Opinion
No. 1:01cv122-T
October 26, 2001
MEMORANDUM AND RECOMMENDATION
THIS MATTER is before the court upon defendant's Motion to Dismiss, Abstain or Stay (#3). The court has considered defendant's Memorandum in Support (#4), plaintiff's Opposition (#10), plaintiff's supplemental Memorandum in Opposition (#11), defendant's Memorandum in Reply (#13), defendant's Supplemental Memorandum in Response (#20), and plaintiff's further Memorandum in Opposition (#23). A hearing was conducted on October 2, 2001. Having carefully considered defendant's motion and reviewed the pleadings, the undersigned enters the following findings, conclusions, and recommendation.
The last memorandum was filed in an improperly captioned pleading, inasmuch as 1:00cv238-T and 1:01cv122-T were not at that time consolidated. Fed.R.Civ.P. 7(b)(2). As a practical matter, combining a memorandum in support of a new motion in a separate case, a memorandum in support of a new motion filed in this case, and a memorandum in support of an old motion in this case has caused a great waste of judicial resources just to unravel.
FINDINGS AND CONCLUSIONS
I. Introduction
The procedural history of this case is tortured. Originally, the issues presented in this filing were presented to the court in Volvo Trademark Holding Aktiebolaget v. AIS Construction Equipment Corp., 1:00cv238-T (W.D.N.C.) ("Volvo I") — an action which originally included defendant herein. On the day of the dispositive motions hearing in Volvo I, counsel for plaintiff announced that a dismissal as to defendant herein had been taken in accordance with Rule 41, Federal Rules of Civil Procedure. (It appears that the continued presence of such defendant in that action, as originally filed, threatened complete diversity jurisdiction) In the course of entering a recommendation on the dispositive motions of the remaining defendants, the undersigned found that the proffered Rule 41 dismissal was ineffectual as a matter of well-settled law in this district (a finding which the district court affirmed), and plaintiffs in Volvo I properly moved to amend the complaint to dismiss the claims against defendant herein. Review of the docket in Volvo I reveals, however, that defendant herein believes it may still be a party to Volvo I. See Docket Entry 51, Volvo I, Nueces Farm Center, Inc.'s Motion to Dismiss, filed September 14, 2001.
While the recommendation of this court was still pending before the district court in Volvo I, plaintiff filed this action against defendant, this time asserting federal-question jurisdiction under the Declaratory Relief Act. Obviously, plaintiff was at that time confident that its reworking of jurisdiction in Volvo I was in accordance with current law. In response to the complaint herein, defendant moved to dismiss, abstain, or stay this action, contending, as follows:
(1) plaintiff failed to state a claim upon which relief may be granted;
(2) this court lacks personal jurisdiction over defendant; and
(3) this court lacks subject-matter jurisdiction under the Declaratory Judgment Act.
In the alternative, defendant asks this court to abstain or stay its hand in deference to an action previously filed in the State Court of Texas,Nueces Farm Center, Inc. v. Volvo Construction Equipment North America, Inc., No. 00-4732 (148th Judicial Dist., Nueces Co., Tex.), which concerns an alleged breach of a dealer agreement.
II. Standard
Defendant has moved for dismissal pursuant to Rule 12(b), Federal Rules of Civil Procedure, contending that plaintiff has failed to state a cognizable claim. Rule 12(b) authorizes dismissal based on a dispositive issue of law. Neitzke v. Williams, 490 U.S. 319, 109 S.Ct. 1827, 1832 (1989); Hishon v. King Spalding, 467 U.S. 69, 73 (1984); Conley v. Gibson, 355 U.S. 41 (1957). As the Court discussed in Neitzke:
This procedure [for dismissal], operating on the assumption that the factual allegations in the complaint are true, streamlines litigation by dispensing with needless discovery and fact finding. Nothing in Rule 12(b)(6) confines its sweep to claims of law which are obviously insupportable. On the contrary, if as a matter of law "it is clear that no relief could be granted under any set of facts . . . a claim must be dismissed, without regard to whether it is based on outlandish legal theory. . . . What Rule 12(b)(6) does not countenance are dismissals based on a judge's disbelief of a complaint's factual allegations."Id., at 1832 (citation omitted). For the limited purpose of making a recommendation as to disposition of defendant's motion, the undersigned has accepted as true the facts alleged by plaintiff in the complaint and viewed those facts in a light most favorable to plaintiff.
III. Discussion
A. Introduction
With a few exceptions, the parties appear to agree that the issues of law are identical to those previously posed and resolved in Volvo I. The undersigned adopts and incorporates by reference the Memorandum and Recommendation filed therein and the decision thereupon entered by Honorable Lacy H. Thornburg, United States District Judge.
B. Final Contentions of the Parties
The arguments defendant has tendered in support of its motion have shifted from the original memorandum, filed July 3, 2001, to the supplemental memorandum, filed September 14, 2001. Causing the shift was the district court's decision in Volvo I, which found jurisdiction under the Declaratory Judgment Act and denied the pending motions to dismiss.
In the original memorandum in support, defendant argued that the complaint for declaratory judgment should be dismissed because there was no dispute regarding defendant's use of the VOLVO mark; what defendant wanted at that time was "Champion motor graders." Defendant also asserted that this court lacked personal jurisdiction over it because plaintiff had not alleged facts establishing that defendant had directed its activities to the State of North Carolina.
In defendant's September 14, 2001, Supplemental Memorandum, it argues that what plaintiff seeks herein — declaratory judgment for an alleged Lanham Act violation — should be heard as a defense in the negligence action pending in the Texas state court. Further, defendant argues that its withdrawal of its request for injunctive relief seeking the continued furnishing of motor graders rendered moot plaintiff's request for relief under the Declaratory Judgment Act. Finally, the court notes that in an extensive footnote, defendant argues that the district court failed to consider "discretionary declaratory-judgment jurisdiction" in Volvo I and that this court should decline to exercise its jurisdiction under the Declaratory Judgment Act as a matter of comity.
It appears that such withdrawal was without prejudice, but that defendant has proposed to make such withdrawal with prejudice if plaintiff would agree to forego this action.
In its September 27, 2001, Memorandum in Opposition, plaintiff argues that defendant's amendment to the Texas state-court proceeding does not moot the issues before this court. Even with the amendment, plaintiff argues, a controversy remains, inasmuch as (1) defendant's state tort claim still contains a request for such "other and further relief, whether at law or in equity . . . to which Plaintiff NPE may show itself justly entitled"; (2) the amendment deleting the demand for road graders was without prejudice; and (3) even the amended petition in state court seeks damages based on the inability of defendant herein to secure product from plaintiff — with, or without, the VOLVO mark. Apparently, a temporary injunction remains in place in Texas which defendant herein claims grants it the exclusive right in south Texas to distribute "motor graders manufactured by Champion Road, and/or its successor in interest, regardless of what trademark such motor graders bear . . . ." Defendant herein has sought enforcement of such injunction in Texas through contempt, which was denied, and is not precluded from seeking further enforcement.
C. Motion to Dismiss for Lack of Subject-Matter Jurisdiction and Failure to State a Claim
1. Introduction
The decision of the district court in Volvo I stands for the proposition that this court has jurisdiction over the subject matter of this suit and that plaintiff has stated a claim. In order to circumvent the preclusive effect of that decision, defendant argues since this action was filed, the facts have changed through unilateral action it has taken in the the state-court proceeding.
2. Purported Change in Underlying Circumstances
The first issue for this court is whether acts subsequent to the filing of a petition under the Declaratory Judgment Act should be considered or whether the court is limited to the facts as they existed at the time of filing. The court has found most instructive the decision of the Federal Circuit in Spectronics Corp. v. H. B. Fuller Co., Inc., 940 F.2d 631 (Fed. Cir. 1991), in which the appellate court held, as follows:
We first address the contention that dismissal was improper because declaratory judgment jurisdiction must be determined solely on the facts as they existed at the time the complaint was filed.
We agree wholeheartedly that in personam and subject matter jurisdictional facts must be pleaded, and proved when challenged, and that later events may not create jurisdiction where none existed at the time of filing. Thus, well-pleaded jurisdictional facts, such as diversity of citizenship, cannot be ousted by subsequent events. Although Spectronics correctly states the rule of law requiring that such jurisdictional facts sufficient to support declaratory judgment jurisdiction be alleged in the well-pleaded complaint, application of that rule does not conclude the inquiry, since facts sufficient to vest jurisdiction initially may remain immutable where no justiciable controversy survives.
* * *
Moreover, "[a]n actual controversy must be extant at all stages of review, not merely at the time the complaint is filed." . . . Thus, declaratory judgment jurisdiction at any stage of litigation is limited to "the determination of controversies to which under the Constitution the judicial power extends."
* * *
Mootness is "one of the doctrines that clusters about Article III, to define further the case-or-controversy requirement that limits the federal judicial power in our system of government." . . . The exercise of judicial power under Article III depends at all times on the existence of a case or controversy. The burden is on Spectronics "to establish that jurisdiction over its declaratory judgment action existed at, and has continued since, the time the complaint was filed." . . . Thus, the District Court properly considered post-filing events in its evaluation of continuing jurisdiction.Id., at 634-36 (citations and footnote omitted). The undersigned, therefore, has considered, and will discuss briefly below, the developments in the state-court proceedings that occurred subsequent to the filing of this action.
of greatest import is the amendment of the state-court petition which deleted a demand for specific performance of the dealer agreement, which would have required plaintiff to supply motor graders, either with or without the CHAMPION or VOLVO marks. The undersigned must note, however, that the amendment does not appear to be with prejudice as to reasserting such claim, and plaintiff has expressed a fear that if this court were to dismiss this action, defendant would simply reinstate such claim through subsequent amendment. Further, plaintiff has pointed out that the complaint still contains a broad request for relief, both legal and equitable, and that it is possible that the state court could impose a judgment requiring plaintiff to supply motor graders in a manner that would collide with its federal trademark rights under the Lanham Act. Finally, plaintiff argues that a temporary injunction is still in place, requiring it to supply motor graders, and that defendant has previously attempted to enforce such process through contempt and refuses, even in light of the amendment, to sign a proposed consent order dissolving that process.
The undersigned has considered carefully the events in Texas subsequent to the filing of the complaint herein. In such consideration, this court has considered whether a case or controversy remains.
In a declaratory judgment action involving trademarks, the test for an "actual case or controversy" has two prongs, both of which must be satisfied in order to establish declaratory judgment jurisdiction: (1) has the defendant's conduct created a real and reasonable apprehension of liability on the part of the plaintiff, and (2) has the plaintiff engaged in a course of conduct which has brought it into adversarial conflict with the defendant.Starter Corp. v. Converse, Inc., 84 F.3d 592 (2nd Cir. 1996). While the amendment of the state-court complaint initially appeared to negate the first prong, close inspection of those developments does not reveal that the potential for real harm to plaintiff's valuable federal mark has substantially changed. Instead, defendant continues to dangle the sword of compelled provision of branded or unbranded motor graders above the heads of plaintiff and its licensees. Rather than having laid down its sword, defendant has simply sheathed it, and that is not sufficient to depart from the conclusions reached in Volvo I.
3. "Discretionary" Declaratory-Judgment Jurisdiction
Defendant has also argued that the issue of whether this court should exercise its discretionary declaratory-judgment jurisdiction was left open by the district court in Volvo I and should, therefore, be considered herein.
The Declaratory Judgment Act — 28 United States Code, Section 2201 — does not confer an absolute right on any plaintiff. Rather, the Act is an enabling provision, which confers discretionary jurisdiction on the federal courts. Public Service Commission v. Wycoff Co., 344 U.S. 237, 241 (1952). The language of the Act is permissive, as opposed to mandatory, thus vesting to the sound discretion of the district court the determination of whether to allow the petition to move forward. Id. The Declaratory Judgment Act, 28 U.S.C. § 2201, provides, as follows:
In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.
Such discretion "enables the court to make a reasoned judgment whether the investment of judicial time and resources in a declaratory action will prove worthwhile in resolving a justiciable dispute." Minnesota Min. and Mfg. Co. v. Norton Co., 929 F.2d 670, 673 (Fed. Cir. 1991). Where the district court finds an actual controversy, it "is not required to exercise declaratory judgment jurisdiction, but has discretion to decline that jurisdiction." EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed. Cir. 1996). Other courts have gone further:
While it is true that a district court's determination whether to exercise declaratory jurisdiction is denominated as discretionary, Muller v. Olin Mathieson Chemical Corp., 404 F.2d 501, 505 (2d Cir. 1968), a district court is required to entertain a declaratory judgment action "(1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, or (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding."Starter Corp., supra, at 597 (citation omitted).
In considering defendant's contention that the district court failed to determine whether to exercise its "discretionary declaratory-judgment jurisdiction," the undersigned has again read the district court decision in Volvo I. There simply is no requirement that a judge use any particular "magic words," such as "I hereby exercise discretion," because such words are implied in every jurisdictional determination under the Declaratory Judgment Act. It is clear that the law will not be read to require a useless or redundant act, and the district court's decision clearly finds defendants' motion to be without merit and allows that case to proceed under the Act. The undersigned can find no merit in defendant's argument herein.
4. Conclusion
Based on the above, the undersigned will recommend that defendant's motion for dismissal pursuant to Rules 12(b)(1) and 12(b)(6) be denied.
E. Personal Jurisdiction
Defendant has moved under Rule 12(b)(2) to dismiss this action because this court lacks personal jurisdiction over it. It is unclear from defendant's final brief whether it intends to pursue this claim, and it did not champion such claim at the hearing. Defendant in earlier pleadings argued that this court did not have personal jurisdiction of it, inasmuch as plaintiff had not alleged facts establishing that defendant had directed its activities to the State of North Carolina. This court addressed the very same arguments in Volvo I. Without doubt, defendant has substantial and sustained contacts with this forum that satisfy both North Carolina's long-arm statute and federal due process. Since April 1999, defendant has placed 18 purchase orders with Volvo Construction Equipment in Asheville, and much of the equipment it purchased was manufactured at the Champion plant in Charlotte, which is also within this district.
At the constitutional level, whether or not to exercise jurisdiction over a defendant is a question of fairness. International Shoe Co. v. Washington, 326 U.S. 310, 317-20 (1945). However, determining what is fair requires review of the quantity and quality of the defendant's contacts with the forum state.
[I]f the . . . corporation carries on, in that state, other continuous and systematic corporate activities . . . those activities are enough to make it fair and reasonable to subject the corporation to proceedings in personam in that state, at least insofar as the proceedings in personam seek to enforce causes of action relating to those very activities or to other activities of the corporation within the state.Perkins v. Benquet Mining Co., 342 U.S. 437, 445-46 (1952). Constitutional concerns only arise where jurisdiction is allowed pursuant to a state's long-arm statute. As the Court of Appeals for the Fourth Circuit held:
[W]hen evaluating the propriety of jurisdiction obtained pursuant to a long-arm statute, a two-step analysis is normally required. First, we must determine whether the statutory language applies to the defendant; second, if the statutory language applies, we must determine whether the statutory assertation of jurisdiction is consistent with the due process clause of the Constitution.English Smith v. Metzger, No. 89-1418, at 4 (4th Cir., April 17, 1990) (citation omitted).
In considering defendant's motion, analysis begins with the two-step approach furnished by the circuit court. The North Carolina Supreme Court has held that the state's jurisdictional statute applies to defendants who meet the minimal-contacts requirement of International Shoe Co. v. Washington, supra. See Dillon v. Numismatic Funding Corp., 291 N.C. 674 (1977); see also Western Steer-Mom Pops v. FMT Invs., Inc., 578 F. Supp. 260, 264 (W.D.N.C. 1984). The two-pronged approach approved by the circuit "collapses into the question of whether (the Defendants have) the minimum contacts with North Carolina." Fieldcrest Mills, Inc. v. Mohasco Corp., 442 F. Supp. 424, 426 (M.D.N.C. 1977).
On the corporate level, in determining what contacts suffice, the court may consider contacts which constitute "continuous and systematic corporate activities," or other activities, which relate to the causes of action plaintiffs seek to enforce. Perkins v. Benquet Mining Co., supra. Where the corporation has had only limited contacts with the forum state, jurisdiction has not been exercised when those contacts were not "purposeful, systematic or significant enough to warrant the exercise of jurisdiction." Wolf v. Richmond Co. Hosp. Auth., 745 F.2d 904 (4th Cir.), cert. denied, 474 U.S. 826 (1984). There are five factors used in determining whether the requirements of the long-arm statute and minimum contacts have been satisfied:
(1) quantity of the contacts;
(2) nature and quality of the contacts;
(3) source and connection of the cause of action to the contacts;
(4) interest of the forum state; and
(5) convenience.
Western Steer-Mom Pops v. FMT Invs., Inc., supra, at 264; see Fieldcrest Mills, Inc. v. Mohasco Corp., supra, at 427; see also N.C. Gen. Stat. § 1-75.4(5) (North Carolina long-arm statute). Considering the substantial contacts, both quantitatively and qualitatively, see Hirschkop Grad, P.C. v. Robinson, 757 F.2d 1499, 1503 (4th Cir. 1985), there is a direct connection between the contacts and the cause of action; the intent of the North Carolina long-arm statute is to assert in personam jurisdiction to the full extent permitted by the Due Process Clause of the United States Constitution,Kaplan School Supply Corp. v. Henry Wurst, Inc., 56 N.C. App. 567, cert. denied, 306 N.C. 385 (1982); and North Carolina has a substantial interest in goods and intellectual property transactions impacting this state. See N.C. Gen. Stat. §§ 1-75.4(5)(a), et seq. Convenience is neutral, inasmuch as substantial travel would be required if this action were filed either in Texas or North Carolina.
Plaintiff having satisfied the requirements of North Carolina's long-arm statute, this court's focus shifts to whether exercise of such jurisdiction would "offend 'traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). The question is not whether the contacts predominate, but whether "enough minimum contacts exist that the district court's assumption of specific jurisdiction satisfied due process." English Smith v. Metzger, supra, at 7.
The "fair warning" requirement is satisfied if the defendant has "purposefully directed" his activities at residents of the forum, and the litigation results from the alleged injuries that "arise out of or relate to" those activities.Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985). When considered alongside other materials presented, the conclusion that North Carolina's long-arm statute reaches defendant and that traditional notions of fair play are not offended is unavoidable. Defendant appears to have purposely directed activities toward a corporate resident of the State of North Carolina. The contacts were sufficient to have led defendant to "reasonably anticipate being haled into court," in North Carolina.World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). The undersigned determines, and will recommend that the district court find, that this court has jurisdiction over the defendant and that the exercise of such jurisdiction would not offend traditional notions of fair play or substantial justice.
F. Abstention or Stay
Where a court determines to exercise its jurisdiction under the Declaratory Judgment Act, and a basis for such case or controversy is the threatened or actual initiation of a civil action which may impinge a protectable federal right, it would seem illogical to seek a stay or abstention in the federal proceeding.
In any event, this court does not lightly consider foregoing the exercise of its jurisdiction. The duty of federal courts to exercise the jurisdiction which they possess is unequivocal. "When a Federal court is properly appealed to in a case over which it has by law jurisdiction, it is its duty to take such jurisdiction . . . ." Willcox v. Consolidated Gas Co., 212 U.S. 19, 40 (1909). Federal courts have recognized the obligatory nature of their jurisdiction from the inception of the Republic:
We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given. The one or the other would be treason to the Constitution.Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821).
It is equally clear, however, that the doctrine of comity requires a federal court to restrain its exercise of diversity jurisdiction where it is called upon to resolve difficult questions of state law that concern matters of substantial public concern and where the parties have an adequate remedy in state courts. In this case, the court is exercising federal-question jurisdiction, and absent such exercise, the parties to the action will not find an adequate remedy at law. While the district court has concluded that Volvo I should proceed, that in no way means that it has determined that plaintiff is entitled to the relief it seeks. Defendants to these actions, as well as the plaintiffs, need to know whether the relief they seek or may seek in the future will run afoul of the Lanham Act. Abstention is "the exception, not the rule, and can only be justified in exceptional cases." Neufield v. City of Baltimore, 964 F.2d 347, 349 (4th Cir. 1992). The undersigned can find no exceptional circumstances and, therefore, will recommend that such motions be denied.
RECOMMENDATION
IT IS, THEREFORE, RESPECTFULLY RECOMMENDED that defendant's Motion to Dismiss, Abstain or Stay (#3) be DENIED.