Commercial Litigation and Arbitration

First-Filed Rule — Exceptions — Forum-Shopping Not Necessarily Abusive

From Nat’l Union Fire Ins. Co. of Pittsburgh, PA. v. Aker Kvaerner/IHI, 2010 U.S. Dist. LEXIS 60019 (S.D. Tex. June 16, 2010):

A. The First-to-File Rule

The first-to-file rule is based on "principles of comity and sound judicial administration." Save Power Ltd. v. Syntek Fin. Corp. , 121 F.3d 947, 950 (5th Cir. 1997). It "requires federal district courts -- courts of coordinate jurisdiction and equal rank -- to exercise care to avoid interference with each other's affairs." West Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 728 (5th Cir. 1985).

"Under the first-to-file rule, when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap." Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999) (citing Save Power, 121 F.3d at 950; West Gulf Maritime, 751 F.2d at 728). The rule vests in the court in which the first of the two related actions was filed the responsibility of "determin[ing] whether subsequently filed cases involving substantially similar issues should proceed." Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 920 (5th Cir. 1997). Therefore, the second-filed court should usually stay, dismiss, or transfer the action over which it is presiding in deference to the first-filed court. See West Gulf Maritime, 751 F.2d at 729 & n. 1, 730. This enables the court in which the first related action was filed to "decide whether the second suit filed must be dismissed, stayed or transferred and consolidated." Sutter Corp., 125 F.3d at 920. "In the absence of compelling circumstances, the Court initially seized of a controversy should be the one to decide whether it will try the case." Mann Manufacturing, Inc. v. Hortex, Inc. , 439 F.2d 403, 407 (5th Cir. 1971). In determining which action was filed first, the court considers a removed case to have been filed on the date it was filed in state court, rather than on the date of removal. See Igloo Products Corp. v. The Mounties, Inc., 735 F.Supp. 214, 217 (S.D. Tex. 1990). ***

The action currently pending between the parties in the Western District of Louisiana was filed in Louisiana state court on February 1, 2010. This action was filed on February 4, 2010. The action pending in Louisiana is therefore the first-filed action. The two actions also deal with substantially similar issues. While the action in Louisiana is a suit for breach of contract and the action in this court seeks to compel arbitration, both actions are essentially concerned with the question of what losses the Insurers are obligated to cover under the Policies. The two actions concern the same parties and the same facts. The Insurers pled the same grounds for federal jurisdiction in both actions, and AK/IHI has challenged federal jurisdiction in both actions on the same grounds. There is no reason why the Insurers could not have filed its motions to compel arbitration and seeking declaratory judgments in the action currently pending in Louisiana. Absent compelling circumstances, see Mann Manufacturing, 439 F.2d at 407, the court is obligated under the first-to-file rule to dismiss this action or transfer it to the Western District of Louisiana.

The Insurers argue that the first-to-file rule should not apply in this action because compelling circumstances require an exception. First, the Insurers argue that the first-to-file rule should not apply because the Louisiana action was an anticipatory lawsuit filed by AK/IHI for purposes of forum shopping. The court does not agree. Alleging that another party engaged in "forum shopping" does not establish that the opposing party's choice of forum was abusive. All plaintiffs must choose a forum in which to file their suit, and it is well settled that a plaintiff's choice of forum is entitled to "appropriate deference." See In re Volkswagen of America, Inc., 545 F.3d 304, 315 (5th Cir. 2008).

The cases cited by the Insurers for the principle that courts will disregard the first-to-file rule to prevent forum-shopping — e.g., British Borneo Exploration, Inc. v. Enserch Exploration, Inc., 28 F.Supp.2d 999 (E.D. La. 1998), and 909 Corp. v. Village of Bolingbrook Police Pension Fund, 741 F.Supp. 1290 (S.D. Tex. 1990) — involved situations in which parties sought to deprive an aggrieved party of its choice of forum by filing anticipatory declaratory judgment actions. These cases do not support disregarding the first-to-file rule in this action. AK/IHI is the party bringing the grievance and, thus, should be entitled to the plaintiff's traditional choice of forum. Moreover, AK/IHI seeks to recover on the merits of its claims, and is not merely seeking a declaratory judgment. And finally, Cameron Parish, Louisiana, is a logical forum in which to settle the dispute. This action involves damage to property in Cameron Parish. Because all the parties to this action signed insurance policies covering property in Cameron Parish, it is the one location to which all parties to the action have a connection. It is not abusive "forum shopping" to file suit in the venue with the most factual connections to the dispute.

The Insurers also argue that the court should disregard the first-to-file rule because "the balance of convenience favors the later filed action." Courts have recognized an exception to the first-filed rule where the balance of convenience favors the second-filed action. See Employers Ins. of Wasau v. Fox Entertainment Group, Inc., 522 F.3d 271, 275 (2d Cir. 2008); Igloo Products, 735 F.Supp. at 218. The Insurers, however, have not established that the Southern District of Texas is a more convenient location than the Western District of Louisiana for addressing the dispute. ***This court sees no reason to disregard the first-to-file rule on the basis of the parties' convenience.

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