Opinion
Civ. No. 02-3752 (RHK/AJB)
January 30, 2003.
Thomas E. Propson and Susan K. Fitzke, Meagher Geer, P.L.L.P., for Plaintiff.
Josh Jacobson, Law Office of Josh Jacobson, P.A., for Defendants.
MEMORANDUM OPINION AND ORDER
Introduction
This matter arises out of a March 28, 2000 business meeting in Minnesota attended by representatives of Plaintiff Eddie Bauer, Inc. ("EBI"), Defendant Nyle Nims, Edward Cole, and representatives of Target Corporation, a national general merchandise retailer. Cole attended on behalf of his company, Cole Sales Solutions, Inc. ("CSS"), which describes itself as an independent sales representative, business broker and sales consultant. Nims is the president of Defendant Cycle Source Group, LLC ("Cycle Source"), a company that manufactures and imports products for retail in the United States. The purpose of the March 28 meeting was to "pitch" to Target the idea of selling a line of outdoor and camping equipment bearing the "Eddie Bauer" name and logos through its Target stores.
About one week after the March 28 meeting, Target decided to proceed with an "Eddie Bauer" line of outdoor products. EBI entered into a licensing agreement with American Recreation Products, Inc. ("ARP"), granting to ARP the exclusive right to use the "Eddie Bauer" name, trademarks and logos in marketing and selling camping and outdoor gear to Target. EBI therefore informed CSS that neither it nor Cycle Source would be receiving a license for the "Eddie Bauer" camping gear program at Target, nor would they play any role in that program.
Within months of EBI's decision not to proceed with CSS and Cycle Source, those businesses sent a demand letter to EBI, including with it a draft complaint. CSS took no legal action against EBI until the spring of 2002, when it sued EBI and an EBI marketing executive named Donald Perinchief in this Court. See Cole Sales Solutions, Inc, v. Eddie Bauer, Inc., Civ. No. 02-661 (RHK/AJB). Neither Nims nor Cycle Source are parties in that lawsuit. EBI subsequently commenced the above-captioned action against Nims and Cycle Source pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201. EBI seeks a judgment declaring that it is not liable to Nims or Cycle Source under any of the legal and equitable theories set forth in the draft complaint EBI received in 2000.
Presently before the Court is the Defendants' Motion to Dismiss the First Amended Complaint in this action, brought pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. Nims and Cycle Source argue that there is no justiciable controversy between the parties because there is no immediate threat that Nims or Cycle Source will sue EBI. The Defendants further contend that EBI has failed to allege a justiciable controversy because it has not alleged that it is presently engaging in ongoing activity that would violate the Defendants' rights. Finally, the Defendants argue that, if the First Amended Complaint does present an actual controversy, the Court should exercise its discretion to dismiss the action because EBI brought suit in Minnesota solely as a tactical maneuver aimed at depriving the Defendants of their choice of forum and the right to control the timing of their lawsuit. The Court considers each argument in turn.
Analysis
I. The Existence of an Actual Controversy
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides that a party may move to dismiss a pleading for lack of subject matter jurisdiction. Such a motion to dismiss may challenge the sufficiency of the pleading on its face or may challenge the factual truthfulness of its averments. See Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir. 1993); Osborn v. United States, 918 F.2d 724, 729 n. 6 (8th Cir. 1990). Whether a Rule 12(b)(1) motion presents a "factual challenge" to subject matter jurisdiction depends not on whether the movant has submitted matters outside the pleading for the district court's consideration, but rather on whether the district court must inquire into and resolve factual disputes. See Faibisch v. University of Minn., 304 F.3d 797, 801 (8th Cir. 2002). "[T]he trial court is free to . . . satisfy itself as to the existence of its power to hear the case." Osborn, 918 F.2d at 730, quoted in Faibisch, 304 F.3d at 801; see also Fed.R.Civ.P. 12(h)(3) (providing that the district court shall dismiss an action for lack of subject matter jurisdiction whenever it appears, by suggestion of the parties or otherwise, that such jurisdiction is lacking). The plaintiff bears the burden of proving that jurisdiction does in fact exist. Osborn, 918 F.2d at 730.
The Declaratory Judgment Act authorizes federal courts to declare the rights and other legal relations of interested parties "in a case of actual controversy." See Diagnostic Unit Inmate Council v. Films, Inc., 88 F.3d 651, 653 (8th Cir. 1996); 28 U.S.C. § 2201(a). "To satisfy the actual controversy requirement of the Declaratory Judgment Act, there must exist `a substantial controversy between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Caldwell v. Gurley Refining Co., 755 F.2d 645, 649 (8th Cir. 1985) (quoting Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941)). "Because the test to determine the existence of a `substantial controversy' is imprecise, the decision of whether such controversy exists is made upon the facts on a case by case basis." Marine Equip. Mgmt. Co. v. U.S., 4 F.3d 643, 646 (8th Cir. 1993).
Article III of the United States Constitution provides that the judicial power of the United States extends to all cases, in law and equity, arising under the laws of the United States and to controversies between citizens of different states. U.S. Const., art. III, § 2, cl. 1. There is no dispute that EBI's First Amended Complaint adequately alleges diversity of citizenship between the parties and an amount in controversy in excess of $75,000.
The Defendants contend that no immediate controversy exists because the only threat of litigation that Nims and Cycle Source have made occurred over two years ago, in 2000. EBI disputes this assertion, submitting an affidavit from its counsel, Thomas Propson, stating that Nims told Propson in September 2002 that he had spoken with his counsel in New York City and that he and Cycle Source were intending to sue EBI and "join the litigation." (Propson Decl. ¶ 4.) Nims acknowledges that he spoke with Propson in September 2002, but denies telling him that he or Cycle Source intended to sue EBI. (Nims Aff. ¶¶ 8, 10.) Nims asserts that the only issue he discussed with Propson was the production of documents in response to discovery subpoenas EBI had served in the Cole Sales Solutions matter. (Id. ¶¶ 3, 5.)
The record before the Court, therefore, is not conclusive as to whether Nims communicated an intent to sue EBI in 2002. Nevertheless, the Court concludes that a dispute exists between the parties that is sufficiently real and immediate to be fit for adjudication. The parties' dispute involves whether EBI had promised to award a contract (specifically, a licensing agreement) to Cycle Source for the "Eddie Bauer" outdoor equipment that would be sold through Target stores. The Defendants' legal interests became adverse to EBI when EBI awarded an exclusive license for the Target account to ARP and informed CSS that neither it nor Cycle Source would have any role in the Target program. The essential facts giving rise to the dispute between EBI and the Defendants have already occurred; hence, the dispute is not hypothetical or abstract. See Caldwell, 755 F.2d at 649-50; see also Sydow v. Acheson Co., 81 F. Supp.2d 758, 762-63 (S.D.Tex. 2000) (holding that Texas law firm presented justiciable controversy under Declaratory Judgment Act where Texas firm and Canadian firm disputed the existence of a contractual obligation to split fees in breast implant litigation, despite the fact that the Canadian firm had not yet been awarded fees); Clark Constr. Co. v. Pena, 930 F. Supp. 1470, 1491 (M.D.Ala. 1996) (finding that construction company presented actual controversy fit for declaratory judgment in complaining that federal government had wrongfully deprived it of contract for highway work by improperly reopening bidding and awarding contract to another).
In addition to the fitness of the parties' dispute for adjudication, the Court finds that hardship will result to EBI if the Court does not exercise jurisdiction over EBI's First Amended Complaint. See Minnesota Sch. Bd. Ass'n Ins. Trust v. E.E.O.C., 184 F. Supp.2d 899, 906 (D.Minn. 2001) (Report Recommendation of Erickson, M.J., adopted by Kyle, J.). One participant in the March 28, 2000 meeting in Minneapolis — CSS — has already sued EBI in this forum based on EBI's alleged conduct in connection with that meeting. In the CSS litigation, EBI might succeed in establishing that it made no promises to CSS (or CSS's partner, Cycle Source) regarding any involvement in the camping goods program for Target stores. Any such determination, however, would not be binding on Cycle Source or Nims under principles of res judicata or collateral estoppel because they are not parties to CSS's lawsuit. EBI would therefore be forced to litigate the same factual and legal issues again, likely in a different forum, with respect to Nims and Cycle Source. EBI faces the expense not just of litigation but of seriatim litigation over a single transaction, and the risk of inconsistent results from different fora.
Indeed, one questions whether EBI might not have moved to add Nims and Cycle Source as involuntary plaintiffs in the Cole Sales Solution litigation pursuant to Rule 19(a) of the Federal Rules of Civil Procedure.
The Defendants further contend that EBI's declaratory judgment action does not present a justiciable controversy because EBI has not alleged that it is engaging in "present activity" that violates the Defendants' rights. The Eighth Circuit has held that, in patent and copyright cases, the declaratory judgment plaintiff must be engaging in "present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity." Diagnostic Unit, 88 F.3d at 653. Quite simply, this is not a patent or copyright infringement case. As set forth above, the facts giving rise to the adverse legal positions of the parties have already occurred. EBI's declaratory judgment action is ripe for adjudication.
"[D]eclaratory relief is appropriate (1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Eureka Federal Sav. and Loan Ass'n v. American Cas. Co., 873 F.2d 229, 231 (9th Cir. 1989) (quoting Bilbrey by Bilbrey v. Brown, 738 F.2d 1462, 1470 (9th Cir. 1984) (internal quotation marks omitted)). Both considerations are present here, and this Court has jurisdiction over the subject matter of the dispute.
II. The Court's Discretion to Dismiss a Declaratory Judgment Action
Nims and Cycle Source argue in the alternative that if the Court finds a justiciable controversy in EBI's declaratory judgment action, the Court should exercise its discretion and dismiss EBI's First Amended Complaint. Nims and Cycle Source contend that they are the "true plaintiffs" and should not be deprived of their choice of forum and right to control the timing of their lawsuit by EBI's peremptory lawsuit.
"District courts have discretion to decide whether to entertain declaratory judgment actions: `any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration.'" BASF Corp. v. Symington, 50 F.3d 555, 557 (8th Cir. 1995) (emphasis in original) (quoting 28 U.S.C. § 2201(a)). There is a presumption in favor of declaratory jurisdiction. Id. at 558. The Court concludes that Nims and Cycle Source have not established that the circumstances of this case overcome that presumption in favor of jurisdiction. EBI has not brought its declaratory judgment action for the sole purpose of wresting the choice of forum away from the "natural plaintiffs." Rather, EBI has sued Nims and Cycle Source in an effort to consolidate litigation arising from a single transaction. It is clear that dismissing EBI's declaratory judgment action against Nims and Cycle Source will result in duplicative litigation in two fora and will force two courts to expend judicial resources on disputes arising from a single deal. The Court declines to exercise its discretion and dismiss EBI's declaratory action.
While the Eighth Circuit ultimately vacated the declaratory judgment entered by the district court in BASF Corp. on the grounds that the lower court should have declined to exercise jurisdiction, that case is readily distinguishable from the circumstances presented here. Unlike the declaratory plaintiff in BASF Corp., EBI does not base its complaint for declaratory relief on an "affirmative defense"; that is, EBI does not seek a declaration that the statute of limitations or some other affirmative defense bars Nims and Cycle Source from recovery. EBI simply denies that the facts surrounding the March 28, 2000 meeting in Minneapolis give rise to legal or equitable claims against it.
Conclusion
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS ORDERED that Defendants' Motion to Dismiss (Doc. No. 5) is DENIED.