Demand for Mediation Considered “First-Filed” for Purposes of Jurisdiction

By Jennifer Castranova, Esq.
jcastranova@pashmanstein.com

When New Jersey companies have disputes with out of state vendors or customers, absent a contractual provision providing for the venue in which disputes will be resolved, there often is a question regarding where a lawsuit should be venued.  New Jersey courts have often followed a rule that the matter will be venued wherever the first lawsuit between the parties is filed.  On January 27, 2012, the Appellate Division issued an opinion expanding this rule and holding that a demand for mediation should be viewed as the first-filed action by which a court acquires jurisdiction over another court acquiring later jurisdiction.

In CTC Demolition Company, Inc. v. GMH AETC Management/Development, LLC et al., 34 A.3d 1258 (App. Div. 2012), plaintiff CTC Demolition Company, Inc. (“CTC”) served defendant with a demand for mediation to be held in New Jersey based on a mediation clause contained in a series of contracts between the parties.  Less than two weeks after the demand for mediation was served, defendant filed a suit in Pennsylvania seeking a declaratory judgment that CTC lacked standing to enforce or sue on the contracts.  After the Pennsylvania suit was filed, CTC filed an action in New Jersey seeking a declaratory judgment that its demand for mediation was proper.  The question before the Court was how did the first-filed rule apply to the above sequence of events.

The first-filed rule states that a court with jurisdiction should defer to the court that first acquired jurisdiction.  Yancoskie v. Del. River Port Auth., 78 N.J. 321, 324 (1978).  Here, Defendant argued that the Pennsylvania action is the first-filed and plaintiff argued that the demand for mediation in New Jersey was the first-filed.  The Court acknowledged that the creation of the first-filed rule related to which of two lawsuits should proceed; however, in light of the favorable view of arbitration and mediation, the Court considered plaintiff’s argument that a demand for mediation should be treated like the filing of a complaint.  The Court held that the demand for mediation should be treated like the filing of a complaint and in doing so relied on the often cited public policy in favor of arbitration.  CTC, supra, citing Nolan v. Lee Ho, 120 N.J. 465 (1990); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984).

The Court went on to say that even if it were to disregard the demand for arbitration as irrelevant as to which matter was first filed, special equities required that the matter be litigated in New Jersey.  Specifically, the Court held that, “once mediation was demanded to occur in New Jersey, the later institution of the Pennsylvania action represented an untoward attempt to move the situs of this dispute, giving rise to special equity that warrants a disregarding of the Pennsylvania action.”

The Court’s ruling in CTC means that a demand for mediation or arbitration will now be considered the first-filed action for purposes of jurisdiction.

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