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The Gamble That Didn’t Pay Off: You Have Only One Chance to Get Into Federal Court

n a race to the courthouse, your opponent files first in a distant state court. You want to be in federal court—but preferably in your home district, not in your opponent’s district. Do you gamble and file a competing federal suit in your backyard—hoping that your later filed suit will get to verdict first—or take the safe bet, resign yourself to being in a distant district, and simply remove your opponent’s state court action to the appropriate federal court? 

Under the Fourth Circuit’s recent decision in VRCompliance v. HomeAway, Inc., if you try to grab the home court advantage by filing a second suit but you don’t remove the first action to federal court, then you will forfeit your right to a federal forum.   

Asserting various state law claims, HomeAway, Inc. won the race to the courthouse and filed suit in Texas against Eye Street Solutions, LLC.

Virginia-based Eye Street did not attempt to remove the Texas action to federal court. Instead, Eye Street filed a second suit three days later in the U.S. District Court for the Eastern District of Virginia—widely known as the “rocket docket” because of the speed with which it processes civil cases. In its Virginia complaint, Eye Street sought a declaratory judgment that it had not violated Texas law as HomeAway asserted in its Texas complaint, and asserted additional claims under federal and Virginia law.

The district court rejected Eye Street’s gambit and stayed the federal case in Virginia pending resolution of the Texas lawsuit. Eye Street appealed. On appeal, the parties argued at length about the abstention doctrines the U.S. Supreme Court articulated in Colorado River Water Conservation District v. United States, and in Brillhart v. Excess Insurance Co. of America, and Wilton v. Seven Falls Co.

Cutting through the doctrinal thicket, Judge Wilkinson concluded that regardless of which abstention doctrine applies, the district court had not abused its discretion by staying the case because Eye Street had “every opportunity to procure a federal forum by removing appellees’ first-filed state suit rather than by bringing a separate federal action in an entirely separate federal district.” According to the Fourth Circuit, a “party should not be heard to complain that it lacks a federal forum when such deprivation stems from its own apparent gamesmanship.” Otherwise, a defendant could “gain a federal forum in any federal district court with personal jurisdiction over the state court plaintiffs simply by filing a federal action recasting the claims against it as declaratory claims.”

The bottom line: if you lose the race to the courthouse and you want to litigate your dispute in federal court, remove the first-filed state court action (and consider a motion to transfer), but don’t bet on a competing suit filed in a different federal court.

Copyright © 2023 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume III, Number 171
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About this Author

Raymond Bennett, business litigation attorney, Womble Carlyle, pharmaceuticals legal counsel, deceptive trade practices lawyer, intellectual property law
Partner

Ray Bennett counsels clients in complex business litigation, particularly cases involving technology and intellectual property disputes. He has represented clients in litigation involving technology licensing, unfair and deceptive trade practices, online defamation, copyright, and misappropriation of trade secrets and he has represented clients in numerous industries including software, computer hardware, pharmaceuticals, and telecom.

In addition, Ray has significant appellate experience, representing clients in both federal and state courts,...

919-755-2158
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