953 F.3d 469
7th Cir.2020Background:
- DePuy and OrthoLA entered into a Sales Agreement (2015 renewal) and a Continuing Income Agreement, both containing AAA arbitration clauses designating Indianapolis and Indiana law (FAA applies to arbitration issues).
- The Sales Agreement expired January 7, 2018; DePuy refused continuing payments under the Income Agreement, alleging OrthoLA breached by soliciting business; sales reps moved to another distributor.
- OrthoLA sued DePuy, Golden State, and others in Los Angeles Superior Court (Oct. 2018) asserting torts and contract claims and seeking declaratory relief that agreements violated California public policy.
- DePuy moved in state court to compel arbitration; the state trial court denied the motion (Feb. 2019) as unconscionable; DePuy appealed that ruling to the California Court of Appeal and the same day filed an AAA demand for arbitration.
- Three days later DePuy petitioned the federal district court in Indiana to compel arbitration and enjoin the California proceedings; the district court stayed the federal petitions under Colorado River abstention.
- The Seventh Circuit affirmed the district court’s Colorado River stay, concluding the federal court did not abuse its discretion.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court abused its discretion by staying the federal petitions under Colorado River | DePuy: stay was improper; federal courts should decide FAA arbitrability and federal forum was chosen in contract | OrthoLA: parallel state litigation was advanced; exceptional circumstances justified deference to state court | Held: No abuse of discretion; stay affirmed due to parallel suits and exceptional circumstances (progress in state court, risk of piecemeal litigation) |
| Whether the state and federal actions are "parallel" | DePuy: federal FAA issues and contractual forum selection favor federal adjudication | OrthoLA: suits involve same parties, facts, and arbitrability issues | Held: Actions are parallel — substantially the same parties and issues; state resolution could dispose federal claims |
| Whether California courts adequately protect DePuy’s federal FAA rights | DePuy: adverse state ruling and potential delay risk could harm federal rights | OrthoLA: state courts are competent; FAA allows concurrent state jurisdiction | Held: State courts are adequate to protect federal rights; concurrent jurisdiction under FAA supports abstention |
| Whether DePuy’s filings were manipulative or contrived (forum shopping) | DePuy: filings were proper procedural steps to secure arbitration | OrthoLA: filing federal petitions shortly after appealing the state denial was opportunistic and sought a second bite | Held: Court viewed DePuy’s timing as opportunistic (weighed against DePuy) and factored into the decision to stay |
Key Cases Cited
- Colorado River Conservation Dist. v. United States, 424 U.S. 800 (establishes narrow circumstances allowing federal courts to defer to concurrent state proceedings to conserve judicial resources)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (favors exercise of federal jurisdiction; stay/dismissal under Colorado River reviewed for abuse of discretion)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (ordinary state-law contract principles govern whether parties agreed to arbitrate)
- Zurich Am. Ins. Co. v. Superior Court for State of Calif., 326 F.3d 816 (FAA provides concurrent state and federal jurisdiction to enforce arbitration agreements)
- LaDuke v. Burlington N. R.R. Co., 879 F.2d 1556 (Seventh Circuit articulation of Colorado River factors and analytical approach)
- Tyrer v. City of S. Beloit, Ill., 456 F.3d 744 (efficiency and piecemeal litigation concerns inform abstention decisions)