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Civil Procedure – Jurisdiction – Abstention – Construction Loan Note

A Harrisonburg U.S. District Court denies a developer’s motion to dismiss or stay plaintiff bank’s action to recover on a note and deed of trust for two construction loans personally guaranteed by the developer, for a local real estate development, and rejects the developer’s claim the court should abstain from hearing the bank’s suit pending a decision in a state court suit filed by a subcontractor for the development.

Defendants argue this court should abstain because Wachovia’s suit parallels the earlier suit and because “exceptional circumstances” warrant application of Colorado River abstention under Colorado River Water Cons. Dist. v. U.S., 424 U.S. 800 (1975). The court finds the federal and state cases are not parallel and that even if they were, there are no exceptional circumstances warranting abstention.

The court finds the suits may overlap, but they are not directly parallel. Here, the litigating parties appear substantially the same in that the only remaining parties to the state action are Preston Lakes Homes LLC (PLH), THG and Wachovia, while the parties to the federal action are PLH, the developer Hine and Wachovia. Nevertheless, even if the court determines the parties are substantially the same, the parties are not litigating substantially the same issues. The state suit raises a host of claims, some related to the loans, others independent of the loans. For example, PLH’s first claim pertains to Wachovia’s failure to fund the settlement of the subcontractor, A&J Development & Excavation Inc. (A&J), PLH and THG, which has nothing to do with whether either Wachovia or PLH defaulted under the terms of the loans. The federal action, on the other hand, entails a suit to enforce a note arising out of the borrower’s defaults. Further, the state action seeks declaratory and injunctive relief in addition to compensatory and punitive damages; whereas, the federal action seeks compensatory damages from the borrower and the guarantor. Because the two suits raise different issues and seek different remedies, they are not parallel. The court will not abstain from exercising its jurisdiction and denies defendants’ motion on that ground.

Under the pertinent factors for analyzing “exceptional circumstances” warranting abstention, the court concludes defendant has failed to persuade, and the court denies the motion to dismiss or stay.

Wachovia Bank N.A. v. Preston Lake Homes LLC
(Wilson, J.) No. 5:09cv00112, May 10, 2010; USDC at Harrisonburg, Va. VLW 010-3-266, 9 pp.

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