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Lisa Boe, et al v. Christian World Adoption

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA


April 21, 2011

LISA BOE, ET AL., PLAINTIFFS,
v.
CHRISTIAN WORLD ADOPTION, INC., ET AL., DEFENDANTS.

ORDER

The court heard defendant Christian World Adoption's ("CWA") motion to stay proceedings pending the resolution of a South Carolina state case (ECF 18) on March 2, 2011. Francesca Gianuario appeared for plaintiffs; Michael Tracy and Curtis Bostic appeared for defendant. More than a month following the hearing, plaintiffs filed an ex parte application to continue the trial date and related dates. (ECF 27.) CWA filed its opposition to the ex parte application on April 7, 2011. (ECF 31.) For the following reasons, CWA's motion to stay is GRANTED and plaintiffs' ex parte application is DENIED as moot. (ECF 27.)

I. PROCEDURAL HISTORY

Lisa and Frank Boe (the "Boes") entered into a contract with CWA for the adoption of a child in March 2007. (Pls.' Opp'n at 3, ECF 19.) The present motion stems from the fact that there is a suit brought by CWA against the Boes pending in South Carolina state court, while at the same time the instant suit brought by the Boes and their minor son Z.B. (together, "plaintiffs") against CWA and other defendants is proceeding in this court.

A. State court proceeding

On October 26, 2009, CWA brought a complaint alleging (1) libel or libel per se; (2) slander; and (3) breach of contract and seeking a declaratory judgment compelling arbitration against the Boes in South Carolina's Charleston County Court of Common Pleas (the "state suit"). (Def.'s Mem. P. & A. in Supp. Mot. to Stay ("Def.'s Mot.") at 1, ECF 18.) The Boes responded to the state suit by moving to dismiss for lack of personal jurisdiction on November 18, 2009; however, the motion was denied and the South Carolina court held that jurisdiction was proper on April 16, 2010. (Pls.' Opp'n at 5; Def.'s Mot. at 1; Bostic Decl., Ex. B, Order at 1-2, ECF 18-3.) After the South Carolina court's assertion of jurisdiction, the Boes filed their answer there, adding their son as a third party plaintiff as well as several third party defendants, and including eleven counterclaims: (1) wrongful adoption; (2) breach of contract; (3) breach of covenant of good faith and fair dealing; (4) breach of fiduciary duty; (5) negligent nondisclosure by a fiduciary/constructive fraud; (6) negligence; (7) negligent misrepresentation; (8) negligent infliction of emotional distress; (9) intentional infliction of emotional distress; (10) civil conspiracy; and (11) negligent supervision of a minor. (See Bostic Decl., Ex. C, ECF 18-4.) In their answer, the Boes asserted lack of personal jurisdiction as an affirmative defense. (Id. ¶ 26.) They are seeking: "1. That the complaint against [them] be dismissed . . . 2. . . . judgment in their favor . . . 3. [] actual damages in an amount according to proof at trial. 4. [] punitive damages in an amount to be determined at trial. 5. [] costs of suit. 6. [] such other and further relief as the Court deems just and proper." (Id. at 24.)

CWA filed a motion to compel arbitration in the South Carolina court on July 2, 2010, relying on provisions of its contract with the Boes.*fn1 Oral argument on the motion took place on November 5, 2010. (Tracy Decl., Ex. B, ECF 23-3; Def.'s Mot. at 3.) The South Carolina court granted CWA's motion on January 18, 2011, finding that the Federal Arbitration Act was applicable, ordering "all parties to the litigation [to] submit all causes of action to binding arbitration" and the arbitrator to apply South Carolina law, and staying the state proceeding pending the conclusion of the arbitration. (Tracy Decl., Ex. B.)

B. Federal court proceeding

Plaintiffs initiated the present lawsuit on January 22, 2010. (Compl., ECF 1.)

Plaintiffs allege twelve causes of action: (1) wrongful adoption; (2) breach of contract; (3) breach of covenant of good faith and fair dealing; (4) breach of fiduciary duty; (5) negligent nondisclosure by a fiduciary/constructive fraud; (6) negligence; (7) negligent misrepresentation; (8) fraud/intentional misrepresentation; (9) negligent infliction of emotional distress; (10) intentional infliction of emotional distress; (11) civil conspiracy; and (12) negligent supervision of a minor. (See id.) They seek: "1. Judgment in [their] favor . . . . 2. [] compensation in an amount according to proof at trial. 3. [] punitive damages in an amount to be determined at trial. 4. [] attorneys' fees . . . . 5. [] costs of suit. 6. [] such other and further relief as the Court deems just and proper." (Id. at 18.) Defendants filed an answer to the complaint on February 25, 2010. (ECF 8.)

CWA filed the present motion to stay on November 30, 2010. (ECF 18.) Plaintiffs filed their opposition on December 30, 2010. (ECF 19.) CWA filed its reply on February 22, 2011. (ECF 23.) Plaintiffs filed their ex parte application to continue the trial date and related dates on April 5, 2011. (ECF 27.) CWA filed its opposition to the ex parte application on April 7, 2011. (ECF 31.)

II. ANALYSIS - MOTION TO STAY

A. Colorado River Abstention Doctrine

i. Standard

The standard applicable to determining the pending motion to stay is found in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976), which declares that federal courts have a "virtually unflagging obligation [] to exercise the jurisdiction given them."*fn2 "Abstention from the exercise of federal jurisdiction is the exception, not the rule." Id. at 813. "Generally, as between state and federal courts, the rule is 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 . . . .'" Id. at 817 (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)). In deciding whether a stay is appropriate in the face of a parallel proceeding, courts must consider "'[wise] judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'" Id. at 817 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952)). However, "the circumstances permitting the dismissal of a federal suit due to the presence of a concurrent state proceeding for reasons of wise judicial administration are considerably more limited than the circumstances appropriate for abstention." Id. at 818.

The court's "task is to ascertain whether there exist 'exceptional' circumstances, the 'clearest of justifications,' that can suffice under Colorado River to justify the surrender of [federal] jurisdiction." Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 25-26 (1983). Factors to be considered in performing this task include: "(1) whether either court has assumed jurisdiction over a res;*fn3 (2) the relative convenience of the forums; (3) the desirability of avoiding piecemeal litigation; [] (4) the order in which the forums obtained jurisdiction[;] (5) whether state or federal law controls; and (6) whether the state proceeding is adequate to protect the parties' rights." Nakash v. Marciano, 882 F.2d 1411, 1415 (9th Cir. 1989) (internal citations omitted). Other factors include the prevention of forum shopping and the substantial similarity of the two proceedings.*fn4 Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1368, 1372 (9th Cir. 1990). "[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 favor of the exercise of jurisdiction. The weight to be given to any one factor may vary greatly from case to case, depending on the particular setting of the case." Cone, 460 U.S. at 16. "Any doubt as to whether a factor exists should be resolved against a stay, not in favor of one." Travelers Indem., 914 F.2d at 1369.

ii. Analysis

a. Relative convenience of forums

Although plaintiffs' witnesses will include "Z.B.'s doctors, therapists, home study evaluators, and the Boes, who are all in California" (Pls.' Opp'n at 11), if this case proceeds to trial, witnesses anticipated at this time will come from all over the country and the world. (See Def.'s Mot. at 4.) In addition to individuals residing in California, plaintiffs' proffered witnesses include residents of Alabama, Colorado, Montana, Washington, Texas, Michigan, North Carolina, Virginia, Washington, D.C., Pennsylvania and South Carolina, as well as twenty-nine witnesses residing outside of the United States in Ethiopia and Australia. (Bostic Decl. ¶ 4.) Moreover, twenty-nine of plaintiffs' witnesses "are current or former CWA employees; fourteen live in close proximity to the CWA offices in North and South Carolina. It is not contested that more of the witnesses live in close proximity to the CWA offices than to any other geographic location in the United States." (Id. ¶ 5.) At this point, plaintiffs continue to be defendants in the state court action, meaning they are subject to appearances in South Carolina if and when that court's stay is lifted, regardless of this court's decision. Although plaintiffs contend the California forum is more convenient due to Z.B.'s health concerns (see Pls.' Opp'n at 10), the South Carolina court addressed these concerns in the order denying the Boes' motion to dismiss: "The Court is sensitive to the medical needs of Defendants' son. . . . If his testimony is required, arrangements can easily be made for him to testify by videotape deposition or by teleconference." (Bostic Decl., Ex. B at 10 n.3.) In any event, as of this writing, Z.B. remains a third party plaintiff in the state proceeding.

Although these facts tend to support a stay, given that there is no finalized list of witnesses before the court who would be called if this case proceeded to trial, the court assigns this factor a neutral weight, neither favoring nor disfavoring a stay.

b. Desirability of avoiding piecemeal litigation

"'Piecemeal litigation occurs when different tribunals consider the same issue, thereby duplicating efforts and possibly reaching different results.'" Travelers Indem., 914 F.2d at 1369 (quoting American Int'l Underwriters v. Continental Ins. Co., 843 F.2d 1253, 1258 (9th Cir. 1988)). In Travelers Indemnity, the Ninth Circuit found that the desirability of avoiding piecemeal litigation did not weigh in favor of the federal court stay since there was no "federal legislation evincing a federal policy to avoid piecemeal litigation [or] 'vastly more comprehensive' state action that can adjudicate the rights of many parties or the disposition of much property." Travelers Indem., 914 F.2d at 1369. Furthermore, in Travelers, "the state court had made no rulings whatsoever." Id. Unlike in Travelers, here there is "certainty that duplicative effort would result" if the present case is not stayed. Id. The South Carolina court has already compelled arbitration, and CWA has indicated it will seek a court order compelling arbitration in this court if the action proceeds. (See Def.'s Mot. at 8.) Furthermore, the South Carolina court has determined that South Carolina law controls all causes of action in that case, and twice has dismissed the Boes's objections to personal jurisdiction. (See Bostic Decl., Ex. B; see also Tracy Decl., Ex. B.) If this court exercises jurisdiction, it will be called upon to decide these same matters anew, "requiring duplicative effort" and creating a possibility if not "a strong possibility of inconsistent results." American Int'l Underwriters, 843 F.2d at 1258.

Plaintiffs maintain, however, that "granting the stay would encourage piecemeal litigation," arguing that they have added parties to the state court action that are not parties to the contract; therefore, "under the principles of res judicata, parties not privy to that contract would have a right to bring their case elsewhere." (Pls.' Opp'n at 12.) Plaintiffs contend that this ability to bring the case elsewhere raises "a substantial doubt as to whether the state proceedings will resolve the federal action." (Id.) Plaintiffs rely in part on Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908 (9th Cir. 1993), in which the Ninth Circuit overturned the district court's stay in an action involving the state and federal courts' concurrent review of an arbitration award. Intel involved "the possibility that [an arbitration] award [would] be reversed through the state appellate review process [that was] sufficient to raise a substantial doubt as to whether the state proceedings [would] end the litigation." Id. at 913 n.5. The Ninth Circuit found it compelling that certain claims were "subject to exclusive federal jurisdiction" and the "federal court action was initiated prior to the state court proceedings." Id. at 913 n.7, 914. In contrast to the situation in Intel, this court is not being asked to examine the results of a completed arbitration; rather, this court is being asked to try a case that has entered into arbitration elsewhere. Intel is therefore not a bar to the court's decision to stay this case.

Significantly, there is no "substantial doubt" here as to whether the state proceedings will resolve the claims pending in this federal action. "A contract may bind non-parties such as an intended third party beneficiary . . . [b]ut generally arbitration clauses and contracts do not bind non-parties in the absence of such extraordinary relationships." Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1287 (9th Cir. 2009). "[N]onsignatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles. Among these principles are 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel. In addition, nonsignatories can enforce arbitration agreements as third party beneficiaries." Comer v. Micor, Inc., 436 F.3d 1098, 1102 (9th Cir. 2006) (internal quotations omitted). Z.B. is, as the Boes admitted, "a third party beneficiary to [the contract]" (Compl. ¶ 69); in fact, Z.B., as a plaintiff in the federal court suit, is suing under the CWA contract. As such, "[e]quitable estoppel precludes [him] from claiming the benefits of [the] contract while simultaneously attempting to avoid the burdens that contract imposes." Id. (internal quotation omitted).*fn5

The court finds that the interest in avoiding piecemeal litigation weighs greatly in favor of a stay.

c. Order in which forums obtained jurisdiction

"'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.'" Travelers Indem., 914 F.2d at 1370 (quoting Cone, 460 U.S. at 21). Here, the state suit was filed first and has progressed further, with the South Carolina court having already compelled arbitration.

Plaintiffs maintain that this court obtained jurisdiction in this matter before the South Carolina court, because the South Carolina court did not deny their motion to dismiss for lack of personal jurisdiction until April 2010. (Pls.' Opp'n at 13.) Plaintiffs also note they continue to object to the jurisdiction of the South Carolina court in their answer to CWA's complaint. (See Bostic Decl, Ex. C, ECF 18-4.)*fn6 Plaintiffs provide no authority for their contention that the South Carolina court did not obtain jurisdiction until it denied the Boes's motion to dismiss, and the court is aware of none. The Ninth Circuit has held that "a party has consented to personal jurisdiction when the party took some kind of affirmative act--accepting a forum selection clause, submitting a claim, filing an action--that fairly invited the court to resolve the dispute between the parties. By contrast, where a party has filed a timely and unambiguous objection to the court's jurisdiction, we have concluded that the party has not consented to jurisdiction." Securities and Exchange Comm. v. Ross, 504 F.3d 1130, 1149 (9th Cir. 2007). Here, plaintiffs signed a contract identifying South Carolina law as the applicable law and containing an arbitration provision based on South Carolina law. Even after the South Carolina court denied their motion to dismiss, they continued to litigate in opposition to the motion to compel arbitration in South Carolina without seeking a stay or transfer. Given this factor's focus on the order in which the complaints were filed and the relative amount of progress made in the parallel actions (see Travelers Indem., 914 F.2d at 1370), these facts weigh heavily in favor of a stay of this action.

d. Controlling law

As noted, the contract signed by the Boes and CWA contains an arbitration and choice of law clause identifying South Carolina law.

There is an "emphatic federal policy in favor of arbitral dispute resolution." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 631 (1985). Plaintiffs have not provided any "compelling considerations" for "disfavoring [the arbitration agreement]." Mitsubishi Motors, 473 U.S. at 627. "'[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .'" Mitsubishi Motors, 473 U.S. at 626 (quoting Cone, 460 U.S. at 24-25). Here, the applicable contractual provisions expressly identify South Carolina law as controlling.

While plaintiffs contend that California law governs in this proceeding (Pls.' Opp'n at 13), without referencing any authority, they merely assert that they have "chosen federal court in California because California laws govern adoptee rights and adoptive parent standards." (Id.) Moreover, they raise only generalized state law claims, none of which are specifically based on California law.

Furthermore, as only state law claims are pled, there are no federal law issues that weigh against surrender of jurisdiction. See Cone, 460 U.S. at 26.

Plaintiffs assert that even if the Boes are bound by the choice of law clause in the contract, Z.B. and the other named defendants in the federal case have not expressly agreed to this clause. (Id. at 8.) As noted above, as a third party beneficiary, Z.B. may be held to the terms of the contract with CWA. Comedy Club, 553 F.3d at 1287; Comer, 436 F.3d at 1102.

There is no indication that the other defendants to the federal case themselves object to being bound by this clause.

This factor also weighs heavily in favor of a stay.

e. Adequacy of state proceeding

"This factor involves the state court's adequacy to protect federal rights, not the federal court's adequacy to protect state rights," Travelers Indem., 914 F.2d at 1370, and "'is more important when it weighs in favor of federal jurisdiction.'" Id. (quoting Bethlehem Contracting Co. v. Lehrer/McGovern, Inc., 800 F.2d 325, 328 (2d Cir. 1986)). As noted, this case does not advance any federal claims. Plaintiffs assert generally that this court is better suited to hear this case because "of [its] specialized knowledge . . . concerning issues related to International Adoption law that are involved in this case." (Pls.' Opp'n at 3.) Even if international adoption law were implicated by this case, which it is not,*fn7 plaintiffs provide no compelling arguments explaining the state arbitration tribunal's incompetency to hear such claims. There is no apparent reason for that tribunal's being found inadequate to hear the state law claims that are proceeding.

Furthermore, "[t]he mere fact that the [state] court has stayed its action temporarily does not make the state court proceeding inadequate." American Int'l Underwriters, 843 F.2d at 1259. The fact that the South Carolina proceeding is stayed pending final arbitration is not dispositive.

This factor also weighs in favor of a stay.

f. Forum shopping

"In the Colorado River context, [the Ninth] Circuit has held that forum shopping weighs in favor of a stay when the party opposing the stay seeks to avoid adverse rulings made by the state court or to gain a tactical advantage from the application of federal court rules." Travelers Indem., 914 F.2d at 1371.

Plaintiffs argue that staying this case "will potentially take away the plaintiffs' right to a jury . . . and would force Plaintiffs to adjudicate in a forum with an entirely different set of laws under different standards of evidence." (Pls.' Opp'n at 12.) This argument sounds of forum shopping, born of an apparent desire to avoid arbitration and the South Carolina forum. Cf. American Int'l Underwriters, 843 F.2d at 1256 (plaintiff was admittedly forum shopping for more beneficial rules of evidence). Plaintiffs' moving in the South Carolina court to dismiss their counterclaims, after the March bench hearing in this matter and in anticipation of this court's issuance of the present order, further smacks of forum shopping. (See Ex Parte App. at 5, ECF 27.)

This factor too weighs in favor of granting the stay. g. Substantial similarity Plaintiffs contend that the state suit is not "a parallel suit" because it did not include all the parties in the present suit and CWA requested only declaratory relief. (Pls.' Opp'n at 2.) However, "exact parallelism . . . is not required. It is enough if the two proceedings are 'substantially similar.'" Nakash, 882 F.2d at 1416 (citing Interstate Material Corp. v. Chicago, 847 F.2d 1285, 1288 (7th Cir. 1988)). Proceedings are "substantially similar when 'substantially the same parties are contemporaneously litigating substantially the same issues in another forum.'" Sabbag v. Cinnamon, 2010 U.S. Dist. LEXIS 131086, *14 (N.D. Cal. Dec. 10, 2010) (quoting Travelers Cas. and Sur. Co. of Am. v. Comerica Bank, 2009 WL 2136922, at *3 (E.D. Cal. July 15, 2009) (quoting Interstate Material Corp., 847 F.2d at 1288)). Thus, "application of the Colorado River doctrine does not require an exact duplication of the parties involved or the claims asserted." Id. at 15.

The present proceeding is substantially similar to the state court proceeding. With regard to the parties, the present complaint does raise claims against three parties not involved in the state court proceedings: Christian World Foundation, Inc.; Christian World Adoption, Ethiopia; and Tracy Froidcoeur.*fn8 However, it is clear from the complaint that these parties are related to the parties named in the state action: Christian World Foundation, Inc. is alleged to be a South Carolina corporation sharing a CEO and Chief Financial Officer/ Secretary/Treasurer with CWA; Christian World Adoption, Ethiopia is alleged to be "an unincorporated division of [CWA]"; and Tracy Froidcoeur is alleged to be the Director of Christian World Adoption, Ethiopia. (Compl. ¶¶ 3-6.)*fn9 In addition, Z.B. is a plaintiff in the present proceeding and a third party plaintiff in the state court proceedings. Moreover, while the present complaint includes one cause of action not raised in the state court counterclaim --Fraud/Intentional Misrepresentation -- this claim could have been raised in the South Carolina court; in fact, many of the facts alleged by the Boes in their answer to CWA's complaint include allegations of fraudulent misrepresentation. (See Bostic Decl., Ex. C.) While the Second Circuit has found that a stay was inappropriate where the plaintiff's federal suit raised a claim not raised in the state suit, Bethlehem Contracting Co. v. Lehrer/McGovern, Inc., 800 F.2d 325, 328 (2d Cir. 1986), the Ninth Circuit does not abide by such a standard. Rather, as already stated, the Ninth Circuit explicitly holds that "exact parallelism . . . is not required." Nakash, 882 F.2d at 1416 (mentioning and not agreeing with the plaintiff's argument based on Bethlehem Contracting, 800 F.2d at 328).

Thus, this factor also weighs in favor of a stay.

h. Conclusion

This case presents exceptional circumstances and the clearest of justifications for abstention. The following six factors weigh in favor of granting a Colorado River stay in this case: avoiding piecemeal litigation, the order in which a forum obtained jurisdiction, the controlling law, adequacy of state proceedings, forum shopping and substantial similarity. "[T]he parallel state proceeding will be an adequate vehicle for the complete and prompt resolution of the issues between the parties.'" Smith v. Cent. Ariz. Water Conservation Dist., 418 F.3d 1028, 1033 (9th Cir. 2005) (quoting Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277 (1988) (internal quotation omitted)).

III. EX PARTE APPLICATION

Plaintiffs' recent application is a transparent attempt to defeat defendants' motion to stay by dismissing their state counterclaims and trying to force the court's hand to effect a change in forum. (See Ex Parte App. at 8 ("Given the fact that plaintiffs are moving to dismiss all of their claims in South Carolina, it is more likely the Court will rule against Defendants on the Motion to Stay . . . .").) As of the filing of this order, the South Carolina court has not decided plaintiffs' motion, and therefore the state counterclaims have not been dismissed. The court's analysis of the factors relevant to a motion to stay set forth above is not affected. Moreover, plaintiffs have not shown good cause for the court's revisiting the schedule previously set for this case on an expedited basis without the opportunity for a full airing of positions of all parties. The application will be denied.

IV. CONCLUSION

For the foregoing reasons, CWA's motion to stay proceedings in the instant case is GRANTED and plaintiffs' ex parte application is DENIED. This case is STAYED pending resolution of the parallel state proceeding.

IT IS SO ORDERED.


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