USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
______________________
No. 94-1695
ELMENDORF GRAFICA, INC.,
Plaintiff, Appellant,
v.
D.S. AMERICA (EAST), INC. d/b/a SCREEN (EAST),
Defendant, Appellee.
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ERRATA SHEET
ERRATA SHEET
The opinion of this Court issued on February 21, 1995, is
amended as follows:
Page 5, line 11: Change "April 8, 1993" to "April 8, 1994".
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UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1695
ELMENDORF GRAFICA, INC.,
Plaintiff, Appellant,
v.
D.S. AMERICA (EAST), INC. d/b/a SCREEN (EAST),
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, U.S. District Judge]
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Before
Boudin, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Boyle, Senior District Judge.*
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Jose L. Rivero Vergne, Moredo & Moredo, Ramon Rosado-Vila and
_______________________ ________________ __________________
Ramon Rosado-Vila Law Offices on brief for appellant.
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Francisco M. Troncoso, Troncoso & Becker, Edward J. Underhill,
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Steven L. Katz, and Masuda, Funai, Eifert & Mitchell, Ltd. on brief
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for appellee.
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February 21, 1995
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*Of the District of Rhode Island, sitting by designation.
CAMPBELL, Senior Circuit Judge. Elmendorf Grafica,
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Inc. appeals from an order of the district court granting
D.S. America (East), Inc.'s motion to stay a pending federal
diversity action until similar litigation in the state courts
of Illinois is concluded. The United States District Court
for the District of Puerto Rico accepted the recommendation
of the magistrate judge that a stay was justified under
principles declared in Colorado River Water Conservation
___________________________________
District v. United States, 424 U.S. 800 (1976). We vacate
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the stay and remand for proceedings in the district court.
I.
I.
This case arises out of a dispute between Elmendorf
Grafica, Inc., a Puerto Rico corporation with its principal
place of business in Puerto Nuevo, Puerto Rico, and D.S.
America (East), Inc., d/b/a Screen (East) (hereinafter
"Screen"), an Illinois corporation with its principal place
of business in Rolling Meadows, Illinois. On March 20, 1992,
the parties entered into an equipment purchase agreement
under which Elmendorf agreed to purchase computer hardware
and software at a price of $120,000. Elmendorf paid $84,000
in advance, leaving a balance due of $36,000. The equipment
failed to perform to its satisfaction, and Elmendorf,
claiming ongoing damage to its business as a result of this
failure, refused to pay.
A. The Illinois Action
A. The Illinois Action
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On November 25, 1992, Screen sued Elmendorf for
$36,000 in the Circuit Court of Cook County, Illinois. The
summons and complaint in that case were served on Elmendorf's
president on December 3, 1992. Instead of answering,
Elmendorf filed a limited appearance. On February 2, 1993,
Elmendorf moved to dismiss for want of personal jurisdiction
and, after briefing and argument, the Cook County Circuit
Court allowed Elmendorf's motion on May 17, 1993, and
dismissed Screen's action for want of personal jurisdiction.
While the court modified its order on June 8, 1993, the
dismissal remained. Screen appealed to the Illinois
Appellate Court, seeking to overturn the dismissal, on July
8, 1993.
The parties thereupon engaged in a war of motions
in the appellate forum. On October 14, 1993, Screen filed a
motion for stay of proceedings to amend record on appeal,
which included a request for additional time to file its
brief. The appellate court denied that motion in February
1994. Elmendorf, having strongly opposed Screen's motion,
filed its own motion for leave to supplement the record on
March 24, 1994, requesting additional time to file its brief.
After the appellate court's disposition of this motion,
Elmendorf moved for clarification on May 11, 1994. That
motion was allowed on August 10, 1994, with yet another
extension of time for Elmendorf to file its brief. On
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September 16, 1994, Elmendorf filed a third request for
additional time to file its brief because its attorney was
preparing for another trial and lacked the time to prepare
its brief. Insofar as we are aware, the appeal has yet to be
decided.
B. The Puerto Rico Action
B. The Puerto Rico Action
On January 15, 1993, two months after Screen sued
Elmendorf in Illinois, and a few weeks before Elmendorf moved
to dismiss that action, Elmendorf sued Screen in the Superior
Court of Puerto Rico, San Juan Part, alleging, inter alia,
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breach of contract, false advertising, and fraud stemming
from the same equipment purchase agreement which was the
subject of the Illinois litigation. Elmendorf requested a
declaration that the agreement was null and void, damages in
the amount of $684,700 plus interest, and reimbursement of
the $84,000 advance payment. Screen was not served with the
summons and complaint in the Puerto Rico action until June
14, 1993, one week after the Cook County Circuit Court's
amended dismissal of the Illinois action for want of personal
jurisdiction.
On July 13, 1993, alleging diversity of
citizenship, Screen removed the Puerto Rico action to the
United States District Court for the District of Puerto Rico.
On September 8, 1993, Screen moved to dismiss and/or stay the
Puerto Rico federal proceedings citing principles established
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by the Supreme Court in Colorado River Water Conservation
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District v. United States, 424 U.S. 800 (1976) and subsequent
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cases. This motion was referred to a magistrate judge, who,
on October 12, 1993, and in the absence of any opposition by
Elmendorf, recommended a stay of proceedings pending the
outcome of the Illinois litigation. Elmendorf filed its
opposition on October 15, 1993, apparently before receiving
word of the magistrate judge's decision, and on October 21,
1993, also filed objections to the magistrate judge's report
and recommendations, along with an explanation for the delay
in filing its opposition. The district court referred the
matter to the magistrate judge for reconsideration in light
of Elmendorf's objections.
On April 8, 1994, the magistrate judge issued a
second report, again recommending a stay. Elmendorf filed
objections to this second report on April 25, 1994.1 On May
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1. Screen states in its brief that "it is unclear whether"
Elmendorf's objections to the April 8, 1994 magistrate
judge's report, filed on April 25, 1994, were filed within
the 10-day period required by 28 U.S.C. 636(b)(1)(C)
(1988). This seems to suggest that we should deem
Elmendorf's appeal waived. See, e.g., Henley Drilling Co. v.
___ ____ ___________________
McGee, 36 F.3d 143, 150-51 (1st Cir. 1994) (failure to object
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within 636(b)(1)(C)'s ten-day period waives claim for
purposes of appellate review); Fed. R. Civ. P. 72(b) (same).
However, it appears that Elmendorf's objections were timely
filed. See Fed. R. Civ. P. 72(b) (allowing service by mail
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of magistrate's report); Fed. R. Civ. P. 6(a) and (e)
(describing method of computing time period under federal
rules, and stating that, where period allowed is less than 11
days, intervening Saturdays, Sundays and holidays shall not
be counted, and, where service upon a party is to be made by
mail, adding three days to the period is allowed).
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5, 1994, the district court issued an order adopting the
magistrate judge's conclusions and ordering a stay of the
proceedings. Elmendorf appeals.
II.
II.
A. A Preliminary Matter
A. A Preliminary Matter
Elmendorf argues that the district court failed to
perform a de novo review of the magistrate judge's proposed
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findings, as required by 28 U.S.C. 636(b)(1)(C) (1988).2
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2. 28 U.S.C. 636 states, in pertinent part:
(b)(1) Notwithstanding any provision of
law to the contrary--
(A) a judge may designate a
magistrate to hear and
determine any pretrial matter
pending before the court,
except a motion . . . to
involuntarily dismiss an action
. . . .
(B) a judge may also designate
a magistrate . . . to submit to
a judge of the court proposed
findings of fact and
recommendations for the
disposition, by a judge of the
court, of any motion excepted
in subparagraph (A) . . . .
(C) the magistrate shall file
his proposed findings and
recommendations under
subparagraph (B) with the court
and a copy shall forthwith be
mailed to all parties.
Within ten days after being served with a
copy, any party may serve and file
written objections to such proposed
findings and recommendations as provided
by rules of court. A judge of the court
shall make a de novo determination of
those portions of the report or specified
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The district court's order of May 5, 1994 states, "The Court,
having reviewed the conclusions of the U.S. Magistrate in the
two Report and Recommendations filed in this case, finds that
his decisions are warranted in law and fact." Elmendorf
argues that this statement is inconsistent with 636's
requirement.
Elmendorf has called no authority to our attention
holding that, in order to demonstrate compliance with 636's
de novo review requirement, a district court must make
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findings and rulings of its own rather than adopting those of
the magistrate judge. The statute authorizes the district
court to adopt in whole as well as in part the proposed
findings or recommendations of the magistrate judge. Where,
as here, the magistrate judge decided on an undisputed
factual record, the district court was certainly not required
to rehash the magistrate judge's reasoning. The role of the
magistrate judge is "to relieve courts of unnecessary work."
Henley Drilling Co. v. McGee, 36 F.3d 143, 151 (1st Cir.
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proposed findings or recommendations to
which objection is made. A judge of the
court may accept, reject, or modify, in
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whole or in part, the findings or
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recommendations made by the magistrate.
The judge may also receive further
evidence or recommit the matter to the
magistrate with instructions.
28 U.S.C. 636(b)(1) (1988) (emphasis added).
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1994), quoting Park Motor Mart, Inc. v. Ford Motor Co., 616
_______ ______________________ _______________
F.2d 603, 605 (1st Cir. 1980).
III.
III.
A. The Colorado River Doctrine
A. The Colorado River Doctrine
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The Supreme Court in Colorado River established a
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narrow basis for district courts to stay or dismiss federal
lawsuits in deference to parallel state proceedings. The
Court held that, in "exceptional" circumstances, 424 U.S. at
818, a federal court could decline jurisdiction based on
"'considerations of "[w]ise judicial administration, giving
regard to conservation of judicial resources and
comprehensive disposition of litigation,"'" Moses H. Cone,
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460 U.S. at 15 (quoting Colorado River, 424 U.S. at 817
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(quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342
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U.S. 180, 183 (1952))).
The Court in Colorado River mentioned four
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illustrative factors for determining whether "exceptional
circumstances" exist: (1) whether either court has assumed
jurisdiction over a res; (2) the inconvenience of the federal
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forum; (3) the desirability of avoiding piecemeal litigation,
and (4) the order in which the forums obtained jurisdiction.
In Moses H. Cone, the Court added two additional factors: (5)
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whether state or federal law controls, and (6) the adequacy
of the state forum to protect the parties' rights. Another
factor, mentioned but not applied in Moses H. Cone, 460 U.S.
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at 17 n.20, and counted by some courts, is the vexatious or
reactive nature of the federal lawsuit, see, e.g., Fuller Co.
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v. Ramon I. Gil, Inc., 782 F.2d 306, 308-10 (1st Cir. 1986).
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In Colorado River, the Supreme Court emphasized
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that the stay or dismissal authorized there should be used
sparingly. The Court spoke of the "virtually unflagging
obligation of the federal courts to exercise the jurisdiction
given them," 424 U.S. at 817, and cautioned that "[o]nly the
clearest of justifications will warrant dismissal," id. at
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819. The weight a court should give any single factor may
vary greatly depending on the case, and "[n]o one factor is
necessarily determinative; a carefully considered judgment
taking into account both the obligation to exercise
jurisdiction and the combination of factors counselling
against that exercise is required," id. at 818-19. The
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district court must weigh the important factors "with the
balance heavily weighted in favor of the exercise of
jurisdiction," Moses H. Cone, 460 U.S. at 16.
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The decision whether to surrender jurisdiction is
"necessarily left to the discretion of the district court in
the first instance," id. at 19, and the district court's
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decision may be reversed only for an abuse of that
discretion. Such discretion must be exercised, however,
within the constraints of the "exceptional-circumstances
test." Id.; see also Villa Marina Yacht Sales, Inc. v.
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Hatteras Yachts, 947 F.2d 529 (1st Cir. 1991), cert. denied,
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__ U.S. __, 112 S. Ct. 1674 (1992). In a discussion which
concluded that it made no difference in this context whether
the district court ordered a stay or dismissal, the Court
emphasized the limits of this discretion, saying:
When a district court decides to dismiss
or stay under Colorado River, it
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presumably concludes that the parallel
state-court litigation will be an
adequate vehicle for the complete and
prompt resolution of the issues between
the parties. If there is any substantial
doubt as to this, it would be a serious
abuse of discretion to grant the stay or
dismissal at all.
Moses H. Cone, 460 U.S at 28.
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B. The Magistrate Judge's Recommendation
B. The Magistrate Judge's Recommendation
The magistrate judge's second report and
recommendation considered Colorado River, reiterating rightly
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that the balance in any decision to stay or dismiss under
that doctrine should be "heavily weighted in favor of the
exercise of jurisdiction." The magistrate judge nonetheless
felt that a stay was appropriate here:
In this case, plaintiff is not seeking to
obtain possession of a res. The evidence
and witnesses are split between Illinois
and Puerto Rico. No one forum is more
convenient for both parties at the same
time. If this court exercises its
jurisdiction, the two parties would be
litigating very similar issues in two
separate forums. The Illinois court was
the first to assume jurisdiction. Since
the purchase agreement entered into by
the parties provides for the application
of Illinois law, it would be more
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appropriate for the Illinois court to
interpret it. In sum, the totality of
the circumstances favors the stay pending
resolution of the Illinois litigation.
Id. at 3. As the district court adopted this analysis, we
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focus on the magistrate judge's reasoning.
IV.
IV.
In the first three sentences of the above-quoted
reasoning, the magistrate judge concluded that the factors he
was considering favored neither party. We have no difficulty
with the magistrate judge's assessment of those three items.
The magistrate judge went on to conclude, however,
that the next three factors weighed in favor of staying the
federal action so that Screen could go forward in Illinois.
We disagree. In our view, the magistrate judge did not give
appropriate attention to the fact that, at the time the issue
of a stay was before the district court (indeed, up until
now), the Illinois action consisted of no more than a pending
appeal from the order of the Cook County Circuit Court
dismissing the action for lack of personal jurisdiction.
This was not a case where the parallel state action was
strongly underway, making it perhaps reasonable, depending on
the facts, to await the outcome in the state case before
proceeding in the federal court. Here, if the Cook Country
Circuit Court's dismissal for lack of personal jurisdiction
should be affirmed by the Illinois Appellate Court, there
will be left in existence no state action whatever; while if
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the lower court's dismissal should be reversed on appeal, the
parties will merely be back at the very beginning of the
process of litigating the merits of their controversy. Under
such circumstances, the federal diversity action in Puerto
Rico, which was not encumbered by any threshold
jurisdictional question, was the more immediately available
vehicle for litigating the dispute.
The magistrate judge said that if the district
court action were allowed to proceed, "the two parties would
be litigating very similar issues in two separate forums."
But this description suggests a parallelism that did not then
exist, given that the Illinois case had been dismissed on
jurisdictional grounds, leaving only an appeal from the
dismissal. Only if plaintiffs were to win the appeal would
the Illinois proceedings become truly parallel to those in
the federal district court. By then, were it not for the
stay, the district court in Puerto Rico might be well into
the merits of the controversy. To be sure, calling a halt to
the federal case would permit the parties to devote all their
energies to the battle over jurisdiction in the Illinois
appellate court, and, depending on the outcome, perhaps
eventually to litigate their dispute in the Illinois circuit
court. But forcing the plaintiff in the federal case to sit
on its hands for so long is not consonant with Colorado River
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and its progeny, which describe the balance as "heavily
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weighted in favor of the exercise of [federal court]
jurisdiction. Moses H. Cone, 460 U.S. at 16. Those cases
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require an affirmative showing of "the clearest of
justifications," Colorado River, 424 U.S. at 819, or some
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"exceptional basis," before a federal court properly defers
to a state court proceeding. Burns v. Watler, 931 F.2d 140,
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146 (1st Cir. 1991).
Here, given the problem with the state proceedings
we have mentioned, we cannot discern an exceptional basis
clearly favoring federal court deference. Screen's primary
argument to the district court was that to proceed in both
courts would entail a duplication of "the costs and delays of
litigation." Duplication, standing alone, is rarely an
exceptional basis that warrants a stay or dismissal of the
federal action. Rojas-Hernandez v. Puerto Rico Elec. Power
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Auth., 925 F.2d 492, 496 (1st Cir. 1991). But even assuming
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duplication were an important concern, the cure is scarcely
to abandon a viable federal forum in favor of a questionable
state one.
Nor are we impressed with Screen's argument that,
if forced to proceed in the federal action in Puerto Rico,
its state claim will be subject to dismissal because of an
Illinois procedural rule providing for dismissal "where there
is another action pending between the same parties for the
same cause." Whatever the force of this argument in some
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different factual context, we see no good reason for a
federal court to defer to a problematic state proceeding
merely because the existence of the federal case may give the
state courts some further reason to dismiss the state action.
Indeed, if Screen's argument is correctly premised, the
duplication of proceedings which worries Screen will cease.
And, of course, Screen is free to assert its claim to the
balance due under the equipment purchase agreement as a
counterclaim in the federal action, see Fed. R. Civ. P. 13.
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We further disagree that deference should be paid
to the Illinois court simply because that court was the first
"to assume jurisdiction." It is true the Illinois case was
filed first. But soon after the Illinois case was filed, it
was dismissed for lack of personal jurisdiction, and that was
the posture of events when the federal court decided the stay
motion. In such circumstances, it is hard to understand why
the mere fact of priority in filing would be a point in favor
of a stay. To be sure, if jurisdiction were found on appeal,
the Illinois case could eventually go forward on the merits.
But in Moses H. Cone the Supreme Court indicated that the
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order in which jurisdiction was taken is not a mechanical
concept automatically favoring the party who files first, but
rather a concept that favors the case that is the more
advanced at the time the Colorado River balancing is being
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done. Moses H. Cone, 460 U.S. at 21. Courts are instructed
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by the Supreme Court to measure which action the suit in
the federal court or that in the state court is the more
advanced in a "pragmatic, flexible manner, with a view to the
realities of the case at hand." Id. Here the dismissal for
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lack of personal jurisdiction in the Illinois case made the
federal action the front-runner. Hence, having regard for
"the realities of the case at hand," the Illinois action did
not enjoy priority in time over the federal case, and the
magistrate judge erred in citing this factor as a reason for
the stay.
The magistrate judge was also impressed with the
fact that Illinois law is likely to be involved in the
present contract dispute. We will concede the expertise of
an Illinois court in its own law, and that federal law is not
in issue here, but we do not believe that this factor is
entitled to much weight for present purposes. Nothing
suggests that the parties' claims present particularly novel,
unusual or difficult questions of legal interpretation.
Federal courts are used to researching and analyzing the law
of different jurisdictions. The federal district court in
Puerto Rico will be able to apply Illinois law to the extent
required. See Gonzalez v. Cruz, 926 F.2d 1, 5 (1st Cir.
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1991) ("The mere fact that the outcome of the case is
governed by state law does not warrant dismissal to hold
otherwise would undermine the purpose and reach of federal
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diversity jurisdiction."); Rojas-Hernandez, 925 F.2d at 496
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(reversing a stay where the issues of state law to be
considered by the federal court were "neither unsettled nor
complex").
A further factor, which the magistrate judge did
not mention, and which strongly counsels against a stay here,
is whether the state forum can adequately protect the
parties' rights. Moses H. Cone, 460 U.S. at 26.3 Given the
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fact that when the district court was considering the request
for a stay, it was entirely uncertain whether the Illinois
courts had jurisdiction over the person of the defendant, the
protection available to the parties' rights in Illinois was
necessarily problematic. The Illinois court would, of
course, be as well able as the federal court to dispose of
the case if it had jurisdiction, but unless and until the
personal jurisdictional question was resolved by the
appellate court in favor of plaintiff, the utility of
Illinois as a forum remained in grave doubt.4
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3. As we have previously mentioned, the Court in Moses H.
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Cone also spoke of the need to find "that the parallel state-
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court litigation will be an adequate vehicle for the complete
and prompt resolution of the issues between the parties."
460 U.S. at 28. Should there be doubt of this, it would be,
the Court said, "a serious abuse of discretion" to grant a
stay. Id.
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4. We also note Screen's contention that the federal action
is vexatious and reactive. See Moses H. Cone, 460 U.S. at 17
___ _____________
n.20; Fuller, 782 F.2d at 308-310. We do not find merit in
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this argument. Elmendorf's action was filed two months after
Screen's, but Elmendorf waited to serve process upon Screen
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We hold, therefore, that the balance of the
Colorado River factors favored denying the stay, and
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certainly did not favor granting it, having regard for the
uncertain status of the Illinois litigation. The exceptional
circumstances that Colorado River calls for in order to stay
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or dismiss an action brought in a federal court, in favor of
proceedings in a state tribunal, were not present. The
district court should expeditiously proceed with the action.
Stay vacated and case remanded to the district court for
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continued proceedings consistent herewith. Costs for
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appellant.
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until after the circuit court's dismissal of the state action
for want of personal jurisdiction over Elmendorf. In these
circumstances, Elmendorf's decisions to fight jurisdiction in
Illinois and sue in its home court in Puerto Rico were not
improper tactics such as to weigh in favor of a stay.
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