Kingland Systems v. Colonial Direct Financial, C 01-3073-MWB.

CourtUnited States District Courts. 8th Circuit. Northern District of Iowa
Writing for the CourtBennett
Citation188 F.Supp.2d 1102
PartiesKINGLAND SYSTEMS CORPORATION, Plaintiff, v. COLONIAL DIRECT FINANCIAL GROUP, INC., Defendant.
Docket NumberNo. C 01-3073-MWB.,C 01-3073-MWB.
Decision Date05 March 2002

Kirke C. Quinn and James R. Quilty of Dorsey & Whitney, L.L.P., Des Moines, IA, for Plaintiff.

Jan Douglas Atlas, Samantha N. Tesser of Atlas Pearlman, P.A., Fort Lauderdale, FL, for Defendant.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT'S MOTION TO DISMISS, TRANSFER, AND/OR STAY

BENNETT, Chief Judge.

                                               TABLE OF CONTENTS
                  I. BACKGROUND ..........................................................................3
                      A. The Parties And The Lawsuits .........................................................3
                         1.  The parties and their agreements .................................................3
                         2.  The Florida Lawsuit ..............................................................5
                         3.  The Iowa Lawsuit .................................................................6
                      B. Colonial's Motion to Dismiss, Stay, or Transfer ......................................7
                 II.  LEGAL ANALYSIS .....................................................................7
                      A. Abstention Generally .................................................................7
                      B. Colorado River Abstention ............................................................8
                         1.  The "parallel litigation" prerequisite ..........................................13
                             a.  Arguments of the parties ....................................................13
                             b.  Applicable considerations ...................................................15
                             c.  Analysis ....................................................................18
                         2.  The Colorado River/Moses H. Cone factors ........................................22
                             a.  Arguments of the parties ....................................................23
                             b.  Consideration of the factors ................................................25
                                   i.  Is there a res over which one court has established jurisdiction? .....25
                                  ii.  Is there any inconvenience of the federal forum? ......................26
                                 iii.  Will maintaining separate actions result in piecemeal litigation? .....27
                                  iv.  Which case has priority? ..............................................29
                                   v.  Does state or federal law control? ....................................31
                                  vi.  Is the state forum adequate to protect the federal plaintiff's
                                        rights? ..............................................................31
                                 vii.  Was there any "forum shopping"? .......................................33
                          3.  Are there "exceptional circumstances" on balance of the factors? ...............33
                III.  CONCLUSION ........................................................................34
                

This diversity action comes before the court pursuant to the November 27, 2001, motion of defendant Colonial Direct Financial Group, Inc., to dismiss, transfer, or stay the present federal action by plaintiff Kingland Systems Corporation, pursuant to Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and its progeny, in favor of another action, also brought by Kingland, in Florida state court. Colonial originally requested oral arguments on its motion, asserting that, because of the complexity of the issues involved, oral arguments would be useful for the court. Kingland later made its own request for oral arguments on the motion. However, the court does not find that oral arguments are necessary to its disposition of the motion, nor has the court's busy trial schedule reasonably provided an opportunity for oral arguments where none were absolutely required. Therefore, the court will proceed to the merits of Colonial's motion without further argument or delay.

I. BACKGROUND
A. The Parties And The Lawsuits
1. The parties and their agreements

In its complaint in this court, plaintiff Kingland alleges that it is an Iowa corporation with its principal place of business in Clear Lake, Iowa. Kingland alleges that defendant Colonial is a Delaware corporation with its principal office in Boca Raton, Florida. The dispute between the parties arises from Kingland's allegation that Colonial has not paid for computer applications and other services that Kingland supplied to Colonial through Kingland's computers in Iowa. Two agreements between the parties are in dispute: a Master Subscriber Agreement and a Promissory Note.

Kingland alleges that it entered into a written contract, called a Master Subscriber Agreement, to provide services to Colonial on or about April 12, 2000. See Defendant's Memorandum in Support of Motion to Dismiss, Transfer and/or Stay, Exhibit A, Master Subscriber Agreement. Under the Master Subscriber Agreement, Kingland was to be paid a monthly fee for providing the computer application services, plus additional fees, at various hourly rates, for certain other services, plus equipment or storage costs. Id. at Attachment 1. The Master Subscriber Agreement contains no forum selection clause, although it does provide that "[t]his Agreement shall be governed by the internal laws of the State of New York." Id. at ¶ 18(f).

On or about July 24, 2000, "for value received," Colonial entered into a Promissory Note for repayment of $218,554 at 9% interest. See Defendant's Memorandum in Support of Motion to Dismiss, Transfer and/or Stay, Exhibits B & C (attachments to pleadings in the Florida lawsuit), Promissory Note at 1. Kingland asserts that this Promissory Note was for sums due from, but not paid by, Colonial under the Master Subscriber Agreement as of the date on which the Promissory Note was executed. The Promissory Note provides that "[t]he entire principal and interest due and owing under this note shall be paid at the earlier of (i) Ten (10) business days after the completion of CDFG's Initial Public Offering; (ii) the receipt by CDFG of an investment equal to or greater than $1,000,000; or (iii) December 1, 2000." Id. The "default" provisions of the Promissory Note, which are of interest here, identified a default as including non-payment on the Note, termination of the employment of certain key personnel of Colonial, bankruptcy proceedings initiated by or against Colonial, and failure to pay invoice amounts due under the Master Subscriber Agreement for periods after July 1, 2000. Id. at 1-2.1 Unlike the Master Subscriber Agreement, the Promissory Note includes a provision that is both a choice-of-law and a forum selection clause, because it states, "This Note is made and shall be governed by and in accordance with the laws of the state of Florida and venue for any action hereunder shall be Palm Beach County, Florida." Id. at 2.

After Colonial executed the Promissory Note, Kingland continued to provide computer applications and other services to Colonial, but the relationship soured, leading Kingland to initiate lawsuits in two separate fora, one for non-payment of the Promissory Note, and one for breach of the Master Subscriber Agreement.

2. The Florida Lawsuit

On August 15, 2001, Kingland filed a complaint against Colonial in the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, alleging that Colonial "failed to pay the [July 24, 2000, Promissory] Note when due," and consequently "owes [Kingland] $218,544.00 that is due with interest since December 1, 2000 on the Note."2 Defendant's Memorandum of Law in Support of Motion to Dismiss, Transfer and/or Stay, Exhibit B, Kingland's Complaint in the Florida lawsuit, ¶¶ 4 & 5. In the Florida lawsuit, Kingland prayed for "judgment for damages against [Colonial]." Id. at prayer.

On November 21, 2001, Colonial filed an Answer, Affirmative Defenses and Counterclaim to Complaint in the Florida lawsuit, in which Colonial, inter alia, denied Kingland's claim of failure to pay on the Promissory Note. In its Counterclaim, Colonial noted that Kingland had filed a separate action in this federal court alleging breach of the Master Subscriber Agreement, but nevertheless sought declaratory judgment under Florida law providing that the Promissory Note extinguished any obligation pursuant to the Master Subscriber Agreement; that the Master Subscriber Agreement was terminated by Kingland; that Colonial is entitled to attorney fees pursuant to the Promissory Note; and such other relief as the court might deem just and proper. See Defendant's Memorandum of Law in Support of Motion to Dismiss, Transfer and/or Stay, Exhibit C, Colonial's Answer, Affirmative Defenses, and Counterclaim in Florida lawsuit, at prayer.

3. The Iowa Lawsuit

On August 30, 2001, approximately two weeks after filing the Florida lawsuit, Kingland also filed the present action in this federal court. In this Iowa lawsuit, Kingland alleges that Colonial has breached the April 12, 2000, Master Subscriber Agreement by failing to pay for services provided under the terms and conditions of the contract. See Complaint at ¶ 6 & 7. More specifically, Kingland alleges that Colonial breached the Master Subscriber Agreement "(a) [i]n failing to pay for the monthly payments provided under Section 3(a) of the Agreement; (b) [i]n failing to make the payments for the remaining term of the contract after the breach; [and] (c) [i]n failing to pay the interest as provided by the Agreement." Id. Kingland's Complaint alleges that the Master Subscriber Agreement is governed by New York law and alleges that, under New York law, a breach has occurred. Id. at 9 & 10. Kingland prays for judgment against Colonial in an amount that will fairly and adequately compensate Kingland for the damages incurred as the result of Colonial's...

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