United States District Court, N.D. Illinois, Eastern Division
ERIC D. FREED, Plaintiff,
PAUL M. WEISS, RONALD WEISS, and COMPLEX LITIGATION GROUP LLC, an Illinois limited liability company, Defendants. ERIC D. FREED, Plaintiff,
JPMORGAN CHASE BANK, N.A., Defendant/Third-Party Plaintiff,
COMPLEX LITIGATION GROUP LLC, PAUL M. WEISS, and JAMIE E. WEISS, Third-Party Defendants
For Eric D. Freed, an individual (1:12-cv-06720), Plaintiff: Stavros S Giannoulias, Horwood Marcus & Berk Chartered, Chicago, IL; George J. Spathis, Horwood Marcus & Berk Chtd., Chicago, IL.
For Paul M Weiss, an individual, Ronald Weiss, an individual, Defendants: Debra Jeannine Tucker, LEAD ATTORNEY, The Tucker Firm, LLC, Chicago, IL.
For Complex Litigation Group LLC, an Illinois limited-liability company, Defendant: Debra Jeannine Tucker, LEAD ATTORNEY, The Tucker Firm, LLC, Chicago, IL; Jeffrey A. Leon, LEAD ATTORNEY, Complex Litigation Group LLC, Highland Park, IL.
For Eric D. Freed, an individual (1:12-cv-01477), Plaintiff: David Benjamin Goodman, LEAD ATTORNEY, Joseph Lawrence Cohen, Shaw Fishman Glantz & Towbin LLC, Chicago, IL.
For JPMorgan Chase Bank, NA, a national banking association, Defendant: Paul Thaddeus Fox, LEAD ATTORNEY, Michael Renee Cedillos, Paul Joseph Ferak, Greenberg Traurig, LLP., Chicago, IL.
For Complex Litigation Group LLC, Movant: Debra Jeannine Tucker, LEAD ATTORNEY, The Tucker Firm, LLC, Chicago, IL; Jeffrey A. Leon, Paul M. Weiss, LEAD ATTORNEYS, Complex Litigation Group LLC, Highland Park, IL.
Memorandum Opinion and Order
Gary Feinerman, United States District Judge.
Eric D. Freed brought Case 12 C 1477 against JPMorgan Chase Bank, N.A., in the Circuit Court of Cook County, Illinois. Doc. 1-1 (12 C 1477). Chase removed the case, which includes only state law claims but which falls within the federal diversity jurisdiction, to this court. Doc. 1 (12 C 1477). The court dismissed Freed's first amended complaint. Doc. 34 (12 C 1477); Freed v. JPMorgan Chase Bank, N.A., 2012 WL 3307091 (N.D. Ill. Aug. 13, 2012). Freed then filed a second amended complaint, Doc. 42 (12 C 1477), Chase again moved to dismiss, and the court denied the motion, Doc. 66 (12 C 1477); Freed v. JPMorgan Chase Bank, N.A., 2012 WL 6193964 (N.D. Ill.Dec. 12, 2012). Chase answered and brought third-party claims against Complex Litigation Group LLC (" the LLC" ), Paul M. Weiss (" Weiss" ), and Weiss's wife, Jamie Saltzman Weiss (" Saltzman" ). Doc. 75 (12 C 1477).
Freed brought Case 12 C 6720 in federal court against Weiss, the LLC, and Weiss's father, Ronald Weiss (" Ronald Weiss" ). Doc. 1 (12 C 6720). Case 12 C 6720, like Case 12 C 1477, brings only state law claims and falls within the court's diversity jurisdiction. Case 12 C 6720 was reassigned to the undersigned judge's calendar pursuant to Local Rule 40.4 because it is " related" to Case 12 C 1477. Docs. 15, 16 (12 C 6720). There have been no substantive rulings in Case 12 C 6720.
For ease of exposition, this opinion will refer to all parties other than Freed collectively as " Defendants." Defendants in both cases have moved the court to abstain under the doctrine set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), pending the resolution of an earlier-filed suit in Illinois state court, Freed v. Weiss, 2011 CH 41529 (Cir. Ct. Cook Cnty., Ill. filed Dec. 5, 2011). Docs. 71, 79 (12 C 1477); Doc. 23 (12 C 6720). In the state court suit, Freed sued Weiss and Saltzman, Doc. 27-4 (12 C 6720), and Weiss and the LLC filed counterclaims against Freed, which they styled as " Emergency Petitions," Docs. 83-5, 83-6 (12 C 1477). After Defendants filed their abstention motions in this court, the state court granted Freed's motion to dismiss his state court claims. Doc. 86 (12 C 1477); Doc. 32 (12 C 6720). Because Weiss and the LLC had filed counterclaims, the state court's dismissal of Freed's claims did not end the state court case, and so this court requested supplemental briefing on whether the state court counterclaims justified federal abstention even with Freed's state court claims out of the picture. Doc. 90 (12 C 1477); Doc. 35 (12 C 6720). The parties adhered to their initial positions. Docs. 91, 92, 96, 98 (12 C 1477); Docs. 41, 42-1 (12 C 6720).
For the following reasons, the abstention motions are granted and the two federal cases are stayed pending the outcome of the state court lawsuit.
The Colorado River doctrine provides that " a federal court may stay or dismiss a suit in exceptional circumstances when there is a concurrent state proceeding and the stay or dismissal would promote 'wise judicial administration.'" Caminiti & Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700
(7th Cir. 1992) (quoting Colorado River, 424 U.S. at 818). The Supreme Court " has cautioned that abstention is appropriate only in 'exceptional circumstances,' and has also emphasized that federal courts have a 'virtually unflagging obligation ... to exercise the jurisdiction given them.'" AXA Corporate Solutions v. Underwriters Reins. Corp., 347 F.3d 272, 278 (7th Cir. 2003) (quoting Colorado River, 424 U.S. at 813, 817). In determining whether to abstain, the court's task is " not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether there exist exceptional circumstances, the clearest of justifications, that can suffice under Colorado River to justify the surrender of that jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-26, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (internal quotation marks omitted).
The Colorado River analysis has two steps. First, the court " inquire[s] whether the concurrent state and federal proceedings are parallel." Caminiti, 962 F.2d at 700. If the proceedings are parallel, the court then weighs ten non-exclusive factors to determine whether abstention is proper. Id. at 701.
I. Whether the Federal and State Cases Are Parallel
The parallelism analysis requires a description of the factual allegations and legal claims in the federal cases and the state court case. The court will begin with Case 12 C 6720 because the discussion of that case provides necessary background for the discussion of Case 12 C 1477. Unless otherwise noted, citations to docket entries in the following subsections are to the docket for the case discussed in that subsection.
A. Case 12 C 6720: Freed v. Weiss
In Case 12 C 6720, Freed alleges that he was a member of the LLC along with Weiss but that he voluntarily dissociated from the LLC on August 21, 2012. Doc. 1 at ¶ ¶ 1, 3-4. The six-count complaint seeks (1) to force the LLC to purchase Freed's distributional interest in the LLC and (2) to dissolve the LLC, and it claims (3) that Weiss breached fiduciary duties owed to Freed as a member and manager of the LLC, (4) that Weiss breached the Partnership Agreement that Freed and Weiss executed when they formed the LLC, (5) that the LLC itself breached the Partnership Agreement, and (6) that Ronald Weiss breached fiduciary duties owed to Freed as Freed's or the LLC's accountant. Id. at pp. 17-26.
The federal suit centers on a scheme allegedly concocted and executed by Weiss, assisted by Saltzman and Ronald Weiss, to push Freed out of the LLC and to take its assets. Id. at ¶ ¶ 1-3, 49-55. Freed alleges that Weiss carried out this scheme by fraudulently transferring the LLC's funds into bank accounts at Chase that were controlled by Weiss, and also by excluding Freed from control of the LLC by asserting that Freed had withdrawn LLC funds in violation of the Partnership Agreement in March 2011 and had thereby voluntarily disassociated himself from the LLC and given up his right to participate in its control. Id. at ¶ ¶ 1, 3, 24-48, 56-66.
These factual allegations ground Freed's claims in federal court for dissolution of the LLC, Doc. 1 at ¶ ¶ 78-79; for breach of fiduciary duty by Weiss, id. at ¶ ¶ 84-87; for breach of the Partnership Agreement by Weiss, id. at ¶ ¶ 90, 93; and for breach of the Partnership Agreement by the LLC, id. at ¶ 100. The allegations are also pertinent to Freed's claim to require the LLC to purchase his distributional interest,
id. at ¶ ¶ 71-76, because the relevant value of his interest turns on whether he dissociated in March 2011, as claimed by Weiss, id. at ¶ ¶ 62-66, or in August 2012, as claimed by Freed, id. at ¶ 74 (" Freed has the right to his 'distributional interest'--53% under the Partnership Agreement--of the LLC's 'fair value determined as of the date of the member's dissociation ,' or August 21, 2012." ) (quoting 805 ILCS 180/35-60) (emphasis added).
Freed brought the state court case on behalf of himself and derivatively on behalf of the LLC (then called " Freed & Weiss LLC" --the same entity now called Complex Litigation Group LLC) against Weiss and Saltzman. Doc. 27-4. Freed's factual allegations in the state court case largely overlap with those in Case 12 C 6720. As mentioned above, Freed has dismissed his state court claims, and so the question becomes whether abstention is appropriate in light of the counterclaims filed by Weiss and the LLC, which is now under Weiss's control.
The counterclaims allege that Freed had dissociated from the LLC in March 2011; allege further that Freed's misconduct after March 2011 should result in his being expelled from the LLC under the Illinois Limited Liability Company Act, 805 ILCS 180/1-1 et seq., if he had not in fact already dissociated in March 2011; ask the court to enjoin Freed from representing himself to third parties as a member or manager of the LLC; and, in the alternative to a declaration that Freed is disassociated from the LLC, seek a judicial determination that the LLC is dissolved. Docs. 83-5, 83-6 (12 C 1477). On March 4, 2013, after the abstention motions were filed and after the state court dismissed Freed's claims, Weiss and the LLC filed a " Renewed Motion to Set the Trial" in state court. Doc. 41-1. The motion notes that the counterclaims had been pending for over a year and that an evidentiary hearing on the counterclaims had been continued on several occasions. Id. at 1-4. The motion requests, among other things, the following relief:
1. A declaration that Freed was dissociated from CLG by at least March 20, 2011 because Freed voluntarily terminated his membership interest in CLG pursuant to the Partnership Agreement by that date because Freed had deliberately withheld all of his services from CLG and Freed had ...