Monzo v. Bazos
Opinion of the Court
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.
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 *629New 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
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.
Disagreement over the meaning of at least two paragraphs in the MOU-"Termination of Relationship"
Defendant Bazos moves to dismiss, stay, or transfer this case to the S.D.N.Y.
• 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;
• under28 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;
• under28 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. ,
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 ,
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.
[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 remedy. As a matter of simple logic, however, the rule does not carry the same force when (1) different parties are involved, (2) the underlying dispute involves similar but not identical issues, and (3) the controlling law is from different jurisdictions. Any relationship between such cases is necessarily more attenuated. Faced with that scenario, courts import § 1404 [governing Change of Venue] into the analysis, implicitly recognizing the weakness of the relationship between cases.
In my view, clarity is served by explicitly recognizing a two-tiered approach to the first-filed rule. In truly related cases, transfer to the jurisdiction with the first-filed case should be presumed. Otherwise, the existence of an earlier-filed case that is similar, but not identical, should be a relevant, but not controlling, factor to consider as part of § 1404 transfer analysis.
This case raises an additional threshold question under the first-filed rule: in deciding which case was filed first, should courts credit the date a case was filed in state court, or the date it was removed to federal court? The Third Circuit has not ruled on this issue and district courts in the circuits are split. For reasons set out below, I conclude that it is the date of filing in state court, rather than the subsequent removal date, that matters for purposes of the first-filed rule.
Many courts in this district and around the country credit the filing date of a state *632action rather than its date of removal for purposes of the first-filed rule. See, e.g. , Unlimited Tech., Inc. v. Leighton ,
Not only does the weight of authority support crediting the state filing date, but I find the reasoning behind those decisions highly persuasive. As Judge Savage succinctly stated:
How a case is treated after removal warrants relying on the state filing date. Once a case is removed, the federal court takes it as it is. The case proceeds as if it originally had been brought in the federal court. It does not start anew. The district court gives effect to state court rulings made prior to removal.
The removal petition relates back to the date the state court action was filed. Repleading is not necessary. The time within which the removing defendant must answer the complaint is calculated from the date the initial pleading in state court was served. See Fed. R. Civ. P. 81(c)(2). Likewise, the statute of limitations is tolled upon filing the state court action even if the action was removed after the limitations period had expired.
... The better approach is to relate the removal date back to the state court filing date.
Unlimited Tech. ,
Defendant Bazos is correct that several courts have held originally filed federal actions take precedence over subsequently removed actions even though the removed state court case was filed earlier-specifically, Just Born, Inc. v. Summit Foods Enterprises , No. CV 13-7313,
*633and North American Communications, Inc. v. Homeowners Loan Corp. , No. CV 3; 2006-147,
The Eastern District cases relied on a single footnote in Homeowners , a Western District case. That Western District case, in turn, relied on the Third Circuit's opinion in E.E.O.C. , which did not in any respect address the treatment of state cases under the first-filed rule. See Homeowners ,
I also disagree with the rationale of those cases insofar as they would disregard the plaintiff's choice of forum. The Homeowners Court acknowledged that, under its interpretation of the rule, "for all practical purposes, the onus is upon the competing parties to file their respective civil actions first in a federal district court."
A. The first-filed rule applies because this case and the S.D.N.Y. case are truly related.
Because both parties assumed state filing dates are irrelevant, my contrary holding has the practical effect of rendering their briefs patently unhelpful to their respective positions.
These two cases are "truly related" because the central issue in both is the interpretation of the parties' MOU. In short, two men are suing each other in different states over the same business dispute. Nearly all of the claims here and in the S.D.N.Y. case hinge on the same substantive questions of contract interpretation: did (and do) either party's actions relating to CrowdRx-Pa violate the MOU or the Shareholders' Agreement? If the MOU was self-executing, it supersedes all previous written agreements, including the Shareholders' Agreement, and Bazos is now the sole owner of the CrowdRx trademark, website, and certain assets.
The MOU forms the foundation for all of Bazos's claims: declaration of ownership of the trademark (Count I), trademark infringement under Sections 32 and 43(a) of the Lanham Act (Counts II and III), violations of New York's business law (Counts IV and V), and his common law infringement and unfair competition claim (Count VI). See S.D.N.Y. Compl. ¶¶ 38-105. The MOU interpretation likewise determines nearly all of Monzo's claims: misappropriation of trade dress (Count I), trademark infringement under Section 43(a) of the Lanham Act (Count II), misappropriation of assets (Count III), request for declaratory judgment relating to Mysteryland and Electric Zoo (Count IV),
Although the parties named their claims differently and invoked the laws of different states, the cases' substantive overlap reveals that they do more than "raise[ ] similar issues"-they raise a single, identical issue. See Landau ,
Any assertion that the first-filed rule does not apply because the cases "do not involve the same parties" rings hollow.
B. Under the rule, this action is the first-filed.
As explained above, I hold that Monzo's prior filing in state court, rather than the date on which Bazos removed it to this Court, is relevant for the first-filed rule analysis. Perhaps anticipating such a ruling, Bazos correctly points out that Monzo did not add his trademark claims to the state action until after Bazos filed the S.D.N.Y. action. Mot. Dismiss 5, 7 n.6. Bazos seems to imply that, when Monzo's case was initially filed, it was not substantially similar to Bazos's (later-filed) S.D.N.Y. case. While it is true that Monzo's most recent amendment created greater overlap between the claims made in the two cases, it did not mark the moment at which the two cases became related. Rather, by January 25, 2017-after the MOU was signed and well before Bazos filed in New York-Monzo had placed the MOU (and its interpretation) squarely at issue in the state case. See Pl.'s Del. Cnty. (First) Am. Compl. ¶¶ 34-42 and accompanying Second Motion for Emergency Equitable Relief ¶¶ 32-40.
Like the current Complaint, Monzo's January 2017 Complaint alleged that Bazos had locked Monzo out of CrowdRx-Pa's website, email, and Google Docs account-all in contravention of the Shareholders' Agreement, the parties' May 10, 2016 stipulation, and the MOU, which incorporated both. See
C. No exception to the first-filed rule applies.
Although "appropriate circumstances justify departure from the first-filed rule," there is no evidence or even argument here that "such extraordinary circumstances exist." See D & L Distrib. ,
Analyzing the substance and evolution of the parties' respective cases, I find that they are related and the first-filed rule thus applies. And, in light of the weight of authority and policy considerations, I consider Monzo's state filing date and hold that his case was the first-filed so that neither dismissal nor transfer to New York is appropriate.
*637III. Bazos's Remaining Grounds for Dismissal/Transfer
Bazos moves to dismiss or transfer this case on several additional, related grounds.
A. Several of Bazos's grounds for transfer and dismissal fail because they assume that the case's central issue has already been decided in his favor.
Most of Bazos's remaining requests for dismissal or transfer rely on his assertion that CrowdRx-Pa has ceased to operate pursuant to the MOU. See, e.g. , Mot. Dismiss 15-16 ("Monzo has also agreed that CrowdRx-Pa ceased to operate as of March 31, 2016 and that it no longer has any customers since the customers have been divvied up between the principals."). Monzo, of course, disputes this. See Pl.'s Resp. 5-6 ("[CrowdRx-Pa] continues as an operating entity in order to service [its] contractual obligations."). As discussed above, the status and ownership of CrowdRx-Pa, as determined by the interpretation of the MOU, is the crux of both pending cases. Bazos thus asks the Court to dismiss Monzo's Complaint by assuming the key issue has already been decided in Bazos's favor. I must decline to do so
B. Bazos has not shown that CrowdRx-NY is a required party under Rule 19.
I am likewise not persuaded that, in choosing to name Bazos as a defendant, and not Bazos's company, CrowdRx-NY, Monzo has failed to name a required party under Rule 19(a). See Mot. Dismiss 14. Rule 12(b)(7) provides for dismissal for failure to join a "required party," as outlined Rule 19(a). As the party advocating for joinder of CrowdRx-NY, Bazos has the burden of showing that it is a required party. See Feuerstein v. Simpson ,
C. Monzo may amend his outdated caption.
Bazos points out that Monzo's current Complaint purports to bring an action "on behalf of CrowdRx-Pa," yet does not comport with the Rule 23.1 pleading requirements for derivative actions. Mot. Dismiss 19. Monzo responds that the caption is merely a "carryover" from the Delaware County case, and that this case is now a direct action. He seeks leave to amend the *638caption, which I now grant. I will deny this portion of Bazos's motion as moot.
The timeliness of the removal has not been raised.
Monzo's claim for declaratory judgment alleges that Bazos misrepresented his relationship with two clients (Mysteryland and Electric Zoo) during the MOU process. The indemnification claim seeks a court order that Bazos must indemnify Monzo against any fines by a regulatory agency and any judgment arising from the "Sky Medical action" (in which Bazos is a defendant). Pl.'s Second Am. Compl. ¶¶ 132-139 (referencing the Sky Medical complaint, ECF No. 4-9).
It read: "All agreements by and between the parties, whether oral or written, shall terminate immediately upon the execution of [the Definitive Documents] ... [which] shall include the terms and conditions set forth in this non-binding term sheet. The separation of the parties pursuant to the Shareholder's Agreement is effective for financial and operational purposes as of March 31, 2016. ('The Effective Date')".
It read: "This Term Sheet is a binding agreement on any Party to proceed with the transactions contemplated hereby and will not impose any obligation or liability on any such Party if the transactions contemplated herein are not consummated. Any such agreement will be made only if and when definitive documents containing such agreements are agreed to and executed ...".
My colleague in New York has stayed the S.D.N.Y. case pending this decision.
In my research, I identified an additional case from this district, not cited by Bazos, holding the same: Hemmerich Indus., Inc. v. Courtland Mfg. , No. CV 87-8272,
See PhotoMedex, Inc. ,
For scriptural scholars, the situation mirrors that of Haman and Mordecai. 7 Esther
Bazos writes: "The first-filed rule applies because the two actions are substantially related. The gist of the ... New York action is ownership and infringement of a federally registered trademark brought by the registered trademark owner. Likewise, the gravamen of this case is ownership and infringement of a purported trade dress that includes the very same trademark" and "both cases involve the subsequent termination of [CrowdRx-Pa] and issues regarding the interpretation and enforcement of the MOU." Def.'s Mot. Dismiss 7.
Monzo argues in the alternative that, even if the first-filed rule does apply, the S.D.N.Y. case (assuming it is deemed first-filed) falls into an exception because Bazos's filing was "in bad faith, forum shopping and an example of gamesmanship." Pl.'s Resp. 6-7. Because I now hold that Monzo's case was first-filed, this argument is irrelevant.
I cannot reconcile these facts with Plaintiff Monzo's assertion that Bazos's trademark claims "in the New Yrok [sic] action do not relate to breaches of the Shareholder's Agreement, the MOU or the duties owed by Bazos." Pl.'s Resp. 6.
Unlike the other claims, which turn on whether the MOU was self-executing, this claim will require the Court to determine whether Bazos misrepresented his relationship with these clients in the MOU. See Pl.'s Am. Compl. ¶¶ 132-135, ECF No. 4; MOU at 2 "Distribution of Assets").
The MOU includes a detailed distribution of CrowdRx-Pa's assets but, regarding the corporation's liabilities, says only that they will be "agreed upon following Audit." MOU 2. Therefore, even if the MOU were self-executing, it apparently would not resolve the question of liabilities like the Sky Medical litigation (and any indemnification for it), which seems to have existed at the time the MOU was signed. I will not attempt to further dissect Monzo's indemnification claim at this stage. I instead hold that, to the extent that the indemnification claim arises from questions different from those that underlie the other claims, the cases remain genuinely related. (This Count is mistakenly labeled and is in fact the fifth claim alleged.)
Consistent with the now-flipped briefings, it is Monzo who makes this argument. See Pl.'s Resp. 7.
For example, Monzo attached to his emergency motion a Dec. 30, 2016 email from his attorney, Patrick Henigan, to Bazos's counsel: "The NES people [a group of Monzo's employees] have been completely cut off from email and the website is not compliant with the [MOU].... Please instruct Dr. Bazos ... to immediately restore the site so that it is consistent with the [MOU].".
Not only do Rules 12(b)(6) and (7) require me to construe all facts in favor of the plaintiff, see Jurimex Kommerz Transit G.M.B.H. v. Case Corp. ,
Reference
- Full Case Name
- Carl MONZO, individually and on behalf of CrowdRx, Inc. v. Andrew BAZOS, M.D.
- Cited By
- 6 cases
- Status
- Published