Koch Project v. Alliance Proc Prt ( 2022 )

Case: 21-20093 Document: 00516542432 Page: 1 Date Filed: 11/11/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
November 11, 2022
No. 21-20093 Lyle W. Cayce
Clerk
Koch Project Solutions, L.L.C.,
Plaintiff—Appellant,
versus
Alliance Process Partners, L.L.C., doing business as
International Alliance Group; Triten Corporation,
Defendants—Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:20-cv-3479
Before Richman, Chief Judge, and Clement and Duncan, Circuit
Judges.
Per Curiam:*
Koch Product Solutions, L.L.C. (KPS) appeals a stay order in its
federal declaratory judgment action. The district court granted the stay
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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largely because of a related pending state court action. Because the district
court did not abuse its discretion, we affirm.
I
KPS seeks a declaratory judgment that it has not unlawfully drawn
employees or business away from Triten Corporation and its subsidiary
International Alliance Group (together, Triten). KPS and Triten both
provide project management services to clients in the energy sector. KPS
leadership includes at least five former Triten employees, including KPS
President, Paul Switzer. While working at Triten, each of the employees
entered a contract that included noncompete provisions. The provisions
prohibited inducing or attempting to induce employees to leave Triten and
work for a competitor, and they prohibited soliciting or accepting similar
business from Triten clients for set periods. Between 2018 and 2019, all five
employees left their positions at Triten.
In June 2020, Switzer filed a lawsuit in Texas state court against
Triten for breach of contract and various state law torts. These claims arose
out of Triten’s alleged failure to pay Switzer compensation and benefits.
Triten responded with counterclaims against Switzer and third-party claims
against two of KPS’s parent companies, Koch Industries and Koch
Engineered Solutions, and against Koch officer David Dotson (collectively,
the Koch affiliates). Among other claims, Triten alleged civil conspiracy and
tortious interference with the noncompete provisions. Triten charged that
Switzer and the Koch affiliates sought to draw business away from Triten by
establishing KPS and recruiting the former Triten employees. Triten
referred to KPS in its claims, but it did not name KPS as a third-party
defendant. The state district court dismissed the Koch affiliates from the
2
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lawsuit for lack of personal jurisdiction, but that decision was reversed on
appeal.
In October 2020, KPS filed this federal declaratory judgment action
against Triten. KPS brought the lawsuit pursuant to the Declaratory
Judgment Act 1 “to remove the cloud over its name” cast by Triten’s
allegations in state court. The federal action consists of two counts of
tortious interference. First, KPS seeks a declaration that it did not interfere
with its employees’ contract obligations not to solicit or accept business from
Triten clients. Second, KPS seeks a declaration that it did not interfere with
its employees’ contract obligations not to induce or attempt to induce Triten
employees to leave Triten and work at a competitor.
Triten sought to dismiss or stay the suit under the Supreme Court’s
Brillhart 2 doctrine, whereby federal courts may exercise their discretion to
abstain from hearing declaratory judgment actions. 3 In January 2021, the
district court denied the motion to dismiss but granted a stay until final
judgment in the state court action. The district court reasoned that, although
the state court action involved additional claims and parties, “all of the
material questions necessary to decide the issues raised in this declaratory
judgment action are governed by state law and can be resolved in the state
court action,” since the lawsuit arose out of the same facts and involved the
same contractual issues. The district court ordered the parties to submit a
joint status report every 60 days until the stay is lifted. KPS timely appealed
the stay order.
1
28 U.S.C. § 2201-02.
2
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942).
3
Id. at 495.
3
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II
We must first determine our jurisdiction over this appeal. 4 KPS seeks
appellate review pursuant to 28 U.S.C. § 1291. Under § 1291, “federal
courts of appeals are empowered to review only ‘final decisions of the district
courts.’” 5 “[A] decision is ordinarily considered final and appealable under
§ 1291 only if it ‘ends the litigation on the merits and leaves nothing for the
court to do but execute the judgment.’” 6 Most stay orders are not
considered final because they do not end litigation; they postpone it. 7
In abstention and related contexts, however, the Supreme Court has
recognized an exception to this general rule. 8 The Court first identified this
exception in Idlewild Bon Voyage Liquor Corp. v. Epstein. 9 In Idlewild, a liquor
distributor brought a federal suit challenging the constitutionality of a state
statute. 10 The district court stayed the lawsuit under the Pullman 11 doctrine,
whereby federal courts abstain from deciding constitutional disputes when a
state court’s clarification of its law would render a constitutional ruling
unnecessary. 12 The Supreme Court held that the stay order was a final
4
United States v. Shkambi, 993 F.3d 388, 389 (5th Cir. 2021) (“We start, as always,
with jurisdiction.”).
5
Microsoft Corp. v. Baker, 137 S. Ct. 1702, 1707 (2017) (quoting 28 U.S.C. § 1291)).
6
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin v. United
States, 324 U.S. 229, 233 (1945)).
7
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10 n.11 (1983);
Kershaw v. Shalala, 9 F.3d 11, 14 (5th Cir. 1993).
8
Moses H. Cone, 460 U.S. at 10 n.11.
9
370 U.S. 713 (1962).
10
Id. at 714.
11
R.R. Comm’n of Tex. v. Pullman Co., 312 U.S. 496 (1941).
12
Id. at 501-02.
4
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decision appealable under § 1291 but gave limited reasoning. 13 It said only
that “[t]he Court of Appeals properly rejected the argument that the order
of the District Court ‘was not final and hence unappealable under 28 U.S.C.
§§ 1291, 1292,’ pointing out that ‘[a]ppellant was effectively out of court.’” 14
Two decades later, in Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 15 the Court relied on Idlewild’s “effectively out of court”
exception and held once again that a stay order was appealable under § 1291. 16
Moses H. Cone involved a stay entered under the Colorado River 17 doctrine,
whereby federal courts may in certain exceptional circumstances abstain
from exercising jurisdiction when there are concurrent state court
proceedings. 18 Idlewild secured appellate jurisdiction over the stay order. 19
In Idlewild, the “district court stay pursuant to Pullman abstention is entered
with the expectation that the federal litigation will resume in the event that
the plaintiff does not obtain relief in state court on state-law grounds.” 20 By
contrast, in Moses H. Cone, “a stay . . . meant that there would be no further
litigation in the federal forum; the state court’s judgment on the issue would
13
Idlewild, 370 U.S. at 715 n.2.
14
Id. (quoting Idlewild Bon Voyage Liquor Corp. v. Rohan, 289 F.2d 426, 428 (2d Cir.
1961)).
15
460 U.S. 1 (1983).
16
Id. at 10.
17
Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (1976).
18
Id. at 817-19.
19
Moses H. Cone, 460 U.S. at 10.
20
Id.5
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be res judicata.” 21 As a result, “the argument for finality of the District
Court’s order [was] even clearer.” 22
Moses H. Cone emphasized that the “effectively out of court”
exception was narrow. “Of course,” the Court explained, “Idlewild does not
disturb the usual rule that a stay is not ordinarily a final decision for purposes
of § 1291, since most stays do not put the plaintiff ‘effectively out of
court.’” 23 The exception was “limited to cases where (under Colorado River,
abstention, or a closely similar doctrine) the object of the stay is to require all
or an essential part of the federal suit to be litigated in a state forum.” 24
The Court ascertained the stay’s object based on its legal
consequences. It was not enough that a stay “have the practical effect of
allowing a state court to be the first to rule on a common issue.” 25 Rather,
the Court “h[e]ld only that a stay order is final when the sole purpose and
effect of the stay is precisely to surrender jurisdiction of a federal suit to a
state court.” 26
Since Moses H. Cone, the Court has continued to apply this
exception. 27 In Quackenbush v. Allstate Insurance Co., 28 the Court deemed an
abstention-based remand order appealable under § 1291 because of its
21
Id.
22
Id.
23
Id. at 10 n.11.
24
Id.
25
Id.
26
Id.
27
See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996); Wilton v. Seven
Falls Co., 515 U.S. 277, 280-81 (1995).
28
517 U.S. 706 (1996).
6
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decisions in Moses H. Cone and Idlewild. 29 Based on those precedents, the
order was appealable as a final decision under § 1291 because it “put[] the
litigants in this case effectively out of court, and its effect [was] precisely to
surrender jurisdiction of a federal suit to a state court.” 30 The Court
acknowledged that “these standards do not reflect our oft-repeated
definition of finality.” 31 Nevertheless, the Court concluded that § 1291
appealability was “compelled by precedent.” 32
Precedent also compels § 1291 appealability in this case. Like stay
orders governed by Pullman and Colorado River, the stay order governed by
Brillhart here concerns the interplay of federal and state proceedings. 33 The
stay suspends the former in favor of the latter; its object is “precisely to
surrender jurisdiction of a federal suit to a state court.” 34 Litigation of the
federal suit will not resume, if at all, until final judgment in the state court
action. The district court’s stay puts the litigants in this case “effectively out
of court.” 35 Under these circumstances, the stay is a § 1291 final decision.
Generally, when this court has deemed Brillhart stay orders
appealable under § 1291, the stays have suspended federal proceedings until
the resolution of a state court lawsuit with res judicata effect. 36 In those cases,
29
Id. at 712.
30
Id. (citing Moses H. Cone, 460 U.S. at 10 n.11) (internal citations omitted).
31
Id. at 713.
32
Id.
33
See Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942).
34
Moses H. Cone, 460 U.S. at 10 n.11.
35
Id.36
Granite State Ins. Co. v. Tandy Corp., 986 F.2d 94, 95 (5th Cir. 1992); see also Am.
Guarantee & Liab. Ins. Co. v. Anco Insulations, Inc., 408 F.3d 248, 250 (5th Cir. 2005); Ford
7
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the stays guaranteed that there would be no further litigation in the federal
forum. In this case, the potential for future litigation is less clear. State law
determines the preclusive effect of a state court judgment. 37 Under Texas
law, res judicata requires: “(1) a prior final judgment on the merits by a court
of competent jurisdiction; (2) identity of parties or those in privity with them;
and (3) a second action based on the same claims as were raised or could have
been raised in the first action.” 38 When this court has deemed Brillhart stays
appealable under § 1291, it has not engaged in a detailed res judicata analysis.
That is because res judicata has been self-evident: the parties have been
identical, and the claims in the state and federal court actions have
overlapped. 39
Not so here. A final judgment by the state court on the merits of the
tortious interference claims may well satisfy elements one and three, but the
parties are not identical, and privity is uncertain. This distinction is crucial
to the preclusion analysis. Given the fact-specific nature of privity, 40 which
Motor Credit Co. v. Lewis, 233 F.3d 575, 2000 WL 1468831, at *4 (5th Cir. 2000) (per
curiam) (unpublished).
37
In re 3 Star Properties, L.L.C., 6 F.4th 595, 604-05 (5th Cir. 2021).
38
Cox v. Nueces Cnty., 839 F.3d 418, 421 (5th Cir. 2016) (quoting Amstadt v. U.S.
Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996)).
39
See Am. Guarantee, 408 F.3d at 250 (holding that a stay order was appealable
under § 1291 when the parties were the same and the state proceeding encompassed
common issues); Granite State, 986 F.2d at 95 (holding that a stay order was appealable
under § 1291 when the parties were the same and the issues would “undoubtedly be
litigated in the state court action”); Ford Motor, 2000 WL 1468831, at *4 (“Since the state
court proceeding will resolve the declaratory judgment action’s only issue, the order
granting the stay of proceeding is considered a final judgment for purposes of 28 U.S.C.
§ 1291.”).
40
EEOC v. Jefferson Dental Clinics, PA, 478 F.3d 690, 694 (5th Cir. 2007) (citing
and then quoting Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 800 (Tex. 1992))
8
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the parties have not briefed, we decline to rule on privity or to predict the res
judicata effect of an unresolved state court proceeding. 41
In any case, the possibility of future litigation does not preclude our
jurisdiction. Our circuit precedents also hold that a stay order that causes a
“protracted and indefinite” delay in federal court proceedings suffices to put
plaintiffs “effectively out of court.” 42 This logic derives from Idlewild, in
which, as noted, the Supreme Court asserted § 1291 jurisdiction over a stay
that was “entered with the expectation that the federal litigation will resume
in the event the plaintiff does not obtain relief in state court.” 43 In this case,
the stay order has already delayed proceedings for over eighteen months, and
there is no indication that delay will end. Even if federal litigation does
ultimately continue, our jurisdiction is secure.
Triten contends that the district court’s order is not final because the
order requires the parties to submit periodic status reports. This argument
lacks merit. Section 1291 finality “is to be given a practical rather than a
technical construction.” 44 An order is final when “there is no indication that
(“Texas courts have been clear that there is no categorical rule for privity; instead the
courts look to ‘the circumstances of each case.’”).
41
Cooper v. Harris, 137 S. Ct. 1455, 1470 n.4 (2017) (determining that there was “no
occasion to address” a fact-intensive issue “the parties have not briefed or argued”).
42
Hines v. D’Artois, 531 F.2d 726, 731 (5th Cir. 1976) (holding that a stay order that
would delay proceedings for at least eighteen months was a final decision under § 1291); see
also Occidental Chem. Corp. v. La. Pub. Serv. Comm’n, 810 F.3d 299, 306-08 (5th Cir. 2016)
(affirming that Hines remains good law and holding that a stay order that had already
delayed proceedings for nearly two years was a final decision under § 1291).
43
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10 (1983); see
also Occidental, 810 F.2d at 306-07; Hines, 531 F.2d at 730-31.
44
Microsoft Corp. v. Baker, 137 S. Ct. 1702, 1712 (2017) (quoting Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 171 (1974)).
9
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the district court intends to revisit its decision to stay the case.” 45 Here,
there is no such indication. The district court ordered that “this action
should be stayed pending final adjudication in the state court action.” A
mere request for updates on the parties’ progress does not evince any interest
in lifting the stay before the state court action concludes.
III
We now turn to the merits of the stay order. Under the Declaratory
Judgment Act, federal courts “may declare the rights and other legal
relations of any interested party seeking such declaration.” 46 They are not
compelled to do so, however. In declaratory judgment actions, “the normal
principle that federal courts should adjudicate claims within their jurisdiction
yields to considerations of practicality and wise judicial administration.” 47
The statute has long “been understood to confer on federal courts unique
and substantial discretion in deciding whether to declare the rights of
litigants.” 48
The Brillhart doctrine governs the district court’s discretion to stay a
declaratory judgment action. 49 Under Brillhart, a district court “should
ascertain whether the questions in controversy between the parties to the
45
Am. Guarantee & Liab. Ins. Co. v. Anco Insulations, Inc., 408 F.3d 248, 250 (5th
Cir. 2005) (citing Moses H. Cone, 460 U.S. at 12-13).
46
28 U.S.C. § 2201(a).
47
Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995).
48
Id. at 286.
49
Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 389 (5th Cir. 2003).
Although commonly referred to as Brillhart “abstention,” the term is “not entirely
accurate.” Med. Assur. Co., Inc. v. Hellman, 610 F.3d 371, 378 (7th Cir. 2010).
“Abstention” normally refers to “judicially-created doctrines,” whereas the discretion to
stay or dismiss an action under the Declaratory Judgment Act comes from the statute itself.
Id.10
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federal suit . . . can better be settled in the proceeding pending in the state
court.” 50
We review the district court’s decision to stay federal court
proceedings pending the outcome of a state court action for abuse of
discretion. 51 Although discretion “is broad, it is not unfettered.” 52 A district
court abuses its discretion “unless [it] addresses and balances the purposes
of the Declaratory Judgment Act and the factors relevant” to the Brillhart
doctrine. 53 In St. Paul Insurance Co. v. Trejo, 54 we identified seven
nonexclusive factors to guide a district court’s exercise of discretion in a
Brillhart stay:
(1) whether there is a pending state action in which all of the
matters in controversy may be fully litigated;
(2) whether the plaintiff filed suit in anticipation of a lawsuit
filed by the defendant;
(3) whether the plaintiff engaged in forum shopping in bringing
the suit;
(4) whether possible inequities in allowing the declaratory
plaintiff to gain precedence in time or to change forums exist;
(5) whether the federal court is a convenient forum for the
parties and witnesses;
50
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942).
51
Am. Guarantee & Liab. Ins. Co. v. Anco Insulations, Inc., 408 F.3d 248, 250 (5th
Cir. 2005).
52
St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590 (5th Cir. 1994) (quoting Travelers Ins.
Co. v. La. Farm Bureau Fed’n, Inc., 996 F.2d 775, 778 (5th Cir. 1993)).
53
Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382, 390 (5th Cir. 2001)
(quoting Trejo, 39 F.3d at 590).
54
39 F.3d 585 (5th Cir. 1994).
11
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(6) whether retaining the lawsuit would serve the purposes of
judicial economy; and
(7) whether the federal court is being called on to construe a
state judicial decree involving the same parties and entered by
the court before whom the parallel state suit between the same
parties is pending. 55
Every circuit has a similar test.56 Across circuits, the Brillhart inquiry
is grounded in three fundamental concerns: federalism, fairness, and
efficiency. 57
A
The first Trejo factor considers “whether there is a pending state court
action in which all of the matters in controversy may be fully litigated.” 58 A
parallel state court proceeding raises Brillhart concerns about federalism and
efficiency. 59 Duplicative litigation in federal court, especially over matters of
state law, should be avoided. 60
The existence of a pending parallel state court proceeding is not
dispositive, but it is an “important factor” in the analysis. 61 When a related
state court proceeding “is not ‘parallel’ because it does not involve all the
same parties or issues,” the district court must consider “the extent of
55
Id. at 590-91.
56
Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 390 (5th Cir. 2003)
(collecting cases).
57
Id. at 390-91.
58
Trejo, 39 F.3d at 590.
59
Sherwin-Williams, 343 F.3d at 394.
60
See id. at 391-92.
61
Id. at 394.
12
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similarity between the pending state court and federal court cases.” 62 The
greater the overlap, the more likely that a stay will promote federalism and
efficiency. 63
The district court ruled that the first factor favored a stay. The court
reasoned that the factual and legal issues coincided because “the state court
action arises out of the same facts and circumstances, and involves the same
contractual issues as this declaratory judgment action.” The court
recognized that KPS was not a party to the state court proceeding but did not
deem this distinction significant because KPS had the same interests as
Switzer and the Koch affiliates.
The district court correctly determined that the federal and state court
proceedings are connected. Both involve claims of tortious interference
based on the same set of noncompete provisions in the same set of contracts.
The related state court proceeding governing state law issues raises concerns
about federalism and efficiency that favor a stay.
B
The next three Trejo factors consider whether the declaratory
judgment plaintiff filed suit in anticipation of a lawsuit filed by the defendant,
engaged in forum shopping in bringing the action, and would create potential
62
Id. at 394 n.5.
63
See id. at 390, 394.
13
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inequities by gaining precedence in time or changing forums. 64 These factors
raise Brillhart concerns about fairness. 65
The district court ruled that, on the whole, these fairness factors
favored a stay. As to the second factor, the court correctly recognized that
the federal proceeding was “not filed in anticipation of, but in response to”
the state proceeding. Nevertheless, the court concluded that this response
was unfair. Because “KPS’s interests in this declaratory action are the same
as the interests of [its] president, Switzer, and [its] parent companies in the
state court action,” the declaratory action was “in fact, an effort by KPS not
only to forum shop, but also to gain precedence by having this court instead
of the state court decide the issues raised by the tortious interference claims
asserted in both actions.”
The district court did not abuse its discretion in concluding that KPS
sought to forum shop and to gain unfair precedence. It is true that a mere
preference for a federal forum “does not necessarily demonstrate
impermissible forum selection.” 66 An out-of-state plaintiff may properly
invoke federal jurisdiction to avoid the potential bias of a state forum. 67
Protecting out-of-state defendants like KPS is “the traditional justification
for diversity jurisdiction.” 68 In this case, however, the record adequately
supports the district court’s determination that the declaratory action was
not a mere effort to avoid state court bias. The overlap between the state and
federal proceedings suggests that KPS intends to reassign adjudication of
64
St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1994).
65
Sherwin-Williams, 343 F.3d at 391.
66
Id. at 399.
67
Id.68
Id.14
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shared legal and factual issues to the federal court. KPS says as much in its
federal complaint. In KPS’s words, “[t]his declaratory judgment action
arises from Defendants’ public and erroneous allegations that KPS is
unlawfully competing with Defendants.” KPS seeks declarations of non-
interference “so that it may fairly compete in the marketplace without the
distraction and harm associated with Defendants’ meritless contentions.”
The purpose of its lawsuit is to have the federal court declare Triten’s state
court allegations wrong.
This court has previously drawn a connection between the degree of
overlap in state court proceedings and procedural inequity. 69 When federal
and state court actions are related, the federal action risks “changing forums
or subverting the real plaintiff’s advantage in state court.” 70 These risks
dissipate when the federal action pertains to separate claims. In this case, the
relationship between the state and federal proceedings threatens
impermissible meddling with Triten’s lawsuit. This threat supports the
district court’s conclusion that, in sum, the fairness factors favor a stay.
69
See Sherwin-Williams, 343 F.3d at 399 (rejecting unfairness when there was no
“race to res judicata”); Ironshore Specialty Ins. Co. v. Tractor Supply Co., 624 F. App’x 159,
167-68 (5th Cir. 2015) (per curiam) (unpublished) (denying procedural inequity when “the
state court action did not involve the same parties or the same legal issues,” thereby
negating the risk of preclusion).
70
Sherwin-Williams, 343 F.3d at 399 (quoting Travelers Ins. Co. v. La. Farm Bureau
Fed’n, Inc., 996 F.2d 775, 777 (5th Cir. 1993)).
15
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C
The fifth Trejo factor considers “whether the federal court is a
convenient forum for the parties and witnesses.” 71 This factor “primarily
address[es] efficiency considerations.” 72
The district court ruled that the federal and state courts were equally
convenient, so this factor was neutral. KPS does not dispute the convenience
of the federal court, but it argues that this convenience militates in its favor.
We are not rigid in prescribing the role that convenience must play in the
district court’s analysis. 73 The district court did not abuse its discretion in
ruling this factor neutral.
D
The sixth Trejo factor considers “whether retaining the lawsuit would
serve the purposes of judicial economy.” 74 Federal courts “should avoid
duplicative or piecemeal litigation where possible.” 75 Judicial economy
corresponds primarily to Brillhart’s concern about efficiency. 76 Judicial
economy may also implicate concerns about federalism and comity,
71
St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 591 (5th Cir. 1994).
72
Sherwin-Williams, 343 F.3d at 391.
73
See, e.g., Ironshore Specialty Ins. Co. v. Tractor Supply Co., 624 F. App’x 159, 168
(5th Cir. 2015) (per curiam) (unpublished) (holding that this factor “weighs against
dismissal” when there was no indication that the federal court was inconvenient); RLI Ins.
Co. v. Wainoco Oil & Gas Co., 131 F. App’x 970, 973 (5th Cir. 2005) (per curiam)
(unpublished) (finding no abuse of discretion when the federal and state forums were both
of “relative convenience” and the district court ruled this factor “neutral”).
74
Trejo, 39 F.3d at 591.
75
Sherwin-Williams, 343 F.3d at 391.
76
Id.16
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especially when duplicative litigation could produce conflicting judgments on
matters of state law. 77
The district court held that this factor favored a stay. The court
reasoned that the declaratory judgment action would produce inefficient
piecemeal litigation because the state lawsuit involves claims besides tortious
interference that the federal lawsuit would not resolve. By contrast, “all
issues raised by the claims asserted in this declaratory judgment action can
be resolved in the state court proceeding.”
The district court correctly concluded that a stay would serve judicial
economy. The resolution of the state lawsuit may or may not resolve the
claims in the federal lawsuit. As the district court noted, however, there is
no question that the federal lawsuit will not resolve the claims in the state
lawsuit. For example, the federal lawsuit will not resolve claims by Switzer
against Triten for compensation that Triten allegedly failed to pay him.
When state court proceedings involve claims or parties beyond those in the
federal declaratory judgment action, this court has held that efficiency
concerns counsel against asserting jurisdiction. 78 A stay may not avoid
piecemeal or duplicative litigation, but proceeding with the federal action
ensures it.
The federal action also raises concerns about federalism. Duplicative
litigation in the federal court about state law matters—tortious interference
77
Id.78
See id. (“A federal court should be less inclined to hear a case if necessary parties
are missing from the federal forum, because that leads to piecemeal litigation and
duplication of effort in state and federal courts.”); Am. Emps.’ Ins. Co. v. Eagle Inc., 122 F.
App’x 700, 703-04 (5th Cir. 2004) (per curiam) (unpublished) (affirming a stay order when
“a federal court cannot rule conclusively” on all the issues raised in the state court
proceedings so “it would not be more efficient for a federal court to initially hear the
claims”).
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with Triten’s contracts—creates “the potential for inconsistent state and
federal court judgments.” 79 A stay reduces this risk. For reasons of
efficiency as well as federalism, this factor favors a stay.
E
The seventh Trejo factor considers “whether the federal court is being
called on to construe a state judicial decree involving the same parties and
entered by the court before whom the parallel state suit between the same
parties is pending.” 80 This factor addresses Brillhart’s concern about
federalism. 81
Because this case does not involve the construction of a state judicial
decree, the district court deemed this factor “not relevant.” KPS contends
that the absence of a state decree is not irrelevant but rather disfavors a stay.
This court has not dictated the weight that district courts must place on the
absence of a state decree. One decision held that it “weighs strongly” in
favor of the declaratory judgment plaintiff, 82 while another approved of the
district court’s determination that this factor was “not implicated.” 83 KPS
does not give any reason why the absence of a state judicial decree warrants
special significance in this case. In fact, KPS concedes that there is “no
meaningful dispute” on this point. Given the variation in acceptable
79
Sherwin-Williams, 343 F.3d at 391.
80
St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 591 (5th Cir. 1994).
81
Sherwin-Williams, 343 F.3d at 392.
82
AXA Re Prop. & Cas. Ins. Co. v. Day, 162 F. App’x 316, 321 (5th Cir. 2006) (per
curiam) (unpublished).
83
RLI Ins. Co. v. Wainoco Oil & Gas Co., 131 F. App’x 970, 973 (5th Cir. 2005) (per
curiam) (unpublished).
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interpretations, the district court did not abuse its discretion in rejecting the
relevance of this factor.
F
The seven Trejo factors are “nonexclusive.” 84 KPS asserts additional
concerns about unfairness that would result if the state court action were to
preclude the federal court action. As explained above, however, the
preclusive effect of the state court’s ruling is unknown. This unsubstantiated
fear does not bear on the analysis.
In addition to considering the Trejo factors, a district court must also
“address[] and balance[] the purposes of the Declaratory Judgment Act.” 85
KPS argues that the stay order defies the purposes of the statute by
obstructing KPS’s attempt to clarify its rights. It is true that “[a] proper
purpose of section 2201(a) is to allow potential defendants to resolve a
dispute without waiting to be sued.” 86 However, the district court
reasonably concluded that a stay was consistent with that purpose. Triten
had already sought to resolve the dispute in some measure by asserting
related claims in state court.
In sum, we conclude that the district court did not abuse its discretion
in granting the stay. The presence of a related pending action in state court
implicates Brillhart’s concerns about federalism, fairness, and efficiency that
support the district court’s stay decision.
84
Sherwin-Williams, 343 F.3d at 388.
85
Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382, 390 (5th Cir. 2001)
(quoting St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 590 (5th Cir. 1994)).
86
Sherwin-Williams, 343 F.3d at 397.
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IV
Finally, we turn to the parties’ motions for judicial notice. Both
concern documents from the related state court proceedings.
Under Federal Rule of Evidence 201, a court “may judicially notice a
fact that is not subject to reasonable dispute.” 87 Such facts include those that
“can be accurately and readily determined from sources whose accuracy
cannot reasonably be questioned.” 88 An appellate court may take judicial
notice of facts, “even if such facts were not noticed by the trial court.” 89 On
several occasions, this court has taken judicial notice of court proceedings
relevant to the case being decided. 90
We grant both motions. The state court proceedings are relevant to
this action because they elucidate the nature of the claims the parties have
made and the defenses they have raised, and they show the status of those
proceedings. Of course, our notice of these documents does not mean that
we accept the assertions in the state court pleadings as true. Rule 201 permits
judicial notice only of facts that are “not subject to reasonable dispute.” 91
The test for indisputability is stringent. Assertions in pleadings that are not
otherwise obvious cannot clear Rule 201’s “‘indisputability’ hurdle.” 92
87
Fed. R. Evid. 201(b).
88
Id. 201(b)(2).
89
United States v. Herrera-Ochoa, 245 F.3d 495, 501 (5th Cir. 2001); see also Fed.
R. Evid. 201(d) (“The court may take judicial notice at any stage of the proceeding.”).
90
See, e.g., Alexander v. Verizon Wireless Servs., L.L.C., 875 F.3d 243, 248 n.8 (5th
Cir. 2017); United States v. Verlinsky, 459 F.2d 1085, 1089 (5th Cir. 1972); Paul v. Dade
Cnty., 419 F.2d 10, 12 (5th Cir. 1969).
91
Fed. R. Evid. 201(b).
92
Taylor v. Charter Med. Corp., 162 F.3d 827, 830 (5th Cir. 1998).
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* * *
For the reasons stated, we AFFIRM the district court’s stay order
and GRANT the parties’ motions for judicial notice.
21