Opinion
C.A. No. 00C-06-025
Submitted: October 13, 2000
Decided: November 8, 2000
Upon Defendants' Motion to Dismiss or, in the Alternative to Stay Delaware Proceedings. Denied in part; Granted in part.
William W. Pepper, Sr., Schmittinger and Rodriguez, P.A., Dover, Delaware and Jennifer L. Kapell, Carpenter, Bennett Morrissey, Newark, New Jersey, Attorneys for the Plaintiffs.
Andre G. Bouchard and Joel Friedlander, Bouchard, Margules Friedlander, Wilmington, Delaware, Attorneys for the Defendants.
ORDER
This is Defendants' Motion to Dismiss or, in the alternative, to Stay Delaware Proceedings pending the outcome of a declaratory judgement action filed in New York. The Delaware case is a debt collection action for payment of a services contract.
1. Harry DeBari, Spencer McElhannon and Peng Lin ("Plaintiffs") are principal shareholders and officers of a company known as DeBari Associates, Inc. ("DAI"). DAI was primarily engaged in document imaging for litigation support. During the summer of 1996, Nortec, LLC ("Nortec") and DAI met to discuss current business problems and the possibility of a joint venture to meet both companies needs. Whether or not an agreement was ever reached about that joint venture is the basis of an action for declaratory judgement in New York; therefore, all of the following are merely the parties' allegations — not facts. DAI alleges that they set up Net Data Services, Ltd. ("Net Data") and Nortec was merely a customer of Net Data. Two years later, in February 1998, DAI (with Net Data as DAI's wholly owned subsidiary) merged with Debari Associates Acquisition Corp. ("DAAC"). DAAC is a company created by F.Y.I., Inc., corporate parent of DAAC, solely for the merger. Allegedly, Nortec was contacted about the merger and continued as a customer. In February 1999, Nortec's principals wrote to FYI claiming a 50% ownership interest in Net Data. In May 1999, DAAC sought a declaratory judgement in New York regarding the prior ownership of Net Data.
2. Plaintiffs filed a complaint in this Court on June 15, 2000, to collect an amount owed on an outstanding debt from Nortec. The debt is owed on services rendered to Nortec between March 1998 and July 1998. The services were provided by Net Data and were invoiced by DeBari Associates Ltd. The billing for the services came after DAAC merged with DAI, Net Data's alleged corporate parent, in February 1998. In March 2000, DAAC assigned its claim for payment to the Plaintiffs.
3. The litigation in New York between Nortec, DAAC and Plaintiffs over who owns and controls Net Data potentially complicates this debt collection case. Plaintiffs claim that the debt collection issue was not included in the New York action because "the collection claim would be bogged down by the unrelated issues concerning the ownership of Net Data." On the other hand, Nortec alleges that the New York action will determine the ownership of Net Data and the terms of the joint venture agreement between DAI and Nortec. Nortec further claims that the terms of the services contract underlying this debt action were part of the joint venture agreement.
4. Generally, the jurisdiction in which a suit is first-filed is the location where the litigation occurs, and subsequent filings in other jurisdictions will be stayed by those courts pending the outcome of the first-filed action. The rationale underlying this rule is primarily that of protecting the moving party's choice of forum. Without this rule, a defendant could defeat the plaintiffs choice of forum by filing the same action or a similar action in a different forum. Given the national/global nature of business today, courts must be mindful of what the McWane court called "considerations of comity and the necessities of an orderly and efficient administration of justice." In addition to comity. courts look at "the economy of judicial effort, the efficiency of the administration of justice, and the prevention of unwarranted delay" when deciding motions to stay in light of actions filed in other jurisdictions.
McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering, Del. Supr., 263 A.2d 281, 283 (1970); Baks v. Centra, Inc., 1994 WL 555466 (Del.Super.) (Silverman, J.) at *2.
McWane at 283.
Id.
Baks at *2
5. Both parties agree that McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Corp. sets forth the appropriate standard for this motion to dismiss or stay. The McWane Test is a three part test in which it must be determined if (1) a prior action is pending elsewhere, (2) the same parties and issues are involved, and (3) the prior pending action is in a court capable of doing prompt and complete justice. According to McWane, the court's "discretion should be exercised freely in favor of the stay when there is a prior action pending elsewhere, in a court capable of doing prompt and complete justice, involving the same parties and the same issues." In cases where the three factors exist, McWane comity prefers the moving party's choice of forum.
McWane, 263 A.2d 281, 283.
Id.
Id.
6. Three basic parts exist to the McWane comity test. First, a prior action must be pending in another jurisdiction. This simply reflects the general rule that "in most cases, litigation should be confined to the jurisdiction in which it is first commenced." The rationale underlying this rule is that the court where the action is first filed should be the "battleground" for the litigants, and other courts will await the outcome by staying any subsequent filings. In other words, courts "will pay deference to the parties' first choice of forum." Second, the parties and issues must be evaluated to see if they are the same. Third, the court must determine if the court in which the prior action is first-filed is capable of doing prompt and complete justice. This part of the test ensures that procedural matters such as jurisdiction over all the parties and issues is considered.
Id.
Id.
7. In the immediate case before this Court, the second part of the McWane test is the most difficult. The second part involves determining if the same parties and issues are involved. Often the parties and issues are not mirror images when actions arise in multiple forums. In Baks v. Centra, Inc., a debt action involving the collection of a corporate dividend filed in both Michigan and Delaware, the court was faced with a similar situation because the parties and issues were not identical in both forums. The Baks court stated that "[t]he Court must balance the lack of complete identity of parties and issues in the two actions against the possibility of conflicting rulings if both actions were allowed to proceed at the same time. The court in Baks balanced the facts and circumstances surrounding the parties and issues in the two courts using the following factors: (1) whether the ruling of the other court would simplify and expedite the proceedings before this Court, and (2) whether granting the motion to stay or dismiss would eliminate the possibility of inconsistent rulings on similar issues. In Dura Pharmaceuticals, Inc. v. Scandipharm, Inc., the court recalled that "all claims arising from a common nucleus of operative facts should be brought in the same court at the same time whenever possible." The McWane comity test is used when there exists a "close enough identity of issues between the two actions."
Baks at *4; citing with approval, Life Assurance Co. of Pa. v. Associated Inv. Int'l Corp., Del. Ch., 312 A.2d 337, 341 (1973).
Baks at *4
Dura Pharmaceuticals, Inc. v. Scandipharm, Inc., Del. Ch., 713 A.2d 925, 930 (1998); quoting. Transamerica Corp. v. Reliance Insurance Co., Del. Super., C.A. No. 94C-10-221, (Cooch. J) (Aug. 13, 1995) slip op. at 16-17.
Dura Pharmaceuticals at 930.
8. Applying the McWane test to the case sub judice is not a simple matter. A prior action is pending in New York, and the Supreme Court of New York is capable of doing prompt and complete justice. Jurisdiction exists over all the parties in both states, and the action in New York was filed first. Having met two of the prongs of the McWane test, the more difficult task of determining the similarity between the issues and parties remains. At first glance the issues do not appear to be similar as the New York action is an action for a declaratory judgement to determine ownership of a company while the Delaware action is a debt collection. In reviewing the New York action, it is apparent that the same parties are involved in both the New York action and the Delaware action.
9. Plaintiffs argue that this is merely a debt collection case, but the Defendant argues that the contract underlying the debt involves the joint venture agreement already being litigated in New York. In asserting that this is a "simple and straightforward collection matter," Plaintiffs claim that this Court must only resolve the following four issues: (1) was there an agreement to provide services for an agreed upon amount, (2) were those services provided, (3) was payment made, and (4) did DAAC assign its right to payment on the receivable to the Plaintiffs here. This Court agrees that these are the basic elements which must be proven on the underlying debt action.
10. However, Nortec argues that the underlying services contract was part of the alleged joint venture agreement which complicates the first issue on the Plaintiffs' list. Specifically, Nortec claims that "DAAC succeeded to a 50/50 joint venture agreement between DeBari Associates and Nortec and that DeBari Associates' contractual obligation to cause Net Data to issue stock to Nortec was the consideration for Nortec's commitment to provide all of its data entry business to Net Data at premium prices." Allegedly, the contract claim in this case is part of the joint venture agreement in which Nortec made Net Data its sole provider of data entry services, paid higher rates, paid in advance and took other steps at its own expense to aid in the development of Net Data. In addition, Nortec claims that resolution of the company's ownership in New York will aid in determining the legitimacy of DAAC's assignment of the Nortec debt to the Plaintiffs. If Nortec is found to have been a 50% owner of Net Data, the validity of actions taken by DAAC could come into question.
11. Viewing these facts under McWane and Baks, a ruling by the New York court would simplify and expedite the proceeding before this Court. The Supreme Court of New York will be determining the terms of any joint venture agreement that might exist. The debt collection matter before this Court will be simplified and expedited after the New York Court renders its decision. If the New York Court finds that no joint venture agreement existed, the case before this Court becomes a "simple" debt collection matter. On the other hand, should the New York Court find that a joint venture agreement existed and establish the terms of the agreement, the case before this Court could be materially altered. In addition, a ruling on the alleged joint venture agreement would eliminate the possibility of inconsistent rulings between the two courts should the New York Court find that this contract was part of the joint venture agreement.
In light of the above facts and circumstances and following the rationale underlying the McWane test, Defendants' Motion to Dismiss is denied at this time; however, Defendants' alternative Motion to Stay Delaware Proceedings is granted.
IT IS SO ORDERED.