ZL Technologies, Inc. v. Western & Southern Financial Group, Inc.

Background

ZL Technologies and Western & Southern Financial Group entered into a master software license agreement and a related statement of work in 2014. After a dispute about their contractual rights and obligations, Western & Southern sent ZL notice terminating the agreement before it renewed for another year.

Western & Southern filed an action in the U.S. District Court for the Southern District of Ohio on November 22, 2024. That action sought a declaration that ZL had breached the agreement and statement of work, that Western & Southern had not breached the agreement, and that Western & Southern did not owe ZL additional amounts. It also asserted a breach-of-contract claim.

ZL filed this action in the Northern District of California on January 23, 2025. ZL alleged that Western & Southern used more than the 5,000 perpetual user licenses it purchased and asserted claims for breach of contract and the reasonable value of the additional software use.

First-to-File Rule

Western & Southern moved to dismiss, stay, or transfer the California case under the first-to-file rule. That judge-made rule allows a federal court handling a later-filed case to transfer, pause, or dismiss it when an earlier case involving the same parties and substantially similar issues is pending in another federal district.

The court found that all three relevant factors favored applying the rule: Western & Southern filed the Ohio action first; both cases involved ZL and Western & Southern; and both concerned the parties’ obligations and performance under the software agreement. The court rejected ZL’s argument that it was the “natural plaintiff,” reasoning that Western & Southern also alleged that ZL breached the agreement.

The court also rejected ZL’s arguments for an exception to the rule. It found that ZL’s evidence-preservation notice showed, at most, the possibility of a lawsuit at an undefined time and did not provide specific, concrete indications that a lawsuit was imminent. The court further found that Western & Southern had an existing reason to bring a contract claim, that the record did not show bad faith, and that ZL’s convenience argument was unsupported by evidence. Because the Ohio action was the first-filed case, the court stated that the Ohio court should generally consider convenience issues.

Disposition

The court concluded that transfer was appropriate because the claims in the two cases were substantially similar, although not identical. It therefore granted in part and denied in part Western & Southern’s motion: it granted the motion to transfer the action to the U.S. District Court for the Southern District of Ohio and denied the motions to dismiss and stay the case as moot. The court vacated the July 23, 2025 hearing and case-management conference, directed the clerk to transfer the case to the Southern District of Ohio, and ordered the California case closed.