Commercial Litigation and Arbitration

First-Filed Rule Bars Federal Declaratory Judgment Action Filed after State Court DJ Action — Brillhart-Wilton Appears to Be Decisive— Unclear Whether Court Would Apply First-Filed Rule in Non-DJ Context, Where Circuits Are Split

Catlin Specialty Ins. Co. v. Plato Constr. Corp., 2012 U.S. Dist. LEXIS 36494 (D.N.J. Mar. 19, 2012):

a. General Applicability of the First-Filed Rule to Co-pending Parallel State and Federal Litigations

Under the First-Filed Rule, "'[i]n all cases of federal concurrent jurisdiction, the court which first has possession of the subject must decide it.'" EEOC v. Univ. of Pa., 850 F.2d 969, 971 (3d Cir. 1988) (quoting Crosley Corp. v. Hazeltine Corp., 122 F.2d 925, 929 (3d Cir. 1941)). The rule is intended to encourage "sound judicial administration" and to promote "comity among federal courts of equal rank." Id. The Court first decides, as a threshold matter, whether the First-Filed Rule is applicable to the instant litigation, which involves two declaratory judgment actions co-pending in the Supreme Court of New York and this Court. This is an issue of first impression in this Court.

The Supreme Court has stated that "[g]enerally, as between state and federal courts, the rule is that "the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction . . . ." Colorado River Water Conservation District v. United States, 424 U.S. 800, 817 (1976) (quoting McClellan v. Carland, 217 U.S. 268, 281 (1910)). The Colorado River Court explained that this general principle stemmed from "the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Colorado River, 424 U.S. at 817-18 (citing England v. Louisiana State Bd. of Medical Examiners, 375 U.S. 411, 415 (1964)). As a result, "[a]bdication of the obligation to decide cases can be justified under this doctrine only in the exceptional circumstances where the order to the parties to repair to the state court would clearly serve an important countervailing interest." Colorado River, 424 U.S. at 813.

After Colorado River, federal courts have disagreed on the applicability of the First-Filed Rule to co-pending state and federal court litigations. See Central States Indus. Supply, Inc. v. McCullough, 218 F.Supp.2d 1073 (N.D. Iowa 2002) ("The court recognizes, and the parties address in their briefs, the split among the federal courts regarding the applicability of the first-filed rule to concurrent litigation filed in a state court and a federal court."). Among the federal courts holding that the First-Filed Rule does apply in this situation are the Eleventh Circuit and the District of Arizona. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 675 F.2d 1169, 1174 (11th Cir.1982) ("the court initially seized of a controversy should be the one to decide the case. . . . It should make no difference whether the competing courts are both federal courts or a state and federal court with undisputed concurrent jurisdiction."); United Artists Theatre Circuit, Inc. v. F.C.C., 147 F. Supp. 2d 965, 978 (D. Ariz. 2000) (applying the First-Filed Rule in a case of co-pending parallel state and federal litigation). On the other hand, at least one federal district court and one circuit court have held that the First-Filed Rule does not apply to co-pending parallel state and federal litigation. Hospah Coal Co. v. Chaco Energy Co., 673 F.2d 1161, 1163 (10th Cir.1982); Central States, 218 F.Supp.2d at 1093 (holding in the Northern District of Iowa that the First-Filed Rule does not apply to concurrent state and federal litigations) (citing Northwest Airlines, Inc. v. American Airlines, Inc., 989 F.2d 1002, 1005 (8th Cir.1993); Orthmann v. Apple River Campground, Inc., 765 F.2d 119, 121 (8th Cir.1985)). [Note: There is also precedent in the Southern District of New York (Scheindlin, J.) holding that the first-filed doctrine does not apply where the first suit is in state court and that Colorado River instead governs.]

The Third Circuit has previously held that "where the judgment sought is strictly in personam, both the state court and the federal court, having concurrent jurisdiction, may proceed with the litigation at least until judgment is obtained in one of them which may be set up as res judicata in the other." Crosley, 122 F.2d at 929 (quoting Princess Lida v. Thompson, 305 U.S. 456, 466 (1939)). While this language, viewed in the abstract, could potentially counsel against application of the First-Filed Rule to co-pending parallel state and federal litigations, Crosley was a case in which the issue was whether a federal court could enjoin a state court from proceeding further when the federal court had concurrent jurisdiction over an identical case. It is important to note that "[i]njunction is the most controversial of the remedies for parallel litigation because it interferes with another court's power, often in another state or country." George, 51 Baylor L. Rev. at 781 (citing Gannon v. Payne, 706 S.W.2d 304, 306-07 (Tex. 1986)). Thus, Defendant's prayer for dismissal of the instant case is markedly different from the "controversial" injunction sought in Crosley.

It is important to note that the Colorado River Court itself held that the Colorado River plaintiff's case must be dismissed from federal court while the state court litigation was co-pending. Colorado River, 424 U.S. at 819 (explaining that "exceptional circumstances" existed in "the present case, [where] a number of factors clearly counsel against concurrent federal proceedings, [the most important of which] is the McCarran Amendment"); see James P. George, "Parallel Litigation," 51 Baylor L. Rev. 769, 896 (1999) ("Because Colorado River applies to all instances of parallel state-federal litigation, its presumption against abstention could clash with strong federalism concerns . . . and presumably the federalism concerns would prevail.").

Federalism concerns require that a federal court "tread lightly" when a state proceeding is already underway. Merrill Lynch, 675 F.2d at 1173 (citing Southern California Petroleum Corp. v. Harper, 273 F.2d 715, 718-20 (5th Cir. 1960)). Based on federalism concerns, the Eleventh Circuit has stated that the prevailing standard is that "in the absence of compelling circumstances," the First-Filed Rule should apply to co-pending parallel state and federal litigations. Merrill Lynch, 675 F.2d at 1174 (noting that "[t]he continued vitality and independence of concurrent judicial systems require our sensitive consideration of ongoing proceedings in state courts.") (citing Toucey v. New York Life Insurance Co., 314 U.S. 118 (1941)).

b. The First-Filed Rule in the Context of Co-pending Parallel State and Federal Declaratory Judgment Actions

The First-Filed Rule applies with even more force to declaratory judgment actions, since a district court's jurisdiction in such an action is discretionary in nature. The Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a) (emphasis supplied). Accordingly, the Supreme Court in Brillhart v. Excess Insurance Co., 316 U.S. 491 (1942), dismissed a second-filed federal declaratory judgment action paralleling a previously-filed state action. Id. at 494. The Brillhart Court explained that, in view of the discretionary nature of the Declaratory Judgment Act, a district court is "under no compulsion" to exercise jurisdiction concurrent to a pending state litigation. Id. at 494-95 ("Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties."). Though Brillhart was a pre-Colorado River case, the Supreme Court revisited Brillhart after Colorado River in Will v. Calvert Fire Insurance Co., 437 U.S. 655 (1978) and later in Wilton v. Seven Falls Co., 515 U.S. 277 (1995). A plurality of the Supreme Court in Will applied Brillhart's holding to bar a second-filed federal declaratory judgment paralleling a previously-filed state action in a post-Colorado River context. Subsequently, in Wilton, a majority of the Supreme Court clarified that the discretionary standard announced in Brillhart, rather than the "exceptional circumstances" test of Colorado River, governed a district court's decision to stay or dismiss a second-filed parallel federal declaratory judgment action. Wilton, 515 U.S. at 289-90.

Accordingly, "district courts may refuse to offer declaratory relief when considerations of 'practicality and wise judicial administration' prevail." United Artists, 147 F. Supp. 2d at 978 (quoting Wilton, 515 U.S. at 287); see Hospah Coal Co., 673 F.2d at 1164-65 (emphasizing that declaratory judgment actions may not "be used as yet another weapon in a game of procedural warfare."); George, 51 Baylor L. Rev. at 782 (noting that "[i]n many jurisdictions, a second-filed declaratory action is dismissed as a matter of law if it seeks no greater relief than the first-filed action."). Moreover, "[t]he Fifth Circuit has decided that when a state lawsuit is pending, more often than not, issuing a declaratory judgment will be tantamount to issuing an injunction-- providing the declaratory plaintiff an end run around the requirements of the Anti-Injunction Act." Travelers Ins. Co. v. Louisiana Farm Bureau Federation, Inc., 996 F.2d 774, 776 (5th Cir. 1993). Moreover, "issuance of a declaratory judgment in such situations would be antithetical to the noble principles of federalism and comity." Id.

In light of the above analysis of countervailing judicial principles, and in the absence of direct guidance from the Third Circuit, this Court holds that principles of federalism, comity, and judicial restraint counsel in favor of application of the First-Filed Rule to co-pending, parallel state and federal declaratory judgment actions.

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