## Facts

- Ozzie Lalla sued Life-Link International, Inc. in Colorado state court in February 1988 to collect an alleged debt.
- Life-Link filed counterclaims in the state case asserting federal Lanham Act claims (15 U.S.C. §§ 1114, 1125(a)) and related state-law claims (unfair competition, deceptive trade practices, breach of contract).
- In June 1988, Life-Link filed a separate federal action against Ozzie and Nena Lalla (d/b/a The Apparelgroup), reasserting substantially the same claims and adding Nena, who was not a party to the state case.
- Life-Link obtained a state-court stay of the state action in September 1988 pending completion of the federal case.
- The Lallas moved to dismiss the federal action, arguing Life-Link waived access to federal court by filing state-court counterclaims instead of removing the state case.

## Issues

1. Whether asserting federal counterclaims in a pending state action, without removing that action, waives the right to file a separate federal suit on the same claims.
2. Whether dismissal (rather than a stay) of a federal action is proper under Colorado River/Moses H. Cone principles when there is overlapping state litigation.
3. Whether dismissal with prejudice can be based solely on the existence of related state proceedings.

## Decision

- The Tenth Circuit reversed the district court’s dismissal and remanded.
- The court held Life-Link did not waive federal jurisdiction by counterclaiming in state court and not removing the state action.
- The court held abstention was not warranted under the Colorado River/Moses H. Cone “exceptional circumstances” framework.
- The court indicated dismissal with prejudice was especially improper on these grounds.

## Legal Principles

- Filing counterclaims (including federal claims) in state court does not, by itself, waive the right to bring a federal action within federal jurisdiction.
- When state and federal proceedings overlap, the controlling analysis is Colorado River/Moses H. Cone: federal courts have a “virtually unflagging obligation” to exercise jurisdiction, and dismissal or stay is permitted only in “exceptional circumstances.”
- Colorado River factors include: jurisdiction over any res, convenience of the forums, risk of piecemeal litigation, order and progress of proceedings, whether federal or state law supplies the rule of decision, and adequacy of the state forum.
- The presence of substantial federal claims and non-identical parties weakens the case for treating the proceedings as sufficiently parallel to justify declining jurisdiction.

## Conclusion

The Tenth Circuit required the federal court to exercise its jurisdiction because counterclaims in state court did not waive federal access, and the record did not show the exceptional circumstances necessary to dismiss or stay the federal Lanham Act-centered action in favor of the related (and stayed) state proceeding.


Life-Link Int'l, Inc. v. Lalla, 902 F.2d 1493 (10th Cir. 1990)