## Facts

- Airgas, Inc. sued its former law firm, Cravath, Swaine & Moore LLP, in a diversity action governed by Pennsylvania law.
- Airgas alleged Cravath had provided legal services to Airgas for years and, while still doing so, agreed—without prior disclosure or consent—to represent Airgas’s rival in an attempted hostile takeover of Airgas.
- The takeover effort generated related litigation in the Delaware Court of Chancery involving Airgas, its board, and the hostile bidder.
- Airgas sought injunctive relief in federal court, including relief tied to Cravath’s alleged conflict of interest and a request aimed at preventing Cravath from continuing to represent the hostile bidder in the Delaware action.
- Airgas alleged it was harmed because Cravath’s conduct forced it to: (1) hire other lawyers to enforce Cravath’s ethical and fiduciary duties, (2) replace Cravath as counsel, (3) forego financing opportunities while facing the takeover threat, and (4) seek repayment of fees paid for allegedly compromised services.
- Cravath responded with a motion asking the federal court to abstain from the dispute and/or to stay the federal proceedings while the Delaware Chancery Court addressed the disqualification question in the takeover litigation.

## Issues

1. Whether the federal district court should abstain from exercising jurisdiction over Airgas’s fiduciary-duty action against its former counsel because related proceedings in the Delaware Court of Chancery were addressing overlapping questions about counsel’s continued participation in the takeover litigation.
2. If abstention was not warranted, whether the district court should stay the federal action to allow the Delaware Court of Chancery to decide first whether Cravath should be disqualified from representing the hostile bidder in the Delaware action.

## Decision

- The court denied the request to abstain and kept jurisdiction over the case.
- The court granted a stay of the federal proceedings to allow the Delaware Court of Chancery to determine whether Cravath was disqualified from representing the hostile bidder in the Delaware action.
- Consistent with the stay, the court did not decide the disqualification question itself at that time and left room for further proceedings after Delaware resolved the disqualification issue.

## Legal Principles

- Federal courts generally have a duty to exercise jurisdiction conferred by statute; abstention is an exception and is not the default response to parallel state-court proceedings.
- Even when a federal court declines to abstain, it may use its discretion to stay proceedings as a docket-management measure to avoid conflicting rulings and unnecessary duplication.
- When another court is already positioned to decide an attorney-disqualification question arising in a case pending before it, a federal court may defer action on that issue by staying a related federal suit until the first court rules.

## Conclusion

The district court refused to step aside entirely from Airgas’s Pennsylvania-law fiduciary-duty case against Cravath, but it stayed the federal action so the Delaware Court of Chancery could decide first whether Cravath should be disqualified in the ongoing takeover litigation, thereby reducing the risk of inconsistent rulings on the same disqualification dispute.


Airgas, Inc. v. Cravath, Swaine and Moore LLP, 2010 U.S. Dist. LEXIS 78162 (2010)