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establishing that privity, or at least "some degree of relationship," between the parties in successive actions falls under the purview of Rule 41
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Order Filed: March 29, 2013
Richard D. Kirk, Stephen B. Brauerman, BAYARD, P.A., Wilmington, DE; R. Terrance Rader, Charles W. Bradley, Glenn E. Forbis, RADER, FISHMAN & GRAUER PLLC, Bloomfield Hills, MI, Attorneys for Plaintiff.
Adam W. Poff, Monte Squire, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, DE; Roderick R. McKelvie, Kevin B. Collins, Brian G. Bieluch, Jonathan Herczeg, COVINGTON & BURLING LLP, Washington, DC, Attorneys for Defendants.
MEMORANDUM OPINION
LEONARD P. STARK, U.S. District Judge.
Pending before the Court is Defendants' Motion to Dismiss. (D.I. 9) For the reasons set forth below, the Court will deny Defendants' motion.
I. BACKGROUND
On December 30, 2011, St. Clair Intellectual Property Consultants, Inc. (" St. Clair" or " Plaintiff') filed a complaint against Samsung Electronics USA, Inc. (" S.E. USA" ). See St. Clair Intellectual Property Consultants, Inc. v. Samsung Electronics USA, Inc., No. 11-1306 (D. Del. Dec. 30, 2011) [hereinafter Samsung I ]. In Samsung I, St. Clair alleged that S.E. USA willfully infringed six of St. Clair's patents: U.S. Patent Nos. 5,710,929; 5,758,175; 5,892,959; 6,079,025; 5,630,163; and 5,822,610, by selling and distributing smartphones, tablets, and netbooks that use the Android operating system. On January 20, 2012, St. Clair voluntarily dismissed Samsung I pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). See Notice of Dismissal, No. 11-1306 (D. Del. Jan. 20, 2012).
That same day, St. Clair filed a complaint against Samsung Electronics America, Inc. (" SEA" ) and Samsung Telecommunications America, LLC (" STA" ). See St. Clair Intellectual Property Consultants, Inc. v. Samsung Electronics America, Inc., No. 12-58 (D. Del. Jan. 20, 2012) [hereinafter Samsung II ]. St. Clair alleged that SEA and STA willfully infringed the same patents identified in Samsung I, by selling and distributing the same smartphones, tablets, and netbooks that use the Android operating system. On January 23, 2012, St. Clair dismissed Samsung II pursuant to Rule 41(a)(1)(A)(i). See Notice of Dismissal, No. 12-58 (D. Del. Jan. 23, 2012).
That same day, St. Clair filed the present suit against Samsung Electronics Co. Ltd. (" SEC" ), SEA, and STA (collectively, " Samsung" or " Defendants" ). (D.I. 1) Like Samsung I and Samsung II, St. Clair alleges Defendants willfully infringe the same six patents previously asserted by selling and distributing the same smartphones, tablets, and netbooks.
On May 2, 2012, Defendants moved to dismiss the case pursuant to Federal Rules of Civil Procedure 12(b)(6) and 41(a)(1)(B). (D.I. 9)
II. LEGAL STANDARDS
A. Motion to Dismiss under Rule 12(b)(6)
The sufficiency of pleadings for non-fraud cases is governed by Rule 8 of the Federal Rules of Civil Procedure, which requires " a short and plain statement of the claim showing that the pleader is entitled to relief." When presented with a Rule 12(b)(6) motion to dismiss for failure to state a claim, courts conduct a two-part analysis. See Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, courts separate the factual and legal elements of a claim, accepting " all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Id. at 210-11. This first step requires courts to draw all reasonable inferences in favor of the non-moving party. See Maio v. Aetna, Inc., 221 F.3d 472, 500 (3d Cir. 2000). However, the Court is not obligated to accept as true " bald assertions," Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997), " unsupported conclusions and unwarranted inferences," Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997), or allegations that are " self-evidently false," Nami v. Fauver, 82 F.3d 63, 69 (3d Cir. 1996).
Second, courts determine " whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Fowler, 578 F.3d at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). A claim is facially plausible " when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. This is a context-specific determination, requiring the court " to draw on its judicial experience and common sense." Id. at 679. At bottom, " [t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element" of a claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted).
" [W]hen the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court." Bell A. Corp. v. Twombly, 550 U.S. 544, 558, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks omitted). Finally, although a non-fraud claim need not be pled with particularity or specificity, that claim must " give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Id. at 555.
Federal Rule of Civil Procedure 41(a)(1) permits a plaintiff to voluntarily dismiss an action, without prejudice, so long as the plaintiff has not previously dismissed another action " based on or including the same claim." If the plaintiff files a second notice of dismissal pursuant to Rule 41(a)(1), the Court must dismiss an action based on or including the same claim with prejudice. See Fed.R.Civ.P. 41(a)(1)(B); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 394, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). This " two dismissal rule" means that a second voluntary dismissal serves as an " adjudication upon the merits" and the doctrine of res judicata applies. See Manning v. South Carolina Dept. of Highway & Public Transp., 914 F.2d 44, 47 (4th Cir. 1990). The two dismissal rule is designed to limit a plaintiff's ability to dismiss an action and encourage plaintiffs to diligently prepare their papers, to curb potential abuses of the judicial system. See Cooter, 496 U.S. at 397-98.
III. DISCUSSION
A. Applicability of Rule 41(a)(1)
The parties do not appear to contest the applicability of the Rule 41(a)(1) dismissal of Samsung II. The central issue between the parties is whether Samsung I is also a voluntary dismissal against the current Defendants. Defendants claim that S.E. USA is a Samsung entity with sufficient relations to the present Defendants such that Rule 41(a)(1)(B) requires this Court to dismiss the case based on Samsung I and Samsung II. Plaintiff claims that because S.E. USA was void at the commencement of Samsung I and because S.E. USA has no relationship with Defendants, the Samsung I dismissal does not count as a Rule 41(a)(1) dismissal against Defendants.
1. Status of S.E. USA
Plaintiff argues that the two dismissal rule is inapplicable because Samsung I was a suit against S.E. USA, a defunct corporation which could not sue or be sued. Plaintiff argues that because S.E. USA failed to pay its franchise tax obligation, it became defunct by 2006. (D.I. 14 at 7-8) Under 8 Del. Code § 278, Plaintiff argues that S.E. USA could not be sued after the three-year statutory dissolution period. ( Id. at 8) Therefore, Plaintiff contends that Defendants failed to establish that any claim could exist against S.E. USA.
Defendants argue that the status of S.E. USA is irrelevant. Specifically, Defendants cite to Federal Rule of Civil Procedure 3, which states that " [a] civil action is commenced by filing a complaint with the court." Thus, in Defendants' view, Plaintiff commenced an action that was thereafter voluntarily dismissed under Rule 41(a)(1), whether or not S.E. USA was void. (D.I. 16 at 4)
On this issue, the Court agrees with Defendants. Plaintiff commenced Samsung I when it filed its complaint on December 30, 2011. Defendants persuasively analogize this case to Lake at Las Vegas Investors Grp., Inc. v. Pacific Malibu Dev. Corp., 933 F.2d 724, 726 (9th Cir. 1991), in which the plaintiffs argued that they did not fall within Rule 41(a)(1) because their prior suit was against a foreign corporation not registered in the state. Under Nevada law, an unregistered foreign corporation cannot commence, maintain, or defend an action. The Ninth Circuit rejected plaintiffs' argument, stating that lack of capacity is an affirmative defense, and, under Nevada Rule of Civil Procedure 3, an action is commenced upon filing of the complaint. See id. Likewise, here, Federal Rule of Civil Procedure 3 states that an action commences upon the filing of the complaint. Thus, the status of S.E. USA is irrelevant to the application of Rule 41(a)(1). Plaintiff filed and voluntarily dismissed a claim against S.E. USA in Samsung I and, therefore, Samsung I falls within Rule 41(a)(1).
2. Sufficiency of Relationship Between S.E. USA and Defendants
The two dismissal rule bars Plaintiff's suit if the Court finds that Plaintiff previously dismissed actions based on or including the same claims. See Fed.R.Civ.P. 41(a)(1)(B). Both sides agree that while the text of Rule 41(a)(1)(B) does not expressly require " privity," some degree of relationship is required to dismiss a party under the two dismissal rule. (D.I. 14 at 11; D.I. 16 at 7; see also 5 James Wm. Moore et al., Moore's Fed. Practice § 41.04 (2d ed. 1996) (stating that two dismissal rule is not applicable " unless the defendants are the same or substantially the same or in privity in both actions, although the rule does not expressly so provide" ))
Several courts have held that the two dismissal rule applies if the defendants are the same, substantially the same, or in privity with each other. See, e.g., Am. Cyanamid Co. v. Capuano, 381 F.3d 6, 17 (1st Cir. 2004) (concluding that two dismissal rule is inapplicable where there is no privity); Catbridge Machinery, LLC v. Cytec Engineered Materials, 2012 WL 2958244, at *3 (D.N.J. July 18, 2012) (stating that two dismissal rule applies when defendants are same or in privity); Ogden Allied Sec. Servs., Inc. v. Draper & Kramer, 137 F.R.D. 259, 261 (N.D. 111. 1991) (adopting view that defendants must be same, substantially same, or in privity for two dismissal rule to apply). Other courts focus on whether the defendants are sufficiently interrelated so that they share the same legal rights. See, e.g., Lake at Las Vegas Investors Grp., 933 F.2d at 726 (rejecting strict privity and holding that some relationship between dismissed party and party seeking to apply two dismissal rule is required); Manning v. S.C. Dep 't of Highway & Public Transp., 914 F.2d 44, 48 (4th Cir. 1990) (stating that privity within meaning of res judicata focuses on parties' legal right and relationship to subject matter of litigation); Murray v. Sevier, 145 F.R.D. 563, 567 (D. Kan. 1993) (stating that defendants did not share same legal rights, so two dismissal rule was inapplicable even where plaintiff had identical interests in each case).
Defendants argue that Plaintiff has asserted, for the third time, the same claim of willful infringement based on the same St. Clair patents and the same Samsung products. (D.I. 16 at 8) Further, Defendants contend that the public record shows that there is a relationship between S.E. USA and Samsung. ( Id. ) The public record shows that S.E. USA's incorporator shares the same address as Samsung's regional headquarters for its North American operations, at which SEA is based. Additionally, the public record shows that S.E. USA's incorporator served as general counsel of SEA.
Plaintiff argues that Defendants' evidence is weak, and Defendants have produced no evidence to establish that S.E. USA had anything to do with the accused Android products. (D.I. 18 at 7) Plaintiff points out that S.E. USA has been defunct since 2006 and, therefore, could not have made, sold, or used Android-based products, as they were not introduced until at least 2008. (D.I. 14 at 2 n.2 & 10 n.9) Thus, Plaintiff asserts that Defendants cannot show that S.E. USA has any relevant relationship with the present Defendants and could not have had the same legal interests in the Android products, because the products did not exist at the time S.E. USA was in existence. ( Id. at 4)
The Court concludes that, at this stage, Defendants fail to meet their burden of establishing by a preponderance of evidence that a sufficient relationship exists between Defendants and S.E. USA. See Sysco Corp. v. Chi-Chi's, Inc., 338 B.R. 618, 622 (Bankr. D. Del. 2006) (stating that party invoking two dismissal rule bears burden of proving its applicability). Though Defendants present some evidence of a connection between S.E. USA and Defendants, it is only through a single person, S.E. USA's incorporator, and establishes no more than a tenuous relationship. This falls short of showing that S.E. USA and Defendants are the same, substantially the same, or in privity. Moreover, Defendants do not allege any facts to show that S.E. USA had the same, similar, or any legal interest in the subject matter of the three litigations, i.e., the Android operating system.
While Defendants are correct that application of the two dismissal rule is not discretionary, it is also true that the rule has been strictly construed. See Manze v. State Farm Ins. Co., 817 F.2d 1062, 1066 (3d Cir. 1987); see also Sutton Place Dev. Co. v. Abacus Mortg. Inv. Co., 826 F.2d 637, 640 (7th Cir. 1987) (stating that court " should be especially careful not to extend the scope of such a narrow exception when the purpose for the exception would not be served" ); Poloron Prods., Inc. v. Lybrand Ross Bros. & Montgomery, 534 F.2d 1012, 1017 (2d Cir. 1976) (suggesting that " [w]here the purpose behind the 'two dismissal' exception would not appear to be served by its literal application, and where that application's effect would be to close the courthouse doors to an otherwise proper litigant, a court should be most careful not to construe or apply the exception too broadly" ); Murray v. Sevier, 145 F.R.D. 563, 567 (D. Kan. 1993) (holding that two dismissal rule is inapplicable where it is not clear that defendants have same legal right). As the two dismissal rule serves as an adjudication on the merits and a bar against bringing suit, the Court must strictly construe it. See generally Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 373, 86 S.Ct. 845, 15 L.Ed.2d 807 (1966) (" The basic purpose of the Federal Rules is to administer justice through fair trials, not through summary dismissals as necessary as they may be on occasion." ).
Here, the Court concludes that the two dismissal rule is inapplicable against Plaintiff because Defendants have failed to present evidence sufficient to show a close relationship between Defendants and S.E. USA, or any evidence of S.E. USA's legal interest in the subject matter of the litigation. Accordingly, the Court will deny Defendants' motion.
Given this disposition, the Court does not address Plaintiff's request to modify the prior dismissals pursuant to Federal Rule of Civil Procedure 60(b), or Plaintiff's request to convert Defendants' motion to dismiss under Rule 12(b)(6) into a motion for summary judgment under Rule 56.
IV. CONCLUSION
For the foregoing reasons, the Court will deny Defendants' Motion to Dismiss. (D.I. 9) An appropriate Order follows.
MEMORANDUM ORDER
LEONARD P. STARK, UNITED STATES DISTRICT JUDGE.
Plaintiff St. Clair Intellectual Property Consultants, Inc. (" St. Clair" or " Plaintiff" ) has moved for leave to file a sur-reply brief in opposition to Defendants Samsung Electronics Co., Ltd., Samsung Electronics America, LLC, and Samsung Telecommunications America, LLC's (collectively, " Samsung" or " Defendants" ) motion to dismiss. (D.I. 18) Defendants oppose the motion. (D.I. 19) For the reasons set forth below, the Court grants Plaintiff's motion.
1. Briefing on Defendants' Motion to Dismiss (D.I. 9) was completed on June 1, 2012. (D.I. 10, 14, 16)
2. On June 11, 2012, Plaintiff moved for leave to file a sur-reply pursuant to Rule 7.1.2 of the Local Rules of Civil Practice and Procedure of the United States District Court for the District of Delaware . Plaintiff argues that Defendants' Reply Brief In Support of Their Motion to Dismiss (D.I. 16) contains new arguments, documents, and legal authority. Furthermore, Plaintiff states that Defendants' legal authority " present[s] an inaccurate description of the applicable Delaware statutes." 3. Defendants' newly-cited evidence in support of the sufficiency of Samsung Electronics USA, Inc.'s relationship with other Samsung entities includes: (1) Complaint filed in Walker Digital LLC v. Apple, Inc. et al., C.A. No. 11-cv-00309 (D. Del Apr. 11, 2011) and Stipulation and Order substituting Samsung Telecommunications America, LLC for Samsung Electronics USA, Inc.; (2) Entity Details for Samsung Electronics USA, Inc.; (3) Certificate of Incorporation for Samsung Electronics USA, Inc.; (4) Certificate of Change of Registered Agent and Office for Samsung Electronics USA, Inc.; (5) Samsung Electronic's Annual Report 2010; (6) LinkedIn Profile for Bryan Hopkins; (7) Resume of Bryan Hopkins; and (8) Non-Consolidated Financial Statements of Samsung Electronics Co., Ltd. Defendants also cite previously uncited legal authority, United States v. Northeastern Pharm. & Chem. Co., 810 F.2d 726 (8th Cir. 1986), in support of the proposition that " Delaware has recognized that a corporation's becoming void for failure to pay franchise taxes does not trigger 8 Del. Code § 278." (D.I. 16 at 5)
4. Defendants urge the Court to deny Plaintiff's motion because the sur-reply is procedurally improper, Samsung did not raise unexpected arguments, Samsung did not introduce new facts or evidence, and Plaintiff's sur-reply is unnecessary because Samsung Electronics USA, Inc.'s corporate ownership is irrelevant to at least one basis on which Defendants have moved to dismiss.
5. Local Rule 7.1.2 provides that parties may submit additional papers after briefing is complete only with the Court's approval. A Court may grant leave to file a sur-reply if it responds to new evidence, facts, or arguments. See Belden Techs., Inc. v. LS Corp., at *3 (D. Del. July 14, 2010); Walsh v. Irvin Stern's Costumes, at *37 (E.D. Pa. Jan. 19, 2006).
6. Plaintiff's sur-reply (D.I. 18-2) addresses the newly-cited 8th Circuit case and Defendants' evidence of a relationship between Samsung Electronics and other Samsung entities. It also argues that the evidence does not establish that Plaintiff failed to exercise diligence in filing suit against Samsung Electronics.
7. The Court concludes that Plaintiff's sur-reply will allow the Court to more fully and fairly evaluate Defendants' pending motion to dismiss. Plaintiff's sur-reply is relatively short, challenges Defendants' interpretation and application of United States v. Northeastern Pharm. & Chem. Co., 810 F.2d 726 (8th Cir. 1986), and explains Plaintiff's view of the newly presented evidence.
8. Accordingly, Plaintiff's motion for leave to file a sur-reply is GRANTED. Plaintiff's proposed sur-reply (D.I. 18-2) is deemed filed.