ST. PAUL FIRE AND MARINE INSURANCE COMPANY v. R&Q REINSURANCE COMPANY

Filing 48

MEMORANDUM. SIGNED BY HONORABLE BERLE M. SCHILLER ON 6/2/2016. 6/2/2016 ENTERED AND COPIES E-MAILED.(amas)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ST. PAUL FIRE & MARINE
INSURANCE COMPANY,
Plaintiff,
v.
R&Q REINSURANCE COMPANY,
Defendant.

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CIVIL ACTION

No. 15-5528

MEMORANDUM
Schiller, J.

June 2, 2016

In September 2015, R&Q Reinsurance Company (“R&Q”) filed a declaratory judgment
action against St. Paul Fire & Marine Insurance Company (“St. Paul”) in the Northern District of
Illinois (the “Illinois Action”). The Illinois court subsequently transferred that action to this
Court. See R&Q Reins. Co. v. St. Paul Fire & Marine Ins. Co., Civ. A. No. 16-1473 (E.D. Pa.
filed Mar. 31, 2016). Prior to that transfer, in October 2015, St. Paul sued R&Q in this District
for breach of contract on the same underlying claims (the “Pennsylvania Action”). R&Q filed a
motion to dismiss the second-filed Pennsylvania Action. The Pennsylvania Action was
subsequently reassigned to this Court. For the reasons set forth below, R&Q’s motion will be
granted, and the Pennsylvania Action will be dismissed without prejudice.

I.

BACKGROUND
St. Paul is an insurance company based in Hartford, Connecticut. (Compl. ¶ 2.) R&Q is a

reinsurance company based in Philadelphia, Pennsylvania. (Id. ¶ 3.) St. Paul has paid more than
$10 million in asbestos claims to a third party, Walter E. Campbell Company, Inc. (Id. ¶ 10.) St.
Paul is now seeking reimbursement for these claims from R&Q under various reinsurance
contracts. (Id. ¶¶ 11-13.) Specifically, St. Paul alleges that R&Q is bound by reinsurance

contracts that St. Paul made with R&Q’s predecessor in interest, INA Reinsurance Company.
(Id. ¶¶ 3, 11-13.)
On April 9, 2013, St. Paul sent a notice of loss to R&Q in connection with the underlying
asbestos lawsuits.

(Id. ¶ 14.)

In July and August 2013, R&Q requested additional

documentation, which St. Paul provided. (Id. ¶ 15.) However, R&Q did not provide a substantive
response regarding the claims for more than one year, despite repeated requests from St. Paul.
(Id. ¶ 16.) On August 11, 2014, having received no substantive response from R&Q, St. Paul
sent R&Q a bill requesting more than $4.4 million in reinsurance payments. (Id. ¶ 17.) On
August 20, 2014, R&Q objected to the bill, its first substantive response to the reinsurance
claims. (Id. ¶ 18.) To this date, R&Q has not paid any portion of the bill. (Id. ¶ 22.)
A.

The Illinois Action

On September 3, 2015, R&Q filed a declaratory judgment action against St. Paul in the
U.S. District Court for the Northern District of Illinois. (Def.’s Mem. Supp. Mot. Dismiss [Def.’s
Mem.] at 1.) R&Q argued that St. Paul failed to “promptly” notify R&Q of the underlying
claims as required by the reinsurance policies at issue, because St. Paul had begun paying those
claims in 2003 or earlier without notifying R&Q until 2013. (Id. at 3) Accordingly, R&Q sought
a declaratory judgment that it had no obligation to pay St. Paul. (Pl.’s Mem. Opp’n Mot.
Dismiss [Pl.’s Mem.] at 10.) On October 13, 2015, St. Paul filed a motion to transfer the Illinois
Action to this District, which was granted on March 30, 2016. (Letter from Lloyd Gura to Judge
Slomsky, Apr. 26, 2016, Ex. A [Transfer Order].)
The transferring court found that “the bulk of material events occurred in areas much
closer to Pennsylvania than Illinois, with some of the material events occurring in Pennsylvania
itself.” (Id. at 4.) While the transferring court acknowledged that the reinsurance contracts were

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at least partially negotiated in Illinois, it ultimately agreed with St. Paul that “the location where
the business decisions allegedly causing a breach occurred is more relevant than the location of
contract formation.” (Id. at 3.)
B.

The Pennsylvania Action

On October 7, 2015, just before filing the transfer motion in the Illinois Action, St. Paul
commenced a parallel action against R&Q in this District, which was initially assigned to the
Honorable Joel H. Slomsky. In the Pennsylvania Action, St. Paul sought a declaratory judgment
of R&Q’s liability under the same reinsurance contracts at issue in the Illinois Action, as well as
damages for the breach of these contracts. Because the Illinois Action was filed first and because
there was a pending motion to transfer that case, R&Q filed a motion to dismiss or stay the
proceedings in the Pennsylvania Action. Judge Slomsky agreed to stay the proceedings in the
Pennsylvania Action pending the outcome of the transfer motion but reserved judgment on the
motion to dismiss. After the Illinois Action was transferred to this Court, the Pennsylvania
Action was also reassigned to this Court.

II.

STANDARD OF REVIEW
The Third Circuit’s “first-filed rule” requires that “in all cases of federal concurrent

jurisdiction, the court which first has possession of the subject must decide it.” EEOC v. Univ. of
Pa., 850 F.2d 969, 971 (3d Cir. 1988). Because the first-filed rule rests on equitable principles,
the decision to apply the rule is committed to the sound discretion of the trial court. See id. at
977. “Under this standard, a court must act ‘with regard to what is right and equitable under the
circumstances and the law, and directed by the reason and conscience of the judge to a just
result.’” Id. (quoting Langnes v. Green, 282 U.S. 531, 541 (1931)). If the court determines that

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the first-filed rule applies, the court may dismiss the second case without prejudice. Koresko v.
Nationwide Life Ins. Co., 403 F. Supp. 2d 394, 403 (E.D. Pa. 2005).
The first-filed rule applies “where the subject matter of the later filed case substantially
overlaps with that of the earlier one.” Villari Brandes & Kline, P.C. v. Plainfield Specialty
Holdings II, Inc., Civ. A. No. 09-2552, 2009 WL 1845236, at *6 (E.D. Pa. June 26, 2009). “The
threshold issue when addressing the first filed rule is whether the proceedings are truly
duplicative.” PhotoMedex, Inc. v. St. Paul Fire & Marine Ins. Co., Civ. A. No. 09-896, 2009 WL
2326750, at *5 (E.D. Pa. July 28, 2009).
However, there are exceptions to the first-filed rule. The Third Circuit has explained that
“rare or extraordinary circumstances, inequitable conduct, bad faith, or forum shopping” may
“justify[] departure from the first-filed rule.” Univ. of Pa., 850 F.2d at 972. If the first-filed
action is “anticipatory,” meaning that the plaintiff in that action filed in a favorable venue
knowing that the other side was going to sue imminently in a different venue, the “extraordinary
circumstances” exception may apply. FMC Corp. v. AMVAC Chem. Corp., 379 F. Supp. 2d 733,
744 (E.D. Pa. 2005). When evaluating if these circumstances exist in a given case, there is a
presumption that the first-filed rule applies. See, e.g., Koresko, 403 F. Supp. 2d at 400 (“On
balance . . . the orderly administration of justice counsels in favor of ordinarily respecting the
first-filed rule.”).

III.

DISCUSSION
A.

The First-Filed Rule Applies

As an initial matter, there is substantial overlap between the Illinois Action and the
Pennsyvlania Action sufficient to trigger the first-filed rule. Indeed, the proceedings are “truly

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duplicative.” See PhotoMedex, Inc., 2009 WL 2326750, at *5. Both actions involve the exact
same dispute over R&Q’s liability to St. Paul under the reinsurance agreements. See Synthes, Inc.
v. Knapp, 978 F. Supp. 2d 450, 456 (E.D. Pa. 2013) (explaining that the first-filed rule applies
“where the core facts are similar and the causes of action in both [suits] arise out of the same . . .
relationship and conduct”). The Illinois Action was filed in September 2015. The Pennsylvania
Action was filed over one month later in October 2015. Because the Illinois Action was filed
first, and because the proceedings are truly duplicative, the Court will exercise its discretion to
dismiss the Pennsylvania Action, unless one of the exceptions applies. See Koresko, 403 F. Supp.
2d at 400.
Despite the overlap between the two cases, St. Paul contends that the first-filed rule does
not apply because both actions are now pending in the same court. St. Paul argues that the firstfiled rule only applies where two cases are currently pending in separate federal district courts.
However, the Third Circuit has held that the first-filed rule may apply even where “concurrent
jurisdiction no longer exist[s],” as long as the duplicative actions were initially filed in different
jurisdictions. Chavez v. Dole Food Co., Inc., 796 F.3d 261, 266 (3d Cir. 2015), vacated for reh’g
en banc (3d Cir. Sept. 22, 2015). 1 According to the Third Circuit, “the procedural posture of the
first-filed case on the date the second-filed action[] [is] dismissed, is irrelevant to the analysis.”
Id. Rather, “the relevant point-in-time is the filing date of the duplicative action. If concurrent
jurisdiction exists at that time, and the actions are truly duplicative, the first-filed rule can be
invoked.” Id. Because these actions were duplicative at the time of filing, and because concurrent

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The issue presented for rehearing was whether the district court had improperly permitted
dismissal with prejudice under the first-filed rule. See Petition for Rehearing at 5, Chavez v.
Dole Food Co., Inc., No. 13-4144 (3d Cir. Aug. 25, 2015). Since this Court only contemplates
dismissal without prejudice, the vacatur for rehearing does not raise any concerns in this case.
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jurisdiction existed at that time, the first-filed rule survives the Illinois Action’s transfer to this
District and the Pennsylvania Action’s reassignment to this Court.
Even if the first-filed rule did not apply, the “prior pending action doctrine” adopted by
the Third Circuit permits this Court to dismiss without prejudice a second action “involving the
same subject matter at the same time in the same court” between the same parties. Walton v.
Eaton Corp., 563 F.2d 66, 70 (3d Cir. 1977). “The pendency of a prior pending action in the
same federal court is ground for abatement of the second action [because] there is no reason why
a court should be bothered or a litigant harassed with duplicating lawsuits on the same docket.”
Id. Indeed, “[a]s part of its general power to administer its docket, a district court may dismiss a
duplicative” action. Fabics v. City of New Brunswick, 629 F. App’x 196, 198 (3d Cir. 2015).
Both actions pending before this Court involve the same parties and the same subject matter,
which would trigger the prior pending action doctrine in the absence of the first-filed rule.
B.

Exceptions to the First-Filed Rule Do Not Apply in This Case

Because there is substantial overlap, the Court will apply the first filed rule unless an
exception applies. Indeed, St. Paul argues that several exceptions apply, namely forum shopping,
anticipatory filing, and other inequitable conduct, any of which would justify a departure from
the first-filed rule. However, none of these exceptions applies here.
i.

Forum shopping

“[I]n the context of the first-filed rule, forum shopping refers to the selection of a forum
based on the favorableness of the forum’s substantive law, not merely based on convenience.”
Koresko, 403 F. Supp. 2d at 399 n.8 (citing Univ. of Pa., 850 F.2d at 969); see also Kim v. Kim,
324 F. Supp. 2d 628, 636 (E.D. Pa. 2004) (finding that filing a case in the Eastern District of
Pennsylvania for reasons of convenience is “a rather unexceptional circumstance that gives the

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Court no reason to depart from the first-filed rule”). St. Paul asserts that “R&Q has engaged in
inappropriate forum shopping” by filing in a forum whose laws favor R&Q’s claims. (Pl.’s Mem.
at 10.) St. Paul claims that Illinois has no material connection to this dispute and alleges that
R&Q brought its late-notice claims in Illinois solely because Illinois law does not “require[] a
reinsurer to prove prejudice.” (Id. at 10-11.) According to St. Paul, R&Q’s decision to file in
Illinois constitutes “blatant” forum shopping that justifies a departure from the first-filed rule.
(Id. at 11.)
The Court disagrees. “[T]o justify a disregard of the first-filed rule, forum shopping must
be the sole reason for choosing one forum over another and thus will rarely be found where the
first action was filed in a logical place.” Zelenkofske Axelrod Consulting, L.L.C. v. Stevenson,
Civ. A. No. 99-3508, 1999 WL 592399, at *3 (E.D. Pa. Aug. 5, 1999). Here, the first action was
filed in a logical place. Indeed, St. Paul acknowledges that the Illinois office of R&Q’s
predecessor in interest was involved in the “formation process” of the reinsurance contracts at
the center of this dispute. (Pl.’s Mem. at 3-4.) Additionally, the transferring court noted that the
insurance broker who negotiated the underlying contracts was located in Illinois. (Transfer Order
at 1.) Moreover, the parties did not dispute that venue was proper in Illinois. (Id. at 2.) In short,
the forum shopping exception to the first-filed rule does not apply, because “there are facts
logically connecting” the first-filed action to Illinois. See Synthes, Inc., 978 F. Supp. 2d at 457
(“[W]here forum shopping is alleged, [a] court should consider whether there are facts logically
connecting [the] first-filed action to [the] forum.”)
ii.

Anticipatory filing

“Courts have rejected the [first-filed] rule when the . . . first-filing party instituted suit in
one forum in anticipation of the opposing party’s imminent suit in another, less favorable

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forum.” Univ. of Pa., 850 F.2d at 976. The anticipatory filing exception generally applies when
the first-filing party knows that a lawsuit by the other party is imminent. In University of
Pennsylvania, the Third Circuit upheld a district court’s decision not to apply the first-filed rule
on the basis of anticipatory filing. Id. at 977. In that case, the University faced an imminent
subpoena in an enforcement action by the EEOC in the Eastern District of Pennsylvania. Three
days before an EEOC deadline, the University filed a lawsuit in the District of Columbia,
ostensibly to evade unfavorable precedent in the Third Circuit. Id. The Third Circuit held that
“[t]he timing of the University’s filing in the District of Columbia indicates an attempt to
preempt an imminent subpoena enforcement in the Eastern District of Pennsylvania.” Id. It
further explained that, “The EEOC [had] threatened to institute a subpoena enforcement
proceeding within twenty days unless the University responded. Instead of complying with the
ruling or notifying the EEOC of its intent to contest the ruling, the University filed suit in the
District of Columbia three days before the expiration of the grace period during which the EEOC
stated it would not resort to a judicial enforcement proceeding.” Id. Courts have also applied the
first-filed rule where one party “delayed its filing in reliance upon ongoing settlement
negotiations.” Drugstore-Direct, Inc. v. The Cartier Div. of Richemont N. Am., Inc., 350 F. Supp.
2d 620, 623 (E.D. Pa. 2004).
Here, St. Paul argues that the anticipatory filing exception to the first-filed rule applies
because R&Q preemptively filed a lawsuit in Illinois in anticipation of St. Paul’s imminent suit
in a forum that would be less favorable to R&Q. (Pl.’s Mem. at 15.) According to St. Paul,
“R&Q hastily filed its declaratory judgment action” in Illinois so it could “seek[] refuge in what
it believes is favorable Illinois late notice law.” (Id. at 15-16.)

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The parties in this case were in the middle of a year-long dispute about R&Q’s liability to
St. Paul under the terms of various reinsurance contracts when R&Q filed the declaratory
judgment action in Illinois. (Id. at 15.) This was not improper. In a contract dispute, it is perfectly
reasonable for one party to seek a declaratory judgment that it is not liable under the disputed
terms of a contract. See, e.g., Fundamental Too, Ltd. v. Universal Music Grp., Inc., Civ. A. No.
97-1595, 1997 WL 181255, at *5 (E.D. Pa. Apr. 10, 1997) (“[W]ould-be plaintiffs [need not]
wait until there is a reasonable apprehension of suit before filing a declaratory judgment action . .
. .”); Synthes, Inc., 978 F. Supp. 2d at 455.
Moreover, unlike the facts in University of Pennsylvania, the Court is not persuaded that
R&Q knew that a lawsuit by St. Paul was imminent. St. Paul alleges that R&Q knew it would
sue because St. Paul communicated to R&Q on July 17, 2015, that it “does not (and will not)
promise to wait for any specified time period to elapse before acting on its rights.” (Pl.’s Mem. at
15.) However, the timing and language of the alleged warning does not amount to notice of an
imminently forthcoming lawsuit, which St. Paul ultimately filed more than 80 days later. St. Paul
did not provide any specific notice to R&Q about when or where it would sue. Likewise, St. Paul
has not established that R&Q deceived St. Paul into suspending litigation so that R&Q could file
first elsewhere. See Drugstore-Direct, 350 F. Supp. 2d at 623. All things considered, the filing of
R&Q’s suit in Illinois does not appear to have been made with clear knowledge that St. Paul was
going to bring its own lawsuit, and thus does not warrant the application of the anticipatory filing
exception to the first-filed rule.
iii.

Other inequitable conduct

Finally, St. Paul asserts that “R&Q has engaged in inequitable conduct by suing St. Paul
in a foreign jurisdiction where . . . St. Paul cannot properly protect its interest.” (Id. at 9.) In

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particular, St. Paul argues that R&Q sued in Illinois because the federal court in Illinois had no
jurisdiction to attach R&Q’s assets in Pennsylvania. (Id.) The Court need not review the merits
of this claim because the argument is moot. The Illinois Action has been transferred to this
Court, which presumably alleviates St. Paul’s concerns about attachment.
IV.

CONCLUSION
The Court concludes that the first-filed rule applies, and that there was no inequitable

conduct justifying a departure from the rule. For the foregoing reasons, the Court will grant
R&Q’s Motion to Dismiss the Pennsylvania Action without prejudice. St. Paul may assert its
claims in its answer to the surviving action. An Order consistent with this Memorandum will be
docketed separately.

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