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Lacrosse Unlimited, Inc. v. California Lacrosse, Inc.

United States District Court, E.D. New York

February 3, 2017

Lacrosse Unlimited, Inc., Plaintiff,
California Lacrosse, Inc., Defendant.


          JOSEPH F. BIANCO United States District Judge.

         Plaintiff Lacrosse Unlimited, Inc. brought an action, setting out claims for, inter alia, fraudulent inducement and breach of contract, against defendant California Lacrosse, Inc. in New York state court. Defendant removed the case to this court and now moves, pursuant to 28 U.S.C. § 1404(a), to transfer this case to the United States District Court for the Southern District of California.

         For the reasons set forth below, the Court grants defendant's motion to transfer venue. Specifically, the Court finds in its discretion that, because defendant filed a lawsuit concerning the same subject matter against plaintiff in the Southern District of California before plaintiff brought this action, the “first-filed rule” warrants transfer of this case. See Employers Ins. of Wausau v. Fox Entertainment Group, Inc., 522 F.3d 271, 274-275 (2d Cir. 2008) (“As a general rule, ‘[w]here there are two competing lawsuits, the first suit should have priority.'” (quoting First City Nat'l Bank & Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989) (alteration in original))). In particular, defendant's California lawsuit seeks money damages rather than a declaratory judgment, and plaintiff did not directly threaten litigation prior to its filing. Therefore, the “anticipatory lawsuit” exception to the first-filed rule does not apply. See Id. Moreover, plaintiff has identified no other special circumstances that make New York so convenient as to give the second-filed action priority. See Id. Accordingly, defendant's motion to transfer the case to the United States District Court for the Southern District of California is granted under Section 1404(a).

         I. Background

         A. Facts

         The following facts are taken from plaintiff's Amended Complaint (ECF No. 11 (“Pl.'s Compl.”)), defendant's complaint in the California proceeding (see Decl. of Edward J. O'Connor in Support of Def.'s Mot. to Transfer Venue (“O'Connor Decl.”), Ex. 5, ECF No. 10-2 (“Def.'s Compl.”)), and the parties' submissions in connection with defendant's motion to transfer venue.

         On September 1, 2014, the parties entered into an Asset Purchase Agreement (“APA”) with plaintiff agreeing to purchase various assets, including eight retail stores, an internet-based lacrosse retail sales business, and plaintiff's operations for retail sales made directly to lacrosse organizations (“Team Sales”), from defendant. (Pl.'s Compl. ¶¶ 13-14; Def.'s Compl. ¶ 5.) Of the eight retail stores, six were located in California, with three of those in San Diego. (See Decl. of Steve Sepeta in Support of Def.'s Mot. to Transfer Venue (“Sepeta Decl.”), Ex. 1 at 4.) The APA obligated plaintiff to pay defendant (1) an initial amount of $333, 553 and (2) a percentage of the gross revenues related to Team Sales over a three-year period after the APA closed, to be made each quarter (the “royalty payments”). (Pl.'s Compl. ¶ 15; Def.'s Compl. ¶ 5.) Plaintiff was also to submit quarterly reports detailing its revenues, complete with copies of general ledger activities, within fifteen days of the end of each quarter (the “Quarterly Reports”). (Def.'s Compl. ¶ 5.) In addition to the assets outlined above, plaintiff also agreed to purchase $800, 000 of lacrosse apparel bearing the brand name “Adrenaline” over a three-year period. (Pl.'s Compl. ¶ 18; APA § 2(e)(ii).) Defendant also agreed not to conduct retail sales operations within thirty miles of the stores subject to the APA (the “non-compete provision”). (See APA § 9.)

         A contractual dispute arose between the parties in the summer of 2015 when defendant allegedly failed to transfer some of the assets. (See Decl. of Eric Mueller in Opp'n. to Def.'s Mot. to Transfer Venue, ECF No. 18 (“Mueller Decl.”), ¶ 7). In response to this alleged failure, plaintiff stopped making royalty payments. (Id. ¶ 9; Def.'s Compl. ¶¶ 7- 9.) According to plaintiff, around the time it stopped making payments, its president, Joe DeSimone, “told [defendant] that something needed to be done about [defendant's alleged violations of the agreement, ] otherwise we would have to go to court [sic].” (Decl. of Joe DeSimone in Opp'n to Def.'s Mot. to Transfer Venue, ECF No. 19 (“DeSimone Decl.”), ¶ 16). The parties then engaged in extensive settlement negotiations to resolve the matter. (Mueller Decl. ¶ 11; Sepeta Decl. ¶ 4.) After several months without a resolution, defense counsel sent plaintiff a letter containing a “Notice of Breach of the APA, a Demand for Payment and a Demand for Inspection” on July 6, 2016, in which defendant notified plaintiff that it “need[ed] to see substantial progress toward resolution by July 15, 2016” but still “reserve[d] all rights and remedies.” (O'Connor Decl., Ex. 3.) Later, on August 5, 2016, plaintiff's counsel asserts that he mentioned in a phone call with defense counsel that plaintiff “had serious claims it would pursue against [defendant] related to team sales if the matter was not resolved soon.” (Mueller Decl. ¶ 15; see also O'Connor Decl. ¶ 4.)

         The parties ultimately could not resolve the matter, and, on August 19, 2016, defendant filed an action in the District Court for the Southern District of California, asserting claims for breach of contract, specific performance, accounting, conversion, and declaratory relief. (See Def.'s Compl.) Defendant served plaintiff with the complaint on October 18, 2016 (O'Connor Decl., Ex. 10), and plaintiff filed an answer and counterclaim on November 7, 2016, raising claims of fraudulent inducement, breach of the APA's non-compete provision, breach of the APA's delivery provisions, account stated for failure to pay an invoice, and indemnification. (Id., Ex. 12.) The case is currently pending before District Judge Cathy Ann Bencivengo and Magistrate Judge Jill L. Burkhardt of the Southern District of California.

         B. Procedural History

         Plaintiff commenced this action on October 31, 2016-prior to filing its answer and counterclaim in the California case-in the Suffolk County Supreme Court, raising claims identical to those in its California counterclaim. (Sepeta Decl., Ex. 11.) Defendant removed the case to this Court, asserting diversity jurisdiction, on December 2, 2016. (ECF No. 1.) Defendant filed its motion to change venue on December 22, 2016 (ECF No. 10), [1] plaintiff filed its opposition on January 6, 2017 (ECF No. 17), and defendant filed a reply on January 13, 2017 (ECF No. 20). Oral argument took place on January 23, 2017. The Court has fully considered the submissions of the parties.

         II. Section 1404(A) Motions

         Under 28 U.S.C. § 1404(a), “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” In general, “[d]istrict courts have broad discretion in making determinations of convenience under Section 1404(a) and notions of convenience and fairness are considered on a case-by-case basis.” D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 106 (2d Cir. 2006); accord Publicker Indus. Inc. v. United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 117 (2d Cir. 1992). In determining whether to transfer venue, courts consider (1) whether the action could have been brought in the proposed forum; and (2) whether the transfer would “promote the convenience of parties and witnesses and would be in the interests of justice.” Clarendon Nat'l Ins. Co. v. Pascual, No. 99-CV-10840 (JGK) (AJP), 2000 WL 270862, at *2 (S.D.N.Y. Mar. 13, 2000) (quoting Coker v. Bank of Am., 984 F.Supp. 757, 764 (S.D.N.Y. 1997) (other citations omitted)). Ordinarily, “[a] motion to transfer under § 1404(a) . . . calls on the district court to weigh in the balance a number of case-specific factors, ” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988), including: “‘(1) the plaintiff's choice of forum, (2) the convenience of witnesses, (3) the location of relevant documents and relative ease of access to sources of proof, (4) the convenience of parties, (5) the locus of operative facts, (6) the availability of process to compel the attendance of unwilling witnesses, and (7) the relative means of the parties, ”' Fteja v. Facebook, Inc., 841 F.Supp.2d 829, 832 (S.D.N.Y. 2012) (quoting N.Y. Marine and Gen. Ins. Co. v. Lafarge N. Am., Inc., 599 F.3d 102, 112 (2d Cir. 2010)).

         Nevertheless, “[w]here there are two competing lawsuits, the first suit should have priority.” Employers Ins. of Wausau, 522 F.3d at 274-75 (quoting Simmons, 878 F.2d at 79) (alteration in original). The Second Circuit has “recognized only two exceptions to the first-filed rule: (1) where the ‘balance of convenience' favors the second-filed action, and (2) where ‘special circumstances' warrant giving priority to the second suit.” Id. (citations omitted). The most notable “special circumstance” under the second exception is “where the first-filed lawsuit is an improper anticipatory declaratory judgment action.” Id. For a first-filed suit to be considered “anticipatory, ” “it must be filed in response to a direct threat of litigation that gives specific warnings as to deadlines and subsequent legal action.” Id. In Federal Insurance Co. v. May Department Stores Co., 808 F.Supp. 347, 350 (S.D.N.Y. 1992), for example, May Department Stores, an insurance policyholder, “wrote to Federal [Insurance Company] informing it that if it did not satisfy May's claim under the Policy by May 15, 1992, May planned to sue on the ...

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