BARRY TED MOSKOWITZ, District Judge.
Defendants move to stay the instant action. For the following reasons, Defendants' application is
On June 30, 2010, the parties executed a loan agreement whereby Plaintiff Sea Prestigio, LLC, would loan Defendants $21 million in two disbursements. Defendants executed a promissory note in the principal sum of $21 million concurrently with the loan agreement. To secure payment, Defendants granted Plaintiff a preferred ship's mortgage on the M/Y TRITON ("the vessel"), a 163-foot yacht, which would allow Plaintiff to take possession of the vessel in the event of default. On June 30, 2010, Plaintiff paid the first $15.5 million disbursement into an escrow account. The second $5.5 million disbursement was not made. The parties' dispute centers on this non-payment.
On October 27, 2010, FBP Investments, LP, Spearfish Ventures, Ltd., and Cochal investments, S. de R.L. de C.V. — Defendants in the instant case — filed a complaint against Sea Prestigio, et al., in Orange County Superior Court, alleging state law claims for usury, breach of contract, breach of covenant of good faith and fair dealing, inducing breach of contract/fraud, intentional interference with contractual relations, false promise, and various declaratory relief claims ("the state action"). Sea Prestigio and the other state defendants removed the state action to the United States District Court for the Central District of California under 28 U.S.C. § 1333, on the ground that federal district courts have exclusive jurisdiction over admiralty or maritime cases. (Def. Ex. B at 5-6) On January 31, 2011, Judge Cormac J. Carney of the Central District of California ordered the case remanded to state court, holding that "the principal objective of the contract is borrowing $21 million" and that "[t]he fact that the collateral for Plaintiffs' loan happens to include a yacht,
Approximately one month after the state action was filed, on November 23, 2010, Plaintiff Sea Prestigio, LLC, filed an action before this Court, bringing claims for breach of contract and for foreclosure of the vessel and other property used to secure the loan ("the federal action"). The next day, the Court granted Plaintiffs ex parte application for an order authorizing issuance of a warrant for arrest of the vessel, and on December 22, 2010, 2010 WL 5376255, the Court denied Defendants' motion to vacate the order of arrest.
Defendant argues that, pursuant to the Colorado River abstention doctrine, this Court should stay this action pending resolution of the state action. Although Federal courts have a "virtually unflagging obligation ... to exercise the jurisdiction given them," Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the Ninth Circuit has commented that this statement "somewhat overstates the law because in certain circumstances, a federal court may stay its proceedings in deference to pending state proceedings." Nakash v. Marciano, 882 F.2d 1411, 1415 (9th Cir.1989)
Under the Colorado River abstention doctrine, a federal district court may abstain when there are concurrent state and federal lawsuits and when abstaining promotes "[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." Colorado River, 424 U.S. at 817, 96 S.Ct. 1236 (quotation and citation omitted); see also Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 14-15, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The Ninth Circuit summarized the following non-exhaustive list of factors, previously identified by both the Supreme Court and the Ninth Circuit, that should be considered and balanced in determining whether abstention is appropriate: (1) jurisdiction over property, (2) the inconvenience of the federal forum, (3) avoiding piecemeal litigation, (4) the order in which the concurrent forums obtained jurisdiction, (5) whether federal law provides the rule of decision on the merits, (6) whether the state court proceedings are inadequate to protect the federal litigant's rights, and (7) the prevention of forum shopping. Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1367-68 (9th Cir. 1990). "These factors are to be applied in a pragmatic and flexible way, as part of a balancing process rather than as a mechanical checklist." Nakash, 882 F.2d at 1415 (quotation and citations omitted).
As a threshold matter, the Court looks to whether the state and federal actions are "`substantially similar.'" Fierle v. Jorge Perez, MD Ltd., 350 Fed. Appx. 140, 141 (9th Cir.2009) (quoting Nakash, 882 F.2d at 1416). This threshold is clearly met. As correctly stated by Plaintiff in the notice of removal in the state action, "[T]he Southern District Action and the removed State Court Action ... are comprised of the same issues, will have the same parties and witnesses, and are essentially the same case." (Def. Ex. B at 5-6)
Turning to the abstention factors, the Court finds that several weigh in favor staying the federal action. First, staying the federal action would prevent the duplication of efforts and the risk of inconsistent outcomes that might result from the piecemeal litigation of the parties' dispute. As conceded by Plaintiff in the state action
Second, the state action adequately protects Plaintiff's rights. The overwhelming majority of the claims at issue are state law claims. The only claim arising under federal law — Plaintiff's claim for the federal remedy of maritime foreclosure — is likely dependent on the resolution of state law issues. Although this claim cannot be adjudicated in state court, staying the federal action would not impact Plaintiffs ability to recover under federal law. While the case is stayed and the state action proceeds, Plaintiff's rights will be protected, as the vessel will remain under arrest and within the jurisdiction of this Court.
Third, although this factor weighs less strongly than those discussed above, the Court finds that the state action has priority over the instant case. The state action was filed approximately one month before the federal action, and such a time difference supports affording deference to the Superior Court. See El Centro Foods, 2010 WL 1710286, at *3, 2010 U.S. Dist. LEXIS 49745, at *7-8 (finding that "proper deference should be afforded to the
The remaining abstention factors are neutral. Contrary to Plaintiffs argument that the arrest of the vessel supports denial of the stay, the Court finds this factor regarding jurisdiction over property unhelpful. For the reasons stated by Judge Carney, the principal objective of the parties' loan agreement and their current dispute is the borrowing of $21 million. "`[M]oney ... is not the sort of tangible physical property referred to in Colorado River.'" Travelers Indem. Co., 914 F.2d at 1368 (quoting American Int'l Underwriters, 843 F.2d at 1258). The fact that Plaintiff seeks a remedy that involves foreclosure of property currently in control of the Court does not alter this conclusion.
Next, the Court finds that the two forums are equally convenient to the parties,
Finally, both parties contend that the other engaged in forum shopping. Neither position is convincing. The gravamen of Plaintiff's argument is that Defendants engaged in forum shopping by "preemptively" filing the state action after receiving a demand letter from Plaintiffs counsel. (Opp. at 12 (citing Pl. Ex. 1)) However, other than a reference to "commencing foreclosure proceedings against... the vessel," nowhere in this letter does Plaintiff's counsel state where the threatened litigation would be filed. (Pl. Ex. 1) Insofar as Plaintiff is arguing that Defendants improperly sought to avoid a federal forum, this position lacks merit, as federal courts do not have jurisdiction over Defendants' claims. See Def. Ex. C. Thus, there is no support for Plaintiffs position that Defendants' first-filed state action was an attempt to avoid Plaintiffs preferred forum. Defendants argue, in turn, that Plaintiff should have litigated this action in Orange County Superior Court and should not have filed an action in this Court. (Mem. at 10) However, Plaintiff correctly notes that it had to file an action in this court in order to enforce the maritime lien. See Fed.R.Civ.P. C(2). For these reasons, the Court finds that the forum shopping factor weighs neither for nor against abstention.
In sum, the avoidance of piecemeal litigation, federal-state comity, and adequacy of the state proceeding to protect the parties' rights strongly favor abstention. Other factors either favor abstention or are neutral. Accordingly, the Court finds the requisite exceptional circumstances present to merit a Colorado River stay.
Plaintiff also asserts that Defendants' application should be denied on procedural grounds because Defendants' could have filed a noticed motion "as early as January 31, 2011" and because Defendants failed to provide good cause for the twenty-four day delay in filing the instant application.
Additionally, Plaintiff has not shown how it would be harmed by the briefing schedule set by the Court. In setting this schedule, the Court sought to hear the application on an expedited basis, but still to provide Plaintiff with more time to respond than the minimum allotted under local rules. Accordingly, the Court provided Plaintiff with fifteen days to respond to the instant application. Had Defendants filed a noticed motion with a twenty-eight day hearing date, Plaintiff would have had fourteen days to respond. Local Rule 7.1(e). With this briefing schedule, Plaintiff is no worse a position than it would have been if a noticed motion was filed.
The Court has serious concerns about the condition of the vessel and its possible impact on the environment during a long-term arrest. While these concerns do not preclude the issuance of a stay at this time, the Court will take steps to ensure that the vessel remains properly and adequately maintained while it remains under the Court's jurisdiction. First, the Court orders that the parties appear before the Court every thirty days to provide a status update regarding the condition of the vessel. If the Court finds that the vessel poses any risk to the environment or that it is being maintained in a manner that risks substantial decline in value beyond what is to be expected from normal value loss over time, the Court may take actions that include modifying the order appointing substitute custodian and/or the order of arrest. Next, while the Court's abstention analysis is strongly influenced by concerns over federal-state comity, the Court respectfully requests that the Orange County Superior Court issue an expedited case management schedule that would allow it to decide this case as quickly as possible. Although speculation regarding the timing of when the Orange County Superior Court can decide the state action is not a determinative factor in the Colorado River analysis, the Court notes that an early determination of the state action will minimize the risks inherent in the arrest and maintenance of the 163-foot yacht.
For the above-stated reasons, Defendants' application to stay the federal action is
Notwithstanding the Court's granting of the stay, the Court is concerned with prejudice to Plaintiff by having to pay the continuing maintenance fees of approximately $30,000 per month. Clearly, if the stay were denied, Plaintiff would continue to have this obligation until after the trial and until a final judgment in this case. Given the likelihood that the trial would have been continued to mid-July to accommodate Defendants' counterclaims, a final judgment would not be likely until late August, at the earliest. If the state action is not moving promptly, Plaintiff may seek an order of the Court that the stay continue only on condition that Defendants pay half the costs of maintaining the vessel. Since the stay is sought by Defendants and that stay will materially increase the expense to Plaintiffs, it seems only fair that Defendants should bear part of the costs incurred. Plaintiff may seek such relief if the state proceeding does not appear to be on track for resolution at a time in the foreseeable future.
The Court excepts from the stay settlement conferences before the magistrate judge, which shall proceed at such time as the magistrate judge sets or as requested by the parties.
Nevertheless, this abstention factor regarding whether federal law provides the rule of decision on the merits remains neutral. "[T]he presence of state-law issues may weigh in favor of ... surrender only in some rare circumstances." Travelers Indem., 914 F.2d at 1370 (citation and quotations omitted). But see Anderson v. Neibauer, No. 09-cv-01446, 2011 WL 149442, at *8, 2011 U.S. Dist. LEXIS 4525, at *23 (E.D.Cal. Jan. 18, 2011) (finding that state law state rule of decision supported dismissal under Colorado River without a separate finding of "rare circumstances" to support surrender); Gallagher v. Dillon Group 2003-I, No. CV-09-2135-SBA, 2010 WL 890056, at *5, 2010 U.S. Dist. LEXIS 33054, at *13 (N.D.Cal. Mar. 5, 2010) (same) ("[S]tate law predominately controls this case and the state cases, and the decision on the merits applying state law will subsume any decision on the federal claims. Thus, the fifth Colorado River factor strongly supports the granting of the motion."). The issues of state law in this case are routine and thus do not set forth the "rare circumstances" that the Ninth Circuit in Travelers Indem. required for a finding that this factor weighs in favor of abstention. See Travelers Indem., 914 F.2d at 1370.