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Le Brocq v. Lane

United States District Court, N.D. Texas, Dallas Division

April 6, 2017

STEPHEN KENJI LE BROCQ, Plaintiff,
v.
NEJLA K. LANE, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          SIDNEY A. FITZWATER UNITED STATES DISTRICT JUDGE

         Defendants move to dismiss this action for lack of personal jurisdiction, improper venue, and failure to state a claim, or, alternatively, to dismiss or transfer the case under the first-to-file rule. Defendants also move for sanctions. Finding a likelihood of substantial overlap between the present case and an earlier-filed case in the Northern District of Illinois, the court grants the alternative motion to transfer and transfers this action to the Northern District of Illinois, Eastern Division, pursuant to the first-to-file rule. The court denies defendants' motions to dismiss and for sanctions.

         I

         Plaintiff Stephen Kenji Le Brocq, Esquire (“Le Brocq”) worked with defendant Nejla K. Lane, Esquire (“Lane”) at defendant Lane Legal Services, P.C. (the “Lane Firm”) for two years, starting as a law clerk and eventually working as a junior partner until his departure. During that time, all parties maintained their principal places of business or domicile in Cook County, Illinois. While still at the Lane Firm in 2015, Le Brocq received a form 1099-MISC for fiscal year 2014. That form reflected compensation in the amount of $58, 998.00, and Le Brocq used the form to file his federal income tax return with the Internal Revenue Service (“IRS”) before the April 2015 filing deadline. Le Brocq then abruptly left the Lane Firm in May 2015.

         Following Le Brocq's departure, Lane and the Lane Firm filed suit against him in the Northern District of Illinois (“Illinois Action”). The Illinois Action arose out of disputed circumstances preceding, surrounding, and following Le Brocq's departure. Lane and the Lane Firm asserted state and federal statutory claims[1] as well as Illinois common law causes of action, including civil conversion, fraud in the inducement, breach of fiduciary duty, breach of contract, unjust enrichment, promissory estoppel, and tortious interference with a contract. Le Brocq filed an answer in the Illinois Action that included defenses and counterclaims for common law fraud, intentional infliction of emotional distress, defamation, several breach of contract counts, and violations of the Illinois Wage Payment and Collection Act (“IWPCA”), 820 ILCS 115/1-15.

         Sometime between Le Brocq's departure and service of process in the Illinois Action in August 2015, Le Brocq moved to North Texas, where he obtained Texas driver and law licenses.[2] On September 14, 2015, before Le Brocq filed an answer in the pending Illinois Action, defendants mailed a second, “corrected” fiscal year 2014 form 1099-MISC to Le Brocq at a North Texas address. The second form reflected compensation of $84, 640.00. Due to the $25, 642.00 difference between the first 1099-MISC, on which Le Brocq filed his tax return, and the second1099-MISC, the IRS issued Le Brocq a “Notice of Deficiency Increase in Tax.” The IRS stated that a payment of $9, 523.00 was required to cover the tax deficiency. The IRS also levied a $1, 905.00 substantial tax understatement penalty against Le Brocq. Le Brocq now faces litigation in the United States Tax Court in Washington, D.C. to challenge the accuracy of the latter 1099-MISC.

         Le Brocq filed the present action in the Northern District of Texas (“Texas Action”) in October 2016, alleging that defendants fraudulently altered his compensation on the “corrected” 1099 form to harass and harm him. He alleges that, in doing so, defendants committed tax fraud, in violation of 26 U.S.C. § 7434.[3] Defendants maintain, however, that the second form 1099 merely corrected the first, adding “compensation” of several unauthorized wire transactions allegedly completed by Le Brocq. Defendants also move to dismiss for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2), to dismiss for improper venue, pursuant to Rule 12(b)(3), to dismiss for failure to state a claim, pursuant to Rule 12(b)(6), and to dismiss on compulsory counterclaim grounds, pursuant to Rule 13(a).[4] Alternatively, defendants move to dismiss, stay, or transfer this case to the same venue as the Illinois Action. Defendants also move for sanctions pursuant to Rule 11 as part of their motion to dismiss, but not in a separate motion.

         II

         The court turns initially to the question whether the first-to-file rule applies.

         A

         The Fifth Circuit adheres to the general rule that the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed. See Ameritox, Ltd. v. Aegis Scis. Corp., 2009 WL 305874, at *3 (N.D. Tex. Feb. 9, 2009) (Fitzwater, C.J.) (citing Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir. 1997)). Under the “first-to-file rule, ” when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap. See Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999) (citing Save Power, 121 F.3d at 950). The rule rests on principles of comity and sound judicial administration. See In re Amerijet Int'l, Inc., 785 F.3d 967, 976 (5th Cir. 2015) (per curiam) (citing Cadle, 174 F.3d at 603). The concerns underlying the rule “manifestly [are] to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result.” W. Gulf Maritime Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 729 (5th Cir. 1985).

         The first-to-file rule not only determines which court may decide the merits of substantially similar issues but also establishes which court may decide whether the second suit must be dismissed, stayed, or transferred and consolidated. See Cadle, 174 F.3d at 606. Accordingly, the second-filed court limits its analysis to whether there is a likelihood of substantial overlap between the two cases, and, if so, whether to dismiss, stay, or transfer the second case. See Universal Prot. Servs. v. Thornburg, 2016 WL 4523905, at *2 (N.D. Tex. Aug. 22, 2016) (Robinson, J.). In sum, absent “compelling circumstances, ” the court that initially obtains the controversy should decide how or whether to try substantially similar issues. See Goldstein v. Dickinson, 1999 WL 47240, at *2 (N.D. Tex. Jan. 21, 1999) (Fitzwater, J.).

         To determine whether the issues substantially overlap, the court examines whether core issues are the same or if much of the proof adduced would likely be identical. See Int'l Fid. Ins. Co. v. Sweet Little Mex. Corp., 665 F.3d 671, 677 (5th Cir. 2011) (quoting Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971)). Although the cases must be “more than merely related, ” the issues presented and identity of parties in the two cases need not be identical. See Buckalew v. Celanese, Ltd., 2005 WL 2266619, at *2 (S.D. Tex. Sept. 16, 2005). If overlap is less than complete, the court may consider “the extent of overlap, the likelihood of conflict, the comparative advantage and the interest of each forum in resolving the dispute.” Save Power, 121 F.3d at 951 (citation omitted). Even when the second case presents claims absent in the first, the cases may still substantially overlap. See Your Preferred Printer, LLC v. United Wholesale, LLC, 2012 WL 3016771, at *4 (E.D. La. July 23, 2012). In fact, corresponding threshold issues may be sufficient to raise the possibility of substantial overlap. See Am. Home Mortg. Servicing, Inc. v. Triad Guar. Ins. Corp., 714 F.Supp.2d 648, 650-51 (N.D. Tex. 2010) (Lynn, J.).

         If the second-filed court finds likely substantially overlap, “the proper course of action is for the court to transfer the case to the first-filed court to determine which case should, in the interests of sound judicial administration and judicial economy, proceed.” Wells Fargo Bank, N.A. v. W. Coast Life Ins. Co., 631 F.Supp.2d 844, 847 (N.D. Tex. 2009) (Lynn, J.) (citing Cadle, 174 F.3d at 606). The second-filed court transfers, rather than dismisses, so the ...


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