Nat'l Union Fire Ins. Co. of Pittsburgh v. Payless Shoesource, Inc.

• Decision Date: 09 August 2012
• Docket Number: No. C-11-1892 EMC,C-11-1892 EMC
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. PAYLESS SHOESOURCE, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff,

v.PAYLESS SHOESOURCE, INC., et al., Defendants.

No. C-11-1892 EMC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Dated: August 9, 2012

ORDER DENYING PLAINTIFF'S

MOTION TO ENJOIN DEFENDANTS

FROM PROSECUTING SIMILAR

LITIGATION IN KANSAS

(Docket No. 40)

I. INTRODUCTION

Plaintiff National Union Fire Insurance Company ("National Union") filed a Complaint for Declaratory Relief on April 19, 2011, pursuant to 28 U.S.C. §§ 2201 and 2202 seeking a determination of its rights and obligations with respect to certain commercial umbrella liability policies it issued to Defendants Payless Shoe Source, Inc. ("Payless") and Collective Brands, Inc. ("Collective Brands"). Compl. ¶ 1 (Docket No. 1). The Defendants filed a similar complaint in the U.S. District Court for the District of Kansas on August 18, 2011, involving the same liability policies, and substantially the same parties and claims. See Compl. (Docket No. 1) in Collective Brands, Inc. et. al. v. National Union Fire Insurance Company of Pittsburgh, PA. et. al., No. 5:11-cv-04097-JTM-KGG.¹ Almost one year later, on June 8, 2012, Plaintiff's filed their now pendingmotion asking this Court to enjoin the Defendants from prosecuting their case in the Kansas district court (Docket No. 40). Having considered the parties' submissions and oral argument, the Court DENIES Plaintiff's motion for the reasons set forth below.

II. FACTUAL AND PROCEDURAL BACKGROUND

National Union issued three, one-year commercial umbrella liability policies to Payless and Collective Brands effective for the period spanning February 1, 2007 to February 1, 2008 ("Umbrella Policies"). Compl. ¶ 14. While this coverage was in effect, two purported class action law suits were brought against Defendants, alleging they solicited potential customers in violation of the Telephone and Consumer Protection Act of 1991 ("TCPA"), 47 U.S.C. § 227(b)(1)(B), and certain provisions of Washington State law. Id. at ¶¶ 10-11. The first action, Clark v. Payless Shoesource, Inc. et al., No. 2:09-cv-00915-JCC ("Clark"), brought on behalf of a national class as well as a class of Washington State residents who received pre-recorded telephone messages regarding Defendants' sales promotions, has been "settled in principle, pending court approval." Defs.' Opp. (Docket No. 44) at 5. The second suit, Kazemi v. Payless Shoe source, Inc. et al., No. 3:09-cv-05142-EMC ("Kazemi"), brought on behalf of a nationwide class who received unauthorized text-message advertisements from Payless to their mobile telephones, was dismissed when this Court entered a Final Judgment and Order of Dismissal with Prejudice approving the parties' final settlement on April 2, 2012. Id. In each case, National Union denied coverage under the umbrella liability policies, declined to defend the Defendants in the lawsuits, and "rejected any claim for indemnity for liability" incurred as a result of the suits. Compl. ¶¶ 12-13.

Defendants contend that "[u]nder Kansas law, both of the [u]nderlying [l]awsuits are covered under the Policies as 'Personal Advertising Injury' and 'Property Damage.'" Defs.' Opp. 5. As such, Defendants sought coverage for the two suits in 2010 from National Union, as well as from two other insurers. In the ensuing months, the two parties engaged in ongoing discussions regarding the coverage dispute. On April 18, 2011 Defendants sent a letter to National Union reiterating itsposition that Kansas law would resolve the insurance dispute in its favor, rendering Plaintiff responsible for the full costs of the class action settlements. See Decl. of Robert Sacks ISO Defs.' Opp. (Docket No. 45) ("Sacks Decl."), Exhibit E. The letter went on to warn Plaintiff that:

"[u]nless National Union, within three weeks from the date of this letter, accepts our previous settlement offer...[REDACTED]...the offer will be withdrawn and the price of resolving these coverage issues amicably will increase. Furthermore, as you know, Payless has recently been impleaded by you, on behalf of Hartford, into the coverage action currently pending between Hartford and SmartReply relating to Clark. Now that you have made Payless a party to that case, Payless is currently considering impleading National Union into this same action, so that a complete resolution of coverage issues with respect to Payless can be obtained."

Sacks Decl. at 5 (emphasis added). The action referred to in this letter concerns a third lawsuit regarding coverage under the same insurance policies then pending in Washington State (the "Washington" litigation) between Payless' co-defendants in Clark and the co-defendants' insurers. Id. at 6. One day after receiving this letter, National Union filed the declaratory judgment action now pending before this Court. Defs.' Opp. at 6.

Even after the filing of the complaint, the parties continued to engage in settlement discussions. See Joint Stip. and Order Continuing CMC (Docket No. 32) at 2. Indeed, National Union twice stipulated to grant Defendants more time to answer the Complaint. See Stip. for Further Ext. of Time (Docket No. 14) at p. 2. Defendant ultimately answered the Complaint on August 18, 2011, four months after it had been filed, and on that same date filed a breach of contract and declaratory judgment action in the U.S. District Court for the District of Kansas seeking a determination of National Union's liability under the umbrella liability policies. See Defs.' Opp. at 7; Collective Brands, Inc. et. al. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 11-CV-4097-JTM/KGG, U.S. District Court, District of Kansas ("the Kansas litigation").

Nevertheless, the two parties continued to negotiate, with this Court referring the matter to private Alternative Dispute Resolution on Sept 21, 2011. See Order Referring Case to Prvt. ADR (Docket No. 24). Thereafter, the parties continued mediation, and last met on May 23, 2012, to discuss the claims in both this action and the Kansas action. Joint Stip. and Order Continuing CMC (Docket No.30) at 2; Defs.' Opp. at 7. On June 8, 2012 Plaintiff filed the motion asking this Courtto enjoin Defendants' Kansas litigation.

III. DISCUSSION

A. First-to-File Rule

National Union's motion urges the Court to enjoin Defendants' prosecution of the Kansas litigation on the basis of the "first-to-file" rule. The "first-to-file" rule is a "generally recognized doctrine of federal comity which permits a district court to decline jurisdiction over an action when a complaint involving the same parties and issues has already been filed in another district." Pacesetter Systems, Inc. v. Medtronic Inc., 678 F.2d 93, 94-95 (9th Cir. 1982). The purpose of this well-established rule is to promote efficiency and to avoid duplicative litigation and thus it "should not be disregarded lightly." Alltrade, Inc. v. Uniweld Prod., Inc., 946 F.2d 622, 625 (9th Cir.1991) (citing Church of Scientology v. United States Dep't of the Army, 611 F.2d 738, 750 (9th Cir.1979)). However, "the trial court's discretion tempers the preference for the first-filed suit, when such preference should yield to the forum in which all interests are best served." Genentech, 998 F.2d at 938 (citing Kerotest, 342 U.S. at 184). A court's decision to depart from this general rule must present a "sound reason that would make it unjust or inefficient to continue the first-filed action." Id.

Courts examine three factors in deciding whether to apply the first-to-file rule: (1) the chronology of the two actions; (2) the similarity of the parties involved; and (3) the similarity of the issues at stake. Alltrade, Inc., 946 F.2d at 625-26. The issues and parties in the first and second action need not be identical, but "substantially similar"in order for the rule to apply. Inherent v. Martindale-Hubbell, 420 F. Supp. 2d 1093, 1097 (N.D. Cal. 2006) (quoting Dumas v. Major League Baseball Properties Inc., 52 F. Supp. 2d. 1183 (S.D. Cal. 1999), vacated on other grounds by, 104 F. Supp. 2d 1224 (S.D. Cal. June 21, 2000) aff'd, 300 F. 3d. 1083 (9th Cir. 2002)). The first factor requires that one action be filed meaningfully prior to the other. See e.g. Guthy-Renker Fitness, L.L.C. v. Icon Health &Fitness Inc., 179 F.R.D. 264, 270 (C.D. Cal. 1998) (explaining that where the first action was filed approximately three months before the second, the chronology factor was satisfied). Courts have declined to apply the rule where the time between the actions is relatively short because the two actions will not necessarily have progressed to different stages. See Z-Line Designs, Inc. v. Bell'O Int'l LLC, 218 F.R.D. 663, 665 (N.D. Cal. 2003) (concluding that where theinitial action was filed only two days before the second, the importance of the earlier filing date was diminished); see also, Recoton Corp. v. Allsop, Inc., 999 F. Supp. 574, 577 (S.D.N.Y. 1998) (refusing to apply the first-to-file rule where two days separated the two actions); Riviera Trading Corp., 944 F. Supp. 1150, 1159 (S.D.N.Y. 1996) (not applied when four days separated the filings); Capitol Records, Inc. v. Optical Recording Corp., 810 F. Supp. 1350 (S.D.N.Y. 1992) (not applied when 20 days separated filings).

The second factor, that the parties in both actions are "substantially similar," has been held to include a number of plaintiff-defendant configurations that are not identical across the two actions. See Microchip Technology, Inc. v. United Module Corp., 2011 WL 2669627, at *3 (N.D. Cal. July 7, 2011). The court in Microchip Technology, found that parties to litigation were "substantially similar" where a party to the second action was not named in the first action, but was a wholly-owned subsidiary of a defendant in the first action, and "presumably" could be added to the initial action. Id.; see also British Telecommunications plc. v. McDonnell Douglas Corp., No. C-93-0677 MHP, 1993 WL 149860, at *4-5 (N.D. Cal. 1993) (...