Abstention Trumps Arbitration In Tenth Circuit

by Stinson Leonard Street - Arbitration Nation
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https://jdsupra-html-images.s3-us-west-1.amazonaws.com/2a369187-fab4-4f07-93ed-72b5711e28c6-utah-ski-190x178.jpgThe Tenth Circuit this week refused to consider a plaintiff’s substantive arguments about its right to arbitrate because it found abstention was appropriate under the Colorado River doctrine.  D.A. Osguthorpe Family P’ship v. ASC Utah, Inc., __ F.3d __, 2013 WL 150221 (10th Cir. Jan. 15, 2013).  Though the factual situation in Osguthorpe is unusual, the decision highlights tension between the federal abstention doctrine and case law under the Federal Arbitration Act.

Osguthorpe involved a dispute over the development of a golf and ski resort in Utah.  The relevant parties included an arbitration clause within the Development Agreement.  However, when disputes initially arose, they were litigated in Utah state court.  After three years of state court litigation, one party (Wolf Mountain) moved to compel arbitration and the state courts (including the Utah Supreme Court) denied the motion after concluding Wolf Mountain had waived its right to arbitrate.  Before the Utah Supreme Court affirmed the waiver decision, however, D.A. Osguthorpe also moved to compel arbitration.  The state court denied Osguthorpe’s motion and Osguthorpe both appealed that decision in state court and filed a new action in the federal court seeking an order compelling arbitration and staying the state-court action.  Osguthorpe filed its federal case more than four years after it had initiated state court claims related to the same development, claims which had been proceeding in a consolidated case with related claims of other parties.

The federal district court dismissed Osguthorpe’s case for lack of subject-matter jurisdiction.  The Tenth Circuit affirmed.  After concluding that the Rooker-Feldman doctrine was not applicable in this case, the court held that “the Colorado River doctrine . . . mandates the dismissal of Osguthorpe’s suit.”  For those of you who, like me, avoided taking “federal jurisdiction” in law school because it had the dullest title in the course catalogue, I will summarize the Colorado River doctrine this way: sometimes federal courts can declare a lack of jurisdiction when there is a parallel state court proceeding that significantly overlaps with the proposed federal case.  In deciding whether to duck jurisdiction, courts have to analyze four factors.  The third and most “paramount” factor is “the desirability of avoiding piecemeal litigation.”  The Tenth Circuit leaned heavily on that third factor in its decision, relying on the incredible judicial resources that had already been committed by the Utah state court system in handling the protracted litigation over the five year period. (The state court case was “one of the greatest consumers of the resources of the [court] in many years” and “comprises more file volumes than any presently pending case in the [court].”)

In short, the federal court refused to exercise jurisdiction over Osguthorpe’s suit to enforce its right to arbitrate because doing so would entail piecemeal litigation.  How does that square with SCOTUS’ 2011 decision in Cocchi, saying in no uncertain terms that the point of the FAA is to enforce arbitration agreements, even if their enforcement results in piecemeal litigation?  Maybe the answer is that this case only relates to federal court jurisdiction, and it is up to the Utah state courts to enforce the Cocchi decision.  However, I can imagine cases where the conflict is more direct.  Seems like it would have consumed the same amount of federal judicial resources to hold that Osguthorpe had waived its right to arbitrate by participating in litigation for five years.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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