The opinion
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT August 12, 2021
FOR THE SOUTHERN DISTRICT OF TEXAS Nathan Ochsner, Clerk
HOUSTON DIVISION
PENTHOL LLC, §
Plaintiff, :
VS. § CIVIL ACTION NO. 4:21-CV-416
VERTEX ENERGY OPERATING, LLC,
Defendant. :
ORDER
Before the Court is Vertex Energy Operating, LLC’s (“Vertex”) Motion to Stay. (Doc. No.
16). Penthol LLC (“‘Penthol”) has responded (Doc. No. 27), and Vertex replied. (Doc. No. 30).
After careful consideration, the Court hereby DENIES the Motion to Stay. (Doc. No. 16).
I. Background
This case involves a contract dispute between Penthol, a foreign distributer of base oils (the
“Product”) and Vertex, a company Penthol engaged to perform sales, marketing, and logistics
services for selling the Product in North America. (Doc. No. 2-1 at 7). The parties entered into an
agreement whereby Vertex would market and promote the Product in exchange for being paid for
commissions (“the Agreement’). (/d. at 7-8). The Agreement also included a Non-Circumvention
Provision that precluded either party from interfering with the other’s customer and supplier
relationships. (Doc. No. 16, Ex. 2).
A. The State Case
According to the state court petition (the “Petition”), Penthol hired a new CEO in 2020
who allegedly contacted certain customers and tried to sell the Product directly to them in violation
of the terms of the Agreement. (Doc. No. 16-1). As a result, on October 13, 2020, Vertex sued
Penthol in state court for breach of contract based upon Penthol’s communications with customers,
which is allegedly against the terms of their Agreement. After a hearing, the state court entered a
temporary injunction, finding that the “evidence shows that Penthol is likely in breach of the Sales
Representative and Marketing Agreement with Vertex.” (Doc. No. 28-2). Penthol appealed the
ruling and immediately removed the case to the Southern District of Texas. (Doc. Nos. 14-7 & 28-
3). It filed four counterclaims against Vertex, including (1) a Sherman Act claim based upon the
fact that the Agreement now improperly restrains trade and reflects a horizontal agreement among
competitors, (2) a breach of contract claim based upon Vertex’s performance under the contract,
(3) tortious interference claims based on existing contracts and prospective relations, and (4)
requests for declaratory and injunctive relief. (Doc. No. 16-4). That case was ultimately remanded
to state court on January 29, 2021 for a procedural deficiency in the removal process. (Doc. No.
28-6). After remand, the state court granted Penthol’s renewed motion to dissolve the temporary
injunction. (Doc. No. 28-7). Shortly thereafter, Penthol filed the instant case.
B. The Federal Case
Penthol now brings the same claim under Section 1 of the Sherman Act, as well as claims
for post-termination breach of contract, business disparagement, and misappropriation of trade
secrets under the federal Defend Trade Secrets Act (DTSA) and the Texas Uniform Trade Secrets
Act (TUTSA). It additionally seeks a declaration that the Non-Circumvention Provision is invalid;
or alternatively, that compliance with it is excused, as well as an injunction prohibiting Vertex
from using trade secret information’s and requiring the return of all trade secrets. Finally, Penthol!
seeks attorneys’ fees and costs under the Sherman Act, the DTSA, and TUTSA. Vertex filed a
Motion to Dismiss (Doc. No. 13), which the Court granted as to the Sherman Act claim, and denied
as to the other claims. (Doc. No. 41). Having dismissed the Sherman Act claim, which would
otherwise be subject to exclusive federal jurisdiction, the Court now considers Vertex’s
contemporaneously filed motion to stay under the Colorado River abstention doctrine. (Doc. No.
16).
Il. Legal Standard
“A Colorado River abstention analysis begins with a heavy thumb on the scale in favor of
exercising federal jurisdiction, and that presumption is overcome only by ‘exceptional
circumstances.’” Aptim Corp. v. McCall, 888 F.3d 129, 135 (Sth Cir. 2018) (quoting Stewart v. W.
Heritage Ins. Co., 438 F.3d 488, 491 (Sth Cir. 2006)). Federal courts have a “virtually unflagging
obligation” to exercise the jurisdiction given them. Colo. River Water Conservation Dist. v. United
States., 424 U.S. 800, 817 (1976). Still, a federal district court may choose to abstain “based on
principles of ‘[w]ise judicial administration, giving regard to conservation of judicial resources
and comprehensive disposition of litigation.’” Aptim, 888 F.3d at 135 (quoting Colo. River, 424
US. at 817.
The Colorado River doctrine applies only “in the instance of truly parallel cases, one
pending in state and the other in federal court.” RepublicBank Dallas Nat. Ass’n v. McIntosh, 828
F.2d 1120, 1121 (Sth Cir. 1987). Suits are parallel if they involve “the same parties and the same
issues.” Jd. Common subject matter alone is insufficient to establish the requisite parallelism.
Engenium Sols., Inc. v. Carr, 2012 WL 8432678, at *8 (S.D. Tex. Sept. 28, 2012). Parallelism,
rather, depends on whether there is a substantial likelihood that the state litigation will “dispose of
all claims” presented in the federal case. Jd. (collecting cases).
If there are parallel proceedings, a district court may consider the following factors to
determine whether the necessary exceptional circumstances exist to justify abstention: (1)
assumption by either state or federal court over a res; (2) relative inconvenience of the forum; (3)
avoidance of piecemeal litigation; (4) order in which jurisdiction was obtained by the concurrent
fora; (5) extent federal law provides the rules of decision on the merits; and (6) adequacy of the
state proceedings in protecting the rights of the party invoking federal jurisdiction. Aptim, 888 F.3d
at 135-36.
WI. Analysis
Before its analysis of the factors, the Court must determine as a threshold matter whether
the state and federal proceedings are parallel for purposes of the Colorado River doctrine—i.e., if
the two suits involve the same parties and same issues. It is undisputed that the parties in each
proceeding are the same, so the Court’s analysis will focus on whether the cases involve the same
issues. The Court holds that the proceedings are not parallel as a matter of law because they do not
involve the same issues.
Vertex argues that the proceedings are parallel because each case boils down to the same
two issues: “which party breached the Agreement first and the enforceability of [the Non-
Circumvention Provision] of the Agreement.” (Doc. No. 16 at 13). It also contends that the
proceedings are interdependent, because if Vertex proves in the state case that Penthol breached
the Agreement prior to its alleged termination, that finding would preclude Penthol’s breach claims
in this case. (/d.). In response, Penthol asserts that the state court action involves claims based on
pre-termination events whereas the remaining federal action claims arise from a different, later,
set of facts. It also argues that the proceedings are not interdependent, and the resolution of the
state case would not determine the federal suit because the federal suit includes claims that do not
exist in the state court action, including misappropriation of trade secrets.
Vertex makes no attempt to address the fact that this lawsuit involves claims that are neither
alleged in the state action nor based on an alleged breach of the Agreement, including claims for
business disparagement and misappropriation of trade secrets. Vertex has not provided the Court
with any reason as to why a ruling in the state court action would necessarily resolve these non-
contract-based claims. Since this lawsuit’s claims differ, resolution of the state court action will
not dispose of all the claims in this forum. This difference in the proceedings strongly militates
against a finding of parallel proceedings. See Engenium, 2012 WL 8432678, at *8 (finding that
proceedings are not parallel when there is no substantial likelihood that all the claims presented in
federal suit will be disposed of in the state litigation); see also Apogee Telecom, Inc. v. Univ. Video
Services, Inc., 2018 WL 6220177, at *2 (W.D. Tex. Mar. 26, 2018) (concluding proceedings are
not parallel because “‘it is unlikely the [state] litigation will completely dispose of all claims in this
case.””).
Moreover, the facts underlying the claims in this lawsuit differ from those in the state court
action. The breach of contract claim in the state case is based upon Vertex’s allegations that
Penthol breached certain contract terms while the contract was in force. (Doc. No. 16-1 at 12-13).
Penthol’s counterclaims are likewise based upon Vertex’s alleged breach of certain terms and
obligations of the Agreement while it was in force. (Doc. No. 16-4 at 32). By contrast, Penthol’s
allegations in this lawsuit pertain to Vertex’s actions after the Agreement was terminated. (Doc.
No. 2-1 at 20-21). This temporal difference is relevant because the Court would be analyzing
different conduct. See Apogee, 2018 WL 6220177, at * 2 (“More importantly, the alleged wrongful
conduct is different between the lawsuits.”); see also Koman v. Weingarten/Invs., Inc., 2010 WL
3717312, at *6 (S.D. Tex. Sept. 17, 2010) (“While the same legal standard would apply to the
determination of either claim, the factual determination would be completely different. Thus, the
claims in the state court are not “parallel”—as the term is applied in cases interpreting Colorado
River.”).
More obviously, Penthol’s cause of action for misappropriation of trade secrets hinges
entirely upon events after the contract was terminated. Vertex was entitled to use Penthol’s trade
secrets before the Agreement was terminated, which is the relevant time frame for the state action.
(Doc. No. 2-1 at 18). Penthol’s allegations in the federal action that support a claim for
misappropriation of trade secrets necessarily concern Vertex’s behavior after the Agreement was
terminated. (/d.). It is indisputable that a court would be considering a different set of facts and
events to resolve the breach of contract claims in the state action, and the misappropriation of trade
secrets claim in the federal action.
Vertex’s contention that the proceedings are parallel because Penthol’s federal claims
might qualify as compulsory counterclaims in the state case is also unavailing. According to
Vertex, Penthol’s causes of action in the federal lawsuit arise out of the transaction or occurrence
that is the subject matter of the Vertex’s breach of contract claim in state court, making them
compulsory counterclaims. This argument fails to consider that the state court claims arose out of
a set of earlier facts than the allegations supporting Penthol’s claims in the federal action. Penthol’s
claims arising out of post-termination events were not mature when Vertex filed its state action,
so they might not be considered compulsory counterclaims in the state action. See Welsh v. Fort
Bend Independent School District, 860 F.3d 762, 763, 767 (Sth Cir. 2017) (looking to Texas’s
compulsory-counterclaim rule to determine a second claim was not barred because it had not
matured when the earlier action was filed and rejecting “the idea that every time something
happens after a lawsuit is filed the plaintiff must immediately amend or risk losing that claim
forever.”). While the proceedings are certainly related and concern the same subject matter, the
parties are not “litigating substantially the same issues.” Turner v. Pavlicek, 2011 WL 4458757, at
*4 (S.D. Tex. Sept. 22, 2011) (collecting cases).
Since the threshold prong of the Colorado River abstention doctrine has not been met, there
is no occasion to determine whether the exceptional circumstances necessary for abstention exist
in this case. There is no reason for this Court to stay the case on the basis of abstention.
IV. Conclusion
For the forgoing, the Court hereby DENIES Vertex’s Motion to Stay. (Doc. No. 16).
Signed at Houston, Texas, this / 2 day of August, 2021.
Agee
Andrew S. Hanen
United States District Judge