Opposition Brief — Distajo v. Doctor's Associates, Inc.

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No. 97-146 SEP 23 1997 |

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IN THE ceRK

Supreme Court of the United States

OCTOBER TERM, 1996

EMILY DISTAJO, RENATO DISTAJO, CONSTANTINO

LAMANDO, MILO LAMANDO, JOSE ALBERTO

BRENES, ALVARO GUERRERO, MARIA GUERRERO,

WESAM YOUMARAN, LINDA YOUMARAN, LOUIS

LOENNECKE, MARY ANN BOOKOUT, MICHAEL

JOHNSON, RONALD ROTHMUND, PATRICIA

ROTHMUND, JOHN PAPALEO, J.S.P., INC., RAYMOND

BICKEL, SANDRA BICKEL, MUSHTAG KANCHWALA,

ANVER KANCHWALA and AZIM HEMANI,

Petitioners,

VS.

DOCTOR’S ASSOCIATES, INC.,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

MARK R. KRAVITZ*

JENNIFER A. BUTLER

WIGGIN & DANA

Attorneys for Respondent

One Century Tower

P.O. Box 1832

New Haven, Connecticut 06508-1832

(203) 498-4400

a —_—_—— «— a —— — _ —————— — Sl

*Counsel of Record

QUESTIONS PRESENTED

1. Did the Second Circuit correctly conclude, based on

the particular facts of this case, that the District Court did not

abuse its discretion in declining to abstain from deciding

respondent’s petitions to compel arbitration under the Federal

Arbitration Act in light of the extensive proceedings regarding

respondent’s petitions that had occurred in the District Court

for over two years and given that the case was before the

court on remand from the Second Circuit with instructions

directing the District Court to decide petitioners’ two

remaining defenses to arbitration?

) 2. Did the Second Circuit correctly conclude, based on

the unique procedural history of this case, that the Rooker-

Feldman doctrine did not deprive the District Court of subject

matter jurisdiction to decide respondent’s petitions to compel

arbitration?

STATEMENT PURSUANT TO RULE 29.6

Doctor’s Associates, Inc. states that it has no parent

company and no subsidiaries (other than wholly-owned

subsidiaries).

Vv

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED................ccccsscsssocsesseezoe i

STATEMENT PURSUANT TO RULE 29.6............ ili

Py Be Figs 6 1 _- Seen nnn Vil

STATEMENT OF THE CASE...............ccccccssscsessseeee l

REASONS FOR DENYING THE PETITION.......... 10

I. ©THE SECOND CIRCUIT’S AFFIRMANCE

OF THE DISTRICT COURT’S DECISION

TO EXERCISE ITS DISCRETION NOT TO

ABSTAIN DOES NOT WARRANT

SENT s senivstinecnassiandnininnansiniestiaiinibiclaieinininsinass 10

II. . THE SECOND CIRCUIT’S

DETERMINATION THAT THE ROOKER-

FELDMAN DOCTRINE DID NOT APPLY

TO THIS CASE DOES NOT WARRANT

Se A Uo: insistncescsinscinnetniennnesineelicheneniasilaiadannaein 14

a at asicinicanneeiinshnsioniennnininiaiiiieatiaameaaimaaaiian 16

Vii

TABLE OF AUTHORITIES

Cases:

Colorado River Water Conservation Dist. v. United

States, 424 U.S. 800 (1976) .......ccceeceeeceseseeeeeeeee

D.C. Court of Appeals v. Feldman, 460 U.S. 462

A PTTIED eiccieaiceatiehngaccbaaeseselbeiaaiinccondibeanmatieieséaiassaupdioniens

Doctor's Associates, Inc. v. Casarotto, 116 S. Ct.

ERASER Tec snr SR PR Senta OO

Doctor's Associates, Inc. v. Distajo, et al., 116 S.

ee a a tisecenssissan daha ashaassaiaisaatsanadeeikalnen

Doctor's Associates, Inc. v. Distajo, et al., 107 F.3d

Re, CUT ici sists uchiecatenniesaatanascersdiebbianheteonns

Doctor's Associates, Inc. v. Distajo, et al., 66 F.3d

438 (2d Cir. 1995), cert. denied, 116 S. Ct. 1352

Doctor's Associates, Inc. v. Distajo, et al., No.

96-7011 (2d Cir. Feb. 24, 1997), cert. pending,

Oe WN i accionsavucteicctastaimanticancsdieulles etenbientdens:

Doctor's Associates, Inc. v. Emily Distajo, et all,

870 F. Supp. 34 (D.Conn. 1994)... eeeeeeeeeees

Doctor's Associates, Inc. v. Distajo, et al., 944 F.

SUMP: 1G (DCm, 1996) n...cccceescccsscessccossscsseoess

Doctor’s Associates, Inc. v. Jabush, et al., 89 F.3d

ee a i caicicssdiessppoeccteseaeatansaaciaaiebihaesinece

Doctor's Associates, Inc. v. Riggs, No. 96-9141 (2d

Cir. June 10, 1997), cert. pending, No. 97-141 .....

Doctor's Associates, Inc. v. Stuart, et al., 85 F.3d

Se ae I Sia ciestcris iesicin siachodetnianboetciecceausbecies

Gash Assoc. v. Village of Rosemont, 995 F.2d 726

CP a EE covccceclasastsdicdestattbdndencabadnatotaianseentes

Page

11

8,11

passim

passim

Viii

Cases: Page

Graver Mfg. Co. v. Linde Co., 336 U.S. 271 (1949) . 13

Kamilewicz v. Bank of Boston Corp., 92 F.3d 506

NE Saeits: SIED cicuiehiindeacencecsuninccsananbllshaneistueacelenbins 5

Lawn v. Franklin, 328 F. Supp. 791 (S.D.N.Y.

ih Sinisa chaacs eek ancadsuniapicchoniak aengamsoaianes 4

Maria Victoria Naviera, S.A. v. Cementos Del

Valle, S.A., 759 F.3d 1027 (2d Cir. 1985) ............. 4

Merril Lynch, Pierce, Fenner & Smith v. Lauer, 49

FI Se I ay OE ita ntsoctcnntnhannnnisenasastcenionss 4

Moses H. Cone Memorial Hosp. v. Mercury

Construction Corp., 460 U.S. 1 (1983) ............. 4, 5,9, 11,

12, 13, 15

Pennzoil Co. v. Texaco, Inc., 481 U.S. 1 (1987)........ 13

Pennzoil Co. v. Texaco, Inc., 784 F.2d 1133 (1986),

rev'd on other grounds, 481 U.S. 1 (1987)............ 14

Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923).... 14

Snyder v. Smith, 736 F.2d 409 (7th Cir.), cert.

denied, 469 U.S. 1037 (1984)... ccesseteeeeeeees 4

United States v. Johnston, 268 U.S. 220 (1925)......... 13

Younger v. Harris, 401 U.S. 37 (1971)... cece 13

Statutes:

ee iain astints dnstesininaaverinedibecsansinsdvnes 6

Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the

TEIN itdicaiketintlhdcsicinitashasiasshiiaibadeanliaocstainessbeamalbaican tien) 5

es Me rials ele cers ae Si areal ddedaseolenecgnvenstoeneges 4

TT

No. 97-146

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

EMILY DISTAJO, RENATO DISTAJO, CONSTANTINO

LAMANDO, MILO LAMANDO, JOSE ALBERTO

BRENES, ALVARO GUERRERO, MARIA GUERRERO,

WESAM YOUMARAN, LINDA YOUMARAN, LOUIS

LOENNECKE, MARY ANN BOOKOUT, MICHAEL

JOHNSON, RONALD ROTHMUND, PATRICIA

ROTHMUND, JOHN PAPALEO, J.S.P., INC., RAYMOND

BICKEL, SANDRA BICKEL, MUSHTAG KANCHWALA,

ANVER KANCHWALA and AZIM HEMANI,

Petitioners,

VS.

DOCTOR’S ASSOCIATES, INC.,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

STATEMENT OF THE CASE

This is one in a series of appeals to the United States Court

of Appeals for the Second Circuit and this Court by certain

Subway sandwich shop franchisees seeking to avoid their

contractual obligation to arbitrate their claims against

respondent Doctor’s Associates, Inc. (“DAI”). See, e.g.,

Doctor's Associates, Inc. v. Riggs, No. 96-9141 (2d Cir. June

10, 1997), cert. pending, No. 97-141; Doctor's Associates,

Inc. v. Distajo, et al., No. 96-7011 (2d Cir. Feb. 24, 1997),

cert. pending, No. 97-145; Doctor's Associates, Inc. v.

Jabush, et al., 89 F.3d 109 (2d Cir. 1996); Doctor’s Associ-

ates, Inc. v. Stuart, et al., 85 F.3d 975 (2d Cir. 1996); Doc-

tor’s Associates, Inc. v. Distajo, et al., 66 F.3d 438 (2d Cir.

1995), cert. denied, 116 S. Ct. 1352 (1996) (“Distajo I’). See

also Doctor’s Associates, Inc. v. Casarotto, 116 S. Ct. 1652

(1996). As the Second Circuit observed in its opinion below,

“(w]e are not the first panel of this court to encounter an ap-

peal by groups of Subway franchisees, represented by attor-

ney David M. Duree, involving similar -- if not identical --

facts and legal issues regarding arbitration of disputes with

DAI.” Doctor’s Associates, Inc. v. Distajo, et al., 107 F.3d

126, 127 (2d Cir. 1997) (“Distajo IT’).

DAI is the national franchisor of Subway sandwich shops.

Petitioners are present or former Subway franchisees who

sued DAI in state court and then refused to arbitrate their

claims when DAI demanded arbitration in accordance with

the standard arbitration clause in the franchise agreement.’

' The standard arbitration clause provides substantially as follows:

Any controversy or claim arising out of or relating to this

contract or the breach thereof shall be settled by arbitration in

accordance with the Commercial Arbitration Rules of the

American Arbitration Association at a hearing to be held in

Bridgeport, Connecticut, and judgment upon an award ren-

dered by the Arbitrator(s) may be entered in any court having

jurisdiction thereof. The commencement of arbitration pro-

ceedings by an aggrieved party to settle disputes arising out of

or relating to this contract is a condition precedent to the

commencement of legal action by either party. Each party will

be responsible for their own costs in conjunction with the ar-

bitration proceeding. If Franchisee commences action in any

court prior to an arbitrator’s final decision on the controversy

or claim, then the Franchisee will be responsible for all ex-

penses incurred by the Company and Franchisee in the arbi-

tration and the court proceedings.

eel Cine

This Petition arises from petitioners’ steadfast refusal to com-

ply with their contractual obligation to arbitrate their disputes

with DAI, and DAI’s efforts to enforce those arbitration

agreements under the Federal Arbitration Act, 9 U.S.C. § 1 ef

seq. (the “FAA”).

1. As the Second Circuit observed below, “[s]ome expla-

nation of the tangled proceedings” in these cases is necessary

to an understanding of the issues posed by petitioners’ refusal

to comply with the terms of their arbitration agreements.

Distajo II, 107 F.3d at 137. The events giving rise to these

cases began with the filing of state court lawsuits by Subway

franchisees. In December 1993, a group of Subway franchi-

sees filed lawsuits in the Circuit Court of Madison County,

Illinois, against DAI, its owners, agents and affiliates.” Peti-

tioner Michael Johnson filed his lawsuit in North Carolina

state court on April 8, 1993. Prior to filing suit, Mr. Johnson

had been actively participating in arbitration with DAI. After

petitioners’ counsel filed suit on behalf of Mr. Johnson in

state court, Mr. Johnson refused to take any further part in the

arbitration.

In response to each of the Illinois and North Carolina state

court actions, DAI promptly filed a demand for arbitration

with the American Arbitration Association (“AAA”). When

each franchisee refused to comply with DAI’s arbitration de-

mand, DAI filed separate petitions in the United States Dis-

trict Court for the District of Connecticut to compel

? Counsel for these franchisees and for petitioners here later filed three

more lawsuits on behalf of Subway franchisees against DAI and others in

the Madison County Circuit Court during the spring and summer of 1994.

To say that all of the Illinois petitioners were “forum-shopping” in filing

suit in Madison County would be an understatement: each petitioner in

those actions works in metropolitan Chicago, which is about 300 miles

away from Madison County; the only Illinois parties in those cases are

from the Chicago area; and none of the facts of any of the cases has the

slightest connection to Madison County. See Distajo 1, 66 F.3d at 441.

4

arbitration under Section 4 of the FAA, 9 U.S.C. § 4.2 The

District Court eventually consolidated those petitions and oth-

ers (a total of sixteen) under the caption Doctor’s Associates,

Inc. v. Distajo, et al.

From the outset, petitioners’ strategy was to delay resolu-

tion of DAI’s Section 4 petitions for as long as possible, in

order to seek rulings on arbitrability favorable to petitioners

from the state courts before the District Court could compel

arbitration.‘ For example, petitioners filed over 20 briefs in

the District Court setting forth a series of tenuous arguments

challenging the court’s authority to hear the case. As a result

of petitioners’ dilatory tactics, the parties were forced to brief

the same issues more than ten times. Petitioners’ counsel

frankly admitted during a hearing in the Madison County

court that the Illinois petitioners were in a “race to the court-

house” and wanted to obtain a ruling from the state court that

the Illinois actions were not arbitrable before the District

* Because a petition to compel under Section 4 may be brought only in the

federal district with jurisdiction over the contractually designated site of

arbitration and because petitioners’ franchise agreement with DAI calls

for arbitration in Bridgeport, the District of Connecticut was the only fo-

rum where DAI could properly file its petitions. See, e.g., Merril Lynch,

Pierce, Fenner & Smith v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995); Sny-

der v. Smith, 736 F.2d 409, 420 (7th Cir.), cert. denied, 469 U.S. 1037

(1984); Maria Victoria Naviera, S.A. v. Cementos Del Valle, S.A., 759

F.3d 1027, 1031 (2d Cir. 1985); Lawn v. Franklin, 328 F. Supp. 791, 793

(S.D.N.Y. 1971).

* This Court has recognized that the intent of the FAA was to provide for

“rapid and unobstructed enforcement of arbitration agreements”. Moses

H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 23 (1983).

Section 4 requires an “expeditious and summary hearing, with only re-

stricted inquiry into factual issues”, Moses H. Cone, 460 U.S. at 22, and

contemplates a decision on-arbitrability in “very short order”. Jd. at 22, 23

nn. 26 & 27. Owing to petitioners’ tactics and the District Court’s con-

gested docket, however, it became impossible for the court to comply with

these statutory mandates. DAI filed its first petition in March 1994, but

the court was not able to issue its decision compelling arbitration until

almost eight months later.

Court could compel arbitration. Respondents’ Appendix (“R.

App.”) A-3.

In one respect, petitioners’ efforts to thwart DAI’s right to

an expedited and summary resolution of its petitions to

compel arbitration worked. For on October 24, 1994, over

seven months after DAI filed its first Section 4 petition in the

District Court, and about two weeks before the District Court

ultimately granted those petitions, the Madison County Cir-

cuit Court ruled in the Illinois cases that the arbitration clause

in the Subway franchise agreement was unenforceable. Dis-

tajo 1, 66 F.3d at 449. DAI timely filed a motion for reconsid-

eration, and that motion is still pending before the state court.

Id.

The North Carolina state court also entered two orders be-

fore the District Court could rule on DAI’s Section 4 peti-

tions. R. App. A-4~-A-10. In the North Carolina action, DAI

had filed a motion under Section 3 of the FAA to stay the

lawsuit brought by petitioner Johnson in favor of arbitration,

and a separate motion to dismiss. In the motion to dismiss,

DAI contended that Mr. Johnson had waived his right to

challenge the arbitration agreement because he had previously

participated in-an arbitration with DAI. The North Carolina

trial court summarily denied each of DAI’s motions. How-

ever, the court did not determine whether the arbitration

clause in the Subway franchise agreement was enforceable.

Instead, the court held only that Mr. Johnson had not waived

his right to contest the validity of the arbitration clause. R.

App. A-8; see Distajo I, 66 F.3d at 450-51.

2. On September 29, 1994, the District Court denied

each petitioner’s motion to dismiss DAI’s Section 4 petition.

R. App. A-11—A-19. As is relevant to the Petition, the court

rejected petitioners’ argument that it should abstain from de-

ciding DAI’s petitions. Following this Court’s decision in

Moses H. Cone, 460 U.S. at 13-14, the District Court recog-

nized that “only exceptional circumstances will compel a fed-

eral court to relinquish jurisdiction due to parallel proceedings

in state court.” R. App. A-15. The court concluded that

petitioners had “not enumerated exceptional circumstances

that warrant dismissal in deference to the state court litiga-

tion.” R. App. A-15.

After receiving additional briefs, the District Court granted

DAI’s 16 petitions to compel arbitration. See Doctor's Asso-

ciates, Inc. v. Emily Distajo, et al., 870 F. Supp. 34 (D.Conn.

1994). The District Court expressly rejected petitioners’ claim

that because the Madison County Circuit Court had decided

that the arbitration clause was unenforceable, the full faith and

credit statute, 28 U.S.C. § 1738, prevented the District Court

from granting DAI’s petitions. Jd. at 36. The District Court

concluded that under Illinois law, Illinois courts would not

give preclusive effect to the state court’s ruling because DAI

still had the right to appeal. Jd. Because the Illinois ruling was

not “final” for res judicata/collateral estoppel purposes under

Illinois law, it was not entitled to full faith and credit. Jd.°

Each petitioner then appealed to the Second Circuit.

3. Less than a month after the District Court had com-

pelled arbitration in the 16 Distajo actions, petitioners’ coun-

sel filed yet another lawsuit on behalf of two more Chicago-

area franchisees -- Sandra and Raymond Bickel -- once again

in the Madison County state court. DAI promptly filed in the

District Court a petition to compel arbitration pursuant to

Section 4 of the FAA. Nevertheless, on the day that he re-

ceived notice that the District Court had scheduled a hearing

on DAI’s petition and acting without any notice to DAI, peti-

tioners’ counsel moved the Madison County Circuit Court for

an order of default for failure to appear against DAI. The

court entered a default the same day, once again without no-

tice to DAI. Among other things, the Madison County Circuit

Court purported to hold, through the default, that the arbitra-

tion clause in the Subway franchise agreement was not

* The District Court also entered an injunction enjoining petitioners from

further litigation of their state court actions. The injunction was entered to

effectuate the District Court’s judgment compelling arbitration. Distajo,

870 F. Supp. at 36.

enforceable. Distajo I, 66 F.3d at 449. DAI timely filed a mo-

tion to set aside the default.

On February 13, 1995, the District Court granted DAI’s

petition to compel the Bickels to arbitrate in accordance with

their arbitration agreement and issued an injunction identical

to the Distajo injunction barring further litigation of the Bick-

els’ state court action. See Distajo I, 66 F.3d at 444. The

Bickels appealed the District Court’s ruling, and their appeal

was consolidated for oral argument with the previously

pending appeal of the Distajo franchisees.

4. On September 12, 1995, the Second Circuit issued a

decision upholding virtually all of the District Court’s rulings.

Specifically, the Second Circuit affirmed the District Court’s

ruling that the state court decisions did not preclude the Dis-

trict Court from ruling on DAI’s petitions. In deciding this

issue, the court recognized that “a federal court must ‘give

preclusive effect to state-court judgments whenever the courts

of the State from which the judgments emerged would do

so.’” Id. at 446 (citations omitted). Because under Illinois law

an Illinois trial court judgment is not final, and thus not enti-

tled to preclusive effect, until all appellate rights have been

exhausted, the Second Circuit held that the District Court

properly concluded that it was not required to give preclusive

effect to these decisions. Jd. at 449-50.° The Second Circuit

also affirmed the District Court’s decision not to abstain. Fi-

nally, the Second Circuit remanded two issues to the District

Court for additional consideration: (1) whether the arbitration

° The Second Circuit also rejected petitioner Johnson’s claims regarding

the scope of the North Carolina state court ruling. “In North Carolina...

collateral estoppel only precludes the relitigation of issues that were actu-

ally and necessarily decided in the earlier action.” Distajo I, 66 F.3d at

450 (citations omitted). The Second Circuit observed that the written or-

ders of the North Carolina court “did not explain why it denied the stay

{under Section 3 of the FAA]”, nor did they “make any findings of fact or

conclusions of law regarding the arbitration clause.” Jd. at 450. Therefore,

these rulings did not bar the District Court from compelling Mr. Johnson

to arbitrate in accordance with his agreement with DAI. /d. at 450-51.

clause was a product of fraud; and (2) whether DAI waived its

right to arbitrate the dispute of any defendant.

Petitioners filed a Petition for Writ of Certiorari seeking

review of the Second Circuit’s rulings regarding res

judicata/collateral estoppel and abstention. The Court denied

the Petition. Distajo I, 116 S. Ct. 1352 (1996).

5. After remand from the Second Circuit, petitioners re-

sumed their tactics and rush for judgment in the state court

actions. Thus, on November 17, 1995, before the Second Cir-

cuit’s mandate had issued and while petitioners were still en-

joined from prosecuting their state court actions,’ the Bickels

moved the Madison County court for a $400,000 judgment on

the default that had previously been entered against DAI. De-

spite the fact that no proceedings had taken place in the Bick-

els’ state court action since February 1994, on December 6,

1995, one day after the District Court issued a temporary re-

straining order barring petitioners from further litigation in

the state lawsuits,* the Madison County court entered an order

denying DAI’s motion to set aside the default judgment and

awarding the Bickels $400,000. Petitioners’ Appendix (“Pet.

App.”) A-54-A-56. DAI timely appealed that judgment.

On March 14, 1996, the District Court issued its final

judgment rejecting petitioners’ remaining defenses to arbitra-

tion that had been remanded from the Second Circuit and

granting each petition to compel arbitration. The court found

as a fact that DAI had not procured the arbitration agreement

by fraud and that DAI had not waived its right to compel ar-

bitration of these disputes. The District Court also rejected the

’ The Second Circuit’s mandate vacating the District Court’s injunction

did not issue until November 22, 1995.

* Because it was clear that petitioners intended to do everything they

could to thwart the District Court’s jurisdiction on remand, DAI was

forced to seek a temporary restraining order preventing litigation in the

state court actions until the District Court could consider the issues re-

manded by the Second Circuit. The District Court granted a TRO and a

preliminary injunction, which is the focus of the Petition in No. 97-145.

9

Bickels’ claim that the December 6, 1995 default judgment in

their state court action required the District Court to abstain

from ruling on the issues that had been remanded by the Sec-

ond Circuit. As the court noted “[t]he Bickels’ abstention

claim is just a slightly modified version of the res judi-

cata/collateral estoppel argument that this court and the Sec-

ond Circuit have previously rejected.” Doctor’s Associates,

Inc. v. Distajo, et al., 944 F. Supp. 1010, 1022 (D.Conn.

1996), citing Distajo I, 66 F.3d at 449-50. Because an Illinois

judgment is not entitled to preclusive effect until all appeals

have been exhausted, the default judgment (which was still on

appeal) was not final and did not prevent the District Court

from granting DAI’s petition. The District Court also rejected

the Bickels’ argument that the default judgment constituted

“substantial proceedings” warranting abstention under this

Court’s ruling in Moses H. Cone, supra. As the court noted,

“the Illinois judgment was entered almost immediately and

without an evidentiary hearing. Such action does not consti-

tute relatively substantial proceedings, as meant by Moses H.

Cone, when compared with the Second Circuit’s Distajo rul-

ing and this court’s plethora of decisions, in the consolidated

case over the last two years.” 944 F. Supp. at 1022-23.

6. Petitioners once again appealed to the Second Circuit,

which affirmed each of the District Court’s rulings. Distajo II,

107 F.3d at 139. With regard to the Bickels’ abstention claim,

the court held that the Bickels had “failed to articulate any

persuasive reason why abstention would be proper in this

case.” Jd. at 138. The court also affirmed the District Court’s

holding that the default judgment did not constitute substan-

tial proceedings warranting abstention. Jd.

Finally, the Second Circuit rejected petitioners’ argument,

raised for the first time on appeal, that the Rooker-Feldman

doctrine, which holds that “a United States District Court has

no authority to review final judgments of a state court,” de-

prived the District Court of subject matter jurisdiction. D.C.

Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983). The

Second Circuit found that DAI was not seeking appellate re-

view of any of the state court decisions because “DAI filed its

10

petitions to compel arbitration . . . before the state courts had

made any rulings on the merits ...” 107 F.3d at 138. Ac-

cordingly, the Rooker-Feldman doctrine had no application to

this case. The court also noted that there was no legal author-

ity for the proposition thatthe Rooker-Feldman doctrine

could “deprive a district court of subject matter jurisdiction

over a petition to compel arbitration under [the FAA].” Jd.

After the Second Circuit rejected petitioners’ petition for re-

hearing and suggestion for rehearing en banc, they filed this

Petition.

REASONS FOR DENYING THE PETITION

The Court should deny the Petition on each issue raised.

Neither the abstention nor Rooker-Feldman arguments raised

in the Petition present any compelling legal issues. Petitioners

do not claim that the Second Circuit applied the wrong legal

standard on either issue or that the Second Circuit’s decision

conflicts with any decision of this Court or of other circuit

courts. Rather, petitioners merely disagree with the Second

Circuit’s application of settled legal doctrines to the particular

facts of this case. In view of the unique facts and (in the

words of the Second Circuit) “tangled proceedings” of this

case, those fact-bound determinations by the Second Circuit

were unquestionably correct. In any event, neither issue pres-

ents any questions that warrant this Court’s review.

I. The Second Circuit’s Affirmance of the District

Court’s Decision To Exercise Its Discretion Not To

Abstain Does Not Warrant Review.

This Petition arises out of an unique procedural history and

involves a highly unusual set of facts. Since there is no dis-

pute or conflict as to the correct legal principles at issue and

since it is clear that petitioners’ abstention claim turns largely

on the uncommon facts of these cases, there is no reason for

Cm cin ena Klas “

EPR) Vt

11

—

the Court to grant petitioners’ request to review the District

Court’s exercise of discretion not to abstain in this case.’

Abstention is a narrow exception to the general rule that

requires a district court to adjudicate cases properly before it.

Colorado River Water Conservation Dist. v. United States,

424 U.S. 800, 813 (1976) (citations omitted). Only excep-

tional circumstances will justify a district court in abstaining

from the exercise of this duty; and the mere pendency of a

parallel state court proceeding is insufficient to warrant ab-

stention in light of a district court’s “unflagging obligation . . .

to exercise the jurisdiction given [it].” Jd. at 817. Further-

more, abstention will rarely, if ever, be appropriate in a case,

such as this, involving a petition to compel arbitration under

the FAA.

Thus, in Moses H. Cone Mem'l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1 (1983), this Court held that it was plain er-

ror for the District Court to abstain from ruling on a petition

to compel arbitration despite the existence of a previously

filed state court action. As this Court noted, abstention in such

circumstances is contrary to the strong federal policy favoring

arbitration and the FAA’s intent to provide for “rapid and un-

obstructed enforcement of arbitration agreements.” Jd. at 22-

26.

The basic issue presented in [the] federal suit was

the arbitrability of the dispute between Mercury and

the Hospital. Federal law in the terms of the Arbi-

tration Act governs that issue in either state or

* Petitioners raised identical abstention claims in Distajo J, where they

argued that the Illinois court judgments holding the arbitration clause un-

enforceable required the District Court to abstain from ruling on DAI’s

petitions. Both the District Court and the Second Circuit rejected this ar-

gument, R. App. A-15, Distajo I, 66 F.3d at 458, and this Court denied

petitioners’ Petition for Writ of Certiorari. Distajo I, 116 S. Ct. 1352

(1996). Here, petitioners make the identical claim with regard to the de-

fault judgment in the Bickel case. This Court should deny this Petition for

the same reasons that it denied the Petition in Distajo /.

12

federal court . . . [OJur task in cases such as this is

not to find some substantial reason for the exercise

of federal jurisdiction by the district court; rather,

the task is to ascertain whether there exist

“exceptional” circumstances, the “clearest justifica-

tions,” that can suffice under Colorado River to

justify the surrender of that jurisdiction. Although

in some rare circumstances the presence of state

law-issues may weigh in favor of that surrender . . .

the presence of federal law issues must always be a

major consideration weighing against surrender.

Id. at 24-26 (emphasis in original).

Given this Court’s holding in Moses H. Cone, it is not sur-

prising that petitioners do not cite a single case that conflicts

with the District Court’s decision to exercise jurisdiction in

this case. Indeed, Petitioners do not claim that either the Dis-

trict Court or the Second Circuit applied the wrong legal stan-

dard in determining that abstention was inappropriate in this

case. Rather, they argue only that on the particular facts of

this case the default judgment obtained by the Bickels con-

stituted “substantial proceedings” in the state court that re-

quired the courts to abstain under Moses H. Cone. Petition

(“Pet.”) 14. That fact-specific issue does not require review by

this Court. Moreover, petitioners’ argument is wrong for two

reasons.

First, Moses H. Cone makes it quite clear that whether sub-

stantial proceedings have taken place in state court is only one

of many factors that are relevant to a district court’s exercise

of discretion to abstain. Moses H. Cone, 460 U.S. at 19-29.

Here, petitioners’ arguments for abstention are directed only

to the proceedings in the District Court after remand from the

Second Circuit. Pet. 12-15. The District Court was more than

justified in exercising its discretion not to abstain at that late

stage of this case, regardless of the nature of the proceedings

in state court, in view of the extensive proceedings that had

occurred in the District Court during the nearly two years that

this case was pending in that court and the fact that the case

Seba RN A on Be AN FORE OE. le pe

13

was before that court with instructions from the Second Cir-

cuit to decide petitioners’ two remaining defenses to arbitra-

tion. 460 U.S. at 22 (where federal court “had taken most of

the steps necessary to a resolution of the arbitrability issue,”

abstention was plain error). As the Second Circuit aptly ob-

served below, petitioners simply have not “articulated any

persuasive reason why abstention would be proper in this.”

Distajo IT, 107 F.3d at 138.

Second, the Second Circuit correctly determined on the ba-

sis of the factual record that the “Illinois default judgment,

entered without an evidentiary hearing, does not constitute

‘substantial’ state proceedings warranting abstention under

Moses H. Cone.” Id. See United States v. Johnston, 268 U.S.

220, 227 (1925) (Court will not review fact based decisions)

and Graver Mfg. Co. v. Linde Co., 336 U.S. 271, 275 (1949)

(same). No proceedings of any substance had taken place in

the Illinois court, and it issued the default judgment in contra-

vention of the District Court’s TRO, which petitioners’ coun-

sel neglected to bring to the state court’s attention. Distajo II,

107 F.3d at 137. As the Second Court recognized, to allow the

Bickels to obtain a default judgment in violation of the Dis-

trict Court’s TRO and then use that judgment as a means to

deprive the District Court of its jurisdiction to decide issues

on remand would be the height of unfairness and would de-

prive DAI of its federal right under the FAA to “rapid and un-

obstructed enforcement of [its] arbitration agreement.” Moses

H. Cone, 460 U.S. at 23."

'° Petitioners’ cursory reference to Younger and Pennzoil does not support

their cause. Younger involved abstention in deference to a parallel state

criminal action and reflects this Court’s recognition of a state’s unique

interest in enforcing and applying its criminal laws. Younger v. Harris,

40] U.S. 37, 45 (1971). Pennzoil rested in large part on this Court’s inter-

est in avoiding unnecessary constitutional litigation by first allowing a

state court to rule on a plaintiff’s claims. Pennzoil Co. v. Texaco, Inc., 481

U.S. 1, 11 (1987). Neither doctrine has any relevance here. Thus, the Pe-

tition fails to present any conflict of law worthy of review.

14

Il. The Second Circuit’s Determination That The

Rooker-Feldman Doctrine Did Not Apply To This

Case Does Not Warrant Review.

The Second Circuit’s ruling that the Rooker-Feldman doc-

trine did not deprive the District Court of subject matter juris-

diction over DAI’s petitions to compel arbitration was based

on the application of a well-settled legal doctrine to the

“tangled proceedings” and unique facts of this case. Petition-

ers do not claim that there are any conflicts among the cir-

cuits, and it is clear that there are no compelling legal issues

worthy of this Court’s review.

As the Second Circuit recognized, the Rooker-Feldman

doctrine stands for the simple and narrow proposition that

federal district courts have only original jurisdiction and,

therefore, do not have authority to review final judgments of

state courts. D.C. Court of Appeals v. Feldman, 460 U.S. 462,

476 (1983); Gash Assoc. v. Village of Rosemont, 995 F.2d

726, 728 (7th Cir. 1993). The fundamental purpose of the

doctrine is to prevent federal district courts from exercising

appellate jurisdiction over a state court judgment. Rooker v.

Fidelity Trust Co., 263 U.S. 413, 416 (1923). Accordingly,

the Rooker-Feldman doctrine applies only if the federal court

plaintiff is attacking a prior state court judgment. Gash, 995

F.2d at 728.

Here, the Second Circuit correctly determined that DAI’s

petitions to compel arbitration were not appeals from any

state court judgment. As to the Illinois actions, the record is

undisputed that DAI filed its petitions to compel arbitration

before the Illinois court entered any of its judgments. Even in

the case of the Bickels, the Illinois default judgment was not

entered until after the District Court had entered a TRO after

remand in Distajo I. Distajo II, 107 F.3d at 138; see Pet. 15.

Thus, by definition, DAI’s petitions did not seek review of

any Illinois state court judgment. Jd. at 137-38. Pennzoil Co.

v. Texaco, Inc., 784 F.2d 1133, 1144 (1986), rev'd on other

grounds, 481 U.S. 1 (1987).

15

As to petitioner Johnson, the North Carolina court’s denial

of DAI’s motions to dismiss and stay did not result in a judg-

ment regarding the enforceability of DAI’s arbitration clause.

The court merely determined that Mr. Johnson had not waived

his right to challenge the arbitration clause; the court made no

findings of fact or conclusions of law regarding the arbitration

clause itself or DAI’s conduct. Distajo I, 66 F.3d at 450. As a

result, DAI’s federal court petition seeking an order compel-

ling arbitration was not an appeal from the North Carolina

court’s findings and in no way attacked that decision. Nor did

DAI claim to have been injured in any way by the North

Carolina court’s rulings. See Kamilewicz v. Bank of Boston

Corp., 92 F.3d 506, 510 (7th Cir. 1996) (Rooker-Feldman

doctrine applies where federal plaintiff alleges an injury aris-

ing out of a state court judgment).

DAI’s petitions were filed pursuant to the FAA and sought

enforcement of DAI’s federal right to arbitrate. The District

Court clearly had subject matter jurisdiction over this dispute

and no subsequently entered non-final ruling by the state

courts could deprive the District Court of its jurisdiction over

DAI’s petitions. Petitioners do not cite a single case that has

applied the Rooker-Feldman doctrine to deprive a district

court of subject matter jurisdiction over a petition to compel

arbitration under the FAA. Where, as here, a party to a valid

arbitration agreement has filed petitions to compel arbitration

under the FAA in federal court immediately upon notice of

the adverse parties’ claims and before any state court rulings

regarding the arbitration clause, the Rooker-Feldman doctrine

has no application, and the strong federal policy favoring ar-

bitration requires the federal court to exercise jurisdiction

over the petition and enforce the arbitration agreement rapidly

and without obstruction or delay. See Moses H. Cone, 460

US. at 23; Distajo IT, 107 F.3d at 138.

16

CONCLUSION

For the reasons set forth above, the Petition for Writ of

Certiorari should be denied.

Respectfully submitted,

Mark R. Kravitz

Jennifer A. Butler

Wiggin & Dana

One Century Tower

New Haven, CT 06508

(203) 498-4400

Attorneys for Respondent

Doctor’s Associates, Inc.

Dated September 23, 1997

APPENDIX

SPER NRT TET eR PY PEE OS ON OS ee ROOT POP me RNR ER LRTI ERD DR MN RRR Re tm RI

A-1

Appendix A

IN THE CIRCUIT COURT

FOR THE THIRD JUDICIAL CIRCUIT

MADISON COUNTY, ILLINOIS

MIKE (MUSHTAQ) KANCHWALA,

ANVER KANCHWALA, and AZIM

HAMANI,

Plaintiffs,

-vs- No. 95-L-1291

DOCTOR’S ASSOCIATES, INC.,

FREDERICK A. DELUCA, PETER H.

BUCK, JOANN BACHEWICZ and

SUBWAY RESTAURANTS, INC.,

Defendants.

Nee Nee ee ee Ne ee ee ee” “ee” ee” ee” ee”

REPORT OF PROCEEDINGS

HEARING ON MOTIONS

BEFORE THE HONORABLE A. A. MATOESIAN, CIR-

CUIT JUDGE PRESIDING

APPEARANCES: Mr. David M. Duree

Attorney at Law

812 N. Collins, Laclede’s Landing

St. Louis, Missouri 63102-2174

Appearing for Plaintiffs

Mr. Theodore J. Williams, Jr.

and

Mr. David G. Loseman

Attorneys at Law

| One Metropolitan Square

| St. Louis, Missouri 63102

| Appearing for Defendants

;

z

E]

=

&

A-2

| DATE: October 13, 1995

Dorothy Warren, C.S.R.

Official Court Reporter

i C.S.R. =084-001421

BE I METAR MNS li ON MEI. os aa OS:

A-3

going forward with the other case. So when I said before

Judge O’Neill in the summer of 1994 that it was a race to the

courthouse, what I said was an accurate statement of the law.

There is no question here that my clients prefer to have their

rights as Illinois franchisees, which include claims under the

Illinois Franchise Disclosure Act; that they prefer to have

those rights decided by the courts in Illinois. It is beyond

question that the franchisor, Doctor’s Associates, Inc., prefers

to have its rights decided by the federal court in Connecticut

and/or arbitrators in Connecticut. There is no dispute about

that. It is, in fact, a race to the courthouse. But there’s nothing

illegal, immoral, or improper about the fact that’s what the

law is, because we have a dual system of jurisprudence. We

have the federal system. We have the state system. And we

are in that area of the law where which court rules first has

great significance of what the final outcome of the case will

be. So I make no apologies for asking this Court to rule on my

motions before this Court, before the court in Connecticut can

rule on similar motions and simultaneously issue an injunc-

tion prohibiting me from going forward with this court.

THE COURT: I understand your position.

MR. WILLIAMS: But the problem is simply this. In the

other cases we had a right to argue our forum motion: albeit

[end of excerpt]

A-4

| Appendix B

‘. [Filed May 3, 1994]

STATE OF NORTH IN THE GENERAL COURT

CAROLINA OF JUSTICE

SUPERIOR COURT DIVISION

COUNTY OF GASTON FILE NO. 93 CVS 1324

Michael Johnson,

Plaintiff,

ia ORDER

Doctor’s Associates, Inc., et al

Defendants.

i a a a

FINDINGS OF FACT:

1. This action was commenced by the Plaintiff's filing a

complaint seeking damages for misappropriation of funds;

2. The Plaintiff is a franchisee of several Subway Sand-

wich store franchises in North Carolina. Doctor’s Associates

is the franchisor;

3. The franchise agreement contains an arbitration clause

which provides as follows:

C. Any controversy or claim arising out of, or relating

to this contract, or the breach thereof, shall be settled

by arbitration in accordance with the commercial ar-

bitration of the American Arbitration Association at

a hearing to be held in Bridgeport, Connecticut, or

whichever City in which the company is then head-

quartered, and judgment upon an award rendered by

the arbitrators may be entered in any court having

jurisdiction thereof. The commencement of_arbitra-

tion proceedings by an aggrieved party to settle dis-

putes arising out of, or relating to this contract is a

condition precedent to the commencement of legal

action by either party.

a aeeseieeiatieneienainiaaiaaaenen

A-5

4. In his complaint, Plaintiff alleges that the arbitration

clause is void for illegality, lack of mutuality and fraud;

5. The Defendant Doctor’s Associates, Inc., has filed a

Motion to Dismiss for failure to state a claim and, in the alter-

native, a Motion to Stay the Proceedings pending completion

of arbitration proceeding;

6. The hearing on these motions was held before the un-

dersigned Judge;

7. After the hearing, the Court entered an order denying

the Motion to Dismiss for failure to state a claim and ordering

the parties to file supplemental briefs and affidavits on the

issue of whether the Plaintiff waived his right to litigate by

participating in arbitration;

Based on the evidence presented at the hearing, and as set

forth in the supplemental affidavits, and after having consid-

ered the arguments of counsel, the Court makes the following

additional findings of fact:

1. Doctor’s Associates filed a demand for arbitration with

the American Arbitration Association (AAA) on or about the

26th day of January 1993;

2. Attorney David W. Smith, III, acting on behalf of the

Plaintiff, filed an answer and counterclaim on February 10,

1993, and also submitted a five hundred dollar administrative

fee to the AAA;

3. In his answer the Plaintiff denied the allegations in

Doctor’s Associates’ statement for arbitration and in his

counterclaim, sought an award of damages based on his con-

tention that an employee of Doctor’s Associates had misap-

propriated the Plaintiff's funds. Plaintiff did not challenge the

validity of the arbitration clause or object to the jurisdiction of

AAA to arbitrate the parties’ claims;

4. On April 7, 1993, Plaintiff filed-an objection to the ju-

risdiction and authority of the AAA to proceed with arbitra-

tion. The basis for the objection was that the arbitration

A-6

provision in the franchise agreement was void and unenforce-

able because of illegality, lack of mutuality and fraud;

5. On April 14, 1993, pursuant to Rule 8 of the Commer-

cial Arbitration Rules of the AAA, Plaintiff filed a motion

with the AAA to amend its counterclaim. The motion was

filed “under protest” and specifically set forth the bases on

which the Plaintiff contested the jurisdiction of the AAA to

| arbitrate the matters. On the same date, the Plaintiff filed with

the AAA a motion to appoint additional arbitrators;

6. The AAA is currently holding the matter in abeyance

pending the decision of this Court on whether the parties are

required to arbitrate or may litigate the issues in dispute;

7. To this point, the AAA has appointed one arbitrator but —

it has not ruled on the Plaintiff's motions to appoint additional

arbitrators or the Plaintiff's motion to file an amended coun-

terclaim;

8. The parties have not exchanged exhibits or witness lists

nor has any evidence been taken in the arbitration;

BASED ON THE FOREGOING FINDINGS OF FACT,

THE COURT MAKES THE FOLLOWING CONCLUSION

OF LAW:

1. This Court has jurisdiction over the parties and the sub-

ject matter of this order;

2. The Plaintiff's limited participation in the arbitration

proceedings did not constitute a waiver of his right to chal-

lenge the enforceability of the arbitration clause;

IT IS THEREFORE ORDERED, ADJUDGED AND DE-

CREED that Doctor’s Associates’ motions to dismiss or to

stay these proceedings on the grounds that Plaintiff has

waived his right to litigate the-issues that are the subject of

this action by participation in arbitration are denied.

This the 3rd day of May, 1994.

/s/ John Mull Gardner

Superior Court Judge Presiding

ee TTT

A-7

Appendix C

[Filed May 18, 1994]

NORTH CAROLINA IN THE GENERAL COURT

OF JUSTICE

GASTON COUNTY SUPERIOR COURT DIVISION

93-CvS-1324

MICHAEL JOHNSON,

Plaintiff,

VS.

DOCTORS ASSOCIATES, INC., a _

Florida Corporation (f/k/a

DOCTORS ASSOCIATES, INC., a

Connecticut Corporation);

FREDERICK DELUCA, an

individual; PETER BUCK, an

individual; FRANCHISE WORLD

HEADQUARTERS, INC., a

Connecticut Corporation; PETER

SLOMIANYYJ, an individual;

NORTH CAROLINA SUBWAY

GROUP, INC., a North Carolina

Corporation; DOUGLAS

BENTELLE, an individual;

SHEILA HALLETT, an individual;

SANTO RHODES, an individual;

MICHAEL ARMELLINO, an

individual; and NANCY

TIMMONS, an individual;

Defendants.

AMENDED

ORDER

—} dt id id ied eed hd teed ied hed heed teed feed fee! fee! fie! thee feed fe feed teem femme femme hemmed

Pursuant to Rule 60(a) of the North Carolina Rules of Civil

Procedure, the May 3, 1994 Order entered in the captioned

matter is hereby amended as follows:

. A-8

1. Paragraph 5 of the Findings of Fact (beginning on page

1 of the Order) is stricken and is replaced with the following:

5. The Defendants Doctors Associates, Inc., Frederick

Deluca, Peter Buck, Franchise World Headquarters, Inc.,

Peter Slomianyj and North Carolina Subway Group, Inc.,

have filed Motions to Dismiss for failure to state a claim

and, in the alternative, Motions to Stay the Proceedings

pending completion of arbitration proceedings;

2. Paragraph 7 of the Findings of Fact (on page 2 of the

Order) is stricken and is replaced with the following:

7. After the hearing, the Court ordered the parties to file

supplemental briefs and affidavits on the issue of whether

Plaintiff waived his right to litigate by participating in ar-

bitration;~

3. The final paragraph of the Order is stricken and is re-

placed with the following:

IT IS THEREFORE ORDERED, ADJUDGED AND

DECREED that the Motions brought by all moving Defen-

dants -- Doctors Associates, Inc., Frederick Deluca, Peter

Buck, Franchise World Headquarters, Inc., Peter Slomianyj

and North Carolina Subway Group, Inc., -- to dismiss or to

stay these proceedings on the grounds that Plaintiff has

waived his right to litigate the issues that are the subject of

this action by participation in the arbitration are denied.

4. The May 3, 1994 Order shall remain the same in all

other respects.

This the 17 day of May, 1994.

/s/ John Mull Gardner

Superior Court Judge Presiding

A-9

Appendix D

[Filed May 18, 1994]

NORTH CAROLINA IN THE GENERAL COURT

SATIS CARNE SUPERIOR COURT Bevimon

93-CvS-1324

MICHAEL JOHNSON,

Plaintiff,

VS.

]

]

}

DOCTORS ASSOCIATES, INC.,a_ ] ORDER

Florida Corporation (f/k/a ]

DOCTORS ASSOCIATES, INC., a ~ ]

Connecticut Corporation); ]

FREDERICK DELUCA, an ]

individual; PETER BUCK, an ]

individual; FRANCHISE WORLD _]

HEADQUARTERS, INC., a ]

Connecticut Corporation; PETER _i}

SLOMIANYYJ, an individual; ]

NORTH CAROLINA SUBWAY ]

GROUP, INC., a North Carolina ]

Corporation; DOUGLAS ]

BENTELLE, an individual; ]

SHEILA HALLETT, an individual; ]

SANTO RHODES, an individual; ]

MICHAEL ARMELLINO, an ]

individual; and NANCY ]

TIMMONS, an individual; ]

]

Defendants.

THIS MATTER coming on to be heard and being heard

before the undersigned Superior Court Judge presiding at the

February 28, 1994, Gaston County Civil Term of Court upon

Motions to Dismiss for failure to state a claim under Rule

12(b)(6) of the North Carolina Rules of Civil Procedure; such

A-10

Motions being brought by defendants Doctors Associates,

Inc., Frederick Deluca, Peter Buck, Franchise World Head-

quarters, Inc., Peter Slomianyj, and North Carolina Subway

Group, Inc., by their respective counsel; and it appearing to

the Court after arguments by counsel for all parties involved

that the Complaint does state a claim;

IT IS THEREFORE ORDERED, ADJUDGED AND DE-

CREED that the moving Defendants’ Motions to Dismiss for

failure to state a claim pursuant to Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure be and hereby are denied.

This the 17 day of May, 1994.

/s/ John Mull Gardner

Superior Court Judge Presiding

A-l1

Appendix E

[Filed Sept. 29, 1994]

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

DOCTOR’S ASSOCIATES, INC.

-VS- . Civil No.

3:94CV00349 (PCD)

EMILY DISTAJO, ET AL.

RULING ON PENDING MOTIONS

Plaintiff filed a petition to compel arbitration pursuant to

the Federal Arbitration Act (FAA) 9 U.S.C. § 4, and subse-

quently an application for a Temporary Restraining Order and

a Preliminary Injunction. Defendants have filed various mo-

tions to dismiss, to transfer, and for a hearing on the matter.

BACKGROUND

Plaintiff Doctor’s Associates, Inc. (DAI) is the national

franchisor of “Subway” sandwich shops, and is a Florida cor-

poration. DAI entered into written franchise agreements with

defendants, permitting them to operate a Subway restaurant.

The agreements contain an arbitration clause (paragraph 10c)

which reads as follows:

A-12

action by either party. The cost of such a proceeding

will be borne equally by the parties.

Defendants have filed suit against plaintiff, affiliated indi-

viduals and entities in various state courts. Plaintiff demanded

arbitration of defendants’ claims by the American Arbitration

Association in accordance with the arbitration clause. Defen-

dants have refused to arbitrate, and therefore plaintiff peti-

tions here for an order directing defendants to arbitrate.

Plaintiff moved for a temporary restraining order and for a

preliminary injunction to stay the state court proceedings until

this court could rule on the petitions to compel arbitration. On

September 13, 1994 a hearing was held as to whether a pre-

liminary injunction should enter. The temporary restraining

order has expired.

DISCUSSION

1) Motions for a Hearing

Plaintiff's motions for a hearing on the petition to compel

arbitration and on the motions to dismiss are denied.

2) Motions to Dismiss

A motion to dismiss under Rule 12(b)(6) must be decided

solely on the facts alleged. Goldman v. Belden, 754 F.2d

1059, 1065-66 (2d Cir. 1985). Such a motion should be

granted only where no set of facts consistent with the allega-

tions could be proven entitling plaintiffs to relief. Conley v.

Gibson, 355 U.S. 41, 45—46 (1957). The issue is not whether

plaintiffs will prevail, but whether they should be afforded the

opportunity to offer evidence to prove their claims. /d

A) Local Rule 9

The motions to dismiss filed in 3:94cv00370 Doctor's As-

sociates v. Smith (doc. #5) and 3:94cv00369 Doctor's Associ-

ates v. Gillon (doc. #7) are denied for failure to file an

accompanying memorandum of law as required by Local Rule

9.

A-13

B) Subject Matter Jurisdiction

Several of the defendants claim that this court does not

have jurisdiction over the subject matter of the action because

there is not complete diversity, as certain development agents

of DAI doing business in the same states that defendants re-

side must be joined as plaintiffs in the various actions.' How-

ever, they are not parties to the contract that is at issue in the

instant action. “Fed.R. Civ.P. 19 does not require the joinder

of parties merely because they played some part in the un-

derlying events of a dispute, but only if such parties are nec-

essary in order to grant complete relief or if they would be

prejudiced by not being joined.” Argo Partners, Inc. v. Little-

field, Adams & Co., 1994 WL 320616 (S.D.N.Y.). “Under the

Arbitration Act, an arbitration agreement must be enforced

notwithstanding the presence of other persons who are parties

to the underlying dispute but not to the arbitration

agents of DA! and residents of North Carolina, are indispensable parties.

Defendant in 3:94cv1108 Doctor's Associates v. Giannini is a resident of

A-14

agreement.” Moses H.Cone Hospital v. Mercury Construction

Corp., 460 U.S. 1, 20 (1983). See also Steinberg & Lyman v.

Takacs, 774 F. Supp. 885 (S.D.N.Y. 1991) (parties to an arbi-

tration agreement must arbitrate even though there are other

defendants to the action). There would be no prejudice to the

various development agents by not joining them, as they are

not parties to the agreement in question and the underlying

litigation would proceed as to those parties even if the litiga-

tion as to Doctor’s Associates and the defendants in this ac-

tion was stayed. This action to enforce an agreement by the

defendants to arbitrate does not require joinder of the addi-

tional parties.

The motions to dismiss in 3:94cv00349 Doctor's Associ-

ates v. Distajo (doc. #s 31, 33, 35, 37, 39 and 46) are denied

in their entirety, as they relate solely to this issue of subject

matter jurisdiction.

C) Personal Jurisdiction/Venue

Defendants contend that this court lacks personal jurisdic-

tion over them and that venue is not proper.’ These arguments

are without merit. In accordance with the arbitration agree-

ment, defendants “subjected [themselves] in advance, to the

jurisdiction of the court within whose territorial jurisdiction

the arbitration proceedings are to be had . . . .” Hatzlachh

Supply Inc. v. Moishe’s Electronics, Inc., 828 F. Supp. 178,

185 (S.D.N.Y. 1993) (vacated on other grounds, Hatzlachh

Supply, Inc. v. Moishe’s Electronics, Inc., 848 F. Supp. 25

? Defendants assert this argument in the following cases:

3:94cv00515 Doctor's Associates v. Youmaran

3:94cv00998 Doctor's Associates v. Kane

3:94cv00514 Doctor's Associates v. Guerro

3:94cv00803 Doctor's Associates v. Brenes

3:94cv01108 Doctor's Associates v. Gianni

3:94cv00516 Doctor's Associates v. Shino

3:94cv00517 Doctor's Associates v. Loenneke

3:94cv00349 Doctor's Associates v. Distajo

3:94cv00803 Doctor's Associates v. Johnson

A-15

(S.D.N.Y. 1994)); Farr & Co. v. Cia. Intercontinental De

Navegacion De Cuba, 243 F.2d 342, 346 (2d Cir. 1957). The

arbitration agreement also includes a choice-of-forum clause,

stating that the parties are to settle any disputes in Connecti-

cut. Such advance consent waives any objection to personal

jurisdiction and venue.

D) Abstention

Defendants contend, in a conclusory manner, that this court

should decline to exercise jurisdiction over the matter under

the doctrine of abstention, citing Colorado River Water Con-

servation District v. United States, 424 U.S. 800, 813-17

(1976).* Federal courts generally do not dismiss proceedings

merely because the same matter is being litigated in state

court. Only exceptional circumstances will compel a federal

court to relinquish jurisdiction due to parallel proceedings in

state court. Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 13-14 (1983). Defendants claim

that proceedings in over nine cases in state courts constitute

compelling circumstances. There is nothing remarkable about

parallel state litigation. Although it is not entirely clear how

extraordinary the circumstances must be in order for the court

to decline to exercise its jurisdiction in this context, it is clear

that parallel proceedings alone is not sufficient. See /d.; Erwin

Chemreinsky, Federal Jurisdiction at 669 (4th ed. 1989)

(listing cases in which courts abstained due to varying cir-

cumstances). Defendants have not enumerated exceptional

circumstances that warrant dismissal in deference to the state

court litigation.

* The following defendants assert this argument:

3:94cv00515 Doctor's Associates v. Youmaran (doc. #4)

3:94cv00803 Doctor's Associates v. Brenes (doc. #4)

3:94cv00514 Doctor's Associates v. Guerro (doc. #4)

3:94cv005 16 Doctor's Associates v. Shino (doc. #6)

3:94¢v00517 Doctor's Associates v. Loenneke (doc. #5)

3:94¢v00349 Doctor's Associates v. Distajo (doc. #18 )

3:94cv00998 Doctor's Associates v. Kane (doc. #3)

3:94cv01108 Doctor's Associates v. Gianni (doc. #4)

A-16

E) Res Judicata and Collateral Estoppel

Defendant in Doctor's Associates v. Johnson alleges that

res judicata or collateral estoppel precludes jurisdiction here

over the matter because the North Carolina trial court in

which a complaint was filed declined to stay the lawsuit.

These orders are on appeal, and therefore they do not consti-

tute a final judgment on the merits. Therefore res judicata

does not apply. See Allen v. McCurry, 449 U.S. 90, 94 (1980).

Collateral estoppel applies only to issues decided finally in

another forum. Jim Beam Brands Co. v. Crawford, Ltd., 937

F.2d 729, 734 (2d Cir. 1991). Even if these orders were to be

considered final, a denial of a motion to stay does not pre-

clude a petition to compel arbitration pursuant to § 4 of the

FAA. See In re Pahlberg Petition, 131 F.2d 968, 969 (2d Cir.

19 ).

Defendants in Doctor's Associates v. McCrary allege that

an Alabama state court has determined the arbitration clause

to be void and unenforceable and therefore these issues may

not be relitigated in this forum. There is currently pending a

motion to reconsider the judgment in the state court. Conse-

quently, there is not a final judgment, as discussed above, and

the doctrines of res judicata and collateral estoppel do not ap-

ply.

4) Motion for Preliminary Injunction

Plaintiffs move for a preliminary injunction to enjoin de-

fendants from moving forward with their respective cases in

state court. Defendants claim that this court cannot grant the

relief requested under the provisions of 28 U.S.C. § 2283 (the

“Anti-Injunction Act”).

The Anti-Injunction Act was promulgated to balance the

tensions between state and federal courts in a dual system.

and federal courts entertain proceedings. As the Supreme

Court has noted, state proceedings “should normally be al-

lowed to continue unimpaired by intervention of the lowe:

federal courts, with relief from error, if any, through the stat

A-17

appellate courts and ultimately this Court.” Atlantic Coast

Line R. Co. v. Locomotive Engineers, 398 U.S. 281, 287

(1970).

Injunctions can issue against state proceedings in certain

limited situations, “namely, when expressly authorized by

Statute, necessary in aid of the court’s jurisdiction, or neces-

Sary to protect or effectuate the court’s judgment.” Chick Kam

Choo v. Exxon Corp., 486 U.S. 140, 146 (1988). The excep-

tions are narrow and “‘not [to] be enlarged by loose statutory

construction.’” Jd. (quoting Atlantic 398 U.S. at 146). As

there is neither statutory authority for entry of an injunction

nor a judgment which the court seeks to effectuate, the ques-

tion is whether this court can enjoin the state court proceed-

ings in aid of its jurisdiction.

In the present action, the state and federal court have con-

current jurisdiction and consequently neither court is “free to

prevent either party from simultaneously pursuing claims in

both courts.” Atlantic 398 U.S. at 295.

_

Each court is free to proceed in its own way and in

its own time, without reference to the proceedings

in the other court. Whenever a judgment is rendered

in one of the courts and pleaded in the other, the ef-

fect of that judgment is to be determined by appli-

cation of the principles of res judicata.

Vendo Co. v. Lektro-Vend Corp., 433 US. 623, 642 (1972).

Additionally, the Supreme Court has limited the “in aid of

jurisdiction” exception only to cases in which a federal court

acquires jurisdiction over real property, but has not extended

it to proceedings involving in personam jurisdiction. Atlantic

398 U.S. at 295-96. As the state court proceedings do not im-

pair this court’s jurisdiction to proceed, and there is no dis-

pute as to real property, an injunction is not appropriate.

Exceptions to the Anti-Injunction Act recognized in the

Second Circuit also do not apply to the present situation. The

Act has been found not to apply when state court proceedings

have not been instituted. Standard Microsystems v. Texas

A-18

Instruments, 916 F.2d 58, 61 (2d Cir. 1990). However, each

of the consolidated cases have pending litigation in a state

court, and the act bars “an injunction to stay proceedings in a

State court.” 28 U.S.C. § 2283 (emphasis added). The Second

Circuit has cast doubt as to the validity of another exception

formulated in the Seventh Circuit in Barancik v. Investors

Funding corp., 489 F.2d 933 (7th Cir. 1973), which allowed

an injunction if the state court proceedings were instituted af-

ter a motion was filed to enjoin it, but before the court ruled

on it. See Standard Microsystems, 916 F.2d at 61. The facts

here do not support such an argument as the state court litiga-

tion was commenced prior to plaintiff's application for a pre-

liminary injunction.

The motion for a preliminary injunction (doc # 59) is de-

nied as the action does not fall within any of the narrow ex-

ceptions to the Anti-Injunction Act. Accordingly, defendants’

motions to file responsive pleadings in state court are granted.

Conclusion

The following motions to dismiss are denied:

3:94cv00349 Doctor’s Associates v. Distajo (doc. #s 4, 18,

31, 33, 35, 37, 39, 46, 53, 84, 86, 89)

3:94cv00369 Doctor’s Associates v. Gillon (doc. #7)

3:94cv00370 Doctor’s Associates v. Smith (doc. #5)

3:94cv00511 Doctor’s Associates v. Brenes (doc. #4)

3:94cv00514 Doctor's Associates v. Guerro (doc. #4)

3:94cv00515 Doctor’s Associates v. Youmaran (doc. #4)

3:94cv00516 Doctor’s Associates v. Shino (doc. #6)

3:94cv00517 Doctor’s Associates v. Loenneke (doc. #5)

3:94cv00803 Doctor’s Associates v. Johnson (doc. #3)

3:94cv00948 Doctor’s Associates v. Kane (doc. #3)

3:94cv01108 Doctor's Associates v. Gianni (doc. #4)

3:94cv01457 Doctor’s Associates v. Papaleo (doc. #5)

The following motions for a hearing are denied:

3:94cv00349 Doctor's Associates v. Distajo (doc. #21 & 50)

3:94cv00354 Doctor's Associates v. McCrary (doc. # 9)

3:94cv00369 Doctor's Associates v. Gillon (doc. # 9)

A-19

3:94cv00370 Doctor ’s Associates v. Smith (doc. # 8)

3:94cv00371 Doctor's Associates v. Riise (doc. # 10)

3:94cv00372 Doctor’s Associates v. Benton (doc. # 8)

3:94cv00511 Doctor's Associates v. Brenes (doc. #8)

3:94cv00514 Doctor’s Associates v. Guerrero (doc. #8)

3:94cv00515 Doctor’s Associates v. Youmaran (doc. #8)

3:94cv00516 Doctor’s Associates v. Shino (doc. #7)

3:94cv00517 Doctor’s Associates v. Loenneke (doc. #8)

The following motions to file documents in pending state pro-

ceedings are granted: Doctor’s Associates v. Distajo

3:94cv00349 (doc. #s 72, 73, 74, 77, 78, 79, 80). The motion

for leave to file a supplemental memorandum of law in sup-

port of the motion to dismiss for lack of venue 3:94cv00511

Doctor's Associates v. Brenes (doc. #7) is granted, and was

considered. The motion to transfer venue, Doctor’s Associates

v. Distajo 3:94cv00349 (#8), is denied. The motion for a pre-

liminary injunction Doctor’s Associates vv. Distajo

3:94cv00349 (#59) is denied.

Any responsive pleadings to the petitions to compel arbi-

tration shall be filed on or before October 14, 1994. The peti-

tions shall be decided on the record as of that date.

SO ORDERED.

Dated at New Haven, Connecticut, this 29th day of Sep-

tember, 1994.

/s/ Peter C. Dorsey

United States District Judge