Commercial Division Blog

Posted: July 5, 2019 / Categories Commercial, Court Rules/Procedures

Commercial Division Justice Will Not Stay First-Filed Securities Act Case in Favor of Later-Filed Action in SDNY

On June 21, 2019, Justice Ostrager of the New York County Commercial Division issued a decision in Hoffman v. AT&T Inc., 2019 NY Slip Op. 31811(U), refusing to stay a first-filed Securities Act case in favor of a later-filed Securities Act action in federal court, explaining:

Prior to the creation of the Commercial Division of the New York State Supreme Court, and even thereafter, the general rule was that securities actions in this Court that were less comprehensive than related federal court actions, including actions first filed in this Court, should be stayed in favor of the more comprehensive federal court actions. The general rationale of Barron and its progeny is that where there is a substantial overlap between the parties and issues and relief sought in both state and federal courts, staying the state court case would avoid the waste of judicial resources, potential inconsistent rulings, and duplication of effort. And, federal courts have been perceived to have a greater familiarity with securities law.

Clearly, after the United States Supreme Court's ruling in Cyan, Inc. v. Beaver Cnty. Emps. Ret. Fund, supra, and the creation of specialized commercial courts in New York, the reasoning of the Barron case cannot be mechanically applied. The circumstances present in this case do not lend themselves to the historical Barron analysis. Here, a New York plaintiff has initiated discrete claims on behalf of Time Warner shareholders that can be well on the way to judicial resolution while five sets of plaintiffs lawyers jockey for control of a federal court action that includes claims on behalf of individuals who are not members of the state court class as well as the members of the state court class. The liability issues in a 1933 Act case are, if anything, less complex than issues the Commercial Division resolves every week. Defendants are free to test the merits of plaintiffs claims before this Court, which is familiar with the issues in this case, and there is no reason to believe that the merits of plaintiffs claims cannot be resolved as efficiently and, perhaps, more expeditiously than the 1933 Act claims asserted in the federal action because the likelihood is that more than one set of counsel will be appointed to represent differently situated shareholders in the federal action and the pleadings in the federal court may not be fixed for an extended period of time. And, because the federal action involves broader issues and multiple classes of shareholders, the federal court may consider staying the 1933 Act claims in the federal action in favor of this earlier filed action. In short, the "first filed" rule must have some vitality in a post-Cyan world. Otherwise, 1933 Act cases could never proceed in state court whenever a subsequently filed federal court action asserts claims in addition to 1933 Act claims.

(Internal citations omitted).

We have substantial experience in litigation regarding securities, both in state and federal court. Contact Schlam Stone & Dolan partner John Lundin at if you or a client need help regarding a claim related to stocks, bonds or other financial instruments.