Summary
granting a six-month stay to abide the approval of a state court settlement
Summary of this case from Branca v. Iovate Health Sciences USA, Inc.Opinion
CIVIL ACTION NO. 02-8045
October 21, 2003
MEMORANDUM
Robert Chartener, individually and on behalf of all others similarly situated, (herein "Plaintiff) has filed a Complaint against Provident Mutual Life Insurance Company ("Provident"), Robert Kloss, Bernard Anderson, Dorothy M. Brown, Robert Casale, Nicholas DeBenedictis, Philip C. Herr, II, J. Richard Jones, John Nealsey, Charles Orr, Harold Sorgenti, Mehran Assadi, Mary Finelli, Alan Hinkle, Joan Tucker, and Linda Springer ("Defendants"), alleging breach of fiduciary duty and violation of Section 921-A of the Pennsylvania Mutual-to-Stock Conversion Act, 40 Pa. Stat. § 921-A. Jurisdiction is premised upon diversity of citizenship, pursuant to 28 U.S.C. § 1332(a)(1). (Complaint ¶ 13.) Presently before this Court is Defendants' Motion to Stay or, in the alternative, to Dismiss Plaintiffs claims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, Defendant's Motion to Stay will be granted.
I. Motion to Stay
A. Legal Standard
A court's power to stay a pending action "is incidental to the power inherent in every court to control the disposition of the cases on its docket with economy of time and effort for itself, counsel, and for litigants." Landis v. North American Co., 299 U.S. 248, 254 (1936). A district court has broad discretionary power to stay proceedings. Bechtel Corp. v. Local 215, Laborers' Int'l Union. 544 F.2d 1207, 1214 (3d Cir. 1976). "In the exercise of its sound discretion, a court may hold one lawsuit in abeyance to abide the outcome of another which may substantially affect it or be dispositive of the issues." Id. See 7C Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure § 1838 (2d ed. 1987).
B. Background
In January of 1998, Provident developed a plan to convert from a mutual insurance company to a stock insurance company. In January of 1999, Provident policyholders filed an action challenging the conversion plan in the Philadelphia Court of Common Pleas. Butler v. Provident Mutual Life Ins. Co., et al., No. 780 (Pa. Comm. Pl.). Provident ultimately withdrew its plan for conversion and began a "Comprehensive Review Project" to investigate alternative courses of action, and the Butler suit was held in abeyance. (Complaint ¶ 43-46.) In July of 2000, a second class action by Provident policyholders was filed in regard to Provident's attempts at conversion. Provident Mutual Life Insurance Co. v. Kloss, No. 788 (Pa. Comm. Pl.). (As in the pleadings, the plaintiffs in Butler and Kloss will be collectively referred to as the "Butler plaintiffs").
In August of 2000, as part of the Comprehensive Review Project, Provident made modifications to its change-in-control arrangements for its officers, giving Provident's management additional payments if Provident underwent a successful alternative conversion transaction. As part of these modifications, Provident also accelerated certain payments to its directors. (Complaint ¶ 47-51.)
In August of 2001, Provident signed a "sponsored demutualization" plan, whereby Provident would convert into a stock company and then merge with Nationwide Financial Services, Inc. ("NFS"). The merger between Provident and NFS was successfully completed and compensation was paid in accordance with the August, 2000 modifications. (Complaint ¶ 5.) In July of 2002, the Butler plaintiffs amended their complaint to address the second conversion effort and ultimately settled with Provident in October of 2002, with the preliminary approval of the state court. The settlement was finally approved in April of 2003 and is currently pending on appeal in the Pennsylvania Superior Court. (Pl.'s Mem. in Opp'n to Def.'s Mot. To Stay or Dismiss at 9-10) ("Pl.'s Opp'n Memo"). The Butler settlement agreement provides for both a mandatory non-opt-out class of Provident policyholders as well as a broad release of other claims related to Provident's conversion and merger. Final Order and Judgment inButler v. Provident Mutual Life Ins. Co., et al., No. 780 and Provident Mutual Life Insurance Co. v. Kloss, No. 788, ¶ 3, 8-9 (Pa. Comm. Pl., April 1, 2003) ("Final Order"). The issues currently on appeal in the Pennsylvania Superior Court, raised by class member Paul Wexler, address the adequacy of consideration for the settlement agreement, the breadth of the release provision, and whether the class should have been afforded opt-out rights. Butler, et al. v. Provident Mutual Life Ins. Co., et al., No. 1634 EDA 2003.
In September of 2002, Plaintiff Chartener made a demand on Provident's Board to revoke the change-in-control agreements and, subsequent to the Provident Board's denial of this demand, filed the complaint in the instant case. (Pl.'s Opp'n Memo at 10.) Upon learning of the settlement agreement between Provident and the Butler plaintiffs, Plaintiffs counsel appeared before the state court to clarify that his claims regarding compensation agreements were excluded from the settlement, which the state court declined to do in its final approval of the settlement. Findings of Fact and Conclusions of Law Regarding Class Settlement in Butler v. Provident Mutual Life Ins. Co., et al., No. 780;Provident Mutual Life Insurance Co. v. Kloss, No. 788, ¶ 192 (Pa. Comm. Pl., April 1, 2003) ("Class Settlement Findings"); Defs.' Br. At Exh. I, Transcript of Hearing on the Propriety of the Class Settlement inButler v. Provident Mutual Life Ins. Co., et al. 67-98.
C. Discussion
Defendants now move to stay the action before this Court, arguing that the Butler settlement, if affirmed, will preclude the claims in this action and, thus, staying the action before this court will prevent the waste of judicial and litigant resources. Plaintiff does not dispute this Court's authority to stay the instant action pending resolution of the state court proceedings, but argues that the claims before the Butler court are distinct from and, therefore, will not affect the claims raised by Plaintiff in this Court. Plaintiff also argues that the settlement inButler cannot be dispositive of the claims before this Court because the class representatives in Butler were inadequate.
The case at bar and the Pennsylvania class action involve claims against the same Defendants. Plaintiff in this case is also a member of the Pennsylvania class. Both cases raise claims arising from Provident's efforts at conversion and both cases require the application of state law to resolve plaintiffs' claims. The overlap between this action and the one pending in state court makes a stay of the proceedings before this Court appropriate until the state court proceedings are resolved because this Court will necessarily have to engage in an analysis of whether Plaintiffs claims are subject to res judicata or collateral estoppel and such an analysis is premature until the state court proceedings become final. See Schwarz v. Prudential-Bache Securities, Inc., 1991 WL 137157 (E.D. Pa. July 19, 1991) (staying federal action pending finality of settlement agreement in state class action alleging misconduct of same defendants in the sale of same securities, where federal plaintiff was member of state class).
Plaintiffs first challenge to the Motion to Stay is that his claims are distinct from those raised in the state proceeding. However, the state court's approval of the class settlement in Butler directly addressed issues pertinent to Plaintiffs claims. The state court's Final Order and Findings of Fact and Conclusions of Law directly address the modifications to the change-in-control agreements (Class Settlement Findings at ¶ 51-64), ruled on the adequacy of class representation (Final Order at ¶ 1, Class Settlement Findings at ¶ 127-132), and addressed the breadth of the settlement's release provision (Final Order at ¶ 8-9, Class Settlement Findings at ¶ 73-6). The state court specifically found that Plaintiff Chartener's claims in the case before this Court were not exempted from the settlement's release provision (Class Settlement Findings at ¶ 187-93), an issue that, despite Plaintiffs contention to the contrary, is relevant in these proceedings.See Grimes v. Vitalink Comm'ns Corp., 17 F.3d 1553 (3d Cir. 1994) (finding that a broad release provision in state court settlement precluded litigation in federal court). It is clear that the final outcome of state court proceedings will have a substantial affect on, if not dispose of, some or all of Plaintiff s claims before this court. See Bechtel Corp. v. Local 215, Laborers' Int'l Union, 544 F.2d 1207, 1214 (3d Cir. 1976). In addition, contrary to Plaintiffs assertion, there is no requirement that a court stay proceedings only where claims in the two proceedings are identical. Landis v. North American Co., 299 U.S. 248, 254 (1936). See Ingersoll-Rand Financial Corp. v. Callison, 844 F.2d 133 (3d Cir. 1988) (finding that, where state proceeding is not strictly parallel, the appropriate action is to stay the federal proceeding until final judgment in state court, and then apply principles of res judicata to determine what issues remain.) In addition, judicial economy supports avoiding the prospect of redundancy of proceedings, which is possible if the instant case proceeds. Ingersoll-Rand at 137.
Plaintiff also argues that the Motion to Stay should be denied because he is mounting a collateral attack on the adequacy of representation of the Butler plaintiffs, an issue not raised in the Butler appeal. Even assuming that Plaintiff is properly mounting a collateral attack on the adequacy of class representation, an issue neither mentioned in Plaintiffs complaint nor raised by Plaintiff in objection to the settlement in state court, the final determination of the Pennsylvania state courts of the validity of the class action settlement would affect this Court's analysis of that issue.
Finally, Plaintiff has not argued in any of his pleadings that a stay of the proceedings before this Court would unduly prejudice his claims.See Landis v. North American Co., 299 U.S. 248, 258 (1936), Schwarz v. Prudential-Bache Securities, Inc., 1991 WL 137157, *4 (E.D. Pa. July 19, 1991), Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 1838. In a telephone conference with counsel on October 20, 2003, Plaintiffs counsel agreed that Plaintiff would not be prejudiced by a stay until the Pennsylvania Superior Court rules. Accordingly, Defendants' Motion to Stay will be granted.
II. Motion to Dismiss
The potential effect of the outcome of state court proceedings leads this Court to stay the instant action pending finality of state court proceedings in Butler, For the reasons discussed above, the determination of the state courts are necessary to further consider Plaintiffs claims and Defendants' Motion to Dismiss. Accordingly, the Motion to Stay will be granted and the case will be placed in suspense for six months, allowing the Motion to Dismiss to remain open until state court proceedings are final.
III. Conclusion
For the foregoing reasons, Defendant's Motion to Stay will be granted and the case will be placed in suspension for a period of 180 days.
An appropriate Order follows.
ORDER
AND NOW, this day of , 2003, it is hereby ORDERED that the Defendant's Motion to Stay is GRANTED and:
1. The case shall be transferred to the Civil Suspense File for a period of 180 days;
2. The Clerk of the Court shall mark this case closed for statistical purposes;
3. The Court shall retain jurisdiction over the case and the case shall be returned to the Court's active docket when the action is in a status so that it may proceed to final disposition;
4. After a period of 180 days, the parties shall advise the Court of the status of state court proceedings. If state court proceedings are final before the period of 180 days expires, the parties shall advise the Court accordingly.
5. This entry of this Order shall not prejudice the rights of the parties to this litigation.