In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-2765
DEPUY SYNTHES SALES, INC.,
Plaintiff-Appellant,
v.
ORTHOLA, INC. and BRUCE CAVARNO,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:19-cv-01072-JMS-DLP — Jane Magnus-Stinson, Chief Judge.
____________________
ARGUED JANUARY 14, 2020 — DECIDED MARCH 18, 2020
____________________
Before WOOD, Chief Judge, and ROVNER and ST. EVE, Circuit
Judges.
WOOD, Chief Judge. This lawsuit was sparked by a distrib-
utorship agreement that fell apart. DePuy Synthes Sales, Inc.,
manufactures medical implants and instruments, including
joint-reconstruction products. It uses exclusive distributors to
bring those products to its customers. For a time, its distribu-
tor for the Los Angeles area was OrthoLA, Inc., a company
2 No. 19-2765
founded and run by Bruce Cavarno. (We refer to them collec-
tively as OrthoLA unless the context requires otherwise.)
We summarize the underlying dispute in more detail be-
low. For now, it is enough to know that when the parties’ dis-
tribution arrangements came to an end, OrthoLA turned to
the Los Angeles Superior Court for help. DePuy responded
with a motion to refer those claims to arbitration, but the state
court denied it. DePuy then took two steps: it appealed the
state court order to the California Court of Appeal, and on the
same day it filed a demand for arbitration with the American
Arbitration Association. Three days later, it filed the present
suit in the federal district court in Indianapolis, seeking an or-
der compelling arbitration and an injunction against the state-
court proceedings. Citing Colorado River Conservation Dist. v.
United States, 424 U.S. 800 (1976), the district court elected to
stay the case before it pending the resolution of the California
action. DePuy has appealed from that stay order. We con-
clude, however, that the district court did not stray beyond
the boundaries of its discretion, and so we affirm.
I
The relationship between DePuy and OrthoLA began in
2008, when the parties signed a Sales Representative Agree-
ment (the “Sales agreement”). It gave OrthoLA the exclusive
rights in the Los Angeles area to distribute certain products;
the parties renewed it several times. The November 2015 re-
newal again appointed OrthoLA as DePuy’s “exclusive sales
representative” in a territory that included several counties in
Southern California. That agreement also contained an arbi-
tration clause, committing the parties to resolve “[a]ny con-
troversy or claim arising out of or relating to this Agreement”
by arbitration conducted under the auspices of the American
No. 19-2765 3
Arbitration Association’s commercial rules. It designated In-
dianapolis as the place of arbitration, and Indiana law as the
substantive law to be applied, unless the question related to
the arbitration provision, in which case the Federal Arbitra-
tion Act, 9 U.S.C. § 1 et seq., would apply.
As part of the 2015 renewal, the parties also signed a Con-
tinuing Income Agreement (the “Income agreement”). It com-
mitted DePuy to pay OrthoLA income for ten years after the
termination or expiration of the Sales agreement, unless
DePuy ended the Sales agreement pursuant to certain terms,
such as if OrthoLA engaged in competitive or solicitation ac-
tivities. The Income agreement contained an arbitration
clause identical to the one in the Sales agreement.
In 2017, the Sales agreement was up for renewal. The par-
ties attempted to negotiate a continuation, but they failed to
do so, and so the agreement expired according to its terms on
January 7, 2018. The very next day, January 8, all of OrthoLA’s
sales representatives left OrthoLA and moved over to Golden
State Orthopedics, another one of DePuy’s distributors.
DePuy took the position that it did not owe OrthoLA any con-
tinuing payments under the Income agreement, because (it
said) OrthoLA had violated the Sales agreement by compet-
ing with other distributors and soliciting their business. This,
DePuy contended, amounted to a forfeiture on OrthoLA’s
part of any right to continuing income.
II
It did not take long for this dispute to spill into the courts.
In October 2018, OrthoLA filed suit in the Los Angeles Supe-
rior Court against Golden State, DePuy, two people associ-
ated with Golden State, and Does 1–50. It offered seven
4 No. 19-2765
theories of recovery, four in tort and three in contract. The tort
counts asserted that Golden State had wrongfully induced
OrthoLA’s sales representatives to breach their contracts with
OrthoLA, while the contract counts focused on DePuy’s fail-
ure to make the payments contemplated by the Income agree-
ment. OrthoLA’s complaint sought a declaratory judgment
that portions of both the Sales agreement and the Income
agreement were unenforceable because they were against
California public policy, as outlined in California Business &
Professions Code section 16600.
On December 5, 2018, DePuy asked the California court to
stay its proceedings and to issue an order compelling
OrthoLA to arbitrate the claims in accordance with the agree-
ments. The state court denied that motion in February 2019. It
found that California law applied to the preliminary arbitra-
bility issue; that the provisions choosing Indiana law and an
arbitral forum were unconscionable; and that both agree-
ments were substantively unconscionable because they were
one-sided—only DePuy could file a lawsuit to enforce any
part of the Income agreement and two provisions of the Sales
agreement.
As one might expect, on March 15, 2019, DePuy appealed
that ruling to the state appellate court. What happened next,
in contrast, was less predictable. On the same day it filed its
state appeal (which remains pending), DePuy filed a demand
for arbitration with the American Arbitration Association
(AAA). It sought arbitration in Indianapolis, pursuant to the
terms of the agreements, and it named as respondents both
Cavarno and OrthoLA. It presented two claims to the AAA:
(1) one for a declaration that the actions DePuy and Golden
State (and those associated with them) had taken were
No. 19-2765 5
consistent with the Sales agreement; and (2) one for damages
based on Cavarno and OrthoLA’s alleged violations of the
two agreements, by improperly suing in California.
Three days later, on March 18, DePuy followed up on its
arbitral demand with two petitions in the U.S. District Court
for the Southern District of Indiana. The first asked the court
to compel OrthoLA and Cavarno to arbitrate the disputes un-
der the Income agreement and to enjoin them from proceed-
ing with the California state-court action. The second was
similar, but it referred to the Sales agreement.
After consolidating the two cases, the district court issued
an order on September 11, 2019. But in that order, it refrained
from ruling on the merits. Instead, the court announced that
it was exercising its discretion to stay the petitions before it
pursuant to Colorado River, pending the resolution of the Cal-
ifornia action. DePuy has taken an appeal from that decision;
it argues that the court abused its discretion by deferring to
the state courts.
III
Before we address the merits of DePuy’s appeal, we say a
word about jurisdiction. The district court had jurisdiction
under 28 U.S.C. § 1332(a), because DePuy is a Massachusetts
corporation with its principal place of business in Massachu-
setts; OrthoLA is a California corporation with its principal
place of business in California; and Cavarno is a citizen of Cal-
ifornia. (OrthoLA contended that Golden State had to be
added to the case as a plaintiff pursuant to Federal Rule of
Civil Procedure 19, but the district court rejected that argu-
ment, and no one has pursued it on appeal.) The amount in
controversy easily exceeds $75,000—by one measure,
6 No. 19-2765
OrthoLA lost more than a million dollars it thought were
coming to it under the Income agreement.
Our appellate jurisdiction is also secure. The Supreme
Court faced exactly this situation in Moses H. Cone Mem’l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1 (1983). There too the case
began with a petition to compel arbitration; the district court
decided to stay its proceedings pending the conclusion of a
concurrent state-court suit; and the original petitioner ap-
pealed from the stay order. The Supreme Court concluded
that “the stay order was final for purposes of appellate juris-
diction” pursuant to 28 U.S.C. § 1291. Id. at 9. The stay of the
federal suit, it reasoned, “meant that there would be no fur-
ther litigation in the federal forum; the state court’s judgment
on the issue would be res judicata.” Id. at 10.
IV
The question we must answer is whether this is one of
those rare cases in which the federal court may decline to ex-
ercise its jurisdiction in deference to a concurrent state-court
proceeding. In other words, would deference to the state
court promote “wise judicial administration,” as the Supreme
Court put it, Colorado River, 424 U.S. at 818, or would it be a
failure to meet the court’s normal obligation to hear and de-
cide cases properly before it?
In order to answer that question, we start with a quick re-
view of the Colorado River decision. Like our case, it involved
parallel litigation in the state courts and the federal courts.
The underlying dispute was, for all practical purposes, iden-
tical: it had to do with certain water rights that the United
States held, both on its own account and on behalf of some
Indian tribes. The state of Colorado had an elaborate
No. 19-2765 7
administrative structure through which the state was orga-
nized into seven divisions for purposes of allocating the
state’s scarce waters. Nonetheless, relying on 28 U.S.C. § 1345,
which gives the federal district courts jurisdiction over any
civil action that the United States brings as a plaintiff, the
United States sued in federal court for a declaration of its
rights to the waters in certain rivers in Division 7. Shortly after
that suit began, some of the defendants filed an application in
state court; relying on a special statute, they sought to include
the United States as a defendant in broader state-court pro-
ceedings designed to adjudicate all rights in Division 7. After
learning of the state-court suit, the district court decided that
it had to abstain from deciding the case. The Tenth Circuit re-
versed, however, and the Supreme Court then granted certio-
rari to decide, among other things, whether the district court
correctly dismissed the action.
After assuring itself that “the state court had jurisdiction
over Indian water rights” under the relevant legislation, 424
U.S. at 809, the Supreme Court turned to the question whether
“the District Court’s dismissal was appropriate under the
doctrine of abstention,” id. at 813. It began by stressing that
abstention is the exception, not the rule, when a federal court
has jurisdiction over a case. It then rejected the possibility of
abstaining under the rules announced in either Railroad
Comm’n of Texas v. Pullman Co., 312 U.S. 496 (1941) (unsettled
question of state law relevant to federal constitutional ques-
tion), or Burford v. Sun Oil Co., 319 U.S. 315 (1943) (important
state public policy, elaborate system). It also dismissed the ap-
propriateness of abstention under Younger v. Harris, 401 U.S.
37 (1971) (federalism-based non-interference with state crim-
inal proceedings or similarly important government func-
tions).
8 No. 19-2765
The fact that the traditional abstention doctrines did not
apply was not, however, the Court’s last word. Taking a
broader view, it stated that
there are principles unrelated to considerations of
proper constitutional adjudication and regard for fed-
eral-state relations which govern in situations involv-
ing the contemporaneous exercise of concurrent juris-
dictions, either by federal courts or by state and federal
courts. These principles rest on considerations of wise
judicial administration, giving regard to conservation
of judicial resources and comprehensive disposition of
litigation.
Id. at 817 (cleaned up). The general principle among the fed-
eral district courts, it noted, “is to avoid duplicative litiga-
tion.” Id. No such rule of thumb exists for parallel litigation in
the state and federal courts, however, because of “the virtu-
ally unflagging obligation of the federal courts to exercise the
jurisdiction given them.” Id. That said, the Court recognized
a narrow set of circumstances in which a federal suit should
yield to a parallel state suit. It gave a number of examples of
such circumstances:
• The court first assuming jurisdiction over property
may exercise that jurisdiction to the exclusion of other
courts;
• The inconvenience of the federal forum may counsel
this type of abstention;
• The order in which jurisdiction was obtained by the
concurrent fora is relevant.
To that list, we have added considerations such as the desira-
bility of avoiding piecemeal litigation; the source of the
No. 19-2765 9
governing law; the relative progress of the proceedings in
each court; the availability of removal; and whether the fed-
eral claim is vexatious or contrived. LaDuke v. Burlington N.
R.R. Co., 879 F.2d 1556, 1559 (7th Cir. 1989).
Demonstrating that it did not mean, by discouraging this
type of administrative abstention, to preclude it altogether,
the Court went on to conclude that several factors in the case
before it “counsel[ed] against concurrent federal proceed-
ings.” 424 U.S. at 819. Federal legislation recognized that the
state courts were competent to adjudicate the government’s
water rights, the case dealt with the disposition of a special
type of property, and the state had an elaborate and unified
system for this issue—one that was vitally important to its in-
terests. Furthermore, very little had happened yet in the fed-
eral court. Taken together, these factors persuaded the Court
that the district court properly dismissed the federal action.
In Moses Cone, in contrast, the Court adhered to the general
rule discouraging Colorado River abstention in the face of par-
allel state-court litigation. But it again emphasized that
the decision whether to dismiss a federal action be-
cause 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 favor of the exercise of
jurisdiction.
460 U.S. at 16. Applying that approach, the Court held in Mo-
ses Cone that there was “no showing of the requisite excep-
tional circumstances to justify” a stay of the federal case. Id. at
19. There was no property involved, nor was convenience a
factor. And the concerns about piecemeal litigation and the
10 No. 19-2765
order in which jurisdiction was obtained, the Court found,
counseled against the stay. It was inevitable in Moses Cone that
proceedings would go forward in two different tribunals, be-
cause the arbitration agreement covered only the Hospital
and the construction company, yet there was a related dispute
between the Hospital and the Architect that had to proceed in
court. The timing of the litigation did not support a stay, ei-
ther. The Hospital did not refuse to arbitrate until less than a
day before it filed the state suit. The construction company
had no reasonable opportunity to file its petition to compel
arbitration in federal court before that time. Nothing of signif-
icance had happened in the state court before the federal court
action began. Indeed, in terms of practical progress, more had
happened in federal court by the time the Colorado River stay
was sought.
In closing, the Court made two other observations that
bear on our case. First, it expressly declined to decide
“whether a dismissal or a stay should ordinarily be the pre-
ferred course of action when a district court properly finds
that Colorado River counsels in favor of deferring to a parallel
state-court suit.” Id. at 28. The two operate in much the same
way. Second, it indicated that the district court’s action is ul-
timately reviewed for abuse of discretion, when it said that
“[i]f there is any substantial doubt [about the adequacy of the
state-court proceeding], it would be a serious abuse of discre-
tion to grant the stay or dismissal at all.” Id.
We have found a two-step analysis to be a helpful way of
approaching Colorado River cases. The first question is
“whether the concurrent state and federal actions are actually
parallel.” LaDuke, 879 F.2d at 1559. If so, the second question
is whether the necessary exceptional circumstances exist to
No. 19-2765 11
support a stay or dismissal. Id. A variety of factors can inform
the second question, as Colorado River indicated. They include
the following:
1. Whether the case concerns rights in property, and if so,
whether the state has assumed jurisdiction over that
property;
2. The inconvenience of the federal forum;
3. The desirability of consolidating litigation in one place
(put otherwise, the value in avoiding “piecemeal” or
broken-up proceedings);
4. The order in which jurisdiction was obtained in the
concurrent fora;
5. The source of governing law—federal or state;
6. The adequacy of the state-court action to protect the
federal plaintiff’s rights;
7. The relative progress of the state and federal proceed-
ings;
8. The presence or absence of concurrent jurisdiction;
9. The availability of removal; and
10. Whether the federal action is vexatious or contrived.
See id. Not all of these considerations will be pertinent to
every case, nor does this list preclude the district court from
taking into account a special characteristic of the case before
it.
Looking first to the question whether the California litiga-
tion and the Indiana litigation were genuinely parallel, we
find little to debate. Two suits are considered parallel “when
substantially the same parties are contemporaneously
12 No. 19-2765
litigating substantially the same issues in another forum.”
Clark v. Lacy, 376 F.3d 682, 686 (7th Cir. 2004). Formal sym-
metry is unnecessary, as long as there is a “substantial likeli-
hood that the state litigation will dispose of all claims pre-
sented in the federal case.” Id. The two lawsuits in our case
are parallel, by that or any other definition we can imagine.
They involve the same parties, the same facts, and the same
issues. Tyrer v. City of S. Beloit, Ill., 456 F.3d 744, 752 (7th Cir.
2006). The question is whether the Income agreement requires
OrthoLA to arbitrate the claims it asserted in the California
lawsuit against DePuy. The same is true for the petition under
the Sales agreement. The fate on the merits of any individual
claim has nothing to do with the parties’ obligation (or lack
thereof) to submit it to arbitration. These are parallel actions,
and so we turn to an evaluation of exceptional circumstances.
This case is not about property, and so Factor 1 can be ig-
nored. The federal forum cannot be considered to be incon-
venient for purposes of Factor 2 (though the district court
thought differently), because the parties chose Indiana law
and an Indiana venue in their agreement. Factor 3 is a differ-
ent matter: the district court found that the risk of splintering
this litigation across several places was great: functionally
identical suits in two places creates a high risk of inconsistent
results and wasteful duplication. This is what concerned us in
Tyrer, where we noted that “the danger of piecemeal litigation
does not turn on formal identity of issues but on concerns
about the efficient use of judicial resources and the public’s
perception of the legitimacy of judicial authority.” 456 F.3d at
756. We too find that Factor 3 weighs strongly in favor of ab-
stention.
No. 19-2765 13
Similarly, Factors 4 and 7 support abstention. As we know
from Moses Cone, the literal order in which the two competing
courts obtained jurisdiction is not dispositive. But to the ex-
tent it makes a difference, in our case the California courts by
a long margin were first. More important is Factor 7—the rel-
ative progress of the litigation in each place. As we related
earlier, the California litigation got underway in October
2018; the Los Angeles Superior Court rejected DePuy’s mo-
tion to compel arbitration and to stay its own proceedings in
February 2019; and DePuy took an appeal from that order to
the California Court of Appeal in March 2019. Only then did
it actually seek arbitration before the AAA, and it did not turn
to the federal court until three days after it filed its state-court
appeal. On the critical question of arbitrability, therefore, the
state courts were well along the way to a resolution.
The governing law (Factor 5) on the topic of arbitration is
primarily federal, though we note that California also has an
arbitration act, Cal. Code Civ. Proc. § 1280 et seq. The parties
here, however, specified that their agreement was to be gov-
erned by the Federal Arbitration Act (FAA), and we assume
for present purposes that they were entitled to do so. This
means that federal law governs the arbitrability issue. On the
other hand, the question whether an enforceable agreement
to arbitrate exists, applying normal contract rules, is normally
governed by state law (either Indiana or California—we need
not choose). See First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 944 (1995) (“When deciding whether the parties agreed
to arbitrate a certain matter (including arbitrability), courts
generally … should apply ordinary state-law principles that
govern the formation of contracts.”). The district court
thought that the latter point was strong enough to overpower
14 No. 19-2765
the applicability of the FAA. We do not go that far, but we do
find that the applicable law is at best a neutral factor.
Looking at the adequacy of the state-court action to protect
the federal plaintiff’s rights (Factor 6) and the presence of con-
current jurisdiction (Factor 8), we see no error in the district
court’s conclusion that DePuy had nothing to fear from the
state courts. The FAA “provides concurrent jurisdiction to
states to enforce arbitration agreements,” Zurich Am. Ins. Co.
v. Superior Court for State of Calif., 326 F.3d 816, 826 (7th Cir.
2003), indicating that Congress saw no need to carve out an
exclusive federal preserve in this field. And, other than the
fact that the Los Angeles court ruled adversely to DePuy,
there is no reason to think that the state courts could not pro-
tect its rights. The state courts are co-equal partners with the
federal courts when it comes to protecting federal rights. See
AXA Corp. Sols. v. Underwriters Reinsurance Corp., 347 F.3d 272,
280 (7th Cir. 2003). We do not know how the state appellate
court will see this case. We also make no comment on the state
trial court’s ruling. It is enough that the California courts are
open for business and that they (like all courts) are bound by
the Supremacy Clause to give effect to federal laws. DePuy
complains that the appeal may drag on for too much time, but
it is DePuy that has risked extra time by loading up different
court systems with parallel actions. These two factors support
the district court’s stay.
Factor 9, the possibility of removal, is more complex.
When OrthoLA initially filed its state-court action against
DePuy (a Massachusetts citizen both by incorporation and by
principal place of business), it also named numerous Califor-
nia parties on the defense side—Golden State, two named
people who worked for Golden State, and Does 1–50, whose
No. 19-2765 15
citizenship is unascertainable and does not affect removal. See
Howell by Goerdt v. Tribune Entertainment Co., 106 F.3d 215, 218
(7th Cir. 1997). John Does do not defeat diversity if they are
merely nominal parties. Id. But in a case with in-state defend-
ants, the risk of bias against an out-of-state party is also not
likely to be significant. Day v. Union Mines Inc., 862 F.2d 652,
660 (7th Cir. 1988). Add to this the fact that Golden State is at
best a bystander in the dispute over arbitration, and we have
a factor that gives at best a minor push toward the Indiana
federal court.
Last is the question whether the federal case was brought
for vexatious or contrived reasons (Factor 10). Although we
are not willing to go quite that far, we do think that DePuy’s
decision to open a second front in its effort to obtain arbitra-
tion just three days after it filed its appeal in the California
courts was at best opportunistic and at worst manipulative.
DePuy protests that it was not seeking a second audience for
its arguments about the arbitration clause, but neither the dis-
trict court nor we are persuaded. Its argument would be more
believable if it had not waited until after the Los Angeles Su-
perior Court denied its motion to compel arbitration.
V
As is all too often the case with unweighted multi-factor
“tests,” we have here several points that might indicate that
the federal court abused its discretion by choosing not to pro-
ceed with the federal case, and a number of other points that
support the court’s decision to stay the federal action in favor
of the California proceedings. We can infer, however, from
Moses Cone that the relative progress of the case in one court
or another is of greater importance than some of the other
16 No. 19-2765
considerations. Moses Cone also teaches that there is no reason
to avoid the federal forum if parallel litigation is inevitable.
Here, the adjudication of DePuy’s petition to enforce the
arbitration clauses in the two agreements was complete in the
trial court and was in the process of being handled by the state
appellate court. And there was no need at all for parallel suits.
The district court was rightly concerned about the strategy of
staying in the state court until after it had ruled, and only then
seeking a second bite at the apple in federal court. We are sat-
isfied that the district court reasonably weighed these incom-
mensurables, with proper attention to the general duty to hear
cases, and that it did not abuse its discretion in finding the
necessary exceptional circumstances to justify a Colorado River
stay.
We therefore AFFIRM the judgment of the district court.