Law School Case Brief
Clark v. Lacy - 376 F.3d 682 (7th Cir. 2004)
To determine whether a stay under Colorado River 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. Then, once it is established that the suits are parallel, the court must consider a number of nonexclusive factors that might demonstrate the existence of "exceptional circumstances." 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 or federal; (6) the adequacy of state-court action to protect the federal plaintiff's rights; (7) the relative progress of state and federal proceedings; (8) the presence or absence of concurrent jurisdiction; (9) the availability of removal; and (10) the vexatious or contrived nature of the federal claim.
A shareholder brought a derivative shareholder suit in federal court that involved the same factual predicate, most of the same defendants, and fundamentally the same legal issues as a derivative shareholder suit brought in New York state court. Pursuant to Colorado River, the U.S. District Court for the Northern District of Illinois, Eastern Division stayed the action in favor of the state proceeding finding that the state and the shareholder actions parallelled. The shareholder appealed alleging grave abuse of discretion.
Did the Illinois district court gravely abuse its discretion by staying the action?
The Court affirmed the district court's stay order holding that t he district court did not abuse its discretion in finding the state and the shareholder actions parallel. Although some of the names appearing on the two complaints were different, the parties' interests in the disputes were nearly identical. As both cases were derivative shareholder suits, the corporation was the true party in interest. Although there were four additional defendants in the shareholder's suit, their inclusion did not alter the central issue (whether the corporation's officers and directors breached their fiduciary duties in connection with the corporation's entry into a certain credit card market). Further, the district court did not abuse its discretion in finding that the exceptional nature of the case justified a stay. Not only would a stay save judicial resources, but it would also protect against the danger of the two proceedings reaching inconsistent results. Moreover, because both cases were governed by New York law, it was better to defer to the New York courts to consider the issues presented. Finally, the availability of concurrent jurisdiction weighed in favor of a stay, as did the inability to remove the New York action to federal court.
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