Federal Circuit Vacates District Court Decision to Retain Second Filed Case in Overlapping Cases

On October 28, the United States Court of Appeals for the Federal Circuit (CAFC) granted a petition for a writ of mandamus directing the United States District Court for the Western District of Texas in In re: Nitro Fluids, L.L.C. In particular, Nitro Fluids petitioned the CAFC for a writ of mandamus directing the district court to dismiss an action or transfer it to the United States District Court for the Southern District of Texas, where an overlapping case was pending. The CAFC granted the petition to the extent that it vacated the district court’s order and directed the district court to conduct further proceedings consistent with the CAFC’s order.

First-to File Rule

In 2018, Cameron International Corporation (Cameron) filed suit against Nitro in the Southern District of Texas, where both parties are headquartered, alleging that Nitro’s fracturing-fluid delivery systems infringed three of Cameron’s patents. The Southern District of Texas has not yet issued a claim construction ruling and a trial date has not yet been set. Subsequently, in February 2020, Cameron filed suit against Nitro in the Western District of Texas (the district court), alleging that the same fracturing-fluid delivery systems infringed two of Cameron’s other related patents. In response, Nitro moved the Western District of Texas to “decline jurisdiction or transfer the action, relying primarily on the first-to-file rule, which generally dictates that ‘the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed.’”

Relying on Fifth Circuit precedent, the district court rejected application of the first-to-file rule but found that even in cases where there is substantial overlap, the still needed to determine whether there were “sufficiently compelling circumstances to avoid the rule’s application.” The district court reasoned that when a balance of the “28 U.S.C. § 1404(a) transfer factors ‘does not weigh in favor of transfer[,] . . . compelling circumstances exist in order to avoid application of the first-to-file rule.’” The court concluded that two factors, i.e. the relative ease of access to sources of proof and the local interest in having localized interests decided at home, favored transfer. However, the district court found that administrative difficulties and practical problems factors weighed against transfer. Thus, the district court concluded that “Nitro has not demonstrated that a balance of the convenience factors favors transfer” and denied Nitro’s motion to decline jurisdiction or transfer the action. Nitro filed a petition for mandamus with the CAFC.

Federal Circuit Review

Reviewing the district court’s decision to deny transfer for an abuse of discretion, the CAFC noted that the mandamus petition turned on the “correctness of the district court’s conclusion that consideration of [the transfer] factors here established compelling circumstances.” The CAFC explained that the district court’s determination rested on the incorrect legal proposition that the first-to-file rule is only applicable when the balance of factors favors the first-filed court. Noting that the proposition relied upon by the district court was backwards and contrary to law, the CAFC stated that “[u]nless the balance of transfer factors favors keeping the case in the second-filed court, there are no compelling circumstances to justify such an exception.”

Citing New York Marine & General Insurance Co. v. Lafarge North America, Inc., the CAFC explained that the “’special circumstances” exception to the first-to-file rule can be based on an assessment of the factors, but only when “‘the balance of convenience favors the second-filed action.’” The CAFC further explained that precedent both within and outside the Fifth Circuit place the “burden on the party that is seeking to establish a compelling circumstances exception to the rule.” Noting that in a usual transfer analysis deference is given to the plaintiff’s choice of forum, the CAFC noted that such deference is “not owed when a party is insisting on having two substantially overlapping proceedings continue at the same time before two different courts.” The CAFC expressed that the district court erred in not making such an adjustment in its analysis.

The CAFC noted that the district court’s error in applying an incorrect legal standard for assessing whether transfer was required warranted mandamus relief, but also explained that the district court failed to expressly or implicitly resolve the critical issue of whether a balance of the factors favors the second-filed court. The CAFC pointed out that the district court found that two factors favored transfer, two factors weighed against transfer, and the remaining factors were neutral.   The CAFC explained that there were clear errors in the district court’s assessment of the two factors that weighed against transfer. For example, with respect to the “practical problems factor,” the CAFC reasoned “[b]ecause the first-to-file rule places a premium on the importance of allowing one court to resolve substantially overlapping cases, the court was wrong to replace that preference with its own views on the importance of speed of resolution.” The CAFC also stated that the CAFC’s analysis regarding the “judicial economy” factor was “cursory” and only consisted of “two sentences, neither of which meaningfully discuss [the] similarities and differences” of the overlapping cases. Thus, the CAFC vacated the district court’s order and directed the district court to conduct further proceedings consistent with the CAFC’s order.