Stewart v. W Heritage Ins Co, No. 05-60405 (5th Cir. 2006)

Annotate this Case

Download PDF

United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS January 26, 2006 FOR THE FIFTH CIRCUIT Charles R. Fulbruge III Clerk No. 05-60405 Summary Calendar SUSIE PIERCE STEWART, Plaintiff - Appellee, v. WESTERN HERITAGE INSURANCE COMPANY, Defendant - Appellant. Appeal from the United States District Court for the Southern District of Mississippi Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges. BENAVIDES, Circuit Judge: The parties ask this Court to determine whether the district court correctly stayed this lawsuit pending the outcome of a related state court proceeding. We hold that the lower court erred, and therefore REVERSE and REMAND. I. FACTUAL AND PROCEDURAL BACKGROUND The present case concerns a previous lawsuit in Mississippi state court. The plaintiffs in that suit claimed that Boardwalk Lounge, Inc. was responsible for the wrongful death of one of its patrons, Ryan Boardwalk s Boardwalk Yates. sole was Susie shareholder, insured by Pierce Stewart officer, Western and Heritage ( Appellee ) registered Insurance is agent. Company ( Appellant ), who claims to have denied any obligation to defend or indemnify Boardwalk. No one defended the lawsuit and the plaintiffs took a default judgment of $1.4 million. Shortly thereafter, Boardwalk and the Appellee filed for bankruptcy. On October 23, 2003, the Appellee filed this lawsuit alleging breach of insurance contract and bad faith in the United States District Court for the Southern District of Mississippi. The case proceeded in federal court with the entry of a case management order followed by a motion for summary judgment filed by the Appellant. The discovery deadline expired in October 2004, and the court set a trial date of February 14, 2005. Meanwhile, on July 6, 2004, the trustee for Boardwalk filed suit in the Circuit Court of Hinds County, Mississippi. The complaint named the Appellant, the Appellee, Phillip Dunn (an insurance agent), and others who were later dismissed from the suit. The state complaint mirrors the federal suit except that it also includes claims against the Appellee and Appellant for breach of fiduciary duty and claims against Dunn. The Appellant removed the case on grounds of improper joinder. The trustee moved to remand. Following the commencement of the trustee s suit, the Appellee 2 filed two separate motions to voluntarily dismiss this action. The Appellant opposed both. The Appellee also moved to join Dunn as a party.1 the Additionally, Appellant filed a motion to join Boardwalk s trustee as a necessary party to this case. The magistrate judge granted that motion and ordered the Appellee to serve the trustee with process. The trustee, however, has never been joined and is not a party to this action.2 The court set a hearing on all pending motions and a pretrial conference for early February 2005. At the hearing, the court stayed the case pending a ruling on the remand motion in the trustee s suit. The two cases were before different judges. On March 22, 2005, the trustee s suit was remanded on the grounds that Dunn had been properly joined. On March 31, 2005, the court in this case, acting sua sponte, entered an order that terminated all pending motions and stayed the case pending the resolution of the trustee s suit in Mississippi state court. The Appellant appeals that order. II. DISCUSSION We review a district court s decision to stay a case pending 1 If Dunn is joined, it would defeat diversity jurisdiction as both the Appellee and Dunn hail from Mississippi. See Cornhill Ins. PLC, v. Valsamis, Inc., 106 F.3d 80, 84 (5th Cir. 1997). 2 The Appellee states that it never had an opportunity to join the trustee because the district court stayed the case. 3 the outcome of parallel proceedings in state court for abuse of discretion. Kelly Inv., Inc. v. Continental Common Corp., 315 F.3d 494, 497 (5th Cir. 2002). If the decision interpretation of law, our review is de novo. rests on an Id. A district court s decision to enter a permanent stay is governed by Colorado River Water Conservatory District v. United States, 424 U.S. 800, 813 (1976). Colorado River applies when suits are parallel, having the same parties and the same issues. Diamond Offshore Co. v. A&B Builders, Inc., 302 F.3d 531, 540 (5th Cir. 2002).3 Under Colorado River, a district court may abstain from a case only under exceptional circumstances. Colorado River, 424 U.S. at 813 (describing abstention as an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it ). In deciding whether exceptional circumstances exist, the Supreme Court identified six relevant factors: 1) assumption by either court of jurisdiction over a res, 2) relative inconvenience of the forums, 3) avoidance of piecemeal litigation, 4) the order in which jurisdiction was obtained by the concurrent forums, 5) to what extent federal law provides the rules of decision on the merits, and 6) the adequacy of the state proceedings in protecting the rights of the party invoking federal jurisdiction. Kelly Inv., 315 F.3d at 497; see also Wilton v. Seven Falls Co., 3 If the suits are not parallel, the federal court must exercise jurisdiction. Republicbank Dallas, N.A. v. McIntosh, 828 F.2d 1120, 1121 (5th Cir. 1987). 4 515 U.S. 277, 285 86 (1995). We do not apply these factors mechanically, but carefully balance them with the balance heavily weighted in favor of the exercise of jurisdiction. Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 469 U.S. 1, 16 (1983). balancing is done on a case-by-case basis. The Id. The district court did not apply the Colorado River test when it stayed this case. Therefore, we review the factors for the first time on appeal. We assume, but do not decide, that the cases are parallel. A. Res at Issue Neither the state nor federal court has assumed jurisdiction over any res in this case. We have rejected the contention that the absence of this factor is a neutral item, of no weight in the scales. (5th Cir. Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1191 1988).4 jurisdiction. B. This factor supports exercising federal Murphy, 168 F.3d at 738. Inconvenience Between Forums When courts are in the same 4 geographic location, the This holding in Evanston Insurance conflicts with the holding in Bank One, N.A. v. Boyd, 288 F.3d 181, 185 (5th Cir. 2002) ( The first factor is not relevant to the present case as neither the state nor federal district court have assumed jurisdiction over any res or property. ) Because Evanston Insurance predated Bank One, the former controls our analysis. E.g., Southard v. Texas Bd. of Criminal Justice, 114 F.3d 539, 549 (5th Cir.1997). The first factor, therefore, is relevant even if no res exists in the case. Murphy v. Uncle Ben s, Inc., 168 F.3d 734, 738 (5th Cir. 1999). 5 inconvenience factor weighs against abstention. Id. at 738. Both the state and federal courthouses hearing these two cases are located in Jackson, Mississippi. This factor, therefore, supports exercising federal jurisdiction. C. Avoidance of Piecemeal Litigation The pendency of an action in state court does not bar a federal court from considering the same matter. 288 F.3d at 185. Bank One, N.A., While duplicative litigation is permitted, Colorado River prevents piecemeal litigation, and the concomitant danger of property. 650 51. inconsistent rulings with respect to a piece of Black Sea Inv. v. United Heritage Corp., 204 F.3d 647, Again, no property is at issue in this case. The potential, however, does exist for some piecemeal litigating as the state court is the only forum hearing the breach of fiduciary duty claims and claims against Dunn. For the remaining issues, a plea of res judicata after the completion of one suit could eliminate the problem of inconsistent judgments. 498. Kelly Inv., 315 F.3d at Nonetheless, as the litigation presently exists, the third factor favors abstention.5 D. The Order in Which Jurisdiction Was Obtained The inquiry under this factor is how much progress has been 5 While the current captions suggest that different parties exist, the record is clear that the magistrate intended to have the trustee joined and the Appellee is attempting to join Dunn. These efforts and the ability of the trustee to file a crossclaim could moot these piecemeal characteristics. 6 made in the two actions. Murphy, 168 F.3d at 738. The federal lawsuit progressed through an entire case management order, had a summary judgment motion pending at the time of the stay, and a trial date. With regard to the state proceeding, it is undisputed that no trial date exists, and the record suggests that little, if any, discovery has taken place. We have suggested that this factor only favors abstention when the federal case has not proceeded past the filing of the complaint. progressed further. Id. Here, the case has clearly For that reason, this factor favors federal jurisdiction. E. The Extent Federal Law Governs the Case [T]he presence of state law issues weighs in favor of surrender only in rare circumstances. Black Sea Inv., 204 F.3d at 651 (reversing stay in case where state law governed). This case involves only issues of state law as it is being heard by the court under its diversity jurisdiction. Nonetheless, the Appellee has failed to show that rare circumstances exist. factor is at most neutral. F. Therefore, this Id. Adequacy of State Proceedings The sixth factor is either a neutral factor or one that weighs against abstention. Id. The Appellant does not argue that the state court would not adequately adjudicate the case. Sea, therefore, this is a neutral factor. 7 Under Black IV. With the exception of CONCLUSION the factor considering piecemeal litigation, all of the Colorado River factors weigh against abstention or remain neutral. Given that we must balance these in favor of the exercise of jurisdiction, abstention in this case is inappropriate. The facts do not overcome the extraordinary and narrow exception to the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them. River, 424 U.S. at 814, 817. Colorado Because abstention is prohibited by Colorado River, we need not address the Appellant s argument that the federal and state cases are not parallel. For the reasons above, the discretion in staying this case. district court abused its Therefore, we REVERSE and REMAND for proceedings consistent with this opinion. 8

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.