Whaley v. Esebag

• Decision Date: 28 August 2020
• Docket Number: No. 5:18-CV-05123,5:18-CV-05123
• Parties: JUSTIN WHALEY, et al. PLAINTIFFS v. JIMMY ESEBAG, et al. DEFENDANTS
• Court: U.S. District Court — Western District of Arkansas

JUSTIN WHALEY, et al. PLAINTIFFS v. JIMMY ESEBAG, et al. DEFENDANTS

No. 5:18-CV-05123

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS FAYETTEVILLE DIVISION

August 28, 2020

OPINION AND ORDER

Before the Court is Defendants' motion (Doc. 47) to dismiss or stay and brief (Doc. 48) in support. Plaintiffs filed a response (Doc. 49) in opposition. Defendants filed a reply (Doc. 53) with leave of Court. The motion to dismiss will be granted.

This case arises out of a contract dispute and was originally filed in this Court on June 26, 2018. Plaintiffs in this action are Justin Whaley, Rodney Redman, Ron Whaley, M. Sean Hatch, Michael Bahn, Jodie Daniels, and Tom Maddi. The Court will refer to Plaintiffs collectively as the "Gyde individuals," after The Gyde Group, LLC, a company with which they are affiliated and that is connected with the disputed contract. Defendants in this action are Jimmy Esebag and his wholly-owned company United Licensing Group, Inc. The Court will refer to Defendants collectively as "Esebag." Another case is proceeding in California. Esebag v. Whaley, et al., No. 2:18-CV-08446-JAK-RAO (C.D. Cal.) (the "California action").¹ The California action was opened in federal court October 1, 2018, upon the removal of a case filed January 12, 2018, in the Superior Court of California, County of Los Angeles. Esebag's motion argues that the case in thisCourt should be dismissed or stayed on the basis of the first-filed rule so that the parties may complete litigation of the California action.

In parallel cases of concurrent jurisdiction, the first court in which jurisdiction attaches has priority to hear the case. Nw. Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1007 (8th Cir. 1993). This "first-to-file" or "first-filed" rule is a facet of federal comity doctrine and is intended to promote efficient use of judicial resources. Orthmann v. Apple River Campground, Inc., 765 F.2d 119, 121 (8th Cir. 1985). The first-filed rule is not applied in a "rigid, mechanical or inflexible" fashion, but rather "in a manner best serving the interests of justice." U.S. Fire Ins. Co. v. Goodyear Tire & Rubber Co., 920 F.2d 487, 488 (8th Cir. 1990) (quoting Orthmann, 765 F.2d at 121). If compelling circumstances exist, the court which obtained jurisdiction later may decide the controversy. Nw. Airlines, Inc., 989 F.2d at 1005. "A party may demonstrate compelling circumstances by showing that the first action was filed in bad faith, that in the first-filed action the plaintiff raced to the courthouse to avoid litigating in another forum, or that the second action has developed further than the first." Nw. Airlines, Inc. v. Am. Airlines, Inc., 792 F.Supp. 655, 658 (D. Minn. 1992) (citations omitted), aff'd, 989 F.2d 1002 (8th Cir. 1993); accord Boatmen's First Nat'l Bank of Kan. City v. Kan. Pub. Emps. Ret. Sys., 57 F.3d 638, 641 n.7 (8th Cir. 1995) ("We commend the district court's order in Northwest Airlines, 792 F.Supp. 655, as an excellent example of the type of inquiry, analysis, and articulation of reasoning necessary for appellate review in cases such as this.").

With all of the various consolidations that have occurred and claims and counterclaims that are pending in the California action, there is at least substantial overlap in the identity of the parties and the substance of the claims in the California action and this case, and the actions are sufficiently parallel for application of the first-filed rule. Ritchie Cap. Mgmt., L.L.C. v. BMOHarris Bank, N.A., 868 F.3d 661, 664 (8th Cir. 2017) (explaining only substantial overlap is necessary to apply abstention doctrines when parallel cases are pending in federal courts).

Subject matter jurisdiction attached in this Court when the case was filed on June 26, 2018. Subject matter jurisdiction attached in the California action when the case was filed in the Superior Court of California, County of Los Angeles, on January 12, 2018.² See Wakaya Perfection, LLC v. Youngevity Int'l, Inc., 910 F.3d 1118, 1125 (10th Cir. 2018) (using filing date of state court action in removed cases when applying first-filed rule to prevent gamesmanship) (citing Kohn Law Grp., Inc. v. Auto Parts Mfg. Miss., Inc., 787 F.3d 1237, 1240 (9th Cir. 2015)). The California action is the first-filed case, so in the absence of compelling circumstances, this Court should yield to the Central District of California.

The circumstances in this case are not sufficiently compelling to avoid application of the first-filed rule. There is no question that Esebag has engaged in acts of bad faith in connection with litigating the California action. Esebag initially obtained service on some of the Gyde individuals in the California action through deception. Esebag did not disclose to those parties that he had filed a lawsuit against them, and lulled them into traveling to California on the pretext of settling their dispute, only to have them personally served with process. There is no evidence before this Court to indicate that Esebag's claims in the California action are intended for an improper purpose or are frivolous,³ however, and California is a reasonable venue to litigate—Esebag is a California citizen and the contract includes a choice of law provision selecting California law as controlling. Disingenuous tactics of parties or counsel notwithstanding, the Court cannot find that Esebag filed the California action itself in bad faith.

Nor can the Court characterize the California action as having arisen out of a race to the courthouse or an attempt to deprive the Gyde individuals of their chosen jurisdiction as Plaintiffs in this case. Esebag hid the existence of the California action to obtain service on the Gyde individuals, and Esebag had previously threatened the Gyde individuals with litigation. There is no evidence, however, that the Gyde individuals had threatened Esebag with imminent litigation before he filed the California action. Furthermore, Esebag began the California action as a breach of contract action for damages, rather than as a declaratory judgment action seeking to avoid claims by the Gyde individuals that Esebag was in breach. Finally, none of the circumstances surrounding the contract suggests that the parties believed Arkansas would be the primary venue in which disputes were to be resolved. Esebag may have been more eager than the Gyde individuals to litigate their disagreement, but that is not the sort of race to the courthouse that weighs against application of the first-filed rule.

Finally, in no sense has this case developed further than the California action. Initially, this Court incorrectly ruled that it could not exercise personal jurisdiction over Esebag. The Gyde individuals prevailed on their appeal, and the matter was remanded. A scheduling order was then entered, an attorney was withdrawn, and additional pleadings were filed. Five months later, the instant motion was filed. Meanwhile, during the pendency of the appeal in this case, the parties continued to litigate the California action. Discovery has been exchanged in the California actionand various merits and evidentiary motions are awaiting a ruling in that court. A motion has also been filed to set a trial date as soon as practicable for the California action, and a hearing on that motion is noticed for November 30, 2020. Conversely, no discovery appears to have taken place in this case. Though the Gyde individuals recently secured an email agreement from Esebag that expert disclosures from the California action could be used in this case, and the parties have discussed whether they should also use other discovery from the California action...