EDNY Holds CAFA Action Commences with New Complaint When Court Lacked Jurisdiction over Original Case; Addresses Claim Splitting & Abstention As Well

Per Steinberg v. Nationwide Mut. Ins. Co., --- F.Supp.2d ----, 2006 WL 538553 (Mar. 7, 2006 E.D.N.Y.,2006):

The Plaintiff commenced a class action against Nationwide nearly identical to the instant action on October 13, 1999, in the Supreme Court of the State of New York, Suffolk County. On November 24, 1999, Nationwide removed the action to this Court pursuant to 28 U.S .C. §§ 1441 and 1446.

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Following this Court's certification of the class action, Nationwide filed a petition under Fed.R.Civ.P. 23(f) for leave to appeal the order as to class certification to the Second Circuit. The Second Circuit elected not to hear the appeal. Instead, on December 30, 2004, it ruled, sua sponte, that there was no federal subject matter jurisdiction. . . . On March 16, 2005, following the Second Circuit's instructions, this Court remanded the case to the state court and dismissed the pending federal case. At the present time, that action ("Steinberg I") remains pending in New York Supreme Court.
On July 15, 2005, the Plaintiff filed the instant action, which is parallel to the pending state court action in form and in substance, in that it is based on the same transactions and occurrences; alleges identical claims; and seeks identical relief. However, Steinberg asserts that in this action, contrary to the original case for which there was no federal court jurisdiction, the new case was properly filed in federal court pursuant to the Class Action Fairness Act of 2005

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[A. The Commencement Issue]

. . . Nationwide concedes that the present complaint was filed in federal court after the enactment of CAFA. Nationwide argues, however, that this action concerns the same parties, claims, and relief at issue in Steinberg I, so that the action "must be deemed to have commenced on the date Steinberg I was first filed in state court." Nationwide asserts that any other interpretation of CAFA would contravene the clear and unambiguous statutory language establishing CAFA as prospective in effect. Nationwide also contends that if the re-filing of pending state court cases in federal court was sufficient to invoke federal subject matter jurisdiction under CAFA, countless class actions initiated in the months and years prior to the enactment of CAFA could suddenly be introduced into the federal court system.

A similar issue was encountered in Price v. Berkeley Nutraceuticals, Inc. No. 05-73169, 2005 WL 2649205 (E.D.Mich. Oct.17, 2005). In that case, the plaintiffs filed a class action suit in Michigan state court in 2004, claiming that the defendants misrepresented the efficacy of their products and engaged in unauthorized billing. Id., at *1. The defendants timely removed the case to federal court based on case law that was subsequently overturned. Id., at *2. Apparently becoming unhappy with the federal litigation arena, the defendant sought a remand to state court. Id. Instead of opposing removal, the plaintiffs voluntarily dismissed their case on April 8, 2005, based on their belief that the recently enacted CAFA would provide them with federal jurisdiction in a renewed action. The next day, on April 9, 2005, the plaintiffs filed a new complaint containing virtually all of the same factual allegations as the complaint in the prior dismissed case, and asserting diversity jurisdiction under CAFA. Id. at *4. In moving to dismiss the second action, the defendant Berkeley asserted identical arguments to the ones raised by Nationwide in the instant case, namely that the plaintiffs newly filed action should be deemed commenced when the plaintiffs filed the first case in state court in 2004. Id. The court rejected this argument, stating that the date of the new complaint must control, particularly under the circumstances "where the original case should not have been in federal court in the first place." Id.

The court finds the reasoning in Price to be persuasive. Under Rule 3 of the Federal Rules of Civil Procedure, "A civil action is commenced by filing a complaint with the court." Id. Here, the Plaintiff properly "commenced" a new and independent action on July 15, 2005. The Court finds no compelling reason under CAFA, or any other federal law, to dismiss the Plaintiff's action solely based on the similar action pending in state court. The mere fact that the plaintiffs have a similar suit pending in state court may be grounds, based on principles of comity, for this Court to refrain from proceeding or to dismiss the action based on the doctrine of abstention, but it is not a separate ground for dismissal, either under CAFA or for lack of subject matter jurisdiction. The court therefore finds that, for the purposes of CAFA, the present suit was "commenced" on July 15, 2005, and this court has diversity jurisdiction over the action under 28 U.S.C. § 1332(d)(2).

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With the principle of separate jurisdictional sovereignty and comity in mind, the Court finds that the existence of a parallel state action is not a ground to dismiss the Plaintiff's suit, which was properly commenced under CAFA. As in Price, the real issue is whether the case should be stayed under the principles of comity due to the parallel proceeding in the New York State Supreme Court. See Associated Dry Goods Corp. v. Towers Financial Corp., 920 F.2d 1121, 1126 (2d Cir.1990). Accordingly, the Defendant's motion to dismiss for lack of subject matter jurisdiction is denied.

B. As to Claim Splitting

Nationwide characterizes the Plaintiffs' complaint in this case as impermissible claim splitting because it is nearly identical to the complaint in the pending state court action. The argument misinterprets the rule against claim splitting. The rule "prohibits a plaintiff from prosecuting its case piecemeal, and requires that all claims arising out of a single wrong be presented in one action." Coleman v. B.G. Sulzle, Inc., 402 F.Supp.2d 403 (N.D.N.Y.2005). However, claim splitting does not apply to parallel state and federal actions. Courts have consistently declared that "[w]here there is concurrent jurisdiction, however, it is permissible for a plaintiff to file parallel state and federal actions simultaneously." Rutledge v. Arizona Board of Regents, 859 F.2d 732, 736 (9th Cir.1988), quoting Attwood v. Mendocino Coast Dist. Hospital, 886 F.2d 241, 245 (9th Cir.1989). Rather, the claim splitting doctrine applies to an attempt to "maintain two actions on the same subject in the same court, against the same defendant at the same time." Coleman, 402 F.Supp.2d at 403. Accordingly, the proper question in a case involving parallel state and federal actions is whether abstention under Colorado River is appropriate.

C. As to Abstention

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In Colorado River, the Supreme Court held that in "exceptional" circumstances, a federal district court may stay or dismiss an action solely because of the pendency of similar litigation in state court, given fundamental principles of "[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." 424 U.S. at 817,96 S.Ct. 1236, 47 L.Ed.2d 483; see Sheerbonnet Ltd. v. American Express Bank Ltd., 17 F.3d 46 (2d Cir.1994); Alliance of American Insurers v. Cuomo, 871 F.2d 591, 603 (2d Cir.1989). "Before the Colorado River doctrine can be applied, the court must first determine that the concurrent state and federal actions are actually parallel." Price, 2005 WL 2649205, at *5; see also Crawley v. Hamilton County Comm'rs, 744 F.2d 28 (6th Cir.1984); Bernstein, 850 F.Supp. at 182.

In this case, as discussed above, it is clear that the state and federal complaints are nearly identical. Moreover, both parties have identified the actions as "parallel actions" throughout their motion papers. Having found that the actions are parallel, the Court must carefully balance several factors in order to determine whether to abstain in this case. The relevant factors to be considered in determining whether federal abstention is appropriate in light of parallel state litigation include the following: "(1) assumption by federal or state court of jurisdiction over any res or property; (2) whether the federal forum is any less convenient to the parties than the state forum; (3) whether there is danger of piecemeal litigation; (4) the order of the two suits; (5) whether federal law provides the rule of decision on the merits; and (6) whether the state court is inadequate to protect the plaintiff's rights." Bernstein v. Hosiery Mfg. Co. of Morganton, Inc., 850 F.Supp. 176, 182 (E.D.N.Y.1994) (quoting Moses A. Cone Memorial Hospital v. Mercury Constitution. Corp., 460 U.S. 1, 14, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)); see also Arkwright-Boston Mfrs. Mut. Ins. Co. v. City of New York, 762 F.2d 205, 210 (2d Cir.1985). Courts may also consider "the vexatious and reactive nature of either the federal or state litigation" as part of its analysis. Bernstein, 850 F.Supp. at 185.

The "burden of persuasion rest[s] on the party opposing the exercise of federal jurisdiction." Arkwright-Boston, 762 F.2d at 210. And "[o]nly the clearest of justifications, constituting 'exceptional' circumstances, will warrant ..." Colorado River abstention. Colorado River, 424 U.S. at 813; see Alliance of American Insurers, 871 F.2d at 603; Sheerbonnet, 17 F.3d at 49.

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In weighing the Colorado River factors, the Court finds that there exists no "exceptional" circumstances that warrant the Court's dismissal of this case under Colorado River. The
Defendant's motion to abstain is therefore denied.