Morisada Corp. v. Beidas

• Decision Date: 16 March 1995
• Docket Number: Civ. No. 94-00825 ACK.
• Parties: The MORISADA CORP. and ABC Corp., Plaintiffs, v. Husam BEIDAS, and Diversey Corp., Defendants.
• Court: U.S. District Court — District of Hawaii

939 F. Supp. 732

The MORISADA CORP. and ABC Corp., Plaintiffs, v. Husam BEIDAS, and Diversey Corp., Defendants.

Civ. No. 94-00825 ACK.

United States District Court, D. Hawai`i.

March 16, 1995.

COPYRIGHT MATERIAL OMITTED

Jeffrey S. Harris, Torkildson Katz Jossem Fonseca Jaffe & Moore, Honolulu, HI, Andrew V. Beaman, Chun Kerr Dodd & Kaneshige, Honolulu, HI, for plaintiffs.

Tracy Doune Tanaka, Bays Deaver Hiatt Wakachika & Lezak, Honolulu, HI, Carl H. Osaki, Bays Deaver Hiatt Lung & Rose, Kamuela, HI, for defendants.

ORDER STAYING ACTION PURSUANT TO THE COLORADO RIVER DOCTRINE

KAY, Chief Judge.

BACKGROUND

The complaint filed in this case is virtually identical to a counterclaim Plaintiffs asserted in a previous action entitled, Husam Beidas and Salvador Yaris v. The Morisada Corp., et al., Civ. No. 93-00941 ACK ("Beidas Lawsuit"). On November 17, 1993, this previous action was filed in the Circuit Court for the First Circuit of the State of Hawaii. On December 13, 1993, the Beidas Lawsuit was removed to this Court, and, on January 10, 1994, Plaintiffs filed their counterclaim to the Beidas Lawsuit. On April 7, 1994, this Court ruled that the ERISA claims were pre-empted and, as a result, dismissed them. Subsequent to a motion for reconsideration, this Court, on September 30, 1994, remanded the Beidas Lawsuit to state court and dismissed the counterclaim without prejudice. On October 25, 1994, this Court filed an order denying Plaintiffs' motion for reconsideration of dismissal of the counterclaim.

Three days later, on October 28, 1994, Plaintiffs filed the complaint at issue here. In addition, Plaintiffs filed a counterclaim in state court in the remanded Beidas Lawsuit. This recent state court counterclaim is virtually identical to both their prior counterclaim and this current complaint. On November 23, 1994, in this Court, Defendants filed a Motion To Dismiss, Or In The Alternative, To Stay The Plaintiffs' Complaint Filed October 28, 1994 ("Motion"). On February 9, 1995, Plaintiffs filed their Opposition to the Motion ("Opposition"). On February 16, 1995, Defendants filed their Reply to Plaintiffs' Opposition ("Reply").

FACTS

According to Defendants, Mr. Morisada and the Morisada Corporation induced Beidas to leave his then current employer and to start working for Morisada Corporation. As part of the deal, Defendants claim Beidas was promised a share in the profitability of the corporation and some ERISA benefits under a profit sharing plan. In reliance, Defendants state, Beidas accepted the offer of employment as of October 9, 1984. Beidas then signed an employment agreement dated October 20, 1984 with Morisada Corporation's predecessor-in-name, ABC Chemical Corporation.

Defendants allege that Morisada breached its contract with Beidas by failing to make contributions to Beidas' ERISA account, and by breaking other promises. In late 1990, according to Defendants, Beidas stopped working at Morisada Corporation. On or about January 1, 1991, Defendants state, Beidas began working for Diversey Corporation.

DISCUSSION

I. Colorado River Doctrine¹

Under the doctrine enunciated by the United States Supreme Court in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), a federal district court may postpone or decline to exercise its jurisdiction in deference to a "parallel" state proceeding. See Moses H. Cone Memorial Hosp. v. Mercury Const., 460 U.S. 1, 17 n. 20, 103 S.Ct. 927, 937 n. 20, 74 L.Ed.2d 765 (1983). The doctrine is an "extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it." Colorado River, 424 U.S. at 813, 96 S.Ct. at 1244. The Colorado River doctrine is based on the promotion of "(w)ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." Id. at 817, 96 S.Ct. at 1246 (citations omitted). Although the doctrine is sometimes referred to as an abstention doctrine, the Supreme Court has rejected this categorization. See Nakash v. Marciano, 882 F.2d 1411, 1415 n. 5 (9th Cir.1989).

It makes no difference to the state proceeding whether the federal action is stayed or dismissed. See Attwood v. Mendocino Coast Dist. Hosp., 886 F.2d 241, 243 (9th Cir.1989). If there is any substantial doubt as to whether the parallel state court proceeding will provide complete and prompt resolution of the issues concerning the party which seeks to invoke federal jurisdiction, it would be a serious abuse of discretion to grant a stay or dismissal at all. See Cone, 460 U.S. at 28, 103 S.Ct. at 943; see also Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 913 & n. 4 (9th Cir.1993) (citing Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277, 108 S.Ct. 1133, 1137, 99 L.Ed.2d 296 (1988) (stating that a district court may enter a Colorado River stay only if it has "full confidence" that the parallel state proceeding will end the litigation) and Attwood, 886 F.2d at 243 (providing that by conceding that Colorado River applies, plaintiff agrees "beyond any substantial doubt," that the parallel state court proceeding will provide complete and prompt resolution of the issues in her case)). The decision to invoke Colorado River necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case, whether it stays or dismisses. See Attwood, 886 F.2d at 243 (citing Cone, 460 U.S. at 28, 103 S.Ct. at 943). The United States Supreme Court has never approved a dismissal under Colorado River where the plaintiffs were foreclosed from returning if necessary to federal court, and the Supreme Court has strongly hinted that the invocation of Colorado River is contingent on keeping the federal forum open if necessary. See id. at 243-44. For that reason, if the Colorado River doctrine is invoked by a court, the federal proceeding should preferably be stayed, not dismissed. See id. at 243-45.

The Ninth Circuit has held that federal courts have a "`virtually unflagging obligation ... to exercise the jurisdiction given them.'" Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1367 (9th Cir.1990) (quoting Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246). Generally, as between state and federal courts, the rule is that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the federal court having jurisdiction. See id. (quotations omitted).

A district court's discretion must be exercised within the limits of the Colorado River doctrine.²

The decision whether to dismiss a federal action because of parallel state-court litigation does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction. The weight to be given to any one factor may vary greatly from case to case, depending on the particular setting of the case.

Id. at 1368 (quoting Cone, 460 U.S. at 16, 103 S.Ct. at 937) (emphasis added). To determine whether "exceptional" circumstances exist to warrant the granting of a stay or dismissal, the court is to balance a number of factors:

(1) whether a court has assumed jurisdiction over any res or property;

(2) the relative convenience of the forums;

(3) the desirability of avoiding piecemeal litigation;

(4) the order in which jurisdiction was obtained, with emphasis on the progress made in the two actions;

(5) whether state or federal law controls;

(6) whether the state litigation will adequately protect the rights of the party seeking to invoke federal jurisdiction; and

(7) whether forum shopping is at issue.

See Travelers, 914 F.2d at 1367-68.

This list is not exhaustive and no one factor is necessarily determinative. See id. at 1368; Nakash, 882 F.2d at 1416. Any doubt as to whether a factor exists should be resolved against a stay, not in favor of one. See Travelers, 914 F.2d at 1369. The task is not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether there exist "exceptional" circumstances, the "clearest of justifications," that can suffice under Colorado River to justify the surrender of that jurisdiction. See Cone, 460 U.S. at 25-26, 103 S.Ct. at 941-42.

II. Application

A. Jurisdiction Over The Res

A common law rule of long standing prohibits a court, whether state or federal from assuming in rem jurisdiction over a res that is already under the in rem jurisdiction of another court. See U.S. v. One 1985 Cadillac Seville, 866 F.2d 1142, 1145 (9th Cir.1989); Knaefler v. Mack, 680 F.2d 671, 675 (9th Cir.1982). Consideration of this factor is unhelpful here as the claims at issue do not concern tangible physical property. See American Int'l, 843 F.2d at 1258 (stating that money is not the sort of tangible physical property referred to in Colorado River).

B. Inconvenience Of The Federal Forum

In Travelers, the Ninth Circuit adopted the Fifth Circuit's framing of this factor.

The question in the end is not whether the party opposing the stay can demonstrate that the federal forum is a better or more convenient forum. Rather, it is whether the inconvenience of the federal forum is so great that this factor points toward abstention.

Id. at 1368 (quotations omitted) (emphasis added) (quoting Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1192 (5th Cir.1988)); see id. (finding that 200 miles is a fair distance to travel and not sufficiently great to make this factor point towards abstention).

Here, the federal forum does not create any inconvenience because it is located down the street from the state forum. Accordingly, this factor carries no weight.

C. Desirability Of Avoiding Piecemeal Litigation

This factor involves considering whether exceptional circumstances exist which justify special...