Cottrell ex rel. Wal-Mart Stores, Inc. v. Duke

737 F.3d 1238

John COTTRELL, Derivatively and on behalf of Wal–Mart Stores, Inc.; Louisiana Municipal Police Employees' Retirement System; Elizabeth Tuberville; Kathryn Johnston Lomax; William Cottrell; Andrew Richman, Plaintiffs–Appellants.

v. Michael T. DUKE; Aida M. Alvarez; James W. Breyer; M. Michelle Burns; James I. Cash, Jr.; Roger C. Corbett; Douglas N. Daft; Gregory B. Penner; Steven S. Reinemund; H. Lee Scott, Jr.; Arne M. Sorenson; Jim C. Walton; S. Robson Walton; Christopher J. Williams; Linda S. Wolf; Wal–Mart Stores, Inc., Nominal Defendant; Eduardo Castro–Wright; Thomas A. Mars; Thomas D. Hyde, Defendants–Appellees.Craig Herkert; Eduardo F. Solorzano Morales; Jose Luis Rodriguezmacedo Rivera, Defendants.Roland Hernandez, Defendant–Appellee.Lee Stucky, Defendant.

No. 12–3871.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 24, 2013.

Filed: Dec. 18, 2013.

Judith Scolnick, argued, New York, N.Y. (Scott E. Poynter, William T. Crowder, and Corey D. McGaha, Little Rock, AR, John G. Emerson, Houston, TX, and Thomas L. Laughlin, IV, New York, NY, on the briefs), for Appellants.

Mark A. Perry, argued, Washington, DC (Teresa Wineland and Jess Askew, III, Little Rock, AR, Alexander K. Mircheff and Theodore J. Boutrous, Jr., Los Angeles, CA, and Jonathan C. Dickey, New York, NY, on the briefs), for Appellees.

Before MURPHY, MELLOY, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

In Colorado River Water Conservation District v. United States, the United States Supreme Court held that exceptional circumstances may permit a federal court to refrain from hearing a case and instead defer to a concurrent, parallel state-court proceeding. The question in this appeal is whether a federal court may utilize Colorado River to stay a federal shareholder-derivative proceeding that contains a valid claim within the exclusive jurisdiction of the federal courts. We hold that such a case may not be stayed pursuant to Colorado River. Thus, we vacate the stay order and remand the case for further proceedings consistent with this opinion.

I.

This controversy began in 2012 with a New York Times investigative report. The report detailed an alleged bribery scheme involving Wal–Mart's Mexican subsidiary and Mexican government officials, suggested that Wal–Mart violated the Foreign Corrupt Practices Act, and questioned the sufficiency of Wal–Mart management's response. In the wake of this report, several shareholder-derivative lawsuits were filed across the country, including shareholder-derivative lawsuits in Delaware state court (the Delaware proceeding) ¹and in the United States District Court for the Western District of Arkansas (the Federal proceeding).² The lawsuits in the Western District of Arkansas were consolidated, and a consolidated complaint was filed by the plaintiff-shareholders (the Plaintiffs) against several Wal–Mart officers (the Defendants). See J.A. 92 (Consolidated Verified Shareholder Derivative Complaint).

The Delaware and Federal proceedings largely mirror each other. Both proceedings focus on Wal–Mart management's alleged breach of its fiduciary duties under Delaware law. Notably, however, the Plaintiffs in the Federal proceeding bring two claims pursuant to the Securities Exchange Act of 1934 (the Securities Act claims). Because federal courts have exclusive jurisdiction over Securities Act claims, see15 U.S.C. § 78aa, these claims have not been pled in the Delaware proceeding. The Defendants moved to stay the Federal proceeding pending the resolution of the Delaware proceeding. The district court, in reliance on Colorado River, granted the Defendants' motion. The district court found that the Delaware proceeding would adequately protect the Plaintiffs' rights and that the proceedings' redundancy justified Colorado River abstention. In the alternative, the district court concluded that its inherent power to stay proceedings in the interest of controlling its docket was sufficient to support the stay. The Plaintiffs appeal the district court's order.

II.

This appeal raises three issues: (1) whether the district court's order is final under 28 U.S.C. § 1291; (2) whether the district court abused its discretion in utilizing the Colorado River doctrine to stay the Plaintiffs' case; and (3) if Colorado River abstention is inappropriate, whether the district court abused its discretion by relying on its inherent power to stay proceedings in the interest of controlling its docket to accomplish a result identical to that achieved through the use of Colorado River.

A.

We begin by addressing our jurisdiction to hear the Plaintiffs' appeal. See28 U.S.C. § 1291; Kreditverein der Bank Austria Creditanstalt fur Niederösterreich und Bergenland v. Nejezchleba, 477 F.3d 942, 945 (8th Cir.2007).³ Typically, a stay is not a final decision for purposes of section 1291. Boushel v. Toro Co., 985 F.2d 406, 408 (8th Cir.1993); see also Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10 n. 11, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). If, however, the stay entered is “tantamount to a dismissal and ... effectively ends the litigation,” then the order will be final and jurisdiction under section 1291 is proper. Kreditverein, 477 F.3d at 946 (quoting Boushel, 985 F.2d at 408). The Supreme Court clarified in Moses H. Cone that an order entered pursuant to Colorado River is usually appealable because the order ends litigation in the federal forum and a future state-court judgment would be res judicata. Moses H. Cone, 460 U.S. at 10, 103 S.Ct. 927. Such an order “require[s] all or an essential part of the federal suit to be litigated in a state forum.” Id. at 10 n. 11, 103 S.Ct. 927. More than an ordinary delay in the interest of docket management, a Colorado River order puts the plaintiff “effectively out of court.” Id. When we address a stay order's finality, we are not bound by the label used by the district court to categorize its analysis. See Kreditverein, 477 F.3d at 946;Michelson v. Citicorp Nat'l Servs., Inc., 138 F.3d 508, 514, 516–17 (3d Cir.1998). Instead, the order's finality is determined by a practical assessment of an order's effect and the “substance of what the district court intended.” Kreditverein, 477 F.3d at 946;see Moses H. Cone, 460 U.S. at 10 n. 11, 103 S.Ct. 927.⁴

In analyzing the finality of a stay order, we have considered: (1) whether the concurrent proceedings involve similar litigants; (2) whether the concurrent proceedings involve similar claims and issues; (3) whether the concurrent proceeding's judgment would have res judicata effect in federal court; and (4) whether the district court's order contemplated further district court involvement in the proceeding. See Kreditverein, 477 F.3d at 946;Boushel, 985 F.2d at 408–09;Lunde v. Helms, 898 F.2d 1343, 1345 (8th Cir.1990) (per curiam).

The Federal and Delaware proceedings involve substantially similar litigants. Since the shareholders in the Federal and Delaware proceedings bring their suits derivatively, Wal–Mart is the true plaintiff in interest in both proceedings. In re M & F Worldwide Corp. S'holder Litig., 799 A.2d 1164, 1174 n. 31 (Del.Ch.2002) (quoting In re MAXXAM, Inc./Federated Development S'holders Litig., 698 A.2d 949, 956 (Del.Ch.1996)); accord In re Sonus Networks, Inc., S'holder Derivative Litig., 499 F.3d 47, 63–64 (1st Cir.2007). Though, to our knowledge, no consolidated complaint in the Delaware proceeding has been filed, the Wal–Mart officers named in the separate Delaware complaints largely match those in the Federal proceeding. Cf. Clark v. Lacy, 376 F.3d 682, 686 (7th Cir.2004) (“The addition of a party or parties to a proceeding, by itself, does not destroy the parallel nature of state and federal proceedings.”).

More critically, the core claims and issues in each proceeding correspond. The Plaintiffs in the Federal proceeding assert two main claims ⁵: (1) breach of various fiduciary duties under Delaware law and (2) violation of section 14(a) of the Securities Act, codified at 15 U.S.C. § 78n. See J.A. 164–66. The separate plaintiffs in the Delaware proceeding assert breach-of-fiduciary-duty claims identical to those in the Federal proceeding. Additionally, the Delaware plaintiffs allege a Delaware proxy-misrepresentation claim that shares a materiality element with section 14(a) of the Securities Act. See Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del.1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)) (applying Section 14(a)'s materiality standard to Delaware proxy-misrepresentation claims). Whatever differences may exist between Federal and Delaware proxy regimes, the district court was “confident that Plaintiffs would have the opportunity to fully litigate the issues raised in their section 14(a) claim if this case were stayed in favor of the Delaware action.” In re Wal–Mart Stores, Inc. S'holder Derivative Litig., No. 4:12–cv–4041, 2012 WL 5935340, *4 (W.D.Ark. Nov. 27, 2012).

Next, a judgment rendered in Delaware will likely preclude subsequent litigation in the Federal proceeding. Under the full faith and credit statute, 28 U.S.C. § 1738, a judgment rendered in Delaware is entitled to the same preclusive effect in federal court as it would receive in Delaware. Minch Family LLLP v. Buffalo–Red River Watershed Dist., 628 F.3d 960, 966 n. 4 (8th Cir.2010). Accordingly, the Delaware proceeding's preclusive effect on the Federal proceeding is largely determined by Delaware law.

Generally, under Delaware law, a judgment rendered in a shareholder-derivative lawsuit will preclude subsequent litigation by the corporation and its shareholders. See Ezzes v. Ackerman, 234 A.2d 444, 445 (Del.1967); La. Mun. Police Emps. Ret. Sys. v. Pyott, 46 A.3d 313, 329–31 & n. 11 (Del.Ch.2012), rev'd on other grounds,74 A.3d 612 (Del.2013); accord Ross v. Bernhard, 396 U.S. 531, 538, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970); Cramer v. Gen....