FIRST FAMILY FINANCIAL SERVICES, INC. v. TRIPLETT, (N.D.Miss. 2002)

GLEN H. DAVIDSON, Chief United States District Judge

Presently, before the court is the Defendants James Triplett and Selma Triplett's motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, or in the alternative, for a stay pending the resolution of the state court proceedings. Upon due consideration, the court finds the motion is not well taken and is denied.

The Defendants James and Selma Triplett (Tripletts) are among a number of plaintiffs who filed suit in the Circuit Court of Coahoma County, Mississippi, against First Family Financial Services, Inc. (First Family), American Security Insurance Company and Union Security Life Insurance Company (collectively referred to as Insurers), complaining that First Family and the Insurers overcharged them for and failed to disclose material information to them regarding certain insurance that was required as a condition of loans made to them by First Family. First Family and the Insurers thereafter filed the present action in this court under Section 4 of the Federal Arbitration Act (FAA), seeking an order compelling the Tripletts to arbitrate their claims pursuant to what First Family and the Insurers contend is a valid and enforceable mandatory arbitration agreement. The Tripletts now move the court to dismiss this case based on the fact that, among other things, it lacks subject matter jurisdiction, or in the alternative, to stay these proceedings pending resolution of the state court proceedings.

A Rule 12(b)(6) motion is not favored, and it is rarely granted. Clark v. Amoco Production Company, 794 F.2d 967, 970 (5th Cir. 1986); Sosa v. Coleman, 646 F.2d 991, 993 (5th Cir. 1981). "To qualify for dismissal under Rule 12(b)(6), a complaint must on its face show a bar to relief." Clark, 794 F.2d at 970; see also Mahone v. Addicks Utility District, 836 F.2d 921, 926 (5th Cir. 1988); United States v. Uvalde Consolidated Independent School District, 625 F.2d 547, 549 (5th Cir. 1980). Dismissal is appropriate only when the court accepts as true all well-pled allegations of fact and, "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Thomas v. Smith, 897 F.2d 154, 156 (5th Cir. 1989) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957)); see Mahone, 836 F.2d at 926; McLean v. International Harvester, 817 F.2d 1214, 1217 n. 3 (5th Cir 1987); Jones v. United States, 729 F.2d 326, 330 (5th Cir. 1984). While dismissal under Rule 12(b)(6) ordinarily is determined by whether the facts alleged, if true, give rise to a cause of action, a claim may also be dismissed if a successful affirmative defense appears clearly on the face of the pleadings. Clark, 794 F.2d at 970; Kaiser Aluminum Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982).

a. Lack of Jurisdiction

The Tripletts argue in support of their motion to dismiss that this court does not have jurisdiction over this matter. They maintain that there is no federal question jurisdiction because the FAA does not provide an independent basis for establishing federal jurisdiction and that there is no diversity of citizenship inasmuch as they are Mississippi residents and First Family, although now dissolved, was incorporated as a Mississippi corporation and hence remains a Mississippi corporation for diversity purposes. See Miss. Code Ann. § 79-4-14.05(b) (Supp. 2000). In response, First Family contends that they were merged into a Delaware corporation prior to the filing of this case and thus, diversity does exist.

The court finds that the FAA does not create an independent basis for federal subject matter jurisdiction. Even though the FAA expressly authorizes the filing of petitions to compel arbitration in federal district courts, it does not confer subject matter jurisdiction. Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 861, 97 L.Ed.2d 1 (1984). Thus, an independent basis for federal jurisdiction, such as diversity of citizenship, is required before the court may entertain petitions under the FAA. Southland, 465 U.S. at 16, 104 S.Ct. at 861. Here, First Family, a Mississippi corporation, filed Articles of Merger with the Mississippi Secretary of State and submitted its plan of merger in accordance with Miss. Code Ann. § 79-4-11.05 (Supp. 2000). The Articles of Merger and plan set forth that effective March 23, 2001, First Family Financial Services, Inc., a Mississippi corporation, merged into First Family Financial Services, Inc., a Delaware corporation.

Miss. Code Ann. § 79-4-11.07 (Supp. 2000) sets forth the effects of merger and provides:

When a merger becomes effective:

a. the corporation or other entity that is designated in the plan of merger as the survivor continues or comes into existence, as the case may be;

b. the separate existence of every corporation or other entity that is merged into the survivor ceases;

c. all property owned by and every contract right possessed by, each corporation or other entity that merges into the survivor is vested in the survivor without reversion or impairment;

d. All liabilities of each corporation or other entity that is merged into the survivor are vested in the survivor . . .

Miss. Code Ann. § 79-4-11.07 (Supp. 2000).

Hence, the court finds that as provided by statute, on March 23, 2001, the aforementioned merger became effective and the Mississippi corporation of First Family ceased to exist. This action was commenced on May 29, 2001, two months thereafter. Consequently, at the time of the filing of this cause, First Family was a Delaware corporation. Thus, there is complete diversity among the parties to this action: First Family is a Delaware corporation with its principal place of business in Maryland; the Insurers are both Delaware corporations; the Tripletts are both adult resident citizen of Winston County, Mississippi; and the amount in controversy exceeds the jurisdictional minimum. Accordingly, this court has subject matter jurisdiction and the Tripletts' arguments concerning the lack of it must fail.

Next, the Tripletts claim that First Family and the Insurers failed to join their resident agents, the individuals who conspired with First Family and the Insurers to defraud them. They argue that these agents are indispensable parties and therefore, should be mandatorily joined. Joinder of these Mississippi residents would defeat diversity and render this court without subject matter jurisdiction to rule. The Fifth Circuit Court of Appeals has held, however, that non-diverse parties joined as alleged joint tortfeasors in a state court action are not indispensable parties in a diversity-based petition to compel arbitration, such that the petition should be dismissed under Rule 19. Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1266-67 (5th Cir. 1994). As such, the court finds that the Plaintiffs' resident agents are not indispensable parties to this action. Again, the court finds that complete diversity between the parties to this action does exist, and the minimum jurisdictional amount has been met. As such, the court possesses subject matter jurisdiction in this cause.

Further, the Tripletts argue that the Plaintiffs failed to provide them with five day written notice of their intention to file a complaint to enforce the arbitration agreement as required by 9 U.S.C. § 4. As such, the Tripletts argue that they are entitled to have the complaint against them dismissed for failure to comply with the statute. However, the Tripletts have neglected to cite any authority for such an argument. Accordingly, the court finds that the Tripletts have failed to prove that First Family and the Insurers are entitled to no relief under any set of facts set forth in their complaint, and this argument is without merit.

The Tripletts then argue that the court, even if it found some basis for federal jurisdiction, should nevertheless refrain from exercising its jurisdiction in the interest of preserving comity and judicial economy. The court is unpersuaded that circumstances exist in this case which would warrant the court's abdication of its jurisdictional powers.

In Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), the Supreme Court concluded that the determination of whether to stay a proceeding to compel arbitration under 9 U.S.C. § 4 in favor of state court litigation is governed by the "exceptional circumstances" standard articulated by the Court in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Ordinarily, the pendency of litigation in state court is not a bar to proceedings in federal court involving the same subject matter and the federal court, if possessed of jurisdiction, must ordinarily entertain the action. Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246 ("`the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction,' and . . . the federal courts have a `virtually unflagging obligation . . . to exercise the jurisdiction given them.'").

However, the Colorado River abstention doctrine, upon which the Tripletts rely, is premised on a recognition that there are "exceptional circumstances" in which a federal court, even though it has subject matter jurisdiction, should decline to exercise that jurisdiction in favor of a concurrent state court action in the interest of comity and conservation of judicial resources. Id. (in exceptional and limited circumstances, federal court may dismiss federal suit in favor of state court action based on "considerations of wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation"); see also, Black Sea Inv., Ltd. v. United Heritage Corp., 204 F.3d 647, 650 (5th Cir. 2000).

The Supreme Court has emphasized that the Colorado River doctrine "represents an `extraordinary and narrow exception' to the `virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.'" Black Sea, 204 F.3d at 650 (citations omitted). Hence, under the Colorado River doctrine, as reiterated by the Court in Moses H. Cone, "[a]bstention from the exercise of federal jurisdiction is the exception, not the rule," Moses H. Cone, 460 U.S. at 13, 103 S.Ct. at 936, and "[o]nly the clearest of justifications will warrant dismissal." Id. at 15, 103 S.Ct. at 936.

In Colorado River, the Supreme Court declined to prescribe a "hard and fast rule" governing the appropriateness of abstention based on considerations of federalism, comity and judicial economy, but set forth factors for district courts to consider to determine whether to abstain, as follows: (1) whether the state or federal court has assumed jurisdiction over the res; (2) any inconvenience involved in litigating in the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) whether federal or state law will provide the rule of decision; (6) the adequacy of the state court action to protect the federal plaintiff's rights; (7) the relative progress of the state and federal proceedings; (8) and the presence or absence of concurrent jurisdiction. Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246. These factors do not compose a mechanical checklist and instead, what is required is "a careful balancing of the important factors as they apply in a given case," Moses H. Cone, 460 U.S. at 16, 103 S.Ct. at 937; and since "the balance [is] heavily weighted in favor of the exercise of jurisdiction," id. at 15, 103 S.Ct. at 936, then if a given factor does not weigh in favor of abstention, it is not merely a neutral factor but instead weighs against abstention, Murphy v. Uncle Ben's, Inc., 168 F.3d 734, 738 (5th Cir. 1999) (citing Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1190-91 (5th Cir. 1988)).

The Tripletts herein urge in support of their request for abstention that if this case is allowed to proceed, there will be piecemeal litigation resulting in a waste of judicial resources which is unwarranted inasmuch as the state court action, which was commenced before this case, can readily accommodate the parties and provide a vehicle for the resolution of the issues raised between the parties involved in the challenged transactions, including the issue of arbitration. The court is not persuaded.

First, the court observes that since this case does not involve any res or property over which any court, state or federal, has taken control, "the absence of this first factor weighs against abstention." Murphy, 168 F.3d at 738. And, since both the federal and state courts are in Mississippi, the second factor is likewise inapplicable and its absence weighs against abstention. Id.

Next, while the possibility of piecemeal litigation is evident, "the `piecemeal litigation' factor is not applicable in the FAA context, where the overriding federal policy is `to give effect to . . . arbitration agreement [s]'." Safety Nat'l Cas. Corp. v. Bristol-Myers Squibb Co., 214 F.3d 562, 565-66 (5th Cir. 2000) (quoting Moses H. Cone, 460 U.S. at 20, 103 S.Ct. 927, 74 L.Ed.2d 765); see also Snap-On Tools, 18 F.3d at 1265 (piecemeal litigation is sometimes "the inevitable result of congressional policy strongly favoring arbitration"); Black Sea, 204 F.3d at 650 ("A `clear federal policy . . . [of] avoidance of piecemeal adjudication of water rights in a river system' was `the most important factor' in the Supreme Court's decision to abstain in Colorado River. . . . Conversely, a clear Congressional policy `to move parties to an arbitrable dispute out of court and into arbitration as quickly and as easily as possible' — a policy that was most readily given effect in federal court — decisively weighed against abstention in Moses H. Cone Mem. Hosp."). Indeed, as the Court recognized in Moses H. Cone, "the relevant federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement." Moses H. Cone, 460 U.S. at 20, 103 S.Ct. at 939.

Further, while the Tripletts argue that the case involves state contract law issues, the Fifth Circuit has said that "only rarely will `the presence of [a] state law issue weigh in favor of' abstention, and even where the state court can adequately protect all parties, this fact `can only be a neutral factor or one that weighs against . . . abstention'." Safety Nat'l Cas. Corp., 214 F.3d at 566 (citing Evanston, 844 F.2d at 1193); see also Black Sea, 204 F.3d at 650-51 n. 7 (noting that where there is no res at issue, the danger of inconsistent rulings is less relevant). Moreover, while state law may inform the court's decision regarding arbitration, the ultimate question whether arbitration is to be compelled is a decisively federal issue. See Snap-On Tools, 18 F.3d at 1266.

Finally, the Supreme Court has left no doubt as to its view of the importance of the federal interest in the enforcement of arbitration agreements. In Quackenbush v. Allstate Insurance Company, 517 U.S. 706, 728, 116 S.Ct. 1712, 1727, 135 L.Ed.2d 1 (1996), for example, the Supreme Court concluded that the federal interests were pronounced, as the plaintiff's motion to compel arbitration under the Federal Arbitration Act (FAA) "implicate[d] a substantial federal concern for the enforcement of arbitration agreements." Quackenbush, 517 U.S. at 728-29, 116 S.Ct. 1712 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 3356, 87 L.Ed.2d 444 (1985) (FAA reflects "emphatic federal policy in favor of arbitral dispute resolution"), and Moses H. Cone, 460 U.S. at 25-26, 103 S.Ct. at 942 (in deciding whether to defer to state court adjudication under the Colorado River doctrine, "the presence of federal-law issues must always be a major consideration weighing against surrender")). This court thus concludes without hesitation that the Tripletts' request for abstention should be denied.

Finally, the court finds that the Tripletts' arguments on the issues surrounding the validity of the arbitration agreement itself are best addressed under First Family and the Insurer's motion to compel arbitration. Accordingly, the court will address these issues and any other defenses that the Tripletts may assert in the pending motion to compel arbitration. Further, the Tripletts shall have ten days from the entry hereof within which to respond to the pending motion to compel arbitration.

A separate order in accordance with this opinion shall issue this day.

Pursuant to an opinion issued this day, it is hereby ORDERED that

a. the Defendants' motion to dismiss, or in the alternative, for a stay pending the resolution of the State Court proceedings (docket entry #7) is DENIED;

b. the Defendants' motion to hold in abeyance the Plaintiffs' motion to compel arbitration pending the ruling on the Defendants' motion to dismiss (docket entry #18) is DENIED AS MOOT; and

c. the Defendants shall have ten days to respond to the Plaintiffs' motion to compel arbitration.

SO ORDERED.