Northern District of Illinois Federal Court Denies Motion to Stay Shareholder Derivative Suit Under Abstention Doctrine

Many corporations are owned by a group of shareholders, but the business decisions are made by a Board of Directors. Shareholders trust that the board will make decisions that are in the best interests of the business, but when directors fail to do so, shareholders can bring a derivative lawsuit on behalf of the company itself. The Arlington Heights shareholder lawsuit attorneys at DiTommaso-Lubin have been involved with many shareholder disputes, and our attorneys recently uncovered a decision in the field handed down by the Northern District of Illinois Federal District Court that we found quite interesting. In Oakland County Employees Retirement System v. Massaro, the plaintiff shareholders brought a derivative action on behalf of nominal defendant Huron Consulting Group against Huron's Board of Directors and executive officers. Plaintiffs brought the suit because they believed that Defendants overstated Huron's revenue for years, which artificially inflated the value of Huron stock. Plaintiff brought suit for violations of the Securities Exchange Act, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. However, in addition to the suit brought by Oakland County Employees Retirement System in federal court, two separate state court actions were previously filed by other individual Huron shareholders. Because of these state court actions, the Defendants in Oakland County filed a motion to stay the federal proceedings pending the outcome of the lawsuits filed in state court. Defendants argued that the federal action should be stayed under the abstention doctrine because the state and federal lawsuits were parallel actions. The Court stated that for the lawsuits to be deemed parallel, they must involve substantially the same parties and substantially the same issues. Upon evaluating the pleadings, the Court held that because Plaintiffs brought a federal claim under section 14(a) of the Securities and Exchange Act — and no such claim was included in either of the Illinois state litigations — the state and federal actions were not parallel. The Court thusly denied the motion to stay, and went on to state that even in the absence of the 14(a) claim, Defendants did not show that exceptional circumstances existed to justify the court abstaining from ruling in the case.

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