Eric D. Freed v. J.P. Morgan Chase Bank, N.A. , 756 F.3d 1013 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 13-2339 & 13-2340
ERIC D. FREED,
Plaintiff-Appellant,
v.
J.P. MORGAN CHASE BANK, N.A.,
Defendant-Appellee.
ERIC D. FREED,
Plaintiff-Appellant,
v.
PAUL M. WEISS, RONALD WEISS,
and COMPLEX LITIGATION GROUP LLC,
Defendants-Appellees.
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 12 C 1477 and 12 C 6720 — Gary S. Feinerman, Judge.
ARGUED NOVEMBER 7, 2013 — DECIDED JUNE 24, 2014
2 Nos. 13-2339 & 13-2340
Before BAUER, MANION, and SYKES, Circuit Judges.
BAUER, Circuit Judge. This appeal arises from three separate
actions filed by plaintiff-appellant Eric D. Freed (“Freed”)
against numerous defendants: the first case was filed in state
court; the second filed in state court and promptly removed to
federal court; the third filed in federal court. The district court
found that abstention in the two federal court cases was proper
under Colorado River Water Conservation District v. United States,
424 U.S. 800 (1976), and stayed both cases pending the outcome
of the state court proceedings. Freed timely appealed the two
Stay Orders, consolidated in this appeal, and argued that the
federal cases should be remanded and proceed to trial on the
merits. We find that the district court did not abuse its discre-
tion in granting the stays.
I. BACKGROUND
Freed and Paul M. Weiss (“Weiss”) were the sole managing
members of a legal practice organization called Complex
Litigation Group LLC (“CLG”). Freed claims to have provided
“virtually all of [CLG’s] operating capital” through loans in
excess of $12 million. Pursuant to the partnership agreement
between Freed and Weiss, Freed was entitled to repayment of
the loans before CLG could make distributions to other
members.
According to Freed, shortly after he received a partial
repayment from CLG in March 2011, Weiss began taking steps
to terminate Freed’s control of CLG and to create a new limited
liability company without him. Freed argues that Weiss,
without Freed’s authorization, moved CLG funds held by
J.P. Morgan Chase Bank (“Chase”) into other accounts, which
Nos. 13-2339 & 13-2340 3
Freed lacked signature authority to access. When Freed became
aware of Weiss’s movement of the CLG funds, Freed de-
manded that Chase freeze all of the CLG accounts based on the
claim that Weiss was unauthorized to move the funds without
Freed’s approval. Freed contends that Chase employees
relayed the freeze request to Weiss, who then removed all
funds from Chase through checks payable to him. Freed asserts
that Weiss planned to transfer the funds, along with all other
CLG assets, to the new company.
In December 2011, Freed, individually and derivatively on
behalf of CLG, filed a complaint in state court against Weiss
and his wife Jamie Saltzman Weiss (“Saltzman”) alleging
various business-related improprieties primarily regarding
access to CLG records and funds (the “state court proceed-
ing”). In an amended complaint, Freed asserted claims against
Weiss for breach of fiduciary duties owed to Freed and the
breach of the partnership agreement between Freed and Weiss.
Freed also requested a declaratory judgment from the court
stating that Weiss’s actions constituted a voluntary termination
of CLG according to the terms of the CLG partnership agree-
ment. Freed further claimed that Saltzman, an employee of
CLG, breached her fiduciary duty of loyalty to CLG and that
both Saltzman and Weiss improperly converted CLG assets.
Freed’s complaint sought temporary and permanent injunctive
relief against Weiss and Saltzman to prevent any additional
actions in furtherance of their scheme to push Freed out of
CLG and to obtain its assets.
In response, Weiss filed a counterclaim in state court on
behalf of himself and CLG requesting: (1) a judicial determina-
tion to expel Freed from CLG; (2) a temporary and permanent
4 Nos. 13-2339 & 13-2340
injunction preventing Freed from continuing to act or hold
himself out as a member and manager of CLG; and (3) a decree
that Freed be dissociated from CLG before August 2012. Weiss
and CLG filed additional counterclaims arguing that Freed was
dissociated from CLG in March 2011, when he withdrew CLG
funds in violation of their partnership agreement. However, in
the event that the state court determined that Freed was not
dissociated at that time, Weiss and CLG asked the court to
dissolve CLG and to award costs, compensatory damages, and
punitive damages against Freed.1
In February 2012, Freed filed suit against Chase in state
court claiming that Chase facilitated Weiss’s unauthorized
transfer of CLG funds (the “Chase Lawsuit”). Freed asserted
two claims against Chase: tortious interference with contrac-
tual rights and aiding and abetting Weiss’s breaches of
fiduciary duties owed to Freed. Chase timely removed the
Chase Lawsuit to federal court based on diversity of citizen-
ship. Once in federal court, Chase brought third-party claims
against CLG, Weiss, and Saltzman for indemnity or contribu-
tion in the event that Freed was able to recover from Chase.
On August 21, 2012, Freed gave written notice to CLG
expressing his voluntarily dissociation and filed a motion to
dismiss the state court proceeding without prejudice. That
same day, Freed filed an action in federal court against Weiss,
his father Ronald Weiss, and CLG asking the court to: (1) force
CLG to purchase Freed’s distributional interest in CLG for
1
To be clear, Weiss and CLG’s filings with the state court were titled
“Emergency Petitions.” Both the state court and federal court treated these
as counterclaims. This court will do the same.
Nos. 13-2339 & 13-2340 5
fair value and set the terms for the purchase and (2) award
damages against Weiss and Ronald Weiss, a CLG accountant,
for breaches of fiduciary duties arising from the alleged
transfer and theft of CLG funds (the “Distributional Interest
Lawsuit”). In the event that Freed did not receive his distribu-
tional interest at the price and subject to the terms set by the
court, Freed asked the court to dissolve CLG, supervise its
winding-up phase, and distribute CLG’s assets. CLG refused
to purchase Freed’s distributional interest, arguing that either
Freed could not dissociate because CLG was a member-
managed limited liability company or because Freed already
voluntarily terminated his membership in CLG in March 2011.
The defendants in the Distributional Interest Lawsuit,
joined by Chase, filed a motion to stay the two federal cases
pending the outcome of the state court proceeding pursuant to
the Colorado River doctrine. After the defendants filed their
abstention motions in federal court, the state court granted
Freed’s motion to dismiss his state court claims. However,
because Weiss and CLG had filed counterclaims against Freed,
the state court proceeding was not ended. The federal court
requested supplemental briefing from the parties as to whether
the remaining counterclaims in the state court proceeding
justified federal abstention in light of the state court granting
Freed’s motion to dismiss.
Before the supplemental briefings were due in federal
court, Weiss and CLG filed a motion in the state court
proceeding requesting immediate trial for the resolution of
their counterclaims. The motion urged the court to declare
that either Freed dissociated from CLG in March 2011, or
that he dissociated prior to his formal, written dissociation
6 Nos. 13-2339 & 13-2340
from CLG on August 21, 2012, by behavior that would consti-
tute “dissociative acts” under the partnership agreement.
Weiss and CLG renewed their alternative request that the state
court dissolve CLG in the event that Freed was found to still be
a member of CLG until his written dissociation. Freed re-
sponded and requested judgment on the pleadings; that since
he formally dissociated from CLG on August 21, 2012, the
counterclaims made by Weiss and CLG were moot.
On June 13, 2013, the federal district court entered Stay
Orders for both the Chase Lawsuit and the Distributional
Interest Lawsuit pending the outcome of the state court
proceeding pursuant to the Colorado River doctrine. Notably,
the district court determined that nine of the ten Colorado River
factors favored abstention. Freed timely appealed the district
court Stay Orders, which have been consolidated for this
appeal.
II. DISCUSSION
Pursuant to Colorado River, a federal court may stay or
dismiss a suit in federal court when a concurrent state court
case is underway, but only under exceptional circumstances
and if it would promote “wise judicial administration.”
Colorado River, 424 U.S. at 817–18. The primary purpose of the
Colorado River doctrine is to conserve both state and federal
judicial resources and prevent inconsistent results. Day v.
Union Mines, 862 F.2d 652, 657 (7th Cir. 1988); Lumen Const.,
Inc. v. Brant Const. Co., Inc., 780 F.2d 691, 694 (7th Cir. 1985). A
district court’s decision to stay federal proceedings pending the
resolution of a state court action is reviewed under an abuse of
discretion standard. Id. at 655.
Nos. 13-2339 & 13-2340 7
To determine whether a stay is appropriate, the court is
required to conduct a two-part analysis. First, the court must
determine whether the state and federal court actions are
parallel. AAR Int’l Inc. v. Nimelias Enterprises S.A., 250 F.3d 510,
518 (7th Cir. 2001). If the actions are not parallel, the Colorado
River doctrine does not apply and the court need not address
the second part of the analysis. Interstate Material Corp. v. City
of Chicago, 847 F.2d 1285, 1287 (7th Cir. 1988). If, however, the
court determines that the proceedings are parallel, the court
must decide whether abstention is proper by carefully weigh-
ing ten non-exclusive factors. AAR Int’l Inc., 250 F.3d at 522.
The factors are:
(1) whether the state has assumed jurisdiction over
property;
(2) the inconvenience of the federal forum;
(3) the desirability of avoiding piecemeal litigation;
(4) the order in which jurisdiction was obtained by
the concurrent forums;
(5) the source of governing law, state or federal;
(6) the adequacy of state-court action to protect the
federal plaintiff’s rights;
(7) the relative progress of state and federal proceed-
ings;
(8) the presence or absence of concurrent jurisdic-
tion;
8 Nos. 13-2339 & 13-2340
(9) the availability of removal; and
(10) the vexatious or contrived nature of the federal
claim.
Tyrer v. City of South Beloit, Ill., 456 F.3d 744, 754 (7th Cir. 2006)
(citing Caminiti & Iatarola, Ltd., 962 F.2d 698, 701 (7th Cir.
1992)).
As the Supreme Court noted in Colorado River, “[n]o one
factor is necessarily determinative” and the careful weighing
of all factors is necessary to determine whether circumstances
exist warranting abstention. 424 U.S. at 818-19; AAR Int’l Inc.,
250 F.3d at 518.
A. Parallelism of State and Federal Court Cases
For a state court case to be parallel to a federal court case
under the Colorado River doctrine, there must be “a substantial
likelihood that the state litigation will dispose of all claims
presented in the federal case.” Lumen, 780 F.2d at 695. The
cases need not be identical to fulfill the requirement of parallel-
ism, but the court must examine whether “substantially the
same parties are contemporaneously litigating substantially the
same issues in another forum.” Interstate Material Corp., 847
F.2d at 1288 (quoting Calvert Fire Ins. Co. v. American Mutual
Reinsurance Co., 600 F.2d 1228, 1229 n.1 (7th Cir. 1979)).
The court should also examine whether the cases raise the
same legal allegations or arise from the same set of facts. Tyrer,
456 F.3d at 752. “[A]ny doubt regarding the parallel nature of
the [state court] suit should be resolved in favor of exercising
jurisdiction.” AAR Int’l. Inc., 250 F.3d at 520. A district court
Nos. 13-2339 & 13-2340 9
determination that the state and federal court proceedings are
parallel is reviewed by this court de novo. Id. at 518.
1. The State Court Proceeding and the Distributional
Interest Lawsuit
Since Freed is the plaintiff in both cases, we will first
examine whether the other parties in the state court proceeding
and the Distributional Interest Lawsuit are the same or
“substantially the same.” One way that parties in separate
actions are considered substantially the same under the
Colorado River doctrine is when they have “nearly identical”
interests. Caminiti, 962 F.2d at 700.
In the state court proceeding, the defendants are Weiss and
Saltzman. After the filing of counterclaims, CLG became
aligned with Weiss. In other words, the defendants in the state
court proceeding at the time of the request for abstention were
Weiss, CLG, and Saltzman, a third party accomplice accused of
assisting Weiss in his actions against Freed. The same is true
for the Distributional Interest Lawsuit: the defendants are
Weiss, CLG, and Ronald Weiss, another individual Freed
claims to have assisted Weiss in breaching the partnership
agreement and his fiduciary duties. Moreover, while the
various defendants are not identical in the two cases, their
interests are nearly identical: to show that neither fiduciary
duties nor the partnership agreement were breached and to
have the court determine that Freed dissociated from CLG in
March 2011, or in the alternative, to dissolve CLG and distrib-
ute its assets accordingly. The parties’ interests are substan-
tially the same.
10 Nos. 13-2339 & 13-2340
Next, we look to see whether the issues in the two cases are
substantially the same. As previously detailed, the state court
proceeding brought by Freed centers on a scheme concocted by
Weiss to exclude Freed from CLG and take CLG assets. In their
counterclaims, Weiss and CLG argue that Freed dissociated
from CLG in March 2011, and even if he had not dissociated at
that time, his actions after March 2011 should result in his
expulsion from CLG. The counterclaims further request in the
alternative that the court dissolve CLG and determine the
distribution of its assets. Both Freed’s Distributional Interest
Lawsuit and state court proceeding allege that Weiss breached
his fiduciary duties owed to Freed and the partnership
agreement.
Freed’s Distributional Interest Lawsuit additionally asks the
court to assess the fair value and terms of purchase of his
distributional interest in CLG at the time of his dissociation. See
805 ILCS 180/35–60(a) (“A limited liability company shall
purchase a distributional interest of a member for its fair value
determined as of the date of the member’s dissociation.”).
Freed argues that the resolution of his distributional interest
claims will not be resolved in the state court. We disagree.
Essential to Freed’s request in the federal court is his claim
that he voluntarily dissociated from CLG on August 21, 2012,
not March 2011, as alleged by Weiss. Thus, the Distributional
Interest Lawsuit turns on the determination of when Freed
dissociated under the partnership agreement; the precise
subject of the counterclaims in the state court proceeding. The
federal court cannot determine the value of Freed’s distribu-
tional interest until the claims brought in state court are
resolved. Similarly, Freed asserts in both cases that Weiss
Nos. 13-2339 & 13-2340 11
breached the partnership agreement as well as fiduciary duties
owed to Freed. The factual allegations and legal analyses in the
cases largely overlap, and the issues will be resolved largely by
referencing the same facts and evidence. Therefore, the issues
in the two cases, while not identical, are substantially the same.
Freed then claims that since Ronald Weiss was not a
defendant in the state court proceeding, the resolution of the
claims in state court will not dispose of his “separate” allega-
tions in the Distributional Interest Lawsuit against Ronald
Weiss, a CLG accountant, who Freed contends breached
fiduciary duties when he prepared fraudulent financial records
to facilitate Weiss’s transfer of CLG funds from Chase ac-
counts. We disagree.
“[T]he parallel nature of the actions cannot be destroyed by
simply tacking on a few more defendants, neither can it be
dispelled by repackaging the same issue under different causes
of action.” Clark v. Lacy, 376 F.3d 682, 686–87 (7th Cir. 2004).
The decision to exclude Ronald Weiss from the original state
court proceeding was entirely Freed’s choice. As the district
court correctly determined, Freed’s action against Ronald
Weiss is derivative of his claim against Weiss. If the state court
were to determine that Weiss did not violate the partnership
agreement or breach fiduciary duties owed to Freed, then
Ronald Weiss could not be held responsible for assisting Weiss
in those offenses. If the state court rules in favor of Freed, he
will be free to file claims against Ronald Weiss in the future.
Freed additionally argues that the counterclaims filed by
Weiss and CLG in the state court proceeding were mooted by
his dissociation. Freed states that the only basis for dissolution
12 Nos. 13-2339 & 13-2340
argued in the counterclaims is a “deadlock” due to the dis-
agreement between Freed and Weiss, the only member-
managers of CLG. According to Freed, the alternative request
for dissolution based on deadlock is a legal impossibility
because he has already dissociated from CLG. However, as
already discussed, the question of whether and/or when Freed
dissociated is an issue that has yet to be determined by the
state court. We therefore find that the issues and parties in the
state court proceeding are substantially similar to the issues
and parties in the Distributional Interest Lawsuit, satisfying
parallelism under Colorado River.
2. The State Court Proceeding and the Chase Law-
suit
In the Chase Lawsuit, Freed brought claims against Chase
for interfering with contractual obligations and aiding and
abetting Weiss in his breaches of fiduciary duties owed to
Freed. Chase filed a third-party complaint against Weiss, CLG,
and Saltzman repeating Freed’s claims and seeking contribu-
tion and/or indemnity based upon their conduct. In both cases,
Weiss is again aligned with CLG and an accomplice accused by
Freed of assisting Weiss in his scheme.
The absence of Chase from the state court proceeding does
not necessarily defeat parallelism between the cases for two
reasons. Clark, 376 F.3d at 686 (“To be sufficiently similar it is
not necessary that there be ‘formal symmetry between the two
actions’”) (quoting Lumen, 780 F.2d at 695). First, Freed actively
chose to exclude Chase as a defendant in the state court
proceeding when it could have been joined as a party and there
appears to be no legitimate reason for Freed to leave Chase out
Nos. 13-2339 & 13-2340 13
of the state court action. Second, the Chase Lawsuit claims
are derived from the exact scheme and conduct Freed alleges
in the state court proceeding: that Weiss was taking actions to
(1) eliminate Freed from his control of CLG and (2) take all of
CLG’s assets without authorization, including funds to which
Freed was specifically entitled.
In order for Freed to bring claims against Chase for
assisting Weiss, he must first prove that Weiss breached the
partnership agreement as well as fiduciary duties owed to
Freed. If the state court finds that Freed dissociated from CLG
in March 2011, as argued in Weiss’s counterclaims, then Weiss
did not violate the partnership agreement or breach any
fiduciary duties and Freed has no cause of action against
Chase. Only after the state court resolves whether Weiss
violated obligations to Freed can Freed try to hold Chase liable
for assisting in that wrongdoing.
In short, the claims in both federal cases are premised upon
the scheme that is now before the state court. A resolution in
state court of two issues—when Freed dissociated from CLG
and whether Weiss breached the partnership agreement or
fiduciary duties owed to Freed—is necessary before either of
the federal cases can be decided. For this reason, it was rational
for the district court to determine that the “state court litigation
will be an adequate vehicle for the complete and prompt
resolution” of the larger dispute between Weiss and Freed that
rests at the heart of this appeal. The cases rely on the same set
of facts, present substantially similar legal issues, and involve
substantially the same parties. We agree with the district
court’s finding that the federal actions are parallel to those at
issue in the state court proceeding.
14 Nos. 13-2339 & 13-2340
B. The Ten Factors of Colorado River Abstention
We now turn to the second part of the Colorado River
analysis, which requires the court to consider the ten non-
exclusive factors listed above. The district court is given the
discretion to apply more significant weight and analysis to
those factors that are most relevant to the case at hand. Clark,
376 F.3d at 688. “Given the flexible nature of the ten-factor
balancing test, we are reluctant to tinker with the district
court’s assignment of weight to any particular factor.” Id. Here,
the district court found nine of the ten factors weighed in favor
of abstention. Freed argues that none of the ten factors weigh
in favor of abstention. We review the district court’s consider-
ation of the ten Colorado River factors for an abuse of discretion.
Tyrer, 456 F.3d at 751.
1. Whether the State has Assumed Jurisdiction
Over Property
The information and arguments presented to the district
court demonstrate that the state court assumed jurisdiction
over the bank accounts in which Freed claims to have property
rights. Freed concedes that the state court precluded him from
putting holds on CLG accounts and restricted access to CLG
property. Those actions sufficiently demonstrate that the state
court assumed jurisdiction over property relevant to the claims
in this appeal. Therefore, the first factor weighs in favor of
abstention.
2. The Inconvenience of the Federal Forum
Since the federal and state cases in this appeal are both
pending in Chicago courts, the federal forum is not inconve-
nient and the second factor weighs against abstention.
Nos. 13-2339 & 13-2340 15
3. The Desirability of Avoiding Piecemeal
Litigation
The district court determined that the third factor strongly
weighs in favor of abstention. We agree. This factor “does not
turn on formal identity of issues but on concerns about the
efficient use of judicial resources and the public’s perception of
the legitimacy of judicial authority.” Id. at 756. When two
courts are given the task to oversee similar proceedings such
as pre-trial motions, discovery matters, and the consideration
of similar issues, evidence, and witnesses, it is effectively
“duplicating the amount of judicial resources required to
reach a resolution.” Clark, 376 F.3d at 687. This redundancy
would cause wasteful litigation, hindering judicial economy.
Caminiti, 962 F.2d at 701. Moreover, as this court stated in
Interstate Material Corp., “if both state and federal proceedings
were allowed to proceed, inconsistent rulings could jeopardize
the appearance and actuality of justice.” 847 F.2d at 1290. Here,
the state and federal forums have substantially the same
parties before them and are litigating substantially the same
issues arising from the same set of facts. Staying the federal
cases would therefore conserve judicial resources and avoid
the potential for the two proceedings to reach inconsistent
results. Clark, 376 F.3d at 687.
4. The Order in which Jurisdiction was Obtained
by the Concurrent Forums
The district court correctly noted that Freed first chose to
file the state court proceeding in December 2011. The Chase
Lawsuit was filed in February 2012, and the Distributional
Interest Lawsuit was not filed in federal court until August
16 Nos. 13-2339 & 13-2340
2012. At best, this factor could be considered neutral, but
more likely favors abstention. See, e.g., Lumen, 780 F.2d at 697
(holding that this factor favored abstention when the state
action was filed five months before the federal action).
Relying on Huon v. Johnson & Bell, Ltd., 657 F.3d 641 (7th
Cir. 2011), Freed contends that the district court gave insuffi-
cient consideration to this factor. This argument misconstrues
our holding. In Huon, we remanded a district court’s stay of
an action in order to determine if abstention was warranted
under Colorado River. Id. at 649. Noting that this form of
abstention requires “rigorous standards,” this court found
inadequate explanation for abstention when the district court
cited only three of the ten Colorado River factors and over-
looked the other seven. Id. at 646–48. This case is distinguish-
able because the district court carefully addressed each of the
ten factors and provided sufficient explanations for its findings.
5. The Source of Governing Law, State or Federal
As conceded by Freed, all claims at issue in this appeal are
governed by state law. This court has noted that “a state
court’s expertise in applying its own law favors a Colorado River
stay.” Day, 862 F.2d at 660. Thus, the fifth factor also weighs in
favor of abstention.
6. The Adequacy of State-Court Action to Protect
the Federal Plaintiff’s Rights
Freed argues that forcing him to litigate his claims in state
court would inconvenience him and raise the possibility of
prejudice against him because he is a Florida citizen. However,
Freed chose the forum when he filed both the state court
Nos. 13-2339 & 13-2340 17
proceeding and the Chase Lawsuit in the Circuit Court of Cook
County. We agree with the district court that Freed effectively
undermined his own argument of prejudice when he chose the
state court forum for both the state court proceeding and the
Chase Lawsuit. We therefore cannot share Freed’s concerns
that his claims will not be fairly adjudicated in state court.
It is also important to note that the district court did not
dismiss Freed’s federal claims, but rather stayed them pending
the resolution of the state court proceeding. “[T]he circum-
stances permitting the dismissal of a federal suit due to the
presence of a concurrent state proceeding … are considerably
more limited than the circumstances appropriate for absten-
tion.” Colorado River, 424 U.S. at 818. As this court explained in
Lumen:
A dismissal, even without prejudice, creates a risk that
the federal plaintiff will be time-barred from reinstating
his federal suit if the state proceeding does not result in
a final decision on the merits. A stay, by contrast,
permits the federal court to retain jurisdiction in case
the state court action does not meet its anticipated end.
780 F.2d at 698 (internal citations omitted). Here, Freed’s
substantial rights are protected by granting a stay because it
allows him the possibility to revive his federal litigation
depending on the outcome in state court or in the unlikely
event that the state court action is inadequate. Therefore, the
sixth factor also favors abstention.
18 Nos. 13-2339 & 13-2340
7. The Relative Progress of State and Federal
Proceedings
Freed argues that the progression of the state and federal
proceedings are “about the same” because they are both
“stalled.” We disagree. In the federal court cases, little has
occurred aside from filing the complaints, Chase’s answer to
Freed’s Second Amended Complaint, and Chase filing a third-
party complaint. By contrast, the state court case had been in
progress for almost two years: the judge already issued several
rulings and ordered discovery, numerous appeals have been
filed, and the counterclaims are set for trial. It is clear that the
state court has expended significantly more judicial resources
than the federal court at this point. The district court correctly
found that the seventh factor also favors abstention.
8. The Presence or Absence of Concurrent
Jurisdiction
Freed claims that this factor weighs against abstention
because his distributional interest claim is solely governed by
the federal court. Freed’s argument is flawed for the same
reasons his argument against parallelism between the state
court proceeding and the Distributional Interest Lawsuit fails.
Freed relies on the assumption that he dissociated from CLG
in August 2012, and so the counterclaims for the dissolution of
CLG and a distribution of its assets filed by Weiss and CLG are
moot. As previously explained, however, the determination of
Freed’s date of dissociation is unresolved. The resolution of
that key fact in state court is necessary before any distribution
of CLG interests can occur. Thus, the eighth factor also favors
abstention.
Nos. 13-2339 & 13-2340 19
9. The Availability of Removal
The ninth factor intends to prevent a federal court from
hearing claims that are closely related to state proceedings that
cannot be removed. Day, 862 F.2d at 660. The district court
concluded that the state court proceeding was non-removable
under 28 U.S.C. § 1441(b)(2) because diversity would provide
the only basis for federal jurisdiction. Freed argues that the
court ignored his claims against Chase, which were removed
to federal court. As detailed above, Freed had every opportu-
nity to join Chase as a defendant in the state court proceeding,
eliminating Chase’s ability to remove based on diversity. We
agree with the district court that the ninth factor also weighs in
favor of abstention.
10. The Vexatious or Contrived Nature of the
Federal Claim
The district court determined that the tenth factor weighed
in favor of abstention due to the “overwhelming evidence that
Freed behaved vexatiously by bringing [the Distributional
Interest Lawsuit] in federal court and [the Chase Lawsuit] as a
separate suit in state court.” The record demonstrates that
Judge Pantle in the state court proceeding has made a number
of rulings unfavorable to Freed, such as granting Weiss’s
motion to enjoin Freed from filing or pursuing other related
actions in state court. Judge Pantle stated that she was “very
concerned about an abuse of process here and a manipulation
of the system” and concluded that Freed was “seeking to
litigate matters at the heart of [the state court proceeding]
before other judges in an attempt to evade [Judge Pantle’s]
orders.” In fact, Judge Pantle even initiated contempt proceed-
20 Nos. 13-2339 & 13-2340
ings against Freed based on what she believed to be instances
of misconduct and unlawful litigation tactics.
Indeed, Freed’s filing of various actions in federal court that
arise from the same dispute between Freed and Weiss concern-
ing CLG is indicative of an attempt to evade the state court.
However, even setting aside these presumptions, this factor
can weigh in favor of abstention when the claims and parties
in the federal suit could have been included in the original
state court proceeding. See, e.g., Interstate Material Corp., 847
F.2d at 1289 (finding that the federal suit could be considered
contrived and vexatious when there was “no reason why all
claims and all parties could not have been, and still could not
be, part of one suit”). Thus, the tenth factor also weighs in
favor of abstention.
In sum, several factors strongly favor abstention while
numerous others weigh in its favor. Freed has not presented
persuasive arguments to establish why any of the factors
strongly weigh against abstention. Since the factors more
heavily weigh in favor of a stay, we respectfully suggest that
the state court should first resolve when Freed dissociated
from CLG and whether he has stated a claim for breaches of
contract or fiduciary duty against Weiss before any of the
derivative federal suits can go forward. Accordingly, we find
that the district court did not abuse its discretion in finding that
the nature and circumstances of the state and federal proceed-
ings warranted a stay.
III. CONCLUSION
For the foregoing reasons, we find that the concurrent state
and federal proceedings at issue in this appeal are parallel and
Nos. 13-2339 & 13-2340 21
that the ten Colorado River factors carefully considered by the
district court weigh in favor of abstention. The district court’s
orders to stay the federal cases pending the outcome of the
state court proceeding are AFFIRMED.