Opinion
Civil Action No. CV-02-4045 (DGT)
December 27, 2002
ORDER
This civil action arises out of an almost decade-long commercial arrangement between plaintiffs, Ahava Dairy Products Corp. and Ahava Food Corp. (collectively, "Ahava"), and defendant, Swiss Heritage Cheese, Inc. ("Swiss Heritage"). Defendant is a cheese manufacturer based in Wisconsin; plaintiffs are kosher food distributors based in New York. Swiss Heritage moved to dismissed this ease for insufficient service of process or to transfer or stay this action because a similar later-filed case between the same parties is pending in the District Court for the Western District of Wisconsin.
On July 2, 2002, Ahava initiated this action in the Supreme Court of the State of New York alleging that Swiss Heritage sold it cheese fraudulently represented as kosher. Ahava claims that Swiss Heritage did not adhere to the agreed-upon procedures for kosher cheese manufacturing and sold cheese to Ahava despite the lack of a mashgiach (rabbinical monitor) being present during the cheese-making process.
Six days later, on July 8, 2002, Swiss Heritage tiled suit against Ahava in the Circuit Court for Green County, Wisconsin, demanding payment of approximately $150,000.00 for cheese shipped to Ahava. Soth eases were ultimately removed to their respective federal district courts — the New York action to this Court, and the Wisconsin action to the District Court for the Western District of Wisconsin.
Although the facts of this case involve the method of cheese-making under Jewish dany dietary laws, at its core it is still a common law fraud action and contract claim. Ahava claims that it had an agreement with Swiss Heritage to produce cheese under certain kosher conditions, which included having an on-site mashgiach — a rabbinic monitor provided by a third-party kosher certification and monitoring agency — to observe the milking and cheese-making process. Ahava claims that as part of that agreement to manufacture the cheese under kosher conditions, it paid Swiss Heritage a premium of' approximately 19 cents per pound above the market rate for similar nonkosher cheese.
However, both sides agree that the mashgiach, David Bitton ("Bitton"), did not perform his duties and was absent during the milking and cheese-making process. This was discovered when Bitton's supervisor, Rabbi Tzvi Rosen showed up unannounced at Swiss Heritage's facility in Wisconsin during the predawn hours of September 11, 2001. Rabbi Rosen works for Star K, a kosher certification and monitoring agency.
Swiss Heritage claims that it never warranted to Ahava that the cheese would be kosher. Swiss Heritage further claims that it had notified Ahava at one point of problems in the mashgiach's performance, and that Ahava responded by telling Swiss Heritage to ship the cheese anyway. As such, in the Wisconsin action, Swiss Heritage is seeking payment for the shipments of cheese it sent to Ahava in the days and weeks preceding September 11, 2001. Ahava defends its refusal to pay for those shipments based on the same allegations it makes in this action, in particular, that the cheese was not manufactured according to agreed-upon specifications and that, as a result, it was required to destroy or recall the unsold cheese.
On August 29, 2002, Ahava filed a motion in the Wisconsin action requesting that the court there transfer the case to this Court or, alternatively, to stay the action pending the resolution of this case. On September 25, 2002, pursuant to the Individual Motion Practices of this Court, Swiss Heritage requested a pre-motion conference in anticipation of filing a motion to dismiss the case due to insufficient service of process or, alternatively, that this case be transferred to the District Court for the Western District of Wisconsin or that this case be stayed pending the resolution of the Wisconsin action. After both parties filed their respective papers, the Court heard oral arguments on December 18, 2002.
Swiss Heritage argues that the Court should not follow the general rule that where similar cases are pending before two otherwise proper federal districts the first-filed case has priority to proceed. Swiss Heritage also claims that Ahava's service of process was insufficient — and though that may be easily cured by renewed service, the renewed New York action would no longer be entitled to priority as first-filed. Swiss Heritage also seeks to counter the first-filed rule by raising factors such as hardships for Swiss Heritage and third-party witnesses to testify in New York, locus of operative facts and judicial economy — factors that would weigh against a rigid application of the first-filed rule.
Where identical cases are pending before different judicial districts, the first-filed action "should have priority, absent the showing of balance of convenience in favor of the second action." Cali v. East Coast Aviation Servs., Ltd., 178 F. Supp.2d 276, 291 (E.D.N.Y. 2001) (inner quotations and citations omitted). "[T]he first-filed rule does not supersede the inquiry into the balance of convenience required. . . . but creates a presumption that may be rebutted by proof that proceeding in the forum of the second-filed action is more desirable." Id. (inner quotations and citations omitted); see Trippe Manuf. Co. v. American Power Conversion Corp., 46 F.3d 624, 629 (7th Cir. 1995) (The "[Seventh C]ircuit does not rigidly adhere to a 'first-to-file' rule.") (citations omitted); Motion Picture Laboratory Technicians Local 780 v. McGregor Werner, Inc., 804 F.2d 16, 19 (2d Cir. 1986).
The district courts of both the Second and Seventh Circuits have held that the court that has the first-filed case pending before it — in this instance, this Court — should decide whether an exception to the first-filed rule is warranted. See Citigroup Inc. v. City Holding Co., 97 F. Supp.2d 549, 556 n. 4 (S.D.N.Y. 2000) ("Indeed, it is the court in which the first-filed action was brought that should decide whether an exception to the first-filed rule applies.") (citations omitted); Weber-Stephen Prods. Co. v. Ivy Mar Co., 1994 WL 11711 (N.D. Ill. January 13, 1994) (deferring the decision to the first-filed court as to whether an exception to the firstfiled rule applies despite stated position that rigid reliance on the first-filed doctrine was not compelling under the circumstances). See also Estee Lauder, Inc., v. Dun Bradstreet Software Servs., Inc., 987 F. Supp. 221, 224 (E.D.N.Y. 1997) ("'absent such a rule, there exists the possibility of inconsistent rulings on discretionary matters as well as duplication of judicial effort"') (quoting Donaldson, Lufkin Jenrette v. Los Angeles County, 542 F. Supp. 1317, 1320-21 (S.D.N.Y. 1982)).
However, the parties have notified this Court that despite this rule, the district court in the Western District of Wisconsin has, nonetheless, proceeded to determine the motion and has already denied Ahava's motion to stay that action or transfer the case to this Court. The parties have presented the Court with transcripts of the oral arguments and the district court's written order dated November 12, 2002.
In ruling on the motion before it, this Court would have found that the balance of factors do not warrant a departure from the presumption that the first-filed case has priority. The first-filed rule "'should not be disturbed unless balance of convenience and justice weigh heavily in favor of defendant's forum, especially where as here plaintiff's chosen forum is its principal place of business.'" Citigroup Inc. v. City Holding Co., 97 F. Supp.2d 549, 561 (quoting Toy Biz, Inc. v. Centuri Corp., 990 F. Supp. 328, 330 (S.D.N.Y. 1998)). "An even or inconclusively tilted balance of convenience would ordinarily support application of the first-filed rule." O'Hopp v. ContiFinancial Corp., 88 F. Supp.2d 31, 35 (E.D.N.Y. 2000) (inner quotations and citations omitted).
Here, Swiss Heritage presented claims of business disruption and hardship to travel to New York. Ahava made similar claims if it must travel to Wisconsin. Swiss Heritage pointed out that it is a small entity, and that its operations would be disrupted by the absence of Paul Rufener, who is Swiss Heritage's President, sole shareholder and one of only two cheesemakers. Ahava claims that requiring its officers to travel to Wisconsin would similarly disrupt its operations — though, as Swiss Heritage pointed out, Ahava is a larger corporation relative to Swiss Heritage.
While the convenience of the parties — which, here, slightly favors Swiss Heritage — is entitled to some weight, "[t]his factor does not favor transfer where transfer would merely shift any inconvenience from defendant to plaintiff" See Nabisco, Inc. v. Brach's Confections, Inc., 2000 WL 1677935, at *4-5 (S.D.N.Y. Nov. 8, 2000). Moreover, "[a]lthough courts can consider the relative means of parties, this factor is not entitled to great weight where plaintiff and defendant are both corporations." Toy Biz, Inc. v. Centuri Corp., 990 F. Supp. at 331 (rejecting defendant's claim that transfer is appropriate because plaintiff has greater resources ); see Nabisco, 2000 WL 1677935, at *8-9 ("[T]he relative means of parties . . . is not entitled to great weight where plaintiff and defendant are both corporations.").
More significantly, this Court has given considerable weight to Swiss Heritage and Ahava's competing claims of hardship on third-party witnesses. See Distefano v. Carozzi North America, Inc., 2002 WL 31640476, at *2 (E.D.N.Y. Nov. 16, 2002) ("Convenience to the witnesses "is the most powerful factor governing the decision to transfer a case."') (quoting In re Repetitive Stress Injury Litig., 850 F. Supp. 188, 194 (E.D.N.Y. 1994)). Swiss heritage filed affidavits by several third-party farmers raising hardship concerns about the difficulty of leaving their herds in order to testify in New York. The farmers would testify that Bitton was at times absent during the milking and transporting phases and that he asked the farmers to lie to his supervisor about his absences. Still, the necessity of their testimony is marginal. Ahava concedes that Bitton was absent. Indeed, Ahava's case seems premised on Bitton's absence.
Ahava also cites its own claims of hardship for third-party witnesses, namely, Rabbi Rosen and Bitton. Rabbi Rosen lives in Baltimore, Maryland. Bitton resides both in Massachusetts and New York. However, both Rabbi Rosen and Bitton have traveled to Wisconsin in the past, and although Rabbi Rosen resides closer to New York, he would, nonetheless, have to travel to testify in this case.
As the parties have presented the theories of their case, this dispute is not about whether the cheese was processed in Wisconsin under certain kosher conditions — both sides concede that there were problems. Rather, the controversy in this case relates to what the parties' understandings were: who was responsible for ensuring that the cheese was properly manufactured according to kosher specifications; whether Swiss Heritage was dutibound to notify Ahava of problems and, if so, whether Swiss Heritage breached that duty; and whether Ahava was aware of problems, but agreed to accept shipment of the cheese anyway. Indeed, a close examination of the parties' positions reveals that the only critical non-party witness on the liability issue would appear to be Rabbi Rosen, who Ahava claims would testify that he had regular contact with Swiss Heritage regarding the requirement of ensuring that the kosher conditions are met.
As such, neither Ahava nor Swiss Heritage have presented compelling considerations of hardship on necessary nonparty witnesses. Indeed, if there is any concern about assuring the live testimony of a witness, it would be for that of Bitton. Much maligned — perhaps justifiably — by both parties, Dillon may yet be a reluctant witness who would be out of the jurisdictional reach of the court in the Wisconsin action, However, his testimony could still be obtained via deposition.
Accordingly, this Court would not depart from the presumption that the first-filed case has priority to proceed. Nonetheless, rather than issuing an unseemly contradictory ruling on a discretionary matter, the Court will yield to the ruling in the Wisconsin action. Swiss Heritage's motion to stay this action is, therefore, granted. However, Swiss Heritage's motion to transfer is denied, though the parties are cautioned that, in addition to other possible preclusionary effects the Wisconsin action may have, the claims raised in this action may qualify as compulsory counterclaims in the Wisconsin action, and to the extent they do, will be barred in this action.
Swiss Heritage also moved to dismiss this action based on insufficient service of process, apparently in an attempt to avoid the application of the first-filed rule. Swiss Heritage claims that the person served, Ardellis Rufener, was merely perfonning secretarial tasks when she was served. Ahava claims that Ardellis Rufener, who is the mother of the president of Swiss Heritage, was more than a secretary and that over the years, the absence of her son was never a bar to having her resolve issues that arose between Ahava and Swiss Heritage.
The motion to dismiss on the grounds of insufficient service of process appears to lack merit. Pursuant to Rule 4 of the Federal Rules of Civil Procedure, service upon a corporation is proper if done in accordance with the Federal Rules or under the state laws in which either the action is brought or within which service is effected. See F.R.C.P. 4(e)(1), (h)(I). Both the New York statute and the Federal Rules allow for service upon a corporation by serving the general agent or an agent authorized by law to receive service. See id.; N.Y. C.P.L.R. § 311. In applying both New York law as well as the Federal Rules, the courts have construed the service requirement very liberally and allowed valid service to the corporate place of business by means 'reasonably calculated' to give notice." OR.EN. Orobia Eng'g S.R.L. v. Nacht, 1998 WL 730562, at *5 (quoting Kuhlik v. Atlantic Corp., 112 F.R.D. 146, 148 (S.D.N.Y. 1986)); see Old Republic Ins. Co. v. Pacific Financial Servs. Inc., 301 F.3d 54, (2d Cir. 2002) (per curiam) (finding that service upon defendant's employee was valid under New York law where plaintiff reasonably believed that the employee was a corporate officer). Moreover, under Wisconsin law, the service appears to have been unquestionably proper. See Wis. STAT. § 801.11 (service upon corporation can be effectuated by leaving a copy of the summons in the office of the corporation's "officer . . . . or managing agent with the person who is apparently in charge of the office"). Accordingly, Swiss Heritage's motion to dismiss due to insufficient service of process is denied.
The Clerk of the Court is directed to administratively close this case.