Kohn Law Group v. Auto Parts Mfg. Miss.

The first-to-file rule allows for a federal court to stay a proceeding before it if it finds that substantially similar parties are litigating similar issues in another district court.

Kohn Law Group, Inc. (“Kohn Law”) sued Auto Parts Manufacturing Mississippi, Inc. (“APMM”) for alleged payments that were owed to a third party, King Construction of Houston, L.C.C. (“King Construction”), a subcontractor of Noatex Corporation (“Noatex”), a business hired as a general contractor of APMM to build an auto parts manufacturing facility. King Construction filed a “Stop Notice” in Mississippi in the hopes of binding funds the APMM owed to Noatex in order to get paid. While the statue under which the “Stop Notice” was brought was found to be unconstitutional, APMM filed an interpleader action in state court which had yet to be heard. Meanwhile, under § 9607(a)(3) of the California Commercial Code, Kohn Law filed an action against APMM in order to allow for Kohn Law to enforce the obligations of APMM to pay Noatex. The district court stayed the lawsuit according to the first-to-file rule and the doctrine from Colo. River Water Conservation Dist. v. United States. On appeal, the Ninth Circuit reviewed whether the first-to-file rule warranted the stay proceeding in the case at bar. The first-to-file rule allows for a federal court to stay proceedings before it if similar parties and issues are before a different federal court at the same time. The panel explained the policy reasons behind such a rule include efficiency, judicial economy, and fairness. In order to determine which suit was filed first, the panel looked to the actual complaint filed by Kohn Law, which showed that the Mississippi case was filed before the California case. Therefore, because both parties were currently litigating in Mississippi over the same issues, the panel held that the entry of the stay by the district court was not an abuse of discretion. AFFIRMED.