Removal of Case from State to Federal Court Does Not Affect Application of First-Filed Rule, Split Eighth Circuit Panel Holds

In Beber v. NavSav Holdings, LLC, No. 23-2965 (8th Cir. Oct. 1, 2024), a 2-1 panel holds, in dueling lawsuits over noncompete and nonsolicitation covenants, that a first-filed case commenced in Nebraska state court remained first-filed even when removed to federal district court. Judge Kelly dissents in part.

On June 16, 2023, employees Beber, Roach, and Damon quit NavSav’s office in Omaha, Nebraska, and joined a rival insurance company UNICO Group, Inc. (UNICO) in Lincoln, Nebraska. Multiple actions commenced, both opposing and supporting the parties’ noncompete and nonsolicitation covenants. “On June 23, 2023, [plaintiff] Beber sued NavSav in Nebraska state court. Beber sought declaratory and injunctive relief. He argued that Nebraska law controls and that the covenants are consequently unenforceable.” The state case was removed to federal district court in Nebraska.

“On June 26, 2023, NavSav sued Beber, Roach, Damon, and UNICO in Texas state court. NavSav argued that Texas law controls, and it sought injunctive relief and damages on several claims, including breach of contract, tortious interference, and misappropriation of trade secrets.” Other cases ensued in Texas and Nebraska.

The federal district court in Nebraska granted antisuit injunctions to the three employees that “forbid NavSav from litigating its Texas case.” It also granted preliminary injunctions that “forbid NavSav from otherwise trying to enforce its covenants against” the departing employees.

The Eighth Circuit vacates and remands. In material part, the panel majority affirms the antisuit injunction for Beber, holding that his Nebraska action was the first-filed of this case.

“[T]he power of one court to enjoin parties properly before it from pursuing their claims in other courts traces back to at least the eighteenth century . . . . However, this discretionary power has limits. As we explained in Northwest Airlines [Inc. v. American Airlines, Inc., 989 F.2d 1002, 1006 (8th Cir. 1993)], the most important limit on the district court’s power to issue an antisuit injunction is the ‘first-filed rule.’” Under this rule, “the court in which jurisdiction first attached should proceed to adjudicate the controversy and should restrain the parties from proceeding with the later-filed action.”

“As the name ‘first-filed rule’ implies, the relevant time of attachment is when the original complaint in each case was filed . . . . Removal of a case from state to federal court does not change when the original complaint was filed. A notice of removal ‘does not commence a new case’ . . . . It simply moves an existing case from state to federal court.”

At least as to plaintiff Beber, the panel majority holds, the first-filed case was the state court case filed in Nebraska and thus it assumes priority. The panel affirms his antisuit injunction. But as to the other two employees, Roach and Damon, the first-filed case was NavSav’s in Texas and so their antisuit injunctions must be tossed. (On the merits, the panel vacates the preliminary injunctions, holding that the employees failed to prove irreparable harm from enforcement of the noncompete and nonsolicitation covenants.)

Dissenting in part, Judge Kelly would concur on the merits that the plaintiffs failed to establish irreparable harm and thus were not entitled to injunctive relief. But Judge Kelly demurrers to the first-filed holding, stating that the better course would have been to remand the issue to the district court.

“The first-filed rule ‘will not be applied where a court finds ‘compelling circumstances’ supporting its abrogation’ . . . . We lack a record on these issues, and the district court is better suited to make the factual findings necessary to determine whether antisuit injunctive relief is warranted.”

“Moreover, the procedural posture of the Texas litigation has changed. While this case was pending in our court, the Eastern District of Texas remanded its case to Texas state court. See NavSav Holdings, LLC v. Beber, 23-CV-290, 2024 WL 1329786, at *13 (E.D. Tex. Mar. 20, 2024). The district court is best suited to evaluate what effect, if any, this remand has on the first-filed rule analysis.”