Summary
finding that "compelling circumstances" were present and warranted the dismissal of the first-filed action in favor of the second-filed action
Summary of this case from Epic Tech v. Arno Res., LLCOpinion
Cause No. A-05-CV-769-JN.
November 4, 2005
ORDER
Before the Court is Defendants' Motion to Dismiss (Clerk's Doc. No. 2). Also before the Court are Plaintiff's Response to Defendants' Motion to Dismiss (Clerk's Doc. No. 10), Defendants' Reply in Further Support of Their Motion to Dismiss (Clerk's Doc. No. 12), and Plaintiff's Sur-Reply to Defendants' Reply in Further Support of Their Motion to Dismiss (Clerk's Doc. No. 15). Based on the following, the Court finds that Defendants' Motion to Dismiss should be GRANTED.
I.
On or about 26 August 2004, Defendants Derek Mitchell and Calvin P. Tom ("Defendants") entered into three separately executed "Reservations" with Plaintiff Mario G. Chapa ("Plaintiff"), through which Defendants reserved an option to purchase from Plaintiff three specific condominium units for $165,000 each. Defendants gave Plaintiff a deposit of $1,000 for each Reservation as consideration for their option to purchase each condominium unit for $165,000.
Sometime after the execution of the said Reservations, Plaintiff informed Defendants that, due to an unanticipated increase in construction costs, the price of each condominium unit rose from $165,000 to $235,000. Plaintiff further informed Defendants that they could either accept the new purchase price of $235,000, or he would return their deposits and sell the condominium units to other prospective buyers. Defendants refused Plaintiff's offer.
On 16 June 2005, Defendant Derek Mitchell ("Mitchell") sent a demand letter to Plaintiff demanding compliance with the terms of his Reservation. Plaintiff rejected Mitchell's demand, but expressed an interest in exploring further settlement discussions.
On 18 August 2005, Defendants sent to Plaintiff a joint demand letter, in which they informed Plaintiff that his failure to respond timely to their demands would result in a lawsuit. Plaintiff did not respond to Defendants' demands; rather, Plaintiff requested an extension to respond until 31 August 2005. Defendants' agreed to Plaintiff's request and extended the deadline for his response to their demands until 31 August 2005.
On 31 August 2005, instead of responding to Defendants' demands, Plaintiff again asked for another extension. Defendants again agreed to Plaintiff's request and extended the deadline for his response until 6 September 2005. On 1 September 2005, just hours after Defendants agreed to Plaintiff's request for an extension, Plaintiff filed this declaratory judgment action in the state court.
On 20 September 2005, Defendants filed a mirror-image action of Plaintiff's state court action in the U.S. District Court. Moreover, that same day, Defendants removed simultaneously Plaintiff's state court action (now the above-entitled action) from the state court to the U.S. District Court where they filed their mirror-image action, and filed their Motion to Dismiss.
II.
In their Motion, Defendants move the Court to dismiss the instant declaratory judgment action (the "First-Filed Action") based on the pendency of their filed subsequently mirror-image action (the "Second-Filed Action"). First, Defendants argue that "it would be unfair to allow the First-Filed Action to proceed because [Plaintiff] engaged in bad faith conduct during the parties' ongoing settlement negotiations to induce Defendants to delay filing suit so that [Plaintiff] could file this anticipatory declaratory relief action." Second, Defendants argue that "it would be most efficient to proceed with the Second-Filed Action because it can completely resolve the parties' dispute since it includes an additional defendant, [High Tech]." The Court agrees.
III.
In its general application, the "first-to-file" rule dictates that when two actions involving same parties and same issues are filed in "courts of concurrent jurisdiction, the court that first acquired jurisdiction should try the lawsuit." Fidelity Bank v. Mortgage Funding Corp. of Am., 855 F.Supp. 901, 903 (N.D. Tex. 1994); see also West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 729 (5th Cir. 1985). Where "compelling circumstances" exist, however, the court of original jurisdiction may choose to dismiss the first-filed action and allow instead the second-filed action to proceed. See Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971); Igloo Prods. Corp. v. The Mounties, Inc., 735 F.Supp. 214, 217 (S.D. Tex. 1990); Johnson Bros. Corp. v. Int'l Bhd. of Painters, 861 F.Supp. 28, 29 (M.D. La. 1994). "Compelling circumstances" exist, inter alia, where a court determines that a party engaged in bad faith conduct, by inducing an opposing party to delay filing of a lawsuit, so that he could file a preemptive lawsuit, Amerada Petroleum Corp. v. Marshall, 381 F.2d 661, 663 (5th Cir. 1967), and/or where a court determines that necessary or desirable parties are absent from the first-filed lawsuit, but are present in the second-filed lawsuit. See Genetech, Inc. v. Eli Lilli Co., 998 F.2d 931, 938 (Fed. Cir. 1993); Dupont Pharms. Co. v. Sonus Pharms., Inc., 122 F.Supp.2d 230, 231 (D. Mass. 2000); Marianna Imps. v. Helene Curtis, Inc., 873 F.Supp. 308, 309 (D. Neb. 1994).
Plaintiff contends that the "first-filed" rule applies only to cases involving forum disputes. Plaintiff argues that since the First-Filed Action and the Second-Filed Action have been filed in the same U.S. District Court, there is no forum dispute, and as such, the "compelling circumstances" exception to the "first-filed" rule does not apply. The Court disagrees.
While Plaintiff correctly observes that the majority of cases addressing the application of the "first-filed" rule involve forum disputes, he fails to recognize that none of those cases limit the court's discretion to abstain from hearing a first-filed action to instances of forum shopping. Indeed, the "first-filed" rule serves normally to promote judicial efficiency. Texas Instruments v. Micron Semiconductor, 815 F.Supp. 994, 997 (E.D. Tex. 1993). As such, judicial economy, not forum shopping, is the foremost consideration in application of the "first-filed" rule. Forum shopping is but one of many "compelling circumstances" that the court may consider in deciding whether to hear the first-filed action, or whether to allow the second-filed action to proceed instead. See Genetech, 998 F.2d at 938.
Here, it appears clearly to the Court that "compelling circumstances" are present and warrant the Court's dismissal of this First-Filed Action in favor of the Second-Filed Action. First, as evidenced by the parties' correspondence, Plaintiff filed preemptively the First-Filed Action by inducing Defendants into believing that he was committed to resolving this dispute out of court. Specifically, when threatened with a lawsuit by Defendants, Plaintiff expressed his desire to settle. Plaintiff then asked Defendants, on several occasions, to deter the filling of their lawsuit so that he could ponder the terms of the settlement. Relying on Plaintiff's expressed willingness to settle, Defendants obliged Plaintiff and deferred filing of their lawsuit. Lacking similar consideration, Plaintiff took advantage of Defendants' deferral and filed this preemptive declaratory judgment action.
Second, a necessary party, High Tech, is absent from the First-Filed Action, but is present in the Second-Filed Action. High Tech is a necessary party to the resolution of this dispute because it acquired the three condominium units here in question from Plaintiff on 10 August 2005. As such, High Tech assumed potentially the responsibility of fulfilling Plaintiff's preexisting contractual obligations relating to Defendants.
Notwithstanding, the "compelling circumstances" exception to the "first-filed" rule is not the only discretionary measure that the Court may apply in dismissal of the instant First-Filed Action. The Court may also dismiss this First-Filed Action and allow the Second-Filed Action to proceed by relying on its broad discretion under the Federal Declaratory Judgment Act. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) ("Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants."); see Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 391 (5th Cir. 2003).
It is worth noting that, in determining the applicability of "first-filed" rule, some courts consider an action for declaratory relief filed preemptively as a "red flag" signaling the existence of "compelling circumstances." See Boatmen's First Nat'l Bank of Kansas City v. Kansas Public Employees Ret. Sys., 57 F.3d 638, 641 (8th Cir. 1995); Northwest Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1007 (8th Cir. 1993). To the Court, however, a better standard is to analyze independently the applicability of the "first-filed" rule and the appropriateness of retention of a declaratory judgment action.
Pursuant to the Federal Declaratory Judgment Act, a federal district court may entertain an action for a declaratory judgment. However, a district court is not required to provide declaratory judgment relief; rather, it is a matter of the district court's sound discretion whether or not to decide a declaratory judgment action. See Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 601 (5th Cir. 1983). In deciding whether to entertain a declaratory judgment action, a district court must address and balance the following nonexclusive factors:
"In any case of actual controversy within its jurisdiction, . . . any court of the United States, upon the finding of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such a declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such." 28 U.S.C. § 2201(a).
(1) whether there is a pending . . . action in which all of the matters in controversy may be fully litigated; (2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant; (3) whether the plaintiff engaged in forum shopping in bringing the suit; (4) whether possible inequities exist in allowing the declaratory plaintiff to gain precedence in time or to change forums; (5) whether the federal court is a convenient forum for the parties and witnesses, and (6) whether retaining the lawsuit in federal court would serve the purposes of judicial economy.Travelers Ins. Co. v. La. Farm Bureau Fed'n, Inc., 996 F.2d 774, 778 (5th Cir. 1993) (citations omitted).
The instant declaratory judgment action should be dismissed because the factors in favor of its dismissal outweigh the factors in favor of its retention, if any. First, all of the matters here in question could be litigated fully in the Second-Filed Action pending currently before the Court. The Second-Filed Action is not only the mirror-image of the First-Filed Action, but it also includes a necessary party, High Tech, absent in the First-Filed Action.
Second, Plaintiff filed preemptively this declaratory judgment action in anticipation of the Second-Filed Action by Defendants. As discussed above, Plaintiff induced Defendants to stretch the parties' settlement negotiations, and, while the parties were negotiating, Plaintiff filed this action.
Plaintiff argues that "it is not per se improper for a party to file a declaratory action in anticipation of an impending suit." The Court agrees.
"Merely filing a declaratory judgment action in a federal court with jurisdiction to hear it, in anticipation of state court litigation, is not in itself improper anticipatory litigation or otherwise abusive `forum shopping.'" Sherwin-Williams, 343 F.3d at 391. Where, as here, however, other factors are present — namely, judicial inefficiency and manifest unfairness to the adverse parties — the court may exercise its discretion and dismiss the first-filed anticipatory declarative relief action, and allow the second-filed action to proceed. See id. A court should be disinclined to hear a declaratory judgment action filed preemptively if necessary parties are missing. See id. Similarly, a court should be disinclined to hear a declaratory judgment action filed preemptively where by doing so the court would unjustly penalize a party for its good faith effort to resolve a dispute out of court. See 909 Corp. v. Village of Boilingbrook Police Pension Fund, 741 F.Sup p. 1290 (S.D. Tex. 1990); Johnson Bros., 861 F.Supp. at 29; Merle Norman Cosmetics v. Martin, 705 F.Supp. 296, 299 (E.D. La. 1988).
Third, possible inequities exist in allowing Plaintiff to maintain this First-Filed Action. Specifically, while the Court's retention of the First-Filed Action would not deprive Defendants of their choice of forum, it would possibly deprive them as "true plaintiffs" of their right to open and close evidence. Moreover, the retention of the First-Filed Action would possibly provide Plaintiff with a vehicle to seek recovery of attorney's fees — a vehicle that would not otherwise exist.
Finally, the retention of this First-Filed Action would do disservice to judicial economy because the Court would have to likely consolidate the Fist-Filed Action with the Second-Filed Action. The consolidation of the two actions would in turn burden unnecessarily the parties by forcing them to file additional motions to dismiss the mirror-image actions for declaratory relief.
IV.
Based on the foregoing, the Court finds that the "compelling-circumstances" exception to the "first-filed" rule warrants the Court's dismissal of the above-entitled First-Filed Action. In the alternative, the Court finds that the above-entitled declaratory judgment action should be dismissed because: (1) it has been filed as a pre-emptive strike by Plaintiff in bad faith amidst ongoing negotiations with Defendants; (2) it is not a just and effective disposition of the dispute due to absence of a desirable party; and (3) its retention will unduly burden litigant and judicial economy. Accordingly, the above-entitled action is hereby DISMISSED.
IT IS SO ORDERED.