United States District Court, E.D. Pennsylvania
March 11, 2015
CTI SYSTEMS SA, Plaintiff,
HERR INDUSTRIAL, INC., Defendant.
LAWRENCE F. STENGEL, District Judge.
This dispute spans two states and two continents. CTI Systems is a Luxembourg corporation. Herr Industrial is a Pennsylvania corporation. CTI has asked this court to recognize and enforce a default judgment from a Luxembourg court against Herr under the Pennsylvania Uniform Foreign Money Judgment Recognition Act. The Luxembourg judgment pertains to a breach of a construction contract between CTI and Herr. The construction project is in Kansas. Prior to this suit being filed, Herr filed a federal action in the U.S. District Court of Kansas. Herr moves to dismiss the case without prejudice or, in the alternative, transfer venue under the "first-filed rule." CTI claims this action is distinct from the Kansas action. For the reasons stated below, I will dismiss this case without prejudice.
a. Facts Alleged in This Action
On December 13, 2011, CTI entered into a contract with Herr regarding a painting installation in Hesston, Kansas. Herr was to provide supplies and labor. CTI was to pay Herr $5, 200, 000.00. The contract included a choice of law provision stating that the laws of Luxembourg applied and that the parties agreed to submit to the exclusive jurisdiction of Luxembourg.
On July 6, 2012, CTI and Herr signed an Addendum to the contract because Herr was having difficulty paying its subcontractors. CTI agreed to pay Herr's subcontractors directly under the Addendum; however, these payments would exclude the 7% management fee owed Herr for work it had done to manage those subcontractors. Herr sent a number of "purchase orders" to CTI for direct payment. Herr signed a "revised purchase order 56258PPR" of December 14, 2012, which stated that CTI paid out $2, 738, 395.99 on behalf of Herr. These payments reduced the contract price from $5, 200, 000.00 to $2, 461, 604.01. On December 21, 2012, CTI sent Herr another "revised purchase order 56258PPR" which allegedly corrected the amount of payments. The December 21, 2012 purchase order showed $2, 819, 483.71 in payments, reducing the contract price to $2, 380, 516.29. Herr did not countersign the December 21, 2012 purchase order. On January 11, 2013, Herr signed a "Contractor's affidavit, partial waiver and release of lien upon progress" stating that the total contract price owed Herr was $2, 380, 516.29. CTI allegedly paid Herr $2, 513, 582.55.
On February 13, 2013, Herr allegedly "walked off the job" before completing its contractual work. Herr allegedly did not pay other subcontractors. CTI paid those contractors an additional $321, 419.90. Herr then submitted three invoices to CTI, totaling $73, 049.21. One invoice for $11, 826.71 corresponded to a debt owed Herr's subcontractor which CTI already had paid. CTI refused to pay Herr's last three invoices, claiming that Herr had breached their agreement. CTI alleged that it had overpaid Herr by $393, 263.66.
On July 29, 2013, Herr filed a lien in Kansas on the property on which the construction project was located. This lien related to moneys owed by CTI for labor, equipment, material, and supplies in the amount of $80, 639.21. On December 19, 2013, CTI posted bond in the amount of $121, 000.00 to clear the Kansas property of the lien. That bond serves as replacement collateral for the lien in the event a court enters an award connected to the lien.
On April 21, 2014, CTI brought a claim for overpayment in the District Court of Luxembourg. Herr was notified of this suit via registered mail, service of process, and an email to Herr's attorney. Herr was expected to appear before the Luxembourg Court on June 6, 2014. Herr did not appear. A judgment in favor of CTI was entered on July 11, 2014. The Luxembourg Court ordered Herr to pay $393, 293.66 plus interest and costs. On September 2, 2014, Herr was served a copy of that judgment. Herr did not appeal the decision. The appeal deadline expired.
On November 24, 2014, CTI filed suit in this court, requesting that the Luxembourg judgment be recognized and enforced under Pennsylvania's Uniform Foreign Money Judgment Recognition Act (UFMJRA), 42 P.S. §§22001-22009. In response, Herr moved to dismiss or transfer venue based on the first-filed rule.
b. Kansas Federal Action
On July 28, 2014, Herr had filed a breach of contract diversity lawsuit against CTI in the U.S. District Court for the District of Kansas (Wichita). See Herr Industrial, Inc. v. CTI Systems, SA, et al. (14-cv-1232 D.C. Kan.). AGCO Corporation, the owner of the construction project's property, and Old Republic Surety Company, the company which issued CTI's bond for the property lien, were also named as defendants. The Kansas complaint explained that CTI contracted with AGCO to build, supply, and install a paint workshop on AGCO's property in Hesston, Kansas. CTI then contracted with Herr to provide supplies and labor related to this project. Herr alleges that the last work required on the contracted was completed on February 28, 2013. Herr claims it was not paid $80, 639.21 under the contract.
On May 29, 2013, Herr filed a notice of extension for filing a mechanic's lien with the Kansas state court. This notice was sent to CTI and AGCO. On July 29, 2013, Herr filed a lien on the project's property for the $80, 639.21 it was allegedly owed under the contract. CTI posted a bond pursuant to Kansas law K.S.A. §60-1110 through Old Republic Surety Company in order to clear the lien.
On July 28, 2014, Herr filed an action in the District Court of Kansas (Wichita) against CTI, AGCO, and Old Republic Surety Company. Herr's original complaint alleged counts for breach of contract, quantum meruit/unjust enrichment, suit on bond, lien foreclosure, and a violation of the Kansas Fairness in Private Construction Contract Act (KFPCCA), K.S.A. §16-1806. The KFPCCA requires all payment disputes concerning construction projects in Kansas to be brought in Kansas courts. Herr did not execute service of this complaint on the defendants.
On October 17, 2014, Herr filed an amended complaint, adding more facts about its alleged damages. The First Amended Complaint also added a declaratory judgment count-asking the court to declare the Luxembourg default judgment invalid under the KFPCCA. Herr executed service of the first amended complaint on October 23, 2014. The defendants have requested and been granted three extensions to respond to the first amended complaint. On January 30, 2015, Herr filed a second amended complaint, with the consent of the defendants and leave of court. The defendants have not yet answered that complaint.
a. The First-Filed Rule Applies
When two actions regarding the same issue are pending before two federal courts with concurrent jurisdiction, the "first-filed rule" instructs the court of first-filing to decide the issue, absent extraordinary circumstances. See E.E.O.C. v. University of Pennsylvania , 850 F.2d 969, 971 (3d Cir. 1988)("In all cases of concurrent jurisdiction, the court which first has possession of the subject must decide it.")(quoting Crosley Corp. v. Hazeltine Corp. , 122 F.2d 925, 929-30 (3d Cir.1941)). "[T]his policy of comity has served to counsel trial judges to exercise their discretion by enjoining the subsequent prosecution of similar cases... in different federal district courts.'" E.E.O.C. , 850 F.2d at 971 (citations omitted). The first-filed rule serves to promote "sound judicial administration" and "comity among federal courts of equal ranks." Id.
It is clear that the Kansas Federal Action is the first-filed federal action. Herr's first amended complaint, which addresses the validity of the Luxembourg judgment, was filed on October 17, 2015, five weeks before this action.
CTI argues that the first-filed rule does not apply because the two courts "address discrete subjects." I disagree. Both actions ask the respective courts to determine whether the Luxembourg default judgment can be enforced against Herr.
While both courts would start at different timeline points in the dispute, both would end up in the same place: whether Luxembourg had jurisdiction over this dispute. The Kansas federal court would first need to determine whether the contract's choice of law provision could confer jurisdiction on a Luxembourg court. If the provision is enforceable, the Kansas court would then determine if the Luxembourg default judgment could be recognized and enforced against Herr.
Essentially, this is the same analysis this court would need to undertake. The UFMJRA only applies to conclusive judgments. A lack of personal or subject matter jurisdiction by a foreign court renders a foreign judgment "nonconclusive" under the UFMJRA. See 42 P.S. § 22005(2) and (3). Whether the Luxembourg court had jurisdiction would likely depend on the enforceability of the forum selection clause.
Furthermore, a decision in the Kansas federal action would leave little or nothing for this court to decide. See Grider v. Keystone Health Plan Ctr., Inc. , 500 F.3d 322, 333 n. 6 (3rd Cir. 2007)(explaining how a second suit is "truly duplicative" if a decision in the first suit would leave "little or nothing to be determined in the [second-filed suit]") (quoting Smith v. S.E.C. , 129 F.3d 356, 361 (6th Cir. 1997)). If Kansas finds the foreign judgment is enforceable, the parties' dispute is resolved. If the Kansas court finds that the Luxembourg judgment is not enforceable, the Kansas court can then resolve what the parties' rights are under the contract.
CTI argues that the Kansas Federal Action would leave it without an adequate remedy because Kansas has not adopted the Uniform Foreign Money Judgment Recognition Act. As a result, CTI claims that only a Pennsylvania court can recognize and give preclusive effect to foreign national judgments. Such a difference in law, CTI claims, distinguishes the two actions. Precedent shows otherwise. While Pennsylvania has enacted the UFMJRA, and Kansas has not, Kansas can still use traditional principles of comity and preclusion found in common law to enforce the foreign judgment. In Hilton v. Guyot , the Supreme Court instructed federal courts to recognize a foreign judgment if the judgment was rendering according to traditional American due process principles. 159 U.S. 113 , 202 (1895). "Nothing in Kansas statute or case law suggests that it would not follow the principles set out in Hilton v. Guyot ." Phillips USA, Inc. v. Allflex USA, Inc. , 77 F.3d 354, 359 (10th Cir. 1996)(citation omitted).
This action is duplicative of the Kansas Federal Action. The first-filed rule applies.
b. No Exception to the First-Filed Rule is Warranted
CTI argues that, even if the first-filed rule applies, I should make an exception to that rule because Herr is "forum shopping." "[R]are or extraordinary circumstances, inequitable conduct, bad faith, or forum shopping" may persuade a court to decline to follow the first-filed rule. E.E.O.C. , 850 F.2d at 972, 976. I am not persuaded that Herr's actions require an exception to the rule. Herr filed its action in Kansas, where both parties had submitted to jurisdiction based on their dealings with the construction project. The construction site was located in Kansas. There were arguments about whether Herr had adequately completed its performance on that site. It makes sense that Herr would have filed in the District of Kansas.
Making an exception and allowing this case to proceed could also undercut the very principles espoused in the first-filed rule. If I were to go forward and proceed with this claim while the Kansas court also litigated essentially the same issues, there is a risk that we could reach contradictory conclusions about the rights of the parties under their contract. "It is of obvious importance to all the litigants to have a single determination of their controversy, rather than several decisions which if they conflict may require separate appeals to different circuit courts of appeals." Crosley Corp. v. Hazeltine Corp. , 122 F.2d 925, 930 (3d Cir. 1941)(adopting the first-filed rule in the Third Circuit).
c. Dismissal is Most Appropriate
CTI argues that I should stay this case rather than dismiss it. According to CTI, it will eventually need to come back to this court to enforce the Luxembourg judgment under the Recognition Act. This is not a given. Assuming that the Kansas federal court finds the Luxembourg Judgment is valid, that court can just as easily recognize and enforce the Luxembourg judgment under principles of international comity. On the off chance that the Kansas federal court finds the Luxembourg judgment to be valid AND is unable to enforce that judgment, leaving CTI without a remedy, CTI can easily refile an action in this court. That refiling would need to include an explanation of the Kansas Federal Action, which is lacking in the current action's complaint. Information about the disposition of the Kansas Federal Action could then better inform this court about whether the Judgment should be enforced under the Pennsylvania UFMJRA. I find little reason to stay this case when the Kansas Federal Action will likely dispose of this dispute.
For the foregoing reasons, I will grant the defendant's motion to dismiss based on the "first-filed rule." This action will be dismissed without prejudice.
An appropriate Order follows.