In a case chocked full of civil procedure intrigue, the Sixth Circuit yesterday reversed an order abstaining from deciding a setoff counterclaim in connection with a breach of contract dispute. RMS Richter, Inc. v. Behr America, Inc.. The case began as a pretty routine breach of contract case arising out of an aluminum requirements contract. The dispute spawned both a federal and state court case, and the federal plaintiff ultimately filed for bankruptcy in Canada. The district court eventually granted judgment to the plaintiff, but refused to adjudicate the setoff counterclaim because a similar claim was pending in state court. But the state court proceeding was not moving forward, prompting the plaintiff to seek to reopen the federal action. After the court denied that, the appeal ensued.
The Sixth Circuit first had to determine whether it had jurisdiction over the appeal given the somewhat unusual procedural posture. Relying on Supreme Court precedent recognizing that decisions based on Colorado River abstention are appealable under the collateral order doctrine, the Court determined that it did have appellate jurisdiction. Although international comity, or international abstention, was also at issue, the Court found that that aspect of the decision did not impact the finality calculus.
Turning to the merits of the abstention question, the Sixth Circuit emphasized the narrow contours of that doctrine, juxtaposing it with the federal court’s general duty to decide cases properly before it. Although there was a pending state court case concerning this same subject matter, the Sixth Circuit found that insufficient to justify abstention. This was particularly the case given that the state court litigation was itself stayed, effectively paralyzing the parties in an effort to seek adjudication in one forum or the other. The district court had also invoked some variant of international abstention, giving a nod to the Canadian bankruptcy proceedings. The Sixth Circuit likewise rejected that proposition, noting that the Canadian bankruptcy trustee had not sought to forestall the federal litigation. And, if the plaintiff were successful, that monetary benefit would flow to the bankruptcy estate, rather than diminishing it. The Court concluded: “international abstention is therefore a reason for the district court to adjudicate the issue of Behr’s cover costs, not a reason to abstain from it.”
This case is not an unusual phenomenon, with litigation arising in dueling jurisdictions, whether it be federal-state or U.S.-international. Sorting out which case or cases get to proceed in such an environment is a difficult undertaking, and while the Sixth Circuit’s decision here does not fully explicate all of the issues that could arise in such scenarios, it does give some guidance to parties facing such a situation.