Opinion
No. 02 Civ. 3365 (GBD)
February 24, 2003
MEMORANDUM OPINION ORDER
Plaintiffs brought this diversity suit against defendants seeking a declaratory judgment as to whether plaintiffs breached their contract with the defendant hospital entities, and if so, whether certain of the defendant hospital entities and plaintiff's former law firm are liable for damages. Defendants have moved to dismiss the Complaint under the "first filed" rule in deference to a pending state court action in Suffolk County Supreme Court. Plaintiffs oppose this motion. For the following reasons, defendants' motion is granted in part, and denied in part.
Facts
Both the federal and Suffolk County actions involve the same set of facts. Defendants WSNCHS East is a not for profit joint venture of two Long Island health care systems, defendant Catholic Health System of Long Island, Inc. ("CHS") and defendant Winthrop/South Nassau University Health System, Inc. ("WSN"). Pursuant to a Merger Agreement dated October 23, 1998, WSNCHS East Acquisition ("Acquisition") merged with The Long Island Hospital ("LIH"). The parties to the Merger Agreement were LIH, the shareholders of LIH, Acquisition, CHS and WSN. On the same day as the Merger Agreement, a series of three additional mergers occurred. By virtue of these other mergers, WSNCHS East became the "successor-in-interest" to the rights of Acquisition under the Merger Agreement.
There are six shareholders: Douglas Pike, Otis Pike, John C. Robbins, III, Ann Weeks Tomlinson, Robert Pike, and Aaron Donner. Out of the six shareholders, Messrs. Robert Pike and Aaron Donner are the only New York citizens.
Pursuant to § 2.18(g)(iv) of the Merger Agreement, the shareholders of LIH made certain representations and warranties with respect to the fair market value of the assets of the retirement plan for the employees of LIH (the "Plan"). Thereafter, in July 2001, WSNCHS East notified the shareholders that it believed that the fair market value of the Plan's assets as of the closing date, July 12, 1999, was approximately $29 million, and that the Plan therefore had a shortfall of approximately $5 million. WSNCHS East communicated to the shareholders that it felt that this constituted a breach of the shareholders' representations, warranties, and agreements in § 2.18(g)(iv) of the Merger Agreement. The parties met to discuss their respective positions in January 2002, but no resolution was reached.
On April 11, 2002, WSNCHS East and the Plan filed suit in Suffolk County Supreme Court against the shareholders alleging that the shareholders breached the representations, warranties, and agreements contained in the Merger Agreement with respect to the value of the Plan's assets. WSNCHS East and the Plan sought $5 million in damages, the amount of the alleged shortfall in Plan assets on the closing date. On May 1, 2002, four of the six shareholders (the four that reside outside of New York) filed this declaratory judgment action in federal court. The two shareholders who reside in New York, Messrs. Robert Pike and Aaron Donner, are not named as plaintiffs in the federal court action. Named as defendants are WSNCHS East, CHS, WSN (collectively, the "hospital defendants") and Epstein, Becker Green, P.C. ("EBG"), the law Firm that represented the shareholders in the Merger Agreement. The plaintiff-shareholders in the federal action seek a declaratory judgment that 1) there was no breach of the Merger Agreement with respect to the value of the Plan assets; or 2) alternatively, if there was a breach and WSNCHS East has been damaged, that a) WSNCHS East is jointly and severally liable; or b) that EBG is liable either as a result of legal malpractice or breach of fiduciary duties. Further, the plaintiff-shareholders in the federal action rely solely upon diversity as their basis for subject matter jurisdiction.
The addition of the two New York shareholders as plaintiffs would have clearly destroyed diversity jurisdiction for an action in federal court.
Discussion
It is well settled in this Circuit that "where there are two competing lawsuits, the first suit should have priority, absent the showing of balance of convenience . . . or . . . special circumstances . . . giving priority to the second." First City Nat'l Bank and Trust Co. v. Simmons, 989 F.2d 76, 79 (2d Cir. 1989), quoting Motion Picture Lab. Technicians Loc v. McGregor Werner, Inc., 804 F.2d 16, 19 (2d Cir. 1986). "The first-filed rule avoids duplicative litigation by adhering to the inherently fair concept that the party who commenced the first suit should generally be the party to attain its choice of venue." Ontel Products, Inc. v. Project Strategies Corp., 899 F. Supp. 1144, 1150 (S.D.N.Y. 1995); see also Simmons, 989 F.2d at 80 ("The first to file rule embodies considerations of judicial administration and conservation of resources.") The party asserting an exception to the first filed rule must overcome the "presumption in favor of allowing the controversy to be adjudicated in the forum where it was first filed." Simmons, 989 F.2d at 80.
In this case, there is no dispute that the Suffolk County action was the first filed suit, and that the federal action is the second. Therefore, the plaintiff-shareholders must show either a balance of convenience or special circumstances so as to overcome the presumption in favor of the First Filed suit.
The factors a court considers in weighing the balance of convenience in the context of a first-filed rule analysis are the same factors a court considers for a motion to transfer under 28 U.S.C. § 1404(a). See Citigroup, Inc. v. City Holding Co, 97 F. Supp.2d 549, 560 (S.D.N.Y. 2000). Those considerations include:
(1) the convenience of witnesses; (2) the location of relevant documents and the relative case of access to sources of proof; (3) the convenience of the parties; (4) the locus of the operative facts; (5) the availability of process to compel attendance of unwilling witnesses; (6) the relative means of the parties; (7) a forum's familiarity with the governing law; (8) the weight accorded a plaintiff's choice of forum; and (9) trial efficiency and the interests of justice, based on the totality of the circumstances.Id. at 560-61, quoting 800-Flowers, Inc. v. Intercontintal Florist, Inc., 860 F. Supp. 128, 133 (S.D.N.Y. 1994). Balancing the factors is "essentially an equitable task" and "an ample degree of discretion" is afforded to the district courts. Simmons, 989 F.2d at 80; see also Citigroup, 97 F. Supp.2d at 561.
The balance of convenience weighs in favor of the Suffolk County action. Most of the key witnesses are in Suffolk County, as the underlying transaction took place there. The documents central to the issues are located in three different states-Massachusetts, New York, and Pennsylvania. The defendants are all located in Suffolk County, with the exception of the law firm EBG, which is located in Manhattan. However, EBG joined in defendants' motion to dismiss and has indicated that it does not object to traveling to Suffolk County. The plaintiff-shareholders are all out of state residents, and thus regardless of where this controversy is adjudicated, they will have to travel to New York state to litigate this suit. The locus of operative facts is Suffolk County, and there is no contention that the availability of process in Suffolk County would be insufficient. Further, this is a New York state law issue, and the courts in Suffolk County would presumably be more than familiar with the governing law. Lastly, the plaintiff-shareholders in the federal action have purposefully failed to join the two non-diverse shareholders, Messrs. Robert Pike and Aaron Donner, even though this action could determine their rights and obligations. Their failure to do so can be for no other reason than to assert federal diversity jurisdiction. Based upon the totality of all the factors, this Court finds that the balance of convenience weighs in favor of the first filed Suffolk County action.
Although EBG is not currently named as a third party defendant in the Suffolk County action, representatives from EBG could be potential witnesses in that case.
The Suffolk County action, on the other hand, has named all the shareholders as defendants.
In addition to the balance of convenience, courts may deviate from the first filed rule where there are "special circumstances." The "chief' special circumstance noted by the Second Circuit in Motion Picture Lab. Technicians, supra, is the discouragement of forum shopping. See Motion Picture Lab. Technicians, 804 F.2d at 19. However, the court in that case was referring to forum shopping in the first filed case. See id. In the case at bar, as noted earlier, the locus of operative facts is Suffolk County, and there has never been a contention of forum shopping with respect to the first filed action. If forum shopping exists, it would seem to be on the part of the plaintiff-shareholders who have filed this federal suit without the New York plaintiffs in order to seek declaratory relief in this forum. Therefore, the action against the hospital defendants is dismissed.
The plaintiff-shareholders further argue that their claims of legal malpractice and breach of fiduciary duty against EBG constitute a "special circumstance." Those shareholders did not bring a third party claim against EBG in the Suffolk County action. EBG joins in the motion to dismiss this action in its entirety. This Court will not dismiss the federal case against EBG unless it is determined that plaintiff-shareholders in this federal suit have another available forum in which to bring their claims against EBG. See e.g. PT United Can Co. Ltd. v. Crown Cork Seal Co., Inc., 138 F.3d 65, 73 (2d Cir. 1998) (analyzing dismissal of a suit on forum non conveniens grounds and finding that the movant must establish, inter alia, "the existence of an adequate alternative forum"); Odyssey re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp.2d 282, 304 (S.D.N.Y. 2000) (finding that the first step in a forum non conveniens analysis is "whether an alternative forum is available and adequate.") Unless and until such time as EBG becomes a cross-defendant in the Suffolk County action, it would not be appropriate to dismiss the federal action against EBG. Consequently, this Court finds that this is a "special circumstance," and defendant EBG's motion to dismiss will be denied without prejudice. If the parties agree to add EBG to the Suffolk County action, then it would be appropriate for this Court to dismiss the federal action against EBG.
Conclusion
Defendants' motion to dismiss is granted as to the hospital defendants, but denied without prejudice as to EBG.