Hinkel Excavation and Construction, Inc. v. Construction Equipment International, Ltd., No. C00-4090 (N.D. Iowa 11/20/2000)
| Decision Date | 20 November 2000 |
| Docket Number | No. C00-4090.,C00-4090. |
| Parties | HINKEL EXCAVATION AND CONSTRUCTION, INC., and CURTIS HINKEL, Plaintiffs, v. CONSTRUCTION EQUIPMENT INTERNATIONAL, LTD., CASE CREDIT CORPORATION, and AMERILEASE CORP., Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
This matter comes before the court pursuant to the August 25, 2000, Motion to Stay (#3)1 filed by defendants, Case Credit Corporation ("Case") and AmeriLease Corp. ("AmeriLease"). Specifically, defendants ask that the court stay the present federal court proceeding in deference to a previously filed state court proceeding in California.
The facts giving rise to this dispute stem from a series of transactions that occurred on May 18, 1999. On that date, AmeriLease and Hinkel Excavation and Construction, Inc., entered into a written lease agreement wherein AmeriLease agreed to lease a used 1997-1432 Pav-Saver Maxi-Pav HD Slipform Paver to Hinkel Excavation and Construction, Inc. Concurrent with the signing of the lease, Curtis Hinkel executed a personal, unconditional guaranty for the extension of said credit. Later that same day, AmeriLease assigned the lease, for consideration, to Case. Case had already approved the lease for the concrete paver to Hinkel Excavation and Construction, Inc. After receiving the assignment of the lease, Case paid the sum of $120, 450.00 to the vendor of the equipment, Construction Equipment International, Inc. ("CEI"), on May 21, 1999.
Hinkel Excavation and Construction, Inc., gave $10,000.00 to CEI as a down payment for the paver and began making the required monthly payments of $3,045.00 to Case under the terms of the lease. However, the paver never arrived. On June 18, 1999, the Hinkels stopped making the monthly payments to Case pursuant to the lease. The paver, for reasons unknown, wound up in Mexico.
On March 24, 2000, Case, as Delaware corporation, filed a lawsuit against AmeriLease, a California Corporation, in the Superior Court of the State of California for the County of Orange. Thereafter, on May 15, 2000, AmeriLease filed a cross-complaint against Case and other parties, including Hinkel Excavation & Construction, Inc., an Iowa corporation, and Curtis Hinkel, a resident of Iowa (collectively referred to as the "Hinkels"). On July 20, 2000, the Hinkels filed a declaratory judgment action in the Iowa District Court for Woodbury County against these defendants seeking rescission of three written contracts. The Hinkels instituted the Iowa state suit allegedly within two days of being served with AmeriLease's cross-complaint. On August 25, 2000, Case removed the action from Iowa state court to this court pursuant to 28 U.S.C. 1441(a). AmeriLease joined in the removal. On that same date, defendants filed the present motion to stay.
Defendants Case and AmeriLease moved to stay this proceeding based on the parallel proceeding in California Superior Court. Relying primarily on Brillhart v. Excess Ins. Co of America, 316 U.S. 491 (1942), and to a lesser extent on Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976) and Moses H. Cone Memorial Hospital v. Mercury Construction Corp. 460 U.S. 1 (1980), defendants set forth several reasons in support of their motion to stay: that there is a currently pending, and previously filed, state court action in California involving the same parties that has raised or will raise the same issues raised in the present federal claim; that the scope and nature of the California action is the same as the present federal one; that the California action has made substantial progress, including written discovery, depositions and a status conference; that the California court has also started to address the substantive issues involved in the claim as a result of Case's demurrer to the claims filed against it in AmeriLease's cross-complaint; that the Hinkels can raise as an affirmative defense in the California state court action any breach of contract or failure to perform by any of the other parties that may justify rescission or non-payment by them; that the Hinkels' claim for declaratory judgment is essentially reactive in nature to the California lawsuit; that no issue of federal law is involved and a parallel state court proceeding does exist; and that it is in the interest of judicial economy and efficient judicial administration to stay this action in deference to the previously filed California action.
In contrast, the Hinkels assert that a federal court presented with the question of whether to stay a case based on the pendency of a parallel state court proceeding must retain a strong presumption that it will exercise jurisdiction. In direct contrast to the defendants, plaintiffs rely primarily on Colorado River and Moses H. Cone, and to a lesser extent on Brillhart, arguing that there is no parallel state court proceeding because the California state court does not have jurisdiction over them. The Hinkels also argue the following: that the defendants have not shown that "exceptional circumstances" exist, which would warrant such a stay; that the defendants have failed to demonstrate that any significant proceedings have taken place in the California state action; that only a limited amount of discovery has been exchanged between the parties; and that defendants have not shown that the issues would be better resolved in the pending state California court proceeding.
On November 7, 2000, the court heard oral arguments on the defendants' Motion to Stay. Plaintiffs Hinkels were represented by Gregory N. Lohr of Baron Sar Goodwin Lohr & Horak, Sioux City, Iowa. Defendant Case was represented by Thomas H. Walton of Nyemaster Goode Voigts West Hansell & O'Brien, P.C., Des Moines, Iowa. Defendant AmeriLease was represented by Nicholas Critelli, III, Des Moines, Iowa.
This case was initially filed in Iowa District Court for Woodbury County as a state court declaratory judgment action seeking rescission of the three contracts. The case was then removed to this court by virtue of 28 U.S.C. § 1441. This framework raises the question of whether federal or state law applies to the determination of the motion to stay presently before the court. When a declaratory judgment action filed in state court is removed to federal court, that action is in effect converted into one brought pursuant to the federal Declaratory Judgment Act, 28 U.S.C. § § 2201, 2202. See Toops v. United States Fidelity & Guar. Co., 871 F. Supp. 284, 287 & n. 2 (S.D. Tex. 1994) , rev'd on other grounds sub nom. Toops v. Gulf Coast Marine Inc., 72 F.3d 483 (5th Cir. 1996); see also DeFeo v. Procter & Gamble Co., 831 F. Supp. 776, 779 (N.D. Cal. 1993) (). Relief under the Declaratory Judgment Act is procedural in nature. Fischer & Porter Co. v. Moorco Int'l, Inc., 869 F. Supp. 323, 326 (E.D. Pa. 1994); Nationwide Mut. Ins. Co. v. Welker, 792 F. Supp. 433, 439-40 (D. Md. 1992). Thus, federal law governs whether relief may be had under the Declaratory Judgment Act and whether the motion to stay proceeding should be granted even when declaratory relief is originally sought under state law. Haagen-Dazs Shoppe Co. v. Born, 897 F. Supp. 122, 126 n. 2 (S.D.N.Y. 1995); see Quality King Distributors, Inc. v. KMS Research Inc., 946 F. Supp. 233, 236 (E.D.N.Y. 1996).
As indicated previously, both parties analyze whether the court should stay this federal proceeding in deference to the state proceeding in California under both the Colorado River doctrine and the Brillhart doctrine. The Supreme Court in Wilton v. Seven Falls Co., 515 U.S. 277 (1995), however, held that the discretionary standard set forth in Brillhart, not the Colorado River "exceptional circumstances" test, governs a district court's decision to stay a declaratory judgment action during the pendency of parallel state court proceedings. See Wilton, 515 U.S. at 282-83; Prudential Ins. Co. v. Doe, 140 F.3d 785, 789 (8th Cir. 1998) (); see also Black Sea Investment, Ltd. v. United Heritage Corp., 204 F.3d 647, 652 (5th Cir. 2000) ( ) (internal quotation marks and citation omitted); Youell v. Exxon Corp., 74 F.3d 373, 375-76 (2d Cir. 1996) (same). The court finds that the discretionary standard enunciated in Brillhart is applicable in this case because the Hinkels' complaint seeks a declaratory judgment, and the further relief they seek is the subject of the declaratory judgment action, to wit: rescission of the three contracts.2 See Coregis Ins. Co. v. Frank, Seringer & Chaney, Inc., 993 F. Supp. 1092, 1095 (N.D. Ohio 1997) (); accord Gatewood Lumber, Inc v....
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