883 F. 2d 1024 - Knedlik v. Lincoln Institute of Land Policy

MEMORANDUM***

Rule 13(a), Fed.R.Civ.P. provides: "A pleading shall state as a [compulsory] counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claims...." The purpose of the rule is "to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters." Southern Construction Co. v. Pickard, 371 U.S. 57, 60 (1962) (per curiam).

The question for decision in this appeal by Will Knedlik is whether the claims asserted by him in a complaint filed in September, 1987, in the King County Superior Court, Washington, and subsequently removed to the district court of the Western District of Washington, qualified as a compulsory counterclaim in an action filed by Lincoln Institute of Land Policy against him in March, 1987, in the district court of Massachusetts. The Washington district court dismissed Knedlik's complaint on the grounds of the pendency of the Massachusetts district court action, having concluded that the claims in the two actions arose out of same transaction and occurrence. Knedlik has appealed. We agree with the district court and affirm.

The district court had subject matter jurisdiction pursuant to 28 U.S.C. Sec. 1332(a)(1). We have jurisdiction under 28 U.S.C. Sec. 1291. The appeal was timely filed. Rule 4(a)(1), Fed.R.App.P.

Knedlik is a Washington resident. Lincoln Institute of Land Policy (LILP) is a Connecticut corporation with its principal place of business in Cambridge, Massachusetts. Lincoln Foundation is an Arizona corporation with its principal place of business in Phoenix.

LILP retained Knedlik as a consultant from 1979 to 1983. In 1983, his status became that of an employee. Throughout this period, Knedlik conducted LILP business from his residence. Knedlik alleges that, beginning in December, 1985, he developed bilateral Bell's Palsy and related illnesses and that he became partially disabled and handicapped as a result of those illnesses. He contends that LILP refused to accommodate his condition.

In September, 1986, LILP notified Knedlik that his position was to be eliminated due to a corporate restructuring. In January, 1987, Knedlik filed various administrative complaints against LILP: one with the Washington State Human Rights Commission claiming employment discrimination based on handicap and age, and another with the Washington State Department of Labor and Industries, claiming that his disabilities were work related and compensable under the Industrial Insurance Law.

LILP terminated Knedlik's employment on February 15, 1987. In March, 1987, LILP filed an action for declaratory judgment in the federal district court of Massachusetts, asking that court to declare that: 1) Knedlik was an at-will employee, 2) LILP committed no breach of any obligation to Knedlik in terminating him, 3) LILP has no further obligation to Knedlik for wages and benefits, 4) Knedlik has no valid claim against, and is not entitled to receive damages from LILP for alleged injuries, and 5) Knedlik be enjoined from filing any further complaints. Knedlik has filed a motion to dismiss that action based on lack of subject matter jurisdiction, lack of personal jurisdiction, lack of actual controversy, lack of ripeness, and failure to join indispensable parties.

In September, 1987, Knedlik filed a complaint against LILP in King County Superior Court of the State of Washington. He claimed that his employment was terminated because of his handicap and that his employers did not accommodate that handicap. He sought the equitable relief and damages provided by Wash.Rev.Code Sec. 49.60.

LILP petitioned for removal of this action to the district court of the Western District of Washington at Seattle. After that petition was granted, Knedlik filed an amended complaint to add Lincoln Foundation as a defendant. LILP then moved for dismissal. It claimed that Knedlik's claims in the Washington district court action were compulsory counterclaims in the earlier-filed Massachusetts action, because the claims in both actions arose from the same "transaction or occurrence." The district court agreed and dismissed the suit. This appeal followed.

Knedlik presents two issues for review: (1) whether the district court erred in holding that Knedlik's Washington claims qualified as compulsory counterclaims in the Massachusetts proceedings, and (2) whether the district court erred in failing to apply the "exceptional circumstances" exception discussed in Pacesetters Systems, Inc. v. Medtronic, Inc., 678 F.2d 93, 95 (9th Cir.1982) to the first-to-file doctrine of Kerotest Manufacturing Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180 (1952).

In the view we take we do not meet a question that was not presented but that may be implicated in this case. This is the very sophisticated question of whether congressional approval of the compulsory counterclaim rule, Rule 13(a), F.R.Civ.P., has vitiated the judicially-declared exception to the first-to-file doctrine, where the compulsory counterclaim argument is fairly presented as a defense in the second case. Because a pre-emption argument has not been made, we leave the resolution of that problem to another day.

The standards of review are settled. Whether Knedlik's claims qualify as compulsory counterclaims which should have been pleaded in the earlier court action is a matter of law which we review de novo. Springs v. First National Bank of Cut Bank, 835 F.2d 1293, 1295 (9th Cir.1988). "We will reverse the district court's decision applying the 'first-to-file' rule in light of considerations of sound judicial administration only for an abuse of discretion." Pacesetters, 678 F.2d at 95. The issue of whether the district court erred in applying the first-to-file rule to Knedlik's case is reviewed for abuse of discretion. See id. at 95 n. 1.

In addressing Knedlik's arguments it is difficult to segregate the two issues presented into two separate discussions, because of the differing postures assumed by Knedlik in the district court and before us. In the district court Knedlik contended that "[w]hether or not the plaintiff's claims in the instant action could be filed as a compulsory counterclaim in the Massachusetts' litigation is irrelevant as to the disposition of defendant's motion [to dismiss.]" Plaintiff's Memorandum in Opposition to Motion to Dismiss or Transfer, at 6, reprinted in, Supp.E.R. at 112.

The district court interpreted this statement to mean that "Knedlik does not deny that his claims are compulsory counterclaims in Massachusetts; rather, he argues that whether or not his claims are compulsory counterclaims in that action is irrelevant as to the disposition of this motion." Order Granting Defendant's Motion to Dismiss on Grounds of Pendency of Prior Action [hereinafter "D.Ct.Op."] at 4, E.R. at 90.

Before us, however, Knedlik appears to argue that, putting aside the first-to-file doctrine, the Washington claims did not qualify as Massachusetts compulsory counterclaims. We disagree. We are satisfied with the district court's determination that the compulsory counterclaim requirements were met:

In the instant case, it is undisputed that LILP filed the Massachusetts declaratory judgment action six months before Knedlik filed his Washington claim. All claims in both suits arise out of Knedlik's employment relationship with LILP; the Washington claims are compulsory counterclaims in the Massachusetts suit. That Massachusetts action seeks to resolve all employment rights and obligations between Knedlik and LILP; the Washington claims are a subset of those issues under Washington State law.

D.Ct.Op. at 5, E.R. at 91. We turn now to the first-to-file contention.

The first-to-file doctrine, emanating from the teaching and cases collected in Kerotest Manufacturing Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180 (1952), is a generally recognized doctrine of federal comity, which permits a district court to decline jurisdiction over an action when a complaint involving the same parties and issues has already been filed in another district. Pacesetters, 678 F.2d at 95 (collecting cases). "[T]he 'first-to-file' rule normally serves the purpose of promoting efficiency well and should not be disregarded lightly. Circumstances and modern judicial reality, however, may demand that we follow a different approach from time to time...." Church of Scientology of California v. United States Department of the Army, 611 F.2d 738, 750 (9th Cir.1979) (citation omitted).

Knedlik's principal argument is that the circumstances here are of such an exceptional nature that they justify departure from the general rule. His major premise is that exceptional circumstances counsel a departure from the first-to-file doctrine. As his minor premise leading to the conclusion urged upon us, he asserts that the following factors constitute exceptional circumstances: (1) The Washington state policy relating to handicap discrimination in employment, (2) Knedlik's performance of employment duties was in the state of Washington, (3) his witnesses are located in Washington, and (4) the Massachusetts complaint is an abuse of the declaratory judgment action.

It is uncontroverted that the state of Washington has a strong interest in the enforcement of its handicap discrimination laws. Wash.Rev.Code Sec. 49.60.010 provides in part:

The legislature hereby finds and declares that practices of discrimination against any of its inhabitants because of [handicap] are a matter of state concern, that such discrimination threatens not only the rights and proper privileges of its inhabitants but menaces the institution and foundation of a free democratic state.

The Washington courts have held that Wash.Rev.Code Sec. 49.60 contains the strongest statement of the state's interest in protecting its citizens against employment discrimination and that the law has far-reaching social, political and economic implications. Dean v. Municipality of Metropolitan Seattle-Metro, 104 Wash.2d 627, 708 P.2d 393 (1985).

Nonetheless, we are satisfied that the district court's ultimate determination was not an abuse of discretion. Our starting point is an appreciation that departure from the first-filed rule is an exception only to be utilized in "rare or extraordinary circumstances, inequitable conduct, bad faith, or forum shopping." EEOC v. University of Pennsylvania, 850 F.2d 969, 972 (3d Cir.), cert. granted in part, --- U.S. ---, 109 S.Ct. 554 (1988), order amended, --- U.S. ---, 109 S.Ct. 1660 (1989); see Pacesetter, 678 F.2d at 95-96 (normally sound judicial administration would indicate that when two identical actions are filed in courts of concurrent jurisdiction, the court which first acquired jurisdiction should try the lawsuit, and no purpose would be served by proceeding with a second action); Church of Scientology, 611 F.2d at 750 ("the 'first to file' rule normally serves the purpose of promoting efficiency well and should not be disregarded lightly.")

As to the contentions emphasizing the importance of Washington state law, there was no allegation, nor can there be, that the federal court in Massachusetts will not respect relevant and applicable state law in the declaratory judgment proceedings. Of even more importance is the district court's decision that the Massachusetts action will resolve "all the employment rights and obligations between Knedlik and LILP." D.Ct.Op. at 5, E.R. at 91. The court also recognized that the Washington suit presents only a subset of the issues to be resolved in Massachusetts. Id. The district court recognized that dismissal of the narrower action in favor of the more comprehensive one would conserve judicial resources and permit all of Knedlik's claims to be resolved in one action.

To the extent that Knedlik's factors sound in forum non conveniens, we have held that these issues "should be addressed to the court in the first-filed action." Pacesetters, 678 F.2d at 96-97.

Finally, Knedlik's claim that the district court failed to consider the order in which the actions were filed is without merit. D.Ct.Op. at 5, E.R. at 91. By emphasizing that "LILP filed the Massachusetts declaratory judgment action six months before Knedlik filed his Washington claim," the court indicated that it had considered and rejected Knedlik's contention that the Massachusetts action was an abuse of the Declaratory Judgment Act and that LILP was forum shopping.

We are satisfied that there is an insufficient factual predicate for Knedlik's minor premise that his asserted factors constituted exceptional circumstances. Accordingly, we cannot draw the requested conclusion from his submitted premises that the first-to-file doctrine should not apply here. On the contrary, we hold that the district court did not abuse its discretion.

The judgment of the district court is AFFIRMED.