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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: August 19, 2020

Court Refuses to Stay New York Action in Favor of Federal Action

On August 7, 2020, Justice Masley of the New York County Commercial Division issued a decision in Convery v. Jumia Tech. AG, 2020 NY Slip Op. 32639(U), refusing to stay an action in New York state court in favor of a related federal action, explaining:

Defendants’ motion to stay this action is denied. A trial court’s decision to stay an action constitutes an exercise of discretion. The factors relevant to the determination to stay include (1) which forum will offer a more complete disposition of the issues; (2) which forum has greater expertise in the type of matter; (3) which action was commenced first and the stage of the litigations; (4) whether there is substantial overlap between the issues raised in each court; (5) whether a stay will avert duplication of effort and waste of judicial resources; and (6) whether plaintiffs have demonstrated that they would be prejudiced by a stay or that there is a risk of inconsistent rulings.

The first and fourth factors weigh in favor of the plaintiffs. Although there is substantial overlap between the claims and the defendants, neither action will completely dispose of all of the issues relating to the IPO. While both courts have jurisdiction over the 1933 Act claims, the federal court has exclusive jurisdiction over the claim brought under the 1934 Act, so it can only be disposed of there. However, only the state action includes claims against the accounting firm, and a claim under section 12(a)(2) of the 1933 Act for which rescission is available. Additionally, as plaintiff argues, the fraud claims in the federal action may be subject to heightened scrutiny. Under the circumstances, the difference in the relief sought militates against a stay.

The second factor also weighs against a stay. The federal court does not have superior expertise in adjudicating the claims asserted here because this court, sitting in the Commercial Division of New York County, certainly has experience applying various bodies of law including federal law as it pertains to securities cases.

The third factor does not favor a stay. Although the federal action was commenced first, it was not first in time with respect to claims under the 1933 Act, which were first interposed in this action — over two months before being added to the federal complaint by way of amendment. Indeed, it appears that at the time federal action was filed, plaintiff could not have sought 1933 Act damages because the ADSs price was still above the IPO offering price. And even if the federal action was technically filed first, that factor is not dispositive and not particularly meaningful in this case because discovery has been stayed in both actions. Moreover, nothing of significance happened in the five months between the original filing of the federal action and this one, because the parties in the federal action were litigating over the appointment of lead plaintiffs and lead counsel. And although the federal action has progressed slightly further with the partial briefing of the motion to dismiss, this action would likely have been at a more advanced stage had defendants not disrupted the previously stipulated litigation schedule by filing this stay motion.

The fifth factor weighs against a stay. Where the actions involve differing claims, the possibility or actuality of two trials is of no importance. Furthermore, duplication of efforts or waste is also not a concern because the parties and courts can cooperate as they do in so many other sophisticated securities cases. Finally, the court concurs with plaintiff that due to the differences between the parties named, remedies sought and standards of review, the plaintiff and the class might be prejudiced by a stay in pursuing this action.

Accordingly, it is
ORDERED that the motion to stay this action is denied; and it is further
ORDERED that defendants are directed to answer or move with respect to the
Amended Complaint within 30 days of this decision and order’s entry onto NYSCEF by the court.

(Internal quotations and citations omitted).

It is far from rare that litigants file more than one lawsuit regarding the same issue. As this decision shows, courts can–but do not always do–decide to stay lawsuits for the sake of efficiency. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding duplicative litigations.

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