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).

Continue Reading NY Lawsuit Trumps NC Lawsuit, Even Though NC Lawsuit Was First Filed

The Court granted a Motion to Stay in this case, ruling that the plaintiff was required to litigate its claims in New York, even though its North Carolina action had been filed before the New York action.   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 the plaintiff 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, plaintiff’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."

The Court did not resolve whether Defendant’s filing its New York lawsuit was a violation of a preliminary injunction previously entered in the case limiting filing any "personal tort claims" in any other jurisdiction, and whether the Court had the authority to enjoin federal litigation.  Those matters are addressed in the briefs of the parties on the subject of contempt.

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Defendant’s Brief in Support of Motion to Stay        Plaintiff’s Brf. in Support of Motion for Contempt

Plaintiff’s Brief Opposing Motion to Stay                  Defendant’s Brf. Opposing Motion for Contempt

Defendant’s Reply Brief on Motion to Stay               Plaintiff’s Reply Brf. in Support of Mot. for Contempt

The Court dismissed some of plaintiff’s claims because they had been the subject of a dismissal, with prejudice, in a prior action. The Court held that a dismissal with prejudice is a final judgment for purposes of res judicata. Other claims were being simultaneously litigated in another action between the parties. It was difficult to determine, because of the procedural posture of the cases, in which action the claims had been first filed. The Court had jurisdiction over both actions, and determined that it would manage them "so as to assure their efficient resolution."

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There were parallel actions challenging a merger, one in Delaware and one, filed first, in North Carolina. Defendant filed a motion to stay the North Carolina action. The Court identified twelve factors it would consider in such situations, including whether the issues should be settled in the corporation’s state of incorporation, the convenience of parties and witnesses, and the significance, if any, of the first to file. The Court stayed the North Carolina action pending the Delaware Court’s consideration of a proposed settlement.

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The Court applied the literal definition of "first to file" in ruling on a Motion to Stay.  One party had e-filed in federal court several hours before the other party had hand filed a similar action in state court.  The Court held that the party which had e-filed had priority, and stayed the case before it because it was the second to be filed.  The Court rejected cases holding that cases filed on the same day should be deemed to have been filed simultaneously.

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Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

The Court granted the defendant’s motion to stay the action so that a related action pending in New York could proceed, pursuant to N.C.G.S. §1-75.12. The Court considered the following factors: "(1) the nature of the case, (2) the convenience of the witnesses, (3) the availability of compulsory process to produce witnesses, (4) the relative ease of access to sources of proof, (5) the applicable law, (6) the burden of litigating matters not of local concern, (7) the desirability of litigating matters of local concern in local courts, (8) convenience and access to another forum, (9) choice of forum by the plaintiff, and (10) all other practical considerations."

Although the plaintiff had filed the North Carolina action first, and the Court recognized that the plaintiff’s choice of forum was entitled to substantial weight, it was persuaded to enter the stay because there had been a consent to jurisdiction in New York by the plaintiff, and the New York court had a greater ability to compel the appearance of other parties and witnesses.

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