Summary
applying first-filed rule, although first-filed case was a declaratory judgment action, because, "although the Texas Action is for declaratory judgment, it was filed in the face of a potential liability in excess of $3 million for the alleged breach of the Lease"
Summary of this case from RIEDELL SHOES, INC. v. ADIDAS AGOpinion
Civ. No. 03-6509 (RHK/JSM)
March 17, 2004
J.D. Jackson, Bricker L. Lavik, and Eric A. Ruzicka, Dorsey Whitney, LLP, Minneapolis, Minnesota, for Plaintiffs
Richard G. Morgan and David S. Miller, Bowman Brooke, LLP, Minneapolis, Minnesota, and Edward P. Perrin Jr. and C. Christian Frederiksen Jr., Hallett Perrin, PC, Dallas, Texas, for Defendants
MEMORANDUM OPINION AND ORDER
Introduction
AEI Income Growth Fund 23 LLC and its corporate managing member AEI Fund Management XXI, Inc. (collectively, "AEI") have sued Razzoo's LP for breach of a lease agreement and have sued Michael Leatherwood, Razzoo's Chief Executive Officer, as the guarantor of the lease agreement. Razzoo's and Leatherwood have moved to dismiss or, in the alternative, transfer venue. For the reasons set forth below, the Court will grant the motion to dismiss.
Background
Razzoo's, a Texas Limited Partnership with its principal place of business in Dallas, Texas, owns and operates Cajun-themed restaurants. (Leatherwood Aff. ¶ 3.) Michael Leatherwood, an Addison, Texas resident, is Razzoo's Chief Executive Officer. (Id. ¶¶ 2, 4.) AEI, headquartered in Minnesota with its principal place of business in St. Paul, owns real property in San Antonio, Texas. (Id. Ex. A-1; Pls.' Mem. in Opp'n at 2.) Razzoo's and AEI executed a Net Lease Agreement on April 19, 2000 (Leatherwood Aff. ¶ 6, Ex. A-1) and a First Amendment to that agreement on December 19, 2000 (Id. Ex. ¶ 8, A-3) (collectively, "the Lease"). Pursuant to the Lease, Razzoo's leases from AEI the San Antonio property. (Id. Ex A-1, A-3.) While Leatherwood is not a signatory to the Lease itself, he has personally guaranteed the Lease in a separate Guaranty of Lease ("Guaranty") dated April 19, 2000. (Id ¶ 7, Ex. A-2.)On December 3, 2003, AEI terminated the Lease due to Razzoo's alleged breach. (Id. Ex. A-4). AEI's letter of termination from its counsel to Razzoo's states:
Dear Sir,
This firm represents Lessor with regard to this matter. Razzoo's, Inc. has breached the provisions of Article 7 of the . . . Net Lease Agreement by converting Razzoo's, Inc., a Texas corporation, into Razzoo's, LP, a Texas limited partnership, and possibly assigning or otherwise transferring the Net Lease Agreement without notice to Lessor or Lessor's prior consent. Lessor has not consented to any sublease or assignment of the Net Lease Agreement. By the terms of Articles 7(c) and 17, Lessor hereby exercises its right to terminate the Net Lease Agreement. Please take notice that the . . . Net Lease Agreement is terminated at 11:59 p.m. on December 5, 2003. By the terms of Article 17, on termination of the Net Lease Agreement, among other things, Lessee shall have continuing liability for future rent for the remainder of the original term and any exercised renewal term, preserving unto Lessor the benefit of its bargained for rental payments. In addition to all other remedies Lessor may have, by the terms of Article 19(D), Lessor will seek the cost of recovering and reletting the Leased Premises, reasonable attorneys fees, and the present value of the Lease, all of which shall be immediately due and payable from Lessee to Lessor in full, as is more specifically described in the Net Lease Agreement. The amount due will be in excess of $3,469,158. Nothing contained herein or in the previous actions of Lessor is any waiver or release of any actions, claims or remedies Lessor may have against Razzoo's Inc., its affiliates, successors and assigns, and Guarantor, and all such rights, claims and remedies are expressly reserved.
(Id.)
On December 9, 2003, Razzoo's responded by disputing that it had breached the Lease, stating that it viewed AEI's conduct as a repudiation of the agreement, and denying any further liability. (Id. Ex. A-5.) Razzoo's letter concluded, "Hopefully, after the careful consideration of the foregoing, no further action will be necessary." (Id.) On December 12, 2003, Razzoo's and Leatherwood (hereinafter, "Razzoo's") filed a petition against AEI in Texas state court (hereinafter, the "Texas Action") seeking a declaratory judgment:
(a) that the Lease between AEI and Razzoo's was repudiated and/or terminated by AEI effective December 5, 2003, without any default by Razzoo's under the Lease; (b) no monies are owed by Razzoo's under the Lease Agreement; (c) Razzoo's has no further liability or obligation under the Lease; and (d) Leatherwood has no further liability or obligation under the Guaranty of Lease, dated April 19, 2000.
(Id. ¶ 5, Ex. A.)
On December 19, 2003, AEI filed the instant lawsuit in this Court (hereinafter, the "Minnesota Action"), alleging that Razzoo's breached the Lease and seeking to hold Leatherwood liable under his Guaranty. (Compl. ¶¶ 23-27.)
On December 22, 2003, AEI removed the Texas Action from state court to the United States District Court for the Western District of Texas.
On January 23, 2004, AEI filed a motion in the Texas Action to transfer venue to the District of Minnesota pursuant to 28 U.S.C. § 1404, which is currently under advisement by the United States District Court for the Western District of Texas.
On January 20, 2004, Razzoo's filed the instant Motion to Dismiss or, alternatively, to Transfer Venue. Razzoo's argues that: (1) the "first-filed" rule requires dismissing AEI's Minnesota Action or transferring it to Texas; (2) venue in Minnesota is improper under Rule 12(b)(3) of the Federal Rules of Civil Procedure; and (3) the Minnesota Action should be transferred to Texas pursuant to 28 U.S.C. § 1404.
Analysis
Razzoo's asserts that this Court should dismiss AEI's Minnesota Action, or transfer it to the Western District of Texas, pursuant to the "first-filed" rule. "The well-established rule is that in cases of concurrent jurisdiction, the first court in which jurisdiction attaches has priority to consider the case." Northwest Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1005 (8th Cir. 1993) (citations omitted): see U.S. Fire Ins. Co. v. Goodyear Tire Rubber Co., 920 F.2d 487, 488-89 (8th Cir. 1990). "The first-filed rule gives priority . . . to the party who first establishes jurisdiction in order to conserve judicial resources and avoid conflicting rulings."Keymar v. Management Recruiters Int'l, Inc., 169 F.3d 501, 503 n. 2 (8th Cir. 1999) (citation omitted). Pursuant to the first-filed rule, a court has the discretion to dismiss the later action, or transfer it if the first action involves the same parties and issues. Slidell, Inc. v. Archer Daniels Midland Co., Civ. No. 02-4841 (MJD/JGL), 2003 WL 22050776, at *4 (D. Minn. Sept. 2, 2003) (Davis, J.).
The first-filed rule "is not intended to be rigid, mechanical, or inflexible, but is to be applied in a manner best serving the interests of justice. The prevailing standard is that in the absence of compelling circumstances, the first-filed rule should apply." Northwest Airlines, 989 F.2d at 1005 (citations omitted). There are two "red flags" that may signal such "compelling circumstances": (1) the first suit was filed after the other party gave notice of its intention to sue; and (2) the first suit was for declaratory judgment rather than for damages or equitable relief. Boatmen's First Nat. Bank of Kansas City v. Kansas Public Employees Retirement Sys., 57 F.3d 638, 641 (8th Cir. 1995); see Northwest Airlines, 989 F.2d at 1007.
Razzoo's argues that there are no compelling circumstances that require this Court to retain jurisdiction over the Minnesota Action. (Defs.' Mem. in Supp. at 6; Defs.' Reply Mem. in Supp. at 2.) AEI responds that Razzoo's should not enjoy the benefit of the first-filed rule because their commencement of the Texas Action was a "rac[e] to the courthouse" in response to AEI's December 3, 2003 lease termination letter. (Pls.' Mem. in Opp'n at 4, 5.)
There is no dispute that the Texas Action was the first-filed and is essentially identical to the Minnesota Action. This court's observation in Northwest Airlines is apt:
Proceeding simultaneously in the two courts potentially multiplies the work of both the courts and the parties. Each party appears likely to file motions in the forum it favors and may attempt to relitigate issues in the other forum. Given the present posture of this case, there is real potential for conflicting orders to issue.Northwest Airlines, Inc. v. Am. Airlines, Inc., 792 F. Supp. 655, 658 (D. Minn. 1992) (Murphy, J.), aff'd 989 F.2d 1002 (8th Cir. 1993).
AEI has shown no compelling circumstances to allow the Minnesota Action to proceed. First, there is no indication that Razzoo's filed the Texas Action after having notice of AEI's intention to sue. AEI's December 3, 2003 letter gave no suggestion that a lawsuit was imminent, or that AEI "was doing anything more than blowing smoke about a potential lawsuit."Northwest Airlines, 989 F.2d at 1007. Razzoo's desire that "no further action will be necessary," as indicated in its December 9, 2003 response letter, does not reveal a "deceptive race to the courthouse" as AEI contends. (Pls.' Mem. in Opp'n at 5.) Razzoo's merely stated that it was reviewing its legal position and did not suggest that it had acquiesced to AEI's position. Second, although the Texas Action is for declaratory judgment, it was filed in the face of a potential liability in excess of $3 million for the alleged breach of the Lease. There is nothing to indicate that Razzoo's acted in bad faith or raced to the courthouse to preempt a suit by AEI in Minnesota. See Northwest Airlines, 989 F.2d at 1007. Accordingly, given "[t]he spectre of duplicative efforts and costs . . . together with the waste of judicial resources inherent in parallel litigation," Id., the Court will grant Razzoo's Motion to Dismiss.
In light of this determination, Razzoo's alternative grounds for dismissal or transfer are moot. The Court will also deny Razzoo's request for $2500 in attorneys fees and costs. (Defs.' Mem. in Supp. at 11.) There is no motion before the Court seeking such relief. See Fed.R.Civ.P. 7(b)(1).
Conclusion
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that Defendant Razzoo's Motion to Dismiss (Doc. No. 4) is GRANTED and Plaintiff AEI's Complaint (Doc. No. 1) is DISMISSED WITHOUT PREJUDICE.LET JUDGMENT BE ENTERED ACCORDINGLY.