WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on defendants' Motion to Stay Proceedings Pending Resolution of Mobile County Circuit Court Action (doc. 22). The Motion has been briefed and is now ripe.
On January 23, 2015, plaintiff, SE Property Holdings, LLC ("SEPH"), brought this fraudulent transfer action against various defendants, including Tammy T. Center, in her individual capacity and as personal representative of the Estate of Charles H. Trammell; Belinda R. Trammell; Amy T. Brown; Trammell Family Orange Beach Properties, LLC; and Trammell Family Lake Martin Properties, LLC.
This case is not the only lawsuit involving SEPH, Mr. and Mrs. Trammell and the subject commercial development loans. Another action, styled Vision Bank v. Bama Bayou, LLC, et al., CV 2009-900085.00 (the "Bama Bayou Action"), has been pending in the Circuit Court of Mobile County, Alabama, since 2009. Joined in the Bama Bayou Action are claims between SEPH and approximately two dozen purported debtors/guarantors (including Mr. and Mrs. Trammell) of those loans. Among the issues being litigated in the Bama Bayou Action are whether Mr. and Mrs. Trammell are indebted to SEPH, or whether SEPH's enforcement efforts are precluded on grounds of unconscionability, lack of performance by SEPH, breach of duties of good faith and fairness in connection with foreclosure sales for the subject real property, lack of any deficiency that might trigger guaranty obligations, gross negligence, bad faith, and so on. The Bama Bayou Action remains ongoing in state court more than six years after its inception, although the Trammells represent that "SEPH and the investor/guarantors have pursued extensive discovery" and that it is "anticipate[d] that a hearing to resolve several dispositive issues will be scheduled for the very near future." (Doc. 22-1, at 6.)
Further adding to the litigation morass, another lender, FNB Bank, filed a fraudulent transfer action against the exact same defendants named in this case relating to the same underlying indebtedness in an action styled FNB Bank v. Tammy T. Center, et al., No. 05-CV-2015-900098.00 (the "FNB Bank Action"). The FNB Bank Action was filed in the Circuit Court of Baldwin County, Alabama, on January 26, 2015, just three days after SEPH commenced this federal litigation against the Trammells. The Complaint filed in the FNB Bank Action is virtually identical in many respects to that filed by SEPH here. (Compare doc. 1 with doc. 20, Exh. A.) FNB Bank seeks to invalidate the same transfers of property by Mr. and Mrs. Trammell to their daughters and certain LLCs, based on the same underlying indebtedness and using the same fraudulent transfer theories under Alabama law. Defendants' motion to stay the FNB Action pending final disposition of the Bama Bayou Action was denied by Circuit Judge Norton on July 29, 2015. (Doc. 27, Exh. B at 11.)
Defendants now ask the Court to stay these proceedings pending conclusion of the Bama Bayou Action pursuant to the abstention principles established in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). SEPH opposes the request for stay.
"The Colorado River doctrine of `exceptional circumstances' authorizes a federal district court to dismiss or stay an action when there is an ongoing parallel action in state court." Moorer v. Demopolis Waterworks and Sewer Bd., 374 F.3d 994, 997 (11th Cir. 2004) (citation and internal quotation marks omitted). "The principles of this doctrine rest on considerations of wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." Id. The Eleventh Circuit has cautioned, however, that "Colorado River abstention is particularly rare" among abstention doctrines, under which abstention is rarely approved to begin with. Jackson-Platts v. General Elec. Capital Corp., 727 F.3d 1127, 1140 (11th Cir. 2013). This is so because "the pendency of an action in the state court is no bar to proceedings concerning the same matter in federal court," and because "the federal courts have a virtually unflagging obligation to exercise their jurisdiction." Id. (citation and internal quotation marks omitted); see also Moorer, 374 F.3d at 997 (federal court may utilize Colorado River abstention principles to "defer to a parallel state proceeding under `limited' and `exceptional' circumstances") (citation omitted).
In determining whether to abstain from exercising federal jurisdiction under Colorado River, one must first examine the threshold requirement that there be "a parallel state action, which is one involving substantially the same parties and substantially the same issues." Jackson-Platts, 727 F.3d at 1140 (citation and internal quotation marks omitted). "Where there are parallel federal and state proceedings, abstention under the Colorado River doctrine is still only warranted in exceptional circumstances." Id. at 1141. Among the factors to be weighed in determining whether the requisite "exceptional circumstances" exist are the following:
Moorer, 374 F.3d at 997 (citations omitted). "No single factor is dispositive, and we are required to weigh the factors with a heavy bias favoring the federal courts' obligation to exercise the jurisdiction that Congress has given them." Jackson-Platts, 727 F.3d at 1141. That said, "[o]ne factor alone can be the sole motivating reason for the abstention" in a particular case. Moorer, 374 F.3d at 997. "Finally, we apply these factors flexibly and pragmatically, not mechanically." Jackson-Platts, 727 F.3d at 1141.
As noted, the threshold inquiry for Colorado River abstention purposes is whether the Bama Bayou Action qualifies as a "parallel state action." Defendants reason that the requirement of parallelism is satisfied because "the parties and issues are intertwined and substantially similar, to the extent that the existence of the alleged debtor-creditor relationship which is the backbone of SEPH's fraudulent transfer claim in this case is contingent upon the outcome of the Mobile County Circuit Court proceeding." (Doc. 22-1, at 13.) This point resonates. SEPH and Mr. and Mrs. Trammell are parties to both the federal and the state proceedings, and there is overlap between the two actions on a central issue. As this Court has previously recognized, "an essential element of proof in SEPH's fraudulent transfer causes of action is that it has a `right to payment' from the Estate and Belinda Trammell." (Doc. 21, at 4.) That "right to payment" issue (i.e., whether the Estate and Mrs. Trammell are liable to SEPH for breach of the guaranty agreements) is being litigated between SEPH and Mr. and Mrs. Trammell in the Bama Bayou Action. Given this direct intersection of parties and issues, the undersigned is satisfied that these two actions involve substantially the same parties and substantially the same issues, such that the Bama Bayou Action constitutes a parallel state action.
Having found that the requirement of parallel actions is satisfied, the Court now turns to application of the six Colorado River factors. For this exercise, defendants rely heavily on two previous decisions from this District Court that, coincidentally, were decided exactly eight years apart, to-wit: SE Property Holdings, LLC v. Parks, 2014 WL 3687226 (S.D. Ala. July 24, 2014) (DuBose, J.), and Stabler v. Transportation Ins. Co., 2006 WL 6915489 (S.D. Ala. July 24, 2006) (Steele, J.). (See doc. 22-1, at 23-26; doc. 28, at 2-4, 13-14.) Boiled down to its essence, defendants' position is that the Colorado River factors should be applied in this case exactly as they were in Parks and Stabler, and that doing so leads inexorably to the conclusion that Colorado River abstention is appropriate to avoid risking inconsistent results, wasting judicial resources, burdening the Trammells with a war on two fronts, and playing catch-up to state-court litigation that has already enjoyed a six-year head start.
The trouble with defendants' proffered argument is that it overlooks the game-changing import of the FNB Bank Action in the Colorado River calculus. Defendants suggest that the options here are (i) to allow this action to proceed contemporaneously with the Bama Bayou Action; or (ii) to stay this case, such that Bama Bayou Action will move forward alone. However, that is not the relevant comparison. The real choices here are (i) to allow this action to proceed contemporaneously with both the Bama Bayou Action and the FNB Bank Action; or (ii) to stay this action, such that Bama Bayou Action and the FNB Bank Action will move forward without SEPH being able to litigate its fraudulent transfer claims against the Trammells until some later date. As we will see, the distinction has profound consequences for the Colorado River analysis, including at least two factors that are pivotal here.
Perhaps defendants' most compelling argument for Colorado River abstention is that inefficiency and duplication would ensue if the "right to payment" issue were to be litigated in both this case and the Bama Bayou Action at the same time. However, this contention is attenuated by the existence and persistence of the FNB Bank Action. In addition to executing payment guaranties in favor of SEPH's predecessor as to the Bama Bayou loans, the Trammells also executed guaranties in favor of FNB Bank's predecessor as to a loan to Marine Park, LLC at or around the same time that they executed the Bama Bayou guaranties. Just as SEPH filed this action to set aside alleged fraudulent transfers by the Trammells to collect on the Bama Bayou loan guaranties, so did FNB Bank file the FNB Bank Action to set aside those same alleged fraudulent transfers to collect on the Marine Park loan guaranties. The Complaints in the two cases (which commenced a scant three days apart) are nearly verbatim, involving identical claims against identical defendants, with large chunks of verbiage seemingly cut and pasted from one pleading to the other. (Compare doc. 1 with doc. 20, Exh. A.) The state court in the FNB Bank Action denied the Trammells' motion to stay that action pending the conclusion of the Bama Bayou Action; thus, the FNB Bank Action is presently moving forward.
The pragmatic implications of these circumstances are that the Trammells are faced with litigating the "right to payment" issue in two different cases (the Bama Bayou Action and the FNB Bank Action) regardless of whether the undersigned abstains under Colorado River or not. Either way, the defendants in our case will be litigating their arguments against enforcement of their guaranty agreements (and the creditors will be litigating their arguments in favor of enforcement of those agreements) in two ongoing cases at the same time. What's more, SEPH asserts (with no dissent from the Trammells) that discovery may be conducted jointly in both this case and the FNB Bank Action in the absence of a stay, and points out that FNB Bank, SEPH and the Trammells have all agreed to conduct joint discovery in that event. (Doc. 27, at 12 & n.5.)
Defendants' other potentially persuasive argument for Colorado River abstention is that they would be prejudiced if this action were to proceed, while SEPH would not be prejudiced if this action were to be stayed pending the outcome of the Bama Bayou Action. Once again, however, the FNB Bank Action undermines the Trammells' position. Any prejudice to defendants is mitigated by the fact they are litigating these fraudulent transfer issues (including the "right to payment" threshold question) in the FNB Bank Action already, and those litigation activities can be combined, coordinated or at least streamlined between these two cases. By contrast, the prejudice to SEPH of staying this action is potentially severe. Consider what would happen if (a) this case were stayed, (b) the Bama Bayou Action were resolved in a manner that vindicated SEPH's right to payment, and (c) in the interim, the FNB Bank Action were resolved in favor of FNB Bank on the question of fraudulent transfers. What would stop FNB Bank from, in SEPH's words, "swoop[ing] in to recover what is left before SEPH ever gets its day in court"? (Doc. 27, at 5.) After all, in that scenario, SEPH would still have to litigate its fraudulent transfer claims in their entirety in this case, with this action having been stayed before it ever left the starting blocks; meanwhile, FNB Bank would have already won its fraudulent transfer case against the Trammells, and would be poised to initiate collection activity without delay. Defendants provide no satisfactory assurances that SEPH's interests could or would be adequately protected in that event.
Applying these considerations (as well as all others) to the Colorado River factors, the Court concludes as follows: The "jurisdiction over property" factor is neutral because, as both sides recognize, neither court has asserted jurisdiction over the subject real property and stock certificates. The "relative inconvenience of the fora" factor weighs against abstention because this District Court and the Mobile County Circuit Court (where the Bama Bayou Action is pending) are equally convenient. The "piecemeal litigation" factor does not strongly favor abstention because (i) piecemeal litigation will be happening anyway thanks to the FNB Bank Action, (ii) coordination of discovery and adaption of legal memoranda will minimize the deleterious effects of piecemeal litigation, and (iii) staying this action could actually exacerbate the piecemeal nature of the litigation by having relevant issues litigated at three different times in three different fora in three different cases.
In light of the foregoing discussion, and in recognition of the "limited" and "exceptional" nature of Colorado River abstention, as well as the heavy bias in favor of exercising jurisdiction, the Court is of the opinion that abstention is not warranted here. Under the circumstances as they now exist (including specifically the pendency of the ongoing FNB Bank Action), considerations of wise judicial administration favor allowing this case to move forward, with the parties to engage in joint discovery to the extent reasonably practicable. By contrast, abstaining in this case for an indefinite time until Bama Bayou is decided may not substantially reduce the risk of piecemeal litigation, but it will unacceptably increase the risk of unfair prejudice to SEPH from which the state courts likely cannot adequately protect it. Always in the Colorado River abstention context, "the balance [is] heavily weighted in favor of the exercise of jurisdiction." Moorer, 374 F.3d at 997 (citation omitted). The Trammells have not met their burden of overcoming that heavy weight to establish that abstention is appropriate or desirable here.
One final point is warranted: The Court's determination that Colorado River abstention would be unwise in these circumstances is dependent on the status of the FNB Bank Action as an ongoing, active matter in state court. Defendants have urged the Court to disregard the FNB Bank Action because they filed a Petition for Writ of Mandamus (the "Mandamus Petition") with the Alabama Supreme Court in that case on August 25, 2015, requesting entry of "an order staying the trial court proceedings pending resolution of the Bama Bayou action by the Circuit Court of Mobile County." (Doc. 28, Exh. B, at 12.)
The undersigned is not so sanguine as to the Trammells' odds of success on their Mandamus Petition. Alabama law is well settled that "[a] writ of mandamus is an extraordinary remedy ... that should be granted only if the trial court clearly abused its discretion by acting in an arbitrary or capricious manner," and that requires a petitioner to prove, inter alia, "a clear legal right ... to the order sought." Ex parte Edwards, 727 So.2d 792, 794 (Ala. 1998) (citations omitted). In both their briefs in this case and the Mandamus Petition itself, the Trammells argue only that binding Alabama authorities have "found a stay appropriate" in similar circumstances. To say that a stay is "appropriate" does not appear tantamount to saying that a stay is "mandatory" or "required," that a petitioner has "a clear legal right" to a stay, that the trial court acted in an "arbitrary and capricious manner" by declining to enter a stay, or that the drastic and extraordinary remedy of mandamus is properly granted to override the trial court's determination. Given applicable law emphasizing the stringent legal standard for mandamus juxtaposed against the discretionary standard for entry of a stay under Alabama law, it appears to this Court that if anyone is "speculating" as to the future of the FNB Bank Action, it is the Trammells in predicting that "the FNB fraudulent transfer case will not proceed immediately, but should be stayed by the Alabama Supreme Court." (Doc. 28, at 12.) Under the circumstances, the Court declines to assume (as the Trammells would have it do) that the Mandamus Petition will be granted, that the FNB Bank Action will be stayed, and that SEPH's concerns about prejudice and avoiding piecemeal litigation through coordinated discovery are merely "speculative."
For all of the foregoing reasons, defendants' Motion to Stay Proceedings Pending Resolution of Mobile County Circuit Action (doc. 22) is
DONE and ORDERED.
