Emps. Ret. Sys. of St. Louis v. Jones

EMPLOYEES RETIREMENT SYSTEMOF THE CITY OF ST. LOUIS, Plaintiff, v. CHARLES E. JONES, et al., Defendants,FIRSTENERGY CORP., Nominal Defendant.

Case No. 2:20-cv-04813

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

December 21, 2020

CHIEF JUDGE ALGENON L. MARBLEY

Magistrate Judge Jolson

OPINION & ORDER

This matter comes before the Court on Defendants' Motion to Stay the Proceedings. (ECF No. 48). Defendants request this Court to stay the proceedings in this consolidated shareholder derivative action until the Northern District of Ohio resolves a pending motion to dismiss the amended complaint in Miller v. Anderson, No. 5:20-cv-01743-JRA (N.D. Ohio). Co-Lead Plaintiffs in the case sub judice opposed Defendants' Motion to Stay. (ECF No. 53). For the reasons articulated below, Defendants' Motion to Stay is DENIED.

I. BACKGROUND

On July 17, 2020, the U.S. Attorney for the Southern District of Ohio brought a criminal action in this Court against Speaker of the Ohio House of Representatives, Larry Householder, and four other individuals (the "Criminal Action"),¹ who were charged for their involvement in orchestrating a $60 million bribery and racketeering scheme with FirstEnergy Corp. ("FirstEnergy" or the "Company"). After the Criminal Action was announced, FirstEnergy's stock price dropped by 45%, eliminating billions of dollars of shareholder value. In addition to reputational damage and stock value losses, experts estimate that the Company faces $500 million in future fines and penalties.

In response, various plaintiffs filed a wave of lawsuits in federal court in connection with the bribery scheme, falling under three main categories. First, between July 27 and August 5, 2020, the Company's customers brought three actions in this Court for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (the "Ratepayer Cases"). Second, on July 28, 2020, FirstEnergy shareholder Diane Owens filed a securities fraud action in this Court against the Company, seeking damages for the losses the shareholders incurred in connection with the bribery scheme (the "Securities Action").² Third, FirstEnergy shareholders also initiated eleven separate federal derivative actions to hold FirstEnergy officers and directors liable for the harm to the Company.³ The first of these, Miller v. Anderson ("Miller"), was filed in the Northern District of Ohio on August 7, 2020. Subsequently, seven additional shareholder actions were filed in this Court, between September 1 and November 12, 2020.

Of the ten Southern District of Ohio derivative actions, three were later voluntarily dismissed. This Court consolidated the remaining seven derivative actions (the "Consolidated Action"); appointed Employees Retirement System of the City of St. Louis ("St. Louis Employees") and Electrical Workers Pension Fund, Local 103, I.B.E.W. ("Electrical Workers") as Co-Lead Plaintiffs; and appointed their chosen counsel as Co-Lead Counsel on November 16, 2020. Bloom v. Anderson, No. 2:20-cv-04534, 2020 WL 6710429, at *2 (S.D. Ohio Nov. 16, 2020).

St. Louis Employees and Electrical Workers moved to intervene in Miller on October 5, 2020, seeking to transfer it to the Southern District of Ohio. (ECF No. 30-2). The plaintiff in Miller filed a Notice of Non-Opposition to the Motion to Transfer, but Defendants opposed it. (ECF No. 30-3). Defendants also filed a motion to dismiss the amended complaint in Miller for failure to plead demand futility on October 30, 2020, and both parties responded. Defendants' motion is now ripe for review and is still pending in the Northern District of Ohio, before Judge John R. Adams.

Defendants now move to stay the proceedings before this Court until after Judge Adams rules on the motion to dismiss in the Northern District, citing the first-to-file rule and judicial economy. (ECF No. 48-1 at 2). St. Louis Employees and Electrical Workers oppose Defendants' motion. (ECF No. 53).

II. LAW & ANALYSIS

Defendants move to stay this case on two grounds: the first-to-file rule, and the general considerations that courts undertake to determine whether to grant a motion to stay. The Court considers each of these arguments in turn below.

A. First-to-File Rule

1. Standard

Under the first-to-file rule, "when actions involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment." Certified Restoration Dry Cleaning Network, LLC v. Tenke Corp., 511 F.3d 535, 551 (6th Cir. 2007). This well-established doctrine serves three important purposes: (1) it "conserves judicial resources by minimizing duplicative or piecemeal litigation"; (2) it "protects the parties and the courts of the possibility of conflicting results"; and (3) it "encourages comity among federal courts of equal rank." Baatz v. Columbia Gas Transmission, LLC, 814 F.3d 785, 789 (6th Cir. 2016); Zide Sport Shop of Ohio, Inc. v. Ed Tobergte Assocs., Inc., 16 Fed. App'x 433, 437 (6th Cir. 2001).

The "most basic aspect" of the first-to-file rule "is that it is discretionary." McNamee v. Nationstar Mortg., LLC, No. 2:14-CV-1948 ,2015 WL 8381427, at *3 (S.D. Ohio Dec. 10, 2015) (quoting Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 628 (9th Cir. 1991)). Therefore, even when a federal court determines that the rule applies, the court "may exercise its discretion to stay the suit before it, to allow both suits to proceed, or, in some circumstances, to enjoin the parties from proceeding in the other suit." Smith v. SEC, 129 F.3d 356, 361 (6th Cir. 1997).

2. Application of Standard

In the Sixth Circuit, courts apply the first-to-file rule by evaluating three factors: "(1) the chronology of the events, (2) the similarity of the parties involved, and (3) the similarity of the issues or claims at stake." Honaker v. Wright Bros. Pizza, No. 2:18-CV-1528, 2019 WL 4316797, at *2 (S.D. Ohio Sept. 11, 2019) (quoting Baatz, 814 F.3d at 789). Meeting these factors, however, does not end the inquiry. Id. The Court must also "determine whether any equitable considerations,such as evidence of 'inequitable conduct, bad faith, anticipatory suits, [or] forum shopping,' merit not applying the first-to-file rule in a particular case." Id. (quoting Baatz, 814 F.3d at 789).

First, for the chronology of events, the Court looks to the filing dates of the complaints. Baatz, 814 F.3d at 790. Here, Co-Lead Plaintiffs and Defendants agree that Miller was filed approximately three weeks before the next derivative action was filed in the Southern District of Ohio.⁴

Second, there is no doubt that the cases involve substantially similar parties. The plaintiffs in each action are FirstEnergy shareholders, and both cases bring claims against directors and officers of FirstEnergy and list the Company as a nominal Defendant. Although the case currently before this Court includes seven additional Defendants that are not party to the Miller case, the parties are not required to be "perfectly identical" but must only "substantially overlap." Baatz, 814 F.3d at 790 (internal quotations omitted). Therefore, the second factor is satisfied.

Third, there is also no doubt that the cases involve substantially overlapping issues and claims. Both concern allegations that Defendants breached fiduciary duties and state and federal laws. As with the second factor above, "the issues need only to substantially overlap" in order to apply the first-to-file rule." Baatz, 814 F.3d at 791. The third factor is also satisfied, so the first-to-file rule presumptively applies here.

Although the Baatz factors support applying the first-to-file rule, there is no "mandate directing wooden application of the rule without regard to extraordinary circumstances." Id. at 792. The Court must also determine "whether there are any equitable concerns that weigh against applying it," including 'inequitable conduct, bad faith, anticipatory suits, [or] forum shopping," that counsel against applying the rule. Baatz, 814 F.3d at 789 (quoting Certified Restoration, 511 F.3d at 551-52).

Both parties accuse the other of engaging in a species of forum shopping. Co-Lead Plaintiffs argue that Defendants are "plaintiff-shopping" by opposing the motion to transfer Miller to the Southern District of Ohio. Specifically, Co-Lead Plaintiffs claim Defendants are avoiding transfer from the Northern District because they would prefer to litigate the "relatively inferior complaint" in Miller. (ECF No. 53 at 12). Defendants, on the other hand, contend that Co-Lead Plaintiffs are "judge shopping" because they opted to file in the Southern District of Ohio rather than in the Northern District, after Miller and the Securities Action had already been filed and assigned to specific courts.

Neither of these actions encompasses the type of forum shopping the first-to-file rule aims to prevent. Forum shopping occurs "when a litigant selects a forum with only a slight connection to the factual circumstances of his action, or where forum shopping alone motivated the choice." Dress v. Capital One Bank (USA), N.A., 368 F. Supp. 3d 178, 184 (D. Mass. 2019) (quoting EMC Corp. v. Parallel Iron, LLC, 914 F. Supp. 2d 125, 128 (D. Mass 2012)). Other litigation decisions, such as those at issue here, "likely [have] some tactical advantages" in one court over another, but that reality alone "does not necessarily suggest an improper motive." Baatz, 814 F.3d at 793. Here, the parties each have legitimate strategic reasons for their respective courses of action, and eachforum is substantially connected to the facts of the case before it. Thus, the Court does not find that an improper or unethical motivation underlies either party's course of action.

Nevertheless, there are other equitable considerations that persuade the Court to permit the cases in the Southern District to move forward without issuing a stay. Judicial economy and efficiency are...