Monzo v. Bazos, CIVIL ACTION No. 17–01401

• Decision Date: 26 October 2017
• Docket Number: CIVIL ACTION No. 17–01401
• Citation: 313 F.Supp.3d 626
• Parties: Carl MONZO, individually and on behalf of CrowdRx, Inc., Plaintiffs, v. Andrew BAZOS, M.D., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

313 F.Supp.3d 626

Carl MONZO, individually and on behalf of CrowdRx, Inc., Plaintiffs,

v.Andrew BAZOS, M.D., Defendant.

CIVIL ACTION No. 17–01401

United States District Court, E.D. Pennsylvania.

Filed October 26, 2017

Patrick T. Henigan, Eckell Sparks Levy Auerbach Monte Rainer Sloane Matthews & Auslander, Media, PA, for Plaintiffs.

Ralph J. Kelly, McShea Law Firm PC, Philadelphia, PA, for Defendant.

MEMORANDUM

MCHUGH, United States District Judge

This case arises out of a dispute over a business partnership that fell apart shortly after it began, leading to a fight over the pieces. Both parties initiated litigation in Pennsylvania state court, and then seemingly reached an agreement resolving the matter in the form of a memorandum of understanding. A dispute quickly broke out as to whether the agreement was self-executing. This led one partner to amend his complaint in his state case, and the other partner to file a separate action in federal court in New York, which included trademark claims based upon rights allegedly conferred by the parties' agreement. The first partner promptly amended his state court action again to assert trademark claims there as well, and the case was then removed to this Court.¹ With litigation now pending in two federal district courts—here and in the Southern District of New York—I have before me a motion to dismiss, stay, or transfer this case to New York under the "first-filed rule" and 28 U.S.C. § 1404(a), and to dismiss on several related grounds. For practical purposes, the controlling issue is whether the date an action was commenced in state court is properly considered in determining which action was first-filed, as opposed to a rule that only federal filings count. Because I am persuaded that state filings should be considered, and because these cases arise from an integrated dispute, I will deny the motion in its entirety.

I. Background: The Disagreement and Litigation

Plaintiff Carl Monzo, a Pennsylvanian, and Defendant Andrew Bazos, a resident of Connecticut, both run businesses that provide medical services for professional sporting events, music festivals, and other large events. Monzo's businesses are Pennsylvania-based while Bazos's operate in the New York City region. In 2015, the two entered a Shareholders' Agreement to merge their respective medical services businesses to form "CrowdRx, Inc., a Pennsylvania Corporation" [hereinafter "CrowdRx–Pa"]. Under the agreement, Monzo and Bazos wholly owned the corporation in equal shares.

The partnership soon faltered, and by early 2016 Monzo and Bazos had filed complaints against each other in Pennsylvania state court—the Delaware County Court of Common Pleas—asserting various state and common law claims based on their Shareholders' Agreement and seeking emergency injunctive relief. Monzo's allegations included that Bazos "failed to forward revenues generated by New York events [Bazos] controlled to [CrowdRx–Pa]," removed information related to Monzo from the CrowdRx–Pa website, and locked Monzo out of the company's Google Docs account. See Pl.'s Compl. ¶¶ 15, 28–30, Monzo v. Bazos , No. 16–3179 (Del. Cnty. Ct. Comm. Pl. 2016). To resolve Monzo's emergency motion, the parties stipulated on May 10, 2016 "not to unilaterally change the content of the website" or to access the Google Docs account unless the parties agreed in advance by email. Stip. 55, ECF No. 6–2.

On November 10, 2016, with both state cases still pending, Monzo and Bazos signed a Memorandum of Understanding (MOU) setting out a division of CrowdRx–Pa's assets and clients "as of the Effective Date"—a phrase that has turned out to be crucial. See id. at 58. If and when the MOU went into effect, Bazos would own the CrowdRx trademark, website, and exclusive rights to several clients, including Mysteryland and Electric Zoo (two music festivals). Monzo, in turn, would have exclusive rights to his own roster of clients but would no longer own CrowdRx–Pa.

Bazos proceeded as though the MOU had already taken effect. In December 2016, he blocked Monzo and his employees from accessing the CrowdRx–Pa email server and removed all mention of Monzo from its website. In response, Monzo filed an Amended Complaint in his Delaware County case, again seeking emergency relief. He alleged that Bazos's actions violated the Shareholders' Agreement, the Stipulation, the MOU, and common law duties. Two weeks later, Bazos filed in the Southern District of New York ("S.D.N.Y.") alleging trademark and unfair competition claims under federal and New York laws. S.D.N.Y. Compl., ECF No. 6–1. Monzo later amended his complaint in the Delaware County case (the "Second Amended Complaint") to include his own trademark claims and to seek declaratory judgment and indemnification.² Most recently, after filing his own case in New York, Bazos removed Monzo's Delaware County case to this Court.

Disagreement over the meaning of at least two paragraphs in the MOU—"Termination of Relationship"³ and "Definitive Documents"⁴ —forms the central dispute in this and the S.D.N.Y case. Monzo asserts that the MOU was not self-executing because it would take effect only if and when the definitive documents were signed, which they were not. Bazos argues that the MOU was self-executing such that CrowdRx–Pa had already "ceased operationally and financially" and that he owned the trademark.

Defendant Bazos moves to dismiss, stay, or transfer this case to the S.D.N.Y.⁵ based on the first-filed rule, which holds that, when two cases are pending in federal courts, the first-filed case should generally be the one to proceed. Alternatively, Bazos seeks a transfer under 28 U.S.C. Section 1404(a). He also seeks dismissal on several other grounds, many of them contingent on the assertion that CrowdRx–Pa no longer exists:

• under Federal Rule of Civil Procedure 12(b)(7) for failure to join an indispensable party (CrowdRx–NY) pursuant to Rule 19;

• under Rule 12(b)(6) for failure to state a claim;

• under Rule 12(e) for lack of factual specificity;

• under 28 U.S.C. § 2201 for failure to state a claim for declaratory judgment;

• under Rule 23.1 for failure to state a claim for a derivative action;

• under 28 U.S.C. § 1406(a) for improper venue.

The parties' briefing focuses primarily on the first-filed rule and I will do the same.

II. Bazos's Motion to Transfer/Stay/Dismiss under the First–Filed Rule

The first-filed rule holds that "[i]n all cases of federal concurrent jurisdiction, the court which first has possession of the subject must decide it." E.E.O.C. v. Univ. of Pa. , 850 F.2d 969, 971 (3d Cir. 1988), aff'd , 493 U.S. 182, 110 S.Ct. 577, 107 L.Ed.2d 571 (1990) (quoting Crosley Corp. v. Hazeltine Corp. , 122 F.2d 925, 929 (3d Cir. 1941) ). The rule "encourages sound judicial administration and promotes comity among federal courts of equal rank" by giving courts discretion to enjoin a later-filed case if it "involve[s] the same parties and the same issues already before another district court." Id. at 971. The first-filed rule thus aids in the "prompt and efficient administration of justice" and avoids the economic waste and risk of conflicting judgments inherent in duplicative litigation. Crosley , 122 F.2d at 930 ; see also E.E.O.C. , 850 F.2d at 971 (explaining that "the letter and spirit of the first-filed rule ... are grounded in equitable principles" and its "primary purpose is to avoid burdening the federal judiciary and ... the judicial embarrassment of conflicting judgments.").

If a court determines that the first-filed rule applies to a pair of cases, "there is a presumption that the later-filed action should be dismissed, transferred, or stayed." Landau v. Viridian Energy PA , 274 F.Supp.3d 329, 333 (E.D. Pa. 2017) (citing Koresko v. Nationwide Life Ins. Co. , 403 F.Supp.2d 394, 403 (E.D. Pa. 2005) ). But a judge's authority to enjoin a second-filed case "is not a mandate directing wooden application of the rule." E.E.O.C. , 850 F.2d at 972. Rather, it is a flexible standard motivated by equitable principles and practical considerations—"[d]istrict courts have always had discretion to retain jurisdiction given appropriate circumstances justifying departure from the first-filed rule." Id. Courts in this Circuit have recognized several such exceptions, including when the second-filed action has developed further than the first, and when there is evidence of anticipatory filing, improper forum shopping, gamesmanship, or other bad faith by the first filer. Id. at 976–77.

The scope of the first-filed rule—exactly how related the cases must be for the rule to apply—has mostly developed in the district courts, without a definitive ruling from the Third Circuit. As I recently discussed in Landau , two interpretations have emerged:

Some courts take a narrow view of the first-filed rule and apply it only when the parties and claims in the later-filed suit are a ‘mirror image’ of the first. Others have embraced a broader, close-enough-for-government-work approach to the rule and applied it to ‘disputes involving similar, concurrent actions.’ According to proponents of the broader approach, the ‘substantive touchstone of the first-to-file inquiry is subject matter,’ rather than identity of legal claims or parties.

274 F.Supp.3d at 333 (citations omitted). I attempted to reconcile these interpretations as follows:

[T]here are two distinct scenarios where the [first-filed] rule has been applied. The first-filed rule started with cases ... where earlier- and later-filed actions involved the same parties and arose out of the same transaction, agreement, or encounter. Only later was it extended to cases that were not truly related but raised similar issues. In cases where two actions arise out of an integrated dispute, transfer, stay, or dismissal of the later-filed action should be required in the absence of exceptional circumstances.... Such cases are genuinely related, in the technical sense, making transfer (where it is sought) an obvious

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