The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.
This is an action removed to this Court on January 14, 1991
from the Supreme Court of the State of New York for the County
of New York pursuant to 28 U.S.C. § 1441(a). Plaintiff, a
Wisconsin insurer, seeks a declaratory judgment. Defendants
move to dismiss the complaint pursuant to Rule 12(b)*fn1 of
the Federal Rules of Civil Procedure or, in the alternative, to
stay this action pending the outcome of proceedings in the
District of New Jersey or to transfer the action to New Jersey
pursuant to 28 U.S.C. § 1404(a). For the reasons set forth
below, defendants' motion is denied.
The complaint, filed in state court on December 13, 1990,
alleges that The Travelers Insurance Company, not a party to
this action, issued primary liability policies totalling $1
million in coverage to defendant The Prudential Insurance
Company of America ("Prudential"), a New Jersey corporation.
Plaintiff Employers Insurance of Wausau ("Wausau"), a Wisconsin
corporation, thereafter issued Prudential two umbrella
liability insurance policies, with limits of $20 million in
excess of the primary policies, covering the period July 1,
1982 to July 1, 1984. Katz Aff. ¶ 4. The umbrella policies
named defendant Prudential Property and Casualty Insurance
Company ("PRUPAC"), a subsidiary of Prudential, as an insured.
Bohr Aff. ¶ 3.
In March 1986 William Eastman, a former Prudential employee,
filed suit against Prudential and PRUPAC in Superior Court for
the State of California in San Diego County alleging
misappropriation of trade secrets, unjust enrichment and
various other claims. Prudential, PRUPAC and/or Travelers
assumed defense of the Eastman action.
Wausau was notified of the existence of the Eastman action on
June 13, 1990. Bohr Aff. ¶ 5. On September 4, 1990 Wausau sent
Prudential and PRUPAC a letter in which it reserved the right
to deny coverage but took no position on the issue. Katz Aff.,
Exh. A. On November 21, 1990 Prudential advised Wausau that
Prudential and PRUPAC were "prepared and fully intend to pursue
all remedies available to
[them] to obtain coverage under the policies." Id., Exh. B at
On November 27, 1990 Wausau denied coverage on the grounds that
Prudential and PRUPAC failed to establish that an "occurrence"
took place within the period of coverage or that there was any
"Personal Injury," "Property Damage" or "Advertising Injury"
under the policies. Pollack Aff., Exh. A. On November 30, 1990
Prudential and PRUPAC responded with a letter stating they
hoped to avoid litigation and stating Prudential's belief that
Wausau's denial of coverage was not in good faith and exposed
Wausau to liability. Pollack Aff., Exh. B at 7.
On December 12, 1990 Prudential sent Wausau a second letter
stating that the Eastman action had been settled for $3 million
on November 30, 1990. Prudential further noted that its
attorneys' fees to date totalled approximately $1 million. Katz
Aff., Exh. C.
On December 13, 1990 Wausau commenced this action in New York
Supreme Court seeking a declaratory judgment that it is not
obligated to indemnify Prudential or PRUPAC for the Eastman
claim and that Prudential and PRUPAC breached their fiduciary
and contractual duties by failing to provide timely notice to
Wausau and are estopped from asserting any claim under the
policies. Prudential and PRUPAC claim that they had intended to
arrange a settlement meeting between the parties' presidents
prior to filing their own complaint. Katz Aff. ¶ 22. Jon Bohr,
a senior claims supervisor for Wausau, denies that any
settlement negotiations were being conducted when Wausau filed
this action. Bohr Aff. ¶ 13. On December 14, 1990, Prudential
and PRUPAC filed a separate action against Wausau in United
States District Court for the District of New Jersey for
declaratory relief and alleging breach of contract and breach
of the covenant of good faith and fair dealing.
Wausau argues that the parties' dispute should be litigated in
a New York forum because the umbrella policies were negotiated
through the New York City office of Prudential's broker, New
Amsterdam Excess, Inc. ("New Amsterdam"), Ellebracht Aff. ¶ 4,
because the policies were executed and delivered in New York,
id. ¶ 9, because Prudential paid its premiums through New
Amsterdam, which assisted in collection of late premiums from
time to time, id. ¶ 10 & Exh. I, and because Wausau obtained
information necessary for its audit of the Prudential policies
from New Amsterdam in New York. Id. ¶ 12. Prudential does not
dispute these allegations. Instead, it argues that Prudential
is entitled to a New Jersey forum because the primary liability
policies were negotiated, executed and delivered in New Jersey,
because Prudential negotiated with Wausau over coverage of the
Eastman claim in New Jersey and because most of the witnesses
with knowledge of the umbrella policies and of the Eastman
claim are located in New Jersey. Katz Aff. ¶¶ 5, 7 & 12.
The long-standing rule in this circuit is that "[w]here 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 & Trust Co. v. Simmons, 878 F.2d 76, 79
(2d Cir. 1989) (citations omitted).
The type of "special circumstances" which give priority to a
later-filed action are illustrated by Factors Etc., Inc. v.
Pro Arts, Inc., 579 F.2d 215 (2d Cir. 1978), cert. denied,
440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979). In that
case, Pro Arts received a cease and desist letter from Factors
threatening suit and responded by filing a declaratory judgment
action in Ohio. Five days later, Factors filed in New York. The
New York court held that when a declaratory judgment action is
triggered by receipt of a notice letter, this equitable
consideration may be a factor in allowing the second-filed suit
to proceed in the plaintiff's chosen forum. Id. at 219. The
court cited Justice Brennan's statement in Perez v. Ledesma,
401 U.S. 82, 119 n. 12, 91 S.Ct. 674, 694 n. 12, 27 L.Ed.2d 701
(1971) (Brennan, J., dissenting), that "[t]he federal
judgment is not a prize to the winner of a race to the
The cases cited by Prudential in an effort to show that this
action presents similar "special circumstances" are
distinguishable. Unlike in the Factors case, Wausau had not
received notice of suit prior to filing this action in state
court. Prudential's November 30 letter, in which it stated that
it "hoped to avoid litigation," was at best an attempt to
initiate settlement negotiations and cannot reasonably be
construed as a notice of suit. Nor can Prudential's prior
letter of November 21, 1990, written before the Eastman action
was settled, be deemed a notice of suit. It merely states that
Prudential intended to pursue all available remedies to obtain
coverage without explicitly mentioning a lawsuit, a tentative
filing date or a forum. Communications deemed to constitute
notice of suit generally contain at least one of those
elements. Otherwise, subsequent litigation commenced by the
recipient would not reasonably suggest there had been a race to
the courthouse. See, e.g., Gibbs & Hill, Inc. v. Harbert
Int'l, Inc., 745 F. Supp. 993, 996 (S.D.N.Y. 1990) (declaratory
judgment action filed after receipt of formal notice of default
containing deadline); Great Am. Ins. Co. v. Houston Gen. Ins.
Co., 735 F. Supp. 581 (S.D.N.Y. 1990) (declaratory judgment
action filed after receipt of notice of suit containing
deadline)*fn2; Equipos Nucleares, S.A. v. Fairfield Energy
Venture, L.P., No. 88 Civ. 7543, 1989 WL 6628 (S.D. N.Y. Jan.
23, 1989) (suit filed one day after plaintiff was notified of
defendant's imminent filing of interpleader action in ...