The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.:
MEMORANDUM OPINION & ORDER
Gregory L. Shields, G.E. Stricklin, and Iron Workers Mid-South Pension Fund ("Iron Workers") have filed shareholder derivative actions against a group of News Corporation directors and officers (collectively, the "News Corp. Defendants") alleging, inter alia, violations of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) ("Exchange Act"), breach of fiduciary duty, gross mismanagement, waste of corporate assets, and abuse of control.*fn1
Plaintiffs allege that the News Corp. Defendants' acts of telephone hacking and bribery have resulted in litigation against News Corp. and law enforcement investigations of the Company's conduct. Plaintiffs further allege that News Corp.'s efforts to cover up these activities have cost the Company large sums, and resulted in the Company shutting down one of its leading newspapers and abandoning its bid to acquire a broadcasting company. (See Shields Am. Cmplt.; Stricklin Am. Cmplt.; Iron Workers Cmplt.)
On March 16, 2011, other News Corp. shareholders -- not parties here -- filed a similar derivative action in the Delaware Court of Chancery against News Corp. directors. In re News Corporation Shareholder Derivative Litigation, C.A. No. 6285-VCN (Del. Ch.) (the "Delaware Action"). (See Decl. of Scott D. Musoff in Supp. of Def.'s Mot. to Stay ("Musoff Decl."), Ex. C) Plaintiffs in the Delaware Action filed an Amended Complaint on July 8, 2011, and a Second Amended Complaint on September 21, 2011. (See Musoff Decl., Exs. A, B)
Defendants in Shields, Stricklin, and Iron Workers have moved to stay these actions pending resolution of the Delaware Action. (See Shields Not. of Mot., Dkt. No. 24; Stricklin Not. of Mot., Dkt. No. 20; Iron Workers Not. of Mot., Dkt. No. 38) For the reasons stated below, Defendants' motions to stay will be denied.
Defendant K. Rupert Murdoch founded News Corp. in 1979 as a holding company for News Limited, an Australian newspaper publisher. (Shields Am. Cmplt. ¶ 48) News Corp. has become the second-largest media conglomerate in the world by revenue, and it has acquired and founded multiple news entities, including News of the World and The Times in Britain, and the New York Post and Dow Jones (the publishers of The Wall Street Journal) in the United States. (Id. ¶¶ 48-49) Plaintiffs allege that Murdoch has complete control over the News Corp. Board of Directors, because it is made up almost entirely of his family members and executives at News Corp. or News Corp. subsidiaries. (Id. ¶ 52; Stricklin Am. Cmplt. ¶ 60-62)
A.The News Corp. Scandals
In November 2005, News of the World published an article about Prince William that contained private information. (Iron Workers Cmplt. ¶ 49) During their investigation of this issue, British law enforcement authorities determined that News of the World employees had intercepted the private voicemails of a number of famous individuals. (Id.) In 2007, the author of the News of the World article concerning Prince William, and a private investigator hired by the newspaper, pleaded guilty to hacking the telephones of members of the royal family. (Id. ¶ 50) After these convictions, members of the News Corp. Board denied any knowledge of phone-hacking by News Corp. personnel, and insisted that the convictions reflected an isolated incident of misconduct. (Id. ¶ 51)
In 2008, News International, the United Kingdom publishing division of News Corp., made payments to purported victims of phone-hacking, including a $1.1 million payment to Gordon Taylor, the chairman of the Professional Footballers' Association. (Id. ¶¶ 2, 52-53) The settlement with Taylor was intended to resolve claims that News of the World employees had hacked into his voicemail account, and the settlement agreement included a provision that prevented Taylor from disclosing any information about the case. (Id. ¶ 53) As reported in The Guardian on July 21, 2009, at least one member of the News Corp. Board, James Murdoch, was aware of the settlement paid to Taylor. (Id.)
News International publicly denied that any News of the World employee or agent -- other than the individuals involved in the Prince William and Taylor incidents -- knew about or were involved in phone-hacking. (Id. ¶ 55) However, a September 1, 2010 New York Times article reported that "'more than a dozen former reporters and editors at News of the World' claimed that phone-hacking was pervasive and 'everyone knew.'" (Id. ¶ 60) One of these former News of the World journalists claimed that '"illegal activity, including phone-hacking, was so widespread it [was] inconceivable senior editors did not know.'" (Id. ¶ 62)
On April 8, 2011, News International acknowledged responsibility for phone-hacking, apologized to twenty victims, and set up a $33 million fund to compensate victims. (Id. ¶ 63) Among the victims were relatives of British soldiers who were killed in combat in Iraq and Afghanistan, relatives of victims of the July 2005 London bombings, and former prime ministers. (Id. ¶ 65)
Disclosures about additional acts of phone-hacking and other misconduct continued in subsequent months. (Id. ¶ 64) On July 4, 2011, The Guardian reported that News of the World hacked into the voicemail of Milly Dowler, a schoolgirl who was murdered. (Id.) In the days after Dowler disappeared, News of the World reporters hacked into Dowler's voicemail account and intercepted messages left for her. (Id.) The reporters also deleted messages from her account when it became full, destroying potentially valuable evidence and producing voicemail activity that gave Dowler's family false hope that she was still alive. (Id.)
On July 6, 2011, the British Broadcasting Corporation ("BBC") reported that News of the World had paid British police '"tens of thousands of pounds"' in exchange for information. (Id. at ¶ 66) Defendant Rebekah Brooks, who was the Editor-in-Chief of News of the World from May 2000 to January 2003, testified before parliament in 2003 that News of the World had "paid the police for information in the past." (Id. ¶¶ 21, 67)
B.The Aftermath of the News Corp. Scandals
On July 6, 2011, Defendant Rupert Murdoch issued a statement describing the News of the World's phone-hacking and bribery as '"deplorable and unacceptable."' (Id. ¶ 70) On July 10, 2011, after more than 160 years in print, News of the World discontinued operations. (Stricklin Am. Cmplt. ¶ 10) On July 15, 2011, Rebekah Brooks resigned from her position as CEO of News International, and Defendant Les Hinton resigned as the CEO of Dow Jones. (Iron Workers Cmplt. ¶¶ 70-71) Two days later, Brooks was arrested on criminal charges. (Id. ¶ 70) Shields' Amended Complaint alleges that the resignations of Brooks and Hinton have left the future of News International and Dow Jones uncertain. (Shields Am. Cmplt. ¶¶ 94-95)
As a result of these scandals, News Corp. also retracted its bid to buy British Sky Broadcasting ("BSkyB"), a United Kingdom satellite broadcasting company. (Iron Workers Cmplt. ¶ 3; Shields Am. Cmplt. ¶ 92) The acquisition of BSkyB allegedly would have increased News Corp.'s earnings and geographically diversified its earnings base. (Iron Workers Cmplt. ¶ 72)
Plaintiffs' complaints further allege that (1) the Federal Bureau of Investigation ("FBI") has opened a criminal investigation of News Corp. concerning allegations that the Company hacked voicemails and other communications of victims of the 9/11 attacks; and (2) the Securities and Exchange Commission ("SEC") is investigating an alleged violation of the Foreign Corrupt Practices Act ("FCPA") related to bribery of British police officers by News of the World journalists. ((Shields Am. Cmplt. ¶ 93))
C.News Corp.'s Public Filings
Throughout the relevant period, a number of the Defendants signed (1) Form 10Ks representing that News Corp. "maintained effective internal control over financial reporting"; and (2) Form 10Qs representing that News Corp.'s "disclosure controls and procedures were effective." (Iron Workers Cmplt. ¶ 82; Shields Am. Cmplt. ¶ 56-58) The Defendants also filed Form 14As (Definitive Proxy Statements) with the SEC; these submissions also addressed News Corp.'s internal controls procedures. (Iron Workers Cmplt. ¶ 83; Shields Am. Cmplt. ¶ 59) None of these SEC filings disclosed the Company's ongoing hacking and bribery. As a result, Plaintiffs Shields and Iron Workers allege that they all contain false and misleading statements, as well as material omissions. (Iron Workers Cmplt. ¶¶ 82-83; Shields Am. Cmplt. ¶¶ 58-59)
Gregory Shields, a News Corp. shareholder, filed a complaint in this Court on July 18, 2011, and an amended complaint on August 4, 2011. (Shields Dkt Nos. 1, 4) Shields' shareholder derivative action names numerous News Corp. Board members as defendants*fn3 and alleges: (1) violations of Section 14(a) of the Exchange Act; (2) breach of fiduciary duty; (3) gross mismanagement; (4) contribution and indemnification; (5) abuse of control; and (6) waste of Corporate assets. G.E. Stricklin, also a News Corp. shareholder, filed a complaint in this Court on July 22, 2011, and an amended complaint on August 16, 2011. (Stricklin Dkt. Nos. 1, 3) Stricklin's shareholder derivative action names a number of the same News Corp. Board members as Defendants*fn4 , names other directors, and also names certain officers of News Corp.- related entities as defendants. Stricklin's Amended Complaint invokes the Court's diversity jurisdiction and alleges the following state law causes of action: (1) breach of fiduciary duty; (2) waste of corporate assets; and (3) gross mismanagement.
Iron Workers filed a shareholder derivative complaint in this Court on August 10, 2011. The Iron Workers complaint names as defendants a number of News Corp. Board members as well as officers of News Corp.-related entities.*fn5 (Iron Workers Dkt. No. 1) The Complaint alleges (1) violation of Section 14(a) of the Exchange Act; (2) breach of fiduciary duty; (3) waste of corporate assets; and (4) unjust enrichment.
On December 8, 2011, Defendants in all three actions moved to stay these proceedings (see Shields Not. of Mot., Dkt. No. 24; Stricklin Not. of Mot., Dkt. No. 20; Iron Workers Not. of Mot., Dkt. No. 38), arguing that this Court should abstain from taking further action pending resolution of In re News Corporation Shareholder Derivative Litigation, C.A. No. 6285-VCN (Del. Ch.), a shareholder derivative action filed on March 16, 2011, in the Delaware Court of Chancery presenting many of the same factual allegations summarized above.
The co-lead plaintiffs in the Delaware Action -- The Amalgamated Bank, the Central Laborers Pension Fund, and New Orleans Employees' Retirement System -- amended their consolidated shareholder derivative and class action complaint on July 8, 2011 to add claims involving News of the World. (See Musoff Decl., Exs. B, C) Another derivative action was filed on July 15, 2011, and has been consolidated with the Delaware Action. (See id., Exs. C, D) The co-lead plaintiffs in the Delaware Action filed a Second Amended Complaint on September 21, 2011 against a number of News Corp. Board members.*fn6 (See id., Ex. A) A motion to dismiss the Second Amended Complaint is pending. In re News Corporation Shareholder Derivative Litigation, C.A. No. 6285-VCN (Del. Ch.), Dkt. No. 59566899.
The Second Amended Complaint in the Delaware Action alleges four state law breach of fiduciary duty claims. (See Musoff Decl., Ex. A) The first and second claims relate to News Corp.'s purchase of Shine Group Ltd., a television and film production company that was operated and majority-owned by Rupert Murdoch's daughter. (See id. ¶¶ 8, 299-310) The third and fourth claims -- which are founded on the defendants' illegal news-gathering activities, asserts that they knowingly and in bad faith permitted News Corp.'s operations to be run in an unlawful and improper manner. (Id., Ex. A, ¶¶ 311-327) The Second Amended Complaint also requests an injunction that would prevent a News Corp. stock buy-back that could allow Murdoch to "gain control of the Company at no expense to himself," and could result in "nonMurdoch shareholders [losing] control of the Company while receiving no premium." (Id., Ex. A, ¶¶ 335-341)
I.THE COLORADO RIVER ABSTENTION DOCTRINE
"Generally, as between state and federal courts, the rule is that 'the pendency of an action in the state court is no bar to proceedings concerning the same matter in the [f]ederal court having jurisdiction.'" Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976) (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)) (internal quotation marks omitted). "Abstention from the exercise of federal jurisdiction is the exception, not the rule."*fn7 Id. at 813. In Colorado River, the Supreme Court explained that [t]he doctrine of abstention, under which a District Court may decline to exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it. Abdication of the obligation to decide cases can be justified under this doctrine only in the exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest. Id. (quoting County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89 (1959)).
The Colorado River Court held that "in situations involving the contemporaneous exercise of concurrent jurisdiction," a federal court, in "exceptional" circumstances, may dismiss a federal suit based on "considerations of wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." Id. at 817-18 (internal brackets and quotation marks omitted). "[T]he decision whether to dismiss a federal action because of parallel state-court litigation does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983).
"To determine whether abstention under Colorado River is appropriate, a district court is required to weigh six factors, 'with the balance heavily weighted in favor of the exercise of jurisdiction.'" Vill. of Westfield v. Welch's, 170 F.3d 116, 121 (2d Cir. 1999) (quoting Moses, 460 U.S. at 16). These six factors include:
(1) the assumption of jurisdiction by either court over any res or property; (2) the inconvenience of the federal forum; (3) the avoidance of piecemeal litigation; (4) the order in which jurisdiction was obtained; (5) whether state or federal law supplies the rule of decision; and (6) whether the state court proceeding will adequately protect the rights of the party seeking to invoke federal jurisdiction.
Id. "No single factor is necessarily decisive, and the weight to be given to any one factor may vary greatly from case to case, depending on the particular setting of the case." Id. ...