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Lewis & Clark Regional Water System, Inc. v. Carstensen Contracting, Inc.

United States District Court, D. South Dakota, Southern Division

September 11, 2018

CARSTENSEN CONTRACTING, INC., Defendant/Third-Party Plaintiff,



         Plaintiff Lewis & Clark Regional Water System, Inc. (Lewis & Clark) sued Defendant/Third-Party Plaintiff Carstensen Contracting, Inc. (Carstensen) in South Dakota state court alleging breach of contract. Carstensen removed the case to this Court and filed a third-party action against Third-Party Defendant Ameron Water Transmission Group, LLC (Ameron). Ameron filed a Motion to Transfer Venue to the District of Minnesota under 28 U.S.C. § 1404(a), Doc. 13, which Lewis & Clark opposed, Doc. 16. This Court held oral argument on the motion on August 28, 2018, [1] at which time Carstensen joined with Lewis & Clark in opposing the motion. Doc. 40. For the reasons stated below, Ameron's Motion to Transfer Venue is denied.

         I. Facts Pertinent to Motion to Transfer[2]

         Lewis & Clark's breach of contract action, commenced under South Dakota law by serving a Summons on Carstensen on May 17, 2018, concerns part of a massive multistate treated water pipeline system (the System) to bring potable water from the Missouri River to communities in eastern South Dakota, southwest Minnesota, and northwest Iowa. Doc. 1 at 1; Doc. 10 at ¶ 7. The System started in 2003, and, when complete, the System will span over 330 miles of total pipeline. Doc. 17-1 at ¶ 13. The System is funded by federal, state, and local monies. Doc. 17-1 at ¶ 15. The State of Minnesota has already funded $5.45 million to the System. Doc. 17-1 at ¶ 15.

         Lewis & Clark contracted with Carstensen to install approximately ten miles of pipeline for the System, roughly between Magnolia and Adrian, Minnesota (the Project). Doc. 10 at ¶ 6. Specifically, the contract calls for Carstensen to install twenty-inch diameter steel pipe with a polyurethane exterior coating exhibiting a minimum adhesion strength of 1, 750 pounds per square inch (psi) post-installation and 2, 500 psi pre-installation. Doc. 1-1 at 5. The contract between Lewis & Clark and Carstensen provides that the governing law will be "the state in which the Project is located." Doc. 10-1 at ¶ 17.05.

         To perform the contract with Lewis & Clark, Carstensen issued a Purchase Order to Ameron to supply the pipes for the Project. Doc. 10-2. The Purchase Order contains detailed specifications for the ordered pipes. Doc. 10-2. Additionally, the Purchase Order states that "[Carstensen] and [Ameron] hereby submit to the nonexclusive jurisdiction of the United States District Court for the Central District[3] of Minnesota." Doc. 10-2 at ¶ 17 (emphasis omitted).

         The pipes supplied by Ameron and installed by Carstensen allegedly did not meet the agreed to specifications, and Lewis & Clark believes that about nine of the ten miles of pipes must be replaced. Doc. 16 at 2. On March 28, 2018, the Project engineer, Banner Associates, notified Carstensen that the pipes were being rejected because of defective coating. Doc. 17-3. Carstensen maintains that the alleged failure of the pipes to meet the coating specifications is due to manufacturing problems in Mexico encountered by Ameron. Doc. 1-1 at ¶ 7.

         On April 17, 2018, Carstensen received an email from Lewis & Clark that stated, in part:

Carstensen and AMERON have long said they will "make Lewis & Clark whole . . . ." Be assured we will have no choice but to vigorously pursue every legal avenue possible to ensure that happens .... At the end of the day, if this must proceed to court, it will be a simple case from L&C's perspective: it is undisputed L&C did not get what it paid for and a local jury (including the taxpayers who paid the original bill) will be eager to make sure L&C collects every dime it is entitled to.

Doc. 10-3 at 3. Carstensen forwarded this email to Ameron, advising Ameron that "[Lewis & Clark is] growing very impatient with us .... I [l]ook forward to Ameron[']s response ...." Doc. 10-3 at 2.

         After receiving this email, Ameron, according to Lewis & Clark, "went dark for a month." Doc. 16 at 7. On May 15, 2018, Carstensen received Ameron's draft Complaint for Declaratory Relief against Carstensen, Lewis & Clark, Rustnot Corrosion Control Services, Inc. (Rustnot), and William Spickelmire (Spickelmire).[4] Doc. 26 at 5; Doc. 11 at 1. Carstensen apparently advised Lewis & Clark that Ameron was going to file suit.

         On May 17, 2018, Lewis & Clark commenced this action in South Dakota state court by serving Carstensen with a Summons.[5] Doc. 1-1 at 1. On May 21, 2018, Lewis & Clark served counsel for Carstensen with a copy of its Complaint alleging breach of contract. Doc. 1-1 at 2-4. Lewis & Clark seeks to recover: (a) the expense to remove and replace the defective pipe; (b) liquidated damages totaling $1, 350/day from November 17, 2017, to the date the project is substantially complete; and (c) consequential damages. Doc. 1-1 at ¶¶ 8-10. On May 22, 2018, Ameron filed its declaratory judgment action in the United States District Court for the District of Minnesota (Second Action).[6] Doc. 17-1. Ameron moves to transfer this action to the District of Minnesota where Ameron's declaratory judgment action is pending. Doc. 13 at 1; Doc. 17-1; Doc. 26 at 2.

         Lewis & Clark is a South Dakota non-profit 501(c)(4) corporation with its principal place of business in Tea, South Dakota. Doc. 17-1 at ¶ 3. Lewis & Clark's executive and administrative staff work in South Dakota. Doc. 17 at ¶ 5. Banner Associates, the Project engineer, is headquartered in Sioux Falls, South Dakota. Doc. 17 at ¶ 6; Doc. 17-3. Carstensen is a Minnesota corporation with its principal place of business in the southwest Minnesota town of Pipestone. Doc. 1 at ¶ 10. Carstensen's employees primarily reside in Minnesota. Doc. 10 at ¶ 3. Ameron is a Delaware limited liability company with its principal place of business in Rancho Cucamonga, California. Doc. 40.

         II. Discussion

         Ameron's motion to transfer argues that the factors analyzed under § 1404(a) justify transfer to the District of Minnesota. Lewis & Clark responds that its choice of venue in South Dakota is proper under the "first-filed rule," but Ameron questions whether Lewis & Clark's action deserves any deference as being first-filed. Whether a suit is first-filed or whether transfer is justified under § 1404(a) are separate questions with separate analyses. Zimmer Enters., Inc. v. Atlandia Imps., Inc., 478 F.Supp.2d 983, 989 (S.D. Ohio 2007); see also Diamond Mowers. Inc. v. S. Vegetation Mgmt LLC, No. 4:07-cv-04109-KES, at *5-10 (D.S.D. Mar. 13, 2008) (analyzing a motion to dismiss under the first-filed rule and a motion to transfer venue under § 1404(a)). The first-filed rule does not "'trump' an analysis pursuant to § 1404(a)." Terra Int'l. Inc. v. Miss. Chem. Corp., 922 F.Supp. 1334, 1349 (N.D. Iowa 1996), aff d on other grounds, 119 F.3d 688 (8th Cir. 1997). For example, "a determination that the [South Dakota] action [is] the first-filed and that none of the exceptions to the first-to-file rule exist, does not preclude the Court from determining that transfer of venue is proper under 28 U.S.C. § 1404(a)." Zimmer Enters., Inc., 478 F.Supp.2d at 989; see generally Johnson Bros. Liquor Co. v. Bacardi U.S.A., Inc., 830 F.Supp.2d 697, 711 (D. Minn. 2011) (reasoning that the analysis under § 1404(a) is "distinct" from the analysis under the first-filed rule). Accordingly, this Court considers both the first-filed rule and § 1404(a) in considering whether to grant the motion to transfer.

         A. First-Filed Rule

         The "first-filed rule gives priority, for purposes of choosing among possible venues when parallel litigation has been instituted in separate courts, to the party who first establishes jurisdiction." Nw. Airlines. Inc. v. Am. Airlines. Inc.,989 F.2d 1002, 1006 (8th Cir. 1993) (citing U.S. Fire Ins. Co. v. Goodyear Tire & Rubber Co.,920 F.2d 487, 488 (8th Cir. 1990)); see also Orthmann v. Apple River Campground. Inc.,765 F.2d 119, 121 (8th Cir. 1985) (stating that "the first court in which jurisdiction attaches has priority to consider the case"). The first-filed rule "conserve[s] judicial resources and avoid[s] conflicting rulings." Nw. Airlines. Inc., 989 F.2d at 1006 (citing Goodyear, 920 F.2d at 488). However, the rule "is not intended to be rigid, mechanical, or inflexible." Id. at 1005 (quoting Goodyear, 920 F.2d at 488). The rule "yields to the interests of justice, and will not be applied where a court finds 'compelling circumstances' supporting its abrogation." Id. at 1006 (quoting ...

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