7thOnline, Inc. v. Colony Brands, Inc.

Background

Colony Brands, Inc. sued 7thonline, Inc. in the Western District of Wisconsin on February 21, 2025, alleging breaches of a software-servicing contract. That case was in the early stages of discovery, and 7thonline had filed a motion to dismiss. Among other arguments, 7thonline contended that Colony filed the Wisconsin case too soon after the parties’ contractually required mediation or dispute-resolution process.

The parties’ January 2018 agreement required disputes to be mediated between company officers for at least 30 days before a lawsuit could be filed, except when seeking preliminary injunctive relief. The parties disputed whether meetings in September 2024 and February 2025 satisfied that provision.

On March 24, 2025, 7thonline filed this action in the Southern District of New York. It alleged that Colony breached the contract by failing to pay a required subscription fee and sought a declaration that the New York action, rather than the Wisconsin action, should receive priority under the first-filed rule. The first-filed rule generally gives priority to the lawsuit filed first when two cases involve substantially similar parties and claims.

Colony moved to dismiss the New York action in its entirety or, alternatively, to transfer it to the Western District of Wisconsin. Colony also asked the court to dismiss 7thonline’s declaratory-judgment claim with prejudice.

Court’s reasoning

The court explained that exceptions to the first-filed rule can apply when special circumstances exist, such as an improper anticipatory lawsuit or forum shopping, or when convenience factors favor the later-filed action. The court also explained that a court may stay, dismiss, or transfer a later-filed case to avoid duplicative litigation, inconsistent rulings, and wasted judicial resources.

Judge Woods declined to decide whether an exception to the first-filed rule applied. The Wisconsin action was filed first, and courts in the Southern District of New York generally allow the court handling the first-filed case to determine whether an exception applies. More importantly, deciding the New York case would require analyzing the same issues before the Wisconsin court: the meaning of the agreement’s mediation provision, whether the parties complied with it, and whether Colony breached the agreement by filing the Wisconsin action.

The court therefore withheld consideration of the merits of 7thonline’s claims and the first-filed-rule issue to avoid inconsistent rulings. It concluded that transferring or dismissing the New York action at that point could require the court to decide issues already pending in Wisconsin.

Disposition

The action was temporarily stayed pending a ruling on the merits of 7thonline’s motion to dismiss in the Wisconsin action. The Wisconsin court may later decide whether the first-filed rule requires dismissal of the New York action or transfer of that action to Wisconsin. The parties must report the status of the New York case after the Wisconsin court issues such a ruling. The clerk was directed to note the stay on the docket, and Colony’s motion at Dkt. No. 21 was terminated. The court did not decide the parties’ underlying contract dispute or the applicability of the first-filed rule.