Opinion
Civil No. 04-2905 (DWF/JSM).
November 22, 2004
Marc G. Kurzman, Esq., Kurzman Grant Ojala, Minneapolis, MN counsel for Plaintiffs.
Peter J. Gleekel, Esq., Winthrop Weinstine, Minneapolis, MN James A. Walker, Esq. and John E. Rapp, Esq., Triplett Woolf Garretson, LLC, Wichita, KS, counsel for Defendants.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on October 8, 2004, pursuant to the above-named Defendants' (collectively "ProHome") Motion to Dismiss, Transfer, or Stay the Proceedings. Plaintiffs (collectively "the Former Franchisees") oppose this motion. For the reasons set forth below, ProHome's motion is granted in part and denied in part.
Background
Defendant ProHome, Inc., a Kansas company, was in the business of providing new home warranty and protection services for builders and homeowners. ProHome also entered into numerous franchise agreements as the franchisor with persons and business entities through the country to operate a builder's warranty management, callback, repair, renovation, remodeling and maintenance service business ("the Franchised Business").
In July 2002, ProHome International, LLC, ("PHI") a Nevada company, purchased the assets of ProHome, Inc. Today, PHI operates the Franchised Business. The individual defendants in this case are officers of PHI.
The Franchised Business is operated under the registered trademark "ProHome®." The Franchised Business allegedly utilizes distinctive methods of operation, systems, specifications, standards and procedures. The Franchised Business also utilizes a software program that is identified by the trademark "ProKey®." ProKey generates customer invoices, tracks customer information, logs account receivables, and produces trend analysis reports.
Each Former Franchisee entered into a franchise agreement ("the Franchise Agreement") with ProHome. In general, the Franchise Agreement allowed each franchisee the right to contract with builders, developers, realtors, property management companies, landlords, and homeowners to perform maintenance, warranty, callback, repair, and contract construction services through annual service agreements and maintenance programs within a described geographic territory. By executing the Franchise Agreement, the franchisee agreed to operate its business in accordance with the rules and regulations set out in the Franchise Agreement.
The Franchise Agreement provides that the contents of ProHome's Operations Manual and all other information distributed to the franchisees by ProHome is confidential and constitutes trade secrets of ProHome. The Franchise Agreement also grants each franchisee a limited license to utilize the ProHome and ProKey trademarks.
On October 10, 2001, a group of ProHome's franchisees filed a lawsuit as a putative class action against ProHome in the United States District Court, District of Minnesota, entitled Case No. 01-CV-107 (DSD/JMM) ("Settled Case"). In May 2002, the parties entered into a settlement agreement ("the Settlement Agreement"). As a result of the Settlement Agreement, the Settled Case was dismissed.
The Settlement Agreement ended the affiliation between each of the franchisees and ProHome and provided that each of the Former Franchisees would comply with a de-identification process within proscribed time limits. Specifically, the Former Franchisees agreed to: (1) remove all ProHome references from their web sites by July 14, 2002, and all references from their marketing and promotional materials by December 14, 2002; (2) remove all references to the ProHome name in any manner after June 14, 2003; and (3) take steps between June 14, 2002, and June 13, 2003, to ensure that third parties understood that the Former Franchisees were no longer affiliated with ProHome.
The Former Franchisees agreed to return all copies and originals of the franchise operating manuals to ProHome in Wichita, Kansas, or provide a written certification letter indicating that the materials had been destroyed by June 14, 2003. Ultimately, each of the Former Franchisees either certified in writing that it had destroyed the franchise materials or returned the materials to Wichita.
The Settlement Agreement limited the ability of the Former Franchisees to use the ProKey software for anything other than obtaining data stored during the time the license was in place. The software was to be deleted by June 14, 2003.
The Settlement Agreement required the Former Franchisees to transfer $40,000 to the trust account of their counsel in the Settled Case within ten days of the signing of the Settlement Agreement. Within 14 days of the initial transfer, $20,000 was sent to ProHome. Another $10,000 was sent in June of 2003 to ProHome. The remaining $10,000 has not been transferred to ProHome.
For its part, ProHome agreed not to compete with the Former Franchisees from June 14, 2002, to June 14, 2004. ProHome also agreed to disclose to potentially competitive franchisees the fact that it agreed not to compete in certain territories. As a successor to ProHome, PHI acknowledges that it is subject to the Settlement Agreement's non-compete provision.
Finally, the Settlement Agreement provided that:
The terms of this Agreement shall be governed by and interpreted under the laws of the State of Minnesota. Enforcement of the terms of this Agreement as it relates to the exchange of monetary consideration should occur in the State of Minnesota. However, any violation of the non-compete or de-identification provisions set forth in Paragraphs 3 and 4 above may not be enforced by any of the parties in the jurisdiction where the violation occurred.
(Settlement Agreement at ¶ 10.)
On October 14, 2003, counsel for the Former Franchisees sent a letter to ProHome asserting that ProHome was in violation of the Settlement Agreement. On October 20, 2003, a second letter was sent to ProHome by the Former Franchisees' attorneys restating their assertion that ProHome was in violation of the Settlement Agreement and threatening to file suit. Therefore, on November 13, 2003, ProHome filed an action in the United States District Court for the District of Kansas ("the Kansas Action").
In the Kansas Action, ProHome filed for a declaratory judgment that ProHome had not breached the Settlement Agreement. ProHome also claimed damages arising from alleged breaches of the Settlement Agreement by certain Former Franchisees for failure to de-identify and violation of federal trademark and copyright laws. In response, the Former Franchisees brought suit in Minnesota alleging that ProHome had breached the Settlement Agreement. The Former Franchisees also filed motions in Kansas requesting that the Kansas Action be dismissed, transferred, or stayed pending the resolution of the Minnesota action.
ProHome then filed the motions presently before this Court. The Former Franchisees' motion to dismiss, transfer, or stay the Kansas Action had not been ruled on when counsel for the parties appeared before this court for oral argument on ProHome's motion. The United States Court for the District of Kansas has subsequently ruled on the Former Franchisees' motions. As a result, the Kansas Action has been stayed pending this Court's ruling on ProHome's motions.
Discussion
1. Motion to Dismiss
In deciding a motion to dismiss, the Court must assume all facts in the Complaint to be true and construe all reasonable inferences from those facts in the light most favorable to the complainant. See Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). The Court grants a motion to dismiss only if it is clear beyond any doubt that no relief could be granted under any set of facts consistent with the allegations in the Complaint. See id. The Court may grant a motion to dismiss on the basis of a dispositive issue of law. See Neitzke v. Williams, 490 U.S. 319, 326 (1989). The Court need not resolve all questions of law in a manner which favors the complainant; rather, the Court may dismiss a claim founded upon a legal theory which is "close but ultimately unavailing." Id. at 327.
ProHome asserts that the Court should either dismiss, transfer, or stay this case because the Kansas Action was filed first. The rule in this circuit is that in cases of concurrent jurisdiction, "the first court in which jurisdiction attaches has priority to consider the case." Orthmann v. Apple River Campground, Inc., 765 F.2d 119, 121 (8th Cir. 1985). The rule is not meant to be inflexible but should be applied in the manner best serving the interests of justice. See id. However, the rule need not be used where compelling circumstances exist. See Northwest Airlines, Inc. v. American Airlines, Inc., 989 F.2d 1002, 1005 (8th Cir. 1993).
ProHome points out that the Kansas Action was filed on November 13, 2003, whereas this action was not filed until June 7, 2004. ProHome contends that the Kansas Action seeks both a declaratory judgment against all former franchisees and monetary damages from those Former Franchisees that ProHome claims violated the Settlement Agreement. Thus, ProHome asserts that the filing of the Kansas Action was not a preemptory strike and that it should be considered the "true plaintiff" in this matter.
The Former Franchisees assert that ProHome did not initiate the Kansas Action until it was notified by the Former Franchisees of the potential violations of the Settlement Agreement and was given an opportunity to respond. The Former Franchisees contend that in response to their efforts to resolve these matters without resort to litigation, ProHome raced to the courthouse in Kansas rather than facing suit in another jurisdiction. In light of these facts, the Former Franchisee asserts that the first-filed rule should not be applied to this matter.
The Former Franchisees also claim that the Settlement Agreement's language evidences the intent of the parties to resolve all disputes involving monetary consideration in Minnesota. The Former Franchisees acknowledge that de-identification claims "may be enforced in the jurisdiction where the violation occurred." (Settlement Agreement at ¶ 10.) However, the Former Franchisees assert that all of ProHome's other claims are required to be litigated in Minnesota.
ProHome contends that the language of the Settlement Agreement clearly allows either party to bring claims based on alleged violations of the non-compete or de-identification provisions in any jurisdiction where the violation occurred. ProHome asserts that at least some of the Former Franchisees that allegedly violated the non-compete and de-identification provisions are located in Kansas. ProHome also points out that all of the Former Franchisees either returned or certified the destruction of materials to ProHome in Kansas.
The Court finds that dismissal of this case at this time is inappropriate. While ProHome was the first to file its suit, ProHome did so only after being notified by the Former Franchisees' counsel of alleged violations of the Settlement Agreement. Although ProHome asserts that the filing of the Kansas Action was not made to avoid litigating their case in another forum, the Court finds that the facts surrounding the filing of the Kansas Action indicate that ProHome did indeed file their action in Kansas to avoid litigating the matter in Minnesota. As to this issue, the Court's findings are mirrored by those of the court in the Kansas Action.
Although it does not affect the Court's findings regarding the motion to dismiss, this Court's findings also mirror those of the court in the Kansas Action with regard to the applicability and effect of the Settlement Agreement's forum selection clause. The terms of the Settlement Agreement require the parties to litigate any disputes regarding the exchange of monetary consideration as set out in paragraphs 2 and 6 of the Settlement Agreement exclusively in Minnesota. However, a violation of the non-compete or de-identification provisions may be litigated anywhere the alleged violation occurs, including both Minnesota and Kansas.
2. Motion to Transfer to the District of Kansas
ProHome contends that pursuant to 28 U.S.C. § 1404(a), the Court should transfer this case to the United States District Court for the District of Kansas. Section 1404(a) states: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
Generally, transfer under section 1404(a) "should not be freely granted." In re Nine Mile Ltd., 692 F.2d 56, 61 (8th Cir. 1982). The party seeking transfer bears the burden of proof to show that the balance of factors "strongly" favors the movant. United Mortg. Corp. v. Plaza Mortg. Corp., 853 F. Supp. 311, 315 (D. Minn. 1994). The court considers the convenience of the parties and witnesses and the interests of justice in determining whether to transfer a lawsuit pursuant to section 1404(a). In considering these factors, the court must look to the particular circumstances of the case before it. See Terra Intern., Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 691 (8th Cir. 1997).
A. Convenience of the Parties
A presumption in favor of plaintiff's choice of forums exists. See Christensen Hatch Farms, Inc. v. Peavey Co., 505 F. Supp. 903, 911 (D. Minn. 1981). Section 1404(a) provides for transfer to a more convenient forum, "not to a forum likely to prove equally convenient or inconvenient, and a transfer should not be granted if the effect is simply to shift the inconvenience to the party resisting the transfer." Graff v. Qwest Communications Corp., 33 F. Supp. 2d 1117, 1121 (D. Minn. 1999) (citing Van Dusen v. Barrack, 376 U.S. 612, 646 (1964)).
ProHome is attempting to transfer this case to the district in which it maintains its principal place of business. While it is true that the Kansas Action involves many of the same issues as are present in this suit, ProHome has not provided a basis for such transfer other than to assert that it would be more convenient for it to litigate this matter there. Based on the fact that a transfer to Kansas would only serve to shift the inconvenience between the parties, the Court concludes that this factor weighs in favor of maintaining the action in Minnesota.
B. Convenience of the Witnesses
In considering the issue of convenience to witnesses, courts have focused on a number of factors including the number of non-party witnesses, the location of all witnesses, and the preference of courts for live testimony as opposed to depositions. See Graff, 33 F. Supp. 2d at 1121 (citing Coastto-Coast Stores, Inc. v. Womack-Bowers, Inc., 594 F. Supp. 731, 732 (D. Minn. 1984)).
This case is likely to require testimony from witnesses located in Kansas, Minnesota, and many other states. Likewise, the costs to these witnesses to appear in either Kansas or Minnesota should be roughly similar. The Court also finds that any documentary evidence sought will be scattered throughout the many states in which the parties are located. Therefore, the Court finds that this factor does not weigh in favor of either party.
C. Interest of Justice
A number of considerations which may be relevant in considering this factor are the relative familiarity with the law to be applied, the relative ability of the parties to bear the expenses of litigating in a distant forum, judicial economy, the plaintiff's choice of forum, obstacles to a fair trial, and each party's ability to enforce a judgement. See Graff, 33 F. Supp. 2d at 1122.
The Court finds that ProHome has not made a showing that the interests of justice weigh in favor of the transfer of this suit to the United States District Court for the District of Kansas. The Former Franchisees have chosen Minnesota as the forum in which to bring this suit. The first action between these parties was filed in Minnesota and the Settlement Agreement that was negotiated as a result of that suit provided that Minnesota law governs its terms and the interpretation of those terms. In addition, the Settlement Agreement provided that certain types of actions would be brought exclusively in the courts of this state. Based on the Court's examination of these considerations, the Court finds that the interests of justice do not weigh in favor of the transfer of this suit.
3. Motion to Stay
ProHome seeks to stay all aspects of this action until its suit against the Former Franchisees is heard in Kansas. The Court has the inherent power to stay proceedings of an action to control its docket, to conserve judicial resources, and to ensure that each matter is handled "with economy of time and effort for itself, for counsel, and for litigants." Landis v. North Amer. Co., 299 U.S. 248, 254 (1936). The Former Franchisees oppose this motion.
The Court finds it a wise use of judicial resources to stay this action for 30 days so that counsel for the parties can determine the best course of action given that both the Kansas Action and this suit will move forward. During the stay, the Court would like counsel for the parties to attempt to reach an agreement as to whether a single forum can be agreed upon to resolve the claims made in both the Kansas Action and this suit. In the absence of such an agreement, the Court would like counsel for the parties to determine whether certain claims would be best heard in either of the forums. If counsel cannot reach agreement as to how to proceed, there is no need to race to the courthouse. The courts in each jurisdiction can certainly make decisions that are fair to the parties.
Conclusion
The Court believes it is in the best interests of the parties to negotiate a resolution of this dispute among themselves. As the parties may already be aware, Magistrate Judge Janie S. Mayeron is available to assist in the negotiation of a settlement should the parties find such services helpful. If the Court may be of assistance in this matter, the parties should contact Lowell Lindquist, Calendar Clerk for Judge Donovan W. Frank at 651-848-1296, or Katie Haagenson, Calendar Clerk for Magistrate Judge Janie S. Mayeron at 651-848-1190.
For the reasons stated, IT IS HEREBY ORDERED:
1. Defendant ProHome's Motion to Dismiss, Transfer, or Stay the Proceedings (Doc. No. 15) is GRANTED IN PART and DENIED IN PART, as follows:
a. Defendant ProHome's Motion to Dismiss or Transfer the Proceedings is DENIED.
b. Defendant ProHome's Motion to Stay the Proceedings is GRANTED for 30 days from entry of this order.