Opinion
Civil Action 00-3272 SECTION "T" (4)
April 17, 2001
Before the Court is a Motion to Dismiss, or in the alternative, Motion to Transfer filed on behalf of the defendant, Specialized Bicycle Components, Inc. This matter was heard with oral argument on January 31, 2001, before being submitted for further consideration. The Court, having considered the arguments of counsel, the record, the law and applicable jurisprudence, is fully advised in the premises and ready to rule.
ORDER AND REASONS
I. BACKGROUND:
Defendant, Specialized Bicycle Components, Inc. ("Specialized"), is a California corporation with its principle place of business in Morgan Hill, California. Specialized markets and sells bicycles and related products, including sports water bottles, throughout the world under its stylized "S" logo mark. Plaintiff, Sports Innovations, Inc. ("SI"), is a Louisiana corporation with its principle place of business in Louisiana. SI markets and sells throughout the United States, including California, a portable drinking system called the AQUALift, using a stylized "S" logo mark. This portable drinking system is sold to NFL football franchises and major college universities for use at football games at a cost of $800.00; whereas, the hand-held plastic water bottles sold to cyclists by Specialized cost $20.00.
The relevant events leading up to the present action include:
October 13, 2000 — Specialized's attorney wrote SI stating that the "S" logo being used by SI on its sports drinking products infringed upon Specialized's trademark. The letter demanded that SI cease and desist its use of the logo.
November 6, 2000 — SI's attorney responded by letter stating that he did not believe that there was any trademark infringement; however, proposed a six to eight month phase out period with Specialized paying SI $15,000-$20,000 for the loss of materials in inventory, logo redesign, and Web page revision.
November 14, 2000 — Specialized's attorney answered by letter stating that the logo was being used by each company on "closely related goods in the field of sports". Furthermore, Specialized agreed to a phase out period of up to eight months, but refused to pay SI any money.
November 30, 2000 — SI filed suit in the United States District Court, Eastern District of Louisiana for declaratory relief.
December 11, 2000 — Specialized filed a suit for trademark dilution, infringement, unfair competition and deceptive trade practice in the United States District Court for the Northern District of California.
II. ARGUMENTS OF SPECIALIZED BICYCLE IN SUPPORT OF ITS MOTION:
Specialized has filed this motion to dismiss asserting that the action was filed in anticipation of a suit for infringement by Specialized and consequently, was filed solely for the purpose of forum shopping. Specialized further argues that its suit for trademark dilution and infringement now before the United States Court for the Northern District of California should, under Fifth Circuit law, take precedence over this suit for declaratoryrelief. The Fifth Circuit generally applies a "first-filed" rule; however, it recognizes an exception to the rule in cases in which a plaintiff files suit for declaratory relief in anticipation of a lawsuit to be filed by the defendant. See, Pacific Employers Insurance Co. v. MV/Capt. W.D. Cargill, 751 F.2d 801, 804 (5th Cir. 1985). Moreover, a district court is not required to provide declaratory judgment relief. It is purely within the Court's discretion whether to decide a declaratory judgment action. See, Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 602 (5th Cir. 1983). In deciding the issue, the Court is directed to look at a variety of factors, including the pendency of pending litigation in another forum and whether the suit was anticipatory. Id. Specialized contends that there is a pending action for trademark dilution filed by Specialized and that SI's suit for declaratory relief was clearly anticipatory and involved forum shopping as the parties were in the midst of negotiating. Finally, it is asserted that the Fifth Circuit has found that infringement actions should take precedence over declaratory relief actions, even if filed later, based upon the reasoning that the party whose rights are being infringed should have the privilege of electing where to enforce its rights. See, Texas Instruments v. Micron Semiconductor, 815 F. Supp. 994, 997-98 (E.D.Tex. 1993). It is for these reasons, that Specialized seeks a dismissal, or in the alternative, a transfer of this suit to the Northern District of California.
III. ARGUMENTS OF SPORTS INNOVATIVE IN OPPOSITION TO THE MOTION:
SI contends that the relief requested by Specialized is a matter for this Court's discretion. SI points out that there is no dispute that the "first-to-file" rule is the law for the Fifth Circuit. SI further recognizes that whether to grant declaratory relief is within a court's discretion after looking to the six factors set forth by the Fifth Circuit. Applying those factors to the present case, SI contends first, that many of the allegations in the action filed in California are wrong or frivolous and much of the relief sought is unavailable. Next, it is asserted that this suit most assuredly does not anticipate a legitimate attempt to enforce rights or redress injury. As Specialized has not been injured by infringement, the policy privilege of allowing it, as the infringed upon, to elect where to enforce its rights is not applicable. Third, cases have held that the mere fact that declaratory relief is sought in anticipation of later suits does not mean that forum shopping was present. Fourth, SI argues that this Court is a convenient forum as SI is a local company with its only offices located in this District. Specialized, while based in California, has several franchises in this District and sells through its web site. This Court clearly has jurisdiction over Specialized, while it is not clear that SI will be subject to the jurisdiction of the California court. The fifth factor, judicial economy, dictates that this Court should retain this suit as statistics show that the Eastern District of Louisiana resolves cases quicker than the Northern District of California and this suit was drafted for quick and uncomplicated resolution. Finally, SI argues that there is no unfairness or other inequities in allowing the present action to proceed.
Additionally, SI contends that the California case is a "sham" and that the claims in the California suit are "silly" for several reasons: (1) Specialized does not even allege that it used its trademark on water bottles before SI adopted its supposedly infringing tradename; (2) Specialized does not have a federal registration for a trademark on water bottles, instead it has a trademark for two sets of goods (a) bicycle frames and (b) bicyclists' shoes and clothing, namely shorts, socks, and jerseys; (3) Specialized and SI market and sell their products to entirely distinct groups of customers, thus there is no possibility of confusion.
IV. LAW AND ANALYSIS:
"Federal district courts are courts of coordinate jurisdiction and equal rank, and must exercise care to avoid interference with each other's affairs and duplicative litigation." Texas Instruments, Inc. v. Micron Semiconductor, Inc., supra. The "first-to-file" rule permits a district court to decline to exercise jurisdiction over an action when the second-filed complaint involves the same parties and issues as that filed in another district court. However, the first-to-file rule is not a rigid or inflexible rule to be mechanically applied. See, Mann Manufacturing Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971).
The Declaratory Judgment Act, 28 U.S.C. § 2201, confers no jurisdiction, but is a procedural devise. The district court, however, is not required to provide declaratory judgment relief, and it is a matter for the district court's discretion whether to decide a declaratory judgment action. Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620(1942); Hollis v. Itawamba County Loans, 657 F.2d 746, 750 (5th Cir. 1981). The Court however must address and balance the purpose of the Declaratory Judgment Act and the factors relevant to the abstention doctrine in determining whether to decide a declaratory judgment action. See, Travelers Ins. Co. v. LA Farm Bureau Federation, Inc., 996 F.2d 774, 778 (5th Cir. 1993). The relevant factors a court must consider include, but are not limited to: (1) whether there is a pending state action in which all of the matters in controversy maybe 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 purpose of judicial economy. Id. Moreover, the primary goal of the declaratory action is to minimize the danger of avoidable loss and the unnecessary accrual of damages and afford one threatened with liability an early adjudication without waiting until an adversary should see fit to begin an action. Charles Alan Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure: Civil 3d. § 2751 (1998).
In this case, the declaratory judgment action filed by SI is the first-filed action, with Specialized's California infringement action being filed eleven days later. As such, it is this Court's duty to determine whether the Court should decline to exercise its jurisdiction over the declaratory judgment action despite the fact that it was the first-filed action. Numerous cases have held that actions for infringement take precedence over declaratory judgment actions, even where later-filed, based on the policy that a party whose rights are being infringed should have the privilege of electing where to enforce its rights.
In consideration of the factors enumerated in our jurisprudence, this Court begins with the fact that there is a pending action for trademark dilution filed by Specialized in a United States District Court of California which would encompass the issues to be addressed by this Court. It does not appear to this Court that the third factor, forum shopping, is at issue in this case. The mere fact that declaratory relief is sought by the plaintiff does not convince this Court that SI was intentionally forum shopping, anymore than any other litigant who files a lawsuit. This case does not present a situation such as in Mission Insurance Co. v. Puritan Fashions Corp., supra where the Court found that the plaintiff caused the defendant to delay filing suit by representing that it was considering the merits of the claim and by allowing an extension on the limitations period. Had it not been for those representations and implications, the defendant would have been the first to file suit. Id. Additionally, this Court does not find that any inequities would result in this Court retaining jurisdiction over the California Court adjudicating this matter, as such the fourth factor is not at issue. Furthermore, the fifth factor, convenience of the forum, does not weigh heavily in favor of one party over the other. As this is a trademark infringement case, the majority of documentary discovery will be on paper which may be easily exchanged through the mail. Both the plaintiff and the defendant appear to do business nationwide and can litigate this suit in California just as it can in Louisiana without any undue hardship.
The sixth factor, interest of judicial economy, does weigh in favor of this Court abstaining from deciding the declaratory judgment action. The issues at hand are the same issues to be litigated in the California forum. To avoid duplicative proceedings, waste of financial resources, and the risk of inconsistent rulings, this Court is of the opinion that judicial economy dictates that the entirety of the matter be heard by one Court.
It is the opinion of this Court that the second factor, anticipation of litigation, lends the strongest support to this Court declining to exercise jurisdiction over the declaratory judgment action. This Court finds that the evidence submitted shows that the present action was filed in anticipation of litigation. On October 13, 2000, Specialized wrote SI stating that the "S" logo being used by SI was infringing upon Specialized's trademark. The letter further demand that SI cease and desist all use of this logo. In response, SI agreed to cease and desist use of the logo over a period of time in exchange for payment for expenses by Specialized. This proposal was unacceptable to Specialized who submitted that the use of the logo by each company was on closely related goods in the field of sports, again asserting its rights to the trademark. In light of the fact that negotiations for an amicable resolution were proving unsuccessful, SI filed this declaratory judgment action. As Specialized was the party which "got the ball rolling" by contending that it had a valid trademark that was being infringed upon by the use of SI's logo, SI clearly anticipated litigation when the discussions regarding an amicable settlement were unproductive. As it is the opinion of the Court that this suit was filed in anticipation of litigation, the Court will decline to rule on the declaratory judgment action and believes the purposes of the act are best served in this regard. The California court is capable of rendering a fair and just ruling after considering all aspects of this action.
Therefore, after considering the purpose of the Declaratory Judgment Act and the factors enumerated in our jurisprudence, this Court finds that the matter would be handled most efficiently and effectively by one court presiding over all issues and claims. As such, this matter is to be transferred to the United States District Court for the Northern District of California.
Accordingly,
IT IS ORDERED that the Motion to Dismiss, or in the alternative, to Transfer filed on behalf of the defendant, Specialized Bicycle Components, Inc., be and the same is hereby GRANTED in part, DENIED in part.
IT IS FURTHER ORDERED that the above-captioned litigation be and the same is hereby TRANSFERRED to the United States District Court for the Northern District of California.