Romine v. Compuserve Corp.

• Decision Date: 10 November 1998
• Docket Number: No. 98-3480,98-3480
• Parties: Larry ROMINE and Sonia Mitelman, Plaintiffs-Appellants, v. COMPUSERVE CORPORATION, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 337

160 F.3d 337

Larry ROMINE and Sonia Mitelman, Plaintiffs-Appellants, v. COMPUSERVE CORPORATION, et al., Defendants-Appellees.

No. 98-3480.

United States Court of Appeals Sixth Circuit.

Argued Nov. 3, 1998.

Decided Nov. 10, 1998.

Richard S. Wayne (briefed), William K. Flynn (argued and briefed), Strauss & Troy, Cincinnati, OH, Richard H. Weiss (briefed), Milberg, Weiss, Bershad, Hynes & Lerach LLP, New York, NY, David A.P. Brower (briefed), Wolf, Haldenstein, Adler, Freeman & Herz, New York, NY, for Plaintiffs-Appellants.

Frances F. Goins (argued and briefed), Harold E. Farling (briefed), Squire, Sanders & Dempsey L.L.P., Cleveland, OH, David J. Young (briefed), Squire, Sanders & Dempsey L.L.P., Columbus, OH, David K. Frank, Columbus, OH, Michael F. Colley, Law Offices of Michael F. Colley, Columbus, OH, for Defendant-Appellee Compuserve Corporation.

Frances F. Goins (argued and briefed), Harold E. Farling (briefed), Squire, Sanders & Dempsey L.L.P., Cleveland, OH, for Defendants-Appellees H&R Block, Inc., H&R Block Group, Inc., Richard H. Brown, Robert J. Massey, Herbert J. Kahn, Kenneth Marinik, Henry F. Frigon, Roger W. Hale, Morton I. Sosland.

Sheldon Raab (argued and briefed), Fried, Frank, Harris, Shriver & Jacobson, New York, NY, Marvin L. Karp (briefed), Ulmer & Berne, Cleveland, OH, for Defendants-Appellees Goldman, Sachs & Company, George K. Baum & Company, Merrill Lynch, Pierce, Fenner and Smith, Inc.

Before: MERRITT and COLE, Circuit Judges; EDMUNDS, District Judge. ^*

OPINION

MERRITT, Circuit Judge.

Four duplicative class action cases have now been filed arising out of the same securities transaction--one in Ohio state court, one in New York state court, and two in federal district court in Ohio. Plaintiffs, who are represented by the same counsel, apparently want all the duplicative actions to go forward in all of the courts at the same time. This appeal presents the recurring question of whether the district court properly exercised its discretion to abstain from exercising its jurisdiction in deference to the parallel state court proceeding in Ohio. The district court, citing "considerations of '[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation,' " stayed all proceeding in this consolidated federal action pending resolution of the ongoing state proceedings against the defendant. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183, 72 S.Ct. 219, 96 L.Ed. 200 (1952)). We agree.

I.

The abstention questions at the heart of this appeal have little to do with the intricacies of the factual history underlying the controversy. We thus may sketch the background of this case in brief. The instant matter consists of two consolidated federal class actions, both of which were filed in the U.S. District Court for the Southern District of Ohio, asserting claims for violations of sections 11, 12(a)(2) and 15 of the Securities Act of 1933. Before either of these class proceedings were initiated, a related class action had already been filed in Ohio state court. Plaintiffs are individual investors who purchased shares of common stock in Defendant Compuserve Corporation ("Compuserve") pursuant to an initial public offering in April 1996. They allege that Compuserve's IPO prospectus and registration statement contained numerous materially false and misleading statements and failed to disclose vital information about its business strategies and financial outlook. When Compuserve's stock experienced a precipitous drop in price, several suits were brought against the company.

The first of these suits, styled Greenfield v. Compuserve Corporation, was filed on June 28, 1996 in the Franklin County (Ohio) Court of Common Pleas. Greenfield brought claims against Compuserve under sections 11, 12(a)(2) and 15 of the Securities Act of 1933 on the grounds set forth above. Greenfield also asserted Ohio statutory Blue Sky and common law claims based upon the same alleged material omissions in the prospectus and registration statement. The Greenfield plaintiff class purports to include all persons who bought Compuserve stock from the initial offering date through July 16, 1996.

On July 22, 1996, nearly one month after the Ohio state action was filed, one of the law firms representing plaintiff Greenfield filed a duplicative suit in the district court below, styled Romine v. Compuserve Corporation, asserting the exact same claims under the Securities Act of 1933 against Compuserve and certain of its senior officers and/or directors. While the class period in Romine purports to be exactly the same as that in the Greenfield action, Romine does not include the state statutory and common law claims asserted in the Ohio state action. By contrast, the Ohio state court suit includes both the federal and state claims.

On March 17, 1997, the Defendants moved to dismiss or stay the Romine action, inter alia, on the grounds that because it was duplicative of the Ohio state action, the district court should refer to the first-filed, more comprehensive state proceeding pursuant to the abstention doctrine enunciated by the Supreme Court in Colorado River. Before responding to the Defendants' motion raising the abstention issue, Plaintiff Romine's lawyers on April 17, 1997--nine months after the Greenfield action was filed--filed yet another federal class action in the lower court, this one styled Mitelman v. Compuserve Corporation. Both the underlying factual predicate of and the claims asserted in the Mitelman Complaint are identical to both the Romine federal district court proceedings and to those in the Ohio state court actions. All three putative classes are exactly the same. The single distinguishing feature of Mitelman was that it included the IPO Underwriters--Goldman Sachs & Co., George K. Baum and Company, and Merrill, Lynch, Pierce, Fenner & Smith Incorporated--as named Defendants.

On May 20, 1997, Mr. Greenfield initiated yet another class action lawsuit, this one filed in the Supreme Court of the State of New York solely against the Underwriters. On July 15, 1997, Defendants moved to dismiss or stay the Mitelman proceedings, arguing that the Colorado River abstention doctrine counseled deference to the ongoing state proceedings. On September 12, 1997, on Plaintiffs' motion, the district court consolidated the Romine and Mitelman federal class actions. On March 26, 1998, the district court entered an Opinion and Order staying the federal action pending resolution of the state proceedings. Finally, on April 24, 1988, the Supreme Court of New York entered an order granting the Underwriters' Motion to Dismiss those proceedings.

II.

In Colorado River, the Supreme Court noted that, despite the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them," 424 U.S. at 817, 96 S.Ct. 1236, considerations of judicial economy and federal-state comity may justify abstention in situations involving the contemporaneous exercise of jurisdiction by state and federal courts. As the Court explained, the principles underlying this doctrine "rest on considerations of '[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.' " Colorado River, 424 U.S. at 817, 96 S.Ct. 1236 (quoting Kerotest, 342 U.S. at 183, 72 S.Ct. 219). Before the Colorado River doctrine can be applied, the district court must first determine that the concurrent state and federal actions are actually parallel. See Crawley v. Hamilton County Comm'rs, 744 F.2d 28 (6th Cir.1984). In the instant matter, the district court found that the consolidated federal class actions are parallel to the Greenfield Ohio state court action:

Both cases arise out of the IPO. The proposed plaintiff classes in both cases are coextensive. The causes of action alleged in this case are also alleged in the Greenfield Action. The theories of recovery are identical. The Defendants, for the most part, are the same in both cases. The same relief is sought in both cases. Finally, a close companion of the complaints in this consolidated case and the complaint filed in the Greenfield Action reveal word-for-word identical passages.

Opinion and Order of March 26, 1998, at 9. Plaintiffs argue on appeal that the state and federal actions involved in this case do not possess the required identity of parties and issues to warrant abstention under Colorado River. First, the three named Plaintiffs (Romine, Mitelman, and Greenfield) are all different. Second, Plaintiffs maintain that the absence of the Underwriters from the state action potentially precludes Plaintiffs from obtaining complete relief on all possible claims. Third, plaintiffs argue that the district court ignored the fact that no plaintiffs classes have been certified in any of these actions and that therefore, as a matter of law, the only plaintiffs with a stake are Romine and Mitelman in the consolidated federal action and Greenfield in Ohio state court.

Plaintiffs' arguments are flawed in several respects. First, while it is true that additional claims are made against the Underwriters in the Mitelman action, the opposite is also true insofar as only the state court has before it state statutory and common law claims based on the alleged material omissions in the prospectus and registration statement. Thus, in fact, the state action is actually more comprehensive than the consolidated federal cases. "[E]xact parallelism" is not required; "[i]t is enough if the two proceedings are substantially similar." Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir.1989). See Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1288 (7th Cir.1988); Lumen Constr., Inc. v. Brant Constr. Co., 780 F.2d 691, 695 (7th...