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MidAtlantic International Inc. v. AGC Flat Glass North America, 12-1745 (2012)

Court: Court of Appeals for the Fourth Circuit Number: 12-1745 Visitors: 37
Filed: Nov. 14, 2012
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1745 MIDATLANTIC INTERNATIONAL, INC., Plaintiff - Appellant, v. AGC FLAT GLASS NORTH AMERICA, INC., Defendant - Appellee. Appeal from the United States District Court for the Eastern District of Virginia, at Norfolk. Robert G. Doumar, Senior District Judge. (2:12-cv-00169-RGD-FBS) Submitted: October 16, 2012 Decided: November 14, 2012 Before DAVIS and KEENAN, Circuit Judges, and HAMILTON, Senior Circuit Judge. Vacated and r
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                            UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                            No. 12-1745


MIDATLANTIC INTERNATIONAL, INC.,

                Plaintiff - Appellant,

          v.

AGC FLAT GLASS NORTH AMERICA, INC.,

                Defendant - Appellee.



Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk.     Robert G. Doumar, Senior
District Judge. (2:12-cv-00169-RGD-FBS)


Submitted:   October 16, 2012           Decided:   November 14, 2012


Before DAVIS and KEENAN, Circuit Judges, and HAMILTON, Senior
Circuit Judge.


Vacated and remanded by unpublished per curiam opinion.


James L. Chapman, IV, CRENSHAW, WARE & MARTIN, PLC, Norfolk,
Virginia, for Appellant.     James N. L. Humphreys, William C.
Bovender, Joseph B. Harvey, HUNTER, SMITH & DAVIS, LLP,
Kingsport, Tennessee, for Appellee.


Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

     MidAtlantic International, Inc. (MidAtlantic) brought this

diversity    action     against        AGC     Flat    Glass     North      America,      Inc.

(AGC)   in   the    United       States      District     Court       for    the     Eastern

District of Virginia following AGC’s refusal to pay MidAtlantic

for several thousand tons of dolomite.                     Invoking the abstention

doctrine in Colorado River Water Conservation Dist. v. United

States, 
424 U.S. 800
(1976), the district court dismissed this

action in favor of a related action in Tennessee state court

which commenced before the federal action.                        Because we conclude

that the federal action does not meet the criteria for Colorado

River abstention, we vacate the district court’s judgment and

remand for further proceedings.



                                               I

     MidAtlantic is a Barbadian corporation with its principal

place   of   business       in   St.     Michael,       Barbados.           Prior    to   the

commencement    of    the    parties’          litigation,     MidAtlantic          supplied

dolomite to AGC, a Delaware corporation with its principal place

of business in Alpharetta, Georgia.                     AGC used the dolomite as

part of its glass manufacturing business.

     The     dolomite    supplied         by       MidAtlantic    was     imported        from

Spain   in   bulk    quantity       by       ship,    stored     in   a     warehouse      in

Norfolk, Virginia, and then placed in AGC-supplied rail cars at

                                          - 2 -
the warehouse.      The rail cars would then make their way to

various factories operated by AGC.             Each bulk shipment came with

a certificate of analysis from the mine.                      AGC paid for the

dolomite as each rail shipment was made.                The written contract

between the parties specified that if AGC ever stopped buying

the dolomite “for whatever reason,” AGC would pay MidAtlantic

for any dolomite remaining in the warehouse within thirty days

of the date of the invoice.         (J.A. 5).

       In June 2011, AGC arranged for the shipment of 8,267.38

tons   of   dolomite.     The    dolomite      was   stored    in   Norfolk     with

approximately 500 tons of dolomite still on hand from a prior

shipment.     A certificate of analysis for the June 2011 shipment

was furnished to AGC.           According to MidAtlantic, AGC raised no

concerns about the test results, nor did they request further

testing of the dolomite.           Between June and December 2011, AGC

purchased    and   used    at    its   glass    manufacturing       facility     in

Kingsport, Tennessee approximately 4,000 tons of the dolomite

from the June 2011 shipment.             In December 2011, AGC notified

MidAtlantic that there was spinel in the dolomite that exceeded

specifications.         Consequently,     AGC    refused      to    pay   for    the

dolomite remaining in the warehouse in Norfolk.

       On March 9, 2012, AGC filed a complaint in Tennessee state

court (Sullivan County) against MidAtlantic asserting a claim

for breach of contract based on nonconforming goods and a claim

                                       - 3 -
for a declaratory judgment that it was not responsible to pay

for the remaining dolomite in the warehouse in Norfolk.                                On

March 30, 2012, MidAtlantic filed an action in the United States

District    Court    for    the    Eastern     District      of    Virginia      seeking

nearly   $800,000.00       in     damages      for   AGC’s    alleged       breach    of

contract.

      On April 30, 2012, AGC filed a motion to dismiss pursuant

to Rule 12(b) of the Federal Rules of Civil Procedure, arguing

that the federal action should be dismissed either under the

“first-to-file”      rule,      or,   alternatively,       under     Colorado       River

abstention.        The    district     court    rejected      the    “first-to-file”

argument    as    inapplicable        because     the   two       actions    were    not

pending in separate federal courts.                  With respect to abstention

under Colorado River, the district court held that exceptional

circumstances       were     present     warranting       the       surrendering      of

federal court jurisdiction.              In particular, the district court

identified three factors which, in its opinion, weighed heavily

in favor of abstention.               First, the district court found that

the   federal     forum    was     inconvenient       because       the   “the    great

majority of records, evidence, and witnesses pertaining to this

case” were located in Tennessee at AGC’s glass manufacturing

facility.        (J.A. 107).          Next, the district court found that

abstention was necessary to avoid piecemeal litigation involving

the same parties and the same issues.                     Finally, the district

                                        - 4 -
court found that abstention was warranted because the federal

action    was    vexatious        in    nature,    because      MidAtlantic       had   not

“offered [any] reason why this case should be tried in federal

court    rather      than,   or    in    addition      to    state     court,”    and   had

“fail[ed]       to   provide      any    justification”        or    “even   attempt     to

explain why it waited until after . . . AGC had filed the state

court action to file the federal suit or, indeed, why it filed

suit at all when the claims at issue were already pending in

state court.”         (J.A. 109).         As a result of its conclusion that

Colorado River abstention was appropriate, the district court

dismissed      the    federal     action    without         prejudice.       MidAtlantic

noted a timely appeal.



                                            II

     On    appeal,      MidAtlantic        contends      that    the    district      court

erred when it abstained from entertaining its claim for breach

of contract.         We review the district court’s abstention decision

for an abuse of discretion.                Chase Brexton Health Servs., Inc.

v. Maryland, 
411 F.3d 457
, 464 (4th Cir. 2005).

     It is well-settled that “our dual system of federal and

state governments allows parallel actions to proceed to judgment

until    one     becomes     preclusive      of    the      other.”       
Id. at 462. Indeed,
“[d]espite what may appear to result in a duplication of

judicial    resources,       ‘[t]he       rule    is   well     recognized       that   the

                                           - 5 -
pendency    of      an   action       in    the    state       [court]     is     no   bar     to

proceedings       concerning        the     same    matter      in   the   Federal       court

having jurisdiction.’”              McLaughlin v. United Va. Bank, 
955 F.2d 930
, 934 (4th Cir. 1992) (quoting McClellan v. Carland, 
217 U.S. 268
, 282 (1910)).              Moreover, the Supreme Court has cautioned

that    federal      courts        are     bound     by    a    “virtually        unflagging

obligation      .   .    .    to   exercise        the    jurisdiction       given      them.”

Colorado 
River, 424 U.S. at 817
.                     As we noted in Chase Brexton,

“[f]ederal courts have no more right to decline the exercise of

jurisdiction which is given, than to usurp that which is 
not.” 411 F.3d at 462
(citation and internal quotation marks omitted).

       The Supreme Court, however, has indicated that, in certain

limited instances, “federal courts may decline to exercise their

jurisdiction,       in       otherwise      ‘exceptional        circumstances,’          where

denying     a    federal       forum       would     clearly      serve      an    important

countervailing interest.”                Quackenbush v. Allstate Ins. Co., 
517 U.S. 706
, 716 (1996) (quoting Colorado 
River, 424 U.S. at 813
).

“These ‘exceptional circumstances’ inevitably relate to a policy

of     avoiding      unnecessary            constitutional           decisions         and    of

accommodating federal-state relations.”                        Chase 
Brexton, 411 F.3d at 462
.

       In   Colorado         River,        the    Court    noted      that      there        were

“principles unrelated to considerations of proper constitutional

adjudication and regard for federal-state relations which govern

                                             - 6 -
in    situations           involving       the       contemporaneous              exercise        of

concurrent jurisdictions, either by federal courts or by state

and federal 
courts.” 424 U.S. at 817
.                According to the Court,

these      principles       rest     on   considerations           of     “[w]ise       judicial

administration,            giving     regard        to        conservation        of    judicial

resources     and     comprehensive          disposition          of    litigation.”           
Id. (citation and internal
quotation marks omitted).                                   In general,

the     pendency     of     an      action     in     state       court      is    no    bar      to

proceedings in federal court concerning the same matter.                                       
Id. As between two
federal district courts, the general rule is that

duplicative        litigation        should      be      avoided.           
Id. The Court explained
that the difference in approach between federal-state

concurrent          jurisdiction           and        wholly        federal            concurrent

jurisdiction stemmed from the “virtually unflagging obligation

of the federal courts to exercise the jurisdiction given them.”

Id. In assessing whether
      Colorado          River       abstention           is

appropriate, we must remain mindful that this form of abstention

“is   an    extraordinary          and    narrow      exception        to    the    duty     of    a

District Court to adjudicate a controversy properly before it”

and that “[a]bdication of the obligation to decide cases can be

justified          under      [abstention]            only        in      the      exceptional

circumstances where the order to the parties to repair to the

state      court    would     clearly        serve       an    important        countervailing

                                             - 7 -
interest.”      
Id. at 813 (citation
and internal quotation marks

omitted).       Accordingly,         our     task    “is     not       to     find     some

substantial reason for the exercise of federal jurisdiction by

the district court; rather, the task is to ascertain whether

there   exist    ‘exceptional’            circumstances,         the    ‘clearest       of

justifications,’     .     .    .    to    justify    the    surrender          of     that

jurisdiction.”      Moses       H.   Cone    Mem.    Hosp.       v.    Mercury       Const.

Corp., 
460 U.S. 1
, 25-26 (1983) (citation and internal quotation

marks omitted).

      The threshold question in deciding whether Colorado River

abstention is appropriate is whether there are parallel federal

and state actions.             Chase 
Brexton, 411 F.3d at 463
.                       Here,

MidAtlantic concedes that the federal action is parallel to the

Tennessee state court action.                Because the federal action is

parallel, we now must carefully balance several factors “with

the   balance    heavily       weighted      in   favor     of    the       exercise    of

jurisdiction.”     Moses H. 
Cone, 460 U.S. at 16
.                           Although the

decision to dismiss a federal suit because of parallel state-

court litigation does not rest on a checklist, 
id., we have identified
six factors to guide the analysis: (1) whether the

subject matter of the litigation involves property where the

first court may assume in rem jurisdiction to the exclusion of

others; (2) whether the federal forum is an inconvenient one;

(3) the desirability of avoiding piecemeal litigation; (4) the

                                          - 8 -
relevant order in which the courts obtained jurisdiction and the

progress     achieved     in    each    action;       (5)     whether    state   law    or

federal law provides the rule of decision on the merits; and (6)

the adequacy of the state proceeding to protect the parties’

rights.      Chase 
Brexton, 411 F.3d at 463
-64.

      With    respect     to    the     first       factor,    whether     the   subject

matter of the state litigation involves res or property, the

parties agree that no res or property is involved over which the

Tennessee state court has asserted jurisdiction.                           Accordingly,

this factor weighs against abstention.                        Gannett Co., Inc. v.

Clark Const. Group, Inc., 
286 F.3d 737
, 747 (4th Cir. 2002).

      With    respect     to    the    second       factor,    whether     the   federal

forum is an inconvenient one, the district court found that this

factor     weighed   in    favor       of    abstention.            According    to    the

district court, although AGC had some contacts with the state of

Virginia (the contract in part was performed in Virginia, AGC

was   authorized     to    do   business        in    Virginia,      and   AGC   had    an

appointed agent to receive service of process in Virginia), such

evidence was “clearly insufficient to outweigh the convenience

of trying a case in the jurisdiction in which nearly all of the

records and witnesses are located.”                  (J.A. 107).

      In     Colorado     River,       the    Supreme       Court    identified       “the

inconvenience of the federal forum” as a factor for the federal

court to consider in deciding whether to dismiss a federal court

                                            - 9 -
action because of a concurrent state 
proceeding. 424 U.S. at 818
.     The Court cited only Gulf Oil Corp. v. Gilbert, 
330 U.S. 501
(1947), as support for consideration of this 
factor. 424 U.S. at 818
.      Gulf   Oil       involved     the    doctrine    of    forum     non

conveniens. 330 U.S. at 502
.          The district court had dismissed

a suit filed in the Southern District of New York.                            
Id. at 503. The
disputed event had occurred in Virginia, and the witnesses

and evidence were located in Virginia, some 400 miles from the

New    York    forum.        
Id. at 503, 511.
       The     Court    noted     that

compulsory process would not be available for some witnesses if

the matter remained in the New York federal court.                            
Id. at 511. In
Colorado River, the Court referred to the inconvenience of

trying the case in the federal district court in Denver, 300

miles from the disputed area and from the Colorado state court

with jurisdiction over that 
area. 424 U.S. at 820
.

       The    district       court’s       consideration       of     this     factor     is

somewhat      troubling.           On   the   one    hand,    the    distance     between

Sullivan County, Tennessee and Norfolk, Virginia is over 400

miles.       Moreover, it appears, based on the scant record before

us, that many of the witnesses and much of the evidence is

located in Tennessee.              Such facts support the district court’s

analysis under the authority of Gulf Oil and Colorado River.                             On

the other hand, it is a bit of an overstatement to say that this

case   is     all    about   conduct       and   witnesses      in    Tennessee.        The

                                           - 10 -
dolomite was imported into Virginia, stored in Virginia, and

some of the dolomite at issue presumably remains in a warehouse

there.       With such conflicting evidence before it, perhaps the

most prudent course for the district court would have been to

take evidence on the question, especially since the record does

not   disclose       which        of    the    forums     was     more    convenient          for

MidAtlantic.         In any event, we need not address whether the

district court’s evaluation of this factor amounted to an abuse

of discretion, because we can resolve this appeal by assuming

for the sake of argument that the inconvenience of the federal

forum factor favors abstention.

      With      respect      to    the    third     factor,       the    desirability          of

avoiding piecemeal litigation, the district court found that the

Tennessee state court action and the federal action “will no

doubt    pose      serious    res       judicata       problems    depending       on    which

court first reaches the merits of the case.”                            (J.A. 108).          As a

result,      the     district          court    concluded       this      factor    favored

abstention.

      However,       res     judicata         problems    are     not    the   threat        with

which Colorado River was concerned; it is a prospect inherent in

all concurrent litigation.                    And the Supreme Court in Colorado

River instructed federal courts that they are normally to accept

jurisdiction even in the face of concurrent state 
litigation. 424 U.S. at 817
.       The      “mere    potential        for    conflict       in    the

                                              - 11 -
results     of     adjudications,     does     not,   without    more,          warrant

staying     exercise     of    federal      jurisdiction.”           
Id. at 816. Accordingly,
the district court erred when it determined that

this factor weighed in favor of abstention.                   See 
Gannett, 286 F.3d at 746
(“The threat of different outcomes in these breach

of contract actions, however, is not the type of inconsistency

against which abstention is designed to protect, in that Gannett

and Clark are both parties to the Federal and State Contract

Actions; thus, res judicata effect will be given to whichever

judgment is rendered first. . . .                Insofar as abstention does

not lessen the threat of inefficiency or inconsistent results

beyond     those    inherent     in   the     duplicative     nature       of    these

proceedings and there is nothing in the nature of breach of

contract     actions      that    renders       the    fact     of     duplicative

proceedings exceptionally problematic, the district court abused

its discretion by determining that the possibility of piecemeal

litigation weighs in favor of abstention.”).

     The    fourth     factor-the     order     in    which   jurisdiction         was

obtained by the courts-does not counsel in favor of abstention

because the litigation in Tennessee state court is not further

along than the federal action.               See Moses H. 
Cone, 460 U.S. at 21
(noting that fourth factor is not “measured exclusively by

which complaint was filed first, but rather in terms of how much

progress has been made in the two actions”).

                                      - 12 -
      The fifth factor, whether state law or federal law provides

the   rule     of    decision    on    the    merits,        and       the   sixth    factor,

assessing the adequacy of the state proceeding to protect the

parties’ rights, do not weigh in favor of abstention.                                   These

factors       “typically       are     designed        to    justify         retention      of

jurisdiction where an important federal right is implicated and

state    proceedings       may    be    inadequate          to    protect      the    federal

right, . . . or where retention of jurisdiction would create

needless friction with important state policies.”                              
Gannett, 286 F.3d at 746
(citation and internal quotation marks omitted).                                As

in Gannett, the fact that state law is implicated in this breach

of contract action does not militate in favor of abstention,

“particularly since both parties may find an adequate remedy in

either    state      or   federal      court.”         
Id. at 747 (citation
     and

internal quotation marks omitted).

      In our view, consideration of the Colorado River factors

leads    to    the   inescapable       conclusion       that          this   case    does   not

present       exceptional      circumstances          justifying         a   federal    court

surrendering its jurisdiction.                 The only factor that arguably

weighs    in    favor     of    abstention       is    the       inconvenience        of    the

federal forum factor.             Yet, this factor, standing alone under

the circumstances of this case, is insufficient to uphold the

district       court’s    decision.          Cf.   AXA       Corporate        Solutions      v.

Underwriters Reins. Corp., 
347 F.3d 272
, 279 (7th Cir. 2003)

                                         - 13 -
(“The court was aware that there are powerful reasons for giving

precedence to the Texas proceeding: all the parties are there,

in one capacity or another, and there is no special expertise an

Illinois federal court can bring to bear that would outweigh the

efficiencies inherent in the ability to consider the case as a

whole.   Yet that cannot be enough; otherwise, the Court would

not have stressed the ‘unflagging obligation’ of the federal

courts   to   hear   cases   properly   before   them.”).   MidAtlantic

properly filed this case in federal court, and it is entitled to

its federal forum. *    Accordingly, we vacate the district court’s


     *
        We note that, in its opinion, the district court also
found that MidAtlantic’s filing of the federal action was
premised on an improper motive.     Such finding was based on the
facts that MidAtlantic filed the federal action “almost
immediately after being served” in the Tennessee state court
action and that MidAtlantic failed to “offer any explanation as
to why” the federal action was filed.        (J.A. 109-10).   The
district court’s findings raise the question of whether a
party’s motivation in pursuing parallel state or federal
litigation may be a relevant factor in the exceptional
circumstances equation.      In dicta, the Supreme Court has
remarked that motivation may play a role in the Colorado River
abstention determination.      Moses H. 
Cone, 460 U.S. at 17–18
n.20. We need not decide what role an improper motive plays in
the Colorado River abstention determination, because there is no
evidence   to   support  the    district   court’s  finding  that
MidAtlantic had an improper motive in bringing the federal
action.   There is nothing sinister in the timing of the filing
of the federal action–a later complaint is always going to be
filed in the parallel litigation context, and there is nothing
extraordinary about a three-week difference. Nor can we discern
an improper motive from the forum selected by MidAtlantic.
After all, part of the contract was performed in Virginia, AGC
was authorized to do business in Virginia, AGC had an appointed
agent to receive service of process in Virginia, and some of the
(Continued)
                                  - 14 -
judgment and remand for further proceedings consistent with this

opinion.

     We dispense with oral argument because the facts and legal

contentions are adequately presented in the materials before the

court and argument would not aid the decisional process.



                                             VACATED AND REMANDED




dolomite at issue presumably remains in a warehouse there.
Finally, the circumstances in which courts have found improper
motive simply are not present here.     Cf. Vulcan Chem. Techs.,
Inc. V. Barker, 
297 F.3d 332
, 343-44 (4th Cir. 2002) (after
applying the six Colorado River factors, the court discussed the
inherent unfairness of allowing a company that was ordered to
pay $21 million in damages in a California state court case to
vacate that decision in a subsequent federal action in
Virginia); Villa Marina Yacht Sales, Inc. v. Hatteras Yachts,
947 F.2d 529
, 534 (1st Cir. 1991) (stating that the district
court did not err in counting “the motivation factor against
retaining jurisdiction” where the district court found that the
plaintiff’s decision to switch to federal court stemmed from the
plaintiff’s   unsuccessful  effort   to   obtain  a   preliminary
injunction in the state court); Telesco v. Telesco Fuel &
Masons’ Materials, Inc., 
765 F.2d 356
, 363 (2d Cir. 1985)
(affirming the dismissal of a federal action filed by a state
court plaintiff, noting that deference to the state court is
appropriate where the same party is the plaintiff in both courts
and sues in the federal court on the same cause of action after
suffering some failures in the earlier state court action).



                             - 15 -

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