The Eight Circuit in Cottrell v. Duke, 737 F.3d 1238 (8th Cir. 2013) (No. 12-3871), found that a district court had abused its discretion in applying Colorado Riverabstention to stay a federal shareholder derivative proceeding asserting an exclusively federal claim. The Supreme Court’s decision in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), permits a federal court to refrain from hearing a case and defer to a parallel state court proceeding, but only under exceptional circumstances. In Cottrell, the Eighth Circuit found that the state and federal cases were not parallel, as the state court had no jurisdiction to address the Securities Act claims in the federal action. The Eight Circuit noted that courts have held that Colorado River does not apply when an exclusively federal claim, like a Securities Act claim, is before the court. The Eight Circuit reasoned that abstention in such situations would “abdicate [the court’s] general grant of jurisdiction” and also ignore “Congress’s desire to have federal courts adjudicate Securities Act claims.” The Eight Circuit also rejected the district court’s backup holding that it could stay the case based on its inherent power to control its docket. The court held that to do so would allow it to bypass the rigorous Colorado River test set forth by the Supreme Court.
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