Judicial economy is a driving force in our court systems. Basically, it is the responsibility of the courts to expedite the judicial process wherever possible to reduce strain on the system as a whole. For this reason, courts regularly dismiss actions that fail to follow proper procedure. One tool helping courts to promote judicial efficiency is the Colorado River Abstention doctrine. Essentially, this doctrine allows federal courts to decline jurisdiction when a parallel suit has previously been filed in state court. Luckily for contractors, subcontractors, and suppliers, federal courts have been reluctant to apply this doctrine when dealing with breach of contract and lien claims arising from the same project.
What is the Colorado River Abstention doctrine?
The Colorado River Abstention doctrine flows from a Supreme Court decision establishing that federal courts may abstain from exercising jurisdiction solely on the basis of declining to allow redundant litigation to take place. The doctrine is applied differently from jurisdiction to jurisdiction, but the same general rules apply.
Are the suits parallel?
This is the threshold question in determining whether the Colorado River Abstention doctrine should apply. However, exact parallelism is not necessary. When determining whether the suits are parallel, courts essentially decide whether the actions in question include substantially the same parties litigating what are substantially the same issues in two different forums. An important question is whether the litigation in state court would dispose of all claims presented in the federal case. When issues exist in the federal suit that would not be resolved by the state court, abstention from exercising federal jurisdiction would be inappropriate.
Weigh the factors.
Should the suits be deemed parallel, courts must still weigh factors to determine if abstaining is proper. Some factors to be considered are: relative inconvenience of the forum, whether the state action was filed first, and the source of law in the case. While not an exhaustive list of factors, most courts incorporate some variation of these to determine if abstaining is appropriate. It should also be noted that when weighing these factors, the scale is tipped heavily in favor of federal courts exercising jurisdiction.
What does this have to do with liens?
In many cases, when a party files a mechanics lien, other causes of action are also filed based on breach of contract. Depending on the basis for the claim or on the amount in question, these actions may be brought in federal court. Should the breach of contract claims and the state lien claim be deemed substantially the same, a federal court might decline to exercise jurisdiction. This could seriously hamstring your attempts at recovery.
Perhaps the biggest question regarding how the Colorado River Abstention might affect lien claims is whether a lien foreclosure action in state court can be considered “clearly parallel” to a separate action in federal court that seeks contractual damages. The Fourth and Eight Circuits have found that these situations are not clearly parallel, and a recent case out of the Sixth Circuit found the same. The Second Circuit has also disfavored the Colorado River Abstention in lien actions, finding that courts must operate under the heavy presumption that abstaining would not be appropriate when weighing factors.
The Fourth Circuit has determined that the enforcement of a lien is not dependent on questions of breach of contract. Different remedies are available for each action, and because the sought relief varies, a state lien action should not preclude federal breach of contract claims.
The Eight Circuit essentially echoes the Fourth, coming to the conclusion that while issues may stem from the same project and contractual relationship, claims are based from wrongs arising from separate occurrences. The conclusion of a lien does not resolve the issue of whether a party was in breach or whether separate damages occurred as a result.
In a recent case in the Sixth Circuit, the court found that a lien claim and a breach of contract claim differed enough to result in two separate actions in federal and state court. The court found that because the lien action did not include all claims and amounts being pursued federally, the conclusion of the state court lien action would not result in the complete resolution of the parties’ issues. The court noted that the damages available under the actions were vastly different. Despite the issues arising out of the same contract between the same parties, the issues were not substantially the same.
Mechanics liens and breach of contract claims often go hand in hand. In fact, a mechanics lien can cause a breach of contract. It is incredibly beneficial to know that when you have a federal breach of contract action and a lien based in state law, both actions will get a fair shot at court. The ability to recover under both actions goes a long way in securing payment for work done.