The opinion of the court was delivered by: M. James Lorenz United States District Court Judge
ORDER GRANTING MOTION TO TRANSFER [doc. #4]; DENYING WITHOUT PREJUDICE MOTION TO DISMISS FOURTH CAUSE OF ACTION [doc. #12]; GRANTING EX PARTE MOTION FOR LEAVE TO FILE DECLARATIONS [doc. #24] and FOR LEAVE TO FILE NEWLY DISCOVERED EVIDENCE [doc. #27]
Defendant Corporate Trade Inc. ("CTI") moves to dismiss, transfer or stay this action and to dismiss plaintiff's fourth cause of action under Federal Rule of Civil Procedure 12(b)(6). The motions have been fully briefed; however, plaintiff Callaway Golf Company ("Callaway") seeks leave to file declarations and newly discovered evidence in support of its opposition to CTI's motion to dismiss, transfer or stay the case.
In September 2001, CTI and Spalding Sports Worldwide, Inc. ("Spalding"), a nonparty, agreed that Spalding would sell its excess sporting goods inventory to CTI in exchange for trade credits that Spalding could use for marketing and advertising that CTI would make available to Spalding. In December 2001, CTI and KSL Media, Inc. ("KSLM") agreed that KSLM would place media purchases on behalf of CTI's clients.
Callaway acquired certain of Spaulding's assets in mid-2003 and sought the assignment and full use of the trade credit balance that CTI held in account for Spaulding. On July 1, 2003, CTI and Callaway agreed to assign, inter alia, the trade credit balance to Callaway. Callaway alleges in its complaint that the agreement was for CTI to transfer the Spalding trade credit balance to Callaway in exchange for Callaway switching its media placement and planning and all future media trading to CTI's designated media agency, KSLM, once Callaway's media agreement with Dailey & Associates expired. However, CTI asserts that in consideration for the assignment and use of the trade credits, Callaway agreed it would provide to CTI either inventory of products equal to the value of the cash savings on media purchases that Callaway would realize from the use of the trade credits to purchase media; or alternatively, Callaway would pay cash to CTI calculated as 95% of the value of the cash savings on media purchases that Callaway realized from use of the trade credits to purchase media within 48 months of the use of the trade credits. CTI points to a letter from CTI to Callaway dated July 10, 2003 that it contends recognizes and confirms the CTI Trade Credit Compensation Agreement. (Exh. 3 to Declar. of Brian Egan.) It is clear that the parties dispute the terms of the trade credit assignment.
There is no dispute, however, that Callaway executed several media purchase authorizations for print and broadcast media. CTI sent a letter dated July 28, 2004 to Callaway that expressly provided an accounting of the cash-flow savings realized by Callaway in 2003 and 2004 from the use of trade credits to purchase media. (Danzig Declar. Exh. Bates stamp 000255.)
In April 2008, CTI and Callaway entered into another agreement whereby CTI would provide information to Callaway concerning KSLM's alleged improper business practices toward Callaway and Callaway would pay to CTI a percentage of net money Callaway recovered from KSLM plus a percentage of cost saved based on the receipt of the information from CTI. ("Confidentiality Agreement"). Callaway recovered or avoided considerable costs from KSLM and as a result was to pay CTI fees of approximately $227,862. Callaway proposed a written mutual release of all remaining claims under the Confidentiality Agreement in exchange for a one-time payment of $60,000 and a waiver of all claims and liabilities, including any not yet known or suspected to exist by the parties. (Exh. 7 to Declar. of Brian Egan.) On October 28, 2008, CTI advised Callaway that it was refusing to execute the proposed mutual release because Callaway had not transferred inventory, nor paid cash, based on the use of trade credits for the purchase of media as required by the July 2003 assignment of the Spaulding Agreement to Callaway.
CTI sent an invoice to Callaway on October 31, 2008, for unpaid fees of $932,013.65 which represented 95% of the value of cash savings realized by Callaway from the use of trade credits to purchase media in 2003 and 2004. Callaway questioned the basis of the October 31, 2008 invoice.
Defendant states that a phone conversation between CTI and Callaway occurred on November 22, 2008, in which CTI asserted that it was prepared to send a second invoice to Callaway based on Callaway's use of the trade credits balance from 2005 through 2008 in the amount of $7,981,287.20. In a subsequent phone call on November 26, 2008, Brian Egan of CTI allegedly told Callaway's counsel that unless both invoices were paid by January 19, 2009, CTI would sue Callaway for the amounts owed. Although Callaway does not suggest that this telephonic conversation never occurred, it disputes what was discussed during the call and strongly denies that a threat of litigation was communicated. (Oppo. Exh. 1, Patrick Swan, Jr. Declar. at ¶¶ 14-16.)
On that same date, CTI filed a complaint against Callaway in the United States District Court for the Southern District of New York, seeking damages for breach of contract, unjust enrichment, and for an accounting for monies owed under the agreement concerning Callaway's use of trade credits to purchase media. CTI's action was filed less than a week after Callaway's case was filed here but prior to service of Callaway's complaint.
As noted above, CTI seeks to have this case, the first-filed action, transferred to the District Court for the Southern District of New York. Callaway opposes the motion.
Motion to Transfer, Stay or Dismiss
"There is a generally recognized doctrine of federal comity which permits a district court to decline jurisdiction over an action when a complaint involving the same parties and issues has already been filed in another district." Pacesetter Systems, Inc. v. Medtronic, Inc., 678 F.2d 93, 94-5 (9th Cir. 1982). This doctrine, known as the first-to-file rule, "gives priority, for purposes of choosing among possible venues when parallel litigation has been instituted in separate courts, to the party who first establishes jurisdiction." Northwest Airlines, Inc. v. American Airlines, Inc., 989 F.2d 1002, 1006 (8th Cir. 1993). The rule "serves the purpose of promoting efficiency well and should not be disregarded lightly." Church of Scientology of California v. United States Dep't of Army, 611 F.2d 738, 750 (9th Cir. 1979).
In applying the first-to-file rule, a court looks to three threshold factors: "(1) the chronology of the two actions; (2) the similarity of the parties, and (3) the similarity of the issues." Z-Line Designs, Inc. v. Bell'O Int'l LLC, 218 F.R.D. 663, 665 (N.D. Cal. 2003). If the first-to-file rule does apply to a suit, the court in which the second suit was filed may transfer, stay or dismiss the proceeding in order to allow the court in which the first suit was filed to decide whether to try the case. Alltrade, Inc. v. Uniweld Products, Inc., 946 F.2d 622, 622 (9th Cir.1991). In other words, the court with the first-filed action should normally decide whether an exception to the first-to-file rule applies. Pacesetter, 678 F.2d at 96 (citing Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 185, 72 S.Ct. 219 (1952)); see also Alltrade Inc., 946 F.2d at 628.
"Circumstances under which an exception to the first-to-file rule typically will be made include bad faith, anticipatory suit and forum shopping." Id. at 628 (internal citations omitted). Another exception to the first-to-file rule applies if "the balance of convenience weighs in favor of the later-filed action." Ward v. Follett Corp., 158 F.R.D. 645, 648 (N.D. Cal. 1994). This is analogous to the "convenience of parties and witnesses" on a transfer of venue motion pursuant to 28 U.S.C. § 1404(a). Med-Tec Iowa, Inc. v. Nomos Corp., 76 F. Supp.2d 962, 970 (N.D. Iowa 1999); 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 133 (S.D.N.Y. 1994).
There is no dispute concerning the chronology of the two actions; the similarity of the parties, and the similarity of the issues. Therefore the issue is whether an exception to the first-to-file rule should be applied which would result in the transfer of this action to the Southern District of New York. CTI contends that Callaway filed this anticipatory action and engaged in forum shopping and further asserts that the balance of convenience weighs in favor of transfer of the first-filed case.
A suit is "anticipatory" for the purposes of being an exception to the first-to-file rule if the plaintiff in the first-filed action filed suit acts on receipt of specific, concrete indications that a suit by the defendant was imminent. Ward v. Follett Corporation, 158 F.R.D. 645, 648 (N.D. Cal. 1994). Such anticipatory suits are disfavored because they are examples of forum shopping. Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 n. 3 (5th Cir. 1983). By recognizing this exception to the first-to-file rule, courts seek to eliminate the race to the ...