United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
May 9, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 05-20973
DUFFY & MCGOVERN ACCOMMODATION SERVICES,
Petitioner-Appellant,
versus
QCI MARINE OFFSHORE, INC.,
Respondent-Appellee.
______________________
Appeal from the United States District Court
for the Southern District of Texas
______________________
Before HIGGINBOTHAM, DAVIS, and STEWART, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
After QCI sued DMAS in state court for breach of contract,
DMAS removed and persuaded the federal district court to dismiss
the case because a forum selection clause mandated venue in
England. After settling some claims, QCI filed an almost identical
suit in state court. After failing to convince the state court to
dismiss the suit, DMAS asked the federal district court to enjoin
the state proceedings. The court refused, concluding that its
prior order was not preclusive. DMAS appeals, and we reverse and
remand.
I
In February 2004, QCI Marine Offshore, Inc. filed a breach of
contract suit1 against Duffy & McGovern Accommodation Services
(“DMAS”) in state court in Houston. Asserting diversity
jurisdiction, DMAS removed to federal district court and filed a
motion to dismiss, arguing that a forum selection clause in the
contract mandated resolution of the case in England. The district
court agreed, concluding that the forum selection clause was valid
and enforceable and dismissing the case “without prejudice” on
April 30. QCI appealed to this court.
On August 27, while the appeal was pending, QCI filed an
almost identical breach of contract suit against DMAS in a
different state court in Houston. Because an intervening
settlement lowered the amount in controversy,2 this case could not
be removed. QCI dropped its appeal to this court on September 28,
before a decision was rendered.
DMAS answered the complaint and filed a motion to dismiss,
arguing that under Texas law the forum selection clause should be
enforced and, in the alternative, that the federal court’s decision
collaterally estopped QCI from arguing that the forum selection
clause was invalid or unenforceable. QCI argued that the state
1
Although irrelevant to this case, the underlying dispute revolves around
a roughly $1 million oil and gas service contract.
2
Aside from the settled claims, the two cases were identical. After
settlement, the amount in controversy fell to about $44,000, precluding diversity
jurisdiction.
2
court was free to redetermine the issue because the federal court
dismissed the case “without prejudice” and because a dismissal
based on a forum selection clause is similar to one based on forum
non conveniens, which Texas courts agree is not preclusive.
On February 16, 2005, the state court denied DMAS’s motion
without comment. It also denied DMAS’s motion to reconsider
without comment. DMAS filed a petition for writ of mandamus in the
Texas Court of Appeals, which that court denied without comment.
Finding no relief in state court, DMAS filed a complaint on
July 8 in the same federal district court that dismissed the
original case, seeking an injunction against the state court
proceedings. DMAS argued that the injunction was proper because,
under the “relitigation exception” to the Anti-Injunction Act, a
federal court can enjoin state proceedings threatening to ignore an
earlier, preclusive federal court order.3 QCI argued primarily
that the state court order, concluding that the federal court order
was not preclusive and that the forum selection clause was not
binding, was itself preclusive under Parsons Steel, Inc. v. First
Alabama Bank;4 it argued secondarily that the earlier federal order
was not preclusive. DMAS replied that the state court order was
not final, therefore not preclusive; hence the Parsons Steel bar
was inapplicable.
3
See 28 U.S.C. § 2283.
4
474 U.S. 518, 524 (1986).
3
After granting a preliminary injunction and holding a hearing,
the district court dissolved the preliminary injunction and refused
to issue a permanent one on August 1. The court concluded that
although its prior judgment was final, it was not entitled to
preclusive effect; it did not address QCI’s contention that the
state court order was preclusive. The court apparently held that
collateral estoppel applies only to “issues of ultimate fact,” not
issues of law. It also stated in its short order that decisions
regarding forum selection clauses are not “essential to the outcome
of the ultimate issues involved” so that resolution of the present
forum selection issue would not “lend sway one way or the other on
the ultimate issues between the parties.”
On August 4, DMAS filed a petition for writ of mandamus in the
Texas Supreme Court, which that court denied without comment in
September.
On August 12, DMAS filed a motion for new trial in the present
case, arguing that the district court erred as a matter of law
because collateral estoppel applies to prevent the relitigation of
any issue, of fact or law, when the issue previously litigated was
identical, actually litigated, necessary to the decision, and
reviewed under the same standard. The court denied the motion
without comment, and DMAS filed the present appeal. We granted
DMAS’s motion to expedite due to the imminent state trial. DMAS
then filed a motion in the district court for a preliminary
injunction pending the results of this appeal, which the court
4
denied without comment.
II
Before reaching the merits, we pause to explain our
jurisdiction. The federal district court had diversity
jurisdiction over the original case. After it dismissed that case,
QCI and DMAS settled some of the claims, reducing the amount in
controversy to about $44,000. Although this would deprive the
federal courts of diversity jurisdiction in a new suit based on
contract law, this case arises under federal question jurisdiction
because the dispute turns on the Anti-Injunction Act and the
federal courts’ equitable power to enjoin proceedings to effectuate
their orders. This court has appellate jurisdiction over the
district court’s final judgment refusing to enjoin pursuant to 28
U.S.C. § 1291.
III
Under the Anti-Injunction Act, a federal court can enjoin
state court proceedings only in limited circumstances:
A Court of the United States may not grant an injunction
to stay proceedings in a State Court except as expressly
authorized by Act of Congress, or where necessary in aid
of its jurisdiction, or to protect or effectuate its
judgments.5
The last exception, called the “relitigation exception,” allows an
injunction where state proceedings threaten to undermine a federal
judgment having preclusive effect under the “well-recognized
5
28 U.S.C. § 2283.
5
concept” of collateral estoppel.6 However, under the Full Faith
and Credit Act, as construed by the Supreme Court in Parsons
Steel,7 once the state court has finally determined in the first
instance that the federal judgment is not preclusive, that issue is
settled and the federal courts cannot enjoin the state proceedings.
Consequently, we must answer two questions, addressed in turn.
First, whether the state order denying preclusive effect to the
original federal order was itself preclusive under state law, for
if it was, Parsons Steel forbids injunction. Second, if the state
court has not foreclosed the issue, whether the federal district
court was correct that its original order was not preclusive.
A
Under Parsons Steel, once a state court has “finally rejected”
a claim that a federal order is preclusive, “the Full Faith and
Credit Act becomes applicable and the federal courts must turn to
state law to determine the preclusive effect of the state court’s
decision.”8 This is true even if we disagree with the state court
order, the proper avenue for appeal being the state court system
and ultimately the United States Supreme Court.9
It is unclear from Parsons Steel whether state or federal law
6
See Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147 (1988).
7
474 U.S. at 524.
8
Id.
9
Id. at 525.
6
determines whether the state court has “finally rejected” the claim
that the federal order is preclusive, leading to application of
state preclusion law. Arguably, federal law should apply because
“finality” is a precondition to using a body of state law. Yet,
that body of state law is preclusion law, of which “finality” is an
element, so if state preclusion law is to be used, the court might
have to use state law to determine “finality.” In a recent case
this court followed the latter path; indeed, not only did we use
state law to determine “finality,” we used the whole of state
preclusion law without first analyzing whether the state judgment
was “final.”10 In doing so, we implicitly interpreted Parsons Steel
to require application of state preclusion law in all instances to
determine the preclusive effect of a state judgment in federal
court. In other words, we ask whether, under state law, the state
order is preclusive. It happens here that question revolves around
finality, as opposed to some other element of state preclusion law.
In this case, the state court order is not preclusive under
Texas law because it is not a final judgment.11 Indeed, there is
no judgment here at all, merely a court’s interlocutory denial of
a motion to dismiss. Although Texas law also makes preclusive
10
Vines v. Univ. of La. at Monroe, 398 F.3d 700, 705 (5th Cir. 2005).
11
Mower v. Boyer, 811 S.W.2d 560, 561 (Tex. 1991) (citing RESTATEMENT
(SECOND) OF JUDGMENTS § 3 (1982) in holding that collateral estoppel requires a
“final judgment”).
7
final adjudications that are “adequately deliberated and firm,”
adjudications presumably “less” final than traditional “final
judgments,” the commonplace order here rejecting a motion to
dismiss fails Texas’s three-part test for determining such
adjudications.12 QCI’s citation to In re AIU Ins. Co., a recent
decision of the Supreme Court of Texas, is misplaced since that
case either supports DMAS or is not on point.13 This state order,
like that in Vines v. University of Louisiana at Monroe,14 is not
preclusive under state law.
Because the state order denying DMAS’s motion to dismiss based
12
Under Mower, 811 S.W.2d at 562, a court should ask whether the parties
were fully heard, whether the court supported its decision with a reasoned
opinion, and whether the decision was subject to appeal or reviewed on appeal.
Here, although the parties were fully heard by the state court, the court did not
provide any opinion, and the decision, although appealable after final judgment,
is not currently appealable. (DMAS did file two petitions for writs of mandamus,
but they were denied without comment. Those were not appeals and the denials had
no precedential effect on the merits. See Booth v. Strippleman, 61 Tex. 378, 378
(1884); see also Vines, 398 F.3d at 705) (dealing with a similar situation)).
13
148 S.W.3d 109 (Tex. 2004). In AIU, the Supreme Court of Texas was
concerned that requiring a litigant whose motion to dismiss based on a forum
selection clause was denied to wait until after final judgment to appeal would
waste resources. Consequently, the court allowed such litigants to file
interlocutory writs of mandamus. This confirms that denials of such motions to
dismiss are not final judgments, because mandamus is needed only for unappealable
interlocutory orders, not appealable final judgments. QCI argues that the
following quote from AUI reveals that such denials are final judgments: “When a
trial court denies a motion to enforce a valid, enforceable forum-selection
clause...the trial court’s final judgment is subject to automatic reversal at the
request of the party seeking enforcement of the clause.” QCI misreads the quote,
which logically does not equate the denial to a final judgment; it says simply
that when a trial court denies such a motion to dismiss, the later, resulting
final judgment is subject to automatic reversal, leading to possible wasted
resources. Furthermore, AUI is arguably not on point because it deals with
whether motions to dismiss based on forum selection clauses are final, whereas
the issue here is whether a motion to dismiss based on collateral estoppel is
final.
14
See Vines, 398 F.3d at 705 (concluding that, under Louisiana law, an
appellate overruling of a peremptory exemption is interlocutory and therefore not
preclusive).
8
on collateral estoppel is not preclusive under state law, Parsons
Steel does not forbid a federal court injunction against the state
proceedings.
B
The district court did not rely on Parsons Steel, instead
basing its refusal to enjoin the state proceedings on its
conclusion that its original order was not preclusive. We review
that legal conclusion de novo.15
In this circuit, collateral estoppel applies when a previously
litigated issue of law or fact was identical to the present issue,
actually litigated, necessary to a final judgment, and reviewed
under the same standard as the present issue.16 The original
federal judgment here, dismissing the case because a forum
selection clause mandated venue in England, satisfies all four
criteria. Indeed, this and other courts have held that similar
dismissals based on valid forum selection clauses are preclusive.
In Harvey Specialty & Supply, Inc. v. Anson Flowline Equipment, the
defendant removed a case filed in Louisiana state court to the
15
See Stripling v. Jordan Prod. Co., LLC, 234 F.3d 863, 868 (5th Cir.
2000) (holding that “[t]he application of collateral estoppel is a question of
law that we review de novo”).
16
See Pace v. Bogalusa City Sch. Board, 403 F.3d 272, 290 (5th Cir. 2005);
Restatement (Second) of Judgments § 27 (1982). Federal law applies to determine
the preclusive effect of a federal judgment in federal court, even for purposes
of enjoining state proceedings; the district court erred to the extent it applied
Texas law. See Harvey Specialty & Supply, Inc. v. Anson Flowline Equipment,
Inc., 434 F.3d 320, 325 (5th Cir. 2005) (applying federal preclusion law to
determine the preclusive effect of federal judgment in federal court for purposes
of enjoining state proceeding); Offshore Sportswear, Inc. v. Vuarnet Intern’l
B.V., 114 F.3d 848, 849 (9th Cir. 1997) (same).
9
Eastern District of Louisiana. That court held that venue was
improper because of a forum selection clause; instead of dismissing
the case, however, it transferred it to the proper venue, the
Southern District of Texas. The plaintiff voluntarily dismissed
the case and re-filed in a different Louisiana state court. The
defendant moved in the Eastern District of Louisiana for an
injunction against the state proceedings, which the court granted.
This court reversed, but only because the original district court
judgment was not “final,” as it was a transfer, not a dismissal.
The court strongly hinted that a dismissal instead of a transfer
would have been final and preclusive, triggering the relitigation
exception.17 In Offshore Sportswear, Inc. v. Vuarnet International
B.V., a federal district court dismissed a case because of a forum
selection clause. The plaintiff re-filed the case in state court,
and the defendant removed, after which the federal district court
dismissed the case because of preclusion. The Ninth Circuit
affirmed, concluding that the prior dismissal satisfied all
elements of collateral estoppel.18
The district court, in its order refusing the injunction,
apparently held that collateral estoppel applies only to “issues of
17
434 F.3d at 320.
18
114 F.3d at 849; cf. Twin Lakes Sales, LLC v. Hunter’s Specialties,
Inc., 2005 WL 1593361 (D. Minn. 2005) (after a state court dismissed the
plaintiff’s case because of a forum selection clause, and the plaintiff re-filed
in federal court in Minnesota, the court dismissed the case, concluding that the
prior dismissal was preclusive under state law).
10
ultimate fact” or issues that are “essential to the outcome of the
ultimate issue involved.” This is incorrect – any issue of fact or
law, trivial or non-trivial, is preclusive on satisfying the above
four-part test.
QCI argues that because federal court dismissals for forum non
conveniens may not bind state courts which use different forum non
conveniens principles,19 the federal judgment here is non-binding.
But the dismissal here, like those in the above cases, was
predicated on a substantive contract interpretation, not forum non
conveniens. QCI also argues that the district court’s inclusion of
the words “without prejudice” at the end of its order make the
order non-binding. It does not; it only allows QCI to re-file in
England.
QCI contends that the court’s order either does not clearly
uphold the forum selection clause, hence there is nothing to be
preclusive, or holds that it is “permissive,” hence England is not
the only proper venue. To the contrary, the district court held
that the contractual phrase “will have jurisdiction,” unlike the
phrase “shall have jurisdiction,” mandated venue in England unless
the defendant consented, stating that the “issue of where a case is
brought is disposed of by the term ‘will.’”20 Its use of the word
“permissive” meant permissive at the defendant’s option. QCI
19
See Chick Kam Choo, 486 U.S. at 148-49.
20
We do not decide whether that holding was correct. QCI dropped its
appeal of that holding and opted instead to re-file its suit in state court.
11
correctly observes that the district court should have applied
Texas law, not federal law, in ruling on the validity and
enforcement of the forum selection clause, but there is no relevant
difference;21 regardless, that was an issue for the first, dropped
appeal, not this one.
Finally, QCI argues that the district court’s refusal to
conclude that its own order was preclusive and enjoin the state
proceedings makes clear its intent not to apply collateral estoppel
as a matter of discretion. This argument has some merit, for a
district court has discretion in choosing whether to apply
collateral estoppel and should do so only if fair.22 But here the
district court’s refusal to enjoin was based on a misapprehension
of law, not an application of discretion. For this reason, we
remand to the district court to exercise in the first instance this
discretion.
For the foregoing reasons, the judgment of the district court
is REVERSED and REMANDED.
21
QCI argues that Texas rejects enforcement of an “unreasonable and
unjust” forum selection clause, contending that the district court made no
finding of reasonableness or justness. But the Texas Supreme Court recently and
explicitly adopted federal law in this area, see In re AIU Ins. Co., 148 S.W.3d
at 111, including the “unreasonable and unjust” exception. And the district
court was not required to state explicitly that the clause here was reasonable
and just.
22
See Sport Supply Group, Inc. v. Columbia Casualty Co., 335 F.3d 453, 458
n.4 (5th Cir. 2003) (“there must be no special circumstances that would render
preclusion inappropriate or unfair”); Moch v. East Baton Rouge Parish Sch. Bd.,
548 F.2d 594, 597 (5th Cir. 1977) (“it should be remembered that res judicata is
a principle of public policy and should be applied to give, rather than deny
justice”). QCI also argues, incorrectly, that the court’s original intent in
issuing the original order is relevant. Rather, the court’s discretion comes
when applying collateral estoppel.
12