891 F. Supp. 2d 567
S.D.N.Y.2012Background
- Shields, Stricklin, and Iron Workers filed shareholder derivative actions against numerous News Corp. directors and officers alleging, among others, violations of Section 14(a) of the Exchange Act and fiduciary breaches tied to phone-hacking and bribery investigations.
- Delaware action (In re News Corporation Shareholder Derivative Litigation) filed March 16, 2011, involves many similar allegations against News Corp. directors, with amended complaints in July–September 2011.
- Defendants moved to stay these federal actions pending resolution of the Delaware Action; the court must determine whether abstention under Colorado River applies given parallel proceedings.
- Plaintiffs’ Section 14(a) claim is exclusively federal; the actions are not parallel if federal claims exist, as federal securities claims fall under exclusive federal jurisdiction.
- Issues include whether demand futility in the Delaware Action affects a stay, whether abstention is warranted given the exclusivity of the 14(a) claims, and whether Stricklin’s diversity jurisdiction is properly pled.
- The court ultimately denies stay in Shields and Iron Workers, and dismisses Stricklin’s Amended Complaint for lack of subject matter jurisdiction, with leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the federal and state actions parallel for Colorado River abstention? | Actions are not parallel due to exclusive federal 14(a) claims. | Delaware action substantially overlaps and could resolve common issues. | Not parallel; abstention inappropriate. |
| Does the exclusive federal nature of Section 14(a) claims preclude abstention? | 14(a) claims fall under federal jurisdiction and should not be stayed pending state action. | If the Delaware action could resolve related issues, abstention may be warranted. | Abstention inappropriate; 14(a) claims require federal resolution. |
| Is the demand futility issue in the Delaware Action a basis to stay federal actions? | Even if demand futility is decided in Delaware, it does not justify a stay of federal claims. | Delaware court’s findings on demand futility could dispose of the federal claims. | Not dispositive; factor weighs against abstention. |
| Do the confidentiality and jurisdictional issues in Stricklin justify dismissal or a stay? | Diversity jurisdiction is proper and complete; the Stricklin complaint should proceed. | Stricklin’s complaint fails to plead diversity properly. | Stricklin dismissed for lack of subject matter jurisdiction; leave to amend permitted. |
| Should the court stay Shields and Iron Workers pending Delaware Action? | Delaware proceeding is advanced; may resolve some issues. | State action cannot adjudicate federal securities claims and may cause piecemeal litigation. | No stay; the balance weighs against abstention. |
Key Cases Cited
- Andrea Theatres, Inc. v. Theatre Confections, Inc., 787 F.2d 59 (2d Cir. 1986) (exclusive federal jurisdiction for federal claims precludes abstention)
- Fielding v. Trump, 850 F.2d 938 (2d Cir. 1988) (federal securities claims favor federal forum; abstention rare)
- De Cisneros v. Younger, 871 F.2d 305 (2d Cir. 1989) (abstention analysis; balance of factors)
- Woodford v. Community Action Agency of Greene County, 239 F.3d 517 (2d Cir. 2001) (parallelism and abstention considerations in Colorado River)