In re Hovensa, L.L.C.
| Decision Date | 20 April 2020 |
| Docket Number | Civil Action No. 2020-0019,Bankruptcy No. 1:15-10003 |
| Parties | In Re: HOVENSA, L.L.C., Debtor. |
| Court | U.S. District Court — Virgin Islands |
Attorneys:
Andrew L. Capdeville, Esq.,
St. Thomas, U.S.V.I.
For John K. Dema, P.C.
Dionne G. Sinclair, Esq.,
St. Thomas, U.S.V.I.
THIS MATTER comes before the Court on the "Emergency Motion of John K. Dema, P.C. for an Order Suspending or Staying Appeal Pending Resolution of Related Proceedings in the Courts of the Virgin Islands" ("Motion to Stay") (Dkt. No. 4), and the Government of the Virgin Islands' "Motion to Dismiss and in Opposition to Appellant's Application for a Stay" ("Motion to Dismiss") (Dkt. No. 7). For the reasons discussed below, the Court will grant the Motion to Stay and deny the Motion to Dismiss.
On January 22, 2016, the Bankruptcy Court for the District of the Virgin Islands ("Bankruptcy Court") entered an Order compelling arbitration of a contractual dispute between Appellant John K. Dema, P.C. ("Dema Firm") and Appellee the Government of the Virgin Islands ("Government"). (Dkt. No. 4 at 3). On November 7, 2016, an Arbitrator awarded the Dema Firm $8,967 million, which was paid by the Government from the sale of HOVENSA's assets. Id. at 2-3, The Arbitrator later issued a supplemental award of $1,292,646,66 in attorneys' fees and expenses, which is the subject of continuing litigation. Id.
On June 14, 2017, the Government commenced an action in the Superior Court of the Virgin Islands ("Superior Court") to vacate the supplemental award. Id. That case was dismissed without prejudice for lack of subject matter jurisdiction on January 24, 2020, with the view expressed by the Superior Court that the Bankruptcy Court should exercise jurisdiction. Id. at 5; (Dkt. No. 4-3). Believing that decision to be erroneous, both parties lodged a challenge—the Government in the form of both a Motion to Alter or Amend the Court's Order on January 24, 2020 and an appeal to the Supreme Court of the Virgin Islands on February 10, 2020 and the Dema Firm in the form of a reply in support of the Motion to Alter or Amend the Court's Order on March 25, 2020. Id. at 6.
The Dema Firm also filed a Motion in Bankruptcy Court on February 12, 2020 to confirm the supplemental award. Id. at 7. At a hearing on March 10, 2020 that lasted approximately thirty minutes and focused on whether the Bankruptcy Court had jurisdiction to resolve the issue, the Bankruptcy Court found that it lacked subject matter jurisdiction to address the supplemental award. Id. at 8; (Dkt. No. 4-5). Out of what the Dema Firm describes as "an abundance of caution," it filed the instant appeal on March 23, 2020. Id. at 7; (Dkt. No. 1).
With the due date for the Dema Firm's brief in this matter scheduled for May 4, 2020, the Dema Firm filed the instant Motion to Stay on April 7, 2020. Id. at 12. The Dema Firm argues that, "it is inconceivable that the V.I. Superior [Court] would not exercise the jurisdiction that it generally acknowledged it has to confirm (or vacate) an arbitration award." Id. at 10. Thus, anticipating that the underlying issue regarding the supplemental award will be resolved in theSuperior Court, the Dema Firm maintains that judicial economy and efficiency and the preservation of resources weigh heavily in favor of "suspending or staying this Appeal until the final resolution" in the local courts. Id. at 9.
On April 17, 2020, the Government responded with a Motion to Dismiss. (Dkt. No. 7). The Government argues, in essence, that because the Bankruptcy Court lacks jurisdiction, there is little likelihood of success on the appeal and "it makes little sense to stay this action and delay resolution where jurisdiction is not appropriate." Id. at 8.
The power to stay or dismiss federal proceedings pending resolution of a state court action rests within the sound discretion of the trial court. Cheyney State Coll. Faculty v. Hufstedler, 703 F.2d 732, 738 (3d Cir. 1983). This discretion stems from a district court's inherent power to control its docket. Landis v. North American Company, 299 U.S. 248, 254-55 (1936). However, courts are under "a strict duty to exercise the jurisdiction conferred upon them by Congress," tempered only in those instances where "denying a federal forum would clearly serve an important countervailing interest." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). Therefore, the general rule, applicable here, is that parallel proceedings in state and federal courts do not disturb the jurisdiction of either court. Grider v. Keystone Health Plan Cent., Inc., 500 F.3d 322, 330 (3d Cir. 2007).
Here, the question is whether this Court should abstain from adjudicating this matter by staying it pending resolution of the local court proceedings. Colorado River abstention allows federal courts to abstain from adjudicating a case by either staying or dismissing the case when there are ongoing parallel state court proceedings. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). The task under Colorado River is for the court to"ascertain whether there exists 'exceptional' circumstances, the 'clearest of justifications,' that can suffice . . . to justify the surrender of [federal] jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-26 (1983) (emphasis in original).
Colorado River abstention involves a two-pronged inquiry. The first prong requires a court to determine if the state and federal actions are parallel, "defined as involving the same parties and claims." Ryan v. Johnson, 115 F.3d 193, 196 (3d Cir. 1997). Courts then look to whether "extraordinary circumstances" are present such that abstention is warranted. Nationwide Mut. Fire Ins. Co. v. George V. Hamilton, Inc., 571 F.3d 299, 308 (3d Cir. 2009). The following six-factor inquiry has been developed in the Third Circuit for analyzing whether a given action presents such extraordinary circumstances:
(1) [in an in rem case,] which court first assumed jurisdiction over [the] property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained; (5) whether federal or state law controls; and (6) whether the state court will adequately protect the interests of the parties.
Nationwide, 571 F.3d at 308 (quoting Spring City Corp. v. Am. Bldgs. Co., 193 F.3d 165, 171 (3d Cir. 1999)). This balancing is "heavily weighted in favor of the exercise of jurisdiction." Cone, 460 U.S. at 16.
The Dema Firm seeks a suspension or stay of the instant appeal that vacates all current deadlines "pending the final resolution of the proceedings on the Motion to Alter or Amend (and any related appeal) and the V.I. Notice of Appeal pending in the Virgin Islands' Courts (or a date certain, subject to further extension, as this Court deems appropriate)." (Dkt. No. 4 at 9). The Government opposes the Motion to Stay, arguing that the Bankruptcy Court and this Court lack jurisdiction; therefore, this Court should dismiss the instant action and deny the Dema Firm'sMotion to Stay. (Dkt. No. 7).
As a preliminary matter, the Government's argument is misplaced. The issue presented is whether this Court should suspend or stay proceedings before it in light of ongoing proceedings in the local courts. Instead of addressing this issue, the Government focuses on the merits of the appeal before the Court—that is, whether the Bankruptcy Court had jurisdiction over this matter. Id. at 3-7. The Government then compounds the error by adopting the legal standard used when courts are deciding whether to stay an action pending an appeal—arguing that because "there exists little chance of prevailing on the within appeal or fulfilling the additional factors in considering a stay . . . it makes no sense to stay this action and delay resolution where jurisdiction is not appropriate." Id. at 8. However, because this case involves proceedings in both federal and local courts, Colorado River abstention is the appropriate doctrine under which to determine whether the Court should stay the case pending resolution of the local court proceedings.
Addressing the first prong of the Colorado River abstention doctrine, the Court determines whether the pending actions are parallel. "For judicial proceedings to be parallel, there must be identities of parties, claims, and time." IFC, 438 F.3d at 306; Trent v. Dial Medical of Florida, Inc., 33 F.3d 217, 224 (3d Cir. 1994). With regard to claims, substantially identical claims are those raising "'nearly identical allegations and issues.'" IFC, 438 F.3d at 306 (quoting Yang v. Tsui, 416 F.3d 199, 204 n.5 (3d Cir. 2005)); see also Wells Fargo Home Mortg. Inc. v. Sec. Title Guar. Corp. of Baltimore, 337 F. Supp. 2d 680, 683 (E.D. Pa. 2004) (). Employing "substantially different 'approaches'" and the possibility of achieving "'potentially different results'" does not necessarily bar a finding that claims are substantiallyidentical. Trent, 33 F.3d at 224 (citing Complaint of Bankers Trust Co. v. Chatterjee, 636 F.2d 37, 41 (3d Cir. 1980)).
Here, the federal and local proceedings involve identical parties—the Dema Firm and the Government. Additionally, at the heart of both the federal and local court proceedings is a dispute over whether the Government is required to pay the Dema Firm the supplemental award of attorneys' fees and expenses awarded by the Arbitrator. Because the two proceedings present the same underlying issue, there is a substantial likelihood that any decision rendered in one of the proceedings "will fully dispose of the claims presented" in the other proceeding. Id. Further, both matters are currently...
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