Kohn Law Grp., Inc. v. Auto Parts Mfg. Miss., Inc.

• Decision Date: 04 June 2015
• Docket Number: No. 13–55023.,13–55023.
• Citation: 787 F.3d 1237
• Parties: KOHN LAW GROUP, INC., a California corporation, Plaintiff–Appellant, v. AUTO PARTS MANUFACTURING MISSISSIPPI, INC., a Mississippi corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

787 F.3d 1237

KOHN LAW GROUP, INC., a California corporation, Plaintiff–Appellant

v.AUTO PARTS MANUFACTURING MISSISSIPPI, INC., a Mississippi corporation, Defendant–Appellee.

No. 13–55023.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 6, 2015.

Filed June 4, 2015.

Robert Kohn (argued), Kohn Law Group, Santa Monica, CA, for Plaintiff–Appellant.

Michael Matthias (argued) and Gabriel Drucker, Baker & Hostetler, Los Angeles, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Central District of California, Michael W. Fitzgerald, District Judge, Presiding. D.C. No. 2:12–cv–08063–MWF–MRW.

Before: MICHAEL J. MELLOY,^* JAY S. BYBEE, and SANDRA S. IKUTA, Circuit Judges.

OPINION

MELLOY, Circuit Judge:

Kohn Law Group, Inc. (Kohn Law) sued Auto Parts Manufacturing Mississippi, Inc. (APMM) under § 9607(a)(3) of the California Commercial Code, alleging Kohn Law was entitled to payments APMM owed to a third party. The Central District of California stayed the proceedings, finding the question presented was already being litigated by the same or related parties in Mississippi. For the reasons stated below, we affirm.

I

APMM hired Noatex Corporation (Noatex) as a general contractor to construct an auto parts manufacturing facility in Guntown, Mississippi. Noatex hired King Construction of Houston, L.L.C. (King Construction) as a subcontractor. After construction began, Noatex alleged APMM owed Noatex for goods and services provided under their contract. Noatex also questioned the validity and the amount of invoices King Construction submitted for its construction work under the subcontract.

King Construction filed a “Stop Notice” pursuant to Mississippi Code § 85–7–181 (repealed 2014) (Stop Notice Statute). The Stop Notice Statute allows a subcontractor to bind funds a project owner owes to a general contractor. King Construction sought to bind funds APMM owed to Noatex. The Stop Notice also informed APMM that Noatex allegedly owed King Construction $260,410.15 (the disputed funds). Noatex then filed a declaratory action against King Construction in the Northern District of Mississippi, challenging the constitutionality of the Stop Notice Statute. Without deciding the parties' rights to the disputed funds, the Northern District of Mississippi found the Stop Notice Statute unconstitutional. The Fifth Circuit affirmed.¹

Kohn Law represented Noatex in the Stop Notice litigation. To pay for legal fees, Noatex granted Kohn Law a contractual lien on its receivables. Kohn Law asserts the lien covers funds APMM allegedly owes Noatex.

Because it was worried about multiple, inconsistent judgments relating to the disputed funds, APMM filed an interpleader action in Mississippi state court on November 15, 2011. APMM listed Noatex and King Construction as parties. Noatex removed the lawsuit to the Northern District of Mississippi on December 5, 2011. On April 12, 2012, the Northern District of Mississippi remanded the case back to the Mississippi state court. Once APMM became aware of Kohn Law's lien, APMM filed a motion to amend the interpleader complaint to add Kohn Law as a party. On December 5, 2012, the Northern District of Mississippi placed the case back on its docket, holding that it had erred by remanding the case because APMM could have filed the case in federal court.

Meanwhile, on September 18, 2012, Kohn Law filed the present action against APMM in the Central District of California pursuant to California Commercial Code § 9607(a)(3).² Section 9607(a)(3) permits a secured party (Kohn Law) to enforce obligations of a debtor (APMM) on behalf of the holder of the debt (Noatex). APMM moved to dismiss the complaint, or in the alternative, stay the proceedings.

On December 11, 2012, the Central District of California stayed the lawsuit, holding that the Colorado River³ doctrine and the first-to-file rule warranted a stay. The district court stated Kohn Law was asking the Central District of California “to short-circuit the ongoing Mississippi interpleader action as to this $260,410.15 and award the funds to Kohn.” It further noted that to “proceed with this action only would multiply lawsuits, increase costs and prolong a final determination.” Kohn Law appeals.

II

The first-to-file rule allows a district court to stay proceedings if a similar case with substantially similar issues and parties was previously filed in another district court. We review a decision to stay proceedings under the first-to-file rule for an abuse of discretion. Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 95 (9th Cir.1982).

The first-to-file rule is intended to “serve[ ] the purpose of promoting efficiency well and should not be disregarded lightly.” Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 625 (9th Cir.1991) (alteration in original) (quoting Church of Scientology v. U.S. Dep't of the Army,

611 F.2d 738, 750 (9th Cir.1979) ) (internal quotation marks omitted). When applying the first-to-file rule, courts should be driven to maximize “economy, consistency, and comity.” Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 604 (5th Cir.1999). The first-to-file rule may be applied “when a complaint involving the same parties and issues has already been filed in another district.” Alltrade, 946 F.2d at 625 (citation and internal quotation marks omitted). Thus, a court analyzes three factors: chronology of the lawsuits, similarity of the parties, and similarity of the issues.⁴

See id.

Ordinarily, we start by analyzing which lawsuit was filed first. But we need not analyze this issue here because Kohn Law does not argue that the present case was filed first. And, as asserted by APMM, both the Mississippi state court complaint (November 15, 2011) and the removal to Northern District of Mississippi (December 5, 2011) were filed before the present case was filed in the Central District of California (September 18, 2012). Because the parties do not dispute that the Mississippi interpleader action was filed first, we assume this requirement is met.

Regarding similarity of the parties, courts have held that the first-to-file rule does not require exact identity of the parties. See Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 951 (5th Cir.1997) ; Herer v. Ah Ha Publ'g, LLC, 927 F.Supp.2d 1080, 1089 (D.Or.2013) ; Intersearch Worldwide, Ltd. v. Intersearch Grp., Inc., 544 F.Supp.2d 949, 959 n. 6 (N.D.Cal.2008). Rather, the first-to-file rule requires only substantial similarity of parties. See Harris Cnty., Tex. v. CarMax Auto Superstores Inc., 177 F.3d 306, 319 (5th Cir.1999) ; Adoma v. Univ. of Phx., Inc., 711 F.Supp.2d 1142, 1147 (E.D.Cal.2010) (citing Inherent.com v. Martindale–Hubbell, 420 F.Supp.2d 1093, 1097 (N.D.Cal.2006) ); see generally Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 95 (9th Cir.1982) (noting that the first-to-file rule should not be applied “mechanically”).

Kohn Law argues that the parties are not substantially similar here because a defendant in the Mississippi interpleader action—King Construction—is not named in the present action. We disagree. In Alltrade, Inc., 946 F.2d at 624 & n. 3, 629, we affirmed a district court's decision not to hear a second-filed case under the first-to-file rule even though the first-filed case contained a defendant not named in the second case. A contrary holding could allow a party such as Kohn Law to skirt the first-to-file rule merely by omitting one party from a second lawsuit. We conclude that the omission of King Construction from the present action does not defeat application of the first-to-file rule. Our conclusion avoids awarding such gamesmanship and is consistent with the policy of the first-to-file rule, which is to maximize judicial economy, consistency, and comity. See Cadle Co., 174 F.3d at 604.

The issues in both cases also need not be identical, only substantially similar. Int'l Fid. Ins. Co. v. Sweet Little Mex. Corp.,

665 F.3d 671, 677–78 (5th Cir.2011) ; Adoma, 711 F.Supp.2d at 1148 ; Inherent.com , 420 F.Supp.2d at 1097. To determine whether two suits involve substantially similar issues, we look at whether there is “substantial overlap” between the two suits. See Harris Cnty., 177 F.3d at 319.

Noatex and APMM are already in litigation in Mississippi over the same funds Kohn Law seeks in this case. Because Kohn Law stands in the shoes of Noatex, APMM's defenses in the present case against Kohn Law would, at the least, substantially overlap with the issues in the Mississippi interpleader action. The question Kohn Law asks the Central District of California to resolve is at the “heart” of the...