The Race to the Courthouse is Not Always to the Swift

Bob Pettey 4x6Ask a group of lawyers which case takes precedence when two parties race to the courthouse and most will say the case that was filed first.  More often than not, that is the right answer.  Courts generally apply a “first-to-file” rule in an effort to avoid duplicative costs and prevent inconsistent rulings.

Procedurally, the desired goal of eliminating dueling lawsuits can be achieved in either of two ways.  First, “when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap.”  Fire Eagle L.L.C. v. Bischoff (In re Spillman Dev. Group), 710 F.3d 299, 307 (5th Cir. 2013).  In the event the court hearing case number 2 does not decline to hear it, the court hearing case number 1 is the appropriate court “to determine whether subsequently filed cases involving substantially similar issues should proceed.”  Save Power v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir. 1997).

As is the case with most rules, there are exceptions and they often arise when a declaratory judgment suit is filed in advance of a suit for damages.  Consider this example, Dallas company sends a letter to Chicago company demanding that Chicago company cease infringing Dallas company’s copyright.  Instead of responding to the letter, Chicago company files suit in Illinois seeking a declaratory judgment that it is not infringing.  Dallas company then files an infringement suit in Texas.

In Sparktrode L.L.C. v. HMT High Med. Techs. A.G., an Illinois federal court recognized that an exception to the first-to-file rule was appropriate when necessary to “prevent wrong or injustice,” such as when “the first-filed case was an ‘improper anticipatory filing’ made either for the purpose of forum shopping or under the apparent threat of a presumed adversary filing.”  Sparktrode L.L.C. v. HMT High Medical Tech. A.G., 2005 U.S. Dist. Lexis 14175 *5 (N.D. Ill. 2005).  Focusing on the difference between a declaratory judgment plaintiff and a “natural” plaintiff seeking damages, the Seventh Circuit said, “because the issuance of a declaratory judgment is discretionary, a suit for declaratory judgment aimed solely at wresting the choice of forum from the ‘natural’ plaintiff will normally be dismissed and the case allowed to proceed in the usual way.”  Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 10 F.3d 425, 431 (7th Cir. 1993).

The moral of this story is simple: the first to file usually wins the race to the courthouse, but second place may ultimately prevail if the race was not fairly run.

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