Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-55023/USCOURTS-ca9-13-55023-0/pdf.json

Parties Involved:
Auto Parts Manufacturing Mississippi, Inc.
Appellee
Kohn Law Group, Inc.
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

KOHN LAW GROUP, INC., a

California corporation,

Plaintiff-Appellant,

v.

AUTO PARTS MANUFACTURING

MISSISSIPPI, INC., a Mississippi

corporation,

Defendant-Appellee.

No. 13-55023

D.C. No.

2:12-cv-08063-

MWF-MRW

OPINION

Appeal from the United States District Court

for the Central District of California

Michael W. Fitzgerald, District Judge, Presiding

Argued and Submitted

February 6, 2015—Pasadena, California

Filed June 4, 2015

Before: Michael J. Melloy,

*

 Jay S. Bybee,

and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Melloy

* The Honorable Michael J. Melloy, Senior Circuit Judge for the U.S.

Court of Appeals for the Eighth Circuit, sitting by designation.

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2 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

SUMMARY**

First-To-File Rule 

The panel affirmed the district court’s order staying

proceedings under the first-to-file rule in an action brought by

Kohn Law Group, Inc., under § 9607(a)(3) of the California

Commercial Code alleging it was entitled to payments Auto

Parts Manufacturing Mississippi, Inc., owed to a third party.

The first-to-file rule allows a district court to stay

proceedings if a similar case with substantially similar issues

and parties was previously filed in another district court.

The panel held that a Mississippi interpleader action was

a previously filed lawsuit involving substantially similar

parties and issues where the Mississippi action was filed first,

the present case involved substantially similar issues as the

Mississippi action, and the present case involved the issue to

be determined in the Mississippi action. The panel concluded

that the district court did not abuse its discretion by staying

the present action under the first-to-file rule.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 3

COUNSEL

Robert Kohn (argued), Kohn Law Group, Santa Monica,

California, for Plaintiff-Appellant.

Michael Matthias (argued) and Gabriel Drucker, Baker &

Hostetler, Los Angeles, California, for Defendant-Appellee.

OPINION

MELLOY, Circuit Judge:

Kohn Law Group, Inc. (Kohn Law) sued Auto Parts

ManufacturingMississippi, Inc. (APMM) under § 9607(a)(3)

of the California Commercial Code, alleging Kohn Law was

entitled to payments APMM owed to a third party. The

Central District of California stayed the proceedings, finding

the question presented was already being litigated by the

same or related parties in Mississippi. For the reasons stated

below, we affirm.

I

APMM hired Noatex Corporation (Noatex) as a general

contractor to construct an auto parts manufacturing facility in

Guntown, Mississippi. Noatex hired King Construction of

Houston, L.L.C. (King Construction) as a subcontractor. 

After construction began, Noatex alleged APMM owed

Noatex for goods and services provided under their contract. 

Noatex also questioned the validity and the amount of

invoices King Construction submitted for its construction

work under the subcontract.

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4 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

King Construction filed a “Stop Notice” pursuant to

Mississippi Code § 85–7–181 (repealed 2014) (Stop Notice

Statute). The Stop Notice Statute allows a subcontractor to

bind funds a project owner owes to a general contractor. 

King Construction sought to bind funds APMM owed to

Noatex. The Stop Notice also informed APMM that Noatex

allegedly owed King Construction $260,410.15 (the disputed

funds). Noatex then filed a declaratory action against King

Construction in the Northern District of Mississippi,

challenging the constitutionality of the Stop Notice Statute. 

Without deciding the parties’ rights to the disputed funds, the

Northern District of Mississippi found the Stop Notice Statute

unconstitutional. The Fifth Circuit affirmed.1

Kohn Law represented Noatex in the Stop Notice

litigation. To pay for legal fees, Noatex granted Kohn Law

a contractual lien on its receivables. Kohn Law asserts the

lien covers funds APMM allegedly owes Noatex.

Because it was worried about multiple, inconsistent

judgments relating to the disputed funds, APMM filed an

interpleader action in Mississippi state court on November

15, 2011. APMM listed Noatex and King Construction as

parties. Noatex removed the lawsuit to the Northern District

of Mississippi on December 5, 2011. On April 12, 2012, the

Northern District of Mississippi remanded the case back to

the Mississippi state court. Once APMM became aware of

Kohn Law’s lien, APMM filed a motion to amend the

interpleader complaint to add Kohn Law as a party. On

December 5, 2012, the Northern District of Mississippi

placed the case back on its docket, holding that it had erred

1 Noatex Corp. v. King Constr. of Hous., L.L.C., 732 F.3d 479, 487 (5th

Cir. 2013).

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KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 5

by remanding the case because APMM could have filed the

case in federal court.

Meanwhile, on September 18, 2012, Kohn Law filed the

present action against APMM in the Central District of

California pursuant to California Commercial Code

§ 9607(a)(3).2 Section 9607(a)(3) permits a secured party

(Kohn Law) to enforce obligations of a debtor (APMM) on

behalf of the holder of the debt (Noatex). APMM moved to

dismiss the complaint, or in the alternative, stay the

proceedings.

On December 11, 2012, the Central District of California

stayed the lawsuit, holding that the Colorado River3doctrine

and the first-to-file rule warranted a stay. The district court

stated Kohn Law was asking the Central District of California

“to short-circuit the ongoing Mississippi interpleader action

as to this $260,410.15 and award the funds to Kohn.” It

further noted that to “proceed with this action only would

multiply lawsuits, increase costs and prolong a final

determination.” Kohn Law appeals.

II

The first-to-file rule allows a district court to stay

proceedings if a similar case with substantially similar issues

2 Section 9607(a)(3) states “a secured party may . . . [e]nforce the

obligations of an account debtor or other person obligated on collateral

and exercise the rights of the debtor with respect to the obligation of the

account debtor or other person obligated on collateral to make payment or

otherwise render performance to the debtor.”

 

3 Colo. River Water Conservation Dist. v. United States, 424 U.S. 800

(1976).

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6 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

and parties was previously filed in another district court. We

review a decision to stay proceedings under the first-to-file

rule for an abuse of discretion. Pacesetter Sys., Inc. v.

Medtronic, Inc., 678 F.2d 93, 95 (9th Cir. 1982).

The first-to-file rule is intended to “serve[] the purpose of

promoting efficiency well and should not be disregarded

lightly.” Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622,

625 (9th Cir. 1991) (alteration in original) (quotingChurch of

Scientology v. U.S. Dep’t of the Army, 611 F.2d 738, 750 (9th

Cir. 1979)) (internal quotation marks omitted). When

applying the first-to-file rule, courts should be driven to

maximize “economy, consistency, and comity.” Cadle Co. v.

Whataburger of Alice, Inc., 174 F.3d 599, 604 (5th Cir.

1999). The first-to-file rule may be applied “when a

complaint involving the same parties and issues has already

been filed in another district.” Alltrade, 946 F.2d at 625

(citation and internal quotation marks omitted). Thus, a court

analyzes three factors: chronology of the lawsuits, similarity

of the parties, and similarity of the issues.4 See id.

Ordinarily, we start by analyzing which lawsuit was filed

first. But we need not analyze this issue here because Kohn

Law does not argue that the present case was filed first. And,

as asserted by APMM, both the Mississippi state court

4 Kohn Law argues that we should apply a different legal framework

“[w]hen reviewing an order staying or dismissing a second action.” Kohn

Law asks us to apply the same four factors that govern claim preclusion. 

Kohn Law relies on Adams v. California Department of Health Services,

487 F.3d 684 (9th Cir. 2007), abrogated in part by Taylor v. Sturgell,

553 U.S. 880, 904 (2008), to support its argument. In Adams, the Ninth

Circuit addressed a situation where a plaintiff filed a second, duplicative

action after a dismissal of her first action in the same court. Id. at 687–88. 

Adams did not consider or discuss the first-to-file rule.

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KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 7

complaint (November 15, 2011) and the removal to Northern

District of Mississippi (December 5, 2011) were filed before

the present case was filed in the Central District of California

(September 18, 2012). Because the parties do not dispute that

the Mississippi interpleader action was filed first, we assume

this requirement is met.

Regarding similarity of the parties, courts have held that

the first-to-file rule does not require exact identity of the

parties. See Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d

947, 951 (5th Cir. 1997); Herer v. Ah Ha Publ’g, LLC, 927 F.

Supp. 2d 1080, 1089 (D. Or. 2013); Intersearch Worldwide,

Ltd. v. Intersearch Grp., Inc., 544 F. Supp. 2d 949, 959 n.6

(N.D. Cal. 2008). Rather, the first-to-file rule requires only

substantial similarity of parties. See Harris Cnty., Tex. v.

CarMax Auto Superstores Inc., 177 F.3d 306, 319 (5th Cir.

1999); Adoma v. Univ. of Phx., Inc., 711 F. Supp. 2d 1142,

1147 (E.D. Cal. 2010) (citing Inherent.com v. MartindaleHubbell, 420 F. Supp. 2d 1093, 1097 (N.D. Cal. 2006)); see

generally Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d

93, 95 (9th Cir. 1982) (noting that the first-to-file rule should

not be applied “mechanically”).

Kohn Law argues that the parties are not substantially

similar here because a defendant in the Mississippi

interpleader action—KingConstruction—is not named in the

present action. We disagree. In Alltrade, Inc., 946 F.2d at

624 & n.3, 629, we affirmed a district court’s decision not to

hear a second-filed case under the first-to-file rule even

though the first-filed case contained a defendant not named

in the second case. A contrary holding could allow a party

such as Kohn Law to skirt the first-to-file rule merely by

omitting one party from a second lawsuit. We conclude that

the omission of King Construction from the present action

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8 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

does not defeat application of the first-to-file rule. Our

conclusion avoids awarding such gamesmanship and is

consistent with the policy of the first-to-file rule, which is to

maximize judicial economy, consistency, and comity. See

Cadle Co., 174 F.3d at 604.

The issues in both cases also need not be identical, only

substantially similar. Int’l Fid. Ins. Co. v. Sweet Little Mex.

Corp., 665 F.3d 671, 677–78 (5th Cir. 2011); Adoma, 711 F.

Supp. 2d at 1148; Inherent.com, 420 F. Supp. 2d at 1097. To

determine whether two suits involve substantially similar

issues, we look at whether there is “substantial overlap”

between the two suits. See Harris Cnty., 177 F.3d at 319.

Noatex and APMM are alreadyin litigation in Mississippi

over the same funds Kohn Law seeks in this case. Because

Kohn Law stands in the shoes of Noatex, APMM’s defenses

in the present case against Kohn Law would, at the least,

substantially overlap with the issues in the Mississippi

interpleader action. The question Kohn Law asks the Central

District of California to resolve is at the “heart” of the

Mississippi interpleader action—whether Noatex is entitled

to the $260,410.15. If Noatex does not recover funds in the

Mississippi interpleader action, Kohn Law will likely have no

claim to those funds. And, if Noatex does recover funds in

the Mississippi interpleader action, Kohn Law will likely

recover funds. Not only does the present case involve

substantially similar issues as the Mississippi interpleader

action, the present case involves the issue to be determined in

the Mississippi interpleader action.

Because the Mississippi interpleader action is a

previouslyfiled lawsuit involvingsubstantiallysimilar parties

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KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 9

and issues, the district court did not abuse its discretion by

entering the stay.

Finally, we note that the parties have filed motions: to

supplement the record; to file supplemental briefs; and for the

Court to take judicial notice of developments in the

proceedings in the Mississippi state court, the Northern

District of Mississippi, and the Fifth Circuit. These motions

are denied. “It is rarely appropriate for an appellate court to

take judicial notice of facts that were not before the district

court.” Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386, 392

n.7 (9th Cir. 2000). Neither party has demonstrated

“extraordinary” circumstances required to supplement the

record on appeal. See Lowry v. Barnhart, 329 F.3d 1019,

1024 (9th Cir. 2003).5

AFFIRMED.

5 Because we conclude that the district court could properly stay the

action under the first-to-file rule, we need not address whether the

Colorado River doctrine also justified a stay in this case.

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