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CITIGROUP INC. v. CITY HOLDING COMPANY

May 31, 2000

CITIGROUP INC. AND CITICORP., PLAINTIFFS,
V.
CITY HOLDING COMPANY AND CITY NATIONAL BANK OF WEST VIRGINIA, DEFENDANTS.



The opinion of the court was delivered by: Sweet, D.J.,

      OPINION

Defendants City Holding Company ("City Holding") and City National Bank of West Virginia ("City National") have moved to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(6) or to transfer venue of this trademark infringement action to the Southern District of West Virginia. Plaintiffs Citigroup Inc. and Citicorp (collectively, "Citigroup") have opposed these motions and have moved to enjoin prosecution of a duplicative lawsuit filed in that district by one of the defendants. For the reasons that follow, the motions by City Holding and City National to dismiss or transfer will be denied, and the motion by Citigroup to enjoin prosecution of the West Virginia action will be granted.

The Parties

Plaintiff Citigroup is a Delaware corporation with its principal office in New York, New York.

Defendant City Holding is a West Virginia corporation with its principal office in Cross Lanes, West Virginia.

Defendant City National is a wholly-owned subsidiary of City Holding and is a West Virginia corporation with its principal office in Charleston, West Virginia.

Prior Proceedings

On September 29, 1999, Citigroup filed the instant complaint against City Holding,*fn1 alleging claims including trademark infringement, dilution, unfair competition and false designation of origin under the Lanham Act, 15 U.S.C. § 1114(1), 1125(a) and (c), to which New York State and common law claims are appended. The complaint alleges that City Holding's use of the "CITY" and "CITY"-prefixed marks along with a particular logo for the provision of banking and financial services infringes Citigroup's protected trademark rights in a family of "CITI" service marks and the "Blue Wave" trade dress. Citigroup seeks an injunction against City Holding's use of the CITY mark alone and in combination with a family of CITY marks, cancellation of City Holding's federal registrations for such marks, and an award of monetary damages.*fn2

On November 5, 1999, five weeks after this lawsuit was filed and before City Holding responded to it, City Holding filed a parallel lawsuit against Citigroup and Citicorp in the federal district court for the Southern District of West Virginia (the "West Virginia action"). In that suit, City Holding seeks a declaratory judgment that its family of CITY marks does not infringe Citigroup's intellectual property rights and that Citigroup's use of the "CitiFinancial" mark it recently adopted for one of its subsidiaries infringes City Holding's "City Financial Corp" mark under the Lanham Act and West Virginia law.

Ten days after filing the West Virginia action, City Holding moved before this Court to dismiss the instant complaint for lack of personal jurisdiction or, alternatively, to transfer this case to the Southern District of West Virginia pursuant to 28 U.S.C. § 1404(a).

On January 10, 2000, Citigroup moved before the District Court of West Virginia to dismiss or, alternatively, to stay or transfer the West Virginia action to this district.

On January 25, 2000, CitiGroup moved before this Court to enjoin prosecution of the later-filed, duplicative West Virginia action. City Holding cross-moved to stay proceedings in this Court pending decision on the motion to dismiss or transfer.

On April 14, 2000, the Honorable Joseph R. Goodwin of the Southern District of West Virginia denied Citigroup's motion to dismiss or, alternatively, to stay or transfer the West Virginia Action.

This case was originally assigned to the Honorable Charles E. Haight, but was reassigned to this Court on March 28, 2000, after Judge Haight recused himself.*fn3

Oral argument was heard before this Court on May 3, 2000, at which time the motions decided herein were deemed fully submitted.

Discussion

As fully discussed below, because departure from the well-settled "first-filed" rule is justified by neither special circumstances nor the balance of convenience, this decision adheres to the presumption that the first-filed parallel federal action alone should proceed. Consequently, City Holding is enjoined from further prosecuting the West Virginia action pending resolution of its motion to dismiss for lack of personal jurisdiction. In view of the conclusion that the balance of convenience does not favor City Holding's choice, the motion to transfer venue is also denied. In addition, this Court concludes that it may exercise personal jurisdiction over City Holding and City National and therefore denies the motion to dismiss under Rule 12(b)(6).

I. The First-Filed Rule

It is a "well-settled principle" in this circuit that where proceedings involving the same parties and issues are pending simultaneously in different federal courts the first-filed of the two takes priority absent "special circumstances" or a balance of convenience in favor of the second. See First City Nat. Bank and Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989); see also William Gluckin & Co. v. Int'l. Playtex Corp., 407 F.2d 177, 178 (2d Cir. 1969). In other words, the presumption is that "the court which first has possession of the action decides it." 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 131 (S.D.N.Y. 1994); see also Simmons, 878 F.2d at 80.

The "first-filed rule" is based on principles of judicial economy and comity. See Simmons, 878 F.2d at 79. In applying the rule and in furtherance of its underlying principles, the court of first-filing may enjoin the parties from proceeding in the later-filed action. See City of New York v. Exxon Corp., 932 F.2d 1020, 1025-26 (2d Cir. 1991); National Equip. Rental, Ltd. v. Fowler, 287 F.2d 43, 45 (2d Cir. 1961). Staying the later-filed action serves to prevent the inefficiency and wastefulness of allowing duplicative litigation to proceed in two different fora. See National Equip., 287 F.2d at 46 n.1 (affirming decision to enjoin later-filed proceedings and noting that choice was not only proper but "a wise one indeed" in view of wastefulness of duplicative proceedings)

"Special circumstances" justifying an exception have been held to be present when the first suit constitutes an "improper anticipatory filing" or was motivated solely by forum shopping. Toy Biz. Inc. v. Centuri Corp., 990 F. Supp. 328, 332 (S.D.N.Y. 1998); Ontel Prod., Inc. v. Project Strategies Corp., 899 F. Supp. 1144, 1150 (S.D.N.Y. 1995). Indeed, the Second Circuit has noted that "the chief `special circumstance' . . . is our interest in discouraging forum shopping." Motion Picture Lab. Technicians Local 780 v. McGregor & Werner, Inc., 804 F.2d 16, 19 (2d Cir. 1986); see also Kellen Co., Inc. v. Calphalon Corp., 54 F. Supp.2d 218, 223 (S.D.N.Y. 1999) ("Most commonly, courts have recognized an exception to the first-filed rule where the first-filed action was instituted by the defendant in the second action, and the defendant won the race to the courthouse under questionable circumstances.")

It is not a matter of dispute that the first-filed rule has threshold application to this case. City Holding agrees with Citigroup that the lawsuits at issue here are parallel. The overarching issue in both is whether City Holding's use of the CITY marks and trade dress infringes Citigroup's rights in the CITI family of marks and trade dress. Both parties also agree that simultaneous prosecution of both suits would advance neither the interests of efficiency for the parties nor for the courts. Thus, like Citigroup, City Holding believes that only one case should go forward, but they prefer the Southern District of West Virginia.

There is also no doubt that the present suit qualifies as the first instituted. The complaint in this case was filed more than five weeks prior to City Holding's initiation of the West Virginia action. straightforward application of the first-filed rule would afford priority to this lawsuit.

II. The West Virginia Decision

The question presented by the motions pending here and the motion decided by the West Virginia court is one and the same: whether making an exception to the first-filed rule is justified by special circumstances or the balance of convenience. It is unfortunate that judicial resources have now been expended twice over in consideration of this question. However, this Court necessarily reaches its own determination.*fn4 Nor does the decision by the District Court for West Virginia not to dismiss the West Virginia action obviate this Court's power to now enjoin City Holding from proceeding in that action. See National Equip. Rental, Ltd. v. A.L. Fowler, 287 F.2d 43, 46 n. 1 (2d Cir. 1961) (decision by court of first-filing to enjoin proceedings in court of second-filing despite second court's decision not to dismiss not only proper but "wise" under the circumstances). That said, the issue of whether making an exception to the first-file rule is justified is discussed below.

III. The First-Filed Rule Will Be Followed

A. Special Circumstances — Anticipatory Filing and Forum Shopping

City Holding contends that the instant lawsuit should yield in favor of the West Virginia action because Citigroup's institution of this action was an unabashed exercise in forum shopping. More specifically, City Holding asserts that this action constitutes an improper anticipatory filing.

An improper anticipatory filing is "one made under the apparent threat of a presumed adversary filing the mirror image of that suit" in another court. Ontel Prod., 899 F. Supp. at 1150. It is improper for a party to launch a preemptive strike by racing to the courthouse in his preferred forum before his adversary has a chance to file their action in the forum of their choice, and such a party should not benefit from the first-filed rule. See id., 899 F. Supp. at 1151; Kellen, 54 F. Supp.2d at 223 (declining to apply first-filed rule where plaintiff in first action "won the race to the courthouse under questionable circumstances"). An apparent threat of litigation can arise where there is an overt statement to that effect or where the parties have been engaged in negotiations which have broken down. See 800-Flowers, 860 F. Supp. at 132-33; Hanson PLC, 932 F. Supp. at 107.

Courts have focused in particular on situations where there is a threat of litigation followed by settlement talks, since such talks would reasonably lull the party who would otherwise have pursued legal action into not doing so. See Hanson PLC, 932 F. Supp. at 107 (first-filed rule did not apply where party who filed second action had waited to file suit in reliance on proposed settlement talks); Ontel Prod., 899 F. Supp. at 1150-51 ("[T]he first-filed rule should operate so as to benefit those parties who were prepared, and had every intention, to pursue foreseeable legal action but failed to bring suit first due solely to their attempt to settle the matter without court involvement.").

City Holding contends that this lawsuit is precisely the sort of anticipatory filing that obviates the first-filed rule. Their argument has its genesis in the change in early September 1999, of the name of one of Citigroup's subsidiaries from "Commercial Credit" to "CitiFinancial." This change affected over 1,200 Commercial Credit offices nationwide of which approximately 20 are located in West Virginia. City Holding avers that the adoption of the CitiFinancial name and service mark infringes its rights in the mark "City Financial Corp" used by one of its subsidiaries.

By letter of September 28, 1999, after City Holding became aware of the name change, counsel for City Holding wrote a letter to Citigroup's Chief Trademark Counsel, Anne Moses ("Moses"), contending that it had resulted in actual confusion with the City Financial Corp mark. The letter concludes:

Please understand that [City Holding] must do everything it can to protect its valuable assets. Therefore, I request that you contact me at your earliest convenience to discuss this matter in greater detail. We would like to work with you in formulating a joint resolution to this problem that enables us to co-exist as well as protect our respective customers from continued confusion.

The following day, September 29, 1999, Citigroup filed the present lawsuit.

Despite the temporal proximity between the letter and the institution of this lawsuit, nothing in the record suggests that this case constitutes a wrongful preemptive filing. To begin with, the record does not reflect an apparent threat of litigation on the part of City Holding. The letter itself does not directly threaten litigation but instead suggests that the parties meet to discuss a solution that would enable both to coexist. Nor had the parties engaged in previous discussions to avert a rising conflict over the use of the CitiFinancial name which would have made the timing of this case suspicious.

As far as the record shows, the September 28 letter was the first indication of a potential problem with the use of the CitiFinancial name in West Virginia. In addition to the absence of an apparent threat of litigation, City Holding cannot be deemed to have been lulled into the notion that settlement talks regarding the CitiFinancial name would ensue based on its letter. There was apparently no communication between Citigroup and City Holding concerning the name change either prior to or immediately following the letter. Thus, this case is quite unlike Hanson PLC, 932 F. Supp. at 107, and National Union Fire Ins. Co. of Pittsburgh v. Freeport-McMoran, Inc., 767 F. Supp. 568, 573 (D. Del. 1991), cited by City Holding, which found the anticipatory filing ...


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