Opinion
CIVIL ACTION NO. 3:03-CV-2127-G
April 9, 2004
MEMORANDUM ORDER
Before the court is the motion of the defendant Haas Outdoors, Inc. ("Haas") to dismiss the claims of plaintiff Capco International, Inc. d/b/a Cobra Caps ("Capco") for improper venue and failure to state a claim upon which relief may be granted, or, in the alternative, to transfer venue. For the reasons discussed below, Haas's motion to dismiss is granted.
I. BACKGROUND
Capco, a Texas corporation with its principal place of business in Dallas, Texas, imports hats and caps manufactured by other companies, and distributes the hats and caps to wholesalers, screen printers, and retailers. Plaintiff's Response to Defendant's Motion to Dismiss or in the Alternative Transfer Venue and Brief in Support ("Response") at 1; Original Complaint for Declaratory Judgment ("Complaint") ¶ 4. Haas, a Mississippi corporation with its principal place of business in West Point, Mississippi, is a manufacturer and distributor of camouflage fabric, clothing and accessories, and is the owner of the MOSSY OAK® and TREESTAND® trademarks, and the copyright owner of the MOSSY OAK®, BREAK-UP®, and TREBARK® patterns. Complaint ¶ 5; Memorandum Brief in Support of Haas Outdoors, Inc.'s Motion to Dismiss or in the Alternative to Transfer Venue ("Motion to Dismiss") at l.
On August 13, 2003, Haas sent a cease-and-desist letter to Capco regarding several items marketed by Capco, believed by Haas to infringe Haas's copyright and trademark rights. Motion to Dismiss at 2; Response at 1. In the August 13th letter, Haas requested documentation regarding shipments of the alleged infringing products, and asked for a response within five business days. Motion to Dismiss at 2. Capco replied on August 20, denying any infringement and requesting copies of the works that Haas alleged were being infringed. Id. That same day, Haas sent samples of the Haas patterns to Capco, and requested samples of the allegedly infringing patterns from Capco. Id. On August 25, Capco responded to this request and proposed an amicable settlement of the case. Id.; Response at 2. On September 12, Haas again wrote to Capco, stating that infringement of additional marks belonging to Haas had been discovered. Motion to Dismiss at 2. Haas urged that the matter be resolved by September 19, 2003. Id. On September 18, Capco filed this declaratory judgment action, asking the court to declare that Capco has not infringed on Haas's copyright or trademark rights. Id.; Response at 2; Complaint ¶ 27. Haas filed a copyright and trademark infringement action on September 19 in the United States District Court for the Northern District of Mississippi ("the Mississippi case"). Motion to Dismiss at 2; Response at 2. On October 2, Haas filed the instant motion to dismiss or transfer venue. Motion to Dismiss at 1; Response at 2.
Capco filed a motion to dismiss or transfer venue in the Mississippi case on October 24, 2003. Response at 2.
II. ANALYSIS
At the heart of the instant motion to dismiss is Haas's assertion that Capco, by bringing this declaratory judgment action, preempted the right of Haas, as the alleged victim of copyright and trademark infringement, to choose its forum. See generally Motion to Dismiss. This is not a novel situation nor does this case present unsettled questions of law. The Declaratory Judgment Act provides that "any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration. . . ." 28 U.S.C. § 2201. The Supreme Court has held that the Act grants discretion to the courts rather than an absolute right to a litigant. Wilton v. Seven Falls Company, 515 U.S. 277, 287-88 (1995) ("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."); see also Sherwin-Williams Company v. Holmes County, 343 F.3d 383, 389 (5th Cir. 2003). Thus, this court may choose to dismiss this case by not exercising jurisdiction over it.
It is well settled that the Act does not expand the subject matter jurisdiction of the federal courts. Franchise Tax Board of the State of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 15-16 (1983) (quoting Skelly Oil Company v. Phillips Petroleum Company, 339 U.S. 667, 671-72 (1950)); Comstock Oil Gas Inc. v. Alabama and Coushatta Indian Tribes of Texas, 261 F.3d 567, 573 n. 5 (5th Cir. 2001), cert. denied, 535 U.S. 971 (2002). Subject matter in this case, however, is based on federal question and diversity jurisdiction.
At this time, the issues before the court in this declaratory judgment action have also been raised in a sister federal court — specifically, the Northern District of Mississippi. When substantially related cases are pending before two federal courts, "the court initially seized of a controversy should be the one to decide whether it will try the case." Mann Manufacturing, Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971). This "first-to-file" rule provides that once it is shown that there is "substantial overlap" between the two cases, id. at 408, the court in which the case is first filed decides which of the two cases should proceed. Cadle Company v. Whataburger of Alice, Inc., 174 F.3d 599, 606 (5th Cir. 1999); Save Power Ltd. v. Syntek Finance Corporation, 121 F.3d 947, 950 (5th Cir. 1997).
There is no question that there is "substantial overlap" between this suit and the case brought by Haas in the Northern District of Mississippi; in fact, the parties — Capco and Haas — and the issues — copyright and trademark infringement — in the two cases are identical. Therefore, because this declaratory judgment action was filed a day before Haas filed its case in the Northern District of Mississippi, this court must next determine which of the two cases should proceed. The Fifth Circuit has outlined the three steps a district court must follow to determine whether to dismiss or decide a declaratory judgment case: first, the district court must determine whether the declaratory action is justiciable; second, the court must determine whether it has the authority to grant declaratory relief; and, third, the court must determine whether to exercise its discretion to decide or dismiss the action. Sherwin-Williams, 343 F.3d at 387.
A. Justiciability of the Action
The Fifth Circuit has noted that determining justiciability in the context of a declaratory judgment can be challenging, see Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 896 (5th Cir. 2000), but, typically, a case will be justiciable if an "actual controversy" exists between the parties. Id. at 895-96. An actual controversy exists where there is a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests — a determination that must be made on a case-by-case basis. Id. at 896 (citations omitted).
There is no question that the instant case meets this definition, as evidenced by the fact that a copyright and trademark infringement action between these parties was filed the day after this declaratory judgment case was filed. This case plainly involves a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests and is, thus, justiciable.
B. Authority of the District Court
Once a district court determines that a declaratory action is justiciable, the court must then determine whether it has the authority to grant declaratory relief. This second step is essentially a determination of whether there are competing state and federal proceedings, and whether the district court is prohibited from intruding in the state action under the Anti-Injunction Act. Sherwin-Williams, 343 F.3d at 388 n. 1. In a case like this one, where the declaratory judgment action is substantially similar to a parallel federal — as opposed to a parallel state — court action, the district court will automatically have the authority to decide the suit if it has subject matter jurisdiction over the claim and there are no state court actions pending. Id. at 387-88. As this court clearly has subject matter jurisdiction over this claim, see supra note 2, and there are no related state court actions pending, this second step is also satisfied.
C. Exercise of Discretion
Once a district court has determined that the declaratory action is justiciable and that the court has the authority to grant declaratory relief, the court must then determine how to exercise its discretion to decide or dismiss the action. The Fifth Circuit has identified seven nonexclusive factors to consider when making this determination:
(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 would serve the purposes of judicial economy; and
(7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending.Sherwin-Williams, 343 F.3d at 388 (quoting St. Paul Insurance Company v. Trejo, 39 F.3d 585, 590-91 (5th Cir. 1994)). This list is nonexclusive, and a court may consider other factors in deciding how to exercise its discretion to decide or dismiss a declaratory judgment action. See id.; Fidelity Bank v. Mortgage Funding Corporation of America, 855 F. Supp. 901, 903 (N.D. Tex. 1994), aff'd, 91 F.3d 138 (5th Cir. 1996) (table). The district court must analyze and balance the facts and circumstances of the instant suit against these factors, or it will be deemed to have abused its discretion. Vulcan Materials Company v. City of Tehuacana, 238 F.3d 382, 390 (5th Cir. 2001); Trejo, 39 F.3d at 591.
The Fifth Circuit recently observed that the so-called Trejo factors address three aspects common to all of the federal circuits' expressions of the factors given by the Supreme Court in Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942): federalism — "the proper allocation of decision-making between state and federal courts"; fairness — "distinguish[ing] between legitimate and improper reasons for forum selection"; and efficiency — avoidance of "duplicative or piecemeal litigation where possible." Sherwin-Williams, 343 F.3d at 390-91. Specifically, the first and last Trejo factors address federalism concerns; the second, third, and fourth factors address fairness concerns; and the fifth and sixth factors address efficiency concerns. Id. at 391.
1. Federalism and Comity
There is not a pending state lawsuit related to the case at bar. Furthermore, the declaratory judgment action sub judice involves only issues of federal law — specifically, trademark and copyright infringement under 17 U.S.C. § 501 and 15 U.S.C. § 1114. See Complaint ¶ 27 (requesting that the court declare that "[Capco] has not violated 17 U.S.C. [§] 501" and that "[Capco] did not violate 15 U.S.C. [§] 1114"). Therefore, "the proper allocation of decision-making between state and federal courts" is not raised by this declaratory judgment action. See Sherwin-Williams, 343 F.3d at 390-91, 394, 397 (a federal declaratory judgment action raising only issues of state law that are also raised in a pending state case should generally be dismissed, while the lack of a pending state case and the presence of federal law issues in the declaratory judgment action both weigh against dismissal). Accordingly, the first and seventh Trejo factors — whether there is a pending state action in which all of the matters in controversy may be fully litigated, and whether the federal court is being called on to construe a state judicial decree — do not weigh for or against dismissal of this action.
The court notes, however, that the case brought by Haas in the Northern District of Mississippi contains a cause of action for trademark infringement under the common law of Mississippi (along with the federal trademark and copyright infringement claims). See Complaint for Preliminary and Permanent Injunctive Relief and Damages ("Haas Complaint") ¶¶ 22-23, attached to Affidavit of Jesse Yen, filed October 27, 2003, as Exhibit A.
2. Fairness
Although courts in the Fifth Circuit have traditionally frowned on "anticipatory" declaratory judgment suits and on "forum shopping," the Sherwin-Williams court admonished that those labels — found in the second and third factors of the Trejo test — "cannot be literally applied," because declaratory judgment actions are intrinsically anticipatory in nature and because forum selection is not invariably improper. Sherwin-Williams, 343 F.3d at 391-92. However, if this court determines that this lawsuit is of the "narrower category of federal declaratory judgment lawsuits filed for reasons found improper and abusive," Sherwin-Williams, 343 F.3d at 391, that will weigh against this court's exercise of discretion over this action.
Proper reasons for filing declaratory judgment actions include avoiding multiple suits involving the same issues, Sherwin-Williams, 343 F.3d at 398-99 (citing Travelers Insurance Company v. Louisiana Farm Bureau Federation, 996 F.2d 774, 776-77', 779 (5th Cir. 1993)), and choosing one forum over another where the difference in forum does not affect the law that applies to the case. Id. at 399 ("There is no evidence that Sherwin-Williams brought its declaratory judgment action in search of more favorable law."). Improper reasons for bringing declaratory judgment actions include "subverting the real plaintiff's advantage in state court," Travelers, 996 F.2d at 777; bringing a declaratory judgment action when the declaratory judgment defendants had been restricted from filing state court actions, Sherwin-Williams, 343 F.3d at 397 n. 7, 399; and choosing one forum over another where the difference in forum changes the law that applies to the case. Id. at 397 (citing Mission Insurance Company v. Puritan Fashions Corporation, 706 F.2d 599, 602 (5th Cir. 1983)).
Capco insists that it "had no actual knowledge that Haas intended to file this infringement action in Mississippi." Response at 6. It is apparently true that Haas did not explicitly tell Capco that suit would be brought unless the matter were quickly resolved. However, the tenor of Haas's correspondence with Capco would have presented a strong indication to Capco that litigation was Haas's next step. The last letter Haas sent to Capco "asserted the need to have the matter resolved by September 19, 2003," Motion to Dismiss at 2, and Haas did, in fact, file suit against Capco on that date.
Because it appears more likely than not that this case was brought in anticipation of an infringement suit by Haas, this court must next determine whether Capco brought the suit for proper or improper reasons. See Sherwin-Williams, 343 F.3d at 397-99. There is no indication that Capco is anticipating other potential lawsuits in bringing this declaratory judgment action; in fact, Capco's complaint seeks declarations specifically directed at resolving the issues between itself and Haas. See Complaint at 6-7 (requesting the court to declare that Capco has not infringed any of Haas's rights). Several courts in this circuit have, under similar circumstances, found that allowing an alleged infringer to proceed with a declaratory judgment action improperly divests the "true plaintiff" ( i.e., the alleged victim of the infringement) of its right to choose the forum in which the infringement case will be heard. See, e.g., Peyman v. Optobionics Merger Corp., No. 02-3332, 2003 WL 193443 at *3 (E.D. La. Jan. 23, 2003); PAJ, Inc. v. Yurman Design, Inc., No. 3:98-CV-2847-P, 1999 WL 68651 at * 1, *3 (N.D. Tex. Feb. 9, 1999); Metro Optics, Inc. v. Contex Inc., No. 3:95-CV-2157-T, 1996 WL 302697 at *2 (N.D. Tex. Mar. 14, 1996). Furthermore, the distorted posture of this case is evident from the wording of those same proposed declarations, which are phrased as inverted elements of a copyright infringement claim and inverted elements of a trademark infringement claim. See Complaint at 6 (requesting that the court declare, for example, that "a. [Capco] has not infringed on [Haas]'s copyright rights; b. [Capco] has not violated [Haas]'s rights with regard to distribution of its copyrighted materials; c. [Capco] did not knowingly infringe on [Haas]'s copyright rights; d. [Capco] has not violated 17 U.S.C. [§] 501 . . ."). The court finds that Capco brought this suit not for reasons supported by the purposes of the Declaratory Judgment Act, but for the improper reason of "subverting the real plaintiff's advantage" in a forum of Capco's choosing. See Sherwin-Williams, 343 F.3d at 397-99; Travelers, 996 F.2d at 777. Therefore, the three Trejo factors that address fairness — whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant, whether the plaintiff engaged in forum shopping, and whether possible inequities exist in allowing the declaratory plaintiff to gain precedence in time or to change forums — all weigh against the exercise of this court's discretion to hear the declaratory judgment action. See Trejo, 39 F.3d at 590-91.
The remedy provided by declaratory judgment actions was "intended to minimize the danger of avoidable loss and the unnecessary accrual of damages . . . [, to] permit[ ] actual controversies to be settled before they ripen into violations of law . . . [, and to] help[ ] avoid a multiplicity of actions. . . ." 10B CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 2751 (3d ed. 1998).
3. Efficiency
The remaining Trejo factors focus on what is the most convenient forum for the parties and witnesses, and on whether retaining the lawsuit would serve the purposes of judicial economy. Id. at 590-91. It appears to the court that the Texas forum would be just as burdensome to Haas — the declaratory judgment defendant — as the Mississippi forum would be to Capco — the declaratory judgment plaintiff. Additionally, Capco is not avoiding several lawsuits through this single action — unlike the declaratory judgment plaintiffs in Sherwin-Williams or Travelers. In fact, the Mississippi case is more exhaustive than this action, containing claims of infringement under the common law in addition to the federal copyright and trademark infringement claims. See Haas Complaint ¶¶ 17, 20-23. "[W]hen both federal actions involve the same issues and parties, the better alternative is to allow the broader relief action to proceed, since it certainly would address the relief sought, rather than the restricted declaratory judgment action." 10 FEDERAL PROCEDURE § 23:10 (L. Ed. 2003). Therefore, the court finds that the fifth and sixth Trejo factors — whether the federal court is a convenient forum for the parties and witnesses, and whether retaining the lawsuit would serve the purposes of judicial economy — also weigh against the court's entertaining this declaratory judgment action.
It is clear from the parties' briefs that the Northern District of Mississippi is a more convenient forum for Haas and most of its witnesses, see Motion to Dismiss at 7-8, while the Northern District of Texas is a more convenient forum for Capco and most of its witnesses. See Response at 10-13. Similarly, Haas asserts that all of its documents relating to the trademarks and copyrights at issue are located in Mississippi, see Motion to Dismiss at 8, while Capco asserts that most, if not all, of its documentary evidence related to this dispute is located in Texas. See Response at 13. Capco points out that Haas conducts business in Texas, while it is unclear if Capco conducts business in Mississippi. See id. at 8. (stating that Haas conducts business in Texas and maintains a registered agent in Texas, "whereas Capco does not have any agents in the State of Mississippi."). Capco also asserts that it would have to subpoena several witnesses who reside in the Northern District of Texas. Id. at 9-12. Capco urges the court to consider the considerable expense it will cost for these witnesses (as well as any parties and documents located in Texas) to travel to Aberdeen, Mississippi. Id. It is reasonable to assume, however, that it will be just as expensive to transport any witnesses, parties, or evidence from Mississippi to Texas, if the suit is heard in this court.
4. Retention of Jurisdiction Not Warranted
Although the federalism aspects of the Trejo test do not weigh for or against this court's retention of jurisdiction, the fairness and efficiency aspects both weigh against a decision of this declaratory judgment case. Therefore, the court declines to exercise jurisdiction over this case.
III. CONCLUSION
For the reasons stated above, Haas's motion to dismiss is GRANTED, and Haas's motion to transfer venue is DENIED as moot. This case is DISMISSED without prejudice to adjudication of this dispute in the related case pending in the United States District Court for the Northern District of Mississippi.
SO ORDERED.