Opinion
901548-19
09-19-2019
ECOVATIVE DESIGN LLC, Plaintiff, v. BOLT THREADS, INC., Defendant.
Bond, Schoeneck & King, PLLC, Attorneys for Defendant (Stuart F. Klein, of counsel), 22 Corporate Woods Boulevard, Albany, New York 12211 Nixon Peabody LLP, Attorneys for Plaintiff (Andrew C. Rose and William E. Reynolds, of counsel), 677 Broadway, 10th Floor, Albany, New York 12207-2996 Cohen & Gresser LLP, Attorneys for Plaintiff (Mark Spatz, of counsel), 800 Third Avenue, 21st Floor, New York, New York 10022
Bond, Schoeneck & King, PLLC, Attorneys for Defendant (Stuart F. Klein, of counsel), 22 Corporate Woods Boulevard, Albany, New York 12211
Nixon Peabody LLP, Attorneys for Plaintiff (Andrew C. Rose and William E. Reynolds, of counsel), 677 Broadway, 10th Floor, Albany, New York 12207-2996
Cohen & Gresser LLP, Attorneys for Plaintiff (Mark Spatz, of counsel), 800 Third Avenue, 21st Floor, New York, New York 10022
Richard M. Platkin, J.
In this commercial dispute between two biotechnology companies, defendant Bolt Threads, Inc. ("Bolt") moves for an order dismissing the action under CPLR 327 based on the doctrine of forum non conveniens, or, in the alternative, under CPLR 3211 (a) (4) based on the pendency of a related action in the California state courts. Plaintiff Ecovative Design LLC ("Ecovative") opposes the motion.
BACKGROUND
Ecovative is a New York biotechnology company that has developed, and holds patents for, technology relating to the growth, production and processing of mycelium, which is a material grown from the roots of mushrooms (see NYSCEF Doc No. 1 ["Complaint"], ¶ 9). Bolt is a California-based biotechnology company that develops and produces sustainable fabrics and textiles for the apparel industry (see id. , ¶ 12; NYSCEF Doc No. 17, Mirsky Aff., ¶ 2).
Ecovative commenced this action on March 15, 2019. The Complaint alleges that Bolt breached its obligations to Ecovative under a commercial assignment and licensing agreement (see Complaint, ¶¶ 3-8).
According to the Complaint, Bolt approached Ecovative in 2017 regarding the application of Ecovative's technology to the production of textiles (see id. , ¶ 15). On February 15, 2018, the parties executed a term sheet reflecting an agreement to allow Bolt to use Ecovative's technology in exchange for $20 million (see id. , ¶ 16). On April 12, 2018, the parties executed a License and Assignment Agreement (see id. , ¶ 17; NYSCEF Doc No. 18 ["Agreement"] ).
A. The Agreement
Under the Agreement, Ecovative assigned and/or licensed certain intellectual property rights to Bolt (see Complaint, ¶ 17; Agreement, §§ 3.1, 4.1). In addition, the Agreement required two other deliverables from Ecovative. First, Ecovative was required to manufacture pilot quantities of untreated mycelium tissue for Bolt's purchase (see Complaint, ¶ 20; Agreement, § 2.3.3). Second, Ecovative was obliged to deliver a technology transfer package ("TTP") describing the details of its current process for mycelium textile production in sufficient detail for Bolt to be able to reproduce the process (see Complaint, ¶ 22; Agreement, § 2.2.1).
Ecovative's delivery of the TTP triggered certain obligations on Bolt's part. Bolt was required to validate the package by replicating the process with substantially equivalent product performance (see Complaint, ¶¶ 26-27; Agreement, §§ 2.2.1, 2.2.3). Bolt also was required to promptly notify Ecovative of any nonconformity or other obstacle encountered in the validation process and to deliver periodic progress reports to Ecovative (see Complaint, ¶¶ 30-32; Agreement, § 2.2.3).
Successful validation of the TTP would trigger a milestone payment to Ecovative of cash and stock (see Complaint, ¶ 33; Agreement, §§ 2.2.1, 5.2). A second milestone payment was to be made upon "product launch," which is defined as Bolt's offering for sale of at least 100 units of product (see Complaint, ¶ 35; Agreement, § 2.4). Bolt was required to use commercially reasonable efforts to launch a mycelium-based product in 2018 or " ‘promptly thereafter’ " (Complaint, ¶ 36, quoting Agreement, § 2.4).
Finally, the Agreement is governed by California law and includes a termination procedure allowing either party to terminate upon a material breach by the other party that has not been cured within 60 days of receipt of written notice of the alleged breach (see Complaint, ¶¶ 38-39; Agreement, §§ 8.2, 11.2).
B. Implementation of the Agreement
Following execution of the Agreement on April 12, 2018, Ecovative began working to provide Bolt with the TTP (see Complaint, ¶ 40). Thereafter, Ecovative provided Bolt with an outline of the TTP and various drafts (see id. , ¶¶ 42-43, 45, 47, 50-51).
On September 26, 2018, Ecovative allegedly sent Bolt a complete TTP sufficient for Bolt to validate the process (see id. , ¶ 53). Meanwhile, while working on the TTP, Bolt and Ecovative explored and developed improvements to the process that had been used to produce the benchmark sample of mycelium material ("Benchmark") (see id. , ¶ 54). At Bolt's request, Ecovative provided Bolt with details of the process improvements made subsequent to execution of the Agreement (see id. ).
After receiving the TTP, Bolt was obliged to validate the "current process," which Ecovative claims is a reference to the process that was in use at the time of execution of the Agreement (see id. , ¶ 55; see also Agreement, § 2.2.4). However, Ecovative complains that Bolt attempted to perform the validation process using improvements subsequently developed by the parties (see Complaint, ¶ 56). Ecovative further alleges that Bolt failed to provide it with written progress reports, as required by the Agreement (see id. , ¶ 57).
In September 2018, Bolt started a Kickstarter campaign offering items made with the transferred technology (see id. , ¶ 59). According to Ecovative, it has fulfilled its supply obligations to Bolt and maintained a sufficient inventory of material for Bolt's needs, and Bolt has the capacity to complete more than 100 units (see id. , ¶¶ 60-61).
On November 19, 2018, Bolt sought to renegotiate the Agreement and reduce the milestone payments (see id. , ¶¶ 63-64). Bolt also indicated that it was going to assert a breach of the Agreement in order to facilitate renegotiation (see id. , ¶ 65). Later that day, Bolt issued a notice in which it claimed that Ecovative materially breached the Agreement by (1) failing to provide a TTP with sufficient detail to allow Bolt to reproduce the process used to create the Benchmark, and (2) failing to provide Bolt with material of the same quality as the Benchmark (see id. , ¶ 66).
The parties thereafter proceeded to negotiate a revised agreement, and several drafts were exchanged through February 21, 2019 (see id. , ¶¶ 83-88). On February 25, 2019, however, Bolt sent a letter purporting to terminate the Agreement and, on the same day, filed a breach-of-contract action against Ecovative in the United States District Court for the Northern District of California ("federal action") (see id. , ¶¶ 89-90).
C. Subsequent Events
On the basis of the foregoing allegations, Ecovative commenced this action on March 15, 2019. Its Complaint alleges four causes of action: three sounding in breach of contract, and a fourth cause of action seeking a declaration that the Agreement remains in force and effect.
In lieu of answering, Bolt moves for the dismissal of this action on two grounds. First, it argues that the action should be dismissed pursuant to CPLR 327 based on the doctrine of forum non conveniens. Second, Bolt argues that this suit should be dismissed under CPLR 3211 (a) (4) on the basis of a related action pending in the state courts of California.
It is Bolt's contention that it was the first to sue, citing the federal action commenced on February 25, 2019. Bolt explains, however, that it was obliged to voluntarily discontinue the federal action on April 17, 2019 after learning from Ecovative that four of its members were residents of California, thereby destroying the complete diversity necessary for the federal court's exercise of subject matter jurisdiction. On May 8, 2019, Bolt commenced a virtually identical suit against Ecovative in the California state courts ("California action").
ANALYSIS
A. Forum Non Conveniens
"The doctrine of forum non conveniens permits a court to dismiss an action when, although it may have jurisdiction over a claim, the court determines that, ‘in the interest of substantial justice the action should be heard in another forum’ " ( National Bank & Trust Co. of N. Am. v. Banco De Vizcaya , 72 NY2d 1005, 1007 [1988], cert denied 489 US 1067 [1989], quoting CPLR 327 ).
In exercising its discretionary authority to dismiss a case on forum non conveniens grounds, the Court must balance a number of factors, including the "sites of the transaction out of which the litigation arose, the residence of the parties, the potential hardship to the defendant, the burden on New York courts, the availability of an alternate forum and the location of a majority of witnesses outside the State" ( Continental Ins. Co. v. Polaris Indus. Partners , 199 AD2d 222, 222-223 [1st Dept 1993] [citations omitted]; see Islamic Republic of Iran v. Pahlavi , 62 NY2d 474, 479 [1984], cert denied 469 US 1108 [1985] ; Varkonyi v. S.A. Empresa De Viacao Airea Rio Grandense [Varig] , 22 NY2d 333, 338 [1968] ; Gozzo v. First Am. Tit. Ins. Co. , 75 AD3d 953, 954 [3d Dept 2010] ). "[U]nless these factors weigh heavily in the defendant's favor, the plaintiff's choice of forum will not be rejected and the action will not be dismissed under this doctrine" ( Markov v. Markov , 274 AD2d 870, 871 [3d Dept 2000] ; see Banco Ambrosiano v. Artoc Bank & Trust , 62 NY2d 65, 74 [1984] ).
The Court finds, in the exercise of discretion, that Bolt has failed to meet its heavy burden of depriving Ecovative of its choice of forum.
First, both New York and California share a substantial nexus to the Agreement, its performance and the parties' disputes thereunder. In arguing for dismissal of this action, Bolt emphasizes that the TTP was to be delivered to Bolt in California, Bolt's validation was to be performed by its California personnel, Bolt's obligation to provide notifications and reports was to be performed in California, any milestone payments made to Ecovative would originate in California, the mycelium materials were to be delivered to Bolt in California, and the manufacture and sale of products made by Bolt using Ecovative's technology would occur in California.
Under the Agreement, the validation could occur at Bolt's facility in California, Ecovative's facility in New York or at a third-party site (see Agreement, § 2.2.1).
It is apparent, however, that much of Ecovative's performance under the Agreement took place in New York. Thus, New York was the situs of the development of the TTP, which was a key deliverable under the Agreement. New York also was where the pilot quantities of mycelium tissue were manufactured and inventoried for Bolt's purchase under the Agreement. Indeed, it is the performance of the foregoing obligations by Ecovative that Bolt takes issue with in the California action (see NYSCEF Doc No. 14, California Complaint ["Ecovative never delivered a (TTP) for a reproducible process .... Ecovative also failed to deliver material sufficient for a product launch in 2018"] ). Moreover, the record shows that no fewer than 11 Bolt employees came to New York on at least five different occasions to participate in the preparation of the TTP (see NYSCEF Doc No. 23, Bayer Aff., ¶¶ 9-10).
Similarly, potential fact witnesses are present both in New York and California. Again, while Bolt emphasizes that at least 12 of its California employees may be material witnesses, the same is true of the 13 Ecovative employees who developed the TTP and prepared the mycelium for sale to Bolt (see id. , ¶ 7).
In terms of the residence of the parties, Ecovative is a limited liability company ("LLC") formed under the laws of New York, and all of its offices, laboratory and manufacturing facilities are located within Albany County (see id. , ¶ 4). Further, while Ecovative may be a citizen of California for purposes of federal diversity jurisdiction, the record shows that Ecovative's four California members merely are part of a group of 37 passive investors who hold membership interests in the LLC (see id. , ¶¶ 11-12). Moreover, Ecovative cancelled its registration in California as a foreign LLC on August 13, 2018 when it no longer had any physical presence in that state (see id. , ¶ 8; NYSCEF Doc No. 24). For its part, Bolt is a Delaware corporation with its headquarters in California, but it is an authorized foreign corporation in New York (see NYSCEF Doc No. 25, Rose Aff., ¶¶ 2-3; NYSCEF Doc No. 26). On these facts, the residence factor tips decidedly against disturbing Ecovative's choice of forum (see Highgate Pictures v. De Paul , 153 AD2d 126, 129 [1st Dept 1990] ; see also Silver v. Great Am. Ins. Co. , 29 NY2d 356, 361 [1972] [parties' residence is "important factor"] ).
Bolt also has not identified any particular hardship associated with litigating this dispute in Albany County (see Katz v. Lazaroff , 236 AD2d 257, 257 [1st Dept 1997] ; see also Banco Ambrosiano , 62 NY2d at 74 ; cf. Metz v. Davis Polk & Wardwell , 133 AD3d 501, 501 [1st Dept 2015], lv denied 26 NY3d 919 [2016] ). Nor does Bolt allege that it lacks the resources to litigate this case in New York (see Van Deventer v. CS SCF Mgt. Ltd. , 37 AD3d 280, 281 [1st Dept 2007] ; Waterways Ltd. v. Barclays Bank PLC , 174 AD2d 324, 327 [1st Dept 1991] ).
Moreover, the Commercial Division of Supreme Court, Albany County was intended to provide a forum for commercial disputes of this nature, and this Court routinely is called upon to apply the laws of sister States (see e.g. Hanley v. Hanley , 64 Misc 3d 1202[A], 2019 NY Slip Op 50970[U], *11-12 [Sup Ct, Albany County 2019]; see Travelers Cas. & Sur. Co. v. Honeywell Intl. Inc. , 48 AD3d 225, 226 [1st Dept 2008] ["New York courts are capable of applying (foreign) law should that necessity arise"] ). And while the California action certainly provides the parties with another forum in which to litigate, this action was commenced first (see infra ).
Notably, while the Agreement prescribes the application of California law, it does not include a forum selection clause requiring the parties' disputes to be litigated in California.
In sum, dismissal on forum non conveniens grounds is appropriate "only when it plainly appears that New York is an inconvenient forum and that the action has no nexus to this State" ( Singh v. Swan , 225 AD2d 1057, 1057 [4th Dept 1996] [internal quotation marks and citation omitted]; see Silver , 29 NY2d at 361 ). This action, which arises out of the contractual obligations and performance of a New York-based company, clearly has extensive ties to this State, and requiring Bolt to litigate here would not cause it a substantial hardship. Bolt therefore has failed to meet its "heavy burden" of demonstrating that New York is an inconvenient forum ( Banco Ambrosiano , 62 NY2d at 74 ).
For all of the foregoing reasons, the Court concludes, in the exercise of discretion, that the interests of substantial justice do not favor dismissal of this case (see CPLR 327 ).
B. Prior Action Pending
Bolt further contends that the Complaint should be dismissed under CPLR 3211 (a) (4), which grants a court discretion to dismiss an action or proceeding where "there is another action [or proceeding] pending between the same parties for the same cause of action in a court of any state or the United States." Dismissal of a case due to the pendency of a prior action is warranted "where there is a substantial identity of the parties and causes of action" ( Cherico, Cherico & Assoc. v. Midollo , 67 AD3d 622, 622 [2d Dept 2009] ; see Matter of Schaller v. Vacco , 241 AD2d 663, 663 [3d Dept 1997] ).
This branch of Bolt's motion is predicated upon the contention that Bolt's suit was the first to be filed. In this regard, Bolt attempts to relate-back the May 8, 2019 filing of the California action to the February 25, 2019 filing of the federal action. The Court does not find Bolt's argument to be persuasive. A race to the courthouse cannot be won by a filing made in the wrong court. This Court was the first to exercise jurisdiction over the parties' dispute.
Having concluded that this action was filed prior to the virtually identical California action, the Court denies the branch of the motion seeking dismissal under CPLR 3211 (a) (4) on the basis of a prior pending action (see City Trade & Industries, Ltd. v. New Cent. Jute Mills Co. , 25 NY2d 49, 58 [1969] ["Generally the court which has first taken jurisdiction is the one in which the matter should be determined" (internal quotation marks and citation omitted) ]; accord Syncora Guar. Inc. v. J.P. Morgan Sec. LLC , 110 AD3d 87, 95 [1st Dept 2013] ; cf. Wachtell, Lipton, Rosen & Katz v. CVR Energy, Inc. , 143 AD3d 648, 648 [1st Dept 2016] ).
CONCLUSION
Based on the foregoing, it is
ORDERED that defendant's motion is denied in all respects; and it is further
ORDERED that defendant shall answer the Complaint within twenty (20) days from the date of service upon it of notice of entry of this Decision & Order; and finally it is
ORDERED that the parties shall confer regarding a schedule for discovery and the filing of a note of issue and, within twenty (20) days of the service of defendant's answer, either: (i) stipulate to a scheduling order, which shall be submitted to the Court for approval; or (ii) request a scheduling conference with the Court.
This constitutes the Decision & Order of the Court, the original of which is being transmitted to the Albany County Clerk for electronic filing and entry. Upon such entry, plaintiff's counsel shall promptly serve notice of entry on all other parties (see Uniform Rules for Trial Cts [ 22 NYCRR] § 202.5-b [h] [1], [2] ).