Transouth Financial Corp. v. Bell , 149 F.3d 1292 ( 1998 )

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________ FILED
U.S. COURT OF APPEALS
No. 97-6767 ELEVENTH CIRCUIT
08/12/98
_________________
THOMAS K. KAHN
CLERK
D.C. Docket No. CV-96-T-1747-N-MHT
TRANSOUTH FINANCIAL
CORPORATION; ASSOCIATES
FINANCIAL SERVICES
COMPANY, INC. ET AL.,
Plaintiffs-Counter-
Defendants-Appellants-
Cross-Appellee.
versus
RONALD A. BELL,
Defendant-Counter-
Claimant-Appellee-
Cross-Appellant.
_____________________
Appeals from the United States District Court
for the Middle District of Alabama
______________________
(August 12, 1998)
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
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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;
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- 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,
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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 (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.
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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
(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 (1983), the Colorado River doctrine
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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),
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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
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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, 430 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 motions to compel arbitration. We reasoned that resolution of the
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underlying dispute being governed by federal law is a factor that strongly
suggests a federal court should exercise its jurisdiction. See id. at 1365.
The final factor that we deemed to be relevant was the availability of
complete relief in the state forum. We recognized that the state court’s
ability to eventually grant complete relief weighed slightly in favor of
abstention. See id. However, that one factor was insufficient to
counterbalance the other considerations. In sum, we concluded in First
Franklin that the factors not favoring abstention -- avoiding piecemeal
litigation, progress of the concurrent proceedings, and the federal nature of
the relevant law -- coupled with the absence of any factor weighing
strongly in favor of abstention required us to conclude that the district court
abused its discretion by abstaining. See id.
This case is not materially different from First Franklin. Both cases
involve parallel state and federal proceedings. In both cases, the state court
plaintiff filed his complaint first, alleging several fraud-related claims, and
soon thereafter one or more of the defendants in the state court action filed
motions to compel arbitration in both state and federal court. In both cases,
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the district court decided to abstain from exercising its jurisdiction, even
though the state court had not issued a ruling on the arbitrability issue.
Given these similarities, the same Moses H. Cone factors that this Court
applied in First Franklin weigh against abstention here as well. As we said
in First Franklin, “this case is so close to Moses H. Cone, and the factors
weigh sufficiently against abstention, that the district court abused its
discretion in abstaining.” Id.
The district court in this case did not have the benefit of the First
Franklin decision when it ruled. We are confident that if it had, the court
would not have abstained. In light of First Franklin, we must vacate the
district court’s order of dismissal on abstention grounds, and remand this
case to the district court for a decision on the appellants’ motion to compel
Bell to arbitrate his claims against them.1
1
Our decision in Old Republic Union Ins. Co. v. Tillis Trucking Co., 124 F.3d 1258 (11th
Cir. 1997), does not conflict with our analysis here. In Old Republic, we affirmed a district court’s
refusal on Younger abstention grounds to entertain a declaratory judgment action where there was
a concurrent state action. The federal plaintiff sought to have the federal court pass on the
constitutionality of Alabama’s wrongful death statute. See id. at 1261. We found that Younger
abstention was appropriate because “important state interests [were] involved,” and those interests
favored allowing the Alabama state courts to pass on the validity of state law. Id. We also found
that abstention in that case was supported by the fact that the federal action was brought under the
Declaratory Judgment Act, which “confer[s] on federal courts unique and substantial discretion in
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B. DID THE DISTRICT COURT PROPERLY DENY THE
APPELLANTS’ MOTION FOR A STAY OF THE STATE COURT
PROCEEDINGS?
Appellants also contend that the district court should have entered an
order staying the state court proceedings pending the outcome of their
federal suit seeking to compel arbitration. In denying their request for a
stay, the district court relied on the prohibitions of the Federal Anti-
Injunction Act, 28 U.S.C. § 2283.
The Federal Anti-Injunction Act prohibits a federal court from
enjoining a state court proceeding except in three narrowly defined
circumstances: (1) where there is an express congressional authorization
to enjoin state proceedings; (2) where an injunction is necessary to protect
a judgment that a federal court has rendered; and (3) where an injunction
deciding whether to declare the rights of litigants.” Id. at 1260 (citing Wilson v. Seven Falls Co.,
515 U.S. 277, 286-87 (1995)).
The present case, by contrast, is not a declaratory judgment action. Instead, these appellants
seek to enforce federal arbitration rights created by a federal statute, the FAA. As a result, no
compelling state interest exists in having the state courts, instead of the federal courts, decide this
case. Moses H. Cone indicates that, in arbitration cases, federal courts have a “virtually unflagging
obligation . . . to exercise the jurisdiction given them.” Moses H. Cone, 460 U.S. at 15, 103 S. Ct.
at 937. That Old Republic implicated Younger abstention, while this case involves Colorado River
abstention underscores the differences that distinguish Old Republic from the present case.
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is necessary to aid the federal court’s jurisdiction over an action. See 28
U.S.C. § 2283. Those exceptions are to be narrowly construed. See, e.g.,
Atlantic Coast Line Ry. Co. v. Brotherhood of Locomotive Eng’rs, 398
U.S. 281, 287, 90 S. Ct. 1739, 1743 (1970).
The appellants contend that this case falls within the third exception,
namely, that an injunction is necessary “in aid of [the court’s] jurisdiction.”
Citing Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 641-42, 97 S. Ct.
2881, 2893 (1977)(plurality opinion of Rehnquist, J.), the district court held
to the contrary, because it believed the “aid of jurisdiction” exception
applies exclusively to in rem proceedings. In Vendo Co., then-Justice
Rehnquist’s plurality opinion stated that the “aid of jurisdiction” exception
was intended to apply to in rem proceedings, and not to interfere with the
balance of concurrent jurisdiction in personam actions. See id. However,
that opinion did not command a majority of the Court, and Justice
Blackmun’s concurrence, joined by one other justice, does not adopt that
position. See id. at 643, 97 S. Ct. at 2893-94 (Blackmun, J., concurring in
the result). We are not obligated to follow the plurality opinion in Vendo
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Co., because plurality opinions of the Supreme Court do not bind this
Court. See, e.g., United States v. Stewart, 65 F.3d 918, 924 (11th Cir.
1995), cert. denied, 516 U.S. 1134, 116 S. Ct. 958 (1996).
We are obligated to follow a prior decision of this Court, see Bonner
v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), and we
do have a decision holding that the “aid of jurisdiction” exception can be
applied to in personam actions when necessary to protect a federal court’s
jurisdiction over a case. See Peterson v. BMI Refractories, 124 F.3d 1386,
1395 (11th Cir. 1997) (holding that “aid of jurisdiction” exception to anti-
injunction act could be invoked to stay state court proceedings where the
case had been removed from state court). The district court did not have
the benefit of the Peterson decision when it issued its order in this case, but
that decision is now law of the circuit.
That the “aid of jurisdiction” exception applies to some in personam
actions, however, does not necessarily mean that it applies to this case. In
Peterson, we held that a stay of the state court proceedings was appropriate
because the civil rights action initiated in the state court had been removed
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to federal court on diversity grounds, depriving the state court of
jurisdiction over the matter. See Peterson, 124 F.3d at 1395. In the present
case, jurisdiction is proper in both courts. When there are concurrent
jurisdiction state and federal proceedings arising out of the same
transaction or occurrence, ordinarily neither forum should interfere with the
other’s exercise of jurisdiction. See Atlantic Coast Line R.R. v.
Brotherhood of Locomotive Eng’rs, 398 U.S. 281, 295, 90 S. Ct. 1739,
1747 (1970) (“In short, the state and federal courts had concurrent
jurisdiction in this case, and neither court was free to prevent either party
from simultaneously pursuing claims in both courts.”). The “aid of
jurisdiction” exception applies only when an injunction is “necessary to
prevent a state court from so interfering with a federal court’s consideration
or disposition of a case as to seriously impair the federal court’s flexibility
and authority to decide that case.” Id.
In support of their position that the “aid of jurisdiction” exception
applies here, appellants note that district courts have granted an injunction
staying state court proceedings under this exception after determining that
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the underlying dispute was arbitrable. See, e.g., Pervel Indus. v. TM
Wallcovering, Inc., 675 F. Supp. 867 (S.D.N.Y. 1987), aff’d 871 F.2d 7 (2d
Cir. 1989). In Pervel, the district court found that the “aid of jurisdiction”
exception allowed it to stay parallel state court proceedings after granting
an order compelling arbitration. See id. at 870.
In the present case, however, no court has found the underlying
dispute arbitrable and compelled the parties to arbitrate their claims. That
distinction may be an important one, because when a federal district court
grants a motion to compel arbitration it retains jurisdiction to confirm or
vacate the resulting arbitration award under 9 U.S.C. §§ 9-10. When a
federal court has ordered arbitration, a stay of the state court action may be
necessary to insure that the federal court has the opportunity to pass on the
validity of the arbitration award. In this case, however, that concern simply
does not exist because the district court has not yet ruled on the motion to
compel arbitration. Cf. Amalgamated Clothing Workers of America v.
Richman Bros., 348 U.S. 511, 515-16, 75 S. Ct. 452, 455 (1955) (Anti-
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Injunction Act exceptions do not apply merely because state court action
involves legal area preempted by federal law).
If the district court orders arbitration, a stay of the state court
proceedings might be appropriate at that point because continued state
proceedings could jeopardize the federal court’s ability to pass on the
validity of the arbitration proceeding it has ordered.2 However, we need
not decide that question because the premised condition, an order
compelling arbitration, does not exist now. Therefore, the “aid of
jurisdiction” exception to the Anti-injunction Act is inapplicable at present.
See Lou v. Belzberg, 834 F.2d 730, 740 (9th Cir. 1987) (“The mere
existence of a parallel action in state court does not rise to the level of
interference with federal jurisdiction necessary to permit injunctive relief
under the ‘necessary in aid of’ exception.”). Accordingly, we hold that no
exception to the Anti-Injunction Act is applicable to this case and affirm
2
If the district court grants appellants’ motion to compel arbitration, and the appellants renew
their motion for a stay of the state court proceedings, the district court can reconsider that motion
then.
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the district court’s denial of TranSouth’s motion for a stay of the parallel
state court proceedings in this case.
C. SHOULD THE DISTRICT COURT HAVE DISMISSED BELL’S
CROSS-APPEAL?
In his cross-appeal, Bell claims that the district court should not have
dismissed his jury demand on the arbitrability issue and the separate fraud
claim contained in his counterclaim. The district court dismissed Bell’s
counterclaim when it dismissed the entire case. Because we have held the
district court should not have dismissed the case on abstention grounds, the
entire case is to be remanded to the district court. Bell’s contention about
his jury demand and fraud claim are premature insofar as this Court is
concerned. The district court is free to reconsider these matters on remand.
IV. CONCLUSION
For the reasons stated above, the district court’s order granting Bell’s
motion to dismiss is VACATED, but its denial of TranSouth’s motion for
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a stay of the state court proceedings is AFFIRMED. The case is
REMANDED for further proceedings consistent with this opinion.
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