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Sea Prestigio, LLC, A Delaware Limited Liability Company v. M/Y Triton

April 11, 2011

SEA PRESTIGIO, LLC, A DELAWARE LIMITED LIABILITY COMPANY, PLAINTIFF,
v.
M/Y TRITON, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge

STAY ACTION ORDER RE APPLICATION TO

Defendants move to stay the instant action. For the following reasons, Defendants' application is GRANTED.

I. BACKGROUND

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, together with other collateral, does not mean that the loan agreement furthers or affects maritime commerce." (Def. Ex. C)

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 Plaintiff's ex parte application for an order authorizing issuance of a warrant for arrest of the vessel, and on December 22, 2010, the Court denied Defendants' motion to vacate the order of arrest.

II. DISCUSSION

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 (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 (quotation and citation omitted); see also Moses H. Cone Memorial Hosp. v. Mercury Center, 460 U.S. 1, 14-15 (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).

A. Evaluation Of The Abstention Factors

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 notice of removal, the issues in these case are essentially the same. Both the state and federal actions are focused on the loan agreement, with both parties contending that the other breached the agreement, raising a substantial issue of state law. Indeed, the only federal claim at issue -- Plaintiff's claim for foreclosure of the vessel pursuant to 46 U.S.C. § 31325 -- itself is derivative of a finding that Defendants are in "default of any term of the preferred mortgage." § 31325(b). The preferred ship mortgage, in turn, lists "default under the Loan Agreement" as an event of default. (Compl. Ex. D at 8) Thus, there is a substantial likelihood that a judgment in the state action could resolve the federal question of foreclosure over the vessel.*fn1 At a minimum, staying the case would eliminate the possibility of the state and federal courts both deciding, and possibly reaching inconsistent conclusions regarding, this key issue of default under the loan agreement. Moreover, where -- as here -- state law issues predominate, "[g]ranting the stay is. . . consistent with the federal court's discretion to decline to exercise jurisdiction out of consideration for federal-state comity." El Centro Foods, Inc. v. Nazarian, No. CV09-06395 ODW, 2010 U.S. Dist. LEXIS 49745, at *7 (C.D. Cal. Apr. 21, 2010) (citing Colorado River, 424 U.S. at 817).

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 Plaintiff's 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 U.S. Dist. LEXIS 49745, at *7-8 (finding that "proper deference should be afforded to the Superior Court" where the state action was filed approximately one month before the federal action). While "priority is not measured exclusively in terms of which complaint was filed first, but rather in terms of how much progress was actually made in the state and federal actions," American International Underwriters, Inc. v. Continental Ins. Co., 843 F.2d 1253, 1258 (9th Cir. 1988) (emphasis added), the Court finds that its expedited case management plan notwithstanding, the federal action has not progressed to a point to alter this priority determination. The Court has decided only one substantive motion -- denying Defendants' motion to vacate the order of arrest, which, as discussed, is an issue exclusive to the federal action and which does not reach the merits of the parties' claims. C.f. id. (noting that seven motions decided by the state court judge supported a finding that the state action had priority over the federal one). The discovery taken in the federal action can likely be used in the state action, see Cal ...


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