Opinion
03 Civ. 3706 (JFK)
October 16, 2003
Paul R. Levenson, Esq. Wendy M. Cortes, Esq. Ashima Aggarwal, Esq., KAPLAN LEVENSON LLP, New York, for Plaintiff
Edward R. Finkelstein, Esq., SEXTER WARMFLASH, New York, for Defendant
Opinion Order
Presently before the Court are a motion by Defendant Nancy Lambert ("Lambert") to stay or dismiss this action and a cross-motion by Plaintiff Pem America, Inc. ("Pem America") to enjoin Lambert from prosecuting a parallel action filed by her in the United States District Court for the Northern District of Illinois. For the reasons set forth herein, defendant's motion for a stay is granted and plaintiff's motion to enjoin is denied.
Background
Pem America is a New York corporation in the business of designing and importing home textiles, including quilts and related products, for distribution and sale in the United States. From October 1999 until February 15, 2003, Lambert designed merchandise sold by Pem America. The exact nature of Lambert and Pem America's business relationship is a critical issue in dispute in the underlying action. Pem America claims that Lambert was an employee and Vice President of the company, whereas Lambert contends she was an independent contractor. The exact nature of Lambert's relationship with Pem America is important because both she and Pem America seek a declaratory judgment awarding her or it, respectively, copyright ownership of the merchandise designs.
On May 19, 2003, Lambert filed an action in the United States District Court for the Northern District of Illinois entitled Lambert v. PEM-America, Inc., 03 C. 3330 (DHC) (the "Illinois Action"). In that action, Lambert seeks a declaratory judgment that she owns the copyrights to each of the designs she created while engaged by Pem America. Lambert also asks the court to issue an injunction preventing Pem America from infringing on her copyrights by continuing to sell merchandise bearing her designs. A copy of the complaint in the Illinois Action was sent by facsimile to Pem America's lawyers on May 21, 2003.
On May 22, 2003, one day after receiving notice that the Illinois Action had been filed, Pem America instituted its own action here in the United States District Court for the Southern District of New York. Pem America's complaint, entitled Pem America, Inc. v. Nancy Lambert, 03 Civ. 3706 (JFK) (the "New York Action"), seeks a declaratory judgment that Pem America, not Lambert, is the owner of the copyrights to the designs created by Lambert during the course of their business relationship. In addition, Pem America requests compensatory and punitive damages for what it alleges is the conversion of computers, furniture and property the company purchased for Lambert's use during her relationship with the company.
Having filed similar and competing actions in two separate venues, each party has since moved to stay or dismiss the action in which it is a defendant and enjoin its opponent from prosecuting its own action. In essence, each court has been asked to dismiss the case pending before it and transfer the action to the other court. Logically, one of the actions should be dismissed so as to avoid conflicting decisions and conserve judicial resources, not to mention the parties' resources. The immediate question facing each court, is which court should decide which action should proceed.
Discussion
It is well-settled law in this Circuit that when two lawsuits involving the same parties and issues are filed in separate federal districts, the first suit filed has priority absent a showing that special circumstances exist or that a balance of conveniences favors the second suit. See First City Nat'l Bank Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989); Motion Picture Lab. Technicians Loc. 780 v. McGregor Werner. Inc., 804 F.2d 16, 19 (2d Cir. 1986); Fort Howard Paper Co. v. William D. Witter, Inc., 787 F.2d 784, 790 (2d Cir. 1986); Semmes Motors. Inc. v. Ford Motor Co., 429 F.2d 1197, 1202 (2d Cir. 1970). The "first filed" rule is considered wise judicial administration because it conserves judicial resources, avoids duplicative or conflicting results and fosters a comprehensive disposition. See Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952); Factors. Etc., Inc. v. Pro Arts. Inc., 579 F.2d 215, 218 (2d Cir. 1978)
Pem America concedes that its New York Action was filed after Lambert's action was filed in Illinois. Pem America insists, however, that a special circumstance sufficient to create an exception to the first filed rule exists. The special circumstance, according to Pem America, is that the Illinois Action represents an "anticipatory filing" made under the direct threat of imminent litigation and motivated solely by an interest in forum shopping. Courts in this Circuit have deemed anticipatory filings of the nature suggested by Pem America to be special circumstances warranting an exception to the rule. See City of New York v. Exxon Corp., 932 F.2d 1020, 1025 (2d Cir. 1991); Toy Biz. Inc. v. Centuri Corp., 990 F. Supp. 328, 332 (S.D.N.Y. 1998);Ontel Prods., Inc. v. Project Strategies Corp., 899 F. Supp. 1144, 1150 (S.D.N.Y. 1995). Pem America also contends that a balance of the conveniences dictates dismissing the Illinois Action in favor of the New York Action.
The first filed rule and Pem America's argument that an exception to the rule exists relate to the question of which action, the Illinois Action or the New York Action, should proceed. Although that question must ultimately be resolved, it is not the question before this Court at this time. Rather a much more fundamental and procedural question must first be addressed: which court, the Southern District of New York or the Northern District of Illinois, should consider the applicability of the first filed rule and whether an exception to the rule exists.
Considering that motions to stay the other action have been filed in both the Illinois and New York Actions, it is not beyond the realm of possibility that each court could issue simultaneous rulings that would conflict with one another. For example, the Northern District of Illinois might rule that no exception exists and stay the New York Action. Simultaneously, this Court might be persuaded that an exception does exist and stay the Illinois Action. Such a scenario would result in tremendous confusion. In order to avoid conflict and confusion, the courts of this district, guided by Second Circuit case law, have adopted the bright-line rule that the court in which the first action was filed has the right and responsibility to decide whether the first filed rule or an exception thereto applies. See MSK Ins., Ltd, v. Employers Reinsurance Corp., 212 F. Supp.2d 266, 267 (S.D.N.Y. 2002);Reliance Ins. Co. v. Six Star. Inc., 155 F. Supp.2d 49, 54 n. 2 (S.D.N.Y. 2001); Invivo Research. Inc. v. Magnetic Resonance Equip. Corp., 119 F. Supp.2d 433, 440 (S.D.N.Y. 2000); Citigroup Inc. v. City Holdings Co., 97 — F. Supp.2d 549, 557 n. 4 (S.D.N.Y. 2000); Ontel Prods., 899 F. Supp.2d at 1150 n. 9. Although this bright-line rule is largely identical to and rooted in the first filed rule, it does not provide for any special exceptions. It is a straight-forward rule to be applied in a rote manner.
In light of this bright-line rule, this Court must defer to the Northern District of Illinois to make the determination as to whether the Illinois Action or the New York Action should proceed. As such, Lambert's motion for a stay of this action is granted and Pem America's cross-motion requesting the Court enjoin Lambert from prosecuting the Illinois Action is denied. The clerk of the court is hereby ordered to transfer this action to the suspense docket pending a determination by the Northern District of Illinois as to whether the case should proceed. Accordingly, the November 3, 2003 status conference is hereby adjourned.