187 F. Supp. 3d 893
M.D. Tenn.2016Background
- Summit Contracting (licensed Tennessee general contractor) entered a construction contract with Ashland Heights, LP to build an assisted living facility for an initial lump-sum of $8,667,731; contract governed by Tennessee law and provided for retainage, progress payments, interest on late payments, and attorney fees to prevailing party.
- Summit alleged substantial completion in May 2015 and that Ashland withheld 5% retainage from progress payments (total alleged withheld: $320,415.74) but failed to deposit retained funds into a third-party, interest-bearing escrow as required by Tennessee retainage statutes.
- Summit sent a statutory demand in October 2014 and alleged entitlement to a $300/day statutory penalty for failure to escrow retainage; Ashland later produced evidence of a deposit at Max Credit Union but Summit disputed that it satisfied the statutory escrow requirement.
- Summit also alleged unpaid change orders, untimely payments (contractual interest owed), extended general conditions for weather delays beyond 30 days, and other costs; it brought federal suit for breach of contract, retainage and Prompt Pay Act claims seeking > $1.5 million.
- Separately, Summit filed a state-court mechanic’s lien/enforcement action seeking enforcement of a lien for $1,074,668.74; the state action named additional parties but those third parties were later dismissed.
- Ashland moved to dismiss/abstain under the Colorado River doctrine, arguing parallel state and federal proceedings warranted dismissal without prejudice; the court denied the motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court must abstain/dismiss under Colorado River because of a prior state mechanic’s lien action | Summit: federal breach/retainage claims proceed; lien action is limited and won’t resolve all federal issues | Ashland: actions are parallel; state lien adjudication will render federal case moot and conserve resources | Denied—actions are not sufficiently parallel; state action will not resolve all federal claims |
| Whether state lien action is coextensive with federal breach/retainage claims | Summit: lien action enforces lien amount only and cannot recover statutory penalties, contract interest, attorney fees or non-lien damages | Ashland: overlap in parties/contract means issues are identical and duplicative | Court agreed with Summit: lien action and breach action involve different issues and remedies |
| Whether Colorado River abstention requires exact parallelism | Summit: substantial similarity insufficient if state suit won’t dispose of all federal claims | Ashland: argued substantial similarity/overlap suffices | Court applied Sixth Circuit precedent: exact parallelism not required but must be substantial likelihood state suit will resolve all federal claims; here it will not |
| Whether abstention would promote judicial economy/comity here | Ashland: staying/dismissing promotes economy and comity | Summit: state forum inadequate to decide all claims; abstention would likely leave federal claims unresolved | Court found substantial doubt state action would be adequate vehicle; abstention inappropriate |
Key Cases Cited
- Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (discusses narrow circumstances permitting federal abstention in favor of parallel state proceedings)
- Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (federal courts have a strong obligation to exercise jurisdiction; stays only where state proceeding will resolve federal case fully)
- Romine v. CompuServe Corp., 160 F.3d 337 (6th Cir.) (Colorado River analysis: determine parallelism then weigh factors)
- Baskin v. Bath Township Board of Zoning Appeals, 15 F.3d 569 (6th Cir.) (compare issues actually raised in state action to those in federal action)
- Nakash v. Marciano, 882 F.2d 1411 (9th Cir.) (exact parallelism not required; proceedings must be substantially similar)
- Gannett Co. v. Clark Construction Group, Inc., 286 F.3d 737 (4th Cir.) (lien enforcement and breach-of-contract actions involve different issues and remedies)
- Fru-Con Construction Corp. v. Controlled Air, Inc., 574 F.3d 527 (8th Cir.) (mechanic’s lien action determines unpaid labor/materials for property improvement and does not resolve breach/damages claims)