United States District Court, S.D. New York
May 15, 2004.
MARTIN SIEGEL, individually and on behalf of all others similarly situated, Plaintiff, -against- CONSOLIDATED EDISON, INC., Defendant
The opinion of the court was delivered by: JOHN KOELTL, District Judge
OPINION AND ORDER
The defendant Consolidated Edison, Inc. ("Con Ed") and
intervenor Northeast Utilities ("NU") have moved to dismiss the amended
complaint by the plaintiff Martin Siegel ("Siegel") in this action, which
arises from the same Merger Agreement between Con Ed and NU that is at
the heart of the related case, Consol. Edison, Inc. v. Northeast
Utilities, No. 01 Civ. 1893 (S.D.N.Y. filed Mar. 6, 2001) (the "Con
Ed/NU action"). Siegel, an NU shareholder, is suing Con Ed for breach of
the Merger Agreement by which Con Ed would have purchased all outstanding
NU shares at a substantial premium. Siegel seeks to represent the class
of NU shareholders at the time of Con Ed's alleged repudiation of the
Merger Agreement on March 5, 2001.
Both Con Edison and NU have moved pursuant to Fed.R.Civ.P. 12(b)(1)
to dismiss the amended complaint for lack of subject matter jurisdiction
because Siegel premises jurisdiction on diversity of the citizenship but
has not alleged an amount in controversy of over $75,000 as required by 28 U.S.C. § 1332.
Con Edison also moves in the alternative for a stay, pending resolution
of the related and pending Con Ed case. The plaintiff has
responded by offering two bases for subject matter jurisdiction: (1)
Siegel claims that the Court can exercise supplemental jurisdiction
pursuant § 1367(a) on the grounds that this action arises out of the
same case and controversy as the Con Ed/NU action over which this Court
has original jurisdiction; and (2) Siegel claims that the amount in
controversy requirement of § 1332 is satisfied by aggregating the
potential claims of shareholders who were allegedly injured by Con Ed's
On a motion to dismiss, the allegations in the complaint are accepted
as true. See Grandon v. Merrill Lynch & Co., 147 F.3d 184,
188 (2d Cir. 1998); Cohen v. Koenig, 25 F.3d 1168, 1172-73 (2d
Cir. 1994). The court's function is "not to weigh the evidence that might
be presented at trial but merely to determine whether the complaint
itself is legally sufficient." Goldman v. Belden,
754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the present motions should be
granted only if it appears that the plaintiff can prove no set of facts
in support of its claim that would entitle it to relief. See
Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002); Conley
v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188;
Goldman, 754 F.2d at 1065; VTech Holdings Ltd. v. Lucent
Tech., Inc., 172 F. Supp.2d 435, 437 (S.D.N.Y. 2001). For the
purposes of this motion, however, there are no factual disputes and the
background to this action is the largely same as the background discussed
in the previous Opinions and Orders in the Con Ed/NU action. Consol.
Edison, Inc. v. Northeast Utils., 249 F. Supp.2d 387 (S.D.N.Y.
2003); Consol. Edison, Inc. v. Northeast Utils., No. 01 Civ.
1893, 2004 WL 35445 (S.D.N.Y. Jan. 7, 2004).
On October 13, 1999, Con Edison and Northeast Utilities entered into a
Merger Agreement. (See First Am. Class Action Compl. ("Am. Compl.") ¶
1.) After months of negotiation, Con Edison and NU's shareholders
ultimately approved an agreement pursuant to which Con Edison agreed to
purchase NU's shares for an estimated $26.50 per share. (Id.)
However, on March 5, 2001, Con Edison informed NU that it would not go
forward with the merger, and the next day filed a pre-emptive lawsuit
against NU. (Id. ¶ 5.) NU filed a counterclaim claiming
that its shareholders were third-party beneficiaries of the Merger
Agreement and that NU could sue on their behalf for the premium lost by
the failure of Con Ed to consummate the agreement. NU contends that the
proper third-party beneficiaries entitled to recovery are the NU
shareholders as of the date that the judgment is entered or collected.
(Id.) In an Opinion and Order dated March 20, 2003 that decided motions for
summary judgment by Con Ed and NU, this Court found, among other things,
that NU shareholders are third-party beneficiaries under the Merger
Agreement. See Consol. Edison, 249 F. Supp.2d at 416-17.
Shortly thereafter, on May 16, 2003, Robert Rimkoski filed a class action
lawsuit in state court seeking to recover damages from Con Ed for breach
of the Merger Agreement on behalf of members of a class of persons
holding NU shares at the time of Con Ed's alleged breach on March 5,
2001. Rimkoski later intervened in the Con Ed/NU action as an intervenor
defendant asserting a claim against Con Ed. See Consol. Edison,
2004 WL 35445.
Siegel filed his class action suit on October 24, 2003, and purports to
represent the very same class of NU shareholders as Rimkoski: those who
held NU stock on March 5, 2001, the date on which Con Edison allegedly
breached the Merger Agreement. Siegel's original complaint premised
subject matter jurisdiction on diversity of citizenship with Siegel being
a citizen of New Jersey and Con Ed being a New York corporation with its
principal place of business in New York. However, in the original
complaint Siegel failed to plead that his claim met the amount in
controversy required of 28 U.S.C. § 1332. The Amended Complaint was
subsequently filed with jurisdiction being pleaded: (1) pursuant to
28 U.S.C. § 1367 based on the case's relation to the Con Ed/NU action; and (2) pursuant to
28 U.S.C. § 1332 based on aggregating the potential damages for all NU
shareholders as of March 5, 2001 who, Siegel claims, share "a single
title or right" to sue for breach of the Merger Agreement. (Am. Compl.
The plaintiff first alleges that the Court has supplemental
jurisdiction pursuant to 28 U.S.C. § 1367 because the case involves
the same issues of law and fact as those being litigated in the Con Ed/NU
action, in which Rimkoski has intervened. Section 1367(a) provides that
in any civil action of which the district courts
have original jurisdiction, the district courts
shall have supplemental jurisdiction over all
other claims that are so related to claims in the
action within such original jurisdiction that they
form part of the same case or controversy under
Article III of the United States Constitution.
28 U.S.C. § 1367(a). Where the Court has original jurisdiction
over an action, it may exercise supplemental jurisdiction over claims
that derive from "a common nucleus of operative fact," such that a
plaintiff "would ordinarily be expected to try them all in one judicial
proceeding." See Valencia ex rel. Franco. v. Lee, 316 F.3d 299
305 (2d Cir. 2003) (quoting United Mine Workers v. Gibbs,
383 U.S. 715
, 725 (1966)).
The Court has original jurisdiction over the Con Ed/NU action based on
diversity jurisdiction and there is no dispute that this action shares a "common nucleus of operative fact" with
that one. Siegel's argument, however, clearly misses the point that there
is supplemental jurisdiction when the plaintiff would be expected to
bring all claims in one proceeding. At least for the purposes of
this motion, Siegel is not seeking to intervene in the Con Ed/NU action.
He is seeking supplemental jurisdiction over a new, independent, and
freestanding civil action. Siegel's claims with respect to this
independent action are not supplemental to any case properly within the
jurisdiction of this Court.
Furthermore, Siegel's reliance on cases where a federal court exercised
supplemental jurisdiction over attorney fee disputes arising under state
law within the context-of a preexisting litigation is misplaced.
See, e.g., Alderman v. Pan Am World Airways,
169 F.3d 99, 101-02 (2d Cir. 1999); Kalyawongsa v. Moffett,
105 F.3d 283, 286-88 (6th Cir. 1997). The fee disputes in those cases involved
state law contract claims that were related to a main action within the
court's original jurisdiction, not separately filed civil actions.
Finally, Siegel asserts that considerations of judicial economy dictate
that this Court should exercise supplemental jurisdiction over all claims
related to the litigation between Con Ed and NU. On the contrary,
judicial economy would be compromised by allowing Siegel to bring his
action in federal court. If Siegel's argument for supplemental jurisdiction were to
succeed, a vast array of cases, that would otherwise be state court
cases, could be removed to federal court merely because they share a
factual and legal basis with a case properly in federal court. While
judicial economy is furthered by joining federal and state law claims
into a single action, Siegel seeks to bring an entirely independent
action into federal court. Absent intervention in the Con Ed/NU action,
§ 1367 cannot provide Siegel with a basis for subject matter
The plaintiff also argues that this Court has subject matter
jurisdiction based on diversity of citizenship. Siegel is a citizen of
New Jersey and Con Edison is a New York Corporation. The issue is whether
the plaintiff has pleaded an amount in controversy exceeding $75,000.
Siegel does not allege that his individual claim meets the necessary
amount and instead attempts to satisfy the statutory requirement by
aggregating the claims of the entire class. Generally, such aggregation
by the representative plaintiff in a class action cannot satisfy the
amount in controversy. See Snyder v. Harris, 394 U.S. 332,
335-40 (1969). It is true, however, that claims may be aggregated "when
several plaintiffs unite to enforce a single title or right, in which
they have a common and undivided interest." Zahn v. Int'l Paper
Co., 414 U.S. 291, 294 (1973) (quoting Troy Bank of Troy, Ind. v. G. A. Whitehead & Co., 222 U.S. 39,
40-41 (1911)). Siegel thus argues for the application of the "common fund
exception," described at length by the Court of Appeals for the Second
Circuit in Gilman v. BHC Securities, Inc., 104 F.3d 1418 (2d
Siegel contends that aggregation is warranted because the shareholders
he purports to represent possessed an ownership interest in a single
entity, NU, and suffered damages proportionate to their ownership
interest in that single entity, as a result of the same action, which was
Con Ed's breach of the Merger Agreement with NU. The plaintiff, however,
has not in fact asserted a single title or right, in which all of the
class members have a common and undivided interest.
The Court of Appeals has emphasized that "[p]laintiffs in paradigm
`common fund' cases assert claims to a piece of land, a trust fund, an
estate, an insurance policy, a lien, or an item of collateral, which they
claim as common owners or in which they share a common interest arising
under a single title or right." Gilman, 104 F.3d at 1424. To
use the common fund exception, the dispute must be one that "cannot be
adjudicated without implicating the rights of everyone involved with the
res." Id. at 1423 (quoting Bishop v. Gen. Motors
Corp., 925 F. Supp. 294, 298 (D.N.J. 1996)). Furthermore, the class
members must have an undivided interest in the property and the defendant, therefore, must have no interest in how the property is
divided amongst the class. Id. Finally, all of the claimants to
the property must be necessary parties to the dispute. Id. at
1425 n.7 (citing Bishop, 925 F. Supp. at 298).
It is true that the rights of the class members Siegel seeks to
represent are all determined by whether Con Ed breached the Merger
Agreement with NU. However, the rights of the individual class members
are still separate and distinct and depend on their individual
shareholdings of NU stock. Each shareholder is free to make decisions
regarding their shareholdings without implicating the rights of any other
shareholder. Moreover, the Court of Appeals noted that a class action
based on common questions of law or fact is antithetical to aggregation
to meet the amount in controversy because individual claimants can opt
out of the class and thus, cannot be deemed "necessary" parties.
This case is more similar to the situations cited by the Court of
Appeals in Gilman where the non-aggregation rule was applied.
See, e.g., Asociacion Nacional de Pescadores a Pequena Escala o
Artesanales de Colombia (ANPAC) v. Dow Quimica de Colombia, S.A.,
988 F.2d 559, 563 (5th Cir. 1993) (finding that damages for lost income
and personal injuries sustained as consequence of a chemical spill were
"individual" and cannot be aggregated because "one plaintiff's recovery
is neither dependent upon, nor necessarily reduced by, another's");
Griffith v. Sealtite Corp., 903 F.2d 495, 498 (7th Cir. 1990)
(holding that workers' claims for wages due under a single employment
contract "were separate and distinct" and thus individual awards could
not be aggregated to satisfy jurisdictional amount); Sellers v.
O'Connell, 701 F.2d 575, 579 (6th Cir. 1983) ("An identifying
characteristic of a common and undivided interest is that if one
plaintiff cannot or does not collect his share, the shares of the
remaining plaintiffs are increased."). Under the logic and reasoning of
Gilman, the claims of the individual shareholders may not be
aggregated to meet the jurisdictional amount in controversy requirement
of § 1332. The NU shareholders may individually determine if they
wish to sue, and their decisions will not affect the rights and
recoveries of the remaining NO shareholders.
The motions to dismiss by Con Ed and NU for lack of subject matter
jurisdiction are granted. The Clerk is directed to enter
judgment dismissing Siegel's complaint and closing the case.
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