Voktas, Inc. v. Central Soya Co., Inc., 81-2634

Decision Date20 September 1982
Docket NumberNo. 81-2634,81-2634
Citation689 F.2d 103
PartiesVOKTAS, INC., a Greek corporation, Plaintiff-Appellee, v. CENTRAL SOYA COMPANY, INC., an Indiana corporation, and Central Soya International, Inc., a Panamanian corporation, Defendants-Appellants, v. SOUTHEASTERN MINERALS, INC., Third-Party Defendant.
CourtU.S. Court of Appeals — Seventh Circuit

Edward L. Murphy, Jr., Fort Wayne, Ind., for defendants-appellants.

Raymond E. Vickery, Jr., Reed, Smith, Shaw & McClay, McLean, Va., for plaintiff-appellee.

Before BAUER and POSNER, Circuit Judges, and LARSON, Senior District Judge. *

LARSON, Senior District Judge.

This appeal concerns the power of a federal district court to stay proceedings during the pendency of a state court action. In Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976), the Supreme Court noted "the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them," but the Court also recognized an exception to this rule based "on considerations of '(w)ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.' " The significance of Colorado River has been assessed in numerous opinions, including the decision of this Court in Calvert Fire Ins. Co. v. American Mut. Reinsur. Co., 600 F.2d 1228 (7th Cir. 1979) (hereinafter cited as Calvert Fire ). After consideration of the applicable case law and the circumstances of the present case, we affirm the denial of the motion for stay.

On August 13, 1979, plaintiff-appellee Voktas, Inc. (Voktas), a Greek poultry producing company, filed a products liability action in Indiana state court against defendant-appellant Central Soya Company, Inc. (Central Soya), an Indiana manufacturer of poultry feed and defendant-appellant Central Soya International, Inc. (Central Soya International), a Panamanian corporation that acts as an intermediary in sales between Central Soya and foreign buyers. Plaintiff alleged that defendants had sold two shiploads of defective poultry feed to Voktas and claimed more than 9.5 million dollars in damages. There were a number of changes of venue within the Indiana state court system, and defendants filed various motions in state court, including a motion to strike, a motion to dismiss, and various objections to plaintiff's discovery requests. On November 20, 1979, Voktas filed an almost identical suit in federal district court, the only significant difference being that the federal complaint alleged jurisdiction on the basis of diversity of citizenship under 28 U.S.C. § 1332 (1976). One of the advantages that the federal forum provided plaintiff was the potential for more thorough discovery, especially of an international nature, due to differences between federal and Indiana law. Voktas also maintains that the federal forum promised to allow more expeditious resolution of the dispute. On January 24, 1980, defendants moved for a stay of the federal action during the pendency of the state court suit, but on July 21, 1980, the federal magistrate denied the motion for stay. 1 Accepting defendants' argument that the decision involved "a controlling question of law as to which there is substantial ground for difference of opinion," the magistrate certified the issue for interlocutory appeal to this Court under 28 U.S.C. § 1292(b) (1976). The magistrate declined to stay proceedings during the pendency of the appeal and discovery went forward. 2 On December 19, 1980, plaintiff filed a notice of dismissal in the federal court as to Central Soya International. This was in response to defendants' argument that the presence of Central Soya International destroyed complete diversity. 3 Plaintiff stipulated in the state court that any judgment in the federal action would be binding against it as to Central Soya International in the state court action. 4 On October 1, 1981, this Court found that the magistrate had authority to certify the question for interlocutory appeal, and we granted the petition for appeal. Central Soya Co., Inc. v. Voktas, Inc., 661 F.2d 78, 81 (7th Cir. 1981).

Subsequent to our grant of the petition for appeal, the state court on December 23, 1981, stayed all proceedings before it "pending disposition of the parallel proceeding ... in the U. S. District Court." Voktas, Inc. v. Central Soya Co., Inc., No. C-80-26 (Cir.Ct. Dekalb County, Ind., Dec. 23, 1981). From the record before us, it appears that the state judge granted the motion for stay because he was concerned about the adequacy of the resources of his court to handle a suit of this size and complexity which involved a large amount of discovery in distant locations. 5 On January 4, 1982, the state judge denied defendants' motion to reconsider the stay order. Defendants initially indicated that they would appeal the order of the state trial court to the Indiana Court of Appeals, but by their Notice of Non-Appeal of State Action Stay Order (filed May 7, 1982), Central Soya and Central Soya International informed this court of their intention not to appeal the state stay order. They represented, however, that if this Court determines that the federal magistrate erred in denying defendants' motion for stay, defendants will ask the state trial court to reconsider its earlier ruling.

In its present posture, the appeal before this Court of the magistrate's refusal to stay federal proceedings during the pendency of the state litigation is close to being moot. The state court has made it clear that it will stay proceedings in its forum until a disposition of the federal suit is achieved. Under these circumstances, it is not certain that the question of whether the federal suit should be stayed has continuing vitality. Further, if we were to find that the federal magistrate abused his discretion in denying the motion for stay, the practical result might be termed "judicial paralysis"-both the federal and the state actions would be stayed and no progress toward resolution of the dispute would occur. We can do no more than speculate whether, upon a request for reconsideration, the state court would lift its order to stay the proceedings. If anything, the concerns of the state court about the size and complexity of the suit suggest that the Indiana judge would be reluctant to proceed with the litigation.

In any event, the federal magistrate did not abuse his discretion in denying the motion for stay.

The leading case in this Circuit on the standards for granting a stay during the pendency of a state court action is Calvert Fire. 6 In this case we affirmed the stay of a federal suit for rescission of a participation agreement in a reinsurance pool along with a claim for two million dollars in damages. The suit was premised upon state and federal law, including a damages provision of the Securities Exchange Act of 1934 over which the federal courts have exclusive jurisdiction. The federal action was brought subsequent to a state action in which the roles of the parties had been reversed; the federal defendant had initiated the state action to seek a declaration that the participation agreement was still in effect. Our affirmance of the federal stay came after an initial grant of stay by the federal district court, Calvert Fire Ins. Co. v. American Mut. Reinsur. Co., No. 75 C 103 (N.D.Ill. May 6, 1975); the issuance of a writ of mandamus by this Court to compel the federal district court to proceed with the litigation, Calvert Fire Ins. Co. v. Will, 560 F.2d 792 (7th Cir. 1977); reversal of the writ of mandamus by the United States Supreme Court, Will v. Calvert Fire Ins. Co., 437 U.S. 655, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978); 7 dismissal of the petition for a writ of mandamus by this Court, Calvert Fire Ins. Co. v. Will, 586 F.2d 12 (7th Cir. 1978); and an order continuing the stay by the district court, Calvert Fire Ins. Co. v. American Mut. Reinsur. Co., 459 F.Supp. 859 (N.D.Ill.1978). The facts and legal issues surrounding this case have been thoroughly stated and restated by all three levels of the federal judiciary. We will not reiterate what has been said before, except as is necessary to outline the basic significance of the previous decision.

In our ultimate disposition of Calvert Fire we stated:

Any discussion of federal court deferral to a parallel state proceeding for reasons apart from the three traditional categories of abstention must begin with Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976)....

The Supreme Court made it clear that the circumstances justifying federal court deferral to a state proceeding are still considerably more limited than the circumstances permitting federal court deferral to another federal court.... Despite this cautionary note, however, the Court did not articulate a different test to apply in the federal/state context, preferring to rely on the traditional test governing relations between two federal courts confronted with parallel suits. Under the traditional "balancing test" the district judge must make a "carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise..." .... In making this judgment, the district judge may take into account such factors as (1) the desirability of avoiding piecemeal litigation, (2) the order in which jurisdiction was obtained by the concurrent forums, (3) the inconvenience of the federal forum, and (4) the court first assuming jurisdiction over any property which may be involved in the suit.... No one factor is necessarily controlling. The district judge's exercise of discretion should be based on his weighing of a combination of factors.... The above list is not exhaustive, and the district judge should...

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