KATHERINE P. NELSON, Magistrate Judge.
This action is before the Court on the motion to abstain and dismiss (Doc. 27), and separate supporting memorandum (Doc. 28), filed by Defendant the Public Park and Recreation Board of Washington County, a/k/a Washington County Parks and Recreation Board (the "Board").
SmartBank initiated this action by filing a complaint (Docs. 1, 2) with the Court on May 31, 2018. According to SmartBank's allegations, Defendant Laura Taylor served as Revenue Commissioner of Washington County, Alabama, from 1991 until her retirement in 2015. (Doc. 1, ¶ 9). Both during and after her tenure as Revenue Commissioner, Laura Taylor also served as Secretary-Treasurer of the Board, a non-profit entity that provides funding for parks, recreation facilities, and other services for Washington County citizens. (Id., ¶ 10). The Board maintained a checking account at SmartBank ("the Board Account"), and checks drawn from that account requiring the signature of at least one authorized signer, of which Laura Taylor was one of three. (Id., ¶¶ 10-11). Between February 2013 and October 2015, SmartBank mailed monthly statements for the Board Account to the post office box of the Washington County Revenue Commissioner, the address designated in the account agreement. (Id., ¶ 13). After Laura Taylor's retirement as Revenue Commissioner in October 2015, SmartBank mailed the account statements to her home address. (Id.).
In 2013, SmartBank extended a loan of $34,000.00 to the Board (the "Board Loan"), which was subsequently renewed with additional borrowed funds multiple times. (Id., ¶ 27). The last renewal and additional advance occurred on June 26, 2017, in the amount of $42,391.43, with interest accruing at the rate of 4.00% per annum. (Id.). Loan proceeds were deposited into the Board Account, and loan payments were debited automatically from the Board Account. (Id., ¶ 31).
In April 2018, Laura Taylor was charged with four counts of possession of a forged instrument for checks drawn from the Board Account. (Id., ¶ 14). That same month, two Board members notified SmartBank that Laura Taylor had engaged in unauthorized transactions and had misappropriated Board funds. (Id., ¶ 18). After reviewing records of the Board Account, the Board determined that between February 2013 and March 2018, Laura Taylor misappropriated over $103,000.00 in account funds through various means, including disbursement of checks to unauthorized payees. (Id. at 6, ¶ 20). The Board also claims that Laura Taylor obtained the Board Loan through fraudulent means, including by providing SmartBank forged Board minutes and resolutions purportedly authorizing the loan, and by forging the signature of the Chairman of the Board. (Id., ¶¶ 30, 32). On April 30, 2018, the Board's attorney sent a letter to SmartBank's counsel identifying checks totaling $51,125.49 that the Board believed to be unauthorized, and demanding that SmartBank re-credit that amount to the Board Account. (Id., ¶ 23). The letter also demanded that SmartBank re-credit the Board Account for $106,680.74 in payments made on the Board Loan. (Id., ¶ 33; Doc. 2-2).
Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir. 2005) (per curiam).
The Board's present motion seeks dismissal of Counts 1 through 3 of SmartBank's 11-count complaint under this discretionary authority to abstain from exercising jurisdiction over a declaratory judgment action in favor of ongoing parallel state court litigation (sometimes called Brillhart-Wilton or Wilton-Brillhart, abstention, after the two Supreme Court cases from which the doctrine derives). Counts 1 and 2 assert causes of action against the Board under the federal Declaratory Judgment Act, 28 U.S.C. § 2201 et seq. Count 1 seeks a declaratory judgment that SmartBank has no obligation to re-credit the Board Account for the fraudulent checks allegedly written by Laura Taylor because, "pursuant to Alabama Code § 7-4-406(c), (d), and (f), the Board's failure to examine its checking account statements for the Board Account and report unauthorized transactions perpetrated by Laura Taylor to SmartBank precludes any recovery by the Board for losses allegedly incurred due to the illegal activity of Laura Taylor concerning the Board Account." (Doc. 1, ¶ 25). Count 2 seeks a declaratory judgment that the Board is not entitled to retain any of the Board Loan proceeds because the loan was fraudulently obtained by Laura Taylor, and that SmartBank is not obliged to re-credit to the Board Account any payments made on the Board Loan because it was given notice of those allegedly unauthorized transactions through its checking account statements but failed to report them. (Id., ¶ 35). Count 3 asserts what appears to be a breach-of-contract claim for monetary damages against Laura Taylor for the amount currently owed on the Board Loan, plus attorney fees, asserting that she is liable for these amounts because her signature on the note for the 2017 loan renewal is genuine. (Id., ¶¶ 37-40).
The parallel state court litigation to which the Board asks this Court to defer was commenced by the Board on June 20, 2018, in the Circuit Court of Washington County, Alabama (Case No. CV-2018-900051), against SmartBank, Laura Taylor, and two SmartBank employees who are not parties to this action (hereinafter, "the Washington County Action"). (See Doc. 28-4). The complaint in the Washington County Action alleges the following 9 state law causes of action:
Initially, leaving aside whether it is appropriate for the Board to seek dismissal of a claim that is not directed against it, dismissal of Count 3 under Brillhart-Wilton abstention would be inappropriate because that count does not assert a claim under the Declaratory Judgment Act. Rather, it asserts a state law breach-of-contract claim against Laura Taylor for monetary damages. As the Board has not argued any other rationale for dismissing Count 3, the undersigned finds that the Board's motion to dismiss is due to be
Ameritas, 411 F.3d at 1330-31 (footnotes and some quotation marks omitted).
The first Ameritas factor indisputably weighs in favor of abstention, as Alabama law controls the substantive claims in both this federal action and the Washington County Action. SmartBank does not claim that this action will involve any substantial application of federal, or any other jurisdiction's, law. While it does conclusorily claim that "there is no greater interest in the courts of the State of Alabama deciding the issues in the instant case" (Doc. 33 at 8-9), the undersigned disagrees. As the Eleventh Circuit has noted in discussing a federal district court's discretion to decline exercising pendent/supplemental jurisdiction over state law claims — a doctrine that, similar to Brillhart/Wilton abstention, was designed to "promote `judicial economy, convenience and fairness to litigants'" — "`[n]eedless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties by procuring for them a surer-footed reading of applicable law.'" Ameritox, Ltd. v. Millennium Labs., Inc., 803 F.3d 518, 531 (11th Cir. 2015) (quoting United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726 (1966)).
Similarly, the ninth Ameritas factor indisputably weighs in favor of abstention, as SmartBank's declaratory judgment counts "raise[] exclusively state law issues and implicate[] exclusively state law public policies, with no reference whatsoever to federal common or statutory law." Lexington Ins. Co., 434 F. Supp. 2d at 1242.
The declaratory judgment claims in Counts 1 and 2 essentially ask the Court to adjudicate issues that would otherwise be asserted as defenses to the Board's negligence, breach of fiduciary duty, and conversion claims against SmartBank in Counts 1 through 5 of the Washington County Action, all of which seek to recover as damages money paid by the Board to SmartBank as a result of Laura Taylor's alleged fraudulent activity. However, this Court's adjudication of those issues would appear to have no impact on the Board's declaratory judgment claim against SmartBank in Count 9 of the Washington County Action, nor would it resolve the Board's claims against the other defendants in the Washington County Action. As noted previously, Counts 1 through 5 of the Washington County Action are also asserted against two SmartBank employees who are not parties to this action. As another judge of this district has recognized, avoiding "piecemeal litigation . . . goes to the heart of the second Ameritas guidepost." Westchester Surplus Lines Ins. Co. v. Romar House Ass'n, Inc., Civil Action No. 08-0455-WS-M, 2008 WL 5412937, at *5 (S.D. Ala. Dec. 29, 2008) (Steele, J.).
Similar concerns for avoiding overlapping/piecemeal litigation underlie the sixth factor as well. See id., *6 ("The Magistrate Judge opined that having all of the claims arising from the Romar insurance dispute adjudicated in a single state court proceeding would be `more efficient,' such that th[e sixth Ameritas] guidepost favors abstention . . . [T]he Magistrate Judge has adequately explained his reasoning, inasmuch as having one court address the insurance-related issues arising from Hurricane Ivan's damage of Romar's property is clearly more efficient than having two courts address them redundantly in an overlapping, piecemeal, splintered approach."). The defenses to liability that SmartBank seeks this Court to declare can also be litigated as defenses in the Washington County Action, along with any others SmartBank may wish to assert. Having one court rule on all such defenses, rather than having dueling courts deciding different issues, is a "better or more effective remedy" than maintaining the present declaratory judgment counts.
Accordingly, the second and sixth Ameritas factors both weigh in favor of abstention.
The third Ameritas factor weighs in favor of retention of jurisdiction, as resolution of the declaratory counts in this action would serve a useful purpose in clarifying whether SmartBank has viable defenses to liability on most of the Board's Washington County Action claims against it. However, given that these issues are also capable of being resolved in the Washington County Action, the undersigned does not attach significant weight to this factor.
According to the Board:
(Doc. 28 at 2. See also Doc. 28-1 at 1-4 (affidavit of Board Attorney E. Tatum Turner substantiating these claims)). SmartBank claims that "the party that agreed to `take no action' for 30 days was
Leaving aside the intricacies of contract interpretation and offer/counteroffer/acceptance principles, on a practical level SmartBank's attorneys relied on a hypertechnical reading of Turner's email to reach its conclusion that only the Board agreed to take no further action, and SmartBank's response to Turner's email relied on, at best, ambiguous wording to disguise the manner in which it chose to interpret Turner's email. For SmartBank to now claim that "[a]t no time did [it] represent it would not file the instant action or refrain from any other activity beyond a deferred enforcement of statutory reporting deadlines under the UCC that would expire during the thirty-day period" (Doc. 33 at 6) is, at best, disingenuous. Moreover, as SmartBank acknowledges, "[o]n May 17, 2018, during the alleged `tolling period,' the Board's attorney wrote to counsel for SmartBank" notifying him that the Board intended to sue Laura Taylor (id. at 6-7), thus putting SmartBank on notice that an Alabama citizen could have been included as a defendant in the Board's lawsuit against SmartBank, thus precluding removal on the basis of diversity of citizenship under 28 U.S.C. § 1332(a).
Based on the foregoing, the record convincingly shows that SmartBank's declaratory judgment claims against the Board were brought for purposes of "procedural fencing."
The undersigned agrees with the Board that the fifth Ameritas factor "favors abstention given the potential for friction inherent in having double-tracked, near-identical litigation pending in both federal and state courts, such that the first court's ruling on a particular issue may have res judicata effect on the second court's ability to hear and decide the same issue, even if the second court disagrees with the first court's determinations. The risk of improper encroachment exists for the same reasons." Lexington Ins. Co. v. Rolison, 434 F.Supp.2d 1228, 1241 (S.D. Ala. 2006) (Steele, J.).
The eighth Ameritas factor weighs in favor of abstention, as a significant amount of evidence and a substantial number of potential witnesses appear to be located in Washington County, while Mobile County, where this federal action is to be tried, has little to no connection to the underlying events. Given that this Court regularly hears cases with no substantial connection to Mobile County, however, this factor is not given significant weight.
As set out above, then, the Ameritas factors weigh overwhelmingly in favor of abstention in this case,
As the order for supplemental briefing (Doc. 36) indicated, the undersigned was concerned that SmartBank's pending motion to dismiss under Alabama's abatement statute, Ala. Code § 6-5-440, in the Washington County Action could have resulted in dismissal of the Board's claims against SmartBank, thus eliminating the state court action to which this Court would ostensibly defer if it were to abstain from hearing the present declaratory judgment counts. Under § 6-5-440, "[n]o plaintiff is entitled to prosecute two actions in the courts of this state at the same time for the same cause and against the same party. In such a case, . . . the pendency of the former is a good defense to the latter if commenced at different times." Regarding the abatement statute, the Alabama Supreme Court has explained:
Ex parte Nautilus Ins. Co., No. 1170170, 2018 WL 1548189, at *2-3 (Ala. Mar. 30, 2018) (citations and some quotations omitted) (alterations added). In Nautilus, the Alabama Supreme Court granted mandamus relief and directed the trial court to dismiss claims pending against the petitioner Nautilus, holding that "[b]ecause [a] federal action had been filed and was pending when [respondent] Precision filed the state action, and because the claims Precision asserted against Nautilus in the state action are compulsory counterclaims in the federal action, Nautilus has demonstrated that it has a clear legal right under § 6-5-440 to dismissal from the state action." Id., *6. The "compulsory counterclaims" dismissed in in Nautilus are substantively and procedurally similar to the Board's claims against SmartBank in the Washington County Action.
However, the Board's supplemental brief drew the undersigned's attention to an important exception the Alabama Supreme Court has recognized to the abatement rule: "[W]hen a federal court abstains from hearing a case . . ., that case is not considered as an action being prosecuted, for purposes of § 6-5-440." Ex parte Norfolk S. Ry. Co., 992 So.2d 1286, 1291 (Ala. 2008).
In accordance with the foregoing analysis, and pursuant to § 636(b)(1)(B)-(C) and Rule 72(b)(1), it is
A copy of this report and recommendation shall be served on all parties in the manner provided by law. Any party who objects to this recommendation or anything in it must, within fourteen (14) days of the date of service of this document, file specific written objections with the Clerk of this Court. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); S.D. Ala. GenLR 72(c). The parties should note that under Eleventh Circuit Rule 3-1, "[a] party failing to object to a magistrate judge's findings or recommendations contained in a report and recommendation in accordance with the provisions of 28 U.S.C. § 636(b)(1) waives the right to challenge on appeal the district court's order based on unobjected-to factual and legal conclusions if the party was informed of the time period for objecting and the consequences on appeal for failing to object. In the absence of a proper objection, however, the court may review on appeal for plain error if necessary in the interests of justice." 11th Cir. R. 3-1. In order to be specific, an objection must identify the specific finding or recommendation to which objection is made, state the basis for the objection, and specify the place in the Magistrate Judge's report and recommendation where the disputed determination is found. An objection that merely incorporates by reference or refers to the briefing before the Magistrate Judge is not specific.
"It is well established that the Declaratory Judgment Act does not, of itself, confer jurisdiction upon federal courts." Stuart Weitzman, LLC v. Microcomputer Res., Inc., 542 F.3d 859, 861-62 (11th Cir. 2008). However, SmartBank's complaint (Doc. 1) also alleges diversity of citizenship under 28 U.S.C § 1332(a) as a basis for subject matter jurisdiction, and the unchallenged allegations therein sufficiently show that SmartBank is a citizen of Tennessee while all Defendants are citizens of Alabama, and that the amount in controversy exceeds $75,000 exclusive of interests and costs.
