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Exploration II, Inc. v. Biallas

April 21, 2009


The opinion of the court was delivered by: Gerard E. Lynch, District Judge


Plaintiff Exploration II, Inc. brings this action alleging that defendants Martin Biallas, See Touring Productions, Inc. and Special Entertainment Events--Family Entertainment, Inc. breached the terms of a Settlement Agreement between the parties in which several affiliates of plaintiff -- which had provided financing to defendant See Touring Productions for the production and operation of a touring exhibition and entertainment experience based on the Star Trek movie and television series -- would forgive certain indebtedness and cancel a foreclosure notice in exchange for the transfer, to plaintiff, of ownership of various assets and the right to operate the Star Trek Tour. Defendants, for their part, claim that it is plaintiff and its affiliates who have breached the Settlement Agreement, and are prosecuting such claims in California state court. Defendants move to dismiss or stay this federal action pursuant to the Colorado River abstention doctrine, or in the alternative to transfer venue to the Central District of California. The motion will be denied.

In Colorado River Water Conservation District v. United States, the Supreme Court recognized an "extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it," 424 U.S. 800, 813 (1976), for cases in which there is a parallel action pending in state court and "exceptional circumstances" (as defined in the opinion) exist. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 14 (1983). Defendants maintain that the same issue that plaintiff seeks to put before this Court -- namely, breach of the Settlement Agreement -- is already pending in a California state court case in which, defendants maintain, that issue is part of a larger litigation in which a more comprehensive resolution of the parties' dispute may be had.

Defendants are wrong. As a threshold matter, a finding that a parallel, concurrent case is pending in another jurisdiction is an absolute prerequisite for Colorado River abstention. Dittmer v. County of Suffolk, 146 F.3d 113, 117-18 (2d Cir. 1998). The "parallel" action relied upon by defendants in bringing this motion was a cross-claim filed shortly after plaintiff brought this action in what is indeed a larger action in California. However, the California court promptly dismissed defendants' cross-claim on the ground that it was unrelated to the subject matter of the case before that court, which has been pending for nearly a year and is proceeding toward trial later this year. Thus, by the time plaintiff responded to the instant motion, there was no longer a parallel state court action pending.

In reply, defendants point out at length that the California court did not adjudicate the merits of their claims, but simply made a "limited procedural ruling" that the claims could not be brought via a cross-complaint in the pending matter. (Reply Mem. at 1-3.) That is correct, but misses the point. Plaintiff does not contend that the California court decided defendants' cross-claims on the merits; it merely argues that the California action is not a parallel proceeding, and that the California court, which is most familiar with the nature of the litigation there, has ruled that the issues presented in the instant complaint and in defendants' California cross-complaint are not best or most efficiently addressed in the context of the larger California case.

Defendants also point out, however, that they have now cured that problem by refiling the dismissed cross-complaint as an independent action in California. Assuming arguendo that the new action can be considered a "parallel proceeding" that triggers a Colorado River inquiry, defendants' motion nevertheless must be denied, because the factors relevant to deciding whether abstention is appropriate cut against abstention here.

A district court must weigh six factors in deciding whether a case is one of those exceptional ones in which abstention in favor of a state court is justified:

(1) the assumption of jurisdiction by either court over any res or property; (2) the inconvenience of the federal forum; (3) the avoidance of piecemeal litigation; (4) the order in which jurisdiction was obtained; (5) whether state or federal law supplies the rule of decision; and (6) whether the state court proceeding will adequately protect the rights of the party seeking to invoke federal jurisdiction.

Village of Westfield v. Welch's, 170 F.3d 116, 121 (2d Cir. 1999). Because the presumption favors exercising jurisdiction, "the facial neutrality of a factor is a basis for retaining jurisdiction, not for yielding it." Woodford v. Cmty. Action Agency, 239 F.3d 517, 522 (2d Cir. 2001). Here, the factors are neutral at best.

First, defendants concede that "[n]either Court [h]as [a]ssumed [j]urisdiction of [p]roperty." (D. Mem. 11.)*fn1 The Second Circuit has held that "the absence of a res point[s] toward the existence of federal jurisdiction." Woodford, 239 F.3d at 522 (alteration in original), quoting Village of Westfield, 170 F.3d at 122.

Second, defendants' allegation that New York is an inconvenient forum must fall on deaf ears, given that the Settlement Agreement that is the basis of plaintiff's action contains a forum selection clause by which defendants consent to venue in New York and expressly waive any objection to venue. Because "defendants have waived any right to have the court consider the inconvenience to them of litigating here," "to the extent convenience figues into the calculus, therefore, it figures against abstention." Orix Credit Alliance, Inc. v. Bell Realty, Inc., No. 93 Civ. 4949, 1994 WL 86394, at *3 (S.D.N.Y. Mar. 14, 1994).

Third, the order in which jurisdiction was obtained favors retention of jurisdiction here. While priority of filing is not an absolute determinant of Colorado River cases, the fact is that the present action was filed before defendants' cross-claims, which were promptly dismissed, and even longer before the defendants' latest action was filed in California. Although the larger California case to which defendants initially sought to attach this matter to is progressing toward trial, no progress at all has been made in the new California case, and the California court ruled that the original cross-claims were not related to the matters that are nearing trial readiness. Of course, this action too is only getting under way. But even neutrality of this factor, as noted above, favors retention of jurisdiction.

Fourth, defendants' claimed fear of piecemeal litigation is a mirage. As the California court recognized, the issues presented in defendants' dismissed cross-claims were unrelated to the main body of the litigation there and there is no judicial efficiency in litigating the matters together. Although there are several additional parties to the newly-filed state action not present in this action, no one has suggested that any party necessary to adjudicating the issues presented by this case is not present here. To the extent that the California action and this action pose a threat of duplicative litigation, the problem is entirely of defendants' own making in bringing the additional California action. See Orix Credit Alliance, 1994 WL 86394, at *4; see also Linens of Europe, Inc. v. Best Mfg., Inc., No. 03 Civ. 9612, 2004 WL 2071689, at *6 (S.D.N.Y. Sept. 16, 2004).

Fifth, the law to be applied in the case, by the express terms of the Settlement Agreement, is New York law. While the existence of state rather than federal issues might marginally support abstention in favor of a parallel state court proceeding in New York, Orix Credit Alliance, 1994 WL 86394, at *4, here, there is no comparative advantage in having New York law applied by a state court in California, which is presumably less familiar with New York law than is this Court. In any event, although the presence of federal issues weighs towards retaining federal jurisdiction, "the absence of federal issues does not strongly advise dismissal, ...

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