USDC S.D. New York, September 29, 2008

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The court granted defendants’ motion to transfer this declaratory judgment action from the S.D.N.Y. to the C.D. of California. Although plaintiff insurers filed this case in New York before the defendants filed a separate action in California, the New York court found that fairness and convenience weighed in favor of transferring this action to California.

In February, 2006, plaintiffs filed this case in the New York district court, seeking a declaration of no obligation to provide coverage under five Media Special Perils policies. Defendants sought coverage for legal liabilities arising from a California copyright infringement class action brought on behalf of “owners of copyrighted recordings used on the television show Santa Barbara.” Plaintiff insurers disclaimed coverage, alleging that the defendants failed to give timely notice of claims under the terms of the policies.

In March, 2006, defendants filed their own action against the plaintiffs in the Superior Court of California, seeking contract damages and a declaration of coverage. In April, 2006, the defendants’ California action was removed to the U.S. District Court for the Central District of California.

Also in 2006, Chief District Judge Mukasey granted defendants’ motion to dismiss the earlier-filed New York case, noting that “‘[w]here essentially the same lawsuit involving the same parties and the same issues is pending in two different courts,’ the second-filed action will take priority only where there are ‘special circumstances’ or where the moving party shows that the ‘balance of conveniences’ favors the second forum.” Employers Ins. of Wausau v. News Corp., 2008 U.S. Dist. LEXIS 76570 (quoting Wausau I, 439 F. Supp. 2d 328 (S.D.N.Y. 2006)). This year, the Second Circuit reversed Chief Judge Mukasey’s finding of “special circumstances,” but held that the remanded action could still be dismissed “if the balance of conveniences favored the California forum.” Wausau II, 522 F.3d 271 (2d Cir. 2008).

Rather than pursue their motion to dismiss on remand, the defendants moved to transfer the New York action to the Central District of California, pursuant to 28 U.S.C. § 1404(a), which provides: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” District courts have broad discretion to decide motions to transfer, and do so based on notions of convenience and fairness, on a case-by-case basis. Factors which may be considered include: “(1) the plaintiff’s choice of forum, (2) the convenience of witnesses, (3) the location of . . . proof, (4) the convenience of parties, [and] (5) the locus of operative facts . . . .”

In granting the defendants’ motion to transfer this action to California, the court rejected plaintiffs’ choice of forum, reasoning that it should be given “considerably less weight” than normal, because New York was neither the plaintiffs’ state of residence nor the locus of operative facts in the case. While neither plaintiff could claim New York as either their state of incorporation or principal place of business, all three defendants seeking coverage in the California action were headquartered in California. The court also identified California as the locus of operative facts because the plaintiffs’ obligations under the insurance policies related to the California class action. The factual issues in the instant case were centered on notices of claim mailed from the defendants’ California offices and the quality of the defendants’ legal representation in the California class action.

The court also reasoned that the convenience of witnesses and judicial economy weighed in favor of transferring the action to California. The defendants submitted a “long list of California witnesses” with knowledge of the California class action, the underlying copyright infringement claims, and defendants’ notice to the plaintiff insurers. Although the plaintiffs identified New York witnesses, the court was not satisfied that their testimony would be relevant. As to judicial economy, the California court had already ruled against dismissing or transferring the defendants’ March 2006 action. If the New York court had denied defendants’ motion to transfer this case to California, then either the California Court would have been required to reconsider its prior rulings, or duplicate actions would have proceeded in the separate courts. The plaintiff has filed an immediate appeal of this decision to the Second Circuit Court of Appeals.