Davis v. Zuccarello
| Decision Date | 23 June 2017 |
| Docket Number | 1:16-cv-01086 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | KENT MCCARTY DAVIS; CYPRESS INTERNATIONAL, INC., Plaintiffs, v. DEAN ZUCCARELLO; CYPRESS ADVISORS, INC., Defendants. |
This is a business dispute. Before the court is the motion of Defendants Dean Zuccarello and Cypress Advisors, Inc. to dismiss the amended complaint because a nearly identical action filed by Defendants exists in the United States District Court for the District of Colorado or, in the alternative, to dismiss certain claims alleged in the amended complaint. (Doc. 19.) For the reasons set forth below, the motion to dismiss the action will be granted unless within fourteen days Plaintiffs elect to transfer it to the Colorado court.1
In the light most favorable to Plaintiffs as non-moving parties, the allegations of the current complaint and undisputedfacts show the following:
This action arises out of a long-standing business arrangement that eventually soured. In 2000, Plaintiff Kent McCarty Davis and Defendant Zuccarello agreed to provide financial advisory services to - among other types of clients - restaurant owners, multi-unit retail companies, and capital providers serving the restaurant industry. (Doc. 15 ¶ 7.) The parties titled their business the "Cypress Partnership," which Plaintiffs contend (and the court assumes, without deciding, for purposes of the present motion) constituted a partnership; Defendants maintain it was a contractual relationship. The alleged partnership was comprised of Cypress International, Inc., a corporation organized under the laws of Georgia with its principal place of business in North Carolina (Id. ¶ 3), and Cypress Advisors, Inc., a Florida corporation with its principal place of business in Colorado (Id. ¶ 5; Doc. 20 at 2). Davis is the president and sole shareholder of Cypress International. (Doc. 15 ¶ 3) Zuccarello is the president and chief executive officer of Cypress Advisors. (Doc. 22-2 ¶ 2).
On June 20, 2016, Davis informed Zuccarello that he wanted to wind up the Cypress Partnership (Doc. 15 ¶ 139), and the parties sought to negotiate the terms of separation. The week of June 27, Defendants sent Davis a proposed agreement to wrap up their relationship. (Doc. 20-1 at 7-8.) Davis's counsel emailedZuccarello on June 29, stated his client's desire "to resolve this matter as quickly as we can," and sought contact information for Zuccarello's counsel. (Id.) The next day, Zuccarello responded and identified his counsel (id.). That same day, he unilaterally terminated Davis from the partnership. (Doc. 15 ¶ 143; Doc. 21 at 8.)
On July 5, Zuccarello's counsel contacted Davis's counsel to inquire of the status of his review of the proposed agreement, noting that Zuccarello "intends to wrap this up as soon as possible." (Doc. 20-1 at 6.) Davis's counsel responded minutes later, stating they were "moving as quickly as we can" and that their "intention [was] that it will remain short and simple." (Id.)
Sometime thereafter but "in early July," Davis's counsel responded with a counter proposal, which Defendants considered and rejected. (Doc. 15 ¶ 174-75.) On July 21, 2016, Defendants' counsel re-confirmed the rejection and sent a revised draft agreement, noting that "a key condition of this proposal is that [Davis and Cypress International, Inc.] must accept the agreement no later than 5PM MT on Saturday, July 23, 2016" and that thereafter Zuccarello would be meeting with certain clients caught up in the dispute. (Doc. 20-1 at 10.) Davis's counsel responded at 2:24 p.m. on July 23 by email, explaining: (Id. at 20.)
Plaintiffs never responded, however. Instead, on July 28 - Thursday of that next week - they filed the present action in a North Carolina Superior Court in Moore County. The action alleged multiple claims: breach of a partnership agreement, breach of a joint venture agreement, breach of fiduciary duty, breach of contract, constructive fraud, and a declaratory judgment as to the existence of a partnership relationship; Plaintiffs also sought various remedies including the imposition of a constructive trust, dissolution, and receivership.2
The next day, July 29, 2016, unaware of the filing of the present lawsuit, Cypress Advisors, Inc. filed its own action against Davis and Cypress International, Inc. in the United States District Court for the District of Colorado bearing civil action number 16cv01935 (the "Colorado lawsuit"). (Doc. 20 at 3-4; Doc. 21 at 10.) A courtesy copy of the lawsuit was emailed to Plaintiffs' counsel herein with the explanation that the action was filed "[a]s we did not receive any further response to The Cypress Group's settlement counterproposal as promised by your July 23, 2016 email to me." (Doc. 20-1 at 22.) The Coloradolawsuit initially sought a declaratory judgment as to the parties' rights, but the complaint has since been amended to add claims for misappropriation of trade secrets, theft, conversion, interference with contractual relations, breach of contract, and unjust enrichment.
On August 26, 2016, Defendants removed the present lawsuit to this court. (Doc. 1.)3 They filed the instant motion to dismiss on December 12, arguing that Plaintiffs' claims should be dismissed in favor of the nearly identical pending action in Colorado. This motion mirrors a motion to transfer that Davis had filed in the Colorado lawsuit in which he urged that court to transfer its action to this court based on the "first-to-file rule." (U.S.D.C. 1:16-cv-01935-MSK-MEH, Doc. 34; Doc. 23-1 at 4.) The Colorado court issued its ruling on January 17, 2017, declining to transfer the case and deferring to this court's ruling on the pending motion to dismiss. (Doc. 23-1 at 5-6.) The court ordered discovery to proceed, however. (Id.)4
When a lawsuit is filed in multiple forums, the Fourth Circuit generally adheres to the "first-to-file" rule, which holds that"the first suit should have priority, absent the showing of [a] balance of convenience in favor of the second action." Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 594-95 (4th Cir. 2004) (quoting Ellicott Mach. Corp. v. Modern Welding Co., Inc., 502 F.2d 178, 180 n.2 (4th Cir. 1974)); Carbide & Carbon Chem. Corp. v. U.S. Indus. Chems., Inc., 140 F.2d 47, 49 (4th Cir. 1944)) (the earlier-filed lawsuit should be allowed to proceed "without interference from" subsequently-filed lawsuits); Quesenberry v. Volvo Group N. Am., Inc., No. 1:09cv22, 2009 WL 648658, at *2-3 (W.D. Va. March 10, 2009) (). Multiple lawsuits are subject to the first-to-file rule if "the same factual issues" provide the basis for each suit. Allied-Gen. Nuclear Serv's v. Commonwealth Edison Co., 675 F.2d 610, 611 n.1 (4th Cir. 1982).
Courts have applied a three-factor test for determining whether multiple cases are subject to the first-to-file rule, considering (1) the chronology of the filings, (2) the similarity of the parties involved, and (3) the similarity of the issues being raised. Remington Arms. Co., Inc. v. Alliant Techsystems, Inc., No. 1:03CV1051, 2004 WL 444574, *2 (M.D.N.C. Feb. 25, 2004) (internal citations omitted). Here, the two actions were filed one day apart. The claims are similar and in some cases identical, revolving around the parties' rights in dissolving thepartnership. In the present action, Davis claims he is entitled to profit distributions that were wrongfully withheld from him and seeks, among other things, a declaratory judgment as to his rights. In the Colorado lawsuit, Cypress Advisors, Inc. seeks a declaratory judgment that Davis served as an independent contractor to it and has no interest in any future engagement agreements with its clients. (Doc. 20-2 at 10-11.) The parties do not dispute that the actions are substantially the same and involve essentially the same parties.5 (Doc. 20 at 5-7; Doc. 23-1 at 5.) Indeed, since this motion was filed, Davis has filed his claims as counterclaims in the Colorado lawsuit. (Doc. 25 at 3 (referencing docket in U.S.D.C. 1:16-cv-01935-MSK-MEH, Doc. 60).) The first-to-file rule therefore applies.
However, application of the rule is not mandatory. As the Fourth Circuit has noted, "this Circuit has no unyielding 'first-to-file' rule." CACI Intern., Inc. v. Pentagen Technologies Int'l., Nos. 94-2058, 94-2220, 1995 WL 679952, at *6 (4th Cir. 1995) (unpublished). Indeed, courts have established certain exceptions to the first-to-file rule. The Fourth Circuit has sanctioned an exception when the "balance of convenience" weighsin favor of the second forum, but has not expressly identified other exceptions. Learning Network, Inc. v. Discovery Communications, Inc., 11 F. App'x. 297, 301 n.2 (4th Cir. 2001). District courts in the Fourth Circuit, however, have recognized "special circumstances" that allow a court to depart from the first-to-file rule. Remington Arms Co., 2004 WL 444574, at *2. These circumstances include when the action was filed in the midst of settlement negotiations. Id. (citing EMC Corp. v. Norand Corp., 89 F.3d 807, 814 (Fed. Cir. 1996)). Or, when the action was filed with notice that the other party is about to file. Id. at *3 (citing Anheuser-Busch, Inc. v. Supreme Int'l Corp., 167 F.3d 417, 419 (8th Cir. 1999)); Touchstone Research Lab., Ltd. v. Anchor Equip. Sales, Inc., 294 F. Supp. 2d 823, 828 (N.D.W. Va. 2003); Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F. Supp. 2d 357, 360 (W.D.N.C. 2003); Citigroup Inc. v. City Holding Co., 97 F. Supp. 2d 549, 557 (S.D.N.Y. 2000) (...
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