Judges stick with first-filed rule in jurisdictional dispute

WHEELING – A Minnesota fireplace manufacturer did not engage in “anticipatory forum-shopping” when it sued a Wheeling distributor in March, a federal judge has decided.

U.S. District Judge John Preston Bailey on Jan. 8 ordered the transfer of J&M Distributing’s lawsuit against Hearth & Home Technologies to a Minnesota federal court in which HHT first filed suit against J&M.

J&M sued HHT in May in Wheeling federal court, two months after HHT had sued J&M in Minnesota.

J&M is alleging that HHT is using a retailer to sabotage J&M’s sales in its agreed-upon territories – parts of Western Pennsylvania, Western Maryland, Eastern Ohio and West Virginia.

“The (U.S. Court of Appeals for the Fourth Circuit) adheres to the first-filed rule, which holes that when similar lawsuits are filed in multiple for a, the first suit has priority ‘absent the showing of balance of convenience in favor of the second action,’” Bailey wrote.

“This court is persuaded that the District of Minnesota is the appropriate venue for the case. The Minnesota lawsuit was filed prior to the instant case and the two cases involve the same parties and legal issues.”

Bailey wrote that he found no compelling circumstances to deviate from the first-filed rule. The Minnesota court had claimed ownership of the dispute on Nov. 30 with a memorandum opinion that held the first-filed rule applied.

In applying the rule, Bailey said he was required to dismiss, stay or transfer J&M’s suit. In this case, transfer was appropriate.

J&M claims HHT has provided its products at a cheaper price to a retailer known as The Fireplace despite a good working relationship spanning more than 20 years.

“Beginning in late 2009 or early 2010, The Fireplace’s business had suffered due to the downturn in the economy and its impact of home building,” the complaint says.

“In response, The Fireplace and HHT began an agreed-upon and concerted campaign to sabotage sales by J&M and its dealers in order to expand The Fireplace’s sales generally and its territorial footprint in competition with J&M and its dealers.

“The object of this agreed-upon campaign was to first diminish and then eliminate J&M and its dealer network as effective competitors to The Fireplace.”

On May 27, 2011, J&M notified HHT that it had retained counsel to investigate HHT’s recent conduct from antitrust and unfair competition perspectives.

After the two sides could not reach an agreement, HHT told J&M that their relationship would end on May 31, 2012. The same day, HHT filed its Minnesota lawsuit.

Its lawsuit sought a declaratory judgment ratifying and enforcing the termination of the parties’ distribution relationship and declaring that HHT did not violate J&M’s rights or applicable law during the term of that relationship.

“J&M’s primary argument is that HHT’s complaint amounts to a race to the courthouse and impermissible forum shopping,” Minnesota federal judge Susan Richard Nelson wrote on Nov. 30.

“HHT responds that because J&M filed a lawsuit in the Northern District of West Virginia ‘[b]oth sides clearly agree – and their acts of filing complaints demonstrate – that there is a real, immediate and justiciable dispute concerning the parties’ conduct leading up to and resulting in J&M’s termination as a [HHT] distributor.’

“The Court agrees. Subject matter jurisdiction exists over the claims asserted by HHT under the Declaratory Judgment Act.”

From the West Virginia Record: Reach John O'Brien at jobrienwv@gmail.com.