Eye Street Solutions LLC created (and licensed to VRCompliance) a software product that helps municipalities determine whether they are receiving all tax revenues due them for room rentals. The program “uses various data to identify the owners of properties advertised on websites like HomeAway’s and then determines whether the owners have paid the requisite local rental taxes.”
After getting sued in Travis County, Eye Street made no attempt to remove the case to federal court. Instead, it later filed a federal lawsuit in the Eastern District of Virginia, seeking various declaratory relief under federal law (much of which was not presented in the Texas litigation) as well as non-declaratory, Virginia state-law claims. The District Court stayed the federal lawsuit pending the resolution of the Texas litigation, and Eye Street appealed.
The Fourth Circuit affirmed, noting in part the District Court’s recognition of Texas’ “strong interest in having its courts take a first stab at resolving this question,” as well as Eye Street having been put on notice of likely claims against it in HomeAway’s final cease and desist letter.
In the end, the panel saw Eye Street’s posturing for what it was:
“Eye Street thus desired not a federal forum per se, but one that would approach the dispute on its terms and potentially preempt HomeAway’s alternative framing of the issues in the Texas suit. This, of course, is precisely the kind of ‘procedural fencing’ that federal case law aims to forestall. . . District Courts enjoy discretion to consider a litigant’s deliberate decision to forego removal as a reason to stay its federal declaratory action. . . . A party should not be heard to complain that it lacks a federal forum when such deprivation stems from its own apparent procedural gamesmanship.”
UPDATE: On December 27, 2013 the parties’ “consent motion to dismiss,” which advised the Court that a confidential settlement agreement had been reached, was granted in the case pending (stayed) before the Eastern District of Virginia. Travis County, Texas court records are not readily available to confirm the state court litigation was also dismissed.