power of attorney, and there is some evidence that she was unaware that she was a principal to the notice of removal brought before this Court. While these allegations are not to be taken lightly, the Court is unable to conclude on the basis of the record presently before it that the conduct of Cohen's counsel warrants the imposition of sanctions. Accordingly, Reed's application for sanctions is held in abeyance, pending a subsequent application addressing this issue.
Further, the Court notes that under 28 U.S.C. § 1447(c), a federal court, in connection with the remand of a case, "may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c); see Morgan Guar. Trust Co. v. Republic of Palau, 971 F.2d 917, 923-24 (2d Cir. 1992) (noting discretionary nature of award). In view of the Court's determination that subject matter jurisdiction over the removed claim is present pursuant to 28 U.S.C. § 1367, but that a remand to State court is nevertheless appropriate, the Court declines to award costs and attorney's fees on the basis of the record before it. The Court, however, would be willing to revisit this determination should it be established that Cohen's counsel proceeded in bad faith, or negligently, in connection with the notice of removal filed on behalf of Robin Immerman pursuant to a power of attorney in favor of Robert Cohen. Accordingly, the resolution of this issue likewise is held in abeyance pending a further application to this Court.
II. 90-CV-2795 Action
A. Motion by Cohen to Supplement Complaint
In the 90-CV-2795 action, plaintiff Robert Cohen moves, pursuant to Rule 15(d) of the Federal Rules of Civil Procedure, for leave to supplement his complaint. The factual allegations within the proposed supplement concern essentially the same conduct that is the subject of a declaratory judgment suit in the 94-CV-241 action. Specifically, Robert Cohen alleges that Robert Reed, individually and in his capacity as the general partner of SCREAM, in a letter dated October 20, 1993, knowingly misstated and omitted material facts in conjunction with his solicitation of the approval of the limited partners with respect to the proposed sale of the principal assets of SCREAM to PHN. Cohen contests that the proposed sale of SCREAM's assets, in tandem with the planned distribution of the proceeds to the limited partners in complete liquidation of the limited partnership, would constitute a forced sale of his limited partnership interest in violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder.
"In order for an application to supplement a pleading to be denied, the nonmovant must demonstrate either bad faith on the part of the moving party, the futility of the claims asserted within the application, or undue prejudice to the nonmovant." Katzman v. Sessions, 156 F.R.D. 35, 38 (E.D.N.Y. 1994). As to the second of these items, a proposed pleading will be considered futile if it fails to state a claim that could withstand a motion to dismiss. See S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir. 1979). Further, a showing of prejudice sufficient to prevent the assertion of a new claim or defense may not be deduced from mere allegations of delay. See Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993) (citing State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981)). Rather, the relevant inquiry considers "whether the assertion of the new claim would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the [party] from bringing a timely action in another jurisdiction." Id.; see also id. ("The rule in this Circuit has been to allow a party to amend its pleadings in the absence of a showing by the nonmovant of prejudice or bad faith.").
Turning to the instant application, defendant Reed is unable to make the requisite showing necessary to overcome Rule 15's liberal policy favoring a merit-based resolution of the entire controversy between the parties. First, defendant fails to establish that the plaintiff has moved in bad faith. Second, defendant has not demonstrated that it would suffer undue prejudice if plaintiff's application were granted. Finally, as will be discussed in the next section, Reed is unable to establish that the claim asserted within the supplemental complaint would be futile.
Accordingly, Cohen's motion to supplement his complaint is granted.
B. Cross-Motions by Reed to Dismiss or to Stay
Reed cross-moves to dismiss or to stay the 90-CV-2795 action, arguing that this Court should abstain from hearing this case in view of pending State-court litigation.
1. Younger and Burford Abstention Doctrines
Reed first contends that the 90-CV-2795 action should be dismissed under either the doctrine set forth by the Supreme Court in Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971), or the doctrine first enunciated by the Supreme Court in Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943).
Under the Younger doctrine, a federal court, as a matter of comity, should abstain from the exercise of jurisdiction where federal review would disrupt (a) a state criminal proceeding, (b) a "state nuisance proceeding antecedent to a criminal prosecution," or (c) state tax collection. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 816, 96 S. Ct. 1236, 1245-46, 47 L. Ed. 2d 483 (1976) (citing Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971); Huffman v. Pursue, Ltd., 420 U.S. 592, 95 S. Ct. 1200, 43 L. Ed. 2d 482 (1975); Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 63 S. Ct. 1070, 87 L. Ed. 1407 (1943)) (other citation omitted). The Younger doctrine also applies to state contempt proceedings, civil actions brought by a State in its sovereign capacity, and civil actions commenced by quasi-governmental organizations that bear a close relationship to proceedings criminal in nature. See Juidice v. Vail, 430 U.S. 327, 97 S. Ct. 1211, 51 L. Ed. 2d 376 (1977)) (contempt proceedings); Trainor v. Hernandez, 431 U.S. 434, 97 S. Ct. 1911, 52 L. Ed. 2d 486 (1977) (suit by State to recover welfare payments allegedly fraudulently obtained); Middlesex County Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 102 S. Ct. 2515, 73 L. Ed. 2d 116 (1982) (state proceeding to discipline an attorney). It moreover applies to prevent challenges in federal court "to the processes by which the State compels compliance with the judgments of its courts." Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 13-14, 107 S. Ct. 1519, 1527, 95 L. Ed. 2d 1 (1987).
Under the Burford doctrine, abstention will be appropriate where the case presents a question of state law in which the exercise of federal review "would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." Colorado River, 424 U.S. at 814, 96 S. Ct. at 1245 (citing Burford, 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943)); see New Orleans Public Service, Inc. v. Council of the City of New Orleans, 491 U.S. 350, 361, 109 S. Ct. 2506, 2514, 105 L. Ed. 2d 298 (1989).
The Court finds that neither the Younger nor the Burford doctrines are applicable to the case at bar. The instant action essentially involves a dispute concerning a fiduciary's conduct with respect to a limited partnership, of which the Estate of Simon Cohen owns approximately a 56.75% interest. While Reed is a co-executor of the Estate of Simon Cohen, this action does not directly call into question his conduct with respect to the Estate. Rather, this action examines his conduct solely with respect to SCREAM, the limited partnership in question. It is quite possible that conduct giving rise to a breach of fiduciary duty, or other basis for liability with respect to SCREAM, might not transgress any duty owed by Reed to the Estate. Accordingly, the conflict with an important State interest that the Younger abstention seeks to avoid is absent. In addition, this action is not founded solely upon state law, but asserts RICO and federal securities fraud claims as well. All other things being equal, the existence of a federal statutory cause of action is a factor that points against Burford abstention. See, e.g., County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1308 (2d Cir. 1990) (Burford abstention not warranted in a RICO suit against an electrical utility); Evans v. Dale, 896 F.2d 975, 978-79 (5th Cir. 1990) (Burford abstention improper in view of existence of securities fraud claims which could not be heard in State court). In light of these circumstances, the Court concludes that this action does not come within the purview of the Younger and Burford doctrines. Thus, Reed's application to dismiss this action on Younger or Burford grounds is denied.
2. Analysis under Colorado River Doctrine
Reed next argues that this action should be dismissed or stayed under the "exceptional circumstances" doctrine first articulated by the Supreme Court in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976), on the ground that there is a similar action pending in State court in which the controversies between the parties can be resolved. In addition to the 94-CV-241 action, which as earlier discussed, is being remanded to State court pursuant to this Memorandum and Order and embraces the same factual issues as those set forth within Cohen's supplemental complaint in the 90-CV-2795 action, Reed contends that there is another related action pending between these parties in the Supreme Court of the State of New York, County of Suffolk, that was filed in 1993 under the index number 4333/93 [the "Suffolk County action"]. Reed argues that the maintenance of the 90-CV-2795 action in this federal forum would create duplicate litigation.
Cohen, in turn, argues that abstention is inappropriate in this case insofar as his supplemental complaint asserts a claim under section 10(b) of the Securities Exchange Act of 1934, over which there is exclusive federal jurisdiction. Further, he contends that the Suffolk County action has absolutely nothing to do with the assets of SCREAM, but rather concerns two separate limited partnerships. He therefore asserts that a stay or dismissal of the 90-CV-2795 action would deprive him of the sole forum available to litigate his federal claims.
In Colorado River, the Supreme Court held that while federal courts have a virtually unflagging obligation to hear cases within their jurisdiction, see Colorado River, 424 U.S. at 813, 96 S. Ct. at 1244, "a federal court could, in exceptional circumstances, abstain where there are concurrent state and federal proceedings." Sheerbonnet, Ltd. v. American Express Bank, Ltd., 17 F.3d 46, 49 (2d Cir. 1994) (citing Colorado River, 424 U.S. at 813, 96 S. Ct. at 1244), cert. denied, 115 S. Ct. 67, 130 L. Ed. 2d 23 (1994). The determination of whether exceptional circumstances exist involves an examination of six factors: (1) whether jurisdiction has been assumed over specific property; (2) the inconvenience of the federal forum; (3) the likelihood of piecemeal litigation; (4) the order in which jurisdiction was obtained by the federal forum; (5) whether federal law or state law provides the rule of decision; and (6) whether adjudication in the state-court forum would adequately protect the plaintiff's federal rights. See De Cisneros v. Younger, 871 F.2d 305, 307 (2d Cir. 1989); National Casualty Co. v. Jordache Enters., 848 F. Supp. 1112, 1116 (S.D.N.Y. 1994). "In analyzing these factors, the Supreme Court admonishes that no single factor is necessarily decisive, and that the test 'does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction.'" De Cisneros, 871 F.2d at 307 (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16, 103 S. Ct. 927, 937, 74 L. Ed. 2d 765 (1983)).
Turning to the instant case, the first two factors--the absence of jurisdiction over a res, and the convenience of the federal forum--both point toward the exercise of federal jurisdiction. See id. With respect to these factors, the instant federal action is founded upon in personam jurisdiction, and the Eastern District of New York appears to be a convenient forum to litigate this action, notwithstanding Reed's desire that all of the claims between the parties be litigated within a single forum.
The third factor, which considers whether piecemeal litigation would be avoided if the federal court abstained, likewise supports the exercise of jurisdiction. In his supplemental complaint, Cohen asserts a federal securities fraud claim pursuant to section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Under 15 U.S.C. § 78aa, the federal courts have exclusive jurisdiction over claims arising under the Securities Exchange Act of 1934. See 15 U.S.C. § 78aa. Accordingly, if this action were stayed or dismissed pending the resolution of the State-court action, Cohen would not be able to litigate his federal securities fraud claim, and would have to return to federal court once more. Thus, abstention would not serve to avoid piecemeal litigation under the circumstances of this case.
Reed cites Lorentzen v. Levolor Corp., 754 F. Supp. 987 (S.D.N.Y. 1990) for authority that the inclusion of a claim within a complaint for which there is exclusive federal jurisdiction will not necessarily prevent abstention. Lorentzen, however, is contrary to the prevailing view within this circuit which holds that the presence of a claim for which there is exclusive federal jurisdiction weighs heavily in favor of the exercise of federal jurisdiction. See Finkielstain v. Seidel, 857 F.2d 893, 896 (2d Cir. 1988); Andrea Theatres, Inc., v. Theatre Confections, Inc., 787 F.2d 59, 63-64 (2d Cir. 1986); Cullen v. Paine Webber Group, Inc., 689 F. Supp. 269, 284 (S.D.N.Y. 1988); Ash v. Richard J. Lynch & Co., 644 F. Supp. 315, 317-18 (E.D.N.Y. 1986). Indeed, Lorentzen is distinguishable in light of its unusual posture, in which the district court found that because of the imminence of an arbitrator's decision with respect to the state-law claims, it did not appear that the imposition of a stay would unduly delay the progress of the plaintiff's 10b-5 claim. See Lorentzen, 754 F. Supp. at 994-95. Such circumstances are absent from the case at bar.
The fourth factor considers the order in which jurisdiction was obtained by the federal and state fora, and the relative progress of the proceedings. Reed points out that, in contrast to the federal securities fraud claim upon which there has been no discovery, Surrogate Radigan, who would preside over the State-court proceeding as a justice of the Nassau County Supreme Court, has gathered information relative to SCREAM's proposed liquidation during the last five years. This factor thus points in favor of abstention. It should be noted, however, that Reed does not assert that the proceedings before Surrogate Radigan are anywhere near completion. Indeed, litigation in the State court concerning SCREAM's proposed liquidation was enjoined upon Cohen's removal of the 94-CV-241 action to this Court. See 28 U.S.C. § 1446(d). Therefore, while this factor points towards abstention, it does not weigh heavily in that direction.
The fifth factor considers whether federal law or state law provides the rule of decision. In view of the exclusive jurisdiction conferred upon the federal courts over claims brought under Rule 10b-5, this factor weighs heavily toward the exercise of federal jurisdiction. Indeed, the Second Circuit of Appeals has explained that where a federal court has exclusive jurisdiction over a claim, "abstention would run counter to Congress' determination, reflected in grants of exclusive federal jurisdiction, that federal courts should be the primary fora for handling such claims. The grant of such jurisdiction could be seriously hampered if federal courts exercised discretionary power to await the outcome of related state court proceedings." Andrea Theatres, 787 F.2d at 63; see Finkielstain, 857 F.2d at 896.
Thus, the existence of a federal securities fraud claim in the case at bar counsels strongly toward the exercise of federal jurisdiction.
Finally, turning to the sixth factor, the inadequacy of the State-court forum to protect the plaintiff's federal rights likewise weighs strongly in favor of the retention of this case. To reiterate, a stay of the instant action would deprive Cohen of his present ability to litigate his federal securities fraud claim until the State-court action was resolved. Such would be inconsistent with congress's policy choice to vest the federal courts with exclusive jurisdiction over this matter. See Andrea Theatres, 787 F.2d at 62-63. Thus, this factor also weighs heavily in favor of the exercise of federal jurisdiction.
As can be observed from the foregoing discussion, although the sequence in which jurisdiction was assumed weighs in favor of abstention, each of the remaining factors that comprise the exceptional circumstances analysis points toward the exercise of federal jurisdiction. Indeed, the ubiquitous effect of the federal courts' exclusive jurisdiction over 10b-5 claims tips the scales decidedly in favor of retaining this case within a federal forum. Accordingly, Reed's motion to dismiss or to stay this action under the Colorado River doctrine must be denied.
In accordance with the foregoing, the Court enters the following orders in the instant actions:
(1) Reed's motion to remand the 94-CV-241 action is GRANTED.
(2) Reed's motion for the imposition of sanctions upon Robert Cohen's counsel, and for the reimbursement of the attorney's fees and litigation costs relating directly to the 94-CV-241 action, is held in abeyance pending a subsequent application to this Court documenting the asserted fees and costs, and further addressing the allegations of misconduct concerning the notice of removal filed on behalf of Robin Immerman. The filing of these applications, including the responsive papers thereto, shall be made in accordance with the indigenous rules of this Court governing the filing of civil motions.
(3) Pursuant to 28 U.S.C. § 1447(c), the Clerk of this Court is directed to mail a copy of this Memorandum and Order to the Clerk of the Supreme Court of the State of New York, County of Nassau.
(4) Cohen's motion to supplement his complaint is GRANTED.
(5) Reed's motion to dismiss or to stay this action is DENIED.
Joanna Seybert, U.S.D.J.
Dated: Brooklyn, New York
November 18, 1994