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MECHANICAL SYSTEMS, INC. v. CADRE CORP.

June 28, 1983

MECHANICAL SYSTEMS, INC., PLAINTIFF,
v.
THE CADRE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Mechanical Systems, Inc. ("MSI") brings this diversity action against The Cadre Corporation ("Cadre") asserting misrepresentations and inadequate performance by Cadre in connection with a construction project on which both parties were subcontractors. Cadre has now moved alternatively (1) to stay further proceedings in this action pending resolution of a virtually identical Delaware state court case, Cadre Corporation v. Mechanical Systems, Inc., No. 83 C-AP-26, or (2) to transfer this action to the District Court for the District of Delaware pursuant to 28 U.S.C. § 1404(a) ("Section 1404(a)"). For the reasons stated in this memorandum opinion and order Cadre's motion is denied entirely.

Background

MSI is a Delaware corporation with its principal place of business in Illinois. Cadre is a Georgia-based corporation (as to both its place of incorporation and its principal place of business). In 1980 MSI and Cadre, working closely together, submitted complementary bids for construction and installation of an emission control system (the "System") at the East Moline, Illinois foundry owned by John Deere & Company ("Deere"). Those bids contemplated MSI would install equipment and component parts furnished by Cadre and would supply and install other parts of the System as designed and engineered by Cadre. Deere's general contractor, Blount Brothers Corporation ("Blount"), accepted the bids and the parties completed the work. According to MSI's Complaint, Cadre forced MSI to incur financial losses by (1) performing its project responsibilities in a deficient and untimely manner and (2) making misrepresentations that induced MSI to tender a non-remunerative bid.

In a February 11, 1982 letter to Cadre, MSI had demanded payment for substantially the same claims presented in its Complaint. MSI later decided to defer any legal action against Cadre, preferring instead to seek recovery from Blount and Deere via arbitration proceedings. Then Cadre's February 23, 1983 letter for the first time asserted MSI owed Cadre approximately $12,-000 for certain design work. On March 29,1983 — shortly after the arbitration proceedings had ended — both Cadre and MSI sent letters threatening legal action if the other did not pay the requested amount. Cadre was the first to carry out its threat, filing the Delaware state court action April 6, 1983 — approximately two weeks before MSI brought this lawsuit. Cadre's Complaint there raises substantially the same issues as are involved here: It seeks (1) reimbursement for the allegedly unpaid design work*fn1 and (2) a declaration as to its liability to MSI.

Motion To Stay

Over the past few years our Court of Appeals has issued at least four opinions as to a federal court's power to refrain from exercising its jurisdiction pending the outcome of a parallel state proceeding. Evans Transportation Co. v. Scullin Steel Co., 693 F.2d 715 (7th Cir. 1982); Voktas, Inc. v. Central Soya Co., Inc., 689 F.2d 103 (7th Cir. 1982); Microsoftware Computer Systems, Inc. v. Ontel Corp., 686 F.2d 531 (7th Cir. 1982); Calvert Fire Insurance Co. v. American Mutual Reinsurance Co., 600 F.2d 1228 (7th Cir. 1979). Though its initial stabs at this elusive issue were somewhat inconsistent, Evans (its most recent decision) provides a coherent analytical framework that reconciles those discrepancies with a heavy application of judicial gloss.

Evans (693 F.2d at 717) reaffirmed the Court's adherence to the "exceptional circumstances" formulation of Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976):

  Although Colorado River involved special factors that
  warranted abstention in favor of the parallel state action, the
  Court formulated the issue in general terms: "In assessing the
  appropriateness of dismissal in the event of an exercise of
  concurrent jurisdiction, a federal court may also consider [in
  addition to whether

  the state court has assumed jurisdiction over property, see
  id. at 818, 96 S.Ct. at 1246-1247] such factors as the
  inconvenience of the federal forum, the desirability of
  avoiding piecemeal litigation, and the order in which
  jurisdiction was obtained by the concurrent forums. No one
  factor is necessarily determinative. . . . Only the clearest of
  justifications will warrant dismissal. Id. at 818-19, 96
  S.Ct. at 1247 (citations omitted).

Evans also reviewed several important ramifications of the Colorado River doctrine:

    1. Satisfaction of the Colorado River test warrants a stay,
  not outright dismissal, of the federal action (even though
  Colorado River spoke in terms of dismissal). 693 F.2d at
  717-18.
    2. Colorado River demands the same showing of judicial
  economy regardless of the jurisdictional predicate (diversity
  or federal-question) of the federal proceeding. Id. at 717.
    3. Parallel federal actions require a lesser showing of
  judicial economy to justify suspension of proceedings.
  Microsoftware had prescribed those liberal abstention
  standards and confirmed their applicability to situations
  where the plaintiff in the later-filed federal action fails
  to exercise its right to remove the parallel state suit to a
  federal forum (as actually occurred in Microsoftware). Id.
  at 719.
    4. Abstention is not justified by the mere fact the state
  suit was filed before the ...

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