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United States District Court, N.D. New York

January 23, 2004.


The opinion of the court was delivered by: DAVID HURD, District Judge



Plaintiff Utica Mutual Insurance Company ("Utica Mutual") brings this action against Computer Sciences Corporation ("CSC") for breach of contract and breach of express warranties regarding CSC's software tool purchased by Utica Mutual that was designed to summarize injury claims and recommend a settlement range. On March 4, 2003, Utica Mutual filed the instant action in Oneida County Supreme Court. Defendant removed the action to federal court. CSC moves to dismiss the complaint filed by Utica Mutual or, in the alternative, to stay this case pending resolution of a similar lawsuit filed by CSC in the United States District Court for the Western District of Texas. Plaintiff cross moves to stay the Texas action.

  Oral argument was heard on this matter on August 22, 2003, in Albany, New York. Decision was reserved.


  Utica Mutual is a property and casualty insurance company that provides automobile and homeowner's insurance, and processes claims made under those policies. It is a New York corporation with its principal place of business in New Hartford, New York.

  Defendant CSC is a Nevada corporation with its principal place of business in El Segundo, California. CSC provides information technology solutions, including "Colossus," a software program which aids insurance companies in the evaluation of trauma-induced injuries. The Colossus system provides a connection between insurance coverage and medical information by evaluating "the level of pain and suffering for a given injury, the effect of the injury in impairing the body, and the impact on the claimant's lifestyle" and Page 3 recommending a settlement range. (PI. Compl. at 2.) According to CSC's marketing claims, use of the Colossus summaries and recommendations will result in greater consistency in determining payment or settlement of trauma-induced bodily injury claims by the insurance company.

  CSC conducted a study to determine the potential benefits of the software regarding Utica Mutual's closed claims. The CSC study, as presented in a Consistency and Impact Analysis statement, concluded that Utica Mutual "would save 16.16% on settlement costs by using Colossus on their closed claims, which would amount to a total savings of $36 million over five years." id. at 3. Additionally, the CSC study projected that Utica Mutual would incur costs for the use of Colossus in the amount of $700,000. Id. at 3.

  On November 24, 1998, Utica Mutual executed the CSC Customer agreement ("agreement") whereby CSC granted to it a license to use Colossus for five years with a right to extend the agreement for an additional five years. Pursuant to the agreement, Utica Mutual paid CSC a $1.8 million licensing fee for Colossus in addition to monthly utilization and support fees for five years totaling $3.5 million. (PI. Opp'n to Def. Mot. to Dismiss Ex. 2 ¶ 8.) On February 29, 2000, Utica Mutual exercised the option to extend the agreement for an additional five years. Utica Mutual maintains that since entering into the agreement, it has paid CSC a total of approximately $4.7 million, which it now seeks to recover. CSC asserts that the specific amounts owed to Utica Mutual by CSC constitute confidential information and cannot be publicly disclosed. (Def. Mot. to Dismiss Ex. B ¶ 8.)

  In early 2000, Utica Mutual alleges they began to have serious problems with Colossus, as Utica Mutual's claims adjusters were settling half of their claims below the suggested "low" settlement. id. at 4. It addition it claims Colossus required an excessive Page 4 amount of time for claims handlers to input claims and injury data into the system, which hindered claims adjusters' ability to properly evaluate claims.

  In September 2001, Utica Mutual met with CSC to discuss these problems with Colossus, as well as the system's failure to yield the cost savings that CSC had represented before the purchase. Utica Mutual claims CSC attempted to address the problems with Colossus but failed to make any changes. In March 2002, Utica Mutual advised CSC that it would discontinue its use of Colossus and also discontinue its monthly payments to CSC for the Colossus software. Monthly fees due under the agreement from Utica Mutual to CSC stopped as of May 2002.

  On February 20, 2003, CSC sent Utica Mutual a letter demanding Utica Mutual's prompt payment of all unpaid fees, and upon a failure to do so, CSC threatened to pursue legal action.*fn1 On that same date, CSC sent another letter that constituted a formal offer to settle the dispute. The offer was to remain open until March 14, 2003. Utica Mutual did not respond to these letters. As noted above, this action was filed on March 4, 2003.

  In its first cause of action, Utica Mutual claims CSC breached the agreement by failing to deliver a software product that "reduced Utica's bodily injury settlement payments, improved Utica's claims-handling efficiency and consistency, performed adequately in Utica's business environment, or achieved the cost-savings that CSC had promised to Utica." Id. at Page 5

  5. In its second cause of action, Utica Mutual claims CSC breached express warranties made in the agreement, namely the warranties that the purpose of Colossus was to reduce settlements and provide consistency in Utica Mutual's claims process, and that Utica Mutual would achieve cost-savings in the amount of $35 million over five years. In its third cause of action, Utica Mutual claims CSC breached its implied warranties of merchantability and fitness by failing to comply with the promises made regarding the results of the Colossus software. In its fourth cause of action, Utica Mutual claims CSC negligently misrepresented that the Colossus system would meet the stated goals and save the company the amount of money specified, before Utica Mutual entered into the agreement with CSC.

  Utica Mutual requests a declaration that the agreement between the parties is void, and seeks damages and reimbursement of the amounts it paid to CSC under the agreement.

  On May 6, 2003, CSC filed suit in the Western District of Texas, claiming Utica Mutual breached the agreement by failing to make the mandated monthly payments for its use of the Colossus system, from May 2002 forward. CSC further alleges in its complaint that the agreement provided that the laws of Texas would govern the agreement and contained a disclaimer of warranties including a disclaimer of implied warranties of merchantability and fitness.


  A. First-Filed Rule

  CSC first argues that the complaint should be dismissed because it is an anticipatory lawsuit filed in direct response to CSC's February 20, 2003 letter demanding payment. Utica Mutual counters by claiming CSC's motion to dismiss, coupled with its filing of the Texas action, is an improper effort to deprive Utica Mutual of its choice of forum by Page 6 engaging in forum shopping. In deciding which of the two actions should proceed, discussion of the first-filed rule is necessary. According to the first-filed rule, the first-filed action is given priority if does not constitute an improper anticipatory filing of a similar lawsuit:

Where there are two competing lawsuits, the first-filed should have priority, absent the showing of balance of convenience . . . or . . . special circumstances . . . giving priority to the second. Special circumstances justifying an exception to the rule exist where the first suit constitutes an improper anticipatory filing or was motivated solely by forum shopping. 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.
Reliance Ins. Co. v. Six Star. Inc., 155 F. Supp.2d 49, 54 (S.D.N.Y. 2001).

  B. Anticipatory Filing

  In Reliance Insurance Company, the defendants argued that the plaintiffs engaged in an improper anticipatory filing and in support of their argument, the defendants offered a chronology of communications exchanged between the parties prior to the commencement of the suit. Id. at 55. The court found that there was no suggestion in the chronology of communication between the parties that the plaintiff filed the suit in response to a direct threat of litigation because there was no indication by the defendant of "a firm intention to commence an action and that [p]laintiff raced to the Court in anticipation of such filing by [d]efendants." Id. at 55. Furthermore, the parties had continuous conversation regarding the defendant's claim for five months before plaintiffs commenced a declaratory judgment action. Id. The court held that plaintiff's commencement of a declaratory judgment action to resolve the controversy over the defendant's claim did not constitute an improper anticipatory filing. Id. Page 7

  The direct opposite is clear in this case. The chronology of communication here indicates that Utica Mutual did indeed file suit in response to a direct threat of litigation. On February 20, 2003, CSC sent to Utica Mutual two letters, the first of which threatened possible litigation, and the second of which offered a settlement. The letter from CSC threatening litigation stated, "[i]f Utica does not promptly pay the invoices listed . . . CSC will have no choice but to pursue all available options including, but not limited to, a possible legal action against Utica to recover such amounts. . . ." (Def. Mot. to Dismiss Ex. C.)

  In Reliance Ins. Co., the plaintiff's filing of a declaratory judgment action was the natural progression of events after the attempts to resolve the matter through correspondence proved unsuccessful. In the instant action, however, these letters were the only written correspondence between the parties prior to the commencement of Utica Mutual's action against CSC. On March 4, 2003, less than two weeks after CSC's demand letter, Utica Mutual commenced the instant action in New York state court. CSC's letter is a clear indication that it had a firm intention to commence an action against Utica Mutual if it did not pay. As Utica Mutual filed their action against CSC less than two weeks after receiving the letter, without engaging in any further correspondence, it raced to the courthouse first, in anticipation of CSC's threatened lawsuit.

  Utica Mutual maintains that it and CSC spent over a year trying to resolve the matter outside of litigation and that while Utica Mutual stopped making payments to CSC in May 2002, CSC did not demand payment until February 20, 2003 and at no time did CSC directly threaten Utica Mutual with litigation. (PI. Opp'n to Def. Mot. to Dismiss at 6-7.) Utica Mutual further argues that the February 20, 2003 letter proposing a settlement indicated CSC's interest in continuing to discuss a settlement, not pursue litigation. Id. at 7. It is not Page 8 readily believable that CSC's letter indicated a mere interest in further discussing settling the suit but is instead an ultimatum to either settle the dispute pursuant to CSC's terms or face litigation. (Def. Mot. to Dismiss Ex. D.) The first sentence of the letter reads, "this letter constitutes a formal offer to settle the dispute . . . " and proceeds to enumerate nine terms by which CSC would be willing to settle the dispute. Id. The letter closes by imposing an acceptance deadline of March 14, 2003, on Utica Mutual and if Utica Mutual fails to meet the deadline, CSC's settlement offer is considered withdrawn. Id.

  CSC's letter does not suggest an interest in negotiation, it makes an offer and requires Utica Mutual's acceptance by March 14, 2003. CSC's formal settlement letter taken in consideration with its same date letter demanding payment and threatening legal action clearly notify Utica Mutual of the impending litigation. CSC's letters, therefore, cannot be read as indicating an interest in further settlement discussions.

  Utica Mutual argues that CSC's letters indicate only the possibility of litigation rather than a direct threat and a mere interest in further settlement discussions. If so, why did Utica Mutual not pursue settlement negotiations by discussing the settlement terms provided by CSC or by making a counter offer? Instead, Utica Mutual's only response was to commence legal action on March 4, 2003, ten days before the settlement offer was due to expire. Furthermore, although the parties may have been trying to resolve the matter for over a year, Utica Mutual offers no proof that it filed its action as a result of a breakdown in communications, but rather in response to a direct threat of litigation.

  Utica Mutual's argument that CSC's letters were not a direct threat of litigation and proposed negotiating a settlement is thwarted by the fact that the letters were clear in their intent to procure a settlement or pursue a legal course of action. It is also thwarted by the Page 9 fact that Utica Mutual made no effort to engage in the supposed settlement discussions but instead filed a complaint before the settlement deadline. Therefore, Utica Mutual's first-filed action is an improper anticipatory filing.*fn2

  C. Remedy

  Courts have demonstrated a willingness to favor the second-filed action in cases analogous to the instant action where the first-filed action was filed in anticipation of litigation. Deviation from the first-filed rule is warranted where "a party files suit seeking a declaratory judgment immediately after receiving notice of a planned suit from the other party thus winning a `race to the courthouse.' Cooperative Centrale Raiffeisen-Boerenleen Bank B.A. v. Northwestern National Insurance Company of Milwaukee, Wisconsin, 778 F. Supp. 1274, 1278 (S.D.N.Y. 1991). In Cooperative Centrale, the plaintiff sent to the defendant a notice letter dated January 20, 1991 demanding payment of a debt. Id. The letter did not threaten imminent litigation but it did notify the defendant of the outstanding debt and demanded payment. Id. On March 6, 1991, the defendant filed suit seeking a declaratory judgment. Id. The court held that because the defendant filed its declaratory judgment action shortly after receiving the demand letter, knowing it did not intend to pay the debt demanded, and anticipating that the plaintiff would sue, a departure from the first-filed rule was warranted, Id. at 1279.

  The instant case is similar in that Utica Mutual's action was filed after receipt of a demand letter regarding its debt. The instant case, however, evinces even greater cause to Page 10 depart from the first-filed rule as CSC's letter specifically mentioned the possibility of legal action as an alternative in resolving the matter. Furthermore, Utica Mutual responded even more quickly than the defendant in Cooperative Centrale by racing to the courthouse less than two weeks after receiving the demand and settlement letters. Departure from the first-filed rule is warranted.

  The proper remedy in a case of an improper anticipatory filing is either a stay of the one action pending the outcome of the similar action brought in another forum, or a dismissal of the first-filed action altogether in favor of the second-filed action. See Regions Bank v. Wiedar & Mastroianni, P.C., 170 F. Supp.2d 436, 439 (S.D.N.Y. 2001). The purpose of the rule is to "avoid duplication of judicial effort . . .[and] achieve comprehensive disposition of litigation among parties over related issues . . .[u]ltimately the decision of whether or not to stay or dismiss a proceeding rests within a district judge's discretion." Id.

  The specific remedy of dismissing the first-filed action in favor of the latter action has been granted where a declaratory judgment action has been filed preemptively. Hanson PLC v. Metro-Goldwyn-Mayer Inc., 932 F. Supp. 104, 107 (S.D.N.Y. 1996). In Hanson, the plaintiff's filed their declaratory judgment action just three days after Metro-Goldwyn-Mayer ("MGM") sent a cease and desist letter demanding that Hanson cease and desist using their James Bond character in a commercial. Id. at 105. Regarding a suit that is filed in response to a demand letter, the court reasoned:

  [W]here the first-filed case is a declaratory judgment action precipitated by a demand letter and filed in anticipation of the later action, the second-filed action will be permitted to go forward in plaintiff's chosen forum. Page 11

 Id. at 107 (quoting Mass v. McClenahan, No. 93 Civ. 3290 (JSM), 1993 WL 267418, at *2 (S.D.N.Y. July 9, 1993).

  Applying this reasoning, the court held that Hanson filed its lawsuit first only in response to MGM's cease and desist letter and dismissed the first-filed New York action in favor of the second-filed California action. Id. at 108.

  Utica Mutual's first-filed action in New York state court was a similar preemptive strike against CSC in response to a demand letter in anticipation that CSC would take subsequent legal action in Texas, Nevada, or California. CSC's second-filed action should be allowed to proceed and Utica Mutual's first-filed action must be dismissed.

  D. Choice of Law

  It is worth noting that the agreement does contain a choice of law provision whereby Texas law would govern a determination of the contractual rights between the parties. (Def. Mot. to Dismiss Ex. A at ¶ 12). The second-filed action is pending in the District Court for the Western District of Texas. If this action were allowed to proceed in the Northern District of New York, Texas law would have to be applied. This may result in duplication of judicial effort. It may also result in additional judicial time and effort as the court in Texas would be more familiar with Texas law. It is therefore within the sound discretion and in the interests of judicial economy to dismiss Utica Mutual's complaint in favor of the Texas action.


  Utica Mutual improperly filed the instant lawsuit in anticipation of CSC filing a mirror image lawsuit in another forum. An exception to the general rule that the first-filed action is given priority is justified, thereby dismissing plaintiff's complaint and allowing the second-filed action to proceed in the United States District Court for the Western District of Texas.

  Accordingly, it is

  ORDERED that

  1. Defendant Computer Sciences Corporation's motion to dismiss is GRANTED, and the complaint is DISMISSED in its entirety; and

  2. Plaintiff Utica Mutual Insurance Company's cross motion to stay the action pending in the Western District of Texas is DENIED.

  The Clerk is directed to enter judgment accordingly.


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