shareholders, Josefson, Margolis, Operman, and Hirsch are not liable to
Feiwus for any of his claims. (Id. ¶ 93.) They therefore ask that the
court dismiss Feiwus' complaint with costs.
The Instant Motion
By instant motion, Plaintiff moves for an order dissolving Genpar and
the limited partnership and appointing a receiver to administer the
dissolution, pursuant to N.Y.Bus.Corp.Law §§ 1104 — a, 1113, and
1201 et seq. (McKinney 1986 & Supp. 1998).*fn5 He asks, in the
alternative, that the court compel Defendants to buy out his interest in
Genpar and the limited partnership. With regard to the latter, Plaintiff
requests that the court hold a hearing to determine the fair market value
of his interest.
A. Burford Abstention
Generally, a federal district court has the duty to adjudicate all
controversies properly before it. An "extraordinary and narrow exception"
to this duty occurs when the court finds that the "exceptional
circumstances" exist in which an "order to the parties to repair to state
court would serve an important countervailing interest." County of
Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89, 79 S.Ct. 1060, 3
L.Ed.2d 1163 (1959). What has come to be called the Burford abstention
doctrine describes one class of exceptional circumstances. In Burford v.
Sun Oil Co., the Supreme Court held that a federal court may abstain from
exercising jurisdiction over a case where federal review would disrupt a
state's ability to administer local affairs which are of great interest
to the state. 319 U.S. 315, 332-34, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943).
Each of the claims made by Plaintiff in the present case implicates the
Burford abstention is generally implicated when a federal court
determines that the federal interest in retaining jurisdiction over a
dispute properly before it is outweighed by the state's interest in
adjudicating the issues in its own forum. Quackenbush v. Allstate Ins.
Co., 517 U.S. 706, 728, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996). In arriving
at the decision to abstain, the federal court "balances the strong
federal interest in having certain classes of cases, and certain federal
rights, adjudicated in federal court, against the State's interests in
maintaining uniformity in the treatment of an essentially local problem."
Id. The Supreme Court's precedents "do not provide a formulaic test for
determining when dismissal under Burford is appropriate." Id. They do,
however, identify three factors that should inform the deliberation of a
The first factor is a condition precedent for abstention. Burford
abstention is premised on the notion that a state's interest in
adjudicating a class of issues trumps the federal interest in reviewing
the claim in federal court, as well as the plaintiffs right to have her
or his case heard by an Article III tribunal. In order for abstention to
be proper, then, it must be the case that the state provides an adequate
forum for adjudicating the plaintiffs claims. Id.
at 727, 116 S.Ct. 1712 (stating that abstention is proper only when the
court has found that "the State's interests are paramount and that a
dispute would best be adjudicated in a state forum"); New Orleans Pub.
Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361, 109 S.Ct.
2506, 105 L.Ed.2d 298 (1989) (recognizing that abstention is valid only
when "timely and adequate state court review is available"); Colorado
River Water Conservation Dist. v. United States, 424 U.S. 800, 815, 96
S.Ct. 1236, 47 L.Ed.2d 483 (1976) (stating that where an elaborate state
system of review existed and disruption is likely from federal review,
abstention is proper) (describing Burford); Alabama Pub. Serv. Comm'n v.
Southern Ry. Co., 341 U.S. 341, 349 & n. 11, 71 S.Ct. 762, 95 L.Ed.
1002 (1951) (abstention is permissible where there exists adequate state
court review but not otherwise); Burford, 319 U.S. at 327, 63 S.Ct. 1098
("As a practical matter, the federal courts can make small contribution
to the well organized system of regulation and review which the [state I
statutes provide. [State] courts can give fully as great relief . . . as
the federal courts.").
A second factor is whether the case presents "difficult questions of
state law bearing on policy problems of substantial public import whose
importance transcends the result in the case then at bar." New Orleans
Pub. Serv., Inc., 491 U.S. at 361, 109 S.Ct. 2506 (quoting Colorado
River, 424 U.S. at 814, 96 S.Ct. 1236) (internal quotation marks
omitted); Burford, 319 U.S. at 317-318, 63 S.Ct. 1098 (stating that the
court's discretionary power to abstain from exercising jurisdiction in a
particular case should be employed with an eye toward the public
interest); Hanlin Group, Inc. v. Power Auth., 703 F. Supp. 305, 308
(S.D.N.Y. 1989) ("[A]mong the factors considered is the presence of a
sophisticated and extensive state regulatory scheme involving a
complicated area of special state concern."), aff'd, 923 F.2d 844 (2d
A third factor for the court to consider is whether federal review of
this and similar cases would be "disruptive of state efforts to establish
a coherent policy with respect to a matter of substantial public
concern." New Orleans Pub. Serv., Inc., 491 U.S. at 361, 109 S.Ct. 2506
(quoting Colorado River, 424 U.S. at 814, 96 S.Ct. 1236) (internal
quotation marks omitted); County of Allegheny, 360 U.S. at 189, 79 S.Ct.
1060 (holding that abstention is proper when the exercise of jurisdiction
by a federal court would disrupt a state administrative process or
otherwise create needless friction by unnecessarily enjoining state
officials from executing domestic policies); Burford, 319 U.S. at 344, 63
S.Ct. 1098 ("Conflicts in the interpretation of state law, dangerous to
the success of state policies, are almost certain to result from the
intervention of the lower federal courts."); see also Hanlin Group, 703
F. Supp. at 309 ("As the court in Burford noted, when a statutory
standard lends itself to variation in its application, litigation
regarding such statute should not be entertained in federal forum.").
Under Burford and its progeny, a finding that the case at bar
implicates the first and either of the second or third factors tells in
favor of finding that the states' interest in adjudicating the case in
its own forum outweighs the federal interest in retaining jurisdiction.
In that case, "a sound respect for the independence of state action
requires the federal equity court to stay its hand." Burford, 319 U.S. at
334, 63 S.Ct. 1098; see also Sheerbonnet, Ltd. v. American Express Bank,
Ltd., 17 F.3d 46, 48 (2d Cir. 1994) (recognizing the validity of Burford
abstention when there are difficult questions of state law with bearing
on issues of substantial public importance or when review by federal
courts would disrupt a state's effort to establish a coherent policy on a
matter of substantial importance to the state); American Disposal
Serns., Inc. v. O'Brien, 839 F.2d 84, 87 (2d Cir. 1988) (same).
B. Corporate Dissolution and Burford Abstention in the Second Circuit
The Second Circuit recently recognized that dissolution of New York
corporation is a subject which implicates the first and the third Burford
factors: the exercise of federal review over corporate dissolutions would
disrupt New York's attempt to develop a unified policy concerning its
corporations, a matter which is of great importance to the state; and New
York courts offer an appropriate forum for resolving questions of
corporate dissolution. Friedman v. Revenue Management of New York, Inc.,
38 F.3d 668, 671 (2d Cir. 1994). These conditions being satisfied, the
Second Circuit held that federal courts may properly refrain from ruling
on motions to dissolve New York corporations. Id.*fn6
There is a lengthy history of federal court recognition of the
important interest states have in crafting a unitary policy concerning
the creation, endurance, and dissolution of corporations. In an
oft-quoted statement, the Circuit Court for the District of New Jersey
long ago observed that "[t]he corporation is the creature of the state.
It derives its life from the state. It possesses the powers conferred by
the state. The period of its existence is determined solely by the will
of the state." Conklin v. United States Shipbuilding Co., 140 F. 219, 222
(C.C.D.N.J. 1905); see Harrison, 1992 WL 205839, at *2 (quoting Conklin,
140 F. at 222); Cuddle Wit, 1990 WL 115620, at *2 (same); Codos, 711 F.
Supp. at 78 (same); Alkire, 379 F. Supp. at 1214 (same). In keeping with
this history, the Second Circuit has unequivocally recognized New York's
interest in developing a coherent policy concerning its domestic
New York has a strong interest in the creation and
dissolution of its corporations and in the uniform
development and interpretation of the statutory scheme
regarding its corporations. [It is] "difficult to
conceive of an issue more important to the state than
the continuation or dissolution of a corporation that
was created and exists through the operation of its
Friedman, 38 F.3d at 671 (quoting Harrison, 1992 WL 205839, at *4).*fn7
The Friedman Court also explicitly acknowledged that federal
adjudication of claims for corporate dissolution would disrupt New York's
efforts to establish a coherent corporate policy:
[G]iven the comprehensive regulation of corporate
governance and existence by New York . . . abstention
would avoid needless interference with New York's
regulatory scheme governing its corporations. . . .
Moreover, [for a federal court] to exercise
jurisdiction over a dissolution of a state corporation
would allow "the possibility of federal dissolution
actions, based on [state statutes], being commenced in
a number of different districts in which a particular
. . . corporation was subject to service, thereby
placing an onerous burden on the corporation."
Friedman, 38 F.3d at 671 (quoting Alkire, 379 F. Supp. at 1215).*fn8
This, too, is in keeping with longstanding federal precedent. Thus even
sixty years ago the Supreme Court was able to observe that "it has long
been accepted practice for the federal courts to relinquish their
jurisdiction in favor of the state courts, where its exercise would
involve control of or interference with the internal affairs of a
domestic corporation of the state." Williams, 294 U.S. at 185, 55 S.Ct.
accord Meredith v. City of Winter Haven, 320 U.S. 228, 235, 64 S.Ct. 7,
88 L.Ed. 9 (1943).
Finally, while the Friedman Court did not overtly find that the state
courts would provide an adequate forum for the plaintiffs motion to
dissolve the corporation, it is clear that it made this assumption. See,
e.g., 38 F.3d at 672 ("[T]he district court did not abuse its discretion
in declining to transfer the action in order to permit Friedman to
institute a single action in New York state court, where he might obtain
the full relief he seeks."). The Second Circuit may not have found it
necessary to address this issue because New York Supreme Courts are
courts of general original jurisdiction, N.Y. Const. art. VI, §
7(a), (b), and are the fora in which motions to dissolve New York
corporations are most frequently brought.*fn9
Friedman therefore counsels this court to abstain from exercising
jurisdiction over the Plaintiffs motion to dissolve the corporation.
Because it had before it only a motion to dissolve a corporation,
however, the Friedman court did not directly address whether it is proper
for a federal court to abstain from other discretionary claims regarding
state corporations. Feiwus urges this court to infer no implications from
Friedman regarding his other claims:*fn10
Although Friedman stands for the proposition that a
federal district court may abstain from the narrow
equitable remedy of liquidating a New York
corporation, Friedman does not stand for the
proposition that the federal courts must or should
abstain from any and all claims brought pursuant to
New York's Business Corporation Law, the appointment
of a receiver, the enforcement of a buy-out, or any
other legal or equitable remedies available pursuant
to law or other authority.
(Plaintiffs Letter Br. of Dec. 16, 1998 at 2.) This narrow construction
puts the cart before the horse. In Friedman, the Second Circuit held that
where the state had created a comprehensive regulatory scheme of
corporate governance and existence, abstaining from adjudicating a motion
to dissolve a state corporation was proper because the state "has a
strong interest in the creation and dissolution of its corporations and
in the uniform development and interpretation of the statutory scheme
regarding its corporations." 38 F.3d at 671 (emphasis added). It was the
"avoidance of needless interference with New York's regulatory scheme
governing its corporations," id., and not the dissolution of a state
corporation which was of principal concern to the Friedman court —