Kohn Law Group, Inc. v. Auto Parts Manufacturing Mississippi, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

KOHN LAW GROUP, INC., a No. 13-55023
California corporation,
Plaintiff-Appellant, D.C. No.
2:12-cv-08063-
v. MWF-MRW

AUTO PARTS MANUFACTURING
MISSISSIPPI, INC., a Mississippi OPINION
corporation,
Defendant-Appellee.

Appeal from the United States District Court
for the Central District of California
Michael W. Fitzgerald, District Judge, Presiding

Argued and Submitted
February 6, 2015—Pasadena, California

Filed June 4, 2015

Before: Michael J. Melloy,* Jay S. Bybee,
and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Melloy

*
The Honorable Michael J. Melloy, Senior Circuit Judge for the U.S.
Court of Appeals for the Eighth Circuit, sitting by designation.
2 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

SUMMARY**

First-To-File Rule

The panel affirmed the district court’s order staying
proceedings under the first-to-file rule in an action brought by
Kohn Law Group, Inc., under § 9607(a)(3) of the California
Commercial Code alleging it was entitled to payments Auto
Parts Manufacturing Mississippi, Inc., owed to a third party.

The first-to-file rule allows a district court to stay
proceedings if a similar case with substantially similar issues
and parties was previously filed in another district court.

The panel held that a Mississippi interpleader action was
a previously filed lawsuit involving substantially similar
parties and issues where the Mississippi action was filed first,
the present case involved substantially similar issues as the
Mississippi action, and the present case involved the issue to
be determined in the Mississippi action. The panel concluded
that the district court did not abuse its discretion by staying
the present action under the first-to-file rule.

**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 3

COUNSEL

Robert Kohn (argued), Kohn Law Group, Santa Monica,
California, for Plaintiff-Appellant.

Michael Matthias (argued) and Gabriel Drucker, Baker &
Hostetler, Los Angeles, California, for Defendant-Appellee.

OPINION

MELLOY, Circuit Judge:

Kohn Law Group, Inc. (Kohn Law) sued Auto Parts
Manufacturing Mississippi, Inc. (APMM) under § 9607(a)(3)
of the California Commercial Code, alleging Kohn Law was
entitled to payments APMM owed to a third party. The
Central District of California stayed the proceedings, finding
the question presented was already being litigated by the
same or related parties in Mississippi. For the reasons stated
below, we affirm.

I

APMM hired Noatex Corporation (Noatex) as a general
contractor to construct an auto parts manufacturing facility in
Guntown, Mississippi. Noatex hired King Construction of
Houston, L.L.C. (King Construction) as a subcontractor.
After construction began, Noatex alleged APMM owed
Noatex for goods and services provided under their contract.
Noatex also questioned the validity and the amount of
invoices King Construction submitted for its construction
work under the subcontract.
4 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

King Construction filed a “Stop Notice” pursuant to
Mississippi Code § 85–7–181 (repealed 2014) (Stop Notice
Statute). The Stop Notice Statute allows a subcontractor to
bind funds a project owner owes to a general contractor.
King Construction sought to bind funds APMM owed to
Noatex. The Stop Notice also informed APMM that Noatex
allegedly owed King Construction $260,410.15 (the disputed
funds). Noatex then filed a declaratory action against King
Construction in the Northern District of Mississippi,
challenging the constitutionality of the Stop Notice Statute.
Without deciding the parties’ rights to the disputed funds, the
Northern District of Mississippi found the Stop Notice Statute
unconstitutional. The Fifth Circuit affirmed.1

Kohn Law represented Noatex in the Stop Notice
litigation. To pay for legal fees, Noatex granted Kohn Law
a contractual lien on its receivables. Kohn Law asserts the
lien covers funds APMM allegedly owes Noatex.

Because it was worried about multiple, inconsistent
judgments relating to the disputed funds, APMM filed an
interpleader action in Mississippi state court on November
15, 2011. APMM listed Noatex and King Construction as
parties. Noatex removed the lawsuit to the Northern District
of Mississippi on December 5, 2011. On April 12, 2012, the
Northern District of Mississippi remanded the case back to
the Mississippi state court. Once APMM became aware of
Kohn Law’s lien, APMM filed a motion to amend the
interpleader complaint to add Kohn Law as a party. On
December 5, 2012, the Northern District of Mississippi
placed the case back on its docket, holding that it had erred

1
Noatex Corp. v. King Constr. of Hous., L.L.C., 732 F.3d 479, 487 (5th
Cir. 2013).
 KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 5

by remanding the case because APMM could have filed the
case in federal court.

Meanwhile, on September 18, 2012, Kohn Law filed the
present action against APMM in the Central District of
California pursuant to California Commercial Code
§ 9607(a)(3).2 Section 9607(a)(3) permits a secured party
(Kohn Law) to enforce obligations of a debtor (APMM) on
behalf of the holder of the debt (Noatex). APMM moved to
dismiss the complaint, or in the alternative, stay the
proceedings.

On December 11, 2012, the Central District of California
stayed the lawsuit, holding that the Colorado River3 doctrine
and the first-to-file rule warranted a stay. The district court
stated Kohn Law was asking the Central District of California
“to short-circuit the ongoing Mississippi interpleader action
as to this $260,410.15 and award the funds to Kohn.” It
further noted that to “proceed with this action only would
multiply lawsuits, increase costs and prolong a final
determination.” Kohn Law appeals.

II

The first-to-file rule allows a district court to stay
proceedings if a similar case with substantially similar issues

2
Section 9607(a)(3) states “a secured party may . . . [e]nforce the
obligations of an account debtor or other person obligated on collateral
and exercise the rights of the debtor with respect to the obligation of the
account debtor or other person obligated on collateral to make payment or
otherwise render performance to the debtor.”
3
Colo. River Water Conservation Dist. v. United States, 424 U.S. 800
(1976).
6 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

and parties was previously filed in another district court. We
review a decision to stay proceedings under the first-to-file
rule for an abuse of discretion. Pacesetter Sys., Inc. v.
Medtronic, Inc., 678 F.2d 93, 95 (9th Cir. 1982).

The first-to-file rule is intended to “serve[] the purpose of
promoting efficiency well and should not be disregarded
lightly.” Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622,
625 (9th Cir. 1991) (alteration in original) (quoting Church of
Scientology v. U.S. Dep’t of the Army, 611 F.2d 738, 750 (9th
Cir. 1979)) (internal quotation marks omitted). When
applying the first-to-file rule, courts should be driven to
maximize “economy, consistency, and comity.” Cadle Co. v.
Whataburger of Alice, Inc., 174 F.3d 599, 604 (5th Cir.
1999). The first-to-file rule may be applied “when a
complaint involving the same parties and issues has already
been filed in another district.” Alltrade, 946 F.2d at 625
(citation and internal quotation marks omitted). Thus, a court
analyzes three factors: chronology of the lawsuits, similarity
of the parties, and similarity of the issues.4 See id.

Ordinarily, we start by analyzing which lawsuit was filed
first. But we need not analyze this issue here because Kohn
Law does not argue that the present case was filed first. And,
as asserted by APMM, both the Mississippi state court

4
Kohn Law argues that we should apply a different legal framework
“[w]hen reviewing an order staying or dismissing a second action.” Kohn
Law asks us to apply the same four factors that govern claim preclusion.
Kohn Law relies on Adams v. California Department of Health Services,
487 F.3d 684 (9th Cir. 2007), abrogated in part by Taylor v. Sturgell,
553 U.S. 880, 904 (2008), to support its argument. In Adams, the Ninth
Circuit addressed a situation where a plaintiff filed a second, duplicative
action after a dismissal of her first action in the same court. Id. at 687–88.
Adams did not consider or discuss the first-to-file rule.
 KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 7

complaint (November 15, 2011) and the removal to Northern
District of Mississippi (December 5, 2011) were filed before
the present case was filed in the Central District of California
(September 18, 2012). Because the parties do not dispute that
the Mississippi interpleader action was filed first, we assume
this requirement is met.

Regarding similarity of the parties, courts have held that
the first-to-file rule does not require exact identity of the
parties. See Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d
947, 951 (5th Cir. 1997); Herer v. Ah Ha Publ’g, LLC, 927 F.
Supp. 2d 1080, 1089 (D. Or. 2013); Intersearch Worldwide,
Ltd. v. Intersearch Grp., Inc., 544 F. Supp. 2d 949, 959 n.6
(N.D. Cal. 2008). Rather, the first-to-file rule requires only
substantial similarity of parties. See Harris Cnty., Tex. v.
CarMax Auto Superstores Inc., 177 F.3d 306, 319 (5th Cir.
1999); Adoma v. Univ. of Phx., Inc., 711 F. Supp. 2d 1142,
1147 (E.D. Cal. 2010) (citing Inherent.com v. Martindale-
Hubbell, 420 F. Supp. 2d 1093, 1097 (N.D. Cal. 2006)); see
generally Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d
93, 95 (9th Cir. 1982) (noting that the first-to-file rule should
not be applied “mechanically”).

Kohn Law argues that the parties are not substantially
similar here because a defendant in the Mississippi
interpleader action—King Construction—is not named in the
present action. We disagree. In Alltrade, Inc., 946 F.2d at
624 & n.3, 629, we affirmed a district court’s decision not to
hear a second-filed case under the first-to-file rule even
though the first-filed case contained a defendant not named
in the second case. A contrary holding could allow a party
such as Kohn Law to skirt the first-to-file rule merely by
omitting one party from a second lawsuit. We conclude that
the omission of King Construction from the present action
8 KOHN LAW GROUP V. AUTO PARTS MFG. MISS.

does not defeat application of the first-to-file rule. Our
conclusion avoids awarding such gamesmanship and is
consistent with the policy of the first-to-file rule, which is to
maximize judicial economy, consistency, and comity. See
Cadle Co., 174 F.3d at 604.

The issues in both cases also need not be identical, only
substantially similar. Int’l Fid. Ins. Co. v. Sweet Little Mex.
Corp., 665 F.3d 671, 677–78 (5th Cir. 2011); Adoma, 711 F.
Supp. 2d at 1148; Inherent.com, 420 F. Supp. 2d at 1097. To
determine whether two suits involve substantially similar
issues, we look at whether there is “substantial overlap”
between the two suits. See Harris Cnty., 177 F.3d at 319.

Noatex and APMM are already in litigation in Mississippi
over the same funds Kohn Law seeks in this case. Because
Kohn Law stands in the shoes of Noatex, APMM’s defenses
in the present case against Kohn Law would, at the least,
substantially overlap with the issues in the Mississippi
interpleader action. The question Kohn Law asks the Central
District of California to resolve is at the “heart” of the
Mississippi interpleader action—whether Noatex is entitled
to the $260,410.15. If Noatex does not recover funds in the
Mississippi interpleader action, Kohn Law will likely have no
claim to those funds. And, if Noatex does recover funds in
the Mississippi interpleader action, Kohn Law will likely
recover funds. Not only does the present case involve
substantially similar issues as the Mississippi interpleader
action, the present case involves the issue to be determined in
the Mississippi interpleader action.

Because the Mississippi interpleader action is a
previously filed lawsuit involving substantially similar parties
 KOHN LAW GROUP V. AUTO PARTS MFG. MISS. 9

and issues, the district court did not abuse its discretion by
entering the stay.

Finally, we note that the parties have filed motions: to
supplement the record; to file supplemental briefs; and for the
Court to take judicial notice of developments in the
proceedings in the Mississippi state court, the Northern
District of Mississippi, and the Fifth Circuit. These motions
are denied. “It is rarely appropriate for an appellate court to
take judicial notice of facts that were not before the district
court.” Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386, 392
n.7 (9th Cir. 2000). Neither party has demonstrated
“extraordinary” circumstances required to supplement the
record on appeal. See Lowry v. Barnhart, 329 F.3d 1019,
1024 (9th Cir. 2003).5

AFFIRMED.

5
Because we conclude that the district court could properly stay the
action under the first-to-file rule, we need not address whether the
Colorado River doctrine also justified a stay in this case.