Selection Management Systems, Inc. v. Torus Specialty Insurance Company

Filing 22

ORDER by Judge Yvonne Gonzalez Rogers granting 13 Defendant's Motion to Dismiss. (fs, COURT STAFF) (Filed on 1/26/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SELECTION MANAGEMENT SYSTEMS, INC.
d/b/a SELECTION.COM,
Plaintiff,

United States District Court
Northern District of California

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TORUS SPECIALTY INSURANCE COMPANY,

Re: Dkt. No. 13

Defendant.

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ORDER GRANTING DEFENDANT’S MOTION
TO DISMISS

v.

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Case No. 4:15-cv-05445-YGR

Defendant Torus Specialty Insurance Company requests dismissal pursuant to the first-to-

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file rule or, alternatively, transfer of this action to the Southern District of Ohio pursuant to 28

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U.S.C. § 1404(a). (Dkt. No. 13 (“Mot.”).) Plaintiff Selection Management Systems, Inc. opposes

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the motion. (Dkt. No. 17 (“Oppo.”).)

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Having carefully considered the papers submitted,1 the record in this case, and the

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arguments of counsel, and good cause shown, the Court GRANTS defendant’s motion to dismiss

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pursuant to the first-to-file rule.2

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Plaintiff filed a request for judicial notice of public filings in Torus Specialty Insurance
Company v. Selection Management Systems, Inc. d/b/a SELECTiON.com, Case No.1:15-cv00755-TSB, in the Southern District of Ohio. (Dkt. No. 20.) The Court GRANTS the request
pursuant to Federal Rule of Evidence 201, which allows a court to take judicial notice of “matters
of public record,” but not facts that may be subject to a reasonable dispute. Lee v. City of Los
Angeles, 250 F.3d 668, 689-90 (9th Cir. 2001).
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The Court has determined that the motion is appropriate for decision without oral
argument, as permitted by Civil Local Rule 7-1(b) and Federal Rule of Civil Procedure 78. See
also Lake at Las Vegas Investors Group, Inc. v. Pacific Malibu Dev. Corp., 933 F.2d 724, 729 (9th
Cir. 1991).

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I.

RELEVANT BACKGROUND
The instant action is an insurance coverage dispute. Plaintiff insured is an Ohio

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corporation with its principal place of business in Cincinnati, Ohio. (Dkt. No. 1. (“Compl.”) ¶ 10.)

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Defendant insurer is a Delaware corporation with its principal place of business in Jersey City,

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New Jersey. (Id. ¶ 11.) According to the complaint, plaintiff purchased two insurance policies

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from defendant. (Id. ¶ 15.) The first policy was effective from June 13, 2013 to June 13, 2014,

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the second from June 13, 2014 to June 13, 2015. (Id. ¶ 15.) Both purportedly have $1 million

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maximum liability limits. (Id. ¶ 17.)
On February 15, 2015, plaintiff reached a settlement in a putative class action that was

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filed in the Superior Court of California. (Id. ¶ 25.) Defendant paid out the settlement under the

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United States District Court
Northern District of California

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first policy. (Dkt. No. 17-1 (“Tittmann Decl.”) ¶ 5.) Subsequently, two additional putative class

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action lawsuits were filed against plaintiff. (Id. ¶¶ 2-3.) These two underlying actions are pending

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in the Northern District of California and the Southern District of Ohio. (Id. ¶¶ 2-3.) The parties

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disputed whether insurance coverage for the new suits should fall under the first policy—with a

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nearly exhausted coverage limitation—or the previously unused second policy. (Id. ¶¶ 5-6.) The

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parties failed to reach an agreement regarding the same. (Id. ¶ 7.)
On November 25, 2015, defendant filed suit in the Southern District of Ohio against

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plaintiff seeking a declaratory judgment that the new suits are only covered by the first policy.

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(Id. ¶ 8.) Plaintiff filed this case about eight hours later, asserting defendant breached their

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agreement by failing to provide coverage for the new suits under the second policy. (Id. ¶¶ 7-8.)

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II.

LEGAL STANDARD

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A federal district court has discretion to dismiss, stay, or transfer a case to another district

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court under the first-to-file rule. See Cedars-Sinai Medical Center v. Shalala, 125 F.3d 765, 769

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(9th Cir. 1997); Alltrade, Inc. v. Uniweld Prods. Inc., 946 F.2d 622, 628 (9th Cir. 1991) (“The

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most basic aspect of the first-to-file rule is that it is discretionary . . . .”). The first-to-file rule is “a

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generally recognized doctrine of federal comity” permitting a district court to decline jurisdiction

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over an action. Inherent.com v. Martindale–Hubbell, 420 F. Supp. 2d 1093, 1097 (N.D. Cal.

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2006) (citing Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982)). The
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rule is primarily meant to alleviate the burden placed on the federal judiciary by duplicative

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litigation and to prevent the possibility of conflicting judgments. Church of Scientology of Cal. v.

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U.S. Dep’t of Army, 611 F.2d 738, 750 (9th Cir.1979) (citations omitted). As such, the rule

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“should not be disregarded lightly.” See Microchip Tech., Inc. v. United Module Corp., No. 10-

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CV-04241, 2011 WL 2669627, at *3 (N.D. Cal. July 7, 2011). Courts analyze three factors in

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determining whether to apply the first-to-file rule: (1) chronology of the actions; (2) similarity of

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the parties; and (3) similarity of the issues. Schwartz v. Frito-Lay N. Am., No. 12-CV-02740, 2012

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WL 8147135, at *2 (N.D. Cal. Sept. 12, 2012) (citing Alltrade, 946 F.2d at 625).
A court may, in its discretion, decline to apply the first-to-file rule in the interests of equity

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or where the Section 1404(a) balance of convenience factors weigh in favor of the later-filed

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United States District Court
Northern District of California

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action. Adoma v. Univ. of Phoenix, Inc., 711 F. Supp. 2d 1142, 1149 (E.D. Cal. 2010); Ward v.

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Follett Corp., 158 F.R.D. 645, 648 (N.D. Cal. 1994). Exceptions to the first-to-file rule include

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where the filing of the first suit evidences bad faith, anticipatory suits, and forum shopping.

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Alltrade, 946 F.2d at 628. The Ninth Circuit has cautioned that relaxing the first-to-file rule on the

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basis of convenience is a determination best left to the court in the first-filed action. Ward, 158

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F.R.D. at 648 (citing Alltrade, 946 F.2d at 628).

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III.

DISCUSSION

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A.

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Plaintiff apparently does not dispute that each of the three factors are satisfied. Instead,

First-to-File Factors

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plaintiff argues—as discussed below—that an exception applies. Nevertheless, the Court briefly

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addresses each factor in turn.

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i.

The Chronology of the Actions

The first factor simply requires that the case in question was filed later in time. See

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Wallerstein v. Dole Fresh Vegetables, Inc., 967 F. Supp. 2d 1289, 1293 (N.D. Cal. 2013). The

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instant action was filed about eight hours after defendant’s case was filed in Ohio. Therefore, this

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factor is satisfied.

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ii.

Similarity of the Parties

The second factor considered is whether the parties in each case are “substantially similar.”
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See Wallerstein, 967 F. Supp. 2d at 1295 (citing Adoma, 711 F. Supp. 2d at 1147). The Ohio suit

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involves the same plaintiff and defendant, but with their roles reversed. Thus, this factor is also

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satisfied.

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iii.

Similarity of the Issues

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As to the final factor, courts have held that the issues involved in the two actions need not

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be identical, but merely “substantially similar.” Inherent.com, 420 F. Supp. 2d at 1097. Plaintiff

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does not contest the similarity of the issues presented in the two actions and the Court, upon its

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independent review of the two complaints, finds that the issues are in fact “substantially similar.”

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B.

Exceptions to the First-to-File Rule

As noted above, the first-to-file rule “is not a rigid or inflexible rule to be mechanically

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United States District Court
Northern District of California

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applied.” Pacesetter, 678 F.2d at 95. “The most basic aspect of the first-to-file rule is that it is

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discretionary; ‘an ample degree of discretion, appropriate for disciplined and experienced judges,

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must be left to the lower courts.’” Alltrade, 946 F.2d at 628 (quoting Kerotest Mfg. Co. v. C-O-

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Two Fire Equipment Co., 342 U.S. 180, 183-84 (1952)); see also Pacesetter, 678 F.2d at 95.

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Plaintiff raises two exceptions to the first-to-file rule in its opposition brief: (1) that a negligible

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period of time transpired between the first and second action being filed; and (2) that defendant’s

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first-filed case was anticipatory. The Court addresses each in turn.

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i.

Negligible Lapse of Time

When two lawsuits are filed in quick succession, courts may choose to disregard the first-

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to-file rule and consider whether transfer is appropriate under Section 1404(a). See Intuitive

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Surgical, Inc. v. California Inst. of Tech., Case No. 07-CV-0063-CW, 2007 WL 1150787, at *2-3

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(N.D. Cal. April 18, 2007). When faced with suits filed only hours apart, courts sometimes

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choose to apply the rule and sometimes cast it aside. Compare Intuitive Surgical, 2007 WL

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1150787, at *2 (applying the first-to-file rule where a suit was filed only a few hours after

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another), Am. Newland Cmtys. L.P. v. Axis Specialty Ins. Co., Case No. 11-CV-1217, 2011 WL

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5359335, at *3-4 (S.D. Cal. Nov. 7, 2011) (applying the rule where a suit was filed one business

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day after another), and Z-Line Designs, Inc. v. Bell’O Intern., Inc., 218 F.R.D. 663, 667 (N.D. Cal.

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2003) (applying the rule when a second action was filed two days after the first), with Topics
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Entertainment, Inc., v. Rosetta Stone Ltd., Case No. 09-CV-1408-RSL, 2010 WL 55900, at *4

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(W.D. Wash. Jan. 4, 2010) (declining to apply the rule where the actions were filed a few hours

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apart), and Aurora Corp. of Am. v. Fellowes, Inc., No. CV07-8306-GHK, 2008 WL 709198, at *1

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(C.D. Cal. Feb. 27, 2008) (declining to apply the rule in the case of “nearly simultaneous

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actions”). However, plaintiff has put forth no authority calling for the rule to be ignored based

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solely on the close proximity of filings where, as here, the plaintiff in the second-filed suit rushed

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to the courthouse after receiving notice of the first-filed action.3 In this case, plaintiff filed its

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complaint in this Court about eight hours after defendant filed its suit in Ohio (and about seven

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hours after defendant notified plaintiff of that suit). (Tittmann Decl. ¶¶ 7-8.) Under these

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circumstances, the Court declines to disregard the first-to-file rule.

United States District Court
Northern District of California

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ii.

Anticipatory Action

As noted above, courts may decline to adopt the first-to-file rule where there is evidence

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that the first-filed action was anticipatory. A suit is anticipatory where a plaintiff files it upon

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receipt of specific, concrete indications that a suit by defendant is imminent. See Youngevity Int’l,

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Inc. v. Renew Life Formulas, Inc., 42 F. Supp. 3d 1377, 1383 (S.D. Cal. 2014). Such suits are

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disfavored because they suggest forum shopping. See Alaris Med. Sys. v. Filtertek, Inc., Case No.

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00-CV-2404, 2001 WL 34053241, at *2 (S.D. Cal. Dec. 20, 2001). Mere receipt of a letter from

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an opposing party suggesting the possibility of legal action at some undefined point in time if

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settlement is not reached does not constitute a “‘specific, imminent threat of legal action.’” See

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Intersearch Worldwide, Ltd. v. Intersearch Group, Inc., 544 F. Supp. 2d 949, 960 (N.D. Cal.

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2008). Likewise, a notice that merely leads to a “reasonable apprehension that a controversy

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exist[s] . . . is not equivalent to an imminent threat of litigation.” Intersearch, 544 F. Supp. 2d at

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960 (quoting Manuel v. Convergys Corp., 430 F.3d 1132, 1137 (11th Cir. 2005)). Courts have

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found that a suit is anticipatory under limited circumstances. See Palantir Technologies, Inc. v.

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Palantir.net, Inc., Case No. 07-CV-03863, 2007 WL 2900499, at *1 (finding that a suit was

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While such notice was provided in the Topics case, that decision was reached under the
anticipatory suit exception. See Topics Entertainment, Inc., 2010 WL 55900, at *4.
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anticipatory when “defendant provided plaintiff with a draft complaint and threatened to file an

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infringement action by a specific date”); Inherent.com, 420 F. Supp. 2d at 1096 (finding that the

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first-filed action was anticipatory where plaintiff filed a declaratory judgment action five days

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after receiving a letter from defendant which alleged plaintiff had breached the parties’ contract

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and warned that a suit would be filed unless a settlement was reached within five business days).
In the case at hand, plaintiff apparently did not provide defendant with a “specific, concrete

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indication” that the filing of a suit was imminent, but instead merely indicated that a suit was

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possible if settlement was not reached. (Tittmann Decl. ¶ 6 (describing a letter from plaintiff to

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defendant as indicating that defendant’s failure to “revise its position” on coverage would force

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plaintiff to “pursue all legal remedies, including suit”).) Thereafter, defendant filed suit in Ohio,

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United States District Court
Northern District of California

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and after receiving notice of the same, plaintiff rushed to file suit here later that same day. Under

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these circumstances, the Court declines to apply the anticipatory suit exception to the first-to-file

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rule.

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C.

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Finally, plaintiff asks the Court to deny or defer ruling on the motion pending possible

Future Developments

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future developments in the case relating to an anticipated assignment of coverage to plaintiffs in

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one of the pending underlying actions. Plaintiff does not provide any specific timeline for the

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speculative assignment to occur, other than referencing a January 7, 2016 settlement conference

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which occurred weeks ago with no update. Thus, the Court declines to defer ruling indefinitely on

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this basis.

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IV.

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CONCLUSION
For the foregoing reasons, the Court GRANTS defendant’s motion to dismiss pursuant to

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the first-to-file rule. The Ohio court has been presented with a fully briefed transfer motion. As

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the Ninth Circuit counsels, the Court defers to that court to weigh the convenience factors and

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determine in the first instance whether transfer to this District is warranted. See Intuitive Surgical,

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2007 WL 1150787, at *2-3 (citing Alltrade, Inc., 946 F.2d at *3) (noting a court should defer to

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the first-filed court’s decision on the most convenient forum). Given that the Ohio court may

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either keep its case or transfer it here, no need exists to maintain this particular action in the
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meantime.

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This Order terminates Docket Number 13.

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IT IS SO ORDERED.

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Dated: January 26, 2016
______________________________________
YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

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United States District Court
Northern District of California

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