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Cessna Finance Corp. v. JS CJ3, LLC

United States District Court, D. Kansas

March 20, 2019

CESSNA FINANCE CORPORATION, Plaintiff,
v.
JS CJ3, LLC and JETSUITE, INC., Defendants.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN, UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Defendants JS CJ3, LLC (“JS”) and Jetsuite, Inc.'s (“Jetsuite”) Motion to Dismiss or Stay Cessna Finance Corporation's (“Cessna Finance”) claim for breach of contract. For the following reasons, Defendants' Motion to Dismiss or Stay (Doc. 8) is denied.

         I. Factual and Procedural Background

         Simply stated, this case involves a contract dispute between Cessna Finance and JS and Jetsuite. JS borrowed money from Cessna Finance to purchase eight aircraft from Cessna Aircraft Company (“Cessna Aircraft”). JS executed eight Promissory Notes and Security Agreements memorializing its obligations to Cessna Finance, and Jetsuite executed documents promising to be a guarantor of JS's financial obligations. Cessna Finance alleges that Jetsuite and JS failed to make payments pursuant to these agreements and are now in breach of contract.

         Eight days before Cessna Finance filed its breach of contract claim against Defendants in Kansas, JS and Jetsuite filed their own lawsuit in California Superior Court (“the California lawsuit”) against Textron Aviation, Inc. (“Textron”), [1] Cessna Aircraft, Cessna Finance, and Don Beverlin. In the California lawsuit, JS and Jetsuite alleged that Beverlin-acting on behalf of Cessna Aircraft and Cessna Finance-fraudulently induced JS and Jetsuite into purchasing the aircraft by failing to disclose certain defects common to the aircraft. Based on this alleged fraudulent conduct, JS and Jetsuite filed suit in California seeking, among other remedies, recession of the purchase contracts entered into with Cessna Aircraft, as well as recession of the Promissory Notes, Security Agreements, and Guaranties that are at issue in this case.

         When Defendants filed the present Motion to Dismiss or Stay, all the parties in the Kansas lawsuit-JS, Jetsuite, and Cessna Finance-were also parties to the California lawsuit. But that has since changed. The California Superior Court determined that it lacked personal jurisdiction over Cessna Finance and dismissed the company from the California lawsuit. JS and Jetsuite have appealed that ruling, and their appeal is still waiting to be heard by the California Court of Appeals.

         On March 12, 2019, this Court conducted a hearing on Defendants' Motion. At that hearing, JS and Jetsuite acknowledged that their first two arguments for dismissal-one based on California's compulsory counterclaim rule and the other on the first-filed lawsuit doctrine-were contingent on Cessna Finance being a party to the California lawsuit. Accordingly, because Cessna Finance has been dismissed from the California lawsuit, JS and Jetsuite shifted their argument exclusively to their request for a stay under the Colorado River doctrine. JS and Jetsuite urge the Court to stay this case until JS and Jetsuite's fraud claims in California are resolved. Cessna Finance, in response, argues that the California lawsuit has no bearing on its claims against Defendants in Kansas. Furthermore, Cessna Finance argues that Kansas is the only appropriate jurisdiction to litigate its claims, based on a forum selection clause contained in the parties' contracts.

         II. Legal Standard

         Generally, “the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction.”[2] Indeed, federal courts have a “virtually unflagging obligation . . . to exercise the jurisdiction given them.”[3] In Colorado River, however, the Supreme Court held that under limited circumstances it may be appropriate for a federal court to stay or dismiss a lawsuit based on parallel proceedings in state court.[4] Federal and state suits are parallel when “substantially the same parties” are litigating “substantially the same issues” in both cases.[5] Courts must “examine the state proceedings as they actually exist to determine whether they are parallel to the federal proceedings, resolving any doubt in favor of exercising federal jurisdiction.”[6] “If the cases are not parallel, the court must exercise jurisdiction. On the other hand, ‘if a federal court determines the state and federal proceedings are parallel, it must then determine whether deference to state court proceedings is appropriate under the particular circumstances.' ”[7]

         In Colorado River, the Supreme Court provided the following factors to consider in deciding if deference to a state court proceeding is appropriate under the circumstances: “(1) whether either court has assumed jurisdiction over property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; and (4) the order in which the courts obtained jurisdiction.”[8] Additional factors to be considered include which forum's law governs the dispute, the reactive or vexatious nature of either lawsuit, and the adequacy of the state court action to protect the federal plaintiff's rights.[9] “No single factor is dispositive, ” and “any doubt should be resolved in favor of exercising federal jurisdiction.”[10]

         III. Analysis

         Before the Court can consider the Colorado River factors, it must first make a threshold determination that this lawsuit and the California lawsuit are parallel proceedings. As discussed above, proceedings are parallel when they involve substantially the same parties and raise substantially the same issues.[11] Defendants direct the Court to two District of Kansas decisions- Foxfield Villa Associates, LLC v. Regnier[12] and Health Care and Retirement Corp. of America v. Heartland Home Care, Inc.[13]-that are pertinent to this topic.

         In Foxfield Villa, the plaintiffs sued Bank of Blue Valley (“BOBV”) in Kansas state court for conduct arising out of a financial transaction. Almost an entire year after initiating the state court action, the same plaintiffs filed suit in federal court, raising nearly identical claims against BOBV under Kansas common law, and adding a federal claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Also named in the federal lawsuit were BOBV's Board of Directors, BOBV's holding company Blue Valley Ban Corp (“Ban Corp.”), and members of Ban Corp.'s Board of Directors. The defendants in the federal lawsuit filed a motion to stay pursuant to Colorado River, and the district court granted the motion.[14]

         The court in Foxfield Villa held that the state and federal proceedings were parallel-a conclusion neither party disputed. Although the court recognized that the parties were not identical in the state and federal proceedings, they were substantially the same. Importantly, both BOBV and the plaintiffs were parties to each lawsuit. The federal action involved additional defendants, but the court held that the plaintiffs “cannot avoid application of the Colorado River doctrine simply by adding additional ...


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