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Sharp Health Plan v. Healthedge Software, Inc.

United States District Court, S.D. California

June 24, 2019

SHARP HEALTH PLAN, a California nonprofit public benefit corporation, Plaintiff,
v.
HEALTHEDGE SOFTWARE, INC., a Delaware corporation; DOES 1 through 10, inclusive, Defendants.

          ORDER STAYING ACTION PURSUANT TO THE FIRST-TO-FILE RULE (ECF NOS. 11, 14, 15)

          Hon. Janis L. Sammartino United States District Judge.

         Presently before the Court are Plaintiff Sharp Health Plan's (“Sharp”) (“Pl.'s Br., ” ECF No. 15) and Defendant HealthEdge Software, Inc.'s (“HealthEdge”) (“Def.'s Br., ” ECF No. 14) Responses to the Court's June 10, 2019 Order to Show Cause Why This Action Should Not Be Stayed, Transferred, or Dismissed Pursuant to the First-to-File Rule (“OSC, ” ECF No. 11). Having carefully considered the Parties' Responses, the complaints, the evidence, and the relevant law, the Court STAYS this action pursuant to the first-to-file rule.

         BACKGROUND

         Sharp is a California nonprofit public benefit corporation that provides health care service plans and related administrative services for its members. ECF No. 1 (“Compl.”) ¶ 1. HealthEdge is a Delaware corporation that develops, markets, and licenses computer software applications to health plans such as Sharp. Id. ¶ 2.

         In 2014, Sharp and HealthEdge entered into a software as a service agreement (the “SAAS”), pursuant to which Sharp would utilize HealthEdge's software for essential administrative functions, id. ¶ 12, and a professional services agreement (the “PSA”), under which HealthEdge and Sharp would enter into one or more statements of work (“SOW”) for the provision of professional services with regard to HealthEdge's software. Id. ¶ 13. Sharp and HealthEdge subsequently entered into two SOWs, with the first (the “SOW-1”) to determine what would be necessary for the implementation of certain aspects of HealthEdge's software and the second (the “SOW-2”) to provide professional services related to the actual implementation of portions of HealthEdge's software. Id. ¶ 16.

         Around 2018, a dispute arose as to HealthEdge's performance under the SAAS and PSA/SOW-2. See Def.'s Br. at 2. Sharp sent letters to HealthEdge on July 2, 2018, and September 7, 2018, alleging that HealthEdge had breached the terms of the SAAS and the PSA/SOW-2. See Id. at 4. As required under their agreements, the Parties mediated the dispute on April 30, 2019. See id.; see also Pl.'s Br. at 1. The mediation was unsuccessful. See id.

         Following the mediation, HealthEdge filed a declaratory relief action against Sharp in the District of Massachusetts, HealthEdge Software, Inc. v. Sharp Health Plan, No. 1:19-cv-11020-ADB (D. Mass. Filed Apr. 30, 2019) (the “Massachusetts Action”). In the Massachusetts Action, HealthEdge asks the court to enter a declaration that: (1) HealthEdge did not breach the SAAS, (2) HealthEdge did not breach the SOW-2, and (3) HealthEdge did not engage in misrepresentations or act fraudulently under the SAAS and SOW-2. See ECF No. 15-1 (“RJN”) Ex. 1 (“Mass. Compl.”) ¶¶ 28-32.[1] The following day, counsel for HealthEdge emailed a copy of the Massachusetts Complaint to Sharp's counsel. See Def.'s Br. Ex. 2 at 16. Sharp's counsel returned a Waiver of the Service of Summons on May 14, 2019. See Def.'s Br. Ex. 3 at 18.

         On May 18, 2019, Sharp filed suit against HealthEdge in the Superior Court of California, County of San Diego. See ECF No. 1 Ex. A (“Compl.”). Sharp alleged six causes of action for fraud pursuant to California Civil Code sections 1710(1)-(2), (3), and (4); specific performance; breach of contract; and violation of California Business and Professions Code sections 17200 through 17203. See generally Id. HealthEdge removed to this Court on May 24, 2019. See generally ECF No. 1.

         After HealthEdge filed a Notice of Related Cases concerning the Massachusetts Action on June 7, 2019, see generally ECF No. 7, the Court issued the OSC on June 10, 2019. See generally ECF No. 11.

         LEGAL STANDARD

         “The first-to-file rule allows a district court to stay proceedings if a similar case with substantially similar issues and parties was previously filed in another district court.” Kohn Law Grp., Inc. v. Auto Parts Mfg. Miss., Inc., 787 F.3d 1237, 1239 (9th Cir. 2015). It “is intended to ‘serve[] the purpose of promoting efficiency well and should not be disregarded lightly.'” Id. (quoting Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 625 (9th Cir. 1991)). “The first-to-file rule may be applied ‘when a complaint involving the same parties and issues has already been filed in another district.'” Id. at 1240 (quoting Alltrade, 946 F.2d at 625). “Thus, a court analyzes three factors: chronology of the lawsuits, similarity of the parties, and similarity of the issues.” Id. (citing Alltrade, 946 F.2d at 625).

         If the case meets the requirements of the first-to-file rule, the court has the discretion to transfer, stay, or dismiss the action. Alltrade, 946 F.2d at 628-29. Even when the rule would otherwise apply, however, the court has the discretion to “dispense” with its application “for reasons of equity.” Id. at 628.

         ANALYSIS

         HealthEdge contends that the Court should dismiss, stay, or transfer this action to the District of Massachusetts pursuant to the first-to-file rule. See Def.'s Br. at 1. Sharp, on the other hand, contends that the first-to-file rule should not be applied for three reasons: (1) the Massachusetts Action faces “jurisdictional uncertainties” because HealthEdge must establish that the Massachusetts court has personal jurisdiction over Sharp and the Massachusetts court has discretion not to entertain HealthEdge's declaratory relief claims, see Pl.'s Br. at 2-3; (2) the Court cannot determine whether there is the requisite similarity of issues because the Massachusetts Complaint is “cryptic” and its is unclear which, if any, declaratory relief claims the Massachusetts court will hear, see Id. at 4; and (3) equitable considerations weigh against application of the first-to-file rule here because “Sharp was effectively the ‘first to file' when it initiated the contractual mediation ...


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