MARILYN CLARK, оn behalf of Sears, Plaintiff-Appellant, v. ALAN LACY, et al., Defendants-Appellees.
No. 03-3891
United States Court of Appeals For the Seventh Circuit
ARGUED APRIL 7, 2004—DECIDED JULY 19, 2004
Appeal from the United States District Court for the Northern District District of Illinois, Eastern Division. No. 02 C 7984—John A. Nordberg, Judge.
FLAUM, Chief Judge. In this case we are asked to consider how the Colorado River abstention doctrine applies to a derivative shareholder suit brought in federal court that involves the same factual predicate, most of the same defendants, and fundamentally the same legal issues as a derivative shareholder suit brought by a different plaintiff shareholder in New York state court. Pursuant to Colorado River, the district court stayed this action in favor of the
I. Background
In 2000, Sears, one of the largest retailers of merchandise and services in the world, expanded its existing credit business by issuing MasterCards to individuals holding credit accounts with Sears. Sears’ credit operations had traditionally revolved around the “Sears Card,” issued to Sears customers for use in Sears stores. Faced with declining sales and an increasingly crowded retail market, Sears entered the MasterCard market to help increase revenue and earnings growth. After experiencing some initial success in the MasterCard market, in October 2002, Sears announced that its credit business was negatively impacting the company‘s financials. Following this announcement, Sears’ stock рrice declined significantly.
A number of lawsuits ensued, including four derivative shareholder suits filed on Sears’ behalf. The first, Brewster v. Lacy, et al., 02/603873, was filed October 23, 2002, in the Supreme Court of the State of New York (”Brewster“). This matter, Clark v. Lacy, et al., was filed on November 5, 2002, in the Northern District of Illinois (”Clark“). Additionally, two separate derivative suits were filed in the Circuit Court of Cook County. Both of those cases werе consolidated before the same judge and have been stayed in favor of the New York litigation.
At issue in this appeal are the similarities between the Brewster and Clark actions. On behalf of Sears, the Brewster complaint alleges that certain officers and directors of Sears breached their fiduciary duties under New York state law in connection with Sears’ decision to enter the competitive MasterCard market. The Brewster complaint seeks damages on behalf of Sears from Sears officers and/or directors. Also
Additionally, the Clark defendants filed a motion in the district court to stay this action pursuant to the doctrine set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), or in the alternative to dismiss. Based on a reviеw of the parties’ briefs and exhibits, the district court found that the differences between the Brewster and Clark actions were more superficial than substantive. Using the Colorado River factors, the district court determined that a stay was warranted in this case because it would promote judicial administration. On order of the district court, the Clark action is stayed until final disposition of the New York proceedings. Clark now appeals. For the reasons discussed in this opinion, we affirm the district court‘s order.
II. Analysis
We review a district court‘s ruling on a motion to stay under the Colorado River doctrine for an abuse of discretion. Sverdrup Corp. v. Edwardsville Community Unit Sch. Dist. No. 7, 125 F.3d 546, 550 (7th Cir. 1997). Under the
To determine whether a stay is appropriate in a particular case, a court must conduct a two-part analysis. First, the court must consider “whether the concurrent state and federal actions are actually parallel.” Id. at 1559, see also Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1287 (7th Cir. 1988). Then, once it is established that the suits are parallel, the court must consider a number of non-exclusive factors that might demonstrate the existence of “exceptional circumstances.” See LaDuke, 879 F.2d at 1559. These factors are: (1) whether the state has assumed jurisdiction over property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) the source of governing law, state
A. Parallel Actions
Clark contends that the district court abused its discretion by finding that the Brewster and Clark actions are parallel. According to Clark, that finding was improper because the parties and the issues in this case are more numerous and diverse than in the Brewster action. Moreover, Clark argues that the relief sought in the two actions is different. The Brewster action seeks only monetary relief while the Clark action requests equitable relief in addition to money damages.
To meet the “parallel” requirement, suits need not be identical. See Interstate Material Corp., 847 F.2d at 1288. Two suits are considered ” ‘parallel’ when substantially the same parties are contemporaneously litigating substantially the same issues in another forum.” Id. (quoting Calvert Fire Insurance Co. v. American Mutual Reinsurance Co., 600 F.2d 1228, 1229 n.1 (7th Cir. 1979)). To be sufficiently similar it is not necessary that there be “formal symmetry between the two actions.” Lumen, 780 F.2d at 695. Rather, there should be a “substantial likelihood that the state litigation will dispose of all claims presented in the federal case.” Id.
After reviewing the two complaints, we agree with the district court that no meaningful distinction can be made between the Clark and Brewster lawsuits. First and foremost, although some of the names appearing on the two
Nor does the presence of the four additional defendants in Clark render these lawsuits non-parallel. The addition of a party or parties to a proceeding, by itself, does not destroy the parallel nature of state and federal proceedings. See Schneider Nat‘l Carriers, Inc. v. Carr, 903 F.2d 1154, 1156 (7th Cir. 1990) (finding cases parаllel where plaintiff named additional defendants in state action). Again, the requirement is that the parties be substantially the same—not completely identical. When we focus on the parties’ litigation interests in these two lawsuits, it is clear that the addition of these four defendants has little impact on the overall similarity of the disputеs. As with the other defendants, the four additional defendants have been sued collectively in their capacity as Sears officers and no individualized allegations have been made against any of them. Their inclusion in the federal proceeding does not alter the case‘s central issue (the same one presented by the Brewster action), i.e., whether Sears officers and/or directors breached their fiduciary duties to Sears in connection with Sears’ entry into the MasterCard market.
Clark‘s argument relating to the additional claims presented in her complaint is equally unavailing. Each “addi-
The same is true for Clark‘s prayer for equitable relief. Even though an additional remedy is sought in the federal action, the liability issues (which are the central legal issues) remain the same in both cases. Moreover, the relief requested in this case is substantially similar to that requested in the Brewster action. Although Clark states in her complaint that “[p]laintiff on behalf of Sears has no adequate remedy at law,” both complaints request jury trials and seek to recover damages from the individual defendants. While we are mindful that remedies need not be plead with specificity, Clark‘s vague request for equitable relief does not convince us that both lawsuits do not in the end seek substantially the samе relief, i.e., damages.
Accordingly, the district court did not abuse its discretion in finding the Brewster and Clark actions parallel. We agree with the district court that the thrust of these lawsuits is the same—they rely on the same factual predicate to raise substantially similar legal issues against substantially similar parties. If we were to reach the oppоsite conclusion, future federal plaintiffs would have an incentive to tag on redundant and non-essential claims, parties, and remedies to create straw distinctions with an otherwise parallel state proceeding.
B. Exceptional Circumstances
Of course, a conclusion that federal and state proceedings are parallel оnly begins the inquiry into whether a stay is appropriate under Colorado River. We must now review the district court‘s determination that abstention was warranted in this case under the 10-factor “exceptional circumstances” test. As we examine the district court‘s analysis, we are guided by the Supreme Court‘s instruction that “[n]o one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise is required.” Colorado River, 424 U.S. at 818-19. “The weight to be given any one factor is determined solely by the circumstances of the particular case—there is nо mechanical formula by which to determine when a stay is appropriate.” Schneider Nat‘l Carriers, 903 F.2d at 1157 (citing Moses H. Cone, 460 U.S. at 16).
The district court found that a stay would eliminate piecemeal and duplicative litigation. We agree that this factor weighs in favor of a stay. As explained above, the claims in Clark and Brewster are all predicated on the same showing of a breach of fiduciary duty. Without staying the federal proceeding, the two actions would proceed simultaneously—duplicating the amount of judicial resources required to reach a resolution. If Brewster is reinstated, the two courts would oversee similar pre-trial motions and discovery matters and two different triers of fact would be asked to consider the same issues, evidence and witnesses. Our Court has held that this sort of redundancy counsels in favor of a stay. See Caminiti, 962 F.2d at 701 (concluding that where the same issues must be resolved in two cases, a stay would prevent duplicative and wasteful litigation). Not only would a stay save judicial resources, but it would also prоtect against the danger of the two proceedings reaching inconsistent results, especially in light of the recent dismissal of Brewster by the New York Supreme Court.
Next, we agree with the district court‘s determination that because both cases are governed by New York law, it is better to defer to the New York courts to consider the issues presented. “[A] state court‘s expertise in applying its own law favors a Colorado River stay.” Day v. Union Mines, Inc., 862 F.2d 652, 660 (7th Cir. 1988). In this case, it makes more sense to allow a New York state court to resolve whether under New York law pre-suit demand was excused and whether a claim for breach of fiduciary duty has been stated against the defendants.
As the district court also noted, the Brewster action was filed first, albeit by only a few weеks. At best, this factor is neutral, but it does not push us towards allowing the federal case to proceed. The district court also found that a stay was warranted because the “claims here can be adjudicated in New York, and the New York claims cannot be removed here.” Clark does not dispute that the claims in this proceeding may be brought in New York state court. Not only does the availability of concurrent jurisdiction weigh in favor of a stay, so does the inability to remove the New York action to federal court. See Day, 862 F.2d at 659-60 (there is a “policy against hearing a federal claim which is related to ongoing non-removable state proceedings“).
The district court found the remaining factors to be neutral. Of these factors, Clark most vigorously contests the district court‘s determination with respect to the relative convenience of the federal forum. To support her argument that the federal forum is more convenient, Clark points out that ten of the fifteen defendants live in this district and that many of the relevant documents and witnesses are located at Sears’ Illinois headquarters. While this may be true, the district court‘s finding was not improper. The Brewster action will continue in New York regardless of whether the Clark action is stayed in Illinois. Moreover, the thrust of Clark‘s argument regarding convenience of the Illinois forum (as well as her arguments relating to othеr
The remaining factors can be disposed of summarily. No persuasive arguments have been presented as to why any of them would counsel against a stay in this case. Clark does not dispute that two of them—jurisdiction over property and vexatious litigation—are indeed neutrаl. Moreover, there is no fear that Sears’ rights will not be adequately protected in the state proceeding as the same questions of law and fact are presented as in the federal case and the state court can resolve these questions just as effectively. Lastly, as the motion to dismiss has been fully briefed, argued, and decided in Brewster, the progress of the state court proceeding is currently more advanced than that of the federal action.
Accordingly, since the state and federal proceedings at issue are parallel and a stay would promote wise judicial administration, we decline to hold that the district court abused its discretion in finding that the exceptional nature of this case justified a stay. The district court appropriately addressed the Colorado River factors, applying more significant analysis to those factors most relevant in this case. Moreover, a stay is a measured approach that protects the substantial rights of the parties and allows Clark the possibility of continuing this litigation once the Brewster action reaches a conclusion in New York.
III. Conclusion
We AFFIRM the district court‘s stay order.
Teste:
Clerk of the United States Court of Appeals for the Seventh Circuit
USCA-02-C-0072—7-19-04