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The Franchise Memorandum

Distributor Cannot Proceed With Duplicative Lawsuit
Posted in Procedure

A federal court in California granted a supplier’s motion to dismiss a distributor’s lawsuit pursuant to the first-to-file rule. W. Pac. Signal, LLC v. Trafficware Grp., Inc., 2018 WL 3109809 (N.D. Cal. June 25, 2018). Trafficware, a supplier of traffic control devices, terminated its distributor agreement with WPS due to WPS’s failure to pay invoices, and filed suit in the Southern District of Texas. WPS responded and asserted counterclaims in Texas. WPS also filed a second lawsuit in California, asserting claims similar to the counterclaims. In response to the California complaint, Trafficware filed a motion to dismiss based on the first-to-file rule.

The California court granted the motion. Chronologically, there was no question that the Texas action was filed first, and it had in fact proceeded much further than the California case. In particular, the Texas court had already considered and denied WPS’s motion to transfer the case to California. WPS argued that the California court should use its equitable discretion to disregard the first-to-file rule, but the court refused to do so, finding no compelling reason to deviate from the well-established standard. Because WPS’s counterclaims in the Texas case pleaded the same factual allegations and claims as its California complaint, the California court found the second case was “wholly duplicative” and dismissed it.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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