Summary
dismissing declaratory judgment action where first filer filed action after it had notice that adverse party intended to file suit involving the same issues in a different forum
Summary of this case from Epic Tech v. Arno Res., LLCOpinion
Civil Action No: SA-04-CA-0237-XR.
September 9, 2004
ORDER
On this date, the Court considered Defendant's Motion to Dismiss or, Alternately, Transfer. After considering the motion, as well as Plaintiff's Response and Defendant's Reply, the Court is of the opinion that the motion should be GRANTED (docket no. 2) and that this case should be DISMISSED.
I. Procedural and Factual Background
Defendant Connetics Corporation, a Delaware corporation with its principal place of business in California, is the owner of a trademark that makes up the basis of this action. Defendant is a specialty pharmaceutical company which sells foam-based products, including topical sunscreens and prescription steroids. On September 3, 2002, Defendant filed an application with the United States Patent and Trademark Office ("USPTO") to register the word "VERSAFOAM" as a trademark for "foams containing cosmetics or sunscreens used for the topical delivery to the consumers of sunscreens and cosmetics." This application was allowed by the USPTO on October 21, 2003. On December 30, 2002, Defendant filed an application with the USPTO to register the word "V VERSAFOAM" as a trademark in International Class 3 for "cosmetics and sunscreens in a foam vehicle" and in International Class 5 for "pharmaceutical preparations, namely, a drug delivery system comprising a foam vehicle for the delivery of a wide variety of therapeutic agents." This application is apparently still pending. Defendant claims that it has used the terms "VERSAFOAM" and "V VERSAFOAM" since February 14, 2003.
In addition, Defendant operates the website http://www.versafoam.com to promote its products.
Plaintiff Kinetic Concepts, Inc., a Texas corporation with its principal place of business in Texas, sells, among other products, specialized negative pressure wound therapy medical devices. These devices are sold under the general brand name "V.A.C" and are used to promote healing in a class of wounds that benefit from forced removal of drainage and infectious fluids. These products require insertion of a dressing at the wound to draw the drainage and infectious fluids. Plaintiff calls this dressing "V.A.C. VERSAFOAM." On July 17, 2003, Plaintiff filed an application with the USPTO to register the mark "VERSAFOAM" for "foam dressings for wound healing."
Defendant sent a letter to Plaintiff on February 12, 2004 requesting withdrawal of Plaintiff's application and a stop to any current or future use of the mark VERSAFOAM. While counsel for Plaintiff and Defendant continued to discuss their dispute, Plaintiff filed this declaratory judgment action on March 19, 2004. On April 16, 2004, Defendant filed a complaint against Plaintiff in the Northern District of California alleging trademark infringement and other California state law claims based on Plaintiff's use of the mark VERSAFOAM. Defendant now seeks to have this Court dismiss, or in the alternative, transfer to the Northern District of California, Plaintiff's declaratory judgment action.
II. Motion to Dismiss
Defendant bases its motion to dismiss upon Rule 12(b)(1) which allows dismissal for lack of jurisdiction over the subject matter of the suit. FED. RULE CIV. P. 12(b)(1). As this declaratory judgment action is between diverse litigants and was properly filed pursuant to 28 U.S.C. § 2201(a), the Court clearly has subject matter jurisdiction over the suit. However, a district court may decline to exercise its jurisdiction in a declaratory judgment action. This is because § 2201(a) grants discretion to the courts rather than an absolute right to litigants. See Wilton v. Seven Falls Co., 515 U.S. 277, 287-88 (1995); Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 389 (5th Cir. 2003). "In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Wilton, 515 U.S. at 289. The Court may, therefore, choose to dismiss the case by not exercising jurisdiction over it.In determining whether to dismiss a declaratory judgment suit, the Fifth Circuit has put forward a three-step inquiry for district courts to consider: (1) whether the declaratory action is justiciable; (2) whether the court has authority to grant declaratory relief; and (3) whether the court should exercise its discretion to dismiss the action. Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000). Under this inquiry, it is clear that Plaintiff's declaratory action is justiciable in that there is an actual controversy between the parties as to the rights of Plaintiff to use the mark VERSAFOAM. It is also clear that the Court has authority to grant relief because diversity exists between the parties and there is no pending state court action. See id. The decision to dismiss this action therefore rests on whether the Court should exercise its discretion to dismiss the action.
In St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir. 1994), the Fifth Circuit identified seven nonexclusive factors to consider in deciding whether to exercise the Court's discretion to dismiss a declaratory judgment action. These factors are:
(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 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.Id. at 590-91. As there are no state actions pending, the only relevant factors to consider in this case are numbers (2) through (6). Unfortunately, neither party has mentioned the fact that the court must take these factors into consideration, nor the fact that this inquiry even exists. The parties do, however, make arguments relating to these factors. Defendant argues that Plaintiff has "engaged in the disapproved practice of forum-shopping by filing an anticipatory suit" and that the anticipatory filing of a declaratory judgment action creates a negative incentive to negotiate prior to filing suit. Plaintiff argues that forum shopping in anticipation of litigation did not occur because the conduct giving rise to the suit occurred in Texas. Plaintiff also argues that trial in California would inconvenience Plaintiff, as well as non-party witnesses, some of whom have stated their reluctance to travel to California for involvement with this suit. In addition, Plaintiff argues that the "first-to-file" rule should apply as against the suit in the Northern District of California and should allow suit to go forward in this Court.
A. First-to-File Rule
Plaintiff is generally correct that the "first-to-file" rule applies to this suit. The first-to-file rule provides that once it is shown that there is substantial overlap between the two cases, the court in which the case is first filed decides which of the two cases should proceed. Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 606 (5th Cir. 1999). There is clearly substantial overlap between this suit and the suit in the Northern District of California — they involve the exact same determination, just sought through different procedural vehicles.
In general, the suit which is first filed where multiple suits involve substantial overlap controls which court should maintain jurisdiction. Texas Instruments Inc. v. Micron Semiconductor, Inc., 815 F. Supp. 994 (E.D. Tex. 1999). Cases suggest, however, that there is a "general policy that a party whose rights are [apparently] being infringed should have the privilege of electing where to enforce its rights." Id. at 997; see also Crummins-Allison Corp. v. Glory Ltd., No. Civ.A.2-03-CV-358TJ, 2004 WL 1635534 at *4 (E.D. Tex. May 26, 2004); Genentech, Inc. v. Eli Lilly Co., 998 F.2d 931, 937 (Fed. Cir. 1993) (noting that "an action for declaration of non-infringement of a trademark should give way to a later-filed suit for trademark infringement"). This policy lays a background for the court to consider dismissal under the Trejo factors.
B. Forum Shopping in Anticipation of Litigation
Declaratory judgment actions are intrinsically anticipatory in nature. Sherwin-Williams, 343 F.3d at 391-92. Merely filing a declaratory judgment is not in itself improper forum shopping. Id. at 391-92. However, a suit that is of the "narrower category of federal declaratory judgment lawsuits filed for reasons found improper and abusive" should likely be dismissed in favor of the non-declaratory suit. Id. at 391.
Plaintiff clearly filed this suit in anticipation of litigation, and in order to gain the advantages of its preferred forum. Of course, "every litigant who files a lawsuit engages in [a form of] forum shopping when he chooses a place to file suit." Texas Instruments, 815 F. Supp. at 996. In the context of a trademark infringement case, as noted above, however, the alleged victim of the infringement is generally given the initial right to choose the forum in which the infringement case will be heard. In a similar case involving trademark and copyright infringement in which a declaratory judgment action was filed the day before the infringement action was filed in a separate federal district, the district court hearing the declaratory judgment held that the declaratory plaintiff's suit was brought "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 [the plaintiff's] choosing. Capco Int'l, Inc. v. Haas Outdoors, Inc., No. Civ.A.3-03-CV-2127G, 2004 WL 792671 at *4 (N.D. Tex. April 9, 2004) (citation omitted). Plaintiff in this case has filed its suit for the same "subversive" reasons.
The district court in Capco noted that the nature of the case was evident from distorted posture of the elements of plaintiff's complaint in the declaratory judgment action, which were simply inverted elements of copyright and trademark infringement claims. Capco Int'l, Inc. v. Haas Outdoors, Inc., No. Civ.A.3-03-CV-2127G (N.D. Tex. April 9, 2004). Plaintiff's complaint in this declaratory judgment action suffers from the same infirmities.
The Court generally will not allow a party to secure its preferred forum by filing an action for a declaratory judgment when it has notice that another party intends to file suit involving the same issues in a different forum. See 909 Corp. v. Village of Bolingbrook Police Pension Fund, 741 F. Supp. 1290, 1292 (S.D. Tex. 1990). Lengthy negotiations and the tenor of the party's relations are likely to evidence an expectation that suit will be filed. See Granite State Ins. Co. v. Tandy Corp., 986 F.2d 94, 96 (5th Cir. 1992); Mission Ins. Co. v. Puritan Fashins Corp., 706 F.2d 599, 601 (5th Cir. 1983). This declaratory judgment action was filed during a period in which Plaintiff and Defendant had repeatedly exchanged letters and phone calls with respect to Defendant's claims that Plaintiff's V.A.C. VERSAFOAM product infringed on their registered trademark. Plaintiff has essentially (though perhaps unwillingly) conceded that this declaratory judgment was filed to subvert Defendant's infringement suit with the letter of March 19, 2004 from Mark Miller, counsel for Plaintiff, to Harold Milstein, counsel for Defendant. This letter, attached as part of Plaintiff's Evidentiary Appendix in support of its response to the motion to dismiss, plainly states that "[i]t is only because Connetics threatened KCI with litigation that this suit was filed." The Court finds this instructive in finding that Plaintiff filed this declaratory judgment action for the improper purpose of "subverting the real plaintiff's advantage" by filing in a forum of Plaintiff's choosing, namely the Western District of Texas. Therefore, the three Trejo factors addressing forum shopping in anticipation of litigation, factors (2), (3), and (4), all weigh against the exercise of the Court's discretion to hear the declaratory judgment action.
C. Efficiency and Judicial Economy
Plaintiff argues that the convenience of the parties and witnesses, as well as the judicial economy of the Court, weigh in favor of retaining jurisdiction. Plaintiff lists many potential witnesses who have relevant knowledge about the case who could possibly be called to California as part of this case. Plaintiff also identifies several non-party witnesses who have expressed their reluctance to travel to California in connection with this case, as well as noting that the majority of its physical evidence with regard to the name V.A.C. VERSAFOAM is located in Texas. While the impact of the reluctance of many of these witnesses and the location of the evidence in this case on the suit in California are matters best left to the consideration of the District Court in California, these factors have some relevance to the decision to dismiss this declaratory judgment action when factoring the convenience of the parties and the witnesses and judicial economy.
Despite Plaintiff's contentions as to the burden that would be placed on it in California, it appears to the Court that the Texas forum would be just as burdensome to Defendant as the California forum would be to Plaintiff. In addition, allowing the case to go forward in California and dismissing this declaratory judgment action would be more exhaustive than this action because it would allow resolution of the infringement claim along with various other California state law claims. Even if this Court were to decide the infringement claim through declaratory judgment, the California suit might still be able to go forward on the state law claims. Allowing Defendant to go forward with its suit in the Northern District of California, rather than issuing a declaratory judgment here, weighs in favor of both judicial economy and the convenience of both parties and the witnesses, factors (5) and (6), by avoiding piecemeal and duplicate litigation. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-18 (1976). Therefore, all the Trejo factors weigh against the court's entertainment of this declaratory judgment action.
III. Conclusion
Applying the relevant Trejo factors to determine whether a district court should exercise its discretion to dismiss a declaratory judgment claim, the Court finds that all the factors weigh in favor of dismissing the claim and allowing the Northern District of California to proceed with the infringement claim. The Court finds that Plaintiff improperly filed its declaratory judgment in an attempt to gain the advantage of its preferred forum when Defendant should have been given its choice of forum. The convenience of the parties and witnesses, as well as judicial economy, weigh in favor of having all the claims, including the federal trademark infringement and the California state law claims, decided in one proceeding. Therefore, the Court GRANTS Defendant's Motion to Dismiss (docket no. 2) and DISMISSES this case so that the Northern District of California may proceed with the infringement case.
It is for the District Court in California to decide where the case should best be handled, given the location of the parties, witnesses, and evidence.