Opinion
Civil Action No. 02-2546 SECTION "C"
November 7, 2002
ORDER AND REASONS
Timothy P.F. Crowley, a third year law student at Tulane Law School, assisted in the research and preparation of this decision.
This matter comes before this Court on motion to remand filed by Watershed Software Group, LLC ("Watershed") and on motion to transfer by Camping Companies, Inc. ("Camping"). Having considered the record, the memoranda of counsel and the law, the Court DENIES the motion to remand and GRANTS the motion to transfer to the United States District Court of Arizona.
Camping has also raised whether the exercise of personal jurisdiction by this Court is proper. However, because this Court is determining the appropriateness of transfer pursuant to 28 U.S.C. § 1404(a), it is not incumbent upon the Court to address personal jurisdiction. See Bentz v. Recile, 778 F.2d 1026, 1028 (5th Cir. 1985) (affirming transfer even where transferring court lacks jurisdiction or venue was improper); also Koehring Co. v. Hyde Constr Co., 324 F.2d 295, 297-98 (5th Cir. 1964) (personal jurisdiction unnecessary to empower court to transfer) (Wisdom, C.J.)
Camping Companies, Inc. ("Camping") is an Arizona corporation with its principal place of business located in Arizona and branch offices and operations located in several other western states. Watershed Software Group, L.L.C. ("Watershed") is a software designer with its sole operations located in Slidell, Louisiana. The parties entered into a Software Development Agreement on July 15, 2000, whereby Watershed developed a software program to aid Camping in the efficient execution of its services. Pursuant to that contract, Watershed licensed the software developed to Camping, and, subject to certain terms and conditions, Camping retained an option to acquire all rights in the software designed for it. It is around the terms of this contract, specifically the option exercise terms and conditions, and the acquisition rights to the software held by Camping, that the current dispute revolves.
On June 20, 2001, Watershed completed development of the software package and thereafter Camping exercised its option to acquire ownership of the program and source code. In response to disputes concerning the conditions precedent to effect the exercise of the option, Camping sued Watershed on June 13, 2002 in United States District Court in Arizona seeking a declaratory judgement on the ownership rights of the software and its source code, specific performance and injunctive relief.
It is not clear from the record on what date Camping commenced its attempts to exercise the option. Certain portions of the record indicate that Camping immediately attempted to exercise its option, while other portions of the record suggest exercise attempts commencing as late as June 12, 2002 (one year following completion of design).
The Arizona action is captioned Camping Companies. Inc. v. Watershed Software Group. L.L.C., No. Civ. 02-1104 PHX SRB.
On July 18, 2002, Watershed filed suit against Camping in St. Tammany Parish alleging breach of contract and violations of Louisiana's Unfair Trade Practices Act. On that day the District Court in Arizona held a hearing concerning the issuance of a preliminary injunction. That court denied the injunction and dissolved an earlier issued TRO. The issues of a permanent injunction and declaration of rights remain live controversies in the District Court of Arizona.
Watershed alludes to fraudulent conduct by Camping covered under the Securities Act of 1933 and the Exchange Act of 1934. Watershed has not, however, pleaded a separate cause of action under the securities laws of the United States or Louisiana.
At the request of Camping, the District Court of Arizona issued a Temporary Restraining Order on July 18, 2002 forbidding Watershed from interfering with the operations of the software at issue.
On August 15, 2002, Camping removed the Louisiana action to this Court pursuant to 28 U.S.C. § 1441(b) and now moves this Court to transfer the case to the United States District Court of Arizona, pursuant to the "first-to-file" rule, doctrines of comity, or 28 U.S.C. § 1404(a). Watershed moves this Court to remand the Louisiana action to the St. Tammany Parish court pursuant to 28 U.S.C. § 1446, primarily through the application of various abstention doctrines.
Removal was predicated on diversity of the parties and the requisite amount in controversy pursuant to 28 U.S.C. § 1332.
Watershed asserts that this Court should remand the removed state court action to the Louisiana state court in St. Tammany Parish. Watershed's argument for removal is premised on (a) the Anti-Injunction Act ("AIA"), codified at 28 U.S.C. § 2283, and (b) judicial doctrines of abstention. It should be noted from the outset that a federal court may not abdicate its properly invoked jurisdiction. Cohens v. Virginia, 19 U.S. 264 (1821). For the following reasons, Watershed's motion to remand should be denied on both theories.
Watershed first contends that this Court should remand this action to the Louisiana court located in St. Tammany Parish pursuant to the Anti-Injunction Act. This argument fails because the case was properly removed by Camping pursuant to 28 U.S.C. § 1441(a) and the AIA was not designed to prevent federal courts from hearing state law cases properly within its subject matter jurisdiction. Peterson v. BMI Refractories, 124 F.3d 1386, 1395 (11th Cir. 1997). As such, nothing performed procedurally by Camping or this Court is in violation of the AIA.
Watershed's Fifth Circuit and Eighth Circuit precedent concerning the AIA and federal declaratory judgment actions are distinguishable from the instant matter. In one such case, the Fifth Circuit stressed that a federal trial court may not consider the merits of a declaratory judgment action when (1) the declaratory-defendant has previously filed a parallel state court proceeding (2) involving the same issues and (3) the AIA otherwise prohibits the federal court from enjoining the state proceeding. See Travelers Ins. Co. v. Louisiana Farm Bureau, 996 F.2d 774, 776 (5th Cir. 1993) (emphasis in original). Here, the Court has not been asked by either party to assess the merits of Camping's declaratory judgment action; second, Watershed filed its action after Camping filed its declaratory judgment action; and third, the AIA does not prohibit removal of diversity actions. See Peterson, 124 F.3d at 1395.
The declaratory judgment is not pending in the Eastern District of Louisiana, rather it is before the District Court of Arizona.
Watershed's reliance on Atlantic Coast Lines is equally unpersuasive.Atlantic Coast Line R. Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281 (1970). There the Supreme Court simply stressed that an injunction against state court proceedings must be based on an exception to the AIA. Id. at 287. Under the AIA a federal court may not enjoin a state court's proceedings except under three instances, only the first being at issue here: "except as expressly authorized by Act of Congress." 28 U.S.C. § 2283. The federal removal statute is an old and well established exception to the AIA. See e.g., Toucey v. New York Life Ins. Co., 314 U.S. 118, 133 (1941); French v. Hay, 89 U.S. 250, 252-53 (1874); Frith v. Blazon-Flexible Flyer. Inc., 512 F.2d 899, 901 (5th Cir. 1975) ("One of the long recognized statutory exceptions to the prohibition of the anti-injunction statute is the language in" the federal removal statute). Because removal acts as a clear exception to the AIA, Watershed's motion to remand the action pursuant to the ALA is denied.
Watershed further moves this Court to remand pursuant to principles of federalism, as developed though doctrines of abstention. It is not exactly clear which doctrine of abstention Watershed urges this Court to employ; it has offered a textbook litany of abstention from which the Court should choose. There are four classes of abstention doctrine:Pullman Abstention; Burford (or Administrative) Abstention; Colorado River Abstention; and abstention pursuant to the Younger Doctrine. None of these doctrines is applicable to the instant matter.
Pullman Abstention avoids the answering of constitutional questions unnecessarily when state law issues may resolve the matter. See Railroad Commission of Texas v. Pullman, 312 U.S. 496 (1941). No constitutional question is at issue in the instant matter, therefore Pullman Abstention is inapplicable.
In Burford v. Sun Oil Co., the Supreme Court determined that where state administrative functions are challenged in federal court, the federal court should abstain in order to avoid interference with the development by state administrative agencies of cohesive state administrative policies. See Burford v. Sun Oil Co., 319 U.S. 315, 333-34 (1943). While Watershed has stated a claim pursuant to Louisiana's Unfair Trade Practices Act, no state administrative interest in this action justifies abstention. Camping has listed in its opposition numerous cases heard in the Eastern District alone, including one by this Court, which addressed this very statute. See Defendant's Opposition Motion to Remand at 6-7. In fact, if Watershed's contention were correct, any state law through which a state agency is given potential enforcement powers would preclude federal courts from hearing those actions, running the risk of making the removal statute itself incompatible with those doctrines of federalism underlying the Constitution. Even where complicated state administrative procedures are at issue, federal courts are not required to abstain. See New Orleans Public Service. Inc. v. New Orleans, 491 U.S. 350, 359 (1989) (Scalia, J.) (administrative abstention "remains the exception and not the rule"); see also Meredith v. Winter Haven, 320 U.S. 228, 237 (1943) (federal courts may not abstain from exercise of jurisdiction merely because the issues involved are unsettled or difficult state law matters). Here, no difficult state law questions bearing on substantial state policy even exist, nor does a public law concern at even the most general level.
The Supreme Court's primary pronouncement concerning abstention related specifically to federal legislative pronouncements toward unified state policy. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 819 (1976). None of the factors announced by the Colorado River Court militating in favor of dismissal is present in this diversity action. See id. at 820.
The Younger doctrine was first announced by the Supreme Court as a means to avoid federal intervention of on-going state law criminal proceedings. See Younger v. Harris, 401 U.S. 37 (1971). As the Younger Doctrine applies to constitutional challenges to state criminal or disciplinary activities, the two critical elements required before considering Younger are absent from the instant matter: a constitutional challenge and an on-going state disciplinary or criminal proceeding. And even where the Younger Doctrine has been extended into the civil realm, the state or a state actor is almost invariably a party in interest. See e.g., Huffman v. Pursue. Ltd., 420 U.S. 592 (1975) (state suing pursuant to public nuisance statute); Juidice v. Vail, 430 U.S. 327 (1977) (federal injunction sought against state judge seeking to employ statutory contempt procedures); Trainor v. Hernandez, 431 U.S. 434 (1977) (state suing civilly rather than criminally for welfare fraud); but see Pennzoil Co. v. Texaco. Inc., 481 U.S. 1 (1987).
For the above reasons, Watershed's motion seeking this Court's abstention from the exercise of its otherwise properly invoked jurisdiction is denied.
Defendant Camping seeks a transfer of the instant action to the U.S. District Court in Arizona, pursuant to 28 U.S.C. § 1404(a), where its first-in-time filed action seeking declaratory judgment is currently pending.
The federal transfer statute authorizes the transfer of an action from one federal court to another for the convenience of the parties and witnesses and where the interests of justice militate in favor of such a transfer. 28 U.S.C. § 1404(a). The first two factors in determining transfer, a balancing of the inconvenience to the parties and witnesses, is not conclusive in the instant action. Watershed has averred that transfer would create a great inconvenience to its operations, run by three individuals, all of whom it has listed as witnesses. However, Camping maintains a significant portion of the paper records relating to these actions in Arizona and has listed witnesses numbering in excess of twenty. Though neither of these elements, convenience to the litigants or the witnesses, is conclusive, in conjunction with the third factor, the standards for transfer lean in favor of granting Camping's motion.
In assessing the interests of justice, of particular importance is that the action before this Court is second in time and arguably offends the first to file rule, a rule premised on comity and judicial administration.
The Supreme Court first announced its approval for the first to file rule over fifty years ago. Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 185 (1951). The Fifth Circuit follows the first to file rule, which is "grounded in principles of comity and sound judicial administration." Save Power Limited v. Syntek Finance Corp., 121 F.3d 947, 950 (5th Cir. 1997). The Syntek court stressed that the first to file rule does not require identical litigation, rather substantial overlap between the two actions. Id.
Substantial overlap exists between the two actions at issue here: one seeks a declaration of rights and obligations pursuant to a contract; the other seeks monetary damages resulting from an alleged breach of that same contract and inducement by fraud in violation of Louisiana's Unfair Trade Practices statute. The Fifth Circuit has heeded the instruction of the Colorado River Court to avoid duplicative litigation. West Gulf Maritime Ass'n. v. ILA Deep Sea Local 24, 751 F.2d 721, 728-29 (5th Cir. 1985) (quoting Colorado River, 424 U.S. at 817). The court there admonished that once substantial overlap between actions is demonstrated, the court of subsequent filing should stay, dismiss or transfer. Id. at 730; also The Cadle Company v. Whataburger of Alice. Inc., 174 F.3d 599, 605 (5th Cir. 1999). As a result, Camping's motion that the instant action be transferred for consolidation in the District Court of Arizona is granted, as that court is the court of first filing and there exists substantial overlap between the actions.
In West Gulf, a union filed a declaratory judgment action in the Southern District of New York one month prior to the commencement of a parallel action in the Southern District of Texas. West Gulf, 751 F.2d at 724.
Accordingly,
IT IS ORDERED that the motion by Watershed Software Group, L.L.C. to remand the removed diversity proceeding is DENIED.
IT IS FURTHER ORDERED that the motion of Camping Companies, Inc. to transfer the removed diversity action to the United States District Court of Arizona pursuant to 28 U.S.C. § 1404(a) is hereby GRANTED. Civil Action No. 02-2546 is hereby TRANSFERRED to the United States District Court of Arizona.