Opinion
Civil Action No. 02-2448-KHV
December 10, 2002
MEMORANDUM AND ORDER
Universal Premium Acceptance Corporation filed suit against Oxford Bank Trust, alleging misrepresentation and breach of warranty. This matter comes before the Court on Defendant's Motion To Stay Proceedings (Doc. #3) filed October 9, 2002. For reasons set forth below, defendant's motion is overruled without prejudice.
Procedural History
Universal Premium Acceptance Corporation ("Universal") is a Missouri corporation with its principal place of business in Lenexa, Kansas. In May of 1998, it entered a stock purchase agreement with Oxford Bank ("Oxford"), an Illinois banking corporation. In that agreement, Oxford agreed to indemnify Universal from losses due to any inaccurate representations of loan losses. The agreement required that Universal notify Oxford of indemnity claims in writing within one year of the closing. On May 27, 1999, Universal notified Oxford of an indemnity claim. For more than two years, Oxford and Universal discussed that claim, and even exchanged offers but never settled the matter.
The parties dispute whether the notice was proper under the agreement.
On August 20, 2002, Universal sent Oxford an indemnity demand letter for loan losses of $485,394.77 plus interest and attorneys fees. The letter threatened immediate suit if Oxford did not meet Universal's demand within 10 business days, by September 4, 2002. Universal asserts that it later agreed to additional time, so that new counsel for Oxford could review documents and call back to discuss a possible resolution. Counsel for each side apparently traded phone messages for more than two weeks. On September 18, 2002, Universal sent Oxford a message that it would file suit unless Oxford responded that day. Later that day Oxford responded that it had already sued Universal in the state court in DuPage County, Illinois. Oxford had indeed filed a declaratory judgment action in Illinois state court on September 17, 2002. The following day, September 18, 2002, Universal filed this lawsuit for misrepresentation and breach of warranty. Each suit involves the same issues and the same parties.
On October 8, 2002, Universal removed the Illinois action to the United States District Court for the Northern District of Illinois. The next day, October 9, 2002, Oxford filed a motion to stay this lawsuit pending the outcome of the Illinois lawsuit. Oxford's proposed order, however, would set the matter for a status conference in 120 days.
Analysis
As part of the inherent power to control its docket, a district court has discretion to stay proceedings pending before it. Pet Milk Co. v. Ritter, 323 F.2d 586, 588 (10th Cir. 1963). It may exercise the power to stay to provide economy of time and effort for itself and for counsel and litigants appearing before the court. Landis v. N. Am. Co., 299 U.S. 248, 255 (1936).
The "first-to-file" rule permits a district court to decline jurisdiction where a complaint raising the same issues against the same party has previously been filed in another federal district court. Buzas Baseball, Inc. v. Bd. of Regents of the Univ. Sys. of Ga., 189 F.3d 477, 1999 WL 682883, at *2 (10th Cir. 1999). The first-to-file rule provides that the court where jurisdiction first attaches determines the appropriate venue to decide the case, and the second court will decline to act until proceedings in the first court terminate. Cessna Aircraft Co. v. Brown, 348 F.2d 689, 692 (10th Cir. 1965); see Hospah Coal Co. v. Chaco Energy Co., 673 F.2d 1161, 1164 (10th Cir. 1982); Tobergte Assocs., Inc. v. Zide Sport Shop of Ohio, Inc., 83 F. Supp.2d 1197, 1198 (D.Kan. 1999). The first-to-file rule is based on the principle that federal district courts should not interfere with each other's affairs. The policy avoids the waste of duplication, rulings which may intrude on the authority of sister courts and piecemeal resolution of issues that call for a uniform result. Sutter Corp. v. P P Indus., 125 F.3d 914, 917 (5th Cir. 1997). The rule, however, yields to the interests of justice if "compelling circumstances" support its abrogation. United States Fire Ins. Co. v. Goodyear Tire Rubber Co., 920 F.2d 487, 488-89 (8th Cir. 1990).
Courts have carved out an exception where the first-filed suit constitutes an improper anticipatory filing, or one made under threat of a presumed adversary filing the mirror image of that suit in a different district. See Boatmen's First Nat'l Bank of Kansas City v. KPERS, 57 F.3d 638, 641 (8th Cir. 1995) ("red flags" that suggest compelling circumstances to disregard first-filed rule include notice that other side was considering filing lawsuit, and fact that first-filed suit was declaratory judgment action).
Universal argues that Oxford's first-filed suit in Illinois is an anticipatory filing that justifies departure from the first-filed rule. Universal points out that Oxford filed the Illinois suit within a few weeks of receiving its demand letter threatening a suit. Oxford counters that Universal had threatened legal action for years, and that it filed the Illinois lawsuit only to stop Universal's harassment. The arguments of both parties suggest that until August of 2002, Universal had not sent a formal demand letter. Indeed, until that month, the parties had been discussing a settlement. Further, Oxford's declaratory judgment action is more indicative of a preemptive strike than a suit for damages or equitable relief. See Goodyear, 920 F.2d at 489 (noting that where second-filed action sought damages, defendant in first-filed declaratory judgment action could be considered "true" plaintiff). Finally, when competing actions are filed within a short time of each other, courts may disregard the first-filed rule. See, e.g., Ontel Prods., Inc. v. Project Strategies Corp., 899 F. Supp. 1144, 1153 (S.D.N.Y. 1995) (declining to apply first-filed rule where competing suits filed on same day); Affinity Memory Micro v. K Q Enter., 20 F. Supp.2d 948, 954-955 (E.D.Va. 1998) (transfer to second court when second action filed only two weeks after first action).
Universal's argument — that the first-filed rule should not apply — has some appeal. Before reaching that argument, however, the Court addresses the more fundamental question: who should decide whether to apply the first-filed rule. "Case law indicates that the court in which the first-filed case was brought decides the question of whether or not the first-filed rule, or alternatively, an exception to the first-filed rule, applies." Ontel, 899 F. Supp. at 1150 n. 9; see Hospah Coal Co., 673 F.2d at 1163 (first court in which jurisdiction attaches should decide venue and jurisdiction); Cessna, 348 F.2d at 692 (first federal district court which obtains jurisdiction of parties and issues should have priority and second court should decline consideration of action until proceedings before first court are terminated); Donaldson, Lufkin Jenrette, Inc. v. Los Angeles County, 542 F. Supp. 1317, 1321 (S.D.N.Y. 1982) (to avoid inconsistent rulings on discretionary matters as well as duplication of judicial effort, court in which first-filed case was brought should decide whether first-filed rule applies).
The United States District Court for the Northern District of Illinois should decide in the first instance whether to apply the first-filed rule. From this vantage, it is not clear whether that issue has been raised through a motion to transfer the Illinois case to this Court, a motion to stay the Illinois case pending the outcome of this case, or otherwise.
If the issue has not yet been presented, counsel should consider further proceedings which are non inconsistent with this order.
IT IS THEREFORE ORDERED that defendant's Motion To Stay Proceedings (Doc. #3) filed October 9, 2002 be and hereby is OVERRULED without prejudice.