TranSouth Financial Corp. v. Bell

• Decision Date: 12 August 1998
• Docket Number: No. 97-6767,97-6767
• Parties: 12 Fla. L. Weekly Fed. C 6 TRANSOUTH FINANCIAL CORPORATION; Associates Financial Services Company, Inc., et al., Plaintiffs-Counter-Defendants-Appellants- Cross-Appellee. v. Ronald A. BELL, Defendant-Counter-Claimant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1292

149 F.3d 1292

12 Fla. L. Weekly Fed. C 6

TRANSOUTH FINANCIAL CORPORATION; Associates Financial Services Company, Inc., et al Plaintiffs-Counter-Defendants-Appellants- Cross-Appellee. v. Ronald A. BELL, Defendant-Counter-Claimant-Appellee-Cross-Appellant.

No. 97-6767.

United States Court of Appeals Eleventh Circuit.

Aug. 12, 1998.

John Fairley McDonald, III, Copeland, Franco, Screws & Gill, P.A., Montgomery, AL, A. William Loeffler, Ralph H. Greil, William N. Withrow, Jr., Troutman Sanders, LLP, Atlanta, GA, for Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees.

Alan S. Kaplinsky, Ballard, Spahr, Andrews & Tingersoll, Philadelphia, PA, for Amicus Curiae.

Paul R. Cooper, Cooper & Cooper, Darron C. Hendley, Law Office of Darron C. Hendley, Montgomery, AL, for Defendant-Counter-Claimant-Appellee-Cross-Appellant.

Appeals from the United States District Court for the Middle District of Alabama.

Before CARNES and HULL, Circuit Judges, and HENDERSON, Senior Circuit Judge.

CARNES, Circuit Judge:

Appellants TranSouth Financial Corp. ("TranSouth"), Associates Financial Life Insurance Company ("AFLIC"), Associates Insurance Company ("AIC"), and Associates Financial Services Company, Inc ("AFSC"), appeal the district court's order dismissing their complaint, which sought to compel appellee Ronald Bell to arbitrate his claims against them, and denying their request for a stay of the concurrent state court action Bell had instituted against them. The dismissal was based upon the district court's conclusion that, in the interest of comity and federalism, it should abstain from exercising its jurisdiction over the case in favor of the concurrent state court proceeding.

We agree with the appellants that the district court abused its discretion by abstaining from exercising its jurisdiction over the complaint, but we agree with Bell that the Federal Anti-Injunction Act, 28 U.S.C. § 2283, prohibited the district court from enjoining the concurrent state court proceedings. Accordingly, we reverse the district court's order insofar as it dismissed TranSouth's complaint, but we affirm the district court's order insofar as it declined to enjoin the concurrent state court proceedings.

I. BACKGROUND

Bell took out loans with TranSouth on four separate occasions. Bell alleges that TranSouth, through its agents, Jay Conner and Carl Knight, told him that he would be able to get these loans only if he purchased credit life insurance through appellant Associates Financial Life. Bell also contends that the cost of this life insurance was added to his loans without his consent.

On September 17, 1996, Bell and TranSouth entered into an agreement to refinance the last of Bell's loans. That agreement included an arbitration clause under which they agreed to arbitrate:

without limitation, all claims and disputes arising out of, in connection with, or relating to:

-- your loan from us today;

-- any previous loan from us and any previous retail installment sales contract or loan assigned to us;

-- all the documents relating to this or any previous loan or retail installment sale contract;

....

-- any claim or dispute based on an allegation of fraud or misrepresentation;

-- any claim or dispute based on a federal or state statute; and

-- any claim or dispute based on an alleged tort.

The arbitration clause also provided that Bell and TranSouth would arbitrate any disputes between Bell and any of TranSouth's affiliates, employees, or agents.

On October 4, 1996, Bell filed a lawsuit in Alabama state court against TranSouth, AFLIC, AIC, and AFSC, as well as Jay Conner, S.J. Conner Auto Sales, and Carl Knight, whom Bell alleges acted as agents for TranSouth. The complaint alleged several claims of fraud and misrepresentation arising out of the loan transactions and the life insurance that Bell alleges he was forced into purchasing.

Appellants filed this action on November 25, 1996, seeking an order from the district court compelling Bell to arbitrate his claims and an order staying the state court proceedings. Bell filed his answer on December 30, 1996. In it, he admitted signing the arbitration agreement but pled several defenses, including fraud in the inducement. On January 21, 1997, Bell amended his answer to include a counterclaim alleging fraud by the appellants in procuring the arbitration agreement. On February 14, 1997, Bell filed a motion to dismiss the complaint, contending that the district court should refrain from exercising its jurisdiction under principles of comity and abstention.

By order dated August 25, 1997, the district court granted Bell's motion and dismissed the complaint without prejudice, holding that it would abstain from exercising its jurisdiction under the doctrine of Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). The appellants filed a timely appeal from that decision. Bell then filed a timely cross-appeal from the district court's dismissal of his fraud claim and his demand for a jury trial on the validity of the arbitration agreement. In addition to their appeal to this Court, the appellants filed a motion to compel arbitration in the state court on September 3, 1997.

II. STANDARD OF REVIEW

We review for abuse of discretion a district court's dismissal on Colorado River abstention grounds. See American Bankers Ins. Co. of Fla. v. First State Ins. Co., 891 F.2d 882, 884 (11th Cir.1990). We review de novo a district court's determination that the Federal Anti-Injunction Act, 28 U.S.C. § 2283, prevents it from enjoining a state proceeding. See Peterson v. BMI Refractories, 124 F.3d 1386, 1390 (11th Cir.1997).

III. ANALYSIS

A. DID THE DISTRICT COURT ABUSE ITS DISCRETION BY DISMISSING TRANSOUTH'S PETITION TO COMPEL ARBITRATION?

The district court dismissed the appellants' complaint pursuant to the abstention doctrine that the Supreme Court announced in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), which allows a federal court to dismiss a case when a concurrent state proceeding provides a more appropriate forum. As modified by the Supreme Court in Moses H. Cone Memorial Hospital v. Mercury Constr. Co., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), the Colorado River doctrine requires federal courts to consider six factors in determining whether abstention in favor of a concurrent state proceeding is appropriate: (1) the order in which the courts assumed jurisdiction over property; (2) the relative inconvenience of the fora; (3) the order in which jurisdiction was obtained and the relative progress of the two actions; (4) the desire to avoid piecemeal litigation; (5) whether federal law provides the rule of decision; and (6) whether the state court will adequately protect the rights of all parties. See id. at 16-26, 103 S.Ct. at 937-42. The Supreme Court indicated that these criteria could not be applied according to a rigid formula; no one factor is dispositive. See id. However, a federal court considering abstention must weigh these factors with a heavy bias in favor of exercising jurisdiction, see id. at 16, 103 S.Ct. at 937, since federal courts have a "virtually unflagging obligation" to exercise jurisdiction where it exists. Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246.

In a recent Colorado River abstention decision, we applied the Moses H. Cone factors to a scenario materially indistinguishable from this case. In First Franklin Fin. Corp. v. McCollum, 144 F.3d 1362 (11th Cir.1998), the federal court defendant, Gary McCollum, filed a state court action against First Franklin and one of its employees, alleging several fraud-related claims. Shortly thereafter, First Franklin filed concurrent state and federal court petitions seeking to compel McCollum to arbitrate his claims. The district court relied on Colorado River abstention to dismiss the federal court petition, reasoning that concerns of comity and federalism warranted deferral to the previous state court action brought by McCollum. See First Franklin, 144 F.3d at 1363.

We vacated and remanded, holding that several of the Moses H. Cone factors weighed in favor of exercising federal jurisdiction. First, we noted that the "piecemeal litigation" factor did not weigh against exercising jurisdiction because no piecemeal litigation would ensue with regard to the arbitrability of the dispute, the only question before the federal court. In addition, we pointed out that any piecemeal litigation that might result from a decision on arbitrability would be the result of the parties' voluntary actions and the strong federal policy favoring arbitration. See id. at 1364.

Second, we noted in First Franklin that priority of jurisdiction and the timing and progress of the concurrent suits weighed against abstention. As discussed in Moses H. Cone, this factor requires the court to consider not only the chronological order in which the parties initiated the concurrent proceedings, but the progress of the proceedings and whether the party availing itself of the federal forum should have acted earlier. See Moses H. Cone, 460 U.S. at 21-22, 103 S.Ct. at 939-40. First Franklin had filed its suit at nearly the earliest opportunity, shortly after McCollum indicated his refusal to arbitrate by filing his state court lawsuit. Furthermore, the state court had not ruled on First Franklin's motion to compel arbitration at the time the district court decided to abstain from exercising jurisdiction. As a result, there had been no progress in the state court to weigh in favor of federal court deferral. See id. at 1364-65. Therefore, we concluded that the relative timing and progress of the concurrent proceedings in First Franklin did not weigh in favor of abstention.

Third, we noted in First Franklin that the law of decision weighed against abstention, since the Federal Arbitration Act, 9 U.S.C. §§ 3-4 governs ...