Aptim Corporation v. Dorsey McCall

Case: 17-30772 Document: 00514432353 Page: 1 Date Filed: 04/17/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 17-30772
Fifth Circuit
FILED
April 17, 2018
Lyle W. Cayce
Clerk
APTIM CORPORATION,
Plaintiff−Appellee,
versus
DORSEY RON MCCALL,
Defendant−Appellant.
Appeals from the United States District Court
for the Eastern District of Louisiana
Before REAVLEY, SMITH, and OWEN, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
The Shaw Group (“Shaw”) sued Dorsey McCall, its former employee, in
state court for allegedly violating noncompete and nonsolicitation agreements.
After being acquired in part by Aptim Corporation (“Aptim”), Shaw sought to
dismiss its state action while Aptim pursued a federal-court action to enforce
the arbitration clause in McCall’s employment contract. The federal district
court declined to abstain, it compelled arbitration, and it stayed the state-court
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proceeding. We find no error and affirm.
I.
McCall resigned from Shaw in January 2016. He then began working
for an affiliate of Bernhard Capital Partners Management LP and later became
the CEO of Allied Power Management, LLC (“Allied”), a direct competitor of
Shaw’s. Believing that McCall had violated the noncompete and nonsolicita-
tion agreements in his employment contract, Shaw sued McCall in state court. 1
Those agreements state that arbitration will occur in New Orleans and that
the employer may file for injunctive relief from a judicial authority without
waiving the right to arbitrate the underlying dispute.
On June 15, 2017, Shaw sued in state court, requesting injunctive relief
and damages. The state court issued a Joint Protective Order. 2 On June 30,
Aptim acquired Shaw’s capital services segment, which included the rights to
McCall’s employment agreement. Aptim and Shaw moved to substitute Aptim
in the state-court action on July 6, which McCall opposed on July 10. On
July 17, Aptim and Shaw withdrew their motion for substitution. That same
day, Aptim filed a demand for arbitration with the American Arbitration Asso-
ciation, and Shaw filed both an amended petition, deleting its request for
damages, and a motion to dismiss the amended petition with prejudice. McCall
filed an opposition to the motion for voluntary dismissal, an answer to Shaw’s
complaint, a reconventional demand, a petition for declaratory judgment, a
motion to consolidate, and a motion for constructive contempt against Aptim
1 Allied intervened in the action as a joint party with McCall. For simplicity, the
opinion refers to their joint motions and actions using McCall’s name.
2 The order prohibited McCall from violating his employment contract, ordered Shaw
not to threaten legal or other action against Allied employees, and ordered expedited discov-
ery. It specified that nothing in the order should be deemed a waiver of any rights or defenses
of either party.
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for demanding arbitration in violation of the protective order, though Aptim
was not then a party to the case.
On August 21, Aptim, without Shaw, sued in federal court to compel
arbitration and to stay the state-court proceeding, seeking arbitration on the
same contractual violations that Shaw had raised in state court: that McCall
had breached his noncompete agreement by working for Allied and his non-
solicitation agreement by poaching fifteen of Shaw’s senior employees. Before
the federal court ruled, the state court on September 1 issued an order joining
Aptim in the state-court action effective June 30 (the day the motion for sub-
stitution had been originally filed); finding that Aptim and Shaw had waived
their arbitration rights by initiating the state-court action; and granting
McCall’s motion to stay arbitration.
On September 19, the federal district court ordered Aptim and McCall to
arbitrate their dispute and stayed the state-court action as between Aptim and
McCall. On September 25, the court clarified its order to state that all persons
and entities in privity with Aptim and McCall must submit to arbitration, thus
staying the state-court litigation by McCall against Shaw. On appeal, McCall
asserts the federal district court erred by declining to abstain under Colorado
River Water Conservation District v. United States, 424 U.S. 816, 817 (1976),
erred by compelling the parties to arbitrate, and violated the Anti-Injunction
Act by enjoining the state-court proceedings.
II.
A Colorado River abstention analysis begins with a heavy thumb on the
scale in favor of exercising federal jurisdiction, and that presumption is over-
come only by “exceptional circumstances.” Stewart v. W. Heritage Ins. Co.,
438 F.3d 488, 491 (5th Cir. 2006). Federal courts have a “virtually unflagging
obligation . . . to exercise the jurisdiction given them.” Colo. River, 424 U.S.
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at 817. Even so, a court may choose to abstain, awaiting the conclusion of
state-court proceedings in a parallel case, based on principles of “[w]ise judicial
administration, giving regard to conservation of judicial resources and compre-
hensive disposition of litigation.” Id. (quoting Kerotest Mfg. Co. v. C-O-Two
Fire Equip. Co., 342 U.S. 180, 183 (1952)).
Whether to abstain is not a question answered by the recitation of “a
mechanical checklist” but instead rests “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.” Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 16 (1983). To determine whether exceptional circumstances
are present, the court considers the following six factors:
(1) assumption by either court of jurisdiction over a res, (2) relative
inconvenience of the forums, (3) avoidance of piecemeal litigation,
(4) the order in which jurisdiction was obtained by the concurrent
forums, (5) to what extent federal law provides the rules of decision
on the merits, and (6) the adequacy of the state proceedings in pro-
tecting the rights of the party invoking federal jurisdiction.
Stewart, 438 F.3d at 491. We review for abuse of discretion the district court’s
decision whether to abstain, and we exercise de novo review to the extent that
the decision turns on an interpretation of law. Black Sea Inv., Ltd. v. United
Heritage Corp., 204 F.3d 647, 649–50 (5th Cir. 2000).
McCall asserts that there are exceptional circumstances because the
state court issued a ruling on the question of arbitrability before the federal
court ruled. This case, however, is subject to the same discretionary balancing
of the Colorado River factors as any other abstention inquiry.
A.
The first factor weighs against abstention. Because this is an in per-
sonam action, there is no res. An absence of property is not “a merely neutral
4
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item, of no weight in the scales.” 3 Instead, it “supports exercising federal
jurisdiction.” 4
B.
The second factor is neutral. The relative convenience of the forums “pri-
marily involves the physical proximity of the federal forum to the evidence and
witnesses.” Evanston, 844 F.2d at 1191. The question requires finding not
that the state court is a “better” or “more convenient” forum but that the
“inconvenience of the federal forum is so great” as to warrant abstention. Id.
at 1192. “When courts are in the same geographic location, the inconvenience
factor weighs against abstention.” Stewart, 438 F.3d at 492. The state court-
house is in Baton Rouge, and the federal district court is in New Orleans. Both
Allied and Shaw are headquartered in Baton Rouge, and McCall resides closer
to Baton Rouge than to New Orleans. The 80-mile distance does not compare
to the 300-mile distance in Colorado River. 5 The two courthouses are within
3Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1191 (5th Cir. 1988); see also Saucier
v. Aviva Life & Annuity Co., 701 F.3d 458, 463 (5th Cir. 2012).
4 Stewart, 438 F.3d at 492. McCall points out that this circuit has inconsistently
treated the first factor as either neutral or weighing against abstention. McCall cites Signad,
Inc. v. City of Sugar Land, 753 F.2d 1338, 1340 (5th Cir. 1985), as authority that the rule of
orderliness constrains the court to consider the absence of property as neutral. Signad does
not address all six Colorado River factors but instead lists only the three that it considers
relevant to in personam actions. Id.Evanston controls. The Colorado River factors as presently defined were not distilled
until the Supreme Court added the final two in Moses H. Cone in 1983. Although Signad
post-dates Moses H. Cone, it and other pre-Evanston abstention opinions do not systemati-
cally analyze each factor independently. Evanston is the first Fifth Circuit case to grapple
with the role of the first factor and to lay out the full six factors in their present form. The
Evanston court, 844 F.2d at 1191, held that Moses H. Cone found the “absence of this first
Colorado River factor to speak against abstention.” Because this is an interpretation of a
Supreme Court precedent that refines the Colorado River factors, which Signad did not
consider, Evanston controls. This is borne out in our circuit’s caselaw.
5 In African Methodist Episcopal Church v. Lucien, 756 F.3d 788, 800 (5th Cir. 2014),
we did find that a half-hour distance weighed slightly in favor of abstention. That case, how-
ever, involved a property that was closer to the state courthouse. The presence of property
5
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the same geographic location for all practical purposes. Because nothing in
this case demonstrates that the inconvenience of the federal forum is “so
great,” Evanston, 844 F.2d at 1191, this factor is neutral at best.
C.
The third factor weighs against abstention. Given the strong federal
policy favoring arbitration, the concern about piecemeal litigation “is not
applicable in the FAA context.” Safety Nat’l Cas. Corp. v. Bristol-Myers Squibb
Co., 214 F.3d 562, 565 (5th Cir. 2000). Piecemeal litigation is a different con-
cern from the worry of obtaining conflicting judgments in parallel actions
involving the same parties and the same questions. The remedy for conflicting
judgments is not abstention, but the application of res judicata. Kelly Inv., Inc.
v. Cont’l Common Corp., 315 F.3d 494, 498 (5th Cir. 2002).
D.
The fourth factor, regarding the order in which jurisdiction was obtained,
slightly favors abstention. The inquiry centers more on the progress made in
the relative forums, not on the date of initial filing. Moses H. Cone, 460 U.S.
at 21. If the progress made is just “jurisdictional posturing” with little progress
on the merits, the factor “weighs against abstention.” Black Sea Inv., 204 F.3d
at 651. This factor is difficult to weigh, as the parties characterize the timeline
and progress quite differently. And it is unusual in our abstention jurispru-
dence to confront a case in which the same side filed both the state and federal
actions, though Aptim was not a party to the state suit when it filed in federal
court.
weighed heavily in the court’s analysis of the factors. Other cases use the general language
of “geographic location,” which is satisfied here. Even if the 80-mile distance weighed in favor
of abstention, it would not alter the ultimate balance of the factors in this case.
6
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Numerous motions were filed in state court before the federal case began.
The state and federal action were filed on June 15 and August 21, respectively.
Aptim was not joined in the state action until September 1, which was more
than a week after it filed its federal action and was several weeks after it and
Shaw had withdrawn the motion to substitute and Shaw had attempted to
dismiss the suit entirely on July 17.
Despite the number of filings, the state action was not necessarily pro-
gressing. When the federal suit was filed at the end of August, the state court
had not ruled on any of Shaw’s July 17 motions, none of which concerned the
merits. Shaw sought to dismiss before any rulings had been issued and only
one month after filing. In fact, Shaw even sought and was granted mandamus
from the state appellate court ordering the state trial court to rule on Shaw’s
motion to dismiss voluntarily by August 23. The state court denied the volun-
tary dismissal on August 24. It was not until September 1 that the state court
made any progress.
Before the federal court compelled arbitration, the state court issued an
order staying the arbitration Aptim had initiated. Thus, this factor favors arbi-
tration, but only slightly, considering the complete set of circumstances. Aptim
sought arbitration just weeks after acquiring Shaw, the state court had made
minimal progress when the district court action was filed, and Aptim was a
nonparty in the state-court proceeding until the state court simultaneously
issued the stay and joined it in the suit.
McCall insists that the fact that the state trial court ruled on whether
arbitration should proceed, and did so before the federal district court did,
should be accorded almost decisive weight. McCall would be correct if the state
trial court’s ruling would be res judicata or would collaterally estop Aptim. If
a state court’s ruling would be given preclusive effect by another court of that
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state, then federal courts must also give preclusive effect to that ruling. 6 If the
preclusive ruling is dispositive of the federal action, then the federal court
should abstain and dismiss because there is no point in proceeding further,
irrespective of the other relevant factors in assessing abstention under
Colorado River. 7
McCall does not contend that the state court’s determination that Shaw
and Aptim waived their rights to arbitrate would be given preclusive effect by
Louisiana courts. In fact, at the hearing, the federal district court stated “that
there was no final judgment, so neither res judicata nor issue preclusion
applies.” 8 McCall did not take issue with that statement and does not contend
that preclusion applies. To the contrary, in his briefing in our court, McCall
opines that the federal district court’s stay of the state court proceedings
“ensur[es] that the state court would never be able to enter a final judgment
entitled to preclusive effect.” Accordingly, the state court’s ruling is not
decisive regarding abstention because the state court’s interlocutory ruling
regarding arbitration is not entitled to full faith and credit under the Full Faith
and Credit Act. 9
6 See, e.g., Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 523 (1986).
7 See generally Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 448–49 (2d Cir. 1995)
(concluding that because, under Alabama law, a state court’s order had preclusive effect and
should have been afforded full faith and credit, the district court erred in proceeding and on
remand should dismiss the petition to compel arbitration).
8 The federal district court’s statement, in full, was,
The Court further finds on my own—of course, we always have to consider
jurisdiction, that the Rooker Feldman doctrine does not apply; that there was
no final judgment, so neither res judicata or issue preclusion applies.
What appears to be before this Court today and what is the significant issue
is whether or not the Colorado River abstention is appropriate. So I’m going
to ask you to confine your remarks to that and we’ll proceed from there.
9 See 28 U.S.C. § 1738 (providing that state judicial proceedings “shall have the same
8
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Greater progress alone “does not give rise to ‘exceptional circumstances’
capable of overcoming the strong presumption in favor of retaining jurisdic-
tion.” Saucier, 701 F.3d at 465. Instead, the federal and state courts have
concurrent jurisdiction, and the state court was not so far ahead as to counsel
the federal court to stay its hand. Just as we concluded under the third factor,
the solution to inconsistent judgments is through a plea of res judicata after
one court enters a final judgment.
E.
The fifth factor weighs against abstention. “The presence of a federal
law issue ‘must always be a major consideration weighing against surrender
[of jurisdiction],’ but the presence of state law issues weighs in favor of surren-
der only in rare circumstances.” Murphy v. Uncle Ben’s, Inc., 168 F.3d 734, 739
(5th Cir. 1999) (quoting Evanston, 844 F.2d at 1193).
The Federal Arbitration Act (“FAA”) is the underlying law and embodies
“a liberal federal policy favoring arbitration agreements,” Moses H. Cone,
460 U.S. at 24, that serves as the backdrop for any FAA litigation. The FAA
itself is an outlier: It created substantive federal law but not federal-question
jurisdiction. Thus its enforceability is left largely to state courts. Id. at 25 n.32
(“[A]lthough enforcement of the [FAA] is left in large part to the state courts,
it nevertheless represents federal policy to be vindicated by the federal courts
where otherwise appropriate.”). This factor, therefore, has less significance
but still weighs against abstention. Id. at 25–26.
full faith and credit in every court within the United States and its Territories and Posses-
sions as they have by law or usage in the courts of such State, Territory or Possession from
which they are taken”).
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F.
The sixth factor, evaluating the adequacy of state proceedings to protect
the rights of the party invoking federal jurisdiction, can only be neutral or
weigh against abstention. Stewart, 438 F.3d at 493. Nothing has impugned
the state court’s ability fairly to determine the legal questions at issue, so this
factor is neutral.
G.
Reviewing the six factors, two are neutral, one weighs slightly in favor
of abstention, and three weigh against abstention. To overcome the strong
presumption in favor of federal jurisdiction, a party must show exceptional cir-
cumstances. The factors here do not demonstrate such circumstances, and the
district court was correct to exercise jurisdiction.
H.
McCall points to three out-of-circuit decisions in which the state court
ruled first and the appellate court found abstention proper. He contends those
cases demonstrate that the state court’s issuance of a ruling should be a pri-
mary focus of the abstention inquiry, almost to the point of being conclusive.
In addition to our treatment of this contention under the fourth factor, we
address each of these cases in turn.
1.
In Vulcan Chemical Technologies, Inc. v. Barker, 297 F.3d 332 (4th Cir.
2002), suit was filed in the state court, which compelled arbitration. Arbitra-
tion concluded with a multi-million dollar judgment on the merits against
Vulcan, which sued in federal court to vacate the award. The state court con-
firmed the award before the federal court ruled. Id. at 335. After the federal
district court had vacated the award two months after the state court’s
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confirmation of it, the Fourth Circuit reversed, finding that five of the six Colo-
rado River factors favored abstention and one was neutral. Id. at 341–43.
In addition to undertaking the typical six-factor analysis, the Fourth
Circuit noted that the motive for filing in federal court was critical. Up until
the arbitrator entered its award, Vulcan had “gladly litigated” in state court
and had “gladly arbitrated there before an agreed-upon arbitrator.” Id. at 343.
Its federal filing was merely a “strategy to obtain a second opinion.” Id.The same is not true here. In Vulcan, over two years of litigation and a
complete disposition of the merits had occurred in state court before the federal
filing. Aptim filed in federal court before the state court had done anything on
the merits, so its motive could not have been to get a second opinion. Instead,
Aptim asserted its arbitration rights on July 17, just weeks after acquiring
Shaw.
2.
McCall points next to Preferred Care of Delaware, Inc. v. VanArsdale,
676 F. App’x 388 (6th Cir. 2017). Based on the particular facts of the case and
the state-law issue underlying the state-court decision on arbitrability, the
Sixth Circuit affirmed the abstention. The opinion divided Colorado River’s
six-factor test into eight factors and found that the first two weighed slightly
against abstention, five strongly favored abstention, and one was neutral. Id.at 394–97.
This is again far different from how the factors play out in the present
case. The Sixth Circuit examined each factor in turn and did not base its ruling
solely on the fact that the state court issued an order finding the arbitration
clause invalid under state law before the federal court ruled. No state-law
question is at issue here, and the weighing of the factors is inherently
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discretionary and cannot turn on the presence or absence of one fact.
3.
Finally, D.A. Osguthorpe Family Partnership v. ASC Utah, Inc., 705 F.3d
1223 (10th Cir. 2013), is readily distinguished. The state suit began in 2006.
Numerous issues and parties were involved in a complex proceeding. “[T]he
[state court] litigation has not so much developed as it has metastasized: par-
ties have proliferated, claims have collided, and issues have become intimately
entangled.” Id. at 1226. After five years and the issuance of multiple decisions
that went all the way to the state supreme court, one of the losing parties filed
in federal court to compel arbitration. Id. at 1227–29.
The Tenth Circuit affirmed the decision to abstain. It found four of the
factors were neutral and two—the third and fourth—weighed heavily in favor
of abstention. Id. at 1234–35. In examining the progress made in the state
court, the court of appeals found that the “realities of the case at hand” must
guide a court’s factorial analysis. Id. at 1236 (quoting Moses H. Cone, 460 U.S.
at 21). That years, not weeks, had passed in state court without objection, that
the case was “interwoven” with the “trial and appellate levels” of the state-
court system, and that “vexatious or reactive” motives were at play, were heavy
considerations favoring abstention. Id. at 1235.
Conversely, in the present suit, weeks, not years, had passed in state
court when the federal action was filed, and no vexatious motivation is dis-
cernible given the timeline of events. There is no comparison between the
expansive litigation at issue in D.A. Osguthorpe and the mere months in the
case at hand.
Colorado River presents an inherently discretionary balancing inquiry
that shifts with the particular facts. Given our facts, the district court did not
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abuse its discretion in declining to abstain.
III.
Having found that the district court did not abuse its discretion in declin-
ing to abstain, we turn to its finding that Aptim did not waive its arbitration
rights. This court reviews the issue of waiver de novo. Walker v. J.C. Bradford
& Co., 938 F.2d 575, 577 (5th Cir. 1991).
The right to arbitrate can be waived if a party “(1) ‘substantially invokes
the judicial process’ and (2) thereby causes ‘detriment or prejudice’ to the other
party.” 10 Given the strong federal policy in favor of arbitration, the party seek-
ing to prove waiver must overcome the heavy presumption against such a find-
ing. 11 There is not enough here to overcome that presumption.
A.
Shaw’s initial complaint raising a claim for damages is enough for sub-
stantial invocation under Nicholas v. KBR, Inc., 565 F.3d 904, 908 (5th Cir.
2009). In Nicholas, the court found that “filing suit without asserting an arbi-
tration clause constitutes substantial invocation of the judicial process.” Id.The purpose of the Nicholas rule is to divine a plaintiff’s intent regarding
its choice of forum for litigating the merits of an arbitrable claim. Though a
defendant may allow significant time to pass and may engage in some prelim-
inaries of litigation without the court’s finding substantial invocation, 12 a
Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416, 421 (5th Cir. 2014) (quoting
10
Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)).
11 Id. at 421–22; Tenneco Resins, Inc. v. Davy Int’l, AG, 770 F.2d 416, 420 (5th Cir.
1985).
For example, in its opinion collecting cases, the court in Tenneco Resins, 770 F.2d
12at 420−21, found that a defendant’s delay of eight months and participation in limited discov-
ery were insufficient to constitute substantial invocation of the judicial process.
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plaintiff’s “disinclination to resort to arbitration” can be seen at the filing stage.
Id. (quoting Miller, 781 F.2d at 497). The court laid out two exceptions to this
assumption: filing suit to determine the presence of an enforceable arbitration
agreement and filing to obtain injunctive relief pending arbitration. Id.The facts of the present case, however, defy easy application of this seem-
ingly straightforward rule. In Nicholas, the filing of a lawsuit on the merits
was followed by actual merits litigation, and the court found especially troub-
ling the plaintiff’s decision to seek arbitration following an adverse ruling. Id.
at 909. The present appeal does not implicate the feared second bite at the
apple. Further, it is complicated by Aptim’s delayed entrance into the litiga-
tion and McCall’s contradictory postures in state and federal court regarding
Aptim’s status.
Shaw had the contractual right to seek injunctive relief in court without
compromising its arbitration rights. Its initial filing, including a claim for
damages, however, is enough under Nicholas to find substantial invocation of
the judicial process, though still leaving open the question of prejudice to
McCall. The dispute then arises whether Shaw’s conduct in filing the initial
complaint is imputed to Aptim.
In contending that Shaw’s conduct should be attributable to Aptim,
McCall tries to have his cake and eat it too. In state court, McCall opposed
Aptim and Shaw’s motion for substitution, stating that it was unclear which
rights Shaw assigned to Aptim and whether Aptim was a successor such that
substitution was proper. Then, in its federal filings, McCall treated Aptim and
Shaw as one and the same party, using the very language of the motion it
opposed to assert that Aptim stepped into the shoes of Shaw and thus inherited
Shaw’s substantial invocation of the judicial process.
The state court never ruled on the motion or the opposition before Aptim
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and Shaw withdrew the motion. The court later joined Aptim as a party and
bound it to all prior rulings but neither substituted Aptim nor dismissed Shaw,
making no apparent judgment about Aptim’s status as a successor under the
assignment agreement. The federal district court was rightly concerned about
the appearance that McCall tried to keep Aptim out of the litigation but then
sought to have Aptim bound by rulings made while it was actively denied the
ability to defend itself.
Absent imputation, Aptim did not substantially invoke the judicial pro-
cess. It did not file anything regarding the merits or ask for damages but filed
only a motion for substitution and a motion withdrawing the request for sub-
stitution. A nonparty to the suit, Aptim demanded arbitration only one month
after the state-court litigation had begun and only eleven days after it had
sought unsuccessfully to be substituted into the action. If Shaw’s filing the
initial complaint is not imputed to Aptim, Aptim’s actions alone are inadequate
for substantial invocation. This inquiry is simplified by the absence of preju-
dice, thus obviating the need to interpret the assignment agreement and deter-
mine imputation.
B.
To support a finding of waiver, McCall must demonstrate prejudice.
“Prejudice in the context of arbitration waiver refers to delay, expense, and
damage to a party’s legal position.” Nicholas, 565 F.3d at 910. Courts consid-
ering prejudice look to things such as how much discovery has been conducted
and how much the litigation relates to the merits. 13 Minimal discovery does
not demonstrate prejudice. Tenneco Resins, 770 F.2d at 421.
13 Miller, 781 F.2d at 498 (“A party may not invoke arbitration and yet seek pre-trial
discovery going to the merits. . . . [A]ny attempt to go to the merits and to retain still the
right to arbitration is clearly impermissible.” (alterations in original) (quotation omitted)).
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McCall does not show prejudice. Before Aptim’s acquisition of Shaw, the
state court held a hearing on the TRO, and Shaw, McCall, and Allied entered
into a protective order. All of those proceedings relate to the injunctive relief
that Shaw was contractually permitted to seek without compromising its arbi-
tration rights. Additionally, Shaw dropped the damages claim only one month
after filing, with no proceedings that would have cost McCall time, money, or
strategic advantage. The case was ongoing for just over two months before the
federal filing and for only one month before the initial arbitration demand.
During that time, around June 30 when Aptim acquired part of Shaw, discov-
ery was stayed for the parties to sort out the consequences of the acquisition,
and the preliminary-injunction hearing was cancelled. McCall cannot demon-
strate the time, expense, or disadvantage in litigating position required to
show prejudice.
IV.
We must now determine whether the federal district court erred in
enjoining the state-court proceedings under the relitigation exception to the
Anti-Injunction Act. Because, under the Act, a federal court is entitled to
defend its own final judgment, we uphold the injunction. 14
The Anti-Injunction Act states, “A court of the United States may not
grant an injunction to stay proceedings in a State court except as expressly
authorized by Act of Congress, or where necessary in aid of its jurisdiction, or
to protect or effectuate its judgments.” 28 U.S.C. § 2283. The prohibition
against interfering in state proceedings embodies a strong policy that,
14The district court initially enjoined the state-court litigation only as to Aptim but
later expanded the injunction to apply to the litigation against Shaw as an entity “in privity
with” Aptim. Because Shaw assigned all of its interest in the litigation to Aptim, it is not
apparent what litigation there is to continue in state court. Given that Shaw’s interest is
moot, we affirm the injunction without deciding whether the extension was proper.
16
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recognizing the “independence of the States and their courts, the exceptions
should not be enlarged.” Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng’rs,
398 U.S. 281, 287 (1970). A federal court cannot enjoin a state-court suit on
the grounds that “the state court may have taken action which the federal court
[is] certain [is] improper,” nor is it appropriate to avoid simultaneous pursuit
of claims in courts with concurrent jurisdiction. Id. at 295–96.
Under the Act, an injunction is not appropriate just because it is
“related” to the federal court’s jurisdiction. Id. at 295. If the state court takes
an action the federal court or a party to the action finds incorrect, the proper
course is typically the state appellate court. Id. at 296. Any doubts about the
“propriety of a federal injunction . . . should be resolved in favor of permitting
the state courts to proceed . . . . The explicit wording of § 2283 itself implies as
much.” Id. at 297.
The federal district court invoked the relitigation exception, stating that
the injunction was necessary to “protect or effectuate its judgment[].” This
exception was “designed to permit a federal court to prevent state litigation of
an issue that previously was presented to and decided by the federal court.”
Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147 (1988). McCall asserts that
the Act prevents a federal court from enjoining an already issued state court
ruling.
The application of the Act is not so temporally bound. Instead, the
inquiry turns on the question of finality. A federal court that has entered a
final judgment entitled to preclusive effect may, “to protect or effectuate its
judgment[],” stay state-court proceedings when it is clear that the state court
ruling that would interfere with the enforcement of the federal court’s judg-
ment is not preclusive and is not entitled to full faith and credit.
For example, in Atlantic Coast Line, a federal court in 1967 refused to
17
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No. 17-30772
enjoin the BLE union from picketing at a railroad switching yard. The railroad
then promptly obtained an injunction in state court that prohibited the picket-
ing. Two years later, the Supreme Court reviewed a state-court injunction
against picketing by the BLE and other unions in a nearby area and held that
the unions had a federally protected right to picket. Atl. Coast Line, 398 U.S.
at 283–84 (citing Bhd. of R.R. Trainmen v. Jacksonville Terminal Co., 394 U.S.
369 (1969)). The BLE then returned to state court seeking dissolution of the
1967 injunction, but “the state judge refused to dissolve the injunction, holding
that [the Supreme Court’s] Jacksonville Terminal decision was not control-
ling.” Id. at 284. The union did not appeal that decision but instead requested
the federal court to issue an injunction against the enforcement of the 1967
state-court injunction. The federal court did so, and the Supreme Court
reversed.
Were the timeline the sole deciding factor, the Court could have based
its decision on the fact that the state injunction preceded the federal litigation.
Instead, the Court found that the language “necessary in aid” of a federal
court’s jurisdiction in the Anti-Injunction Act “implies something similar to the
concept of injunctions to ‘protect or effectuate’ judgments.” Id. at 295. There
was no federal-court judgment that needed to be defended against state liti-
gation. Instead, the federal-court litigation involved claims under federal law,
and the state-court litigation involved claims based on state law and the
union’s defense regarding the preclusive effect of federal law. Id. “In short,
the state and federal courts had concurrent jurisdiction in this case, and nei-
ther court was free to prevent either party from simultaneously pursuing
claims in both courts.” Id. “The state court’s assumption of jurisdiction over
state law claims and the federal preclusion issue did not hinder the federal
court’s jurisdiction so as to make an injunction necessary to aid that
18
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jurisdiction.” Id. at 296.
The Court used the same language of preclusion in Parsons Steel.
Though the state-court ruling did not precede the federal court’s final judg-
ment, the Court’s reasoning, which focused on the Full Faith and Credit Act,
applies regardless of the order of the state and federal decisions.
In Parsons Steel, a bank obtained a final judgment in its favor in federal
district court that was affirmed on appeal. Parallel proceedings had been
ongoing in state court, which rejected the bank’s argument that the federal
judgment was res judicata. The state-court case proceeded to trial, and a jury
returned a verdict adverse to the bank. Id. The bank then returned to federal
district court and obtained an injunction prohibiting plaintiffs from proceeding
further in the state action. Parsons Steel, 474 U.S. at 520–21.
In the succeeding challenge to the federal injunction, the Supreme Court
first recognized that “under the Full Faith and Credit Act a federal court must
give the same preclusive effect to a state-court judgment as another court of
that State would give.” Id. at 523. The Court held that the federal district
court had erred by failing to “consider the possible preclusive effect under Ala-
bama law of the state-court judgment, and particularly of the state court’s
resolution of the res judicata issue.” Id. The federal district court had con-
cluded that “the relitigation exception to the Anti-Injunction Act limits the Full
Faith and Credit Act.” Id. The Supreme Court disagreed: “We believe that
the Anti-Injunction Act and the Full Faith and Credit Act can be construed
consistently, simply by limiting the relitigation exception of the Anti-Injunc-
tion Act to those situations in which the state court has not yet ruled on the
merits of the res judicata issue.” Id. at 524.
The Court once again confirmed that lower federal courts do not sit in
review of state-court decisions and that “[c]hallenges to the correctness of a
19
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state court’s determination as to the conclusive effect of a federal judgment
must be pursued by way of appeal through the state-court system and certior-
ari from this Court.” Id. at 525. Even if the state court incorrectly resolved
the res judicata claim, that would not justify a lower-federal-court injunction.
Id.Nevertheless, the federal district court was not foreclosed from enjoining
state-court proceedings on other grounds if that court, upon considering the
preclusive effect under state law, found that Alabama would not in fact con-
sider the judgment preclusive. In that instance, the federal district court could
then “decide the propriety of a federal-court injunction under the general prin-
ciples of equity, comity, and federalism.” Id. at 526. This decision directs that
in determining whether a stay of state-court proceedings was necessary under
the Anti-Injunction Act, a federal district court’s and this court’s focus should
be on the preclusive effect of a state-court ruling.
Chick Kam Choo further bolsters this conclusion, stating that the reliti-
gation exception is “founded in the well-recognized concepts of res judicata and
collateral estoppel.” Chick Kam Choo, 486 U.S. at 147. This does not permit a
federal court to enjoin a state-court ruling out of disagreement. But when the
federal court issues a final judgment, the relitigation exception employs the
foundation laid in the Full Faith and Credit Act and permits the federal court
to enjoin proceedings contrary to that judgment.
Our circuit has applied this reasoning several times, stating that the
relitigation exception “allows an injunction where state proceedings threaten
to undermine a federal judgment having preclusive effect under the ‘well-
recognized concept’ of collateral estoppel.” 15 We do so again and determine
15 Duffy & McGovern Accommodation Servs. v. QCI Marine Offshore, Inc., 448 F.3d
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No. 17-30772
that the injunction was proper to defend the federal district court’s final
judgment in the face of a non-preclusive state-court order.
V.
In sum, the federal district court did not abuse its discretion in declining
to abstain, Aptim did not waive its arbitration rights, and the district court
properly invoked the relitigation exception to defend its final judgment. There-
fore, its judgment is AFFIRMED.
825, 828 (5th Cir. 2006) (quoting Chick Kam Choo, 486 U.S. at 147); see also Vines v. Univ.
of La. at Monroe, 398 F.3d 700, 704 (5th Cir. 2005). Regions Bank of La. v. Rivet, 224 F.3d
483, 488–92 (5th Cir. 2000).
21
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No. 17-30772
PRISCILLA R. OWEN, Circuit Judge, concurring and dissenting:
I agree with, and join, the court’s thorough and thoughtful opinion, with
the exception of footnote 14, and the court’s affirmance of the district court’s
judgment in its entirety. I would reverse the district court’s judgment to the
extent that it purports to enjoin the state-court litigation as to The Shaw
Group, Inc. (Shaw). I also write separately to address statements in Supreme
Court opinions that, at least facially, lend support to McCall’s contention that
the federal district court was powerless under the Anti-Injunction Act to stay
state-court proceedings because the state trial court ruled that arbitration had
been waived before the federal district court addressed that issue and entered
a final judgment. The state trial court’s ruling, as McCall concedes, would not
be given preclusive effect. Therefore, the state court’s interlocutory ruling was
not an impediment to the federal district court’s ability to issue a stay to protect
and effectuate its final judgment compelling arbitration between Aptim and
McCall.
I
With regard to the Anti-Injunction Act, first and foremost, nothing in the
text of the Act suggests that a federal district court must defer to a prior,
interlocutory, non-preclusive state-court ruling in an ongoing state proceeding
once the federal district court enters a final judgment concerning the same
issue and parties. 1 Second, as the Supreme Court has recognized, the final
phrase in the Anti-Injunction Act, that permits federal courts to stay
state-court proceedings “to protect or effectuate its judgments,” 2 “is founded in
the well-recognized concepts of res judicata and collateral estoppel.” 3
1 28 U.S.C. § 2283 (“A court of the United States may not grant an injunction to stay
proceedings in a State court except as expressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”).
2 Id.3 Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147 (1988).
22
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Well-recognized concepts of res judicata and collateral estoppel permit a final
judgment to have preclusive effect when another court in concurrent or parallel
proceedings has ruled to the contrary, if that prior ruling was not a final
judgment or was not entitled to preclusive effect. 4
The Supreme Court reviewed the history of the development of the
Anti-Injunction Act in Atlantic Coast Line Railroad Co. v. Brotherhood of
Locomotive Engineers. 5 Our country, it explained, has “two essentially
separate legal systems,” and “[e]ach system proceeds independently of the
other with ultimate review in [the Supreme Court] of the federal questions
raised in either system.” 6 The Supreme Court explained that “[p]roceedings in
state courts should normally be allowed to continue unimpaired by
intervention of the lower federal courts, with relief from error, if any, through
the state appellate courts and ultimately this Court.” 7 But “this dual court
system was bound to lead to conflicts and frictions,” and “[t]he 1793
anti-injunction Act was at least in part a response to these pressures.” 8 There
are “three specifically defined exceptions” in the present-day Anti-Injunction
4 See generally RESTATEMENT (SECOND) OF JUDGMENTS § 14 (AM. LAW INST. 1982)
(“[W]hen two actions are pending which are based on the same claim, or which involve the
same issue, it is the final judgment first rendered in one of the actions which becomes
conclusive in the other action (assuming any further prerequisites are met), regardless of
which action was first brought.”); id. § 27 cmt. l (“If two actions which involve the same issue
are pending between the same parties, it is the first final judgment rendered in one of the
actions which becomes conclusive in the other action, regardless of which action was brought
first.”); id. § 86 (“A valid and final judgment of a state court has the same effects under the
rules of res judicata in a subsequent action in a federal court that the judgment has by the
law of the state in which the judgment was rendered [with exceptions not material here].”);
see also Vines v. Univ. of La. at Monroe, 398 F.3d 700, 712 (5th Cir. 2005) (“[W]hen two suits
are pending based on the same claim or issue, the first final judgment rendered becomes
conclusive in the other action.”) (citing Ellis v. Amex Life Ins. Co., 211 F.3d 935, 937 (5th Cir.
2000)).
5 398 U.S. 281, 285-87 (1970).
6 Id. at 286.
7 Id. at 287.
8 Id. at 286.
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Act to its otherwise “absolute prohibition against enjoining state court
proceedings.” 9 The Supreme Court has never held that to come within one of
these exceptions, the federal court’s final judgment must precede any state
ruling on the issue resolved by the federal court’s judgment.
In Chick Kam Choo v. Exxon Corp., the Supreme Court described the
final phrase in the Anti-Injunction Act, “to protect or effectuate its
judgments,” 10 as a “relitigation exception” that “was designed to permit a
federal court to prevent state litigation of an issue that previously was
presented to and decided by the federal court.” 11 The word “previously” cannot
bear the weight that McCall, in the present case, places upon it. It is only after
an issue has been presented to and decided by a federal court and a final
judgment has issued that a question can arise as to whether, in order to protect
the federal court’s final judgment, it is necessary to enjoin state litigation of
the issue “previously” decided by the federal court. In Chick Kam Choo, the
Court was not called upon to decide whether a federal district court could
enjoin ongoing state-court proceedings in which a state court had already
issued an interlocutory ruling.
The description in Chick Kam Choo of what § 2283 permits and does not
permit was not intended to be all-encompassing. It is also important to
recognize that in the very next sentence, the Supreme Court said that § 2283
“is founded in the well-recognized concepts of res judicata and collateral
estoppel,” 12 as already noted.
The Supreme Court also said in Chick Kam Choo that “[t]he proper scope
of the exception is perhaps best illustrated by this Court’s decision in Atlantic
9 Id.
10 28 U.S.C. § 2283.
11 486 U.S. 140, 147 (1988).
12 Id.24
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Coast Line.” 13 The panel’s opinion in the present case discusses that, in
Atlantic Coast Line, a state-court injunction had been in effect for two years
when the federal district court entered an order staying the state-court
litigation. If a federal court has no authority under the Anti-Injunction Act to
stay state-court proceedings once a state trial court has issued a ruling on the
issue that is also presented to a federal court, then the Supreme Court could
easily have vacated the federal injunction on that basis. It did not.
In Smith v. Bayer Corp., the Supreme Court said, “[t]he Act's relitigation
exception authorizes injunctions only when a former federal adjudication
clearly precludes a state-court decision.” 14 The Bayer decision, however, did
not focus on whether the federal court’s judgment had preceded the
commencement of a state-court action or a ruling by a state court. The Court
held that the federal court’s stay was improper because “the issue presented in
the state court was not identical to the one decided in the federal tribunal,”
and “the plaintiff in the state court did not have the requisite connection to the
federal suit to be bound by the [federal court’s] judgment.” 15 The decision in
Bayer recognized that “the Anti-Injunction Act’s relitigation
exception . . . involves the requirement of preclusion law that a subsequent
suit raise the ‘same issue’ as a previous case.” 16 But here again, the relative
points in time in which a federal court issued a decision and a state-court action
was commenced were not at issue in Bayer, and the Court’s general statement
regarding the law of preclusion was imprecise. Preclusion law generally
13 Id.14 564 U.S. 299, 318 (2011).
15 Id. at 302.
16 Id. at 305
25
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permits a final judgment to have preclusive effect when another court’s ruling,
even if prior in time, was not entitled to preclusive effect. 17
The Supreme Court has long recognized that state- and federal-court
proceedings involving the same parties and issues may proceed, and often
should proceed, on parallel tracks. 18 The Court’s decision in Atlantic Coast
Line said at one point that “the state and federal courts had concurrent
jurisdiction in this case, and neither court was free to prevent either party from
simultaneously pursuing claims in both courts.” 19 But these are not holdings
that when there are concurrent state- and federal-court proceedings, the
federal court is powerless to protect or effectuate its final judgment by staying
further state-court proceedings. One of the decisions the Court cited in
Atlantic Coast Line recognized that “Congress has seen fit to authorize courts
of the United States to restrain state-court proceedings in some special
circumstances,” citing the Anti-Injunction Act, even though that decision also
recognized that “where the judgment sought is strictly in personam, both the
state court and the federal court, having concurrent jurisdiction, may proceed
with the litigation at least until judgment is obtained in one of them which
may be set up as res judicata in the other.” 20
In Rivet v. Regions Bank of Louisiana, the Supreme Court signaled that
a federal district court would have authority under the Anti-Injunction Act to
enjoin state-court proceedings if necessary to protect or effectuate its
judgment, even if that judgment had also been raised in a defensive plea in
17 See RESTATEMENT (SECOND) OF JUDGMENTS, supra note 4.
18 See, e.g., Atl. Coast R. Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 295 (1970)
(“In short, the state and federal courts had concurrent jurisdiction in this case, and neither
court was free to prevent either party from simultaneously pursuing claims in both courts.”).
19 Id. (citing Donovan v. City of Dallas, 377 U.S. 408 (1964) and Kline v. Burke Constr.
Co., 260 U.S. 226 (1922)).
20 Donovan, 377 U.S. at 412 (quoting Princess Lida of Thurn and Taxis v. Thompson,
305 U.S. 456, 466 (1939)).
26
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state court. 21 The Court’s actual holding in Rivet was that “claim preclusion
by reason of a prior federal judgment is a defensive plea that provides no basis
for removal under § 1441(b),” and that “[s]uch a defense is properly made in
the state proceedings, and the state courts’ disposition of it is subject to this
Court’s ultimate review.” 22 In a footnote appended to these statements,
however, the Court said, “[w]e note also that under the relitigation exception
to the Anti–Injunction Act, 28 U.S.C. § 2283, a federal court may enjoin
state-court proceedings ‘where necessary . . . to protect or effectuate its
judgments.’” 23 On remand after the Supreme Court’s decision in Rivet, the
Fifth Circuit proceeded to address preclusion issues under Louisiana law in
accordance with Parsons Steel, Inc. v. First Alabama Bank, 24 in deciding
whether the federal district court had properly stayed proceedings under the
Anti-Injunction Act. 25
There is no rationale expressed in any of the Supreme Court’s decisions
that supports differentiating how the Anti-Injunction Act is applied solely on
the basis of whether a state court’s ruling occurred before the federal district
court issued a final judgment.
II
The majority opinion in the present case concludes that “[b]ecause Shaw
assigned all of its interest in the litigation to Aptim, it is not apparent what
litigation there is to continue in state court,” and therefore that “Shaw’s
interest is moot.” 26 As a consequence, the majority opinion affirms the district
21 522 U.S. 470, 478 (1998).
22 Id.23 Id. n.3 (quoting 28 U.S.C. § 2283).
24 474 U.S. 518 (1986).
25 Regions Bank of La. v. Rivet, 224 F.3d 483, 492-95 (5th Cir. 2000).
26 Ante at __, n.14.
27
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court’s judgment in its entirety. With respect, I disagree with this disposition
for at least two reasons.
First, the district court did not purport to resolve whether Shaw had
waived its right to arbitrate disputes with McCall. Nothing in the district
court’s memorandum setting forth the reasons for its decision in this case
addresses Shaw’s right to arbitrate. After the district court entered its final
judgment, McCall filed a “Motion to Stay Order and Judgment Pending
Appeal.” In the order denying this motion, the district court confirmed that its
conclusion that Aptim is entitled to an order compelling arbitration did not
consider whether Shaw’s actions were imputed to Aptim under Louisiana law
regarding assignments, and that since McCall had not raised that argument
in the district court initially, it was waived. 27 The district court also observed
in the order denying a stay pending appeal that in any event, Aptim was joined
as an additional party in state court and not substituted for Shaw. McCall had
opposed substituting Aptim for Shaw in state court. The federal district court
reasoned that “[i]t is therefore difficult for this Court to say that Aptim should
now be held accountable for Shaw’s actions when Defendant opposed a
substitution and such was never actually made.” Shaw was not a party to the
federal district court suit, and the district court did not adjudicate whether
Shaw was entitled to arbitrate claims against McCall.
27 The district court’s order states:
Defendant argues that under Louisiana’s assignment law, Aptim
stepped into the shoes of Shaw and all defenses available against Shaw should
have been available against Aptim. It argues that Shaw’s actions in the State
Court Action should therefore have been imputed to Aptim. Defendant,
however, did not make any argument regarding Louisiana assignment law in
its opposition to Plaintiff’s Motion to Compel Arbitration. Indeed, this Court
noted in its prior Order that, “Defendant has offered no argument why Shaw’s
actions should be imputed to [Aptim].” “[A]rguments not raised before the
district court are waived and cannot be raised for the first time on appeal.”
28
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The Supreme Court has made clear that a federal district court can stay
a state-court action only as to issues actually determined by the federal district
court. 28 In Chick Kam Choo, the Court discussed its decision in Atlantic Coast
Line 29 to illustrate this principle, observing that “[t]he Court assessed the
precise state of the record and what the earlier federal order actually said; it
did not permit the District Court to render a post hoc judgment as to what the
order was intended to say.” 30 In the present case, the district court neither
actually addressed Shaw’s right to arbitrate nor whether the state-court
proceeding was moot.
Second, it does not appear that the state-court proceedings are moot as
to Shaw. In this court, McCall attached exhibits to a motion for stay pending
appeal. One of those exhibits is a filing in the state-court action that asserts
that McCall’s claims against Shaw in state court include a claim for damages
against Shaw for tortious interference with McCall’s contract with Allied. 31
For these reasons, I would vacate the portion of the district court’s
judgment issuing a stay that appears to include Shaw as “an entit[y] in privity
with” Aptim. I would otherwise affirm the district court’s judgment.
28 See, e.g., Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 148 (1988) (“[A]n essential
prerequisite for applying the relitigation exception is that the claims or issues which the
federal injunction insulates from litigation in state proceedings actually have been decided
by the federal court.”).
29 398 U.S. 281 (1970).
30 Chick Kam Choo, 486 U.S. at 148 (analyzing Atlantic Coast Line).
31 Motion for Stay Pending Appeal, Ex. C (“Motion to Consolidate”).
29