DAVIS et al v. ZUCCARELLO, et al
Filing
27
MEMORANDUM OPINION signed by JUDGE THOMAS D. SCHROEDER on 6/23/2017. For the reasons stated herein, Defendants' motion to dismiss (Doc. 19) will be granted without prejudice in fourteen days unless within that time Plaintiffs file a notice of an election to have this case transferred to the United States District Court for the District of Colorado where the companion action is proceeding under docket number 1:16-cv-01935-MSK-MEH. The court will not reach Defendants' alternative motions to dismiss on the merits, which will be denied without prejudice as moot. (Engle, Anita)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
KENT MCCARTY DAVIS;
INTERNATIONAL, INC.,
CYPRESS
Plaintiffs,
v.
DEAN
ZUCCARELLO;
ADVISORS, INC.,
CYPRESS
Defendants.
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1:16-cv-01086
MEMORANDUM OPINION
THOMAS D. SCHROEDER, District Judge.
This is a business dispute.
Before the court is the motion
of Defendants Dean Zuccarello and Cypress Advisors, Inc. to dismiss
the amended complaint because a nearly identical action filed by
Defendants exists in the United States District Court for the
District of Colorado or, in the alternative, to dismiss certain
claims alleged in the amended complaint.
(Doc. 19.)
For the
reasons set forth below, the motion to dismiss the action will be
granted unless within fourteen days Plaintiffs elect to transfer
it to the Colorado court.1
I.
BACKGROUND
In the light most favorable to Plaintiffs as non-moving
parties, the allegations of the current complaint and undisputed
1
Defendants have also moved for expedited consideration.
In light of the court’s disposition, that motion is moot.
(Doc. 24.)
facts show the following:
This
action
arises
out
of
a
arrangement that eventually soured.
long-standing
business
In 2000, Plaintiff Kent
McCarty Davis and Defendant Zuccarello agreed to provide financial
advisory services to – among other types of clients – restaurant
owners, multi-unit retail companies, and capital providers serving
the restaurant industry.
(Doc. 15 ¶ 7.)
The parties titled their
business the “Cypress Partnership,” which Plaintiffs contend (and
the court assumes, without deciding, for purposes of the present
motion) constituted a partnership; Defendants maintain it was a
contractual relationship.
The alleged partnership was comprised
of Cypress International, Inc., a corporation organized under the
laws of Georgia with its principal place of business in North
Carolina
(Id.
¶
3),
and
Cypress
Advisors,
Inc.,
a
Florida
corporation with its principal place of business in Colorado (Id.
¶ 5; Doc. 20 at 2).
Davis is the president and sole shareholder
of Cypress International.
(Doc. 15 ¶ 3)
Zuccarello is the
president and chief executive officer of Cypress Advisors.
(Doc.
22-2 ¶ 2).
On June 20, 2016, Davis informed Zuccarello that he wanted to
wind up the Cypress Partnership (Doc. 15 ¶ 139), and the parties
sought to negotiate the terms of separation.
Defendants sent Davis
relationship.
(Doc.
a proposed agreement
20-1 at 7-8.)
2
The week of June 27,
to wrap up their
Davis’s counsel emailed
Zuccarello on June 29, stated his client’s desire “to resolve this
matter as quickly as we can,” and sought contact information for
Zuccarello’s counsel.
(Id.)
The next day, Zuccarello responded
and identified his counsel (id.).
That same day, he unilaterally
terminated Davis from the partnership.
(Doc. 15 ¶ 143; Doc. 21 at
8.)
On July 5, Zuccarello’s counsel contacted Davis’s counsel to
inquire of the status of his review of the proposed agreement,
noting
that
possible.”
Zuccarello
“intends
(Doc. 20-1 at 6.)
to
wrap
this
up
as
soon
as
Davis’s counsel responded minutes
later, stating they were “moving as quickly as we can” and that
their “intention [was] that it will remain short and simple.”
(Id.)
Sometime thereafter but “in early July,” Davis’s counsel
responded with a counter proposal, which Defendants considered and
rejected.
counsel
(Doc. 15 ¶ 174-75.)
re-confirmed
the
On July 21, 2016, Defendants’
rejection
and
sent
a
revised
draft
agreement, noting that “a key condition of this proposal is that
[Davis and Cypress International, Inc.] must accept the agreement
no
later
than
5PM
MT
on
Saturday,
July
23,
2016”
and
that
thereafter Zuccarello would be meeting with certain clients caught
up in the dispute.
(Doc. 20-1 at 10.)
Davis’s counsel responded
at 2:24 p.m. on July 23 by email, explaining:
“[W]e have not been
able to circle our team to give you a proper response to your
3
client’s counteroffer.
week.”
We will be back in touch with you next
(Id. at 20.)
Plaintiffs never responded, however.
Instead, on July 28 –
Thursday of that next week – they filed the present action in a
North Carolina Superior Court in Moore County.
The action alleged
multiple claims: breach of a partnership agreement, breach of a
joint venture agreement, breach of fiduciary duty, breach of
contract, constructive fraud, and a declaratory judgment as to the
existence of a partnership relationship; Plaintiffs also sought
various remedies including the imposition of a constructive trust,
dissolution, and receivership.2
The next day, July 29, 2016, unaware of the filing of the
present lawsuit, Cypress Advisors, Inc. filed its own action
against Davis and Cypress International, Inc. in the United States
District Court for the District of Colorado bearing civil action
number 16cv01935 (the “Colorado lawsuit”).
21 at 10.)
A
(Doc. 20 at 3-4; Doc.
courtesy copy of the lawsuit
was emailed
to
Plaintiffs’ counsel herein with the explanation that the action
was filed “[a]s we did not receive any further response to The
Cypress Group’s settlement counterproposal as promised by your
July 23, 2016 email to me.”
(Doc. 20-1 at 22.)
2
The Colorado
Davis subsequently amended his complaint to add claims for failure to
pay wages, interference with prospective economic advantage, and quantum
meruit. (Doc. 15.)
4
lawsuit initially sought a declaratory judgment as to the parties’
rights, but the complaint has since been amended to add claims for
misappropriation of trade secrets, theft, conversion, interference
with
contractual
relations,
breach
of
contract,
and
unjust
enrichment.
On August 26, 2016, Defendants removed the present lawsuit to
this court.
(Doc. 1.)3
They filed the instant motion to dismiss
on December 12, arguing that Plaintiffs’ claims should be dismissed
in favor of the nearly identical pending action in Colorado.
This
motion mirrors a motion to transfer that Davis had filed in the
Colorado lawsuit in which he urged that court to transfer its
action to this court based on the “first-to-file rule.”
1:16-cv-01935-MSK-MEH, Doc. 34; Doc. 23-1 at 4.)
(U.S.D.C.
The Colorado
court issued its ruling on January 17, 2017, declining to transfer
the case and deferring to this court’s ruling on the pending motion
to dismiss.
(Doc. 23-1 at 5-6.)
proceed, however.
II.
The court ordered discovery to
(Id.)4
ANALYSIS
When a lawsuit is filed in multiple forums, the Fourth Circuit
generally adheres to the "first-to-file" rule, which holds that
3
The present lawsuit was initially assigned to a different judge and
was re-assigned to the undersigned on April 7, 2017.
4
On May 17, 2017, Cypress Advisors, Inc. and Zuccarello filed a second
lawsuit in the Colorado federal trial court against Davis and others
based on Davis’s formation of a competing firm that is employing a former
associate of Zuccarello’s. (Doc. 26-1.)
5
"the first suit should have priority, absent the showing of [a]
balance of convenience in favor of the second action."
Volvo
Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581,
594-95 (4th Cir. 2004) (quoting Ellicott Mach. Corp. v. Modern
Welding Co., Inc., 502 F.2d 178, 180 n.2 (4th Cir. 1974)); Carbide
& Carbon Chem. Corp. v. U.S. Indus. Chems., Inc., 140 F.2d 47, 49
(4th Cir. 1944)) (the earlier-filed lawsuit should be allowed to
proceed "without interference from" subsequently-filed lawsuits);
Quesenberry v. Volvo Group N. Am., Inc., No. 1:09cv22, 2009 WL
648658, at *2-3 (W.D. Va. March 10, 2009) ("[T]he ‘first-to-file’
rule supports dismissing, staying or transferring [an] action . .
. .").
Multiple lawsuits are subject to the first-to-file rule if
"the same factual issues" provide the basis for each suit. AlliedGen. Nuclear Serv's v. Commonwealth Edison Co., 675 F.2d 610, 611
n.1 (4th Cir. 1982).
Courts
have
applied
a
three-factor
test
for
determining
whether multiple cases are subject to the first-to-file rule,
considering (1) the chronology of the filings, (2) the similarity
of the parties involved, and (3) the similarity of the issues being
raised.
Remington Arms. Co., Inc. v. Alliant Techsystems, Inc.,
No. 1:03CV1051,
2004 WL 444574, *2 (M.D.N.C.
(internal citations omitted).
one day apart.
revolving
Feb. 25, 2004)
Here, the two actions were filed
The claims are similar and in some cases identical,
around
the
parties’
6
rights
in
dissolving
the
partnership.
In the present action, Davis claims he is entitled
to profit distributions that were wrongfully withheld from him and
seeks, among other things, a declaratory judgment as to his rights.
In the Colorado lawsuit, Cypress Advisors, Inc. seeks a declaratory
judgment that Davis served as an independent contractor to it and
has no interest in any future engagement agreements with its
clients.
(Doc. 20-2 at 10-11.)
The parties do not dispute that
the actions are substantially the same and involve essentially the
same parties.5
(Doc. 20 at 5-7; Doc. 23-1 at 5.)
Indeed, since
this motion was filed, Davis has filed his claims as counterclaims
in the Colorado lawsuit.
(Doc. 25 at 3 (referencing docket in
U.S.D.C. 1:16-cv-01935-MSK-MEH, Doc. 60).)
The first-to-file rule
therefore applies.
However, application of the rule is not mandatory.
As the
Fourth Circuit has noted, "this Circuit has no unyielding 'firstto-file' rule."
CACI Intern., Inc. v. Pentagen Technologies
Int'l., Nos. 94-2058, 94-2220, 1995 WL 679952, at *6 (4th Cir.
1995) (unpublished).
Indeed, courts have established certain
exceptions to the first-to-file rule.
The Fourth Circuit has
sanctioned an exception when the “balance of convenience” weighs
5
Davis’s action includes Zuccarello as a defendant, whereas the Colorado
lawsuit involves Cypress Advisors as plaintiff and Zuccarello as a
counterclaim-defendant.
Regardless, the addition of Zuccarello in a
different capacity in this suit does not alter the gravamen of the
dispute. Family Dollar Stores, Inc. v. Overseas Direct Imp. Co., Case
No. 3:10CV278, 2011 WL 148264, at *3 (W.D.N.C. Jan. 18, 2011).
7
in favor of the second forum, but has not expressly identified
other
exceptions.
Learning
Network,
Inc.
v.
Discovery
Communications, Inc., 11 F. App’x. 297, 301 n.2 (4th Cir. 2001).
District courts in the Fourth Circuit, however, have recognized
“special circumstances” that allow a court to depart from the
first-to-file rule.
Remington Arms Co., 2004 WL 444574, at *2.
These circumstances include when the action was filed in the midst
of settlement negotiations. Id. (citing EMC Corp. v. Norand Corp.,
89 F.3d 807, 814 (Fed. Cir. 1996)).
Or, when the action was filed
with notice that the other party is about to file.
Id. at *3
(citing Anheuser–Busch, Inc. v. Supreme Int'l Corp., 167 F.3d 417,
419 (8th Cir. 1999)); Touchstone Research Lab., Ltd. v. Anchor
Equip. Sales, Inc., 294 F. Supp. 2d 823, 828 (N.D.W. Va. 2003);
Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F. Supp. 2d
357, 360 (W.D.N.C. 2003); Citigroup Inc. v. City Holding Co., 97
F.
Supp.
2d
549,
557
(S.D.N.Y.
2000)
(defining
an
improper
anticipatory filing as “one made under the apparent threat of a
presumed adversary filing the mirror image of that suit”) (citation
omitted); see also Myles Lumber Co. v. CNA Fin. Corp., 233 F.3d
821, 824 (4th Cir. 2000) (noting that one factor for determining
when to decline to assert jurisdiction in a declaratory judgment
action is “whether the declaratory judgment action is being used
merely as a device for ‘procedural fencing’”).
All three of these exceptions are implicated in this case.
8
First, Davis filed this action in a race to the courthouse while
giving the impression that he intended to pursue ongoing settlement
discussions.
When
Defendants
sent
Davis’s
counsel
a
draft
settlement agreement on July 21, 2016, they set a deadline of July
23.
Davis’s counsel responded on July 23 – a Saturday – explaining
that he had yet to be able to gather his decision-makers and would
provide a “proper response” the “next week.”
(Doc. 20-1 at 20
(“[W]e have not been able to circle our team to give you a proper
response to your client’s counteroffer.
with you next week.”).)
We will be back in touch
Yet, reminiscent of the scorpion and the
frog, instead of responding to the proposal as promised, Davis
filed this lawsuit on Thursday, before the end of that “next week.”
Davis argues that by the time he filed this action, settlement
discussions had ceased because he did not accept the Defendants’
offer before the end of the day on July 23.
(Doc. 21 at 11-12.)
But the response by Davis’s counsel – that he would “give a proper
response” within the next week
–
settlement could still be reached.
reasonably signaled
that a
Without forewarning, Davis
filed this action.
By any measure, Davis’s filing was anticipatory.
Defendants,
by setting a 48-hour deadline and noting Zuccarello’s planned
meetings the next week, had made clear their desire not to delay
further.
Remington Arms, 2004 WL 444574, at *4 (stating that
“[e]ven without a specific date, giving Remington one week to
9
respond certainly gave Remington some inkling of when a suit might
be filed.”).
Rather than respond – even if to communicate a
rejection, as Defendants were led to expect, Davis filed the
present action the day before the expiration of the promised
response period.
Id. at *14-15 (filing one day prior to requested
response date was an improper filing); Family Dollar, 2011 WL
148264, at *4 (“the fact that [plaintiff] filed suit in the midst
of settlement negotiations and two days before a settlement meeting
was expected to take place suggests that this was a race to the
courthouse”).
Given
the
nearly
simultaneous
filings,
it
is
unlikely Plaintiffs would have beaten Defendants to the courthouse
had Defendants not been lulled into standing down in deference to
Davis’s representation he would respond.
No doubt at some point
Davis subjectively concluded that the deal was dead, and the court
need not find that Davis
Defendants on July 23.
or his counsel
purposefully misled
It is enough to say, as the Family Dollar
court cautioned, that abiding by the first-to-file rule in this
circumstance
would
deter
parties
from
communicating
and
thus
incentivize races to the courthouse as a means for forum shopping.
Id. at *13; see also Z-Line Designs, Inc. v. Bell'O Int'l LLC, 218
F.R.D. 663, 665 (N.D. Cal. Oct. 29, 2003); Riviera Trading Corp.
v. Oakley, Inc., 944 F. Supp. 1150, 1158 (S.D.N.Y. 1996).
Finally,
the
balance
of
convenience
weighs
in
favor
of
dismissing Plaintiffs’ claims in light of the Colorado lawsuit.
10
Courts generally apply several factors – drawn from case law
relating to motions to change of venue pursuant to 28 U.S.C.
§ 1404(a) - when deciding whether this exception to the first-tofile rule applies: (1) plaintiff's choice of forum, (2) residence
of the parties,
(3) access to evidence,
(4) availability of
compulsory process for witnesses and the costs of transporting and
obtaining those witnesses, (5) possibility of a view by the jury,
(6) enforceability of a judgment, (7) relative advantages and
obstacles to a fair trial, (8) practical issues affecting trial
expediency and efficiency, (9) relative court congestion between
the districts, (10) interest of resolving localized controversies
at home and the appropriateness of having the trial of a diversity
case in a forum that is at home with the state law that must govern
the action, and (11) avoidance of conflict of laws.
Nutrition &
Fitness, 264 F. Supp. 2d at 362; US Airways, Inc. v. US Airline
Pilots Ass'n, No. 3:11-cv-371-RJC-DCK, 2011 WL 3627698, at *3
(W.D.N.C. Aug. 17, 2011).
The factors are accorded different
weights based on the court's discretion.
Nutrition & Fitness, 264
F. Supp. 2d at 362.
The first factor certainly counsels against dismissal.
But
in light of the anticipatory nature of his filing, Davis’s choice
of forum carries significantly less weight.
And while most of the
other factors fail to clearly favor either party, factors three,
four, seven, and eight weigh in favor of Colorado as a forum.
11
It
appears from the parties’ briefs that the alleged partnership’s
employees,
who
Colorado.
Davis conceded as much in his response.
15-16.)
are
likely
to
serve
as
witnesses,
reside
in
(Doc. 21 at
In addition, the partnership’s banking, bookkeeping, and
payroll operations occur in Colorado.
(Doc. 15 ¶ 34.)
This may
explain why as of April Davis already noticed the depositions of
five individuals in Colorado.
(Doc. 25 at 5.)
Moreover, the
Colorado lawsuit concerns a broader set of claims than this action,
comprising both Defendants’ claims and Davis’s claims (which have
been filed as counterclaims in the Colorado action).
present
action,
counterclaims.
Defendants
have
yet
to
file
any
In the
claims
as
As a result, dismissing this action in order to
allow the Colorado lawsuit to proceed would ensure a quicker and
fairer resolution, as opposed to litigation that is inefficient
and piecemeal.
Resolving the parties’ dispute as part of the Colorado lawsuit
is also the most expedient option, as discovery and pretrial
litigation have been occurring since January.
The Colorado court
has conducted a scheduling conference (U.S.D.C. 1:16-cv-01935-MSKMEH, Doc. 46), issued a trial preparation order (U.S.D.C. 1:16cv-01935-MSK-MEH,
(U.S.D.C.
Doc.
47),
and
1:16-cv-01935-MSK-MEH,
published
Doc.
a
48).
scheduling
order
Furthermore,
Zuccarello and Cypress Advisors currently have a partial motion to
dismiss Davis’s counterclaims pending before the Colorado court.
12
(U.S.D.C. 1:16-cv-01935-MSK-MEH, Doc. 74.)
Denying Defendants’
motion to dismiss and allowing this action to proceed, on the other
hand, would likely repeat much of the process already undertaken
in Colorado.
Two final considerations.
There is no indication that the
Colorado court can resolve the case in any less time than this
court – indeed, quite the opposite, given that court’s head start
on the litigation.
And while Davis argues that this court will be
more familiar with his claims under North Carolina law, there is
no indication that, even if that law applies (a question this court
need not resolve),6 there will be any unique questions that the
Colorado court will be any less able to handle.
For all these reasons, Defendants’ motion to dismiss (Doc.
19) should be granted in favor of the action in Colorado.
However,
insofar as neither party has addressed whether a dismissal may
adversely affect any of Plaintiffs’ claims because of any statute
of limitations and because Plaintiffs have not expressly sought
transfer in lieu of dismissal, the court will withhold entering
any
order
of
dismissal
for
fourteen
days
in
the
event
that
Plaintiffs file a notice of an election to have the court transfer
6
Plaintiffs argue that their claims arise under North Carolina law,
including its partnership act. Defendants contend otherwise, arguing
that Colorado law applies, and point out that Davis resided in Georgia,
where Cypress International, Inc. was incorporated and is now dissolved,
when the parties’ business relationship arose. (Doc. 22 at 7, 9.)
13
the action to the Colorado court.
In the absence of such notice,
the court will dismiss the action without prejudice.
III. CONCLUSION
For the reasons stated,
Defendants’ motion to dismiss (Doc. 19) will be granted
without
prejudice
Plaintiffs
file
a
in
fourteen
notice
of
days
an
unless
election
within
to
have
that
time
this
case
transferred to the United States District Court for the District
of Colorado where the companion action is proceeding under docket
number 1:16-cv-01935-MSK-MEH.
In any event, the court will not
reach Defendants’ alternative motions to dismiss on the merits,
which will be denied without prejudice as moot.
/s/
Thomas D. Schroeder
United States District Judge
June 23, 2017
14
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