Wachovia Bank, N.A. v. Harbinger Capital Partners Master Fund I, Ltd., 2008 NCBC 6 (N.C. Super. Ct. March 13, 2008) (Diaz)

Wachovia was first to file its claims in North Carolina Superior Court, but the Business Court nevertheless stayed the action in favor of a later filed New York action.

The claims in both cases involved Wachovia’s arranging of $285 million in credit for Le Nature, which collapsed in a massive accounting fraud. After the fraud was revealed, the Defendants purchased some of Le Nature’s debt on the secondary market with the express intention of suing Wachovia for alleged complicity in the fraud.

Wachovia, in an effort to preempt the expected lawsuit by the Defendants in New York, filed a declaratory judgment in North Carolina and obtained an injunction prohibiting the Defendants from asserting any "personal tort claims." Wachovia asserted that Defendants had engaged in "illegal trafficking in litigation claims."

Undeterred, Defendants went ahead and filed a lawsuit against Wachovia Capital Markets in the Southern District of New York alleging a RICO violation. Defendants then moved to stay the North Carolina action pursuant to N.C.G.S. Sec. 1-75.12 in favor of their own later filed action.  The Court granted the motion after considering the ten factors enumerated in Lawyers Mut. Liab. Ins. Co. v. Nexsen Pruett Jacobs & Pollard, 435 S.E.2d 571, 573 (N.C. App. 1993).

One reason the Court held that Wachovia was not entitled to the choice of its home forum was that it knew before filing its own suit that Defendants intended to sue, and "if the plaintiff in the declaratory suit was on notice at the time of filing that the defendant was planning to file suit, a court should look beyond the filing dates to determine whether the declaratory suit is merely a strategic maneuver to achieve a preferable forum.”

The Court also considered, and rejected, Wachovia’s argument that North Carolina’s public policy demanded that New York law be rejected. It held, in reliance on North Carolina Supreme Court precedent, that "North Carolina’s public policy exception to the comity generally afforded the laws of our sister states is a narrow one."

In the end, the Court determined that there was a "practical reality that the New York Action is better able to arrive at a more comprehensive resolution of the litigation, given the broader scope of claims and parties before it."  Wachovia filed a Notice of Appeal the day after the Court entered its Order.

In the conclusion to its opinion, the Court referenced Whac-A-Mole, which it described as "an arcade game involving mechanical moles that pop up from their holes at random." Judge Diaz "confessed to being a ‘Whac-a-Mole’ aficionado."  If you don’t know the game, you might want to watch the video below: