A demand for mediation or arbitration based on a contractual agreement may qualify as a “first filed action” according to the Appellate Division in New Jersey. In a matter of first impression, the court considered whether a demand for mediation or arbitration may be viewed as a first filed action in CTC Demolition Company Inc. v. GMH AETC Management/Development, L.L.C.
In CTC Demolition, the plaintiff filed a demand for mediation with the American Arbitration Association and served the defendant in New Jersey. The defendant then filed a declaratory judgment action in Pennsylvania alleging that the plaintiff lacked standing to enforce the contract. The plaintiff later commenced its own declaratory judgment action seeking to uphold its demand for mediation. That declaratory judgment action is the action that reached the Appellate Division.
The court held that a demand for arbitration or mediation now qualifies as a “first filed action” for the purposes of comity. The concept of comity is one in which state courts of one jurisdiction will give effect to the judicial decisions of another jurisdiction that first acquired jurisdiction out of respect. The “rule of first filing” determines which judicial acts or laws take precedent based on which are first in time.
The court reasoned that, although the first filed rule was created to determine which of two lawsuits would be adjudicated, “the proliferation of mediation and arbitration as an alternate but highly-favored method for resolving disputes since the first-filed rule’s development” indicates that a demand for mediation should be treated like the filing of a complaint.
The court also suggested that, even without that holding, the special equities exception to the first filed action rule may apply to the extent that the defendant, taking advantage of the fact that the plaintiff had demanded mediation, engaged in forum shopping to move the suit out of New Jersey.
This decision makes clear that filing of a demand for mediation and arbitration, where the parties have contractually agreed to resolve their disputes by these methods, has equal value to commencing a lawsuit in civil court. This decision is in line with the modern judicial system’s encouragement of alternative dispute resolution. Significantly, the decision in this case may decrease the number of lawsuits filed merely to race to the courthouse where the parties have an agreement to arbitrate or mediate disputes.