Wyles v. Sussman

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT September 13, 2016
_________________________________
Elisabeth A. Shumaker
Clerk of Court
TERRENCE M. WYLES,
Plaintiff - Appellant,
v. No. 15-1258
(D.C. No. 1:15-CV-00393-CMA-KMT)
ALLEN Z. SUSSMAN; LOEB & LOEB (D. Colo.)
LLP,
Defendants - Appellees.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before KELLY, MATHESON, and MORITZ, Circuit Judges.
_________________________________
Terrence Wyles filed a complaint in state court asserting multiple claims
against multiple defendants. While the state proceeding was pending, Wyles filed a
complaint in federal court asserting nearly identical claims against nearly all of the
same defendants. Concluding that Wyles improperly split his claims between state
and federal court, the district court dismissed Wyles’ federal complaint. Because the
district court erroneously concluded that Wyles’ pending state-court action precluded
his parallel federal-court action, we vacate and remand for further proceedings.
*
This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
its persuasive value. See Fed. R. App. P. 32.1; 10th Cir. R. 32.1.
BACKGROUND
In March 2014, Terrence Wyles filed a complaint in Arapahoe County District
Court in Colorado against 15 defendants, including his former employers, Aluminaid
International, A.G. and West Hills Research & Development; several of their
officers; the law firm of Loeb & Loeb, LLP; and a partner in that firm—Allen
Sussman. The complaint contained nine claims that arose from Wyles’ former
employment as in-house counsel for Aluminaid and West Hills. In October 2014,
Wyles filed a motion to amend the complaint, seeking to add a claim of professional
malpractice against Sussman and Loeb & Loeb, LLP (collectively, the Loeb
defendants). In January 2015, the state court denied the motion.
Six weeks later, Wyles filed this federal lawsuit. Wyles’ federal complaint is
substantially similar to his state complaint except that Wyles added both a negligence
claim against the Loeb defendants and a misrepresentation claim against other
defendants, and also omitted two defendants who were named in the state complaint.
The new negligence claim mirrored the malpractice claim that Wyles unsuccessfully
sought to add in state court.
The Loeb defendants1 moved to dismiss the federal complaint. In June 2015,
the district court granted the motion and in doing so, noted that Wyles could have
1
Wyles perfected service of the federal complaint only on the Loeb
defendants. Wyles moved for leave to serve the remaining 11 defendants through
substitute service, but the district court denied that motion. The record reflects that
Wyles never served the remaining defendants and the district court didn’t dismiss
those defendants before entering final judgment. On appeal, in response to our
request for supplemental briefing to resolve a jurisdictional issue, the Loeb
2
raised all of his claims in state court. Applying the rule against claim-splitting, the
district court reasoned that Wyles can’t “file two substantially identical complaints in
order to evade procedural restrictions.” App. 240. Wyles appeals.
DISCUSSION
Wyles argues the district court erred in dismissing his complaint based on the
rule against claim-splitting. First, he contends that the rule only allows dismissal
when the challenged state and federal actions are identical and—because his state and
federal actions weren’t identical—the district court erred in dismissing his federal
action based on claim-splitting. Alternatively, he contends the rule requires a plaintiff
to bring all claims in one court and that he complied with the rule by bringing all of
his claims in federal court after the state court denied his motion to add the
malpractice claim against the Loeb defendants. The Loeb defendants, on the other
hand, urge us to affirm based on the district court’s claim-splitting rationale. But
neither party addresses whether the rule against claim-splitting applies to duplicative
complaints filed in state and federal court versus duplicative complaints filed in
federal courts. And as we discuss below, resolution of this preliminary issue
ultimately requires us to reverse the district court’s order.
defendants explained the status of the unserved defendants. In a separate order, we
found the unserved defendants weren’t required parties under Fed. R. Civ. P. 19, and
dismissed them under Fed. R. Civ. P. 21 and Newman-Green, Inc. v. Alfonzo-Larrain,
490 U.S. 826, 837 (1989). Having resolved our concerns about the district court’s
subject-matter jurisdiction, we concluded diversity jurisdiction exists under 28
U.S.C. § 1332(a).
3
Because a dismissal for claim-splitting is premised on the district court’s
ability to manage its own docket by dismissing duplicative cases, we ordinarily
review such a dismissal for abuse of discretion. See Hartsel Springs Ranch of Colo.,
Inc. v. Bluegreen Corp., 296 F.3d 982, 985 (10th Cir. 2002). But the threshold legal
question of whether the claim-splitting rule applies at all is one we review de novo. See
Kanciper v. Suffolk Cty. Soc’y for the Prevention of Cruelty to Animals, Inc., 722 F.3d 88,
91 (2d Cir. 2013).
As the district court noted, we have held that “[t]he rule against claim-splitting
requires a plaintiff to assert all of its causes of action arising from a common set of facts
in one lawsuit.” Katz v. Gerardi, 655 F.3d 1212, 1217 (10th Cir. 2011). “[T]he claim-
splitting rule exists to allow district courts to manage their docket and dispense with
duplicative litigation.” Id. at 1218-19. For example, a district court may apply the rule
against claim-splitting when a party files two identical—or nearly identical—complaints
to get around a procedural rule. See Hartsel Springs, 296 F.3d at 990 (recognizing
general rule that “plaintiff may ‘not use the tactic of filing two substantially identical
complaints to expand the procedural rights he would have otherwise enjoyed’” (quoting
Walton v. Eaton Corp., 563 F.2d 66, 71 (3d Cir. 1977))).
Citing Katz and Hartsel Springs, the district court concluded that Wyles couldn’t
evade the state court’s denial of his motion to amend by filing a substantially similar
complaint in federal court that contained the very claim the state court refused to let
Wyles add, via amendment, to his state complaint. But both Katz and Hartsel Springs
concerned the plaintiffs’ attempts to concurrently maintain substantially similar lawsuits
4
in federal court. See Katz, 655 F.3d at 1214; Hartsel Springs, 296 F.3d at 984-85. And
although the district court and the parties appeared to assume that the claim-splitting rule
applies equally to attempts to maintain identical actions in state and federal court, case
law indicates otherwise.
Admittedly, Katz employed broad language in requiring a plaintiff to bring all
factually-related claims in one lawsuit. See 655 F.3d at 1217 (stating “rule against claim-
splitting requires a plaintiff to assert all of its causes of action arising from a common set
of facts in one lawsuit”). But the general rule is that a pending state-court action “is no
bar to proceedings concerning the same matter in the Federal court having jurisdiction.”
Sprint Commc’ns, Inc. v. Jacobs, 134 S. Ct. 584, 588 (2013) (quoting Colo. River Water
Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)).
Consistent with that rule, we’ve previously commented upon simultaneous
jurisdiction of factually-related suits in federal and state courts. See Carter v. City of
Emporia, 815 F.2d 617, 621 (10th Cir. 1987) (noting plaintiff “may freely split a cause of
action between federal and state courts and pursue both actions,” though noting the risk
of claim preclusion). Though we permit dismissal of a federal suit under exceptional
circumstances, we’ve warned against dismissing a federal suit solely because a
similar suit was pending in state court. See, e.g., D.A. Osguthorpe Family P’ship v.
ASC Utah, Inc., 705 F.3d 1223, 1233 (10th Cir. 2013) (“And, to be sure, a federal court
will not and should not shy away from contemporaneously exercising concurrent
jurisdiction with a state court in the ordinary course of things.”); Fox v. Maulding, 16
5
F.3d 1079, 1082 (10th Cir. 1994) (noting that pending state-court action doesn’t preclude
parallel federal-court action).
In contrast, a federal court generally will avoid duplicative litigation within the
federal court system. See Colorado River, 424 U.S. at 817 (“As between federal
district courts, however, though no precise rule has evolved, the general principle is
to avoid duplicative litigation.”). Enforcing the claim-splitting rule is one way a
federal court avoids duplicative federal litigation. See, e.g., Katz, 655 F.3d at 1217
(describing claim-splitting as maintaining “two actions on the same subject in the same
court, against the same defendant at the same time” (quoting Curtis v. Citibank,
N.A., 226 F.3d 133, 139 (2d Cir. 2000))); Hartsel Springs, 296 F.3d at 985 (noting that
dismissal for claim-splitting is proper when duplicative action is “already pending in
another federal court” (quoting Serlin v. Arthur Andersen & Co., 3 F.3d 221, 223 (7th
Cir. 1993))). As our Supreme Court explained in Colorado River, “This difference in
general approach between state-federal concurrent jurisdiction and wholly federal
concurrent jurisdiction stems from the virtually unflagging obligation of the federal
courts to exercise the jurisdiction given them.” 424 U.S. at 817.2
2
Citing Colorado River, the Second Circuit recently reiterated that the rule
against claim-splitting isn’t a valid theory for dismissal when addressing parallel state
and federal litigation. See Kanciper, 722 F.3d at 88, 93. Notably, the district court in
Kanciper relied on our decision in Katz in dismissing the case under the rule against
claim-splitting. Kanciper, 722 F.3d at 91-92. The Second Circuit vacated and remanded,
concluding that the district court erred in relying on Katz because Katz involved
duplicative cases pending in the same federal district court rather than duplicative cases
pending in federal and state courts. Id. at 92, 94.
6
Here, Wyles first filed suit in state court and later filed a nearly identical suit in
federal court. In dismissing the federal complaint under the rule against claim-splitting,
the district court faulted Wyles for filing the federal complaint in what the district court
saw as an effort to evade an unfavorable procedural ruling in state court. But such an
evasive tactic is improper only when both complaints are filed in federal court. See
Walton, 563 F.2d at 71 (explaining that when consolidating two federal actions, court
must ensure plaintiff didn’t file duplicative complaint to circumvent rules pertaining to
amending complaint). And a federal court with jurisdiction isn’t barred from hearing a
suit concerning the same matter as a suit pending in state court. See Colorado River, 424
U.S. at 817. Accordingly, the district court erred in dismissing Wyles’ federal complaint
under the rule against claim-splitting.3
Alternatively, the Loeb defendants argue that the Colorado River doctrine
supports dismissal. See D.A. Osguthorpe Family P’ship, 705 F.3d at 1233-34, 1233 n.13
(describing the Colorado River doctrine as “a judicially crafted doctrine of efficiency”
3
To the extent the district court also suggested that several of Wyles’ claims
may be subject to claim preclusion, we note that dismissal under these circumstances
was improper because the state court hadn’t yet entered a final judgment on the
merits in Wyles’ state action. See Hartsel Springs, 296 F.3d at 986 (noting that in
exercising diversity jurisdiction we look to state law for claim-preclusion analysis);
O’Neill v. Simpson, 958 P.2d 1121, 1123 n.4 (Colo. 1998) (requiring “final judgment on
the merits” for claim preclusion to apply). In discussing claim-splitting in their response
brief, the Loeb defendants assert in passing that the district court properly ruled that
claim preclusion precluded Wyles’ federal suit. But they don’t explain why they believe
the district court was correct and don’t allege that the state action was a final judgment on
the merits. See Taylor v. Sturgell, 553 U.S. 880, 907 (2008) (noting that burden falls on
party asserting claim preclusion to establish all necessary elements). Rather, the
defendants informed us at oral argument that the state action remains pending on appeal.
Under Colorado law, a pending appeal prevents preclusive effect of a prior judgment. See
Rantz v. Kaufman, 109 P.3d 132, 141 (Colo. 2005).
7
that applies in cases involving concurrent federal or federal and state jurisdiction and that
permits federal courts to dismiss certain cases to avoid piecemeal litigation and conserve
judicial resources).
Because the district court declined to address the Loeb defendants’ argument that
it should dismiss this suit in deference to the state court under Colorado River, we decline
to consider this theory for the first time on appeal. See Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 19 (1983) (noting generally that “the decision
whether to defer to the state courts is necessarily left to the discretion of the district court
in the first instance”); Fox, 16 F.3d at 1082 (“We decline to determine in the first instance
whether deference to the state court proceedings is warranted, for to do so would overstep
the bounds of our review for abuse of discretion and enter the realm of de novo review.”).
If the Loeb defendants pursue this theory on remand, the district court may consider it at
that time.4
4
The Loeb defendants also assert that we may affirm based on the Rooker-
Feldman doctrine. But Rooker-Feldman only “bars federal courts from reviewing the
judgments and decisions of state courts once they have become final.” D.A.
Osguthorpe Family P’ship, 705 F.3d at 1230 n.7; see also Guttman v. Khalsa, 446 F.3d
1027, 1032 (10th Cir. 2006) (“Rooker-Feldman applies only to suits filed after state
proceedings are final.”). Here, there’s no dispute that Wyles filed his federal suit before
the state case was final. Thus, Rooker-Feldman doesn’t apply. Instead, “[d]isposition of
the federal action, once the state-court adjudication is complete, would be governed by
preclusion law.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 293
(2005).
8
For these reasons, we vacate the district court’s dismissal order and remand for
further proceedings.5
Entered for the Court
Nancy L. Moritz
Circuit Judge
5
As a result, we deny the Loeb defendants’ motion for attorney’s fees on
appeal. See Kreft v. Adolph Coors Co., 170 P.3d 854, 859 (Colo. App. 2007).
9