Chancery Applies Familiar First-Filed Rule to Impose Stay

Brookstone Partners Acquisition XVI, LLC v. Tanus, C.A. No. 7533-VCN (Del. Ch. Nov. 20, 2012).

Issue Presented: The Court in this case applied the familiar first filed rule as a basis to grant a motion to stay in favor of previously filed litigation in Texas.

Brief Overview

This somewhat unremarkable decision applies a rule familiar to regular readers of this blog and which has been the frequent subject of decisions highlighted on these pages over the last eight years.  Known as the “first-filed rule” and sometimes also referred to as the McWane Doctrine, a long line of Delaware cases often applies this multi-part test which, in essence, gives deference to the choice of forum chosen via the first-filed complaint, as between similar parties involving claims based on the same set of facts, with the usual result being that the first-filed action is often allowed to proceed.  There are several factors that are applied, and there are exceptions, but this case applies the general rule after discussion of the various factors to support the grant of a stay. 

The McWane Doctrine or, first-filed rule, is based on the Delaware Supreme Court decision in McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281 (Del. 1970).  The noteworthy aspects of the application of the Doctrine in this opinion are what the Court found not to be justifiable exceptions to the rule.  For example, there are cases that have not applied the preference that is embodied in the rule when novel issues of Delaware law or complex issues are presented.  See, e.g., In Re Topps Co. S’holders Litig., 924 A.2d 951, 960 (Del. Ch. 2007).  See also other cases cited at footnote 59 for the view that Delaware has an important policy interest in deciding emerging issues in order to provide clear decisional authority that directors and stockholders may confidently rely upon. 

However, (notwithstanding the recent Auriga case, highlighted here), the Court determined that the interpretation of an LLC Agreement and the application of fiduciary duties in the context of a limited liability company agreement is not the type of novel issue that would provide an exception to the McWane Doctrine.  Nor was the Court moved by the argument that the party who filed the second action in Delaware was led to believe that the parties were close to an amicable agreement during settlement negotiations and was “broadsided” by the unexpected filing in Texas.

Finally, the Court determined that if the trial in the Texas action does not occur as expected in April 2013, the Court may reconsider lifting the stay at that time.  See case cited at footnote 71.