DAVIS INTERNATIONAL, LLC v. NEW START GROUP CORP., 1297-N (Del.Ch. 2006)

C.A. No. 1297-N.Court of Chancery of Delaware.Submitted: August 16, 2006.
Decided: August 22, 2006.

David L. Finger, Esquire Finger Slanina, LLC Wilmington, DE.

Charles M. Oberly, III, Esquire Karen V. Sullivan, Esquire Oberly, Jennings Rhodunda, P.A. Wilmington, DE.

Richard I.G. Jones, Esquire Ashby Geddes Wilmington, DE.

William M. Lafferty, Esquire Morris, Nichols, Arsht Tunnell Wilmington, DE

Collins J. Seitz, Jr., Esquire Kevin F. Brady, Esquire Connolly, Bove, Lodge Hutz Wilmington, DE.

STEPHEN LAMB, Vice Chancellor.

Dear Counsel:

As this court explained in its previous decision imposing a stay,[1] this litigation began in December 2000, when the plaintiffs brought an action in the U.S. District Court for the Southern District of New York, alleging violations of the federal RICO statute, intentional interference with contractual relations, and conversion, all arising from the allegedly illegal takeovers of aluminum and vanadium production facilities located in Western Siberia and the Northern Ural Mountains in the Russian Federation. On March 27, 2003, the federal court dismissed the case on forum non conveniens grounds.[2] That dismissal was later affirmed by the U.S. Court of Appeals for the Second Circuit.[3]

On November 4, 2003, the plaintiffs filed a new action in this court, seeking to take advantage of what they perceive to be Delaware’s lenient forum non conveniens standard. The defendants removed the case to federal court pursuant to 18 U.S.C. § 1441(b), based on federal question jurisdiction. Afterward, the plaintiffs amended their federal court complaint to exclude the non-federal law claims, and then refiled those claims in this court on April 26, 2005, adding new claims for aiding and abetting, conversion, and civil conspiracy. On October 27, 2005, the court granted the defendants’ motion to stay those claims[4] in deference to the first filed federal action pursuant to the well known standards set forth in the case McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co.[5] On March 29, 2006, the Delaware district court granted the defendants’ motion to dismiss on grounds that it referred to as direct estoppel.[6] That decision is now on appeal to the Third Circuit Court of Appeals.

In response to the district court’s decision to dismiss the case, the plaintiffs now ask this court to vacate its stay. In the plaintiffs’ view, waiting for the Third Circuit’s decision will not only be prejudicial to their claims, in the sense that the resultant delay might further degrade the factual record, but would also be entirely futile because the Third Circuit’s decision would have no effect at all on the proceedings before this court. In the plaintiffs’ view, either the Third Circuit will uphold the district court’s decision to dismiss its case entirely, in which event the plaintiffs will pursue their claims here, or the plaintiffs will win a reversal, and then secure an order prohibiting the defendants from further removal of the federal RICO claims, which they will then add to the present complaint. Thus, in the plaintiffs’ view, whatever the Third Circuit decides, the RICO claims will no longer be at issue in the federal court. If that were true, the plaintiffs argue, this court’s concern that the RICO litigation would be duplicative of the state law claims would be met, and the continuing stay unjustified.

The court cannot accept the plaintiffs’ view of the federal litigation. First, it ignores entirely the possibility that the Third Circuit might reverse, and allow the RICO claims to proceed before the district court. Indeed, the plaintiffs entirely fail to explain how or why the Third Circuit would prohibit further removal of those federal claims.[7] If the plaintiffs fail to persuade the federal court to adopt that remedy, all the effort the parties would have expended in the interval between the time this court’s stay was lifted and the time when the federal action recommenced would be duplicative of the federal case. Worse, this court would then face the unseemly race to judgment against which the Delaware Supreme Court warned i McWane,[8] with cases that might have res judicata
effect against each other proceeding at the same time.

Further, and equally important, the plaintiffs’ argument ignores the fact that the defendants have filed a cross-appeal before the Third Circuit, arguing that the district court erred in failing to enjoin what this court has previously characterized as the plaintiffs’ efforts to subvert the removal statute. The plaintiffs’ only answer to the real possibility of such an injunction appears to be that the defendants’ argument is frivolous. Citing the Anti-Injunction Act,[9] a federal statute which prevents federal courts from enjoining their state counterparts, the plaintiffs argue that the Third Circuit is forbidden from taking the step that the defendants seek.

This court need not, and cannot, decide the substantial issue of federal law raised by the parties’ dispute about the federal Anti-Injunction Act. Nonetheless, the court cannot ignore the numerous authorities the defendants cite to show that injunctions designed to prevent abuse of the removal statute have long been understood to be permissible as express exceptions to the Anti-Injunction Act.[10] The district court has already found that the plaintiffs were “attempting to subvert the removal statute by splitting claims,”[11] and only failed to issue an injunction because it chose not to reach the jurisdictional prerequisites for that relief.[12] The defendants have presented additional authority to show that federal courts have imposed injunctions in very similar situations.[13] In that context, it is surely possible that the Third Circuit might find adequate jurisdiction to issue an injunction against the very proceedings the plaintiffs would now have this court recommence.

The only case the plaintiffs cite in response, Chik Kam Choo v. Exxon Corp.,[14] does not support the plaintiffs’ claim that there is no risk of an injunction. In that case, the Supreme Court refused to enjoin a case which had already been dismissed by a federal court on forum non conveniens grounds from going forward in state court. But in contrast to the case sub judice, the lower court in Chik Kam Choo had issued an injunction, not because it suspected abuse of the removal statute, but because it found that remedy necessary to “protect or effectuate” its judgment, under a doctrinally distinct exception to the Anti-Injunction Act than that at issue in the present case.[15]

Thus, the relief that might issue from the Third Circuit remains uncertain, presenting a significant possibility that the circuit court will either enjoin the current action, or will allow the plaintiffs’ case to proceed as a whole in district court. This court’s reluctance to vacate the stay is only heightened by the plaintiffs’ transparently evident efforts to split its claims. While maintaining the stay will impose a further delay on discovery until the Third Circuit issues its opinion, moreover, McWane’s focus on prompt and complete justice cannot possibly be interpreted as a command to interrupt the routine deliberations of a United States circuit court in the process of deciding an appeal, especially where no facts on the record suggest any special urgency. None of the cases on which the plaintiffs rely for their contrary argument even suggests such a result.[16]

The court will consider the plaintiffs’ case when and if it becomes appropriate to do so. At that point, the court will examine closely whether Delaware is an appropriate forum in which to litigate these plaintiffs’ claims about their business dealings in Russia. While the federal case is still active, however, and the Third Circuit might well reach a decision which would render litigation before this court duplicative, or might even enjoin this court from proceeding further, the court believes that it should not proceed consistent with the principles of comity the Supreme Court expressed in McWane. For those reasons, the plaintiffs’ motion to vacate this court’s stay is DENIED. IT IS SO ORDERED.