Summary
In Dallas Semiconductor Corp. and PAJ, Inc., this Court was the first-filed court in which the plaintiffs sought a declaratory judgment.
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CIVIL ACTION NO., 3:01-CV-0851-P
September 26, 2001
MEMORANDUM OPINION AND ORDER
Presently before the Court is Defendant's Motion to Dismiss or Stay, or in the Alternative, to Transfer this action to the Northern District of California pursuant to 28 U.S.C. § 1404(a), filed on May 24, 2001. Plaintiff filed its Response to Defendant's Motion on July 12, 2001, and Defendant filed a Reply on July 31, 2001. For the reasons stated below, the Court concludes that Defendant's Motion to Dismiss is GRANTED.
BACKGROUND
In August of 1999, Plaintiff Dallas Semiconductor Corporation ("DS") engaged Defendant Credit Suisse First Boston ("CSFB") and its affiliates into an agreement to act as Plaintiff's exclusive financial advisor in connection with the possible sale, merger, acquisition or other business combination involving the company. See Pl.'s App. 3. In connection with this agreement CSFB was to provide advice and assistance to DS in all aspects of these transactions, and would be compensated by a fee according to the achieved result. Id.
On September 12, 2000, M.D. Samples, General Counsel for DS, met with representatives of CSFB and delivered a letter purporting to rescind the parties' August 1999 contractual agreement. See Samples Decl. at 3; Pl.'s App. 4. Subsequently, the parties re-drafted and executed a new engagement agreement sometime after September 2000, although each party disputes the contract's effective date as well as the content of any statements or representations made during its negotiation. See Samples Decl. at 4-5; see also Def.'s Mot. at 5-6.
It is undisputed that on January 29, 2001, DS publicly announced that it had agreed to be acquired by Maxim Integrated Products, Inc. ("Maxim") in a stock-for-stock transaction with an estimated value of $2.5 billion. Samples Decl. at 5; Def.'s Mot. at 1, 6. On March 6, 2001, Adrian Dollard, Vice President and General Counsel for CSFB's Technology Group, sent a letter to Mr. Samples setting forth the substance of CSFB's allegations that it had been defrauded by DS in connection with the amendment to the parties' September 2000 Agreement. Dollard Decl. at 1 and Exh. A. On March 12, 2001, Mr. Dollard sent a similar letter to DS's Board of Directors, again asserting that CSFB had been fraudulently induced to enter into the amended September 2000 engagement agreement. Dollard Decl. at 2 and Exh. B; Samples Decl. at 6.
On March 26, 2001, Mr. Samples and another DS representative met with Mr. Dollard at CSFB's offices to discuss these allegations, and Mr. Samples submitted to CSFB a written response to the charges of fraud, denying any wrongdoing. Dollard Decl. at 2 and Exh. C; Samples Decl. at 6. Thereafter, Mr. Samples acknowledges receiving a voicemail from Mr. Dollard on April 4, 2001, indicating to him that CSFB had rejected his version of the negotiations of the September 2000 Agreement and informing DS that it would pursue litigation. Samples Decl. at 6.
The following day, on April 5, 2001, Plaintiff DS commenced an action against CSFB in the 191st District Court of Dallas County, Texas seeking a Declaratory Judgment. CSFB removed the action to this Court on May 4, 2001 and subsequently filed its own action against DS in the Northern District of California on May 18, 2001, alleging various counts of fraud, breach of contract and other claims. Dollard Decl. at 8 and Exh. D.
DISCUSSION
Generally, when two identical actions are filed in courts of concurrent jurisdiction, the court that first acquired jurisdiction should try the lawsuit. Fidelity Bank v. Mortgage Funding Corp. of Am., 855 F. Supp. 901, 902 (N.D. Tex. 1994) (McBryde, J.). The first-to-file rule is not a rigid or inflexible rule to be mechanically applied. See Mann Mfg. Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971). Nevertheless, this rule does gives the court in which the first action was filed the responsibility to determine which of the two cases should proceed. Id. The rule is based on the consideration that:
"the federal courts have long recognized that the principle of comity requires federal district courts — courts of coordinate jurisdiction and equal rank — to exercise care to avoid interferences with each other's affairs. The concern manifestly is to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result."PAJ, Inc. v. Yurman Design, Inc., No. Civ.A.3:98-CV-2847-P, 1999 WL 6851 at *3 (N.D. Tex. Feb. 9, 1999) (Solis, J.) (citations omitted). Therefore, because the complaint for declaratory judgment by DS was filed before CSFB's California action was commenced, this Court must decide which case should proceed.
The Declaratory Judgment Act permits federal courts to "declare the rights and other legal relations of any interested party seeking such declaration. . . ." 28 U.S.C. § 2201(a) (2001). This section provides an authorization, but not a command, for jurisdiction. See Public Affairs Assoc., Inc. v. Rickover, 369 U.S. 111, 112 (1962). Therefore, a federal district court has broad discretion in determining whether and when to entertain an action for declaratory judgment. Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995) ( citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)). However, district courts cannot decline to entertain such an action as a matter of whim or personal disinclination. Public Affairs Assoc., 369 U.S. at 112.
The relevant factors that a court must consider when deciding whether to dismiss a declaratory judgment action in favor of a pending action in another forum include: (1) whether there is another pending action in which all of the matters in controversy may be fully litigated; (2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant; (3) whether the plaintiff engaged in forum shopping in bringing the suit; (4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist; (5) whether this court is a convenient forum for the parties and witnesses; and (6) whether retaining the lawsuit would serve the purposes of judicial economy. See Travelers Ins. Co. v. La. Farm Bureau Fed'n, 996 F.2d 774, 778 (5th Cir. 1993). Each of these factors shall be considered in turn.
With respect to the first factor, this Court finds that there is a nearly identical and more comprehensive suit pending in Northern District of California, wherein which CSFB alleges various claims of fraud and breach of contract against DS. See Dollard Decl. Exh. 4. Plaintiff argues that its Texas suit is not identical to Defendant's California action because it includes an affirmative claim against CSFB for their breach of the parties' August 1999 Agreement and, as such, is not a purely defensive suit. See Pl.'s Resp. Def.'s Mot. at 10-11. Nevertheless, the California action does include the charge that DS sought to avoid its obligations under the parties' original agreement by using the "pretext" of CSFB's failure to perform, whereby Count VI of that suit seeks as remedy the reinstatement of the original contract. See Dollard Decl. App. 4 at 6-7, 14. Since both these actions will seek a judicial determination as to whom, if anyone, bears the responsibility for the breach of the August 1999 Agreement, this Court finds that the these suits are not so dissimilar so as to constitute "separate" actions. Moreover, Plaintiff Dallas Semiconductor itself acknowledges in its Response that "it is undisputed that the Texas and California actions involve substantially similar issues." Pl.'s Resp. Def.'s Mot. at 10-11. Therefore, this Court believes the pending California action is very well suited for fully litigating all of the matters in controversy between the parties.
As for the second and third factors, in light of the facts before the Court, there appears to be little doubt that Plaintiff's filing of this declaratory judgment suit in Texas was made in an apparent attempt to preempt anticipated litigation by CSFB. In fact, it was the very next day following receipt of Mr. Dollard's voicemail on April 4, 1998, one informing DS that CSFB would now pursue litigation in order to resolve their dispute, that Plaintiff filed this action in the Dallas County District Court. See Samples Decl. at 6. Such anticipatory suits are generally disfavored because they are simply considered evidence of forum-shopping. See Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 n. 3. (5th Cir. 1983). Plaintiff here suggests that because it was a month after Dollard's phone call when CSFB finally filed its California action on May 18, 2001, this delay diminishes any showing of imminency and suggests CSFB contemplated litigation only after DS filed its suit. See Pl.'s Resp. Def.'s Mot. at 22-23. However, this fact alone does not constitute sufficient contradictory evidence to overcome the Court's finding that DS filed its Texas suit in anticipation of CSFB's action. See Wilton v. Seven Falls Co., 515 U.S. at 280, 290 (affirming the district court's grant of a stay, finding no abuse of discretion in its holding that first-filed declaratory judgment action would result in piecemeal adjudication of the dispute and would reward Plaintiff's attempt at forum shopping; the Supreme Court never focused on the fact that Defendant's own suit was initiated a month after Plaintiff's).
Factor number four under Travelers also appears to favor resolution of this dispute in the Northern District of California. By allowing this declaratory judgment action to proceed, the Court would allow DS to gain precedence in both time and forum. See Granite State Ins. Co. v. Honeywell, Inc., No. Civ.A.3-98-CV-1362-P, 1999 WL 68646 at *3 (N.D. Tex. Feb. 4, 1999) (Solis, J.); see also PAJ, Inc., 1999 WL 68651 at *3 (holding that the misuse of the Declaratory Judgment Act to gain a procedural advantage and preempt the forum choice of the [true] plaintiff in the coercive action militates in favor of dismissing the declaratory judgment action). Additionally, Defendant CSFB notes that all the non-contract claims in their California action will be governed under California law, while its contract claims will be governed under Delaware law, the site of incorporation of Dallas Semiconductor. See Def.'s Reply at 1; Dollard Decl. Exh. D. Therefore, although Plaintiff's principal place of business is located in Dallas, Texas, a Texas forum does not seem to be any more advantageous or convenient for analysis of the parties claims under these circumstances.
Finally, factors five and six, dealing with the convenience of the parties and witnesses as well as the interests of judicial economy, also favor dismissal of Plaintiff's declaratory action. Here, CSFB's Technology Group is headquartered and maintains its principal place of business in Palo Alto, California, and Defendant has provided the Court with a detailed list of potential party and non-party witnesses that will be called at trial, all of whom are located within the jurisdiction of the Northern District of California (except for Mr. Samples). See Dollard Decl. at 1, 3-4. DS counters that this witness list is inflated because the critical claims in this case will center largely around the communications between Mr. Samples and Mr. John Hodge, a CSFB representative, and since their places of residence are in Texas and California respectively, the balance of convenience is a stalemate. See Pl.'s Resp. Def.'s Mot. at 14. However, DS ignores the fact that CSFB's California action, in addition to its fraud claims, involves claims to enforce various contractual rights, all of which CSFB anticipates will necessitate introducing evidence of the parties past work and performance, as well whether DS or its subsequent investment bankers at Robertson Stephens used information generated by CSFB concerning a potential acquisition by Maxim (or others). See Def.'s Reply at 6; see also Q West Energy v. Gen. Elec. Co., No. CIV.A.3:98-CV-1491-P, 1998 WL 872705 at *1 (N.D. Tex. Dec. 1, 1998) (Solis, J.) (finding sufficient Defendant's list of named material witnesses in an alternative forum who would be essential to its case and why their testimony would be important). Therefore, the interests of judicial economy and efficiency support dismissal of this action, especially since the California court will be able to resolve all the issues raised by DS in its Texas suit. Allowing the Texas suit to continue would simply frustrate the purposes of the Declaratory Judgment Act, which are to avoid piecemeal litigation and the gratuitous interference with the orderly and comprehensive disposition of the parallel actions in other jurisdictions. See Granite State, 1999 WL 68646 at *4.
Defendant's list of key witnesses includes individuals from CSFB who worked on the DS engagement (George Boutros, Jason Greenberg, Michael Harden, John Hodge, John Metz, Jordan Nasir and Rafael Polanco), individuals from Maxim regarding the timing and nature their contacts with DS (Jack Gifford), and well as investment bankers (unknown) at Robertson Stephens who provided fairness opinions for DS in connection with Maxim's acquisition, all of which are located in the Northern District of California. See Dollard Decl. at 4.
CONCLUSION
Upon careful review of the parties' arguments, the record evidence, and the relevant law, the Court, in its discretion, declines to entertain this declaratory judgment action. The Court finds Plaintiff's declaratory judgment suit was improperly filed as an anticipatory action and must therefore be dismissed. Accordingly, Defendant's Motion to Dismiss is hereby GRANTED.
So Ordered.