UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Consolidated Case Nos. 00-60805, 00-60806, 00-60807
BANK ONE, N.A.,
Plaintiff-Appellant,
VERSUS
EMMA BOYD, ROSCOE SHIELDS, STELLA REEVES,
Defendant-Appellees.
Appeals from the United States District Court
For the Northern District of Mississippi
April 5, 2002
Before REAVLEY, HIGGINBOTHAM and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge.
Bank One appeals the district court’s Orders of Abstention and
Dismissal. Bank One contends that the district court abused its
discretion in abstaining from exercising jurisdiction and declining
to rule on their Motions for Summary Judgment to Compel
Arbitration. For the reasons that follow, we agree. We therefore
vacate the district court’s November 7, 2000, Orders of Abstention
and Dismissal and remand these cases to the district court for
further proceedings consistent with this opinion.
-1-
BACKGROUND
These consolidated cases arise from the sale and financing of
home satellite television systems. In the mid-1990s, Appellees
purchased satellite television systems from door-to-door salesmen
and telephone solicitors. Financing for the satellite systems was
provided by Bank One in the form of a revolving credit card
account. In conjunction with the sale, purchasers (hereinafter
"Cardmembers") were required to complete and execute a Credit
Application and Security Agreement. The Credit Application was
accompanied by a Revolving Credit Card Plan and Disclosure
Statement (collectively hereinafter "Cardmember Agreement"). The
Cardmember Agreement also contained an amendment provision,
permitting Bank One to change or amend the terms of the Cardmember
Agreement “upon fifteen (15) days prior written notice if required
by law.”
In March 1998, Bank One notified its Cardmembers of a proposed
modification to the Cardmember Agreement. The modification added
an arbitration provision to the Cardmember Agreement requiring that
all disputes, arising from or relating in any way to the Cardmember
Agreement or the Cardmember's account, be resolved by binding
arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-
16 (hereinafter "FAA"). Cardmembers who did not wish to accept the
arbitration provision could opt out by notifying Bank One, in
writing, on or before April 15, 1998, of their decision to reject
the new terms. Cardmembers who opted out pursuant to the terms of
the notice could maintain their accounts under the prior terms of
the Cardmember Agreement. None of the Appellees notified Bank One,
by the April 15, 1998 deadline, of their decision to reject the
terms of the arbitration provision.
-2-
In October 1999, Appellees and a number of other plaintiffs
filed suit in Mississippi state court against Bank One and at least
thirteen other named defendants. Appellees' complaint asserted
that they were misled as to the nature of the financing of their
purchases of the satellite systems and claimed numerous causes of
action including fraud, conspiracy, negligence, and intentional
infliction of emotional distress. Sky Scanner Satellite, a co-
defendant in the state court proceeding, removed the suit to
federal district court where the action was remanded to the state
court in August 2000. In September, immediately following the
remand, Bank One filed individual suits against the Appellees in
federal district court seeking to enforce the arbitration provision
of the Cardmember Agreements pursuant to the FAA. On November 7,
2000, the district court issued a Memorandum Opinion and Orders of
Abstention and Dismissal. The district court reasoned that
abstention was warranted due to: 1) the state court’s concurrent
jurisdiction over the arbitration issue and ability to resolve
contract disputes including the enforceability of the arbitration
provision of the Cardmember Agreement; 2)the multiplicity of Bank
One’s related federal actions to compel arbitration; 3) the
possibility of inconsistent rulings in federal court; and 4) the
prior filing of the underlying state court action. Bank One now
challenges the district court’s ruling.
STANDARD OF REVIEW
We review a district court’s decision not to exercise its
jurisdiction for an abuse of discretion; its underlying legal
conclusions, de novo. See Safety Nat’l Cas. Corp. v. Bristol-Myres
Squibb Co., 214 F.3d 562, 564 (5th Cir. 2000).
-3-
ANALYSIS
Bank One complains that the district court erred in abstaining
from ruling on its motions to compel arbitration under the FAA.
Specifically, Bank One asserts that the district court misapplied
the abstention doctrine set forth in Colorado River Water
Conservation District v. United States, 424 U.S. 800 (1976), and
further elucidated in Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1 (1983). Bank One contends that the
district court’s abstention in favor of concurrent state court
proceedings constitutes an abuse of discretion in light of the
absence of exceptional circumstances warranting abstention and the
FAA’s liberal federal policy favoring arbitration agreements.
Appellees maintain, however, that the district court’s abstention
was appropriate because: 1) the state court action was filed first;
2) Bank One raised arbitration as an affirmative defense in its
answer in the state court action and has made no showing that the
state court is reluctant to hear the matter; 3) abstention by the
federal district court avoids piecemeal litigation resulting from
the multiplicity of Bank One’s federal court actions; 4) Bank One’s
filing of the federal actions is a vexatious attempt to harass
Appellees and avoid proper state court jurisdiction; and 5) the
interests of wise administration of judicial resources are best
served by permitting one state court judge to determine the issue
of arbitration for all plaintiffs in the single state court action.
The federal courts have a virtually unflagging obligation to
exercise the jurisdiction conferred upon them. Colorado River, 424
U.S. at 817. “Abstention from the exercise of federal jurisdiction
is the exception, not the rule.” Id. at 813. Abdication of the
obligation to decide cases under the doctrine of abstention can be
-4-
justified “only in the exceptional circumstances where the order to
the parties to repair to state court would clearly serve an
important countervailing interest.” Id. The doctrine of
abstention generally applies only to cases involving
“considerations of proper constitutional adjudication [or] regard
for federal-state relations . . . in situations involving the
contemporaneous exercise of concurrent jurisdictions.”1 Id. at
817. The present case, however, presents neither a federal
constitutional question nor an issue of federal-state comity.
Nevertheless, it may still be appropriate for a federal district
court to refrain from exercising jurisdiction on considerations of
wise administration of judicial resources.
“[T]he decision whether to dismiss a federal action because of
parallel state-court litigation does not rest on a mechanical
checklist, but on a careful balancing of the important factors as
they apply in a given case, with the balance heavily weighted in
1
Decisions of the Supreme Court have confined to three
general categories, the circumstances appropriate for abstention.
Abstention is appropriate in cases presenting complex questions
of state law which affect policy issues of substantial public
concern whose significance goes beyond the result in the case
then at bar. See Louisiana Power & Light Co. v. City of
Thibodaux, 360 U.S. 25, 30 (1959). Abstention has also been
found to be appropriate in cases where, “absent bad faith,
harassment, or a patently invalid state statute, federal
jurisdiction has been invoked for purpose of restraining state
criminal proceedings, state nuisance proceedings antecedent to a
criminal prosecution, which are directed at obtaining closure of
places exhibiting obscene films, or collection of state taxes.”
Colorado River, 424 U.S. at 816 (internal citations omitted).
The third category of cases where abstention is appropriate
involve federal constitutional issues where a state court’s
determination of pertinent state law might render the issues
moot. See County of Allegheny v. Frank Mashuda Co., 360 U.S.
185, 189 (1959).
-5-
favor of the exercise of jurisdiction.” Moses H. Cone, 460 U.S. at
16. Factors relevant to the decision include: 1) which court first
assumed jurisdiction over the res; 2) the inconvenience of the
federal forum; 3) the desirability of avoiding piecemeal
litigation; 4) the order in which jurisdiction was obtained by the
concurrent forums; 5) whether and to what extent federal law
provides the rules of decision on the merits; and 6) the adequacy
of the state proceedings in protecting the rights of the party
invoking federal jurisdiction. See Colorado River, 424 U.S. at
818; Moses H. Cone, 460 U.S. at 23, 26; Black Sea Inv., Ltd. v.
United Heritage Corp., 204 F.3d 647, 650 (5th Cir. 2000) (citation
omitted).
The first factor is not relevant to the present case as
neither the state nor federal district court have assumed
jurisdiction over any res or property. Although the second factor
is applicable to the case at bar, neither party has raised the
inconvenience of the federal forum as an issue. Because the
federal court and the state court are in the same geographic
region, we find this factor weighing in favor of the district court
exercising jurisdiction. The Appellees argue that the third
factor, the desirability of avoiding piecemeal litigation, weighs
in favor of the district court’s surrender of jurisdiction. The
district court acknowledged that the FAA “contemplates federal-
state piecemeal litigation as a result of the filing of a federal
petition to compel arbitration of issues raised in a state court
proceeding,” and found this factor weighing in support of
refraining from exercising jurisdiction because of duplicative
litigation. The FAA, however, not only contemplates piecemeal
litigation, but “requires piecemeal resolution when necessary to
-6-
give effect to an arbitration agreement.” Moses H. Cone, 460 U.S.
at 20. When concurrent jurisdictions exist between federal
district courts, the general principle is to avoid duplicative
litigation. Colorado River, 424 U.S. at 817 (citations omitted).
No such principle exists, however, as between state and federal
courts. Rather, “[t]he rule is well recognized that the pendency
of an action in the state court is no bar to proceedings concerning
the same matter in the Federal court having jurisdiction . . . .”
McClellan v. Carland, 217 U.S. 268, 282 (1910).
The Appellees assert that the fourth factor to be considered,
the order in which jurisdiction was obtained by the concurrent
forums, weighs in support of the district court’s surrender of
jurisdiction because of the earlier filing of their state court
action. The district court also relied on the prior filing of the
underlying state court action to find support for declining to
exercise jurisdiction. The Supreme Court, however, has cautioned
against giving “too mechanical a reading to the ‘priority’ element”
and instructs that “priority should not be measured exclusively by
which complaint was filed first, but rather in terms of how much
progress has been made in the two actions.” Id. at 21. The state
court suit was filed in October 1999. Bank One, however, was not
served until May 2000. Furthermore, in November 1999, the state
court action was removed to federal district court and remained
there until it was remanded to the state court on August 23, 2000.
On September 7, 2000, Bank One filed the individual suits in
federal district court seeking enforcement of the arbitration
agreements. Indeed, the state court action was filed first in
time, but its progress relative to the federal suits calls into
question the weight attributed to this factor.
-7-
The fifth factor, whether and to what extent federal law
provides the rules of decision, weighs in favor of the district
court exercising jurisdiction. Questions of arbitrability must be
addressed with a healthy regard for the federal policy favoring
arbitration. The FAA establishes that, “as a matter of federal
law, any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is
the construction of the contract language itself or an allegation
of waiver, delay, or a like defense to arbitrability.” Id. at 24-
25.
Appellees argue that the sixth factor, the adequacy of the
state proceedings, weighs in support of the district court’s
surrender of jurisdiction. The district court noted the state
court’s concurrent jurisdiction over the arbitration issue and
found it capable of resolving contract disputes, including
enforcement of the arbitration agreement. In addition, the
district court noted that Bank One raised arbitration as an
affirmative defense in its answer in the state court action but has
failed to pursue it by way of motion in the state court suit. We
agree with the district court concerning the state court’s
concurrent jurisdiction and adequacy to resolve the arbitration
issue. In light of the short interval of time, however, between
the district court’s remand of the underlying state court action
and the filing of Bank One’s federal suits seeking enforcement of
the arbitration agreements, we are less inclined to agree with the
importance that the district court has placed on Bank One’s failure
to pursue arbitration by way of motion in the state court action.
“[A]lthough enforcement of the [FAA] is left in large part to the
state courts, it nevertheless represents federal policy to be
-8-
vindicated by the federal courts where otherwise appropriate.” Id.
at 26 n.32.
The factors listed above do not represent a hard and fast rule
for determining whether abstention is appropriate, “but instead
describe some of the factors relevant to the decision.” Id. at 15.
Accordingly, Appellees argue that Bank One’s initiation of federal
suits to compel arbitration was a vexatious attempt to harass
Appellees and avoid proper state court jurisdiction. We disagree.
“[T]he pendency of an action in the state court is no bar to
proceedings concerning the same matter in the Federal court having
jurisdiction.” McClellan, 217 U.S. at 282. Bank One’s federal
suits to compel arbitration under the FAA are based on diversity
jurisdiction.2 Being properly in the federal court, Bank One had
“a right granted by Congress to have the court decide the issues
they presented.” Donovan v. City of Dallas, 377 U.S. 408 (1964).
We find nothing vexatious in Bank One’s resort to the federal
courts.
The Appellees also contend that the interests of wise
administration of judicial resources are best served by permitting
one state court judge to determine the issue of arbitrability for
all plaintiffs in the single state court action. Similarly, the
district court found support for abstention due to the multiplicity
of Bank One’s federal court actions and the possibility of
inconsistent rulings. Although we find, in general, some support
2
“The Arbitration Act is something of an anomaly in the
field of federal-court jurisdiction. It creates a body of
federal substantive law establishing and regulating the duty to
honor an agreement to arbitrate, yet it does not create any
independent federal-question jurisdiction.” Moses H. Cone, 460
U.S. at 26 n.32.
-9-
in these arguments for a district court’s surrender of
jurisdiction, in the present case, the Appellees’ desire for
determination of the arbitrability issue by a single state court
judge for all state court plaintiffs and the possibility of
inconsistent rulings fail to rise to the level of exceptional
circumstances as contemplated in Colorado River and therefore fail
to overcome the duty of the district court to adjudicate a
controversy properly before it.
Applying all of these factors to the present case, presents us
with a close call. Indeed, “the decision whether to defer to the
state courts is necessarily left to the discretion of the district
court.” Moses H. Cone, 460 U.S. at 19. Yet such discretion must
be exercised in accordance with Colorado River’s exceptional
circumstances test. Although the case law on important factors
warranting abstention is not clearly defined, the Supreme Court
cases do provide guidance. The determination of whether abstention
is appropriate requires a case by case analysis balancing the
factors involved in any given case with the obligation to decide
cases properly before the court. On balance, the factors present
here weigh in favor of exercising jurisdiction. We therefore find
that the district court abused its discretion in refraining from
exercising jurisdiction and declining to rule on Bank One’s motions
to compel arbitration.
The Appellees also contend, alternatively, that in the event
that this Court finds the district court’s abstention
inappropriate, that they are entitled to discovery prior to a
ruling on Bank One’s motions to compel arbitration. The Appellees
further contend that if abstention was inappropriate and they are
not entitled to discovery, Bank One is not entitled to an order
-10-
compelling arbitration. In support of this contention, the
Appellees have asserted a number of contract defenses to the
arbitration provision of the Cardmember Agreements. The district
court, however, did not reach the merits of Appellees’ request for
discovery or contract defenses and we decline the invitation to
examine them.
CONCLUSION
For the reasons discussed above, the district court’s November
7, 2000, Orders of Abstention and Dismissal are vacated and these
cases are remanded to the district court for further consideration
on the merits of Appellees’ request for discovery and contract
defenses.
VACATED and REMANDED.
-11-