Lacrosse Unlimited, Inc. v. California Lacrosse, Inc.
Filing
22
ORDER granting 10 Motion to Change Venue For the reasons set forth herein, defendant's motion to transfer venue is granted. The Clerk of the Court is directed to transfer the case to the United States District Court for the Southern District of California under 28 U.S.C. § 1404(a). SO ORDERED. Ordered by Judge Joseph F. Bianco on 2/3/2017. (Hammond, Daniel)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 16-CV-6685 (JFB) (GRB)
_____________________
LACROSSE UNLIMITED, INC.,
Plaintiff,
VERSUS
CALIFORNIA LACROSSE, INC.,
Defendant.
___________________
MEMORANDUM AND ORDER
February 3, 2017
___________________
JOSEPH F. BIANCO, District Judge:
Plaintiff Lacrosse Unlimited, Inc.
brought an action, setting out claims for, inter
alia, fraudulent inducement and breach of
contract, against defendant California Lacrosse, Inc. in New York state court. Defendant removed the case to this court and now
moves, pursuant to 28 U.S.C. § 1404(a), to
transfer this case to the United States District
Court for the Southern District of California.
For the reasons set forth below, the Court
grants defendant’s motion to transfer venue.
Specifically, the Court finds in its discretion
that, because defendant filed a lawsuit concerning the same subject matter against plaintiff in the Southern District of California before plaintiff brought this action, the “firstfiled rule” warrants transfer of this case. See
Employers Ins. of Wausau v. Fox Entertainment Group, Inc., 522 F.3d 271, 274–275 (2d
Cir. 2008) (“As a general rule, ‘[w]here there
are two competing lawsuits, the first suit
should have priority.’” (quoting First City
Nat’l Bank & Trust Co. v. Simmons, 878 F.2d
76, 79 (2d Cir. 1989) (alteration in original))). In particular, defendant’s California
lawsuit seeks money damages rather than a
declaratory judgment, and plaintiff did not directly threaten litigation prior to its filing.
Therefore, the “anticipatory lawsuit” exception to the first-filed rule does not apply. See
id. Moreover, plaintiff has identified no other
special circumstances that make New York
so convenient as to give the second-filed action priority. See id. Accordingly, defendant’s motion to transfer the case to the United
States District Court for the Southern District
of California is granted under Section
1404(a).
I. BACKGROUND
A. Facts
The following facts are taken from plaintiff’s Amended Complaint (ECF No. 11
(“Pl.’s Compl.”)), defendant’s complaint in
alleged failure, plaintiff stopped making royalty payments. (Id. ¶ 9; Def.’s Compl. ¶¶ 7–
9.) According to plaintiff, around the time it
stopped making payments, its president, Joe
DeSimone, “told [defendant] that something
needed to be done about [defendant’s alleged
violations of the agreement,] otherwise we
would have to go to court [sic].” (Decl. of
Joe DeSimone in Opp’n to Def.’s Mot. to
Transfer Venue, ECF No. 19 (“DeSimone
Decl.”), ¶ 16). The parties then engaged in
extensive settlement negotiations to resolve
the matter. (Mueller Decl. ¶ 11; Sepeta Decl.
¶ 4.) After several months without a resolution, defense counsel sent plaintiff a letter
containing a “Notice of Breach of the APA, a
Demand for Payment and a Demand for Inspection” on July 6, 2016, in which defendant
notified plaintiff that it “need[ed] to see substantial progress toward resolution by July
15, 2016” but still “reserve[d] all rights and
remedies.” (O’Connor Decl., Ex. 3.) Later,
on August 5, 2016, plaintiff’s counsel asserts
that he mentioned in a phone call with defense counsel that plaintiff “had serious
claims it would pursue against [defendant]
related to team sales if the matter was not resolved soon.” (Mueller Decl. ¶ 15; see also
O’Connor Decl. ¶ 4.)
the California proceeding (see Decl. of Edward J. O’Connor in Support of Def.’s Mot.
to Transfer Venue (“O’Connor Decl.”), Ex.
5, ECF No. 10-2 (“Def.’s Compl.”)), and the
parties’ submissions in connection with defendant’s motion to transfer venue.
On September 1, 2014, the parties entered
into an Asset Purchase Agreement (“APA”)
with plaintiff agreeing to purchase various
assets, including eight retail stores, an internet-based lacrosse retail sales business, and
plaintiff’s operations for retail sales made directly to lacrosse organizations (“Team
Sales”), from defendant. (Pl.’s Compl.
¶¶ 13–14; Def.’s Compl. ¶ 5.) Of the eight
retail stores, six were located in California,
with three of those in San Diego. (See Decl.
of Steve Sepeta in Support of Def.’s Mot. to
Transfer Venue (“Sepeta Decl.”), Ex. 1 at 4.)
The APA obligated plaintiff to pay defendant
(1) an initial amount of $333,553 and (2) a
percentage of the gross revenues related to
Team Sales over a three-year period after the
APA closed, to be made each quarter (the
“royalty payments”). (Pl.’s Compl. ¶ 15;
Def.’s Compl. ¶ 5.) Plaintiff was also to submit quarterly reports detailing its revenues,
complete with copies of general ledger activities, within fifteen days of the end of each
quarter (the “Quarterly Reports”). (Def.’s
Compl. ¶ 5.) In addition to the assets outlined
above, plaintiff also agreed to purchase
$800,000 of lacrosse apparel bearing the
brand name “Adrenaline” over a three-year
period. (Pl.’s Compl. ¶ 18; APA § 2(e)(ii).)
Defendant also agreed not to conduct retail
sales operations within thirty miles of the
stores subject to the APA (the “non-compete
provision”). (See APA § 9.)
The parties ultimately could not resolve
the matter, and, on August 19, 2016, defendant filed an action in the District Court for the
Southern District of California, asserting
claims for breach of contract, specific performance, accounting, conversion, and declaratory relief. (See Def.’s Compl.) Defendant
served plaintiff with the complaint on October 18, 2016 (O’Connor Decl., Ex. 10), and
plaintiff filed an answer and counterclaim on
November 7, 2016, raising claims of fraudulent inducement, breach of the APA’s noncompete provision, breach of the APA’s delivery provisions, account stated for failure to
pay an invoice, and indemnification. (Id., Ex.
12.) The case is currently pending before
District Judge Cathy Ann Bencivengo and
A contractual dispute arose between the
parties in the summer of 2015 when defendant allegedly failed to transfer some of the assets. (See Decl. of Eric Mueller in Opp’n. to
Def.’s Mot. to Transfer Venue, ECF No. 18
(“Mueller Decl.”), ¶ 7). In response to this
2
Magistrate Judge Jill L. Burkhardt of the
Southern District of California.
be in the interests of justice.” Clarendon
Nat’l Ins. Co. v. Pascual, No. 99-CV-10840
(JGK) (AJP), 2000 WL 270862, at *2
(S.D.N.Y. Mar. 13, 2000) (quoting Coker v.
Bank of Am., 984 F. Supp. 757, 764
(S.D.N.Y. 1997) (other citations omitted)).
Ordinarily, “[a] motion to transfer under §
1404(a) . . . calls on the district court to
weigh in the balance a number of case-specific factors,” Stewart Org., Inc. v. Ricoh
Corp., 487 U.S. 22, 29 (1988), including:
“‘(1) the plaintiff’s choice of forum, (2) the
convenience of witnesses, (3) the location of
relevant documents and relative ease of access to sources of proof, (4) the convenience
of parties, (5) the locus of operative facts,
(6) the availability of process to compel the
attendance of unwilling witnesses, and
(7) the relative means of the parties,”’ Fteja
v. Facebook, Inc., 841 F. Supp. 2d 829, 832
(S.D.N.Y. 2012) (quoting N.Y. Marine and
Gen. Ins. Co. v. Lafarge N. Am., Inc., 599
F.3d 102, 112 (2d Cir. 2010)).
B. Procedural History
Plaintiff commenced this action on October 31, 2016—prior to filing its answer and
counterclaim in the California case—in the
Suffolk County Supreme Court, raising
claims identical to those in its California
counterclaim. (Sepeta Decl., Ex. 11.) Defendant removed the case to this Court, asserting diversity jurisdiction, on December 2,
2016. (ECF No. 1.) Defendant filed its motion to change venue on December 22, 2016
(ECF No. 10), 1 plaintiff filed its opposition
on January 6, 2017 (ECF No. 17), and defendant filed a reply on January 13, 2017
(ECF No. 20). Oral argument took place on
January 23, 2017. The Court has fully considered the submissions of the parties.
II. SECTION 1404(A) MOTIONS
Under 28 U.S.C. § 1404(a), “[f]or the
convenience of parties and witnesses, in the
interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” In
general, “[d]istrict courts have broad discretion in making determinations of convenience under Section 1404(a) and notions of
convenience and fairness are considered on a
case-by-case basis.” D.H. Blair & Co. v.
Gottdiener, 462 F.3d 95, 106 (2d Cir. 2006);
accord Publicker Indus. Inc. v. United States
(In re Cuyahoga Equip. Corp.), 980 F.2d
110, 117 (2d Cir. 1992). In determining
whether to transfer venue, courts consider
(1) whether the action could have been
brought in the proposed forum; and (2)
whether the transfer would “promote the convenience of parties and witnesses and would
Nevertheless, “[w]here there are two
competing lawsuits, the first suit should have
priority.” Employers Ins. of Wausau, 522
F.3d at 274–75 (quoting Simmons, 878 F.2d
at 79) (alteration in original). The Second
Circuit has “recognized only two exceptions
to the first-filed rule: (1) where the ‘balance
of convenience’ favors the second-filed action, and (2) where ‘special circumstances’
warrant giving priority to the second suit.”
Id. (citations omitted). The most notable
“special circumstance” under the second exception is “where the first-filed lawsuit is an
improper anticipatory declaratory judgment
action.” Id. For a first-filed suit to be considered “anticipatory,” “it must be filed in response to a direct threat of litigation that
gives specific warnings as to deadlines and
1
Defendant also filed a motion for a preliminary injunction on December 23, 2016 (ECF No. 23), but the
briefing on that motion was stayed pending the outcome of this motion (ECF, Scheduling Order dated
January 23, 2017).
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III. DISCUSSION
subsequent legal action.” Id. In Federal Insurance Co. v. May Department Stores Co.,
808 F. Supp. 347, 350 (S.D.N.Y. 1992), for
example, May Department Stores, an insurance policyholder, “wrote to Federal [Insurance Company] informing it that if it did not
satisfy May’s claim under the Policy by May
15, 1992, May planned to sue on the Policy.”
Federal brought suit for declaratory judgment
on May 11, 1992, and the court held that the
action qualified as a “special circumstance[]”
warranting departure from the first-filed rule
because it was filed “immediately after receiving notice of planned suit from the other
party.” Id.
As set forth below, defendant’s lawsuit in
California plainly predates plaintiff’s instant
action, and plaintiff has failed to establish either that “the balance of convenience” favors
litigation in this district or that “special circumstances” exist warranting departure from
the first-filed rule. See id. at 274–75. Because neither exception to the first-filed rule
applies, defendant’s motion to transfer venue
is granted.
As a threshold matter, the Court concludes that plaintiff has not shown that the
balance of convenience so favors New York
as to overrule the first-filed rule. All the
claims in the dispute arise from the parties’
execution of the APA and fulfilment of their
obligations thereunder. The APA closed in
California, and 75% of the brick-and-mortar
stores subject to it are located there. Furthermore, many of the salespeople involved with
the business plaintiff purchased reside in California, as does the individual who allegedly
fraudulently induced plaintiff to enter into the
contract. Finally, plaintiff’s claim for breach
of the non-compete provision turns on the operation of several of the defendant’s California businesses. Thus, the second, third, and
fifth convenience factors—convenience of
witnesses, relative ease of access to sources
of proof, and the locus of operative facts, respectively—are, at the very least, neutral.
Meanwhile, the remaining factors are plainly
neutral, given that plaintiff’s choice of forum
is offset by defendant’s (since defendant filed
first), neither party has identified any unwilling witnesses, and there is no major disparity
in the means of the parties. Indeed, plaintiff
admitted at oral argument that, at best, the
convenience factors are neutral between the
two locations. Thus, this exception does not
apply. See id. at 275 (“[A]n even or inconclusively tilted ‘balance of convenience’
would ordinarily support application of the
first-filed rule.” (quoting Columbia Pictures
By contrast, in Employers Insurance of
Wausau, the Second Circuit held that a suit
by insurers was not “anticipatory.” 522 F.3d
at 276–77. In that case, insurers brought an
action against various media company policyholders, seeking a declaratory judgment
that the insurers had no obligation under a series of policies to provide coverage in connection with a copyright-infringement lawsuit filed against the policyholders. Id. at
273–74. After informing the insurers of the
pending copyright lawsuit, the policyholders
issued “requests for information,” “coverage
requests,” and “other inquiries.” Id. at 276.
They eventually retained “coverage counsel,”
and “the general tenor of the communications
leading up to the [insurer’s] action” indicated
that “litigation was clearly on the horizon.”
Id. at 277. Nevertheless, “there was no notice
letter or other communication conveying a
specific threat of litigation” by the policyholders. Id. As such, the Second Circuit
concluded that the insurers’ declaratory judgment action “was not improperly anticipatory” because “it was not a response to a direct threat of litigation.” Id. It, therefore,
held that the district court erred in departing
from the first-filed rule on this basis. Id. at
278.
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Indus., Inc. v. Schneider, 435 F. Supp. 742,
751 (S.D.N.Y.1977))).
See Federal Ins. Co., 808 F. Supp. at 350. Instead, like the communications in Employers
Insurance Co., the “general tenor” of plaintiff’s communications here simply indicated
that “litigation was clearly on the horizon,”
which is not sufficient to suspend the firstfiled rule, absent a “notice letter or other
communication conveying a specific threat of
litigation.” 522 F.3d at 277 (emphasis
added). In fact, the communication that
comes closest to a direct threat of litigation
under this body of law was the July 6, 2016
letter from defense counsel to plaintiff’s
counsel demanding “substantial progress toward resolution by July 15, 2016.” (O’Connor Decl., Ex. 3.) By contrast, plaintiff has
not identified a specific communication that
mentioned the possibility of a lawsuit prior to
receiving the letter. 2 Indeed, the only specific communication that plaintiff has identified raising the possibility of litigation—the
August 5, 2016 telephone conversation between counsel for both parties—occurred after defendant sent this letter. (See Mueller
Decl. ¶ 15.) The fact that defendant engaged
in settlement negotiations after sending the
letter and before filing suit does not render
that lawsuit anticipatory.
Moreover, plaintiff has not established
that a “special circumstance[]” exists to justify departure from the first-filed rule. Plaintiff asserts that defendant’s California action
constitutes an “anticipatory action,” and thus
the first-filed rule does not apply. For the following reasons, the Court disagrees.
First, the chief marker of an “anticipatory
action” for purposes of this exception is relief
sought in the form of a declaratory judgment.
See, e.g., id. at 275–77; Federal Ins. Co., 808
F. Supp. at 350. Defendant’s California lawsuit, however, seeks other forms of relief, including monetary damages. (See Def.’s
Compl.) Thus, this is not a case where “federal declaratory judgment is . . . a prize to the
winner of a race to the courthouses.” Employers Ins. of Wausau, 522 F.3d at 275.
Second, plaintiff has not established that
it made a “direct threat of litigation.” Id. at
277 (emphasis added). Plaintiff here only
made vague assertions that it “would have to
go to court” (DeSimone Decl. ¶ 16), or
“would pursue [its serious claims] against
[defendant] . . . if the matter was not resolved
soon” (Mueller Decl. ¶ 15; see also O’Connor Decl. ¶ 4.). These statements are a far cry
from the direct, specific threat by the policyholder in Federal Insurance Co., which set a
specific date by which the insurer was to respond before the policyholder would file suit.
In sum, plaintiff has not established that
the California action is an “anticipatory action” and, correspondingly, has failed to
show a “special circumstance” sufficient to
overcome the first-filed rule.
2
Plaintiff’s president vaguely asserts that, at some
point around the time they stopped making payments,
he “told [defendant] that something needed to be done
about [defendant’s alleged violations of the agreement] otherwise we would have to go to court [sic].”
(DeSimone Decl., ¶ 16.) Plaintiff has not, however,
specified precisely when this communication occurred
or to whom it was made. Nor has it presented any evidence to corroborate this statement. In any event, as
noted, the content of the communication is too indefinite to constitute a “direct threat of litigation” under
Employers Ins. of Wausau, 522 F.3d at 275, and Federal Ins. Co., 808 F. Supp. at 350. Moreover, plaintiff
asserts that the communication took place around the
time of the stoppage of the royalty payments, which
occurred in the summer of 2015—approximately one
year before defendant eventually filed suit. Thus, defendant did not rush to the courthouse with an anticipatory lawsuit in response to this vague assertion by
plaintiff.
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IV. CONCLUSION
For these reasons, the Court finds that the
first-filed rule warrants granting defendant’s
motion to transfer the proceedings. The Clerk
of the Court is directed to transfer the case to
the United States District Court for the Southern District of California under 28 U.S.C.
§ 1404(a).
SO ORDERED.
_______________________
JOSEPH F. BIANCO
United States District Judge
Dated: February 3, 2017
Central Islip, NY
*
*
*
Plaintiff is represented by Evangelos
Michailidis and Gerard S. Catalanello, Duane
Morris LLP, 1540 Broadway, New York, NY
10036. Defendant is represented by David
Harrison, Harrison, Harrison & Associates,
Ltd., 110 Highway 35, 2nd Floor, Red Bank,
NJ 07701, and Edward J. O’Connor, Solomon Ward Seidenwurm & Smith, LLP, 401
B Street, Suite 1200, San Diego, CA 92101.
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