed to this court.

Shortly before oral argument, Evans Transportation filed with us copies of pleadings that had been filed in the Missouri action after the decision of the court below (together with a motion to add these documents to the record on appeal, which we granted at the oral argument). From this submission we learn of the following developments. Scullin amended its complaint in the Missouri action in April of this year to add Evans Transportation as a defendant. The amended complaint alleges that Evans Transportation rather than Evans Products is the buyer under the contract, but retains Evans Products as a defendant on the ground that it participated in the fraud and that anyway Evans Transportation is just an alter ego of Evans Products. Having been brought into the Missouri action Evans Transportation removed that action to federal district court in Missouri under 28 U.S.C. Sec. 1441(a) and then moved that court to dismiss it from the action on the ground that it does not have a sufficient presence in Missouri to be suable in that state. (Evans Products could not have removed the Missouri action when it was the only defendant, because like Scullin it is a Delaware corporation.) Scullin has filed a petition to remand the case to the Missouri state court, arguing that so long as Evans Products is a defendant it is immaterial that another defendant is of diverse citizenship. See 28 U.S.C. Sec. 1441(b). Evans Transportation replies that the naming of Evans Products as a defendant was a fraudulent device to prevent removal; Scullin denies this. The federal district court in Missouri has not yet acted on Scullin's petition to remand.

Federal courts sometimes relinquish jurisdiction of a case in favor of a state court having concurrent jurisdiction ("abstain"), but until Mottolese v. Kaufman, 176 F.2d 301 (2d Cir.1949) (L. Hand, J.), it was generally believed that the mere fact that a parallel state action was pending when the federal suit was filed was not a sufficient basis for staying or dismissing the federal suit, at least if that suit did not seek declaratory or injunctive relief but, as here, merely damages. Mottolese said it was a sufficient basis, and gradually attracted a good deal of support at the court of appeals and district court levels. See, e.g., Amdur v. Lizars, 372 F.2d 103 (4th Cir.1967), and in this circuit Aetna State Bank v. Altheimer, 430 F.2d 750, 756 (7th Cir.1970). The Supreme Court did not speak directly to the question until Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Although Colorado River involved special factors that warranted abstention in favor of the parallel state action, the Court formulated the issue in general terms: "In assessing the appropriateness of dismissal in the event of an exercise of concurrent jurisdiction, a federal court may also consider [in addition to whether the state court has assumed jurisdiction over property, see id. at 818, 96 S.Ct. at 1246-1247] such factors as the inconvenience of the federal forum, the desirability of avoiding piecemeal litigation, and the order in which jurisdiction was obtained by the concurrent forums. No one factor is necessarily determinative .... Only the clearest of justifications will warrant dismissal." Id. at 818-19, 96 S.Ct. at 1247 (citations omitted). In Calvert Fire Ins. Co. v. Will, 560 F.2d 792, 796 (7th Cir.1977), this court interpreted the last quoted sentence as confining the doctrine of Mottolese to "exceptional circumstances" (picking up language from another passage in the Colorado River opinion, see 424 U.S. at 818, 96 S.Ct. at 1246), and overruled the leading case in this circuit that had followed Mottolese, Aetna State Bank v. Altheimer, supra. The Supreme Court reversed Calvert but without producing a majority opinion. 437 U.S. 655, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978). On remand this court interpreted the Supreme Court's decision as indicating that a majority of the Justices were adhering to the standard announced in Colorado River. See 586 F.2d 12 (7th Cir.1978). But we later upheld the stay that the district court had granted, because the federal suit had been filed for purposes of delay. See 600 F.2d 1228, 1234 (7th Cir.1979). Our recent decision in Voktas, Inc. v. Central Soya Co., supra, reaffirms the continued validity, in this circuit at least, of the Colorado River test. See 689 F.2d at 106-08.

Mottolese, if read to hold that the pendency of a parallel state court suit is a sufficient basis for the district judge's staying a suit in his court, is therefore not the law in this circuit, despite its having been cited with apparent approval in our latest Calvert decision. See 600 F.2d at 1236. So read it would be contrary to Colorado River, which this circuit follows. Thus it is not enough, to justify abstention, that a failure to stay the federal suit may result in judicial diseconomy--in having two active lawsuits instead of one. That will always be possible when there is a parallel state suit pending. It is true that Colorado River, Aetna, and Calvert are all cases where federal jurisdiction was based on the presence of a federal question, rather than on diversity of citizenship as in Mottolese, and that the diversity jurisdiction is increasingly embattled. It is based on a concern that many think outmoded (the danger of prejudice in a state court toward out-of-state litigants), and it is a drain on federal judicial resources at a time when the federal courts are groaning under an unprecedented caseload. But until Congress decides to alter or eliminate the diversity jurisdiction we are not free to treat the diversity litigant as a second-class litigant, and we would be doing just that if we allowed a weaker showing of judicial economy to justify abstention in a diversity case than in a federal-question case.

Even when abstention is justified, the federal suit should not be dismissed, as it was in this case; it should be stayed. The state suit may wash out. If that happens, the party who wanted to be in federal court and whose claim was within that court's jurisdiction ought to be allowed to get back in. The interest in avoiding two active lawsuits, which we have said is insufficient by itself to deprive a litigant of access to federal court, would not even exist in those circumstances. Nor can we treat the district court's order of dismissal in this case as the equivalent of a stay, as Scullin asks us to do. It is not the equivalent, not quite, anyway. The statute of limitations may be a bar to reinstating the suit after it is dismissed; it would not be if the suit were just stayed. True, Illinois tolls the statute of limitations if a federal court dismisses an action for lack of jurisdiction, Ill.Rev.Stat.1981, ch. 110, Sec. 13-217, but it is unclear whether the dismissal in this case would be so construed. Since there is no good reason for creating a legal issue gratuitously, by calling a stay a dismissal, the question for us is not whether to affirm the judgment but whether to modify it by directing the district court to...