Ryan v. Johnson

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit

5-30-1997

Ryan v. Johnson
Precedential or Non-Precedential:

Docket 96-5419

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Filed May 30, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-5419

TARA RYAN

Appellant

v.

CHARLES V. JOHNSON; LOUANN JOHNSON, h/w; TED
CAM, JR.; MELANIE WEISS; GREGORY KIESER; SAMUEL
D. HEWINS; MARIAN PAUZA; LAURA ELIZABETH PRENG;
OMER C. MARION; KRISTIN PAULICK; JENNIFER RADAR;
MATTHEW MCCABE; MICHAEL J. LANG

CHARLES V. JOHNSON; LOUANN JOHNSON

Third-Party Plaintiffs

v.

THEODORE CAM, JR.; GREGORY KIESER; SAMUEL D.
HEWINS; MARIAN PAUZA; LAURA E. PRENG; MICHAEL J.
LANG; OMER C. MARION; KRISTIN PAULICK; JENNIFER
RADAR; MATTHEW MCCABE; MELANIE WEISS

Third-Party Defendants

(D.C. No. 95-cv-05789)

ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Argued April 15, 1997

Before: SCIRICA, COWEN and NYGAARD, Circuit Judges.

(Opinion filed May 30, 1997)
MICHAEL D. SHAFFER, ESQUIRE
(Argued)
Suite 300
330 Market Street
Philadelphia, PA 19106

Attorney for Appellant

LEWIS B. APRIL, ESQUIRE
Cooper, Perskie, April,
Niedelman, Wagenheim & Levenson
1125 Atlantic Avenue, Suite 320
Atlantic City, NJ 08401

THOMAS F. BRADLEY, ESQUIRE
(Argued)
Hankin, Sandson & Sandman
30 South New York Avenue
Atlantic City, NJ 08401

Attorneys for Appellees
Charles V. Johnson and LouAnn
Johnson

JOHN R. MOELLER, JR., ESQUIRE
Law Offices of Stephen E. Gertler
1350 Campus Parkway
P.O. Box 1447
Wall Township, NJ 07719

Attorney for Appellee
Ted Cam, Jr.

MICHAEL B. OROPOLLO, ESQUIRE
Harwood Lloyd
Two Tower Center
East Brunswick, NJ 08816

Attorney for Appellee
Kristin Paulick

2
OPINION OF THE COURT

NYGAARD, Circuit Judge.

Tara Ryan appeals from the district court's decision to
dismiss her diversity action under the doctrine set forth in
Colorado River Water Conservation District v. United States,
424 U.S. 800, 96 S. Ct. 1236 (1976), and subsequent
cases. Because the district court applied Colorado River
abstention incorrectly, we will reverse.

I.

In 1995, Ryan attended a party at a beach house owned
by Charles and LouAnn Johnson and rented for the
summer to the remaining defendants. The exterior, second-
floor deck of the house suddenly collapsed, injuring at least
thirty-three persons, including Ryan, who suffered a
serious spinal injury. To date, seventeen of these persons
have filed suit.

Ryan filed this diversity action in federal district court,
alleging that the defendants negligently caused her injuries.
The remaining sixteen plaintiffs, however, were nondiverse
from the defendants and filed their suits in the New Jersey
Superior Court. In that state court action, twenty-two other
parties have been joined as third-party defendants,
including contractors, realtors and predecessors in title.

Defendants in the federal action moved the district court
to abstain from exercising its jurisdiction under Colorado
River, arguing that the presence of parallel state and federal
proceedings involving the same issues counseled in favor of
abstention. The district court, in an unreported opinion,
agreed and granted the motion, primarily to avoid
"piecemeal litigation" and because the case was likely to
involve complex state law issues. This appeal followed.

II.

It is axiomatic that federal courts have a "virtually
unflagging obligation . . . to exercise the jurisdiction given

3
them" by Congress. Colorado River, 424 U.S. at 817, 96 S.
Ct. at 1246. This precept can be traced at least as far back
as Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821),
where the Supreme Court, speaking through Chief Justice
Marshall, stated:

It is most true that this Court will not take
jurisdiction if it should not: but it is equally true, that
it must take jurisdiction if it should. . . . We have no
more right to decline the exercise of jurisdiction which
is given, than to usurp that which is not given. The one
or the other would be treason to the constitution.

This principle is no less true in cases where, as here,
there is a parallel litigation in a state court. "The 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 . . . ." Colorado
River, 424 U.S. at 817, 96 S. Ct. at 1246 (quoting McClellan
v. Carland, 217 U.S. 268, 282, 30 S. Ct. 501, 505 (1910));
accord Chicot County v. Sherwood, 148 U.S. 529, 534, 13 S.
Ct. 695, 697-98 (1893); University of Maryland v. Peat
Marwick Main & Co., 923 F.2d 265, 275-76 (3d Cir. 1991)
("The general rule regarding simultaneous litigation of
similar issues in both state and federal courts is that both
actions may proceed until one has come to judgment, at
which point that judgment may create a res judicata or
collateral estoppel effect on the other action.") (citing
McClellan).

Nevertheless, in Colorado River, the Supreme Court
recognized that there are certain extremely limited
circumstances in which a federal court may defer to
pending state court proceedings based on considerations of
"wise judicial administration, giving regard to conservation
of judicial resources and comprehensive disposition of
litigation." 424 U.S. at 817, 96 S. Ct. at 1246. It
emphasized that "[a]bdication of the obligation to decide
cases can be justified . . . only in the exceptional
circumstances where the order to the parties to repair to
the state court would clearly serve an important
countervailing interest." Id. at 813, 96 S. Ct. at 1244.

The Court then set forth several factors which can
support this type of abstention, after cautioning that no one

4
factor is determinative and "[o]nly the clearest of
justifications will warrant dismissal." Id. at 818-19, 96 S.
Ct. at 1247. Those factors included: (1) whether the state
court assumed in rem jurisdiction over property; (2) the
inconvenience of the federal forum; (3) the desirability of
avoiding piecemeal litigation; and (4) the order in which
jurisdiction was obtained by the concurrent forums. Id. at
818, 96 S. Ct. at 1246-47. The issue before us is whether
the district court properly applied this narrow exception to
jurisdiction on the facts of the present case.

A.

A threshold issue that must be decided in any Colorado
River abstention case is whether the two actions are
"parallel." If they are not, then the district court lacks the
power to abstain. This is a legal issue over which we
exercise plenary review. See Trent v. Dial Medical, Inc., 33
F.3d 217, 223 (3d Cir. 1994). Generally, cases are parallel
when they involve the same parties and claims. Id. at 224.

Appellant argues that the state and federal actions are
not sufficiently parallel to justify Colorado River abstention.
She avers that the state court defendants have joined the
architects and builders of the beach house as third-party
defendants, and that such joinder might not be possible in
the federal litigation because one of those parties might
successfully avoid service of process. She also asserts that
"John Doe" defendants have been joined in state court,
tolling the statute of limitations, but that this joinder is
likely to be impossible in federal court because the statute
of limitations will have run by the time these defendants'
true identities are discovered. This is far too speculative a
basis on which to conclude that the two actions are not
parallel.1 We reject appellant's argument.
_________________________________________________________________

1. We note, however, that the state and federal cases, while otherwise
involving the same facts and issues, have different plaintiffs and the
federal plaintiff is not joined in the state litigation. There is some
question whether, in the absence of identical plaintiffs, two cases can be
deemed parallel for Colorado River purposes. See Alliance of American
Insurers v. Cuomo, 854 F.2d 591, 603 (2d Cir. 1988). Nevertheless,
appellant does not argue that abstention was improper on this basis;
thus, the issue is not before us and we express no opinion on it.

5
B.

1.

Once the state and federal cases are found to be parallel,
the next inquiry is whether the district court abused its
discretion when it decided to abstain, an inquiry which is
conducted under the factors set forth in Colorado River and
its progeny. See Trent, 33 F.3d at 225. Of course, to the
extent the district court evaluated a factor based on an
erroneous view of the law, it necessarily abused its
discretion and our review becomes plenary. See, e.g., United
States v. Romualdi, 101 F.3d 971, 973 (3d Cir. 1996);
Hanover Potato Prods., Inc. v. Shalala, 989 F.2d 123, 127
(3d Cir. 1993).

In Colorado River, the United States filed suit in federal
district court against a large group of water users in Water
Division 7. The government sought a declaratory judgment
of its water rights in that region. Shortly thereafter, one of
the federal defendants filed an action in state court, seeking
to join the United States as a party under the McCarran
Amendment, 43 U.S.C. § 666, which allows such joinder in
water rights cases, and asked the federal court to abstain.
The district court granted the motions.

In upholding the district court's decision to dismiss the
federal action, the Supreme Court focused its attention on
what it considered the most important factor on the record
before it: avoiding piecemeal litigation. The extraordinary
nature of the McCarran Amendment, which allows the
United States to be deprived of its right to adjudication in
a federal forum, see 28 U.S.C. § 1346, was evidence of a
clear federal policy that the state court systems were the
preferred means for avoiding the piecemeal adjudication of
water disputes. Colorado River, 424 U.S. at 819, 96 S. Ct.
at 1247.2
_________________________________________________________________

2. Regarding the other factors, the Court stated that the fact that no
proceedings of substance had occurred in the district court counseled in
favor of abstention, as did the fact that the suit turned on state law
water rights, and the 300 mile distance between the local and federal
courts. Id at 821, 96 S. Ct. at 1248.

6
Several years later, the Supreme Court further refined
the Colorado River doctrine in Moses H. Cone Mem. Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 103 S. Ct. 927 (1983), a
case involving concurrent state and federal proceedings
arising out of a building construction dispute in which a
hospital sued a contractor in state court and the contractor
sought enforcement of a contractual arbitration clause
against the hospital in federal district court. There, the
Court reiterated the narrowness of the Colorado River
exception and held that abstention was improper on the
facts before it.

The Cone Court emphasized that the most important--
indeed "paramount"--factor justifying abstention in
Colorado River was the McCarran Amendment and its
policy against piecemeal litigation. 460 U.S. at 20, 103 S.
Ct. at 939. In contrast, the Cone case involved the Federal
Arbitration Act, which the Court noted expressly requires
piecemeal adjudication of certain disputes when necessary
to enforce an agreement to arbitrate. Id.

The Court then set forth another factor relevant to the
abstention calculus under Colorado River: whether state or
federal law provided the rule of decision. With respect to
that issue, the court noted that the Arbitration Act, unlike
the McCarran Amendment, did not express any strong
preference for state proceedings that militated in favor of
abstention. It then stated emphatically that

our task in cases such as this 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," that can
suffice under Colorado River to justify the surrender of
that jurisdiction. Although in some rare circumstances
the presence of state-law issues may weigh in favor of
that surrender, the presence of federal law issues must
always be a major consideration weighing against
surrender.

Id. at 25-26, 103 S. Ct. at 942.3
_________________________________________________________________

3. Finally, the Cone Court set forth afinal consideration: whether the
state court would adequately protect the rights at issue. Because it was
questionable whether the Arbitration Act could require a state court to
issue an order compelling arbitration, the Court found that this factor
weighed against abstention. Id. at 26-27, 103 S. Ct. at 942-43.

7
We too have had occasion to apply and refine the
contours of Colorado River abstention. In Western Auto
Supply Co. v. Anderson, 610 F.2d 1126 (3d Cir. 1979), two
businesses filed suit against each other in state court. One
of the companies then filed a federal diversity action
against an individual defendant as guarantor of the other
business' debt. The district court dismissed the federal suit,
but we reversed, holding that none of the factors that
justified abstention in Colorado River was present. Id. at
1127.

On the other hand, we upheld the use of Colorado River
abstention in Ingersoll-Rand Fin. Corp. v. Callison, 844 F.2d
133 (3d Cir. 1988). There, the holder of a notefiled a
diversity suit against its maker. Already pending in Texas
state court was a securities fraud action by the federal
defendant against the federal plaintiff. Under 15 U.S.C.
§ 77v, the securities case was nonremovable even though it
arose under federal law. We held that that statute was
evidence of a strong federal policy against piecemeal
litigation:

The mandate of § 77v cannot be effectuated if the
plaintiff in a securities case brought in state court may
be thwarted in his choice of forum by being forced to
litigate simultaneously his claims as defenses in federal
court.

Id. at 137. Thus, it is evident that the "avoidance of
piecemeal litigation" factor is met, as it was in Callison and
Colorado River itself, only when there is evidence of a strong
federal policy that all claims should be tried in the state
courts. See Kentucky West Virginia Gas Co. v. Pennsylvania
Public Utility Comm'n, 791 F.2d 1111, 1118 (3d Cir. 1986)
(denying abstention, inter alia, because "the PUC has not
pointed to any Congressional legislation like the McCarran
Amendment in Colorado River that evinces `a tempering of
the policy of enforcing the plaintiff 's choice of a federal
forum in favor of a policy of avoiding duplicative or
inconvenient litigation.' " (quoting Harris v. Pernsley, 755
F.2d 338, 345 (3d Cir. 1985) (similar)).

A recent decision of this court, however, has recently
applied a broader standard to the "avoidance of piecemeal

8
litigation" factor. In Trent, a dialysis patient filed a federal
class action sounding in negligence against his dialysis
center and several of its suppliers, which he alleged injured
him and the other members of the class. Another party had
already filed a similar action in state court. This person
successfully intervened in the federal action, after which
the district court sua sponte abstained under Colorado
River. We affirmed, focusing on the piecemeal litigation
factor and the presence of state law issues:

The principal reasons to abstain . . . are to avoid
piecemeal litigation and to adjudicate state-law issues
in state court. Here, state rather than federal law is at
issue, and piecemeal litigation might result if the
district court presided over Trent while Snead was
progressing through the state court system.

Id. at 225.

We cannot reconcile Trent with either the caselaw of this
circuit, or Colorado River and Cone. As we have discussed
supra, neither we nor the Supreme Court had ever held,
until our decision in Trent, that the mere possibility of
piecemeal litigation justifies Colorado River abstention;
rather, there must be a strongly articulated congressional
policy against piecemeal litigation in the specific context of
the case under review. See, e.g., Colorado River, 424 U.S. at
819, 96 S. Ct. at 1247 ("The clear federal policy evinced by
[the McCarran Amendment] is the avoidance of piecemeal
adjudication of water rights in a river system."); Cone, 460
U.S. at 16, 103 S. Ct. at 937 ("[T]he [McCarran]
Amendment represents Congress' judgment that the field of
water rights is one peculiarly appropriate for comprehensive
treatment in the forums having the greatest expertise and
experience." (Emphasis added.)) The presence of garden-
variety state law issues has not, in this circuit, been
considered sufficient evidence of a congressional policy to
consolidate multiple lawsuits for unified resolution in the
state courts. See Kentucky West Virginia Gas Co., 791 F.2d
at 1118 (requiring congressional legislation); Harris, 775
F.2d 338 at 345 (same); Western Auto Supply, 610 F.2d at
1127 (finding none of the Colorado River factors satisfied in
state law action on debt); see also Burns v. Walter, 931
F.2d 140, 146 (1st Cir. 1991) (declaring that concern for

9
avoiding piecemeal adjudication is met only where it "gives
rise to special complications[,]" not in straightforward state
law negligence case).

Indeed, if the mere possibility of concurrent state-federal
litigation satisfies Colorado River's "piecemeal adjudication"
test, the test becomes so broad that it swallows-up the
century-old principle expressed in University of Maryland,
Colorado River, McClellan and Sherwood 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 . . . ." Colorado River, 424 U.S. at 817, 96 S. Ct.
at 1246. If this were the law, it is difficult to conceive of any
parallel state litigation that would not satisfy the "piecemeal
adjudication" factor and militate in favor of Colorado River
abstention. If that is true, then the "virtually unflagging
obligation of the federal courts to exercise the jurisdiction
given them[ ]" recognized in Colorado River, 424 U.S. at
817, 96 S. Ct. at 1246, and reiterated in Cone would
effectively be eviscerated, a result we cannot presume either
the Supreme Court or this court to have intended.

Under Third Circuit Internal Operating Procedure 9.1,
when two decisions of this court conflict, we are bound by
the earlier decision. United States v. Monaco, 23 F.3d 793,
803 (3d Cir. 1994); O. Hommel Co. v. Ferro Corp., 659 F.2d
340, 354 (3d Cir. 1981). It is clear that, under our prior
caselaw, specifically University of Maryland, Kentucky West
Virginia Gas Co., Harris and Western Auto Supply, the
"piecemeal adjudication" factor would not have been
satisfied by the presence of a state law negligence action.
Thus, we will not apply Trent's pronouncement on this
point to decide the issue before us.

Appellees nevertheless argue that this case presents
special considerations justifying finding the "piecemeal
adjudication" factor satisfied. Relying on the reasoning of
the district court, they invite us to hold that the presence
of a limited fund may constitute a special circumstance
beyond the mere presence of parallel state-federal litigation.
Specifically, they point to the limited fund of insurance
available to satisfy the claims of the dozens of people who
were injured in the deck collapse. Were both the state and
federal actions to proceed, appellees argue, the federal

10
plaintiff might obtain a judgment first and collect a
disproportionate sum, leaving a greatly depleted "pot" for
the other claimants. Although we are not unmindful of that
concern, we nevertheless hold that it does not support
Colorado River abstention.

First of all, limited fund problems are, unfortunately, not
uncommon in tort litigation. That fact itself makes such
cases unlikely candidates for abstention under Colorado
River, given the Supreme Court's admonition that "only
exceptional circumstances, the clearest of justifications, . . .
can suffice . . . to justify the surrender of . . . jurisdiction."
Cone, 460 U.S. at 25-26, 103 S. Ct. at 942 (internal
quotation marks and emphasis deleted). More importantly,
it is Congress that granted plaintiffs like Ryan diversity
jurisdiction under 28 U.S.C. § 1332, and it is evident from
the cases reviewed supra that only a congressional intent to
require state-court adjudication, such as the McCarran
Amendment or 15 U.S.C. § 77v, will be sufficient to divest
it. Cf. MCI Telecommunications Corp. v. Teleconcepts, Inc.,
71 F.3d 1086, 1109 (3d Cir. 1995) (Nygaard, J., concurring)
(noting that state law cannot divest a federal court of the
jurisdiction conferred on it by Congress), cert. denied, 117
S. Ct. 64 (1996). When Congress enacts a statute that
allows the United States to be joined as a defendant in
state court or that forbids the removal of certain kinds of
securities cases, it is making a strong statement that these
cases either belong in state court or that the plaintiff's
choice of a state forum is a paramount interest. There is
simply no such evidence of congressional policy here.

Accordingly, we hold that the district court erred when it
found that the "avoidance of piecemeal litigation" factor
supported abstention. We turn next to the other principal
factor on which the court justified its abstention decision:
the presence of state law issues.

2.

The district court concluded that the presence of state
law issues, including the construction of state and local
building codes, counseled in favor of abstention. We
disagree. As Cone made clear, while the presence of federal

11
issues militates against abstention, the converse cannot be
said; abstention cannot be justified merely because a case
arises entirely under state law. 460 U.S. at 26, 103 S. Ct.
at 942. On the other hand, the Cone Court did hint that,
"in some rare circumstances[,]" state law issues could
weigh in favor of the federal court's surrender of
jurisdiction, id., and the Second Circuit has found such
circumstances sufficient in a mass tort case. In Arkwright-
Boston Mfrs. Mut. Ins. Co. v. City of New York, 762 F.2d 205
(2d Cir. 1985), a blackout forced the closing of many
businesses in Manhattan for several days. Some of those
businesses recovered under their business interruption
policies, and the insurers filed subrogation actions in
federal court against the allegedly negligent city and public
utility companies. Meanwhile, Gimbel's Department Store
and several hundred other plaintiffs commenced a state
court action against the same defendants, seeking to
recover those sums not covered by insurance. The court
held that, because the case raised novel issues of state tort
and construction law, the scales were tipped in favor of
abstention. Id. at 211.4

Whatever its inherent persuasiveness, Arkwright-Boston
is distinguishable from this case. Although a few dozen
people were injured by the deck collapse, this is hardly a
mass tort situation with hundreds of claims and parties. It
thus presents a far less compelling argument for abstention
than was present in Arkwright-Boston.

We are also skeptical of Arkwright-Boston's rationale, at
least as applied to the straightforward state negligence law
issues involved here. Although it is possible that some case
could involve a skein of state law so intricate and unsettled
that resolution in the state courts might be more
appropriate, traditional negligence law does notfit that
description. It is an area, rather, in which federal courts are
called upon routinely to predict state law. Were we to
consider the "state law issue" factor to be met in this case,
it would be applicable in many more instances than the
_________________________________________________________________

4. The court also found the "piecemeal litigation" prong satisfied, on a
rationale similar to Trent. As we have discussed supra, we cannot follow
that holding.

12
"rare circumstances" required by the Supreme Court in
Cone. Instead, it would be met in nearly every diversity case
in which the law was not entirely settled. Nor do we see any
principled difference between the interpretation of state law
generally and the construction of building codes. Those
laws and regulations are no more inherently complex or
unsettled than any other state statute or regulation. We
therefore conclude that the district court erred when it
concluded that this factor supported abstention.

3.

We think the district court also was incorrect when it
found that the ability of the state court to protect Ryan's
rights militated in favor of surrendering jurisdiction. It
opined:

While plaintiff argues that "there are inherent dangers
in forcing a non-resident plaintiff from Massachusetts
to proceed at the local state level," this Court does not
find such arguments persuasive at this point in
history. Beyond this general concern that a foreign
litigant would be disfavored, plaintiff has identified no
reasons to believe that the state court would be
inadequate to protect her rights. We therefore conclude
that this factor supports a stay or dismissal.

Ryan v. Johnson, No. 95-5789 (AET), typescript at 7 (D.N.J.
June 13, 1996). This reasoning is problematic for two
reasons.

First, regardless of a district court's personal views on
the subject, it is the singular role of Congress to amend or
repeal the diversity statute, 28 U.S.C. § 1332. While this
issue has generated much controversy and a number of
legislative proposals to do just that, none has yet been
enacted. Until such time as that may happen, the federal
courts have no choice but to apply the statute faithfully
and in accordance with well-settled law.

Second, the mere fact that the state forum is adequate
does not counsel in favor of abstention, given the heavy
presumption the Supreme Court has enunciated in favor of
exercising federal jurisdiction. Instead, this factor is

13
normally relevant only when the state forum is inadequate.
For example, in Cone, the federal plaintiff sought an order
compelling arbitration. It was questionable whether the
state court had the power to grant such an order, and the
Supreme Court weighed this factor against abstention. 460
U.S. at 26-27, 103 S. Ct. at 942-43. When the state court
is adequate, however, the factor carries little weight. See
Bethlehem Contracting Co. v. Lehrer/McGovern, Inc. , 800
F.2d 325, 328 (2d Cir. 1986).

III.

In conclusion, none of the Colorado River/ Cone factors
weighs in favor of abstention. Thus, the strong presumption
in favor of exercising jurisdiction over this case has not
been overcome.5 We will reverse and remand the cause for
further proceedings on the merits.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

_________________________________________________________________

5. The district court's evaluation of the remaining factors, which did not
weigh in favor of abstention in any event, is not the subject of serious
dispute, hence we need not address those factors here.

14