Opinion
Case No. 3:17-cv-00215-YY
07-19-2017
CRAFT BREW ALLIANCE, INC., a Washington corporation, Plaintiff, v. BAXTER, BAILEY & ASSOCIATES, INC., a Mississippi corporation, Defendant.
FINDINGS AND RECOMMENDATION :
Before the court is defendant Baxter, Bailey & Associates, Inc.'s ("BBA") motion to dismiss or stay (ECF #9) under the principles of federal comity, or in the alternative, to dismiss for failure to state a claim under FRCP 12(b)(6). Because adjudication of the proposed "Bar Order" (ECF #18, at 45-58) pending before the U.S. Bankruptcy Court for the Middle District of Florida would render this case duplicative, the motion (ECF #9) should GRANTED and this case should be stayed pending adjudication of the Bar Order. ///
Motion to Approve Compromise of Controversy or Settlement Agreement, In re Network F.O.B., Inc., U.S. Bankruptcy Court for the Middle District of Florida, Case No. 3:16-bk-3416-PMG, ECF #113, Ex. B, at 45-58.
BACKGROUND
This matter involves a dispute over the collection of assigned motor-carrier freight-charge accounts receivable. Craft Brew Alliance, Inc. ("Craft Brew") is a craft beer brewing company with its principal place of business in Portland, Oregon. Compl., ECF #1, ¶ 1. Craft Brew retained the freight-broker services of Network F.O.B. ("Network") to facilitate the delivery of beer to its customers. Def.'s Mot. to Dismiss, ECF #9, at 2. Network retained a factoring agent, CSNK Working Capital Finance Corp. d/b/a Bay View Funding ("Bay View"), to help finance its operations and collect payment from its customers, including Craft Brew. Jeanne Sinnott, Tr. of May 24, 2017 Oral Arg., ECF #19, at 12. Bay View collects payments from the shippers or the consignee or whoever is liable for the freight charges, including Craft Brew. Id.
In September 2016, Network's creditors forced it into involuntary Chapter 7 bankruptcy, resulting in the case: In re Network F.O.B., Inc., U.S. Bankruptcy Court for the Middle District of Florida, Case No. 3:16-bk-3416-PMG. Network ceased operations in July 2016. Bankruptcy Ct. Mot. for Settlement, ECF #18, at 3. Historically, Network operated as a national freight broker for many shippers, including Craft Brew, and coordinated the delivery of beer shipments by selecting motor carriers, negotiating shipping rates, billing Craft Brew, paying the motor carriers, and delivering the goods to the customer or consignee. ECF #9, at 3. Network billed Craft Brew the freight charges owed to the motor carrier plus Network's commission. Id.
BBA is a debt collector in the business of collecting assigned motor-carrier freight charges. Id. at 2. Motor carriers assign BBA their rights under bills of lading, and BBA attempts to collect from the shippers or their consignees, or both, regardless if the shippers or consignees paid the freight broker. Id. at 3. Thus, there are two types of receivables that BBA attempts to collect on: paid and unpaid receivables. Here, paid receivables are amounts Craft Brew and its customers paid to Network or Bay View that Network or Bay View did not pay to the motor carriers or BBA, whereas unpaid receivables are amounts Craft Brew and its customers have not paid to Network or Bay View and that Network or Bay View did not pay to the motor carriers or BBA.
Craft Brew claims it has fully paid Network and Bay View for shipments for which BBA is owed motor-carrier freight charges, i.e., there are no outstanding unpaid receivables. ECF #9, at 3; Pl.'s Response, ECF #10, at 1. Craft Brew also claims that, while there may be outstanding paid receivables, Network's contracts with the motor carriers provided that the motor carriers, and thus their assignees including BBA, could seek payment only from Network and explicitly state that they could not look to Craft Brew or its customers for payment. Compl., ECF #1, ¶ 5. Specifically, on April 14, 2015, Craft Brew and Network entered into a Transportation Broker Agreement that contained a No Recourse provision. Id. ¶ 6. This provision states: "Carrier agrees that it will look solely to Broker for the payment of its charges and that it will not contact or pursue Broker's customers or the shipper or consignee for payment of freight, accessorial, or other charges owed to Carrier." Id. ¶ 7.
However, BBA has been attempting to collect payment for paid receivables from both Craft Brew and its customers. Id. ¶¶ 16-21. BBA asserts that contracts aside, by electing to pay Network without ensuring that the underlying charges owed to the motor carrier were satisfied, Craft Brew opened itself up to paying the freight charges twice. ECF #9, at 4. Craft Brew filed this lawsuit seeking inter alia a declaratory judgment that BBA is contractually barred from recovering any amounts from Craft Brew or its customers. Compl., ECF #1, at 9.
At oral argument on this motion to dismiss or stay (ECF #9), BBA notified the court and opposing counsel of a proposed "Bar Order" pending adjudication in the U.S. Bankruptcy Court and argued that, if adopted, this action would be duplicative. Jeffrey Cohen, Tr. of May 24, 2017 Oral Arg., ECF #19, at 5-8, 15-19.
FINDINGS
I. First-to-File Rule
Under the first-to-file rule, when cases involving the same parties and issues have been filed in two different federal districts, the district court of the second-filed action has discretion—under the doctrine of federal comity—to transfer, stay, or dismiss the second-filed action. Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 769 (9th Cir. 1997); Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 625 (9th Cir. 1991); Pacesetter Sys. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982). The first-to-file rule "'should not be disregarded lightly.'" Alltrade, 946 F.2d at 625 (quoting Church of Scientology of California v. U.S. Dept. of Army, 611 F.2d 738, 749 (9th Cir. 1979), overruled on other grounds by Animal Leg. Def. Fund v. U.S. Food & Drug Admin., 836 F.3d 987 (9th Cir. 2016)).
The purpose of the first-to-file rule "is to maximize judicial economy, consistency, and comity." Kohn Law Grp., Inc. v. Auto Parts Mfg. Miss., Inc., 787 F.3d 1237, 1240 (9th Cir. 2015) (citing Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 604 (5th Cir. 1999) ). The principle behind the rule is to "avoid duplicative litigation" and "to promote judicial efficiency." Barapind v. Reno, 225 F.3d 1100, 1109 (9th Cir. 2000) (citations omitted). "When considering issues raised by the comity doctrine, . . . courts are not bound by technicalities." Church of Scientology, 611 F.2d at 749; see also R.R. St. & Co. Inc. v. Transport Ins. Co., 656 F.3d 966, 976 (9th Cir. 2011).
Generally, application of the rule turns on three factors: "(1) the chronology of the actions; (2) the similarity of the parties; and (3) the similarity of the issues." Kohn Law, 787 F.3d at 1240. However, no precise test has evolved for determining whether one action is duplicative of another. See Colorado River Water Cons. Dist. v. United States, 424 U.S. 800, 817 (1976). What is clear, however, is that district courts are to be accorded a great deal of latitude and discretion when undertaking considerations of this nature. Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183-84 (1952). The "rule is not a rigid or inflexible rule to be mechanically applied, but rather is to be applied with a view to the dictates of sound judicial administration." Pacesetter, 678 F.2d at 95.
II. Analysis
Here, the bankruptcy proceeding was the first-filed action—it commenced in 2016. In re Network F.O.B., Inc., U.S. Bankruptcy Court for the Middle District of Florida, Case No. 3:16-bk-3416-PMG.
Second, while there are no shared parties, the unique nature of the bankruptcy proceeding justifies application of the first-to-file rule. See Kohn Law, 787 F.3d at 1240 ("[T]he first-to-file rule requires only substantial similarity of parties."). In this case, the parties are Craft Brew and BBA. The dispute between Craft Brew and BBA arose out of their exchanges with Network. Although Network is the debtor in the bankruptcy proceeding, there are many entities, including Craft Brew and BBA, whose rights will necessarily be adjudicated by the bankruptcy court even though they are not named parties. The Bar Order, which is discussed in more detail below, specifically covers the exchanges made by entities with "lack of appearances in [the bankruptcy] case." ECF #18, at 41.
Third, the underlying issues may or may not be duplicative depending on whether the U.S. Bankruptcy Court adopts or rejects the proposed Bar Order. The bankruptcy proceeding necessarily covers a much broader range of issues than this action, but whether BBA's collection of paid receivables from Craft Brew and its customers would be decided in the bankruptcy proceeding depends entirely on the adjudication of the proposed Bar Order.
At issue in the bankruptcy proceeding are the competing ownership claims to receivables made by Bay View, the bankruptcy estate, the motor carriers, and the motor carriers' assignees, including BBA. There, the bankruptcy trustee is seeking an order prohibiting the motor carriers and their assignees from seeking or demanding payment of their claims from Bay View, the shippers, and their consignees. ECF #18, at 2. This "Bar Order" would enjoin claims against the receivables and against the shippers and consignees from whom payment is due for the receivables, including Craft Brew and its customers. Id. at 9.
Paragraph 12 of the Bar Order states:
All persons and entities [e.g., BBA] who have held, hold or may hold claims, rights, causes of action, liabilities, liens, or any interests of any kind or nature against [Network] or any property of [Network], including its Receivables, arising out of or relating to goods or services provided to [Network], regardless of the filing, lack of filing, lack of appearances in this case, allowance or disallowance of any such claim or interest, and any successors, assigns or representatives of any such person or entity (collectively, the "Claimants"), are hereby precluded, barred and enjoined from the commencement or continuation of any action or proceeding (whether formal or informal, and including, without limitation, making demand) against any Shipper [e.g., Craft Brew], Consignee [e.g., Craft Brew's customers], person or entity to whom [Network] provided goods or services at any time (a "Customer") seeking or demanding payment from such Customer of any amount owed by [Network] (whether severally, jointly or otherwise) to such person or entity.ECF #18, at 41-42 (emphasis added).
If adopted, this sentence would bar BBA from seeking any payments from Craft Brew and its customers, for both paid and unpaid receivables, because it bars seeking or demanding payment from "any Shipper [e.g., Craft Brew], Consignee [e.g., Craft Brew's customers], person or entity to whom [Network] provided goods or services at any time" "of any amount owed by [Network]." Id. This broad language, which defines the bar in terms of what Network owes, necessarily includes both paid and unpaid receivables, including the paid receivables that BBA is attempting to collect from Craft Brew and its customers. Whether Craft Brew or its customers paid Network or not has no bearing on what amounts Network owes.
The next sentence in paragraph 12 pertains only to unpaid receivables:
Without limiting the generality of the foregoing, all Carriers and other Claimants [e.g., BBA] who provided services to [Network] for which it has not been paid are hereby precluded, barred and permanently enjoined from seeking, demanding, communicating with, or taking any other action against any Shipper [e.g., Craft Brew] or Consignee [e.g., Craft Brew's customers] the purpose of which is to obtain payment of amounts owed to[Network].ECF #18, at 42 (emphasis added).
Unlike the previous sentence, this sentence defines the bar in terms of what Network is owed. However, by including the clause: "without limiting the generality of the foregoing," the first sentence in paragraph 12 retains its meaning. Thus, both paid receivables and unpaid receivables are covered by the bar order and if adopted, the bar order would resolve the issue that Craft Brew seeks resolution of here.
III. Appropriate Remedy
Resolving this motion now risks rendering an inconsistent judgment. For example, this court could find that this action is duplicative and dismiss it in deference, but then the U.S. Bankruptcy Court could reject the Bar Order. Alternatively, this court could find that this action is not duplicative and retain it, but then the U.S. Bankruptcy Court could adopt the Bar Order. In the first scenario, Craft Brew would be without recourse. In the second, BBA would be forced to litigate two duplicative actions simultaneously. Thus, staying the case until the U.S. Bankruptcy Court adopts or rejects the Bar Order is the most appropriate course of action. Because a stay is appropriate, the court does not reach BBA's motion to dismiss for failure to state a claim under FRCP 12(b)(6).
Craft Brew has represented that it is "amenable to staying this case so long as [BBA] is enjoined from its collection efforts under the bills of lading." Pl.'s Response, ECF #10, at 4; see also Jeanne Sinnott, Tr. of May 24, 2017 Oral Arg., ECF #19, at 18. BBA has not expressly agreed to such an order. See Jeffrey Cohen, Tr. of May 24, 2017 Oral Arg., ECF #19, at 15-16, 19. Moreover, it is unclear what authority the court has to issue such an order where Craft Brew has not met the requirements of FRCP 65. Therefore, if Craft Brew still desires to enjoin BBA from its collection efforts of paid receivables, it should bring an appropriate motion. --------
RECOMMENDATION
The motion to dismiss or stay (ECF #9) should be GRANTED. The court should stay this proceeding pending the U.S. Bankruptcy Court's adjudication of the Bar Order (ECF #18, at 45-58) in In re Network F.O.B., Inc., U.S. Bankruptcy Court for the Middle District of Florida, Case No. 3:16-bk-3416-PMG, and direct the parties to submit a joint status report within 14 days of the U.S. Bankruptcy Court's adjudication of the Bar Order.
SCHEDULING ORDER
These Findings and Recommendation will be referred to a district judge. Objections, if any, are due Wednesday, August 02, 2017. If no objections are filed, then the Findings and Recommendation will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement. /// ///
NOTICE
These Findings and Recommendation are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.
DATED July 19, 2017.
/s/ Youlee Yim You
Youlee Yim You
United States Magistrate Judge