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CITIBANK, N.A. v. AFFINITY PROCESSING CORP.

United States District Court, E.D. New York


March 8, 2003

CITIBANK, N.A., Plaintiff,
v.
AFFINITY PROCESSING CORPORATION AND AFFINITY TECHNOLOGY GROUP, INC., Defendants.

The opinion of the court was delivered by: SPATT, District Judge This diversity case involves allegations of fraud, misrepresentation, and equitable estoppel by New York-based Citibank, N.A. ("Citibank" or the "plaintiff') arising out of a service agreement with South Carolina-based Affinity Technology Group, Inc. and its wholly owned subsidiary, Affinity Processing Corporation (collectively, "Affinity" or the "defendants"). Presently before the Court is Affinity's motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.") or, alternatively, to transfer venue pursuant to 28 U.S.C. § 1404(a) to the District of South Carolina where a duplicate action is now pending. West Page 174 I. BACKGROUND Description of the Parties Citibank is a nationally chartered banking and lending institution with its principal place of business in New York. Citibank's parent company is Citigroup, Inc., which reported a net income in the amount of $13.519 billion for the year 2000. Affinity is a South Carolina-based business. In an affidavit, John Rogers ("Rogers"), Affinity's senior vice-president, stated that Affinity (i) has lost $65 million since 1994, (ii) was dropped from the Nasdaq for failing to maintain a minimum bid in the amount of $1, and (iii) had a closing stock value on May 15, 2001 of 6.5 cents per share. Factual Background The following facts are taken from the complaint. On November 13, 1997, after lengthy negotiations which took place in New York in 1996, Citibank and Affinity executed a service agreement (the "agreement"). The agreement, which is governed by New York contract law, required Affinity to develop, install, test, operate, and license an automobile loan processing computer system, which was to be used by Citibank's auto finance business at its offices in Melville, Long Island. The agreement provided that the software would be produced in South Carolina and then shipped to New York. Section 6 of the agreement permitted Citibank to conduct "acceptance testing" in order to determine whether the system met contract specifications. Furthermore, Section 6 of the agreement obligated Affinity to correct all nonconformities identified by Citibank in the system. Sections 15a and 15c of the agreement entitled Affinity to certain specified fees that were due upon the parties' execution of the agreement in November 1997. Section 15j stipulated that Affinity could receive "miscellaneous fees" for additional charges incurred pursuant to other sections of the agreement, but Affinity was first obligated to deliver to Citibank an invoice setting forth the nature and the amount of such charges. If Citibank disputed any invoice, Section 15n of the agreement set forth specific procedures governing the handling of such disputes. In or about August 1999, Citibank sold the assets of its automobile loan division to the Dime Savings Bank of New York, FSB ("Dime"). As part of this sale, Citibank and Affinity executed an assignment agreement (the "assignment agreement"), in which Citibank assigned to Dime all of Citibank's rights, title and interest in the agreement, and Dime agreed to assume, perform and discharge Citibank's duties and obligations under the agreement. According to the plaintiff, at no time prior to the execution of the assignment agreement did Affinity deliver any invoice to Citibank or inform Citibank of a claim for additional charges. Procedural History On or about April 18, 2000, about nine months after the sale to Dime, Affinity commenced an action against Dime in the United States District Court for the District of South Carolina ("Dime action") in connection with the agreement Citibank assigned to Dime. In particular, Affinity claimed that Dime owed Affinity compensation for modifications that Affinity performed under the agreement. In an affidavit by Joseph Boyle ("Boyle), the president and chief executive officer of Affinity Technology Group, Inc., he stated that Affinity learned for the first time in mediation in December 2000 that Dime had paid Citibank $1 million for the assignment of the system. Boyles asserts in his affidavit that most of the modifications and additional services in dispute West Page 175 were made prior to the assignment to Dime. In January, 2001, Affinity and Dime resolved the dispute. Shortly thereafter, Affinity prepared a bill for the amounts due for work performed prior to the assignment to Dime. On or about March 7, 2001, Affinity sent a letter and invoice to Citibank requesting a payment of $3,133,693.75 for additional services Affinity provided under the agreement prior to Citibank's sale to Dime. On March 29, 2001, Citibank responded by filing a declaratory judgment action against Affinity in the Eastern District of New York claiming that it owed no money to Affinity under the agreement. Affinity moved to dismiss the action on the ground that Citibank failed to engage in the informal dispute resolution required under the agreement, which prohibited judicial action by either party for 40 days after a dispute arose. In January 2002, United States District Judge Jacob Mishler dismissed Citibank's action without prejudice because of Citibank's failure to follow the dispute resolution clause. On July 19, 2001, before Judge Mishler dismissed the action, Affinity commenced an action against Citibank in the District of South Carolina. In that case, Citibank argued that Affinity had failed to engage in the dispute resolution clause in the agreement. Affinity's action was similarly dismissed without prejudice due to Affinity's failure to abide by the dispute resolution clause. On May 13, 2002, after the required period in the dispute resolution clause had expired, Affinity filed a second federal court action in South Carolina against Citibank. This action was assigned to United States District Judge Dennis W. Shedd, who presided over the Dime action. Approximately five hours after Affinity filed its action, Citibank filed the present diversity case. II. DISCUSSION A. First-Filed Rule Affinity claims that pursuant to the first-filed rule, because it filed the action in South Carolina five hours before Citibank commenced this action, the Court should either dismiss this action or stay the proceedings while the South Carolina action proceeds. Where two courts have concurrent jurisdiction over an action involving the same parties and issues, the forum of the first suit should have priority. BuddyUSA, Inc. v. Recording Indus. Assoc., No. 01-7761, 2001 U.S. App. LEXIS 21871, at *55 (2d Cir. Oct. 11, 2001); Winterthur Int'l Am. Ins. Co. v. Bank of Montreal, No. 02 CV 6889, 2002 U.S. Dist. LEXIS 21838, at *7 (S.D.N.Y. Nov. 12, 2002). However, most of the cases in this Circuit have disregarded the first filed rule where the competing suits were filed only days apart. JewelAmerica v. Frontstep Solutions Group, Inc., No. 02 CV 1328, 2002 U.S. Dist. LEXIS 10956, at *n1 (S.D.N.Y. June 12, 2002) (citing Elbex Video, Ltd. v. Tecton, Ltd., No. 00 CV 0673, 2000 U.S. Dist. LEXIS 16531, at *3 (S.D.N.Y. Nov. 15, 2000)). In this case, given that Affinity filed only five hours before Citibank commenced this action, the Court disregards the first-filed rule and turns to whether Affinity's motion to transfer venue should be granted or denied. B. Motion to Transfer Venue A district court may transfer venue to another court "for the convenience of parties and witnesses, in the interest of justice." 28 U.S.C. § 1404(a). A court will grant a venue transfer when (1) the transferee court was a venue where the action West Page 176 "might have been brought" originally, and (2) transfer is for the "convenience of parties and witnesses" and in the "interest of justice." Schertenleib v. Traum, 589 F.2d 1156, 1161 (2d Cir. 1978); Invivo Research, Inc. v. Magnetic Resonance Equipment, 119 F. Supp.2d 433, 436 (S.D.N.Y. 2000). In this case, the parties do not dispute that this action could have been brought in South Carolina. Indeed, there is already an identical case pending in South Carolina. Thus, the Court must next analyze the second prong, namely, whether transfer to South Carolina is for the "convenience of the witnesses" and in the "interest of justice." The defendant bears the burden of establishing the propriety of transfer by a clear and convincing showing. Ford Motor Co. v. Ryan, 182 F.2d 329, 330 (2d Cir.) cert. denied, 340 U.S. 851 (1950). Furthermore, the defendant must support the motion with affidavits and other materials outside the pleadings. Editorial Musical Latino Americana, S.A. v. Mar Int'l Records, Inc., MEMORANDUM OF DECISION AND ORDER

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