Summary
finding that first to file rule should not apply where plaintiff misused the Declaratory Judgment Act to gain a procedural advantage
Summary of this case from Epic Tech v. Arno Res., LLCOpinion
Civil Action No. 02-3332, Section: "J" (2)
January 22, 2003
Before the Court is the Motion to Dismiss and Alternative Motion to Transfer (Rec. Doc. 5) filed by defendant. Plaintiff opposes the motion. The motion was originally set for hearing with oral argument on Wednesday, January 22, 2003. However, after reviewing the record, the applicable law, and memoranda of the parties, the Court determined that oral argument was not necessary and instead considered the matter on briefs. As discussed more fully below, the Court finds that it should decline to exercise jurisdiction over this declaratory judgment action, and therefore it is dismissed without prejudice.
BACKGROUND
This dispute arises out of a contract, styled as a "Device Evaluation Agreement," between Optobionics and Peyman, through which Peyman participated as a member of a surgical team implanting Optobionics' retinal implant devices (referred to by the parties as "ASR devices") in human patients in surgeries conducted in the Chicago area. Optobionics is principally engaged in the research and development of patented retinal implant devices to restore visual function in persons with degenerative retinal diseases. Peyman participated in the implant surgeries in June 2000 and July 2001.
Rec. Doc. 6, Exh. A-1.
On October 16, 2002, Optobionics learned that a U.S. Patent Application, Serial No. 09/832,269 entitled "Retinal Treatment Method" ("the Peyman Application"), had been published by the United States Patent Office on October 10, 2002. The Peyman Application lists Peyman as the sole inventor of inventions which Optobionics believes were based on confidential trade secret information that Peyman obtained from Optobionics while working on the project covered by the Device Evaluation Agreement. On October 20, 2002, Optobionics approached Peyman to discuss his obligations under the Device Evaluation Agreement, which contains a confidentiality provision and vests ownership of any intellectual property derived from work under the project in Optobionics. That discussion was memorialized in a letter to Peyman dated October 25, 2002 from Optobionics' COO and CEO.
Id., Exh. A-2.
Id., Exh. A-3.
Peyman responded by letter dated October 29, 2002 in which he stated,inter alia, that he had applied for the patent to gain the attention of Optobionics, because he felt he was not being treated as an equal partner. Further discussions and correspondence between the parties evidenced an apparent intent to amicably resolve the dispute. On November 6, 2002, counsel for Optobionics wrote to Peyman's counsel in furtherance of their settlement negotiations, in a letter which contained a settlement offer. However, unbeknownst to Optobionics, the day before, on November 5, 2002, Peyman had filed the instant suit seeking a declaratory judgment that the Peyman Application was not subject to the Device Evaluation Agreement, that he had no obligation to assign the patent, and that Optobionics violated Louisiana Revised Statute 23:921(A)(1). Subsequently, on November 14, 2002, Optobionics filed suit against Peyman for breach of contract, misappropriation of trade secrets and violation of the Lanham Act in the U.S. District Court for the Northern District of Illinois.
Id., Exh. A-4.
Optobionics now moves for dismissal of the instant suit, or alternatively for transfer, on the following grounds: this Court lacks personal jurisdiction over Optobionics; this case belongs in the Northern District of Illinois pursuant to 28 U.S.C. § 1404; the first-to-file rule should be disregarded, and jurisdiction to entertain this declaratory action should be declined. Peyman takes the opposing view on each of these points.
DISCUSSION
It is beyond cavil that the Fifth Circuit generally adheres to the "first-to-file" rule requiring dismissal or transfer of a subsequent action in favor an action filed first in another venue and addressing the same subject matter, in order to avoid duplicative litigation in federal district courts. Save Power Ltd. v. Syntek Finance Corp., 121 F.3d 947 (5th Cir. 1997). However, the "first-to-file" "`rule is not adhered to where compelling circumstances dictate that the first action be dismissed rather than the second one.'" British Borneo Exploration, Inc., et al. v. Enserch Exploration, Inc., 28 F. Supp.2d 999, 1007 (E.D. La. 1998) (vacated, 1999 WL 58285 (E.D. La. Feb. 1, 1999)) (quoting Johnson Bros. Corp. v. International Brotherhood of Painters, 861 F. Supp. 28, 29 (M.D. La. 1994). The court in which the first action was filed determines which of the two cases should proceed. Save Power, 121 F.3d at 950. Accordingly, this Court is called upon to determine whether the present declaratory judgment action, which was filed first, should proceed or not.
Under the Declaratory Judgment Act, a federal district court "may declare the rights and other legal relations of any interested party seeking such declaration . . . ." 28 U.S.C. § 2201(a). "Since its inception, the Declaratory Judgment Act has been understood 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, 286, 115 S.Ct. 2137, 2142 (1995).
Courts have fashioned a non-exclusive list of factors to determine whether to entertain a declaratory judgment action. They include:
(1) whether there is a pending . . . court 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; and (6) whether retaining the lawsuit . . . would serve the purposes of judicial economy."Travelers Ins. Co., v. Louisiana Farm Bureau Federation, 996 F.2d 774, 778 (5th Cir. 1993) (citations omitted). Consideration of these factors in the context of the present case demonstrates that this case should be dismissed in favor of the Northern District of Illinois action.
Although the Travelers factors were originally set forth in the context of the question whether a federal court should abstain from granting declaratory relief in favor of a parallel state court action, they are applied by federal district courts in determining whether to decline to consider declaratory relief in favor of a parallel proceeding in another federal court. See, e.g., British Borneo Exploration, Inc., 28 F. Supp.2d at 1007-08; PAJ, Inc. v. Yurman Design, Inc., 1999 WL 68651, *2-3 (N.D. Tex., Feb. 9, 1999).
Concerning the first factor, the suit filed in Illinois comprises nearly identical subject matter as the instant suit. In that suit, Optobionics seeks damages for Peyman's alleged violation of the Device Evaluation Agreement by, inter alia, failing to assign rights to a patent that they allege is their intellectual property and violating confidentiality provisions. In the instant suit, Peyman seeks a declaration that the Peyman Application is not subject to the Device Evaluation Agreement. Essentially, the instant suit is a defense to Optobionics' affirmative breach of contract suit. Thus, all of the matters in controversy in this suit can be fully litigated in the Northern District of Illinois.
With respect to the second, third, and fourth factors, from the facts before the Court, it is clear that the instant suit was filed as a preemptive strike in anticipation of a suit being filed by Optobionics. The record in this case reveals that at the time this declaratory judgment action was filed, the parties were in the process of negotiating a settlement. In fact, on the day after it was filed, before it learned of the suit, Optobionics's counsel made a bona fide settlement offer to Peyman. In addition, in a letter dated November 7, 2002 from Peyman's counsel to Optobionics, Peyman's attorney stated that he was filing suit "based upon Optobionics' response in [its] November 6, 2002 letter." However, as previously noted, Peyman's preemptive suit was filed on November 5, 2002, a day before Optobionics' letter to Peyman's counsel which supposedly triggered the decision to file.
Based on this and other facts in the record, the Court cannot help but conclude that the filing of this action was motivated by Peyman's desire to win a "race to the courthouse," and constitutes a misuse of the Declaratory Judgment Act. See, Mission Ins. Co. v. Puritan Fashions, Corp., 706 F.2d 599, 602 (5th Cir. 1983); Excel Music, Inc. v. Simone, 1996 WL 5708, *6 (E.D. La., Jan. 5, 1996). The "misuse of the Declaratory Judgment Act to gain a procedural advantage and preempt the forum choice of the plaintiff in the coercive action militates in favor of dismissing the declaratory judgment action." Great American Ins. Co. v. Houston General Ins. Co., 735 F. Supp. 581, 586 (S.D.N.Y. 1990). Indeed, for this Court to maintain this suit would be tantamount to rewarding plaintiff herein for his misuse of the Declaratory Judgment Act.
Finally, with respect to the fifth and sixth factors, the record suggests that the Northern District of Illinois would provide the more convenient forum. The "center of gravity" of this dispute is located there, since that is the place where the bulk of the events giving rise to this suit occurred. Moreover, this Court's retaining this lawsuit would not serve the purposes of judicial economy.
Accordingly, as the foregoing analysis bears out, the Court finds that the instant case presents "compelling circumstances" — specifically, the misuse of the Declaratory Judgment Act to gain a procedural advantage — which require a deviation from the usual "first-to-file" rule. The Court in its discretion thus declines jurisdiction over this action, and therefore,
IT IS ORDERED that Optobionics' Motion to Dismiss (Rec. Doc. 5) should be and is hereby GRANTED, and this matter is DISMISSED without prejudice.