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holding that the existence of a "parallel federal court action" "militates toward dismissing the action because . . . it would be redundant for the Court to allow both to proceed, in light of the similarity of facts, parties, and law."
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Civil Action No. 02-1188, 02-3443 Section "K" (5)
February 13, 2003
ORDER AND REASONS
Before this Court are two motions brought by Youthspan, Inc. and e-Scripts.MD, LLC: a Motion to Dismiss or in the Alternative to Stay Proceedings, (Rec. Doc. 10), and a Motion Transfer Venue (Rec. Doc. 16). For the reasons stated below, the Court hereby GRANTS both motions. The Motion to Dismiss pertains to the Louisiana Action, civil action number 02-1188 the Motion to Transfer relates to the Georgia Action, civil action number 02-3443.
Factual Background:
This case involves two factually similar cases that the Court has consolidated. (Rec. Doc. 18). On April 19, 2002, the plaintiffs, Phillip J. Pertuit and Midnight Diversified, Ltd., filed the Louisiana Action (Action i) in this Court, requesting a declaratory judgment that they are not infringing upon Youthspan and e-Scripts' copyrights, and that the plaintiffs are not misappropriating their trade secrets. The defendants in Action 1, Youthspan and e-Scripts.MD, assert that they were not served until 124 days after Action 1 was filed.
Hereinafter the Court will refer to Pertuit and Midnight Diversified as the plaintiffs and Youthspan and e-Scripts.MD as the defendants. These designations reflect the parties' status in Action 1, the case which was filed in this Court on April 19, 2002.
Six days after Action 1 was filed, on April 25, 2002, Youthspan and e-Scripts filed a complaint in the United States District Court for the Norther District of Georgia, Atlanta Division-at this point they were unaware that they were defendants in Action 1. The complaint in the Georgia Action (Action 2) was served on Phillip Pertuit, Savoie, Med Script, and Maxlife on May 6, 2002.
Both lawsuits are factually identical and the issues of law overlap substantially. The main difference between the two actions is that Action 1 is one for declaratory relief, while Action 2 is an infringement suit.
On September 20, 2002, the defendants in Action 1 filed a Motion to Dismiss or in the Alternative Stay Proceedings in the Louisiana Action.
On November 6, 2002, this Court, anticipating possible conflicting results arising from these parallel proceedings, called a status conference. In a minute entry issued on the same day, the Court advised the parties that in the interests of judicial efficiency and comity, the judge presiding over Action 2 in the Northern District of Georgia would transfer the Georgia case to this Court. The Court reasoned that since Action 1 was ostensibly "first-filed" in the Eastern District of Louisiana, it should be the Court that decides preliminary jurisdictional matters. ( See Rec. Doc. 15). This Court informed the parties that once both cases were before it, it would decide, upon a Motion to Transfer, which forum is best suited to hear the case and address any other jurisdictional issues.
On November 26, 2002, the defendants filed the instant Motion to Transfer Venue to the Northern District of Georgia. In its Motion to Transfer, the defendants argue 1) that the plaintiffs complaint in Action i should be dismissed because it was not timely served, 2) that Action i is an improper anticipatory filing, warranting a departure from the first-filed rule, and 3) that the matter should be transferred pursuant to 28 U.S.C. § 1404 (a). The plaintiffs, in their opposition, allege i) that the defendants have waived any argument as to untimely service of the original complaint, 2) that the first action was not an anticipatory filing, and 3) that no factual basis justifies transferring the cases to the Northern District of Georgia.
The Court first addresses the Motion to Transfer because many of the issues it raises overlap with those in the Motion to Dismiss. A resolution of the Motion to Transfer also resolves the Motion to Dismiss.
Motion to Transfer
1. Untimely Service
The defendants in Action i argue that under rule 4(m) of the Federal Rules of Civil Procedure, a complaint must be properly served within 120 days after the complaint is filed. They contend that the plaintiffs' complaint in Action 1 was filed beyond the 120-day deadline and therefore the Court should dismiss the action pursuant to Federal Rule of Civil Procedure 12(b)(5).
To counter the assertion that the action should be dismissed due to untimely service, the plaintiffs advance two arguments. First, the plaintiffs counter that the delay in service was negligible because the complaint was served on the 124th day after it was filed. Second, the plaintiffs argue that even if the tardy service is significant, the defendants waived their objection to improper service by failing to file an objection in a Rule 12 motion or in their responsive pleading.
Pursuant to Rule 4(m), when a plaintiff fails to serve a defendant within the 120 day period, the district court has two choices: dismiss the action without prejudice, or direct that service be effected within a specified time. Alden v. Allied Adult Child Clinic, 2002 WL 1684553, *1 (E.D.La. 7/22/02). If a plaintiff demonstrates good cause for the delay, an extension is mandatory. Id. In Alden, the court stated that "in considering whether to dismiss a defendant who was untimely served but where it is not obvious there is good cause for the delay, courts consider the reasons for the delay and whether the tardy service has prejudiced the defendant." Id. Good cause is defined as "more than simple inadvertence, mistake, or ignorance. "Good cause' at a minimum means excusable neglect . . . a plaintiff also may be required to show that (i) the party to be served personally received actual notice of the lawsuit; (2) the defendant would not suffer any prejudice by the court extending the 120-day deadline; and (3) the plaintiff would be severely prejudiced if the complaint were dismissed." Id. Even if good cause does not exist, the court may, in its discretion, decide whether to dismiss the case without prejudice or extend the time for service. Thompson v. Brown, 91 F.3d 20, 21 (5th Cir. 1996).
The plaintiff argues that the delay in service was justified because of "the complexities in this matter, with some plaintiffs in Louisiana, some in Alabama, defendants in Georgia, and the intellectual property at issue being internet sites. Put another way, plaintiffs had good cause to delay service while they investigated their options in this situation." See Plaintiff's Memorandum in Opposition to Motion to Dismiss or Stay, p 3.
Although the defendant vigorously argues that the plaintiffs' reasons do not amount to "good cause," the Court, in its discretion, declines to dismiss the case for improper service. First, the defendant had actual notice of the lawsuit before the 120-day time period ran. The plaintiffs in Action 1 filed a Motion for Relief from Default in Action 2 and attached a copy of the complaint to its memorandum. See Plaintiff's Memorandum in Opposition to Motion to Dismiss or Stay, p. 5. The motion was also served upon the defendants on June 25, 2002. Id. While this is not equivalent to service of the complaint, it constitutes actual notice. The defendant also admits in its reply brief that it had actual notice of the lawsuit. See Defendant's Reply to Plaintiff's Opp. To Def.'s Motion to Transfer, p. 6 ("The mere fact that the plaintiff tells a defendant that a complaint has been filed is not tantamount to service of the complaint.").
Second, the defendants have failed to convince the Court that they have been prejudiced by the four-day delay in service. The defendants argue that they were unduly prejudiced by the late service because
[d]efendants were served with the Complaint well into Action 2. By the time they were served, discovery in Action 2 had begun and Defendants had already served their Initial Disclosures, First Interrogatories, and First Requests for Production of Documents in that matter. By the time Plaintiffs got around to finally serving the Complaint in Action 1, they were well aware of Defendants' knowledge, strategy, and plan for proceeding in this matter.See Defendants' Reply to Plaintiff's Opp. To Def.'s Motion to Transfer, p. 6. The Plaintiffs' knowledge of discovery and plan for proceeding in this matter does not significantly prejudice the defendants because the same information will be revealed in Action 1. Additionally, during discovery both the plaintiffs and defendants revealed information to one another. The plaintiffs gain no more of an advantage over the defendants than the defendants will have over the plaintiffs if Action 1 proceeds.
Because the Court declines to dismiss this case for untimely service, the argument the plaintiffs raise that the defendants waived their objection to untimely service of the complaint in Action 1 is moot.
2. First to file rule
The defendants next argue that this case should be dismissed because, although Action 1 was filed first, it is an anticipatory filing where the plaintiffs used the declaratory judgment action in order to beat the defendant (the party with a substantive claim) to the courthouse steps. They argue that the court should disregard the first-to-file rule because the plaintiffs engaged in impermissible forum shopping.
Under the first-to-file rule, when two identical actions are filed in courts of concurrent jurisdiction, the court in which the first action was filed has the responsibility to determine which of the two cases should proceed. See Fidelity Bank v. Mann Mfg. Corp. of Am., 855 F. Supp. 901, 902 (N.D. Tex. 1994). "The primary purpose of the rule is to conserve judicial resources and avoid conflicting rulings." Allstate Ins. Co. v. Clohessy, 9 F. Supp. 1314, 1315-16 (M.D. Fla. 1998).
The Fifth Circuit generally applies a "first-filed" rule; however, it recognizes an exception to the rule in cases where a plaintiff files suit for declaratory relief in anticipation of a lawsuit to be filed by the defendant. See Pacific Employer's Ins. Co. v. M/V Capt. W.D. Cargill, 751 F.2d 801 (5th Cir. 1985). Moreover, a district court is not required to exercise its jurisdiction over a declaratory judgment action. See Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 (6th Cir. 1983). It is purely within the Court's discretion whether to grant relief. Id.
The plaintiffs maintain that the Court should apply the first-file rule over the Louisiana Action, and claim that their suit is not an exception to the rule. Further, the plaintiffs argue that the Louisiana Action was not an anticipatory filing because they waited approximately 10 months after receiving a demand letter from the defendants threatening to file suit before they initiated the declaratory judgment suit. Because of their delay in filing, the plaintiffs allege that the Louisiana declaratory judgment action is not a classic example of an anticipatory filing and should not be dismissed. The plaintiffs direct the Court's attention to two New York cases, Everest Capital Ltd. v. Everest Funds Mgmt., L.L.C., 178 F. Supp.2d 459 (S.D.N.Y. 2002) and Ivy-Mar, Inc. v. Weber-Stephen Prod. Co., 1993 WL 535166 (S.D.N.Y 1993). In both cases, the Court found that the first-filed suit was not an anticipatory filing. However, these cases are distinguishable from the instant matter. In Everest, the Court was not considering whether the first-filed action was an anticipatory filing. It was considering whether it should be construed as a first-filed action in light of the fact that service had never been made. See Everest Capital, 178 F. Supp.2d at 462. In Ivy-Mar, the court declined to consider the first-filed action an anticipatory filing because the plaintiff was also asserting affirmative relief in addition to a declaration of rights. See Ivy-Mar, Inc., 1993 WL 535166, at *2 (explaining that the plaintiffs in the first filed action are true plaintiffs because they seek not only declaratory relief, but assert claims for libel and trademark disparagement). In this case, unlike Ivy-Mar the plaintiffs seek a declaration of rights under the Declaratory Judgment Act and do. not assert any affirmative claims. Therefore, they are not true plaintiffs.
The Court finds that Action 1 is indeed an anticipatory filing. Just because the plaintiffs waited 10 months before filing suit does not negate the fact that they were aware that the defendants were going to file suit. In fact, the plaintiffs admit that negotiations were ongoing even after they received the demand letter. Therefore, the Court considers the Louisiana Action an exception to the first-to-file rule and will consider whether it should entertain this declaratory judgment action at all.
3. Jurisdiction over Declaratory Judgment Actions
Although the parties talk at length in their briefs about the first-to-file rule, neither have touched upon the jurisdictional issue that underlies all declaratory judgment actions. The plaintiffs filed this case pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 and § 2202. The Declaratory Judgment Act confers no jurisdiction but is a "procedural device designed to provide a new remedy to the federal court arsenal." See Mission Ins. Co. v. Puritan Fashions, Corp. 706 F.2d 599 (5th Cir. 1983). Courts have interpreted the Act to confer on federal courts "unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277 (1995). In Wilton, the seminal case interpreting a district court's duty to resolve declaratory judgment actions brought under § 2201, the Supreme Court held:
By the Declaratory Judgment Act, Congress sought to place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty to grant a new form of relief to qualifying litigants. Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principal that federal courts should adjudicate claims within their jurisdiction yield to considerations of practicality and wise judicial administration.Id. at 288. This Court has applied the Wilton doctrine in several cases. See Ruth's Chris v. Brown, 1996 WL 39406, *3 (E.D.La. 1/31/96); La Casa Castro v. Latin Am. Energy Dev., Inc, 1999 WL 239575, *3 (E.D.La. 4/22/99); Westport Ins. Corp. v. Warner, 2001 WL 1012238, (E.D.La. 8/3101). These cases applied the Wilton factors, which are guideposts that assist the federal district court in its decision of whether to exercise its discretion to abstain from entertaining a declaratory judgment action and defer to a pending, parallel proceedings. The Wilton factors which the Court must consider, but are not limited to are:
1) Whether there is a pending state action in which all of the matters in controversy may be fully litigated;
2) Whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant;
3) Whether the plaintiff engaged in forum shopping in bringing the suit;
4) Whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist;
5) Whether the federal court is a convenient forum for the parties and witnesses;
6) Whether retaining the lawsuit in federal court would serve the purposes of judicial economy.La Casa Castro v. Latin Am. Energy Dev., Inc, 1999 WL 239575, *3 (E.D.La. 4/22/99). As to the first factor, there is no pending state action, however, there is a parallel federal court action which was filed in the Northern District of Georgia. The Georgia action was transferred to this district because this is the jurisdiction where the first action was filed. This factor militates toward dismissing the action because there is an identical suit pending. It would be redundant for the Court to allow both to proceed, in light of the similarity of facts, parties, and law.
The second factor-whether the plaintiff filed suit in anticipation of litigation-supports abstention or dismissal of Action 1. It appears that the plaintiff may have filed this action in anticipation of a lawsuit initiated by the defendants. In their Memorandum in Opposition to the Plaintiff's Motion to Dismiss or Stay, the plaintiffs state that before filing Action 1, they "attempted to engage in negotiations. When the negotiations seemed to be nothing but repetition of threats to sue by the defendants, plaintiffs decided to take affirmative action to end the cycle and have their rights adjudicated." Plaintiffs' Memorandum in Opposition, p. 2. The logical way to interpret this reasoning is that the plaintiffs were aware that the defendants were going to sue them for infringement, and fearing such, filed suit to declare their rights.
The anticipatory nature of plaintiffs' a declaratory judgment action also suggests that the plaintiffs engaged in forum shopping-the third Wilton factor. By filing the lawsuit in anticipation of the defendants' suit, the plaintiffs seized upon the opportunity to initiate a lawsuit on their own terms and in the forum of their choice. Additionally, the fact that the plaintiffs waited more than 120 days to serve the defendants also leads to an inference that they were hedging their bets between the two lawsuits proceeding simultaneously in different forums. Action 2 had progressed into discovery before the plaintiffs even served the defendants in Action 1. The plaintiffs' lack of haste in serving the defendants afforded them the opportunity to gauge their success in Action 2, and decide over time which action they wanted to pursue. Therefore, the third factor suggests abstention or dismissal of Action 1.
The circumstances in this case are similar to those in Ruth's Chris v. Brown, 1996 WL 39406, *3 (E.D.La. 1/31/96), where this Court held that Ruth's Chris' filing of a declaratory judgment action was in anticipation of a lawsuit. The Court found that Ruth's Chris and Brown were involved in settlement negotiations. Brown submitted a final settlement proposal in which she insinuated that she would sue if a settlement was not achieved by a specific date. After receiving this notification, Ruth's Chris filed a declaratory judgment to adjudicate its rights. The Court declined to exercise its jurisdiction and dismissed the action. The Court reasoned:
Courts properly decline relief if the declaratory judgment procedure, and the federal forum, is being used [in "a race for res judicata' or "for procedural fencing']. The Declaratory Judgment Act is not intended to encourage a race to the courthouse. Ruth's Chris' goal-inconsistent with the purposes of the Declaratory Judgment Act-was to thwart Brown's announced intention of filing suit if a settlement could not be reached. The Declaratory Judgment Act should not be used to condone such forum shopping.See Ruth's Chirs, 1996 WL 39406, at *3; see also Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 (5th Cir. 1983). The Fifth Circuit has consistently upheld district courts' decisions to abstain from hearing a declaratory judgment action when the plaintiff filed the action in anticipation of "an invitation to appear" in another forum. See Amerada Petroleum Corp. v. Marshall, 381 F.2d 661, 663 (5th Cir. 1967). Anticipatory suits are disfavored because they are an aspect of forum shopping. Mission, 706 F.2d at 602, n. 3.
As to the fourth factor-whether possible inequities would exist if the Court allowed the declaratory plaintiff to gain precedence in time or to change forums-the Court finds that such inequities would exist if it were to retain jurisdiction over Action 1. For instance, the declaratory action as filed by the Pertuit plaintiffs reverses the roles of the parties. Indeed, the aggrieved party and proper plaintiff in this dispute are the Youthspan defendants who have asserted claims for infringement in the Georgia action. Thus, by reaching the merits in Action 1, the declaratory action, this Court would be condoning the gamesmanship of the Pertuit plaintiffs while punishing the Youthspan defendants for attempting to resolve the dispute and thereby thwarting the purposes of the Declaratory Judgment Action. See Ruth's Chris, 1996 WL 39406 at *4, Furthermore, the Court would be denying the proper plaintiff, Youthspan and the defendants in Action 1, their choice of forum.
The fifth and sixth factors relate to whether the federal district court is a convenient forum for parties and witnesses, and what would serve the interests of judicial economy. As to the fifth factor, the convenience of the parties and witnesses is a neutral factor and does not weigh in favor of the Court retaining jurisdiction over this case. In fact, the parties have both admitted regardless of whether this case is tried in Louisiana or Georgia, parties will be inconvenienced because there are witnesses, documents and parties in Louisiana, Alabama, and Georgia.
The sixth factor, judicial economy, favors dismissing the declaratory judgment action and transferring this case to the Norther District of Georgia. First, the actions involve identical issues of law and fact. It would be duplicative to entertain both actions. Second, Georgia is a more appropriate forum because the plaintiffs have already participated in the discovery process in Georgia. There have been substantive as well as discovery motions that have already been ruled on by the Northern District of Georgia. Further, the plaintiffs' involvement in the Georgia action undercuts their argument that the Georgia forum is inconvenient. By participating in litigation in Georgia, they have made themselves amenable to its jurisdiction.
4. 1404 Analysis
Many of the factors that courts assess in considering a 1404(a) Motion to Transfer have already been addressed by the Court in its analysis of whether to exercise jurisdiction over the declaratory judgment action. However, for the sake of completeness, the Court will undergo the proper 1404 factors before transferring the Georgia Action back to the Northern district of Georgia.
Under 28 U.S.C. § 1404 (a), "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division or division where it might have been brought." 28 U.S.C. § 1404 (a). The relevant public and private factor that must be balanced in order to determine whether a transfer is indicated include:
Private factors:
1. The relative ease of access to sources of proof;
2. The availability of compulsory process to secure the attendance of witnesses;
3. The cost of attendance for willing witnesses;
4. All other practical problems that make trial of a case easy, expeditious, and inexpensive.
Weinmann v. North American Fiberglass Corp., No. CIV.A.95-4106, 1996 WL 229820,
*5 (E.D. La. 5/6/96).
The public factors include:
1. The administrative difficulties flowing from court congestion;
2. The local interest in having localized controversies decided at home;
3. The familiarity of the forum with the law that will govern the case;
4. The avoidance of unnecessary problems of conflict of laws of the application of foreign law.Weinmann, 1996 WL 229820, at *5. Generally, unless the balance of the factors strongly favor of the defendant, the plaintiffs choice of forum should rarely be disturbed. Weinmann, 1996 WL 229820, at *5 (quoting Syndicate 420 at Lloyds' London v. Early Amer. Ins. Co., 796 F.2d 821, 831 (5th Cir. 1986)).
As mentioned earlier, the most compelling factor favoring transferring the Georgia Action to the Northern District of Georgia are that the parties have already filed substantive motions as well as discovery motions. All other private and public factors are neutral. Another factor that courts generally consider is the plaintiffs choice of forum. "Numerous courts have held a plaintiffs choice of forum is entitled to great deference, where factually justified." Continental Airlines v. American Airlines, 805 F. Supp. 1392, 1395-96 (S.D.Tex. 1992).
Additionally, if the Court denies the Motion to Transfer, it will effectively be denying the plaintiffs in an infringement action their choice of forum. See Dolphin Workboats, Inc. v. Higdon, 1991 WL 34665 (E.D.La. 3/12/91) (granting defendant seaman's motion to transfer a declaratory judgment action seeking a declaration of seaman's right to "cure" because the defendant was the plaintiff in a Jones Act case in another forum). As mentioned earlier, equity dictates that the Court should allow the proper plaintiffs who are asserting a substantive claim for infringement, their choice of forum.
Because the plaintiffs in Action 2 chose the Northern District of Georgia and this is also its home forum, the Court finds that its choice is factually justified. Rippy v. Crescent Feed Commodities, Inc., 710 F. Supp. 1074, 1079 (S.D. Miss. 1988) (plaintiffs choice of forum is entitled to great weight when that choice is in the plaintiffs home state). Accordingly,
IT IS ORDERED that the Motion to Transfer the Georgia Action, (Rec. Doc. 16), is GRANTED IT IS FURTHER ORDERED that the Motion to Dismiss the Louisiana Action (Rec. Doc. 10) is GRANTED.