New Jersey Appellate Division Finds That a Demand for Arbitration or Mediation Constitutes the “First-filed” Action for Comity Purposes

In CTC Demolition Company, Inc. v. GMH AETC Management / Development, LLC, et al., the Appellate Division recently found in a to-be published opinion that a party’s demand for contractually-mandated arbitration or mediation may constitute the “first filed” action for purposes of a comity analysis.

The “first filed rule” typically surfaces where parties have engaged in a “race to the courthouse,” filing similar lawsuits in different jurisdictions that they perceive to be most friendly to their cause. Based on traditional principles of comity, the rule provides that “a New Jersey court should not interfere with a similar, earlier-filed case in another jurisdiction that is capable of affording adequate relief and doing complete justice,” Sensient Colors, Inc. v. Allstate Ins. Co., but allows for certain exceptions, such as where “the presence of special equities may lead a court to disregard the traditional deference paid to the first-filed action.”

In CTC the litigants were parties to contracts requiring that they engage in both mediation and arbitration prior to filing suit. On June 8, 2010, the plaintiff, CTC, served the requisite demand for mediation on certain defendants (collectively, “Balfour”) in New Jersey. Approximately two weeks later, Balfour filed suit in Pennsylvania seeking a declaratory judgment against CTC. CTC subsequently filed suit in the New Jersey Superior Court seeking a declaration regarding the propriety of its demand for contractual mediation. At trial in CTC’s lawsuit, the New Jersey Superior Court entered an Order compelling Balfour to engage in mediation and arbitration, as required by the parties’ contracts.

Balfour appealed, arguing, among other things, that the trial court erred in hearing the case at all, rather than deferring to the Pennsylvania action, which Balfour claimed was “first filed” for the purposes of the first filed rule. CTC contended that its original demand for mediation in New Jersey actually constituted the “first filed” action. Considering the strong public policy favoring alternative dispute resolution, the Appellate Division found “no principled reason for viewing a demand for mediation or arbitration, contractually stipulated as a means for resolving disputes, as something that has no value or less value in [a comity] analysis than a complaint filed in civil court.” The court went further, specifying that, even if CTC’s demand for mediation did not constitute the “first filed” action in itself, Balfour’s attempt to litigate in Pennsylvania despite CTC’s previous demand for alternative dispute resolution in New Jersey “represented an untoward attempt to move the situs of th[e] dispute, giving rise to special equity that warrants a disregarding of the Pennsylvania action.”

Regardless of the rationale employed, the result is the same: once a party demands contractually-mandated mediation or arbitration, New Jersey courts will likely not give credence to later-filed litigation when conducting a comity analysis.