In Glen Rose Petroleum Corp., et al. v. Langston, C.A. No. 5387-CC (July 7, 2010), read opinion here, the Court of Chancery addressed the issue of whether the Delaware action was the first-filed action (which would require the Court to apply an “overwhelming hardship” standard as part of a forum non conveniens analysis) or whether the Delaware action was the second-filed action (which would require the Court to apply the doctrine from McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281 (Del. 1970)). This summary was prepared by Kevin F. Brady of Connolly Bove Lodge & Hutz LLP.
Defendant filed a contract action in Texas on October 9, 2009 (although service of the petition was not even attempted until March 10, 2010). Plaintiffs filed a fraud and breach of fiduciary duty action in Delaware on April 1, 2010. The defendants in the Delaware action moved to dismiss the Delaware action on the basis of forum non conveniens (defendants also moved for a protective order). The plaintiffs filed a motion to strike and motion to compel. The Court addressed the motion to dismiss first, reasoning that if the defendant was successful on that motion, the others would be mooted.
Under the McWane doctrine, “litigation should be confined to the forum in which it is first commenced, and a defendant should not be permitted to defeat the plaintiff’s choice of forum in a pending suit by commencing litigation involving the same cause of action in another jurisdiction of its own choosing . . . .” See, McWane, 263 A.2d at 283. Moreover, “[w]here a party alleges that there is an earlier foreign action, McWane provides the appropriate analysis, holding that the discretion to grant a stay [or dismissal] should be exercised freely where (1) there is a prior pending action, (2) that involves the same parties and issues, and (3) the other court is capable of doing prompt and complete justice” (citation omitted).
After the Court determined that the Delaware action was the second-filed action, the Court turned to the issue of whether the identity of the parties and the issues in the earlier-filed Texas action were “substantially or functionally the same” as those in the later-filed Delaware action. After determining that the parties were “substantially or functionally” the same, the Court turned to whether the issues in the two actions (which on their face did not appear to be the same) were the same.
In finding that the two actions involved “substantially or functionally identical” issues, the Court stated:
There may be large differences in the nature of those claims and slightly different time periods involved between some of the contracts now in question and the alleged fraud and breaches of fiduciary duties, but the reality, it seems to me, is that this battle is one that involves why and how these parties went their separate ways — and that any breach of contract was a response to any fraud or breach of fiduciary duties. Other parties or issues may be involved, but at its core, this case appears to be the tit-for-tat I have described, and I see no reason why any complexity of parties or issues around that core merits a decision to disregard the spirit of McWane or the comity Delaware courts and judges feel for the capable courts and judges of our sister states and commonwealths, even when questions of Delaware law are in play.
As supporting authority for this analysis, the Court cited Diedenhofen-Lennartz v. Diedenhofen, 931 A.2d 439, 446 (Del. Ch. 2007) (“The two key issues are whether the parties and claims in this case are substantially similar to those raised in any of the cases that were filed earlier. The captions need not be replicas, nor must the counts in each complaint be identical. What is important is that the same individuals or entities be involved in each of the disputes and that the issues raised in each case arise out of a common nucleus of operative facts.”).
Because the Court found that the components of the McWane doctrine had been satisfied, it granted defendant’s motion to dismiss the Delaware complaint which mooted all of the other motions. However, the Court did mention an important procedural tip that litigants should keep in mind when filing a motion to dismiss or stay. In short, a motion to dismiss or stay does not include an automatic stay of discovery. In this action, the defendants had failed to meet filing deadlines and had failed to respond to plaintiffs’ discovery requests while the defendants’ motion to dismiss or stay was being briefed. The Court noted that “[p]arties seeking to dismiss or stay a case would serve themselves best — as well as serve opposing parties and this Court best — by filing a motion to stay discovery or a motion for protective order concurrently with any motion to dismiss or stay, rather than treat the latter as inherently including the former.”