Summit Contracting Grp., Inc. v. Ashland Heights, LP, 2016 U.S. Dist. LEXIS 60662 (M.D. Tenn. May 6, 2016)

Ashland Heights, LP (“Owner”) contracted with Summit Contracting Group, Inc. (“Contractor”) to construct an assisted living facility in Tennessee. After completing the project, Contractor alleged that Owner had failed to pay Contractor in full for the work it performed; to make timely payments; to provide Contractor a time extension for inclement weather; and to deposit retainage into an interest-bearing escrow account as required by Tennessee’s Retainage Law.

Contractor filed a breach of contract and Retainage Law action in federal district court, seeking damages and litigation costs in excess of $1.5 million (the “Contract Action”). Contractor concurrently filed a mechanic’s lien action in state court seeking enforcement of the lien in the amount of $1,074,688.74 (the “Lien Action”).

Owner argued before the federal district court that the Contract Action should be dismissed without prejudice pursuant to what is known as the Colorado River Doctrine. In Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976), the Supreme Court explained that considerations of judicial economy and federal-state comity may justify federal court abstention in situations of contemporaneous exercise of jurisdiction by state and federal courts. Federal courts are to grant a stay or dismissal of litigation where the cases are “parallel,” meaning “substantially the same parties” are contemporaneously litigating “substantially the same issues” such that there is a “substantial likelihood that the state litigation will dispose of all claims presented in the federal case.”

The federal district court noted that the Fourth and Eight Circuits had both addressed the specific question of whether a lien enforcement action in state court was “parallel” to a contract action in federal court. Both Circuit Courts held that the actions involved different issues, different requisites of proof, and different remedies such that a ruling on the lien claim would not resolve the contract claim. See Gannet Co. v. Clark Constr. Grp., Inc., 286 F.3d 737 (4th Cir. 2002); Fru-Con Constr. Corp. v. Controlled Air, Inc., 574 F.3d 527 (8th Cir. 2009).

The court found that the Lien Action and the Contract Action similarly involved different issues, different requisites of proof, and different remedies. The Lien Action was premised on Tennessee’s mechanic’s lien law, while the Contract Action was premised on the common law elements of breach of contract and the Retainage Law. The Lien Action sought enforcement of a mechanic’s lien in the amount of $1,074,688.74, while the Contract Action sought well in excess of that amount in damages for breach of contract, statutory penalties, and in attorney’s fees. The Lien Action raised only the issue of whether Contractor provided labor and materials for which Owner failed to pay, while the Contract Action raised the issues of whether Owner breached the parties’ contract and whether Contractor incurred damages. Accordingly, there was substantial doubt that resolution of the Lien Action would result in a complete resolution of the issues between the parties, and thus Colorado River abstention was inappropriate.

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