United States District Court, S.D. New York
OPINION AND ORDER
RICHARD J. SULLIVAN, District Judge.
Plaintiff CVR Energy, Inc. ("CVR") brings this action against Defendants Wachtell, Lipton, Rosen & Katz, Benjamin M. Roth, and Andrew R. Brownstein (collectively, "Defendants" or "Wachtell"), alleging claims for professional malpractice relating to Wachtell's representation of CVR in connection with a takeover of CVR. Now before the Court is Defendants' motion to dismiss or stay the Complaint on grounds of abstention. (Doc. No. 56.) For the reasons set forth below, Defendants' motion is denied.
This action for legal malpractice stems from a takeover of CVR by Carl Icahn and certain entities under Carl Icahn's control (collectively, "Icahn") in 2012. In response to a tender offer by Icahn, CVR retained Wachtell for legal advice regarding, inter alia, the retention of Goldman Sachs & Co. ("Goldman") and Deutsche Bank ("Deutsche, " and, collectively with Goldman, the "Banks") to advise CVR regarding the tender offer. (Compl. at 1-2.) The retention agreements between CVR and the Banks required CVR to pay the Banks (1) a fee of $9 million if CVR remained independent following lcahn's tender offer, or (2) fees based on CVR's total enterprise value in the event a sale transaction went forward. ( Id. at 6-7.) Under the terms of the retention agreements, Icahn's ultimately successful takeover constituted a "sale transaction, " thereby triggering CVR's liability to the Banks for more than $36 million in transaction fees. According to CVR, the $36 million in transaction fees was substantially more than CVR would have owed had it successfully defended the takeover. ( Id. ) After CVR, now under Icahn's control, refused to pay the Banks the fees owed under the agreements, the Banks each sued CVR in New York Supreme Court for breach of contract in June (Goldman) and August (Deutsche) of 2012 (collectively, the "Bank Actions"); the lawsuits were consolidated for pre-trial purposes. ( See Letter from Defendant, dated September 15, 2014 (Doc. No. 44), Ex. 1 ( Goldman, Sachs & Co. v. CVR Energy, Inc., Index Nos. 652149/2012 & 652800/2012 (N.Y. Sup.Ct. Sept. 8, 2014) ("Bank Action MSJ Order")) at 1-4.) CVR defended the Bank Actions on the grounds that its contracts with the Banks were ambiguous, that it never agreed to pay the Banks the transaction fees in the event that Icahn was successful in taking over CVR, and that the fees were unconscionable. ( Id. at 4-5.) On September 8, 2014, the Honorable 0. Peter Sherwood, New York State Supreme Court Justice, granted summary judgment in the Bank Actions in favor of the Banks and against CVR. ( Id. at 9.)
Meanwhile, on October 24, 2013, CVR filed this action against Wachtell in the United States District Court for the District of Kansas, alleging malpractice arising out of Wachtell's representation of CVR in connection with CVR's retention agreements with the Banks. ( See generally Compl.) On December 18, 2013, Wachtell moved in the District of Kansas to dismiss CVR's Complaint for lack of personal jurisdiction and for improper venue. (MTD at 4; Opp'n at 3-4.) On August 14, 2014, the Honorable Julie A. Robinson, United States District Judge for the District of Kansas, found Wachtell's connections with Kansas "insufficient to establish personal jurisdiction." (Doc. No. 31 at 11.) However, rather than dismissing for lack of personal jurisdiction, Judge Robinson transferred the case to this District pursuant to 28 U.S.C. § 1631, and the case was thereafter assigned to my docket.
On the same day that Wachtell filed its motion to dismiss in the federal action, it also filed its own action in New York State court against CVR and Icahn for, inter alia, breach of a protective order, breach of contract, and abuse of process (the "State Action"). ( See Declaration of Margaret E. Lynaugh, dated October 29, 2014, Ex. A (Summons and Complaint filed in Wachtell, Lipton, Rosen & Katz v. CVR Energy, Inc., et al., Index No. 654343/2013 (N.Y. Sup.Ct.), dated December 18, 2013 ("State Action Compl.").) The State Action was designated by Wachtell as related to the Bank Actions and accordingly assigned to Justice Sherwood. (MTD at 5; Opp'n at 6.) Count One of the State Action seeks a declaratory judgment that Wachtell's representation of CVR was "consistent with the standards of the legal profession and did not cause any loss to CVR" - the mirror image of the malpractice claim in this action. ( Id. at 19.) On January 7, 2014, CVR and Icahn - defendants in the State Action - removed the State Action to this Court on the basis of diversity jurisdiction, arguing that the non-diverse defendants in that case, including Icahn, were fraudulently joined. Wachtell, Lipton, Rosen, & Katz v. CVR Energy, Inc., 18 F.Supp. 3d 414, 416 (S.D.N.Y. 2014). Wachtell then moved to remand that case, and on March 18, 2014, Judge Engelmayer granted Wachtell's motion and remanded the State Action back to New York State court, finding that the non-diverse defendants were properly joined, defeating diversity. Id. at 421-22. Subsequently, on April 10, 2014, CVR moved in the State Action to dismiss Wachtell's declaratory judgment claim in favor of this action, arguing that this action was filed first and is the mirror image of the declaratory judgment claim. See Letter from Defendant dated October 3, 2014 (Doc. No. 50), Ex. 1 ( Wachtell, Lipton, Rosen & Katz v. CVR Energy, et al., Index No. 654343/2013 (N.Y. Sup.Ct. Sept. 30, 2014) ("State Action MTD Denial")). Justice Sherwood denied the motion on September 30, 2014, finding that "[t]here are efficiencies to be gained by keeping count one in this court, " and that the State Action was "more advanced[, ] and the malpractice claim overlaps with the claim for abuse of process." ( Id. at 3.)
On September 12, 2014, Wachtell filed a pre-motion letter seeking leave to file a motion "asking the Court... to abstain from exercising jurisdiction in this matter in favor of [the] more comprehensive and more advanced New York state court action involving the same parties and issues." (Doc. No. 43.) After CVR's letter in opposition (Doc. No. 45), the Court held a conference to discuss the contemplated motion and set a briefing schedule. ( See Minute Entry of October 8, 2014.) Thereafter, on October 29, 2014, Defendants filed their motion to dismiss, or, in the alternative, to stay the litigation pending resolution of the State Action. (Doc. Nos. 56-58.) The motion requests that the Court abstain from exercising jurisdiction in favor of the mirror-image State Action pursuant to Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). Plaintiff filed its opposition on November 21, 2014, and the motion was fully briefed following Defendants' reply on December 5, 2014 (Doc. Nos. 61-62.)
A. Colorado River Abstention
In Colorado River, the Supreme Court held that in certain "exceptional circumstances, " a federal court "may abstain from exercising jurisdiction when parallel state-court litigation could result in comprehensive disposition of litigation' and abstention would conserve judicial resources." Niagara Mohawk Power Corp. v. Hudson River-Black River Regulating Dist., 673 F.3d 84, 100 (2d Cir. 2012) (quoting Colorado River, 424 U.S. at 817-18). Under the Colorado River doctrine, the circumstances that might justify abstaining in favor of a parallel state-court litigation are "extraordinary and narrow, " id. at 99, as federal courts have a "virtually unflagging obligation... to exercise the jurisdiction given them." Colorado River, 424 U.S. at 817. Nonetheless, such circumstances are possible. In deciding whether to abstain pursuant to Colorado River, courts consider six factors:
(1) whether the controversy involves a res over which one of the courts has assumed jurisdiction; (2) whether the federal forum is less inconvenient than the other for the parties; (3) whether staying or dismissing the federal action will avoid piecemeal litigation; (4) the order in which the actions were filed, and whether proceedings have advanced more in one forum than in the other; (5) whether federal law provides the rule of decision; and (6) whether the state procedures are adequate to protect the plaintiffs federal rights.
Niagara Mohawk, 673 F.3d at 100 (quoting Woodford v. Cmty. Action Agency of Greene Cnty., Inc., 239 F.3d 517, 522 (2d Cir. 2001)). "[N]one of these factors alone is necessarily determinative" to the abstention analysis, Niagara Mohawk, 673 F.3d at 101, but the "balance [must be] heavily weighted in favor of the exercise of jurisdiction, " id. at 100 (quoting Moses H Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 16 (1983)). "Only the clearest of justifications will warrant dismissal." Colorado River, 424 U.S. at 818-19. Finally, "[w]here a Colorado River factor is facially neutral, that is a basis for retaining jurisdiction, not for yielding it." Niagara Mohawk, 673 F.3d at 101 (emphasis added). The Court therefore considers each of the Colorado River factors, and concludes that circumstances warranting abstention are not present here.
1. Jurisdiction Over a Res
First, the fact that this is not an in rem action, and that neither this Court nor the state court has obtained jurisdiction over a res, ...