Opinion
Civil Action No. 3:03-CV-1210-P.
April 27, 2004
MEMORANDUM OPINION AND ORDER
Now before the Court is Defendant's Motion to Dismiss or, in the alternative Motion to Transfer Venue, filed December 30, 2003. After a thorough review of the pleadings, the parties' briefs, and the applicable law, the Court DENIES Defendant's Motion to Dismiss.
Plaintiff filed a Response on January 22, 2004, and Defendant filed its Reply on February 9, 2004.
I. Background and Procedural History
Defendant, America II Electronics, Inc. ("America II"), is among the largest distributors of electronic components. On May 1, 1995, Joel Patrick Smith was hired by America II as its Director of Excess Procurement. In this position, Smith had access to America II's confidential business information, which included information regarding the identity of Defendant's business partners, customers, pricing, and America II's own market analyses. Smith also was responsible for developing an excess inventory procurement program. According to America II, this program is unique to its industry, and its implementation has generated substantial profits for the company.
On July 29, 1996, Smith and America II entered into a Sales/Purchasing Agreement ("the Sales/Purchasing Agreement"), which contained both confidentiality and no-compete clauses. In relevant part, these clauses provided that Smith would not:
(1) disclose or use any of America II's confidential information at any time after his employment with America II;
(2) directly or indirectly perform any services for any of America II's competitors for a period of two consecutive years following the cessation of his employment with America II;
(3) directly or indirectly solicit or procure the business of any of America II's vendors, customers, or prospective customers with whom he had contact with during his employment for a period of two consecutive years following the cessation of his employment with America II; and
(4) supervise or assist others to engage in the actions described above.
On January 31, 2001, Smith resigned from his employment with America II. Later, in December 2001, America II learned that Smith was given an offer of employment from Anovastar, L.L.C., one of its competitors. On December 19, 2001, America II filed a lawsuit in Pinellas County, Florida ("the Florida Action"), seeking to enjoin Smith from accepting employment with Anovastar under the terms of the Sales/Purchasing Agreement. Notwithstanding this lawsuit, Smith began working for Anovastar in January 2002. Subsequently, Smith left Anovastar, and began working for Plaintiff, Component Management Services, Inc. ("CMS"), on May 1, 2002. Among the various services it offers, CMS provides inventory appraisals and order fulfillment services for manufacturers of electronic components.
On April 24, 2002, CMS filed an action in the 116th Judicial District Court of Dallas, County, Texas ("the 116th Texas Action"). While America II was named as defendant in that action, America II did not receive notice of the action. CMS failed to perfect service of process upon America II and did not make any effort to proceed with the action. Consequently, on August 7, 2002, the court dismissed the action for want of prosecution.
On August 6, 2002, CMS filed an action in the 95th Judicial District Court of Dallas, County, Texas ("the 95th Texas Action"). In its Original Petition, CMS prayed for (1) a declaration that the Sales/Purchasing Agreement was unenforceable, and (2) a declaration that the Sales/Purchasing Agreement did not prohibit Smith from accepting employment with CMS, (3) reasonable and necessary attorney's fees, and (4) costs of suit. On April 25, 2003, CMS forwarded the Citation and First Amended Petition to the Secretary of State for service on America II.
America II subsequently removed the action to this Court, pursuant to 28 U.S.C. § 1441 and 1446. America II now seeks to dismiss CMS's Complaint or in the alternative, transfer this action to the United States District Court for the Middle District of Florida.
In support of their motions, the parties have attached exhibits which they offer for the Court's consideration. The Court at its discretion may, sua sponte, convert the Rule 12(b)(6) motion to dismiss as a Rule 56 motion for summary judgment. However, the Court has chosen to disregard the offered evidence and render judgment under Rule 12(b)(6) based on the pleadings of the parties.
II. Legal Standard
A federal district court may entertain an action for declaratory judgment pursuant to Federal Declaratory Judgment Act. However, a "district court . . . is not required to provide declaratory judgment relief, and it is a matter for the district court's sound discretion whether to decide a declaratory judgment action." Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 601 (5th Cir. 1983). In deciding whether to entertain a declaratory judgment action, the Court must "address and balance the purposes of the Declaratory Judgement Act and the factors relevant to the abstention doctrine." Travelers Ins. Co. v. La. Farm Bureau Fed'n, Inc., 996 F.2d 774, 778 (5th Cir. 1993). The Court's analysis must include, but is not limited to, the following factors: (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, and (6) whether retaining the lawsuit in federal court would serve the purposes of judicial economy. Id.
"In any 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 a declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such." 28 U.S.C. § 2201 (a).
III. Defendant's Motion to Dismiss
America II contends that, based on a consideration of the aforementioned factors, CMS's declaratory judgment action should be dismissed or alternatively transferred to the Middle District of Florida. However, CMS argues (1) that the court in the Florida Action does not have personal jurisdiction over CMS, (2) that this action does not constitute forum shopping, and (3) that there are no inequities associated with this Court exercising jurisdiction. In the alternative, CMS argues that America II has failed to meet its burden of proof regarding a transfer of venue. Accordingly, the Court will balance each of the relevant factors of the abstention doctrine with the purposes of the Declaratory Judgment Act. See Travelers Ins. Co. v. La. Farm Bureau Fed'n, Inc., 996 F.2d 774, 778 (5th Cir. 1993).
The first factor to consider is whether there is a pending state action where all of the matters in controversy may be fully litigated. Here, the Florida Action centers on the same employment agreement which is in controversy in this Court. The Fifth Circuit has said that "when a state lawsuit is pending, more often than not, issuing a declaratory judgment will be tantamount to issuing an injunction — providing the declaratory plaintiff an end run around the requirements of the Anti-Injunction Act." Travelers, 996 F.2d at 776; see also, Texas Employers' Ins. Ass'n v. Jackson, 862 F.2d 491, 506 (5th Cir. 1988) (en banc), cert. denied, 490 U.S. 1035 (1989). "Thus, as a general rule, the district court may not consider the merits of the declaratory action when (1) a declaratory defendant has previously filed a cause of action in state court against the declaratory plaintiff, (2) the state case involves the same issues as those involved in the federal case, and (3) the district court is prohibited from enjoining the state proceedings under the Anti-Injunction Act." Id. (citing Jackson, 862 F.2d at 506). The time of filing, by itself, is not dispositive. Thus, although CMS was joined as a defendant in the Florida Action subsequent to the initiation this case, the Court may still abstain from entertaining the declaratory judgment.
A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. 28 U.S.C. § 2283.
"If [the Fifth Circuit] had adopted such a strict chronological approach, [it] clearly would not have enumerated six factors which must be considered, rather than one date of filing factor. Moreover, the second abstention factor — requiring the court to consider whether the declaratory suit was filed in anticipation of a lawsuit filed by the declaratory defendant — inherently recognizes that in some cases where the declaratory plaintiff was, indeed, the first to file, the court should nonetheless abstain." Travelers, 996 F.2d at 779 n. 15 (emphasis in original).
However, CMS contends that the Florida Action will not resolve all the matters in controversy for lack of personal jurisdiction over CMS. If the CMS's assertion is correct, then the first factor would not be satisfied and a declaratory judgment from this court would not run afoul of the Declaratory Judgment Act. But, If the court in the Florida Action has personal jurisdiction over CMS, such a determination weighs in favor of abstention.
America II contends that CMS's declaratory action is merely an attempt to secure a favorable forum in anticipation of America II joining CMS as a defendant in the Florida Action. Thus, the second and third factors, whether the plaintiff filed suit in anticipation of a lawsuit by the defendant and whether the plaintiff engaged in forum shopping in bringing the suit, can be analyzed together. America II filed the Florida Action against Smith on December 19, 2001. (Def.'s Mot. at 5.) Within a short time, Anovastar, Smith's employer at the time, was joined as a defendant in the Florida Action. Id. CMS filed the 116th Texas Action, the precursor to the one currently before the court, on April 24, 2002. Id. Accordingly, CMS reasonably believed that America II would file suit in response to CMS hiring Smith and the 116th Texas Action was filed in anticipation of such inevitable litigation. Indeed, upon learning of Smith's employment with CMS, America II joined CMS in the Florida Action. Additionally, it is clear that by litigating the action in Texas state court, rather than in Florida state court, CMS sought to gain the advantage of a convenient forum for itself and at the same time an inconvenient forum for America II, a Florida corporation. Thus, these two factors weigh against adjudicating CMS's declaratory judgment action.
"Anticipatory suits are disfavored because they are an aspect of forum-shopping." Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 n. 3 (5th Cir. 1983) (citing Am. Auto. Ins. Co. v. Freundt, 103 F.2d 613, 617 (7th Cir. 1939).
The fourth factor is whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist. Regarding this factor, the Fifth Circuit's determination in Amerada Petroleum Corp. v. Marshall is instructive. See Amerada Petroleum Corp. v. Marshall, 381 F.2d 661 (5th Cir. 1967). In that case, the contract in question had been executed in New York, the work performed under the contract occurred in New York, and the defendant had its principal place of business in New York. Id. The defendant in the declaratory judgment action had already commenced a different suit against parties similar to the plaintiff; however, the plaintiff was not amenable to service in that suit. Id. at 662. As such, the defendant wrote a letter inviting the plaintiff to appear voluntarily or otherwise face suit in a jurisdiction in which the plaintiff would be subject to service. Id. The plaintiff then filed the action for declaratory judgment in the Southern District of Texas. Id. Thereafter, the defendant filed suit against the plaintiff in the Southern District of New York. Id. Taking these facts under consideration in determining possible inequities, the district court stayed the action pending the outcome of the defendant's suit against the plaintiff in New York. Id. at 663. The district court concluded that "the filing of the declaratory judgment action was triggered by the letter" from the defendant, where the plaintiff had been aware of the defendant's claim for over two years. Id. Accordingly, the Fifth Circuit affirmed the district court's order, holding that the district court was entitled to take account of the facts surrounding the petition for declaratory judgment as an equitable consideration. Id.
In the same manner, CMS has attempted to gain precedence in time and forum by filing this declaratory judgment action. While CMS knew about America II's claim when it filed the 116th Texas Action, it took no steps to actively prosecute the action. Similar to the plaintiff in Amerada, CMS did not pursue its prior claim and now attempts to obtain a declaratory judgment upon notice that America II was going to join CMS in the Florida Action. In the same manner, the contract at issue was executed in Florida and America II has its principal place of business in Florida. As a result, the possible inequities weigh against entertaining the declaratory judgment action.
The fifth factor is whether the federal court is a convenient forum for the parties and witnesses. America II strongly contends that this Court is not a convenient nor an appropriate forum for the parties and witnesses. This action is based on a contract executed in Florida between Smith and America II. Thus, most, if not all, of the witnesses necessary for a proper resolution of the dispute are located in Florida. Accordingly, this Court is not a convenient forum for all of the parties and witnesses.
Finally, the sixth factor is whether retaining the lawsuit in federal court would serve the purposes of judicial economy. The parties are in dispute regarding the progress of the Florida Action compared to the progress in this Court. While such considerations may factor into the determination of whether an action comports with the notions judicial economy, the resolution of such considerations is not necessary at this point. If CMS is subject to personal jurisdiction in the Florida Action, the policies of judicial economy are better served by this Court abstaining from entertaining the declaratory judgment action. Consequently, for purposes of judicial economy in the interim, the Court will stay this action pending resolution of the personal jurisdiction issue in the Florida Action.
IV. Conclusion
For the foregoing reasons, the Court DENIES Defendant's Motion to Dismiss. The Court STAYS this action pending the resolution of Plaintiff's Motion to Dismiss the Florida Action for lack of personal jurisdiction. In addition, the parties are directed to notify the Court of the ruling on Plaintiff's Motion to Dismiss in the Florida Action within ten days of the ruling.