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Zeeco, Inc. v. JPMorgan Chase Bank, National Association

United States District Court, N.D. Oklahoma

December 21, 2017

ZEECO, INC., an Oklahoma corporation, Plaintiff,
JPMORGAN CHASE BANK, National Association, Defendant.



         The Court has for its consideration Plaintiffs Motion for Remand and Brief in Support (Doc. 28). Defendant filed a Response and Objection (Doc. 35), Plaintiff filed a Reply (Doc. 41), and both parties submitted supplemental briefs (Doc. 50, 51).

         I. Background

         Plaintiff Zeeco, Inc. ("Zeeco"), an Oklahoma corporation, contracted with Fernas Construction India Pvt. Ltd. ("Fernas") to supply and install a flare system at a site in India owned by ONGC Petro Additions, Ltd. ("OPAL"). (Doc. 2 at 67 of 104 [First Am. Compl. at ¶ 16]).[1] As part of the Zeeco-Fernas transaction, Zeeco caused JPMorgan Chase Bank ("Chase") to issue bank guarantees ("the Bank Guarantees") to Fernas in an amount totaling approximately USD $1, 500, 000. (Id. at 67-68 [First Am. Compl. at ¶ 17]). The Bank Guarantees were secured by letters of credit issued under loan agreements between Chase and Zeeco. (Id. at 68 [First Am. Compl. at ¶ 17]).

         According to Zeeco's First Amended Complaint, Zeeco performed all related work to the satisfaction of OPAL, and OPAL issued Zeeco a Certificate of Completion on April 28, 2016. (Id. [First Am. Compl. at ¶¶ 19-20]). Despite this Certificate of Completion, Fernas made a demand for payment under the Bank Guarantees in India on or about October 25, 2016. (Id. [First Am. Compl. at ¶ 21]). Zeeco contends that Fernas sought fraudulent payment under the Bank Guarantees due to its own financial woes. (Id. [First Am. Compl. at ¶ 22]).

         On October 26, 2016, Zeeco initiated an action in the Tulsa County District Court and filed a motion seeking to enjoin Chase from paying or transferring any funds to Fernas. (Id. at 13, 23). The Tulsa County District Court granted an ex parte temporary restraining order that same day, stating that "Defendant JP Morgan [Chase] is Restrained from transferring or paying Fernas Construction India Pvt Ltd." (Id. at 27). Despite the TRO, Chase honored the Bank Guarantees and made payment to Fernas no later than 12:20 p.m. on October 27, 2016 (Mumbai time). (Id. at 72 [First Am. Compl. at ¶ 33]).

         On June 20, 2017, Zeeco filed its First Amended Verified Petition and Claim for Restitution, which includes three counts: (1) wrongful honor of the Bank Guarantees and breach of the loan agreements, (2) misappropriation of funds, and (3) indirect contempt of court. (Id. at 74-77 [First Am. Compl. at ¶¶ 38-57]). Chase was served with a copy of the summons and the amended petition on June 20, 2017. (Doc. 2 at 1 [Notice of Removal at ¶ 2]). On June 30, 2017, Chase filed a Notice of Removal based on diversity of citizenship. (Id. at 2-3 [Notice of Removal at¶¶4-5]).

         On July 31, 2017, Zeeco filed a Motion for Remand and Brief in Support (Doc. 28). In that Motion, Zeeco argued that the entire case should be remanded pursuant to the Younger abstention doctrine. (Id. at 14). In the alternative, Zeeco argued that this Court should remand only the civil contempt proceeding and stay the remaining claims. (Id. at 21). Zeeco has since abandoned the first argument and is no longer requesting remand of the entire case. (See Doc. 41 at 3, 10).

         II. Discussion

         A. Younger Abstention

         The Court will first address whether the Younger abstention doctrine applies in this case. In Younger v. Harris, a California man filed a complaint in federal court seeking to enjoin the state from prosecuting him. 401 U.S. 37, 38-39 (1971). A three-judge panel held that the California Criminal Syndicalism Act under which he was charged was unconstitutional and, therefore, restrained the state district attorney from further prosecution of the man for violating the Act. Id. at 40. The Supreme Court reversed the panel's judgment on the basis that federal courts must not "stay or enjoin pending state court proceedings except under special circumstances." Id. at 41. According to the Court, "Congress has, subject to few exceptions, manifested a desire to permit state courts to try state cases free from interference by federal courts." Id. at 43. One reason behind this "longstanding public policy" is "the basic doctrine of equity jurisprudence that courts of equity should not act . . . when the moving party has an adequate remedy at law and will not suffer irreparable injury if denied equitable relief." Id. at 43-44. Specifically, duplicative legal proceedings should be avoided "where a single suit would be adequate to protect the rights asserted." Id. at 44. Another reason for restraint is "the notion of 'comity, ' that is, a proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in their separate ways." Id. In short, "the normal thing to do when federal courts are asked to enjoin pending proceedings in state courts is not to issue such injunctions." Id. at 45.

         Although the Younger doctrine arose in a criminal context, it has since been applied in other circumstances. In Juidice v. Vail, the main case on which Zeeco relies, a judgment debtor and other co-plaintiffs brought a class action suit in federal court to enjoin the state's use of its statutory contempt procedures, arguing that the procedures violated the Fourteenth Amendment. 430 U.S. 327, 330 (1977). The Supreme Court held that the Younger doctrine applied and the federal case had to be dismissed. Id. at 335-37. Notably, the Court described a state's contempt power as lying "at the core of the administration of a State's judicial system." Id. at 335. According to the Court, "federal-court interference with the State's contempt process is 'an offense to the State's interest . . . likely to be every bit as great as it would be were this a criminal proceeding.'" Id. at 336 (quoting Huffman v. Pursue, Ltd., 420 U.S. 592, 604 (1975)).

         Zeeco also points to the Supreme Court case Pennzoil Co. v. Texaco, Inc., 481 U.S. 1 (1987). In Pennzoil, Texaco filed a § 1983 case to challenge the constitutionality of Texas's judgment enforcement procedures. 481 U.S. at 6. Before the Texas court had entered judgment in the state court case, Texaco filed the federal case seeking to enjoin the opposing party from taking any action to enforce the state court judgment. Id. Again, the Supreme Court held that the Younger abstention doctrine applied and ordered the district court to dismiss the case. Id. at 13, 18.

         What Younger, Juidice, and Pennzoil have in common is that they all involved plaintiffs filing separate federal suits in an attempt to enjoin ongoing state proceedings-be it a prosecution (Younger), a contempt proceeding (Juidice), or the enforcement of a civil judgment (Pennzoil). Unlike in those cases, there is no ongoing ...

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