The always on top of things Alison Frankel reports that:
On Tuesday, U.S. District Judge Paul Gardephe refused to stay a consolidated derivative case claiming that the directors of News Corp breached their duty to shareholders in the phone-hacking scandal -- even though a nearly identical case in Delaware Chancery Court is so much further along that Vice Chancellor John Noble heard arguments on the board's motion to dismiss on Wednesday. Gardephe's justification for allowing the New York federal case to proceed was that, in addition to their breach-of-duty claims under Delaware law, shareholders also asserted federal securities claims under the Exchange Act of 1934. "Because federal courts have exclusive jurisdiction over (those) claims," the judge wrote, "they will not be resolved in the Delaware action. Staying this action in favor of the Delaware action is therefore improper."
Gardephe shrugged off arguments by the board's lawyers at Skadden, Arps, Slate, Meagher & Flom that the New York plaintiffs had tacked on the Exchange Act allegations simply to distinguish their case from the Delaware suit, which predated the New York litigation. According to the judge, the threshold issue under the U.S. Supreme Court's 1976 ruling in Colorado River Water Conservation District v. U.S. was whether the New York and Delaware cases were parallel. He concluded they were not, because the Delaware case didn't include a federal cause of action. So even though the New York case involves Delaware law questions about whether shareholders can establish the futility of demanding action from the News Corp board, Gardephe said, the Exchange Act claim cannot be resolved by the Delaware court.
I get that the Exchange Act is a subject of exclusive federal jurisdiction. And I confess that what I know about civil procedure amounts to about 5 pages on derivative suits in my 400 page corporate law treatise. But I don't understand why the existence of a federal claim allows the NY plaintiffs to proceed with their pendent state law claims in the face of a further along Delaware case making the same claims. Any proceduralists out there want to edify us on why this makes sense (or doesn't)?