Anticipatory Filing Exception to “First to File” Rule

The United States District Court for the Northern District of Illinois, in an opinion written by Judge John Robert Blakey, applying the federal rules of civil procedure, dismissed declaratory judgment lawsuits filed by Coherent Economics, LLC (“Coherent”) and by Bradford Cornell and San Marino Business Partners LLC (together as “Cornell”) against Verition Partners Masters Fund, LTD. (“Verition”) under the anticipatory filing doctrine. The District Court found that the lawsuits constituted improper anticipatory filings because they were initiated in response to a threat of imminent suit and were mirror images of the later filed suits in a different jurisdiction.

This case stems from an appraisal action between Verition and Verizon Communications, Inc.  (“Verizon Communications”). Verition retained Coherent and Cornell to provide economic consulting services in the appraisal action. Verition disclosed Cornell as its expert witness for the case and called Cornell as its expert witness during the trial. During the cross-examination of Cornell and the post-trial briefing, it came to light that Cornell had actively solicited Verizon Communications before Verition retained him as an expert witness and made several statements indicating that Verition had a poor chance of success against Verizon Communications. Ultimately, the trial court adopted Verizon Communications’ expert witness evaluation and Verition lost the appraisal action. Verition then sent a demand letter to both Coherent and Cornell detailing its intent to sue for various causes of action stemming from Coherent’s and Cornell’s involvement in the appraisal action. In its letters, Verition gave Coherent and Cornell 10 days to respond before it would commence actions against the parties. Instead of responding to Verition within the 10-day window, both Coherent and Cornell filed separate declaratory judgment actions against Verition on the 9th day, in the Northern District of Illinois. Verition then commenced its actions against Coherent and Cornell in the Superior Court of Delaware and filed a motion to dismiss the actions against it in the Northern District of Illinois under the anticipatory filing doctrine.

This issue before the District Court was whether Coherent’s and Cornell’s actions were improper anticipatory filings. According to the District Court, usually, when two similar actions exist, the court either “dismiss[es], stay[s], or transfer[s] the second-filed suit,” under the “first-to-file” rule. However, the District Court explained that the Seventh Circuit does not strictly follow this rule, and instead looks at the nature of each action to determine which claim has priority; finding if one of the actions is seeking a declaratory judgment and the other is seeking coercive relief, priority should be given to the coercive action “regardless of which case was filed first.” Further, the District Court explained that the Seventh Circuit does not adhere to “the first-to-file [rule] where a first-filed declaratory judgment action constitutes an improper anticipatory filing,” defining an anticipatory filing as “one made under the threat of an imminent suit asserting the mirror image of that suit in another district.” Finally, the District Court explained that while there is no clear standard of review regarding applying the anticipatory filing doctrine, it would consider the motion with federal rule of civil procedure 12(b) in mind as other jurisdictions have done.

The District Court determined that Coherent’s and Cornell’s declaratory actions against Verition were improper anticipatory filings because they were commenced “under threat of imminent suit” and were “mirror images of Verition’s later-filed lawsuit in Delaware,” and thus, should be dismissed. In making its ruling, the 7th Circuit rejected Coherent’s and Cornell’s arguments that the actions were not anticipatory filings because Verition’s demand letters did not indicate the forum in which it intended to sue.  According to the District Court, there is “no legal authority suggesting that a lawsuit can only be deemed anticipatory if brought in the face of a threat to sue in a particular forum.” The District Court also rejected Coherent’s argument that its actions were not anticipatory filings because Verition waited five weeks after Coherent filed suit to commence its actions in Delaware. Finally, the District Court rejected Cornell’s argument that the anticipatory filing doctrine should not apply because it amended its complaint to include a contract-based claim. The District Court explained that the anticipatory filing doctrine is still applicable in a scenario where a plaintiff asserts an affirmative claim in addition to a declaratory judgment claim.

In sum, the District Court determined that Coherent’s and Cornell’s actions were improper anticipatory filings because the actions were commenced under the “threat of an imminent suit and assert[ed] the mirror image of that suit in another district.” Accordingly, the District Court dismissed Coherent’s and Cornell’s complaints. Coherent Econ., LLC v. Verition Partners Masters Fund, Ltd., No. 18-cv-8376, 2020 U.S. Dist. LEXIS 25817 (N.D. Ill. Feb. 14, 2020).