UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

________________________

No. 99-10375 (Summary Calendar) ________________________

BLACK SEA INVESTMENT, LTD.,

Plaintiff-Counter Defendant-Appellant,

versus

UNITED HERITAGE CORPORATION,

Defendant-Counter Claimant-Appellee.

_____________________________________________________

Appeal from the United States District Court for the Northern District of Texas _____________________________________________________

March 9, 2000

Before POLITZ, WIENER, and STEWART, Circuit Judges.

WIENER, Circuit Judge:

In this diversity case arising out of a contract dispute,

Plaintiff-Appellant Black Sea Investments, Ltd. (“Black Sea”)

appeals the district court’s granting the motion of Defendant-

Appellee United Heritage Corporation (“United Heritage”) to stay

and administratively close the underlying federal action. The

district court ruled that a stay was appropriate under the

abstention doctrine announced by the Supreme Court in Colorado

1 River Water Conservation District v. United States.1 As we find

that the district court’s ruling is inconsistent with the

“virtually unflagging obligation of the federal courts to exercise

the jurisdiction given them,”2 we reverse and remand the case to

the district court for further proceedings.

I.

Facts and Proceedings

Black Sea purchased from United Heritage 352,491 shares of

United Heritage stock. The purchase agreement placed restrictions

on Black Sea’s ability to sell the stock. It also promised Black

Sea additional “rachet” shares of stock in the event that Black Sea

sold its initial holdings for less than a specified price per

share. During the following year, Black Sea sold all of its shares

of United Heritage stock. Black Sea reported the sales to United

Heritage, and a dispute immediately ensued. Black Sea claimed that

it was entitled to receive 312,297 “rachet” shares of United

Heritage stock; United Heritage claimed that Black Sea’s sale of

the stock violated the terms of the purchase agreement.

The parties immediately entered into settlement negotiations,

but about one week later, while the negotiations were still

ongoing, United Heritage filed suit in state court in Texas.

1

(1976) 2 Id at 817.

2 United Heritage did not have Black Sea served with process,

however, allegedly because it did not want to disturb the ongoing

negotiations. Unaware of the state suit, Black Sea filed a

diversity action against United Heritage in federal district court,

seeking injunctive and declaratory relief. Black Sea had United

Heritage served with process the same day.

Several weeks later, United Heritage filed a motion to stay

the federal suit, arguing that the district court should abstain

from exercising jurisdiction over Black Sea’s claims out of

deference to the parallel state litigation. Early the following

year, the district court granted United Heritage’s motion, finding

that (1) the issues involved in Black Sea’s federal action are

purely issues of state law, (2) the state court provides an equally

convenient forum for the litigation of Black Sea’s claims, and (3)

allowing the federal action to proceed would result in wasteful,

duplicative litigation. Approximately six months later, the

district court clarified its ruling, specifying that its granting

of a stay was based on the Colorado River abstention doctrine.

This appeal followed.

II.

Analysis

A. Standard of Review

We review a district court’s decision whether to stay

3 proceedings for abuse of discretion.3 To the extent that such a

decision rests on an interpretation of law, however, our review is

de novo.4

B. Colorado River Abstention

The Colorado River abstention doctrine is based on principles

of federalism, comity, and conservation of judicial resources.5 It

represents an “extraordinary and narrow exception” to the

“virtually unflagging obligation of the federal courts to exercise

the jurisdiction given them.”6 The Supreme Court has not

prescribed a “hard and fast rule” governing the appropriateness of

Colorado River abstention, but it has set forth

six factors that may be considered and weighed in determining whether exceptional circumstances exist that would permit a district court to decline exercising jurisdiction: (1) assumption by either court of jurisdiction over a res; (2) the relative inconvenience of the forums; (3) the avoidance of piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) whether and to what extent federal law provides the rules of decision on the merits; and (6) the adequacy of the state proceedings in protecting the rights of the party invoking federal

3 Murphy v. Uncle Ben’s, Inc.,

(5th Cir. 1999). 4

5 Evanston Ins. Co. v. Jimco, Inc.,

(5th Cir. 1988). 6 Colorado River,

.

4 jurisdiction.7

In assessing the propriety of abstention according to these

factors, a federal court must keep in mind that “the balance

[should be] heavily weighted in favor of the exercise of

jurisdiction.”8 Paying heed to this admonition in applying the

Colorado River factors to this case, we conclude that the balance

tips decisively against abstention.

(1) Assumption by Either Court of Jurisdiction Over a Res

The case “does not involve any res or property over which any

court, state or federal, has taken control. ... [T]he absence of

this factor weighs against abstention.”9

(2) Relative Inconvenience of the Forums

The federal and state courts are in approximately the same

7 Murphy,

. The Supreme Court has also emphasized the determinative role of a clear federal policy with respect to the appropriate application of these factors. 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. See Moses H. Cone Mem. Hosp. v. Mercury Const. Corp.,

(1983). 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.. Id at 22-23. 8 Moses H. Cone Mem. Hosp.,

. 9 Murphy,

.

5 geographic location within the state. This factor therefore weighs

against abstention.10

(3) Avoidance of Piecemeal Litigation

The district court expressly granted a stay primarily to avoid

wasteful, duplicative litigation. But “[t]he prevention of

duplicative litigation is not a factor to be considered in an

abstention determination.”11 Duplicative litigation, wasteful

though it may be, is a necessary cost of our nation’s maintenance

of two separate and distinct judicial systems possessed of

frequently overlapping jurisdiction. The real concern at the heart

of the third Colorado River factor is the avoidance of piecemeal

litigation, and the concomitant danger of inconsistent rulings with

respect to a piece of property.12 When, as here, no court has

assumed jurisdiction over a disputed res, there is no such danger.

This factor therefore weighs against abstention.13

(4) Order in Which Jurisdiction Was Obtained

“[P]riority should not be measured exclusively by which

complaint was filed first, but rather in terms of how much progress

10

11 Evanston Ins. Co.,

. 12

13

6 has been made in the two actions.”14 Even though, in the instant

case, the state suit was filed first, no action has been taken by

the state court with respect to that suit. Indeed, the defendant

had not even been served when it filed the subsequent federal suit.

The situation in the United States District Court is much the same:

The parties have devoted substantial energy to jurisdictional

posturing, but no progress has been made on the merits of the case.

As the state and federal suits are proceeding at approximately the

same pace, this factor weighs against abstention.15

(5) Whether State or Federal Law Will Be Applied

The instant case involves only issues of state law.

Nevertheless, “[t]he absence of a federal-law issue does not

counsel in favor of abstention.”16 “[O]ur task in cases such as

this is not to find some substantial reason for the exercise of

federal jurisdiction by the district court; rather, the task is to

ascertain whether there exist ‘exceptional circumstances,’ the

‘clearest of justifications,’ that can suffice under Colorado River

to justify the surrender of that jurisdiction.”17 Thus, “the

presence of state law issues weighs in favor of surrender only in

14 Moses H. Cone Mem. Hosp.,

. 15 Murphy,

. 16 Evanston Ins. Co.,

. 17 Moses H. Cone Mem. Hosp.,

.

7 rare circumstances.”18

The district court improvidently accorded great weight to this

factor. It particularly emphasized that “the dispute involved

issues of state law that had only recently been addressed by the

Texas Supreme Court” and that the parties disagreed “as to the

effect of the Texas Supreme Court’s ruling.” Without more,

however, a mere lack of clarity in applicable state law does not

counsel in favor of abstention. This factor is therefore at most

neutral with respect to the propriety of abstaining under Colorado

River.

(6) Adequate Protection in State Court

There is no indication in the instant case that Black Sea’s

interests would not be adequately protected in state court. It is

clear, however, that this factor “can only be a neutral factor or

one that weighs against, not for, abstention.”19 This factor

therefore remains neutral.

All of the Colorado River abstention factors are either

neutral with respect to abstention or counsel against it. In light

of the heavy weighting of the balance in favor of the exercise of

jurisdiction, Colorado River abstention in the instant case is

18 Evanston Ins. Co., 844 F.3d at 1193. 19 Id at 1193.

8 clearly inappropriate. The district court abused its discretion in

granting a stay based on the Colorado River abstention doctrine.

C. Brillhart Abstention

United Heritage contends that this case is not governed by the

Colorado River abstention doctrine, but rather by the abstention

doctrine announced by the Supreme Court in Brillhart v. Excess

Insurance Co. of America,

(1942). This argument is

raised by United Heritage for the first time on appeal.

Nevertheless, we will address the issue, as it (1) is substantially

related to Colorado River abstention and (2) speaks to the

propriety of assuming federal jurisdiction over the instant case.

Brillhart abstention is applicable “[w]hen a district court is

considering abstaining from exercising jurisdiction over a

declaratory judgment action.”20 “In contrast, when actions involve

coercive relief the trial court must apply the standards enunciated

by the Court in Colorado River.”21 United Heritage concedes that

Black Sea has requested both declaratory and injunctive relief, but

argues that Brillhart is nevertheless applicable because Black

Sea’s claims for coercive relief are merely “ancillary” to its

request for declaratory relief. This Circuit has rejected similar

20 Southwind Aviation, Inc. v. Bergen Aviation, Inc.,

(5th Cir. 1994). 21 Id at 951.

9 arguments on at least two occasions.22 When a party seeks both

injunctive and declaratory relief, the appropriateness of

abstention must be assessed according to the doctrine of Colorado

River; the only potential exception to this general rule arises

when a party’s request for injunctive relief is either frivolous or

is made solely to avoid application of the Brillhart standard.23

As there is no indication that Black Sea’s request for injunctive

relief is either frivolous or made in an effort to avoid the

Brillhart doctrine, the appropriateness of abstention in the

instant case is properly assessed under Colorado River only.

III.

Conclusion

For the reasons states above, the judgment of the district

court is reversed and the case is remanded for further proceedings.

REVERSED AND REMANDED

22 See PPG Industries, Inc. v. Continental Oil Co., 478 F.2d th 674 (5 Cir. 1973); Southwind Aviation, Inc. v. Bergen Aviation, Inc.,

(5th Cir. 1994). 23 See PPG Industries, 478 F.2d at 679.

10