It can matter who files first: the race to the courthouse has allure in Law 75 cases

Should I file first or wait to get sued and defend or respond? Aside from the legal merits of claims or defenses, there are procedural advantages to the first-filed rule and that rule is that federal courts in different jurisdictions may, but not always, defer to the first-filed case in parallel cases as a matter of courtesy and convenience. Abstention doctrines come into play when there are parallel state and federal cases. There is no certainty about the application of the rule as one court may decide to keep a case despite the first-filed rule and another may not be persuaded to transfer it on grounds of alleged inconvenience. This increases the risk of inter-jurisdictional conflicts.

One would think that filing first would be a wise strategy at least when you know that your client will get sued or where you want the benefit of a presumptive more convenient or favorable forum. You may still end up defending in two jurisdictions if both courts refuse to transfer their respective actions, but at least you have one forum of your choice.

This is what the supplier must have thought in Ace Hardware Int’l Holdings Inc. v. Masso Expo Corp., 2012 WL 182236 (N.D. Ill. Jan. 23, 2012) when it sued the Puerto Rico distributor for declaratory judgment in federal court in Illinois. Instead of counterclaiming in the Illinois action, Masso, the distributor, responded with a Law 75 action against Ace in federal court in Puerto Rico. 2011 WL 5525381 (D.P.R. Nov. 14, 2011). The case in Illinois was filed first and months before the Puerto Rico action. Still, the federal court in Puerto Rico (Gelpí, J. adopting Vélez Rivé’s recommendations) denied a motion to transfer the parallel action to Illinois.

For its part, the federal court in Illinois was not moved to reconsider its ruling refusing to transfer the parallel action to Puerto Rico. First, it held that, the fact that Puerto Rico law applies is not sufficient to transfer and there is no choice of law provision mandating litigation in Puerto Rico or for that matter, in Illinois. Second, the court disagreed with the Puerto Rico Magistrate Judge’s dictum that Law 75 prohibited litigation of Law 75 claims outside of Puerto Rico courts and distinguished the permissive forum selection clause at issue in the agreements that would not offend Section 278(b) as opposed to mandatory forum-selection clauses that arguably would, but cites to numerous authorities enforcing mandatory forum-selection clauses in Law 75 disputes. While the Illinois court was careful not to cast blame on the Puerto Rico court for refusing to transfer, reading between the lines and citing a case transferring a Puerto Rico case to Texas based on the first-filed rule and Section 1404(a), the court found a way to disagree and keep the action in Illinois. Finally, the court also disagreed with the distributor’s pleas of inconvenience retorting that it was of its own making for having filed the Puerto Rico action instead of filing counterclaims in the Illinois action.

First-filed action in Puerto Rico plays a strategic role to oppose successfully a motion for change of venue of a Law 75 case to Ohio courts

Plaintiff is a distributor of industrial safety products and operates a chain of retail outlets under the “Safety Zone” brand. Defendants are various Ohio corporations that manufacture, distribute, and operate retail stores under the “Lehigh Outfitters” brand. After various acquisitions, plaintiff became the successor in interest or assignee of an exclusive distribution agreement of Georgia Boot and Dickies products in Puerto Rico.

Defendants’ sales of products within the exclusive territory of Puerto Rico provoked a Puerto Rico distributor to file an action in federal court in Puerto Rico for impairment and termination damages under Law 75 and a claim for abuse of process under the Civil Code. New York Wiping and Industrial Product Company v. Rocky Brands, Inc., 2009 WL 2843336 (D.P.R. Aug. 31, 2009)(JAF).

One day later, defendants aggressively countered plaintiff’s lawsuit with a notice of termination of the agreement and a few days later with an action for trademark infringement and unfair business practices filed in Ohio state court and since removed to Ohio federal court.

In the Puerto Rico action, defendants moved for dismissal or transfer, and the court denied the motion. “Where the parties have filed two actions in separate districts, however, and the actions are nearly identical, the first-filed action is generally preferred in a choice of venue decision." The court noted an exception to the first-filed rule in special circumstances when one party misleads the other not to file suit in anticipation of negotiation, an exception which defendants relied upon. The court, however, found no basis to apply the rule or the exception as the two cases were not identical. Thus, defendants were unable to rebut the strong presumption under federal law favoring plaintiff’s choice of forum in Puerto Rico, noting that “[d]efendants' ownership and operation of retail businesses within Puerto Rico precludes the possibility of inconvenience in litigating here.” On another note, the court dismissed sua sponte and with prejudice plaintiff’s abuse of process claim presumably from the litigation in Ohio as unripe and conjectural.