[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 97-6966
Non-Argument Calendar
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D. C. Docket No. CV 97-AR-2567-M
FIRST FRANKLIN FINANCIAL CORP.,
Plaintiff-Appellant,
versus
GARY MCCOLLUM,
Defendant-Appellee.
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Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(June 8, 1998)
Before COX, BIRCH and MARCUS, Circuit Judges.
PER CURIAM:
1st Franklin Financial Corporation appeals from the dismissal of its petition to
compel Gary McCollum to participate in arbitration, pursuant to the Federal
Arbitration Act (FAA),
9 U.S.C. §§ 3-4. McCollum sued 1st Franklin and one of its
former employees, Kevin Dingle, in the circuit court of Etowah County, Alabama,
alleging several fraud-related claims arising from a loan transaction. Eighteen days
after McCollum sued, 1st Franklin filed concurrent petitions in the Etowah County
circuit court and in federal district court to force McCollum to arbitrate his claims
pursuant to an arbitration clause in the loan agreement and a separate arbitration
agreement. The district court dismissed the petition without prejudice, abstaining
“[u]nder principles of comity and federalism.” (R.-9, at 2.) 1st Franklin represents
that (as of the date of its opening brief) the state court has not ruled on the motion to
compel arbitration. 1st Franklin now appeals the dismissal. Abstentions such as this
are reviewed for abuse of discretion. See Moses H. Cone Mem. Hosp. v. Mercury
Constr. Corp.,
460 U.S. 1, 19,
103 S. Ct. 927, 938 (1983). We vacate and remand.
A threshold issue McCollum raises is whether the district court had subject
matter jurisdiction. As McCollum correctly points out, the FAA alone does not supply
jurisdiction, see
id. at 25 n.32,
103 S. Ct. at 942 n.32, and no federal question appears
in this action. It appears that diversity jurisdiction exists, however, because the
petition here (without contradiction) describes the petitioner as a corporation
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organized under Georgia law with its principal place of business in Georgia, names
the respondent as a citizen of Alabama, and claims an amount in controversy
exceeding $75,000. That plainly satisfies
28 U.S.C. § 1332’s demands. See
28
U.S.C. § 1332(a)(1), (b), (c)(1).
McCollum asserts to the contrary first that diversity jurisdiction is lacking
because the state-court action is not removable due to Dingle’s Alabama citizenship.
We disagree. As a matter of both § 1332’s language and common sense, whether
another action is removable or not does not affect jurisdiction in this, an independent
action. Furthermore, McCollum’s sole authority for this proposition is both weak and
distinguishable. McCollum relies on a footnote in Ultracashmere House, Ltd. v.
Meyer,
664 F.2d 1176, 1181 n.6 (11th Cir. 1981), which observes that “[t]he
[underlying] action was removable under
28 U.S.C. § 1441 on the basis of diversity
of citizenship; were it not, this court would clearly be without jurisdiction to entertain
the present proceeding.” First, this language does not state a rule that an action must
be removable in order for a district court to have jurisdiction to compel parties to the
action to arbitrate. Rather, it seems more like an observation in support of the court’s
conclusion in that case that abstention was appropriate, it appearing that the arbitration
petition was an eleventh-hour end-run around legitimate state-court rulings. See
id.
at 1181. And the observation was perfectly true in that case, because there were the
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same two parties in both the underlying action and the action seeking to compel
arbitration. Thus, if diversity was lacking in the state-court action, it would be lacking
in the federal-court action as well. Here, of course, the observation is not true. The
state-court action has three parties, but only two are parties to this action seeking an
order compelling arbitration. It is perfectly consistent, therefore, for removal
jurisdiction to lack in one, but subject matter jurisdiction to be present in the other.
McCollum makes a second, related contention based on a phrase taken out of
context from Moses H. Cone. There, the Court mentioned that for a federal court to
have jurisdiction over a petition to compel arbitration, it must have jurisdiction over
the “underlying dispute.”
460 U.S. at 25 n.32;
103 S. Ct. at 942 n.32. Again, this
statement, while controlling, does not imply a lack of federal subject matter
jurisdiction here. The “underlying dispute” that 1st Franklin seeks to arbitrate is not
McCollum’s quarrel with 1st Franklin’s codefendant Dingle, but McCollum’s quarrel
with 1st Franklin. Although 1st Franklin accuses McCollum of suing Dingle just to
defeat removal, for present purposes we assume that McCollum honestly believes that
Dingle is for some reason independently liable to McCollum. So there are two
“underlying disputes,” McCollum v. Dingle and McCollum v. 1st Franklin, even
though both may arise from the same transaction. 1st Franklin seeks to arbitrate only
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McCollum v. 1st Franklin, and there is undoubtedly diversity in that underlying
dispute. There is, therefore, federal subject matter jurisdiction over the petition.
Once such jurisdiction exists, federal courts have a “virtually unflagging
obligation” to exercise it. Moses H. Cone,
460 U.S. at 15,
103 S. Ct. at 936 (quoting
Colorado River Water Conservation Dist. v. United States,
424 U.S. 800, 817,
96 S.
Ct. 1236, 1246 (1976), in turn quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co.,
342 U.S. 180, 183,
72 S. Ct. 219, 221 (1952)). That means that dismissal is warranted
in light of a concurrent state court action only when a balancing of relevant factors,
“heavily weighted in favor of the exercise of jurisdiction,” shows the case to be
exceptional. See id. at 16,
103 S. Ct. at 937; see American Bankers Ins. Co. v. First
State Ins. Co.,
891 F.2d 882, 884 (11th Cir. 1990). In this case, the factors weigh
almost identically as they did in Moses H. Cone. That case, therefore, requires us to
conclude that the district court abused its discretion.
Colorado River and Moses H. Cone identify six factors relevant to whether a
federal court should exercise concurrent jurisdiction when a parallel state action is
pending. See American Bankers Ins. Co., 891 F.2d at 884. The parties agree that two
(relative convenience of the fora and whether one court has established jurisdiction
over property) are irrelevant here. That leaves four factors, and as in Moses H. Cone
they point to exercising jurisdiction. The first is the potential for piecemeal litigation.
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Moses H. Cone,
460 U.S. at 19-20,
103 S. Ct. at 939. McCollum makes much of this,
but here as in Moses H. Cone the factor has “no force.”
Id. The federal proceeding
has only two possible outcomes: an order compelling arbitration, or an order refusing
to compel arbitration and dismissing the petition. See
9 U.S.C. § 4. No piecemeal
litigation of the merits can occur either way, see Snap-On Tools Corp. v. Mason,
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F.3d 1261, 1267 (5th Cir. 1994), and even if arbitration results, that is piecemeal
litigation that the parties and federal policy have together made mandatory. See
Moses H. Cone,
460 U.S. at 20,
103 S. Ct. at 939.
The second factor, the order in which the tribunals obtained and exercised
jurisdiction, also weighs against discretionary dismissal. Although McCollum filed
the state court action about three weeks before 1st Federal filed its federal-court
petition, there is no suggestion in the record that 1st Federal could have done so much
earlier than that, cf.
id. at 21,
103 S. Ct. at 939-40, or that 1st Federal could have
known before McCollum sued in state court that he would not honor the arbitration
agreement. Furthermore, no activity had occurred in state court before the filing of
the federal petition or even before the district court ruled. As in Moses H. Cone, “[i]n
realistic terms, the federal suit was running well ahead of the state suit at the very time
the District Court decided to refuse to adjudicate the case.”
Id. at 22,
103 S. Ct. at
940. Indeed, because the state court had not acted, 1st Federal’s filing of a similar
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petition in state court simultaneously with this petition — a fact that arguably might
distinguish this case from Moses H. Cone — is of little moment.
The third factor, the law to be applied, also points to exercising jurisdiction.
The petition was brought pursuant to the Federal Arbitration Act,
9 U.S.C. § 3-4, and
thus any legal interpretation will be of federal law. As in Moses H. Cone, the law to
be interpreted does not supply the extraordinary circumstance required for a federal
court to refuse to exercise jurisdiction. See
id. at 26-27,
103 S. Ct. at 942.
The fourth factor, the adequacy of the state court to protect 1st Federal’s rights,
brings up what may be the only material difference between this case and Moses H.
Cone. The Moses H. Cone Court noted that state-court procedures there were not
adequate to protect the rights of the party seeking arbitration. In particular, the Court
worried that the language of
9 U.S.C. § 4, which requires a “United States district
court” to compel arbitration in certain circumstances, would on its face seem not to
apply in state court. See
id. at 27,
103 S. Ct. at 942. The U.S. Supreme Court did not
answer the question of § 4’s applicability, but the Alabama Supreme Court has
accepted that an Alabama court may compel arbitration under § 4, as long as the
underlying transaction involves interstate commerce. See, e.g., Old Republic Ins. Co.
v. Lanier,
644 So. 2d 1258, 1260 (Ala. 1994). Thus, state court remedies may be
adequate here. But there are counterconsiderations. First, the state court has
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apparently not ruled on 1st Federal’s motion, effectively undermining the federal
policy embodied in the FAA in favor of swift enforcement of arbitration agreements.
See Moses H. Cone,
460 U.S. at 22,
103 S. Ct. at 940. Second, the Moses H. Cone test
permits abstention only when some factor weighs heavily in favor of relinquishing
jurisdiction. See American Bankers Ins. Co., 891 F.2d at 884. The mere fact that 1st
Federal may possibly get relief at some point from the state court does not provide the
“clearest of justifications,” Moses H. Cone,
460 U.S. at 25,
103 S. Ct. at 942, needed
to warrant refusing to exercise jurisdiction.
In short, this case is so close to Moses H. Cone, and the factors here weigh
sufficiently against abstention, that the district court abused its discretion in
abstaining.
For the foregoing reasons, the dismissal is vacated and the action is remanded
for further proceedings.
VACATED AND REMANDED.
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