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holding that three-year statute of limitations period accrued when third party to whom defendant disclosed plaintiff's trade secrets applied to the SEC for authority to trade on that information on behalf of defendant
Summary of this case from Opals on Ice Lingerie v. Bodylines, Inc.Opinion
02 Civ. 1656 (SAS)
March 4, 2002
Bradford P. Lyerla, Esq., Wallenstein Wagner, Ltd., Chicago, Illinois, for Plaintiffs
Stuart I. Friedman, Esq., Andrew A. Wittenstein, Esq., Paul S. Grossman, Esq., Friedman, Wittenstein Hochman, A Professional Corporation, New York, New York; William K. West, Esq., Howrey Simon Arnold White, Washington, D.C.; John J. Flood, Esq., National Association of Securities Dealers, Inc., Washington, D.C., for Defendants
OPINION AND ORDER
Plaintiff Mopex, Inc. ("Mopex") owns a patent for business methods relating to a type of investment vehicle called "Exchange Traded Funds" ("ETFs"). On August 10, 2000, the American Stock Exchange ("Amex") filed an action in this Court seeking a declaration that those patents are invalid and not infringed by Amex's activities with respect to certain of its own ETF's (the "Patent Action"). See American Stock Exchange, LLC v. Mopex, Inc., No. 00 Civ. 5943 (SAS). On June 22, 2001, Mopex filed an action in Illinois state court alleging that Amex, Nathan Most ("Most"), and other defendants misappropriated Mopex's trade secrets and incorporated them into certain ETFs (the "Trade Secret Action"). The action was removed to the Illinois federal court which then transferred the claims against Amex and Most (collectively "Amex") to this Court. Amex now moves to dismiss those claims on various grounds. For the reasons stated below, Amex's motion is granted.
I. BACKGROUND
A. The Parties and Relevant Non-Parties
Plaintiff Mopex and plaintiff Realtimemutualfunds.com (collectively "Mopex") are Illinois corporations that are each comprised of two individuals, Kenneth Kiron and Kevin Bander. See First Amended Complaint ("Am. Compl."), Ex. D to Memorandum of Law in Support of the Amex's and Nathan Most's Motion to Dismiss Mopex's Claims That are Being Transferred to This Court From the Northern District of Illinois ("Def. Mem."), Introduction, ¶ 2. Amex is a securities exchange registered with the Securities and Exchange Commission ("SEC"). See Def. Mem. at 2; Am. Compl. ¶ 3. Barclays Global Investors, N.A. ("BGI"), is a corporation which, through its wholly controlled subsidiary Barclays Global Fund Advisors, is a fund advisor and index selection agent for a group of ETFs called iShares MSCI Index Funds ("iShares"). See Am. Compl. ¶¶ 4, 31, 33; Pl. Opp. at 3 n. 3; Affidavit of Nathan Most ("Most Aff."), Ex. A to Def. Mem., ¶¶ 8, 9. Barclays Bank, PLC ("Barclays"), a British entity, is the parent and/or control entity of BGI. See Am. Compl. ¶ 5. Defendant Most was senior vice president at Amex in charge of new product development until January 1996, at which time he became the President and Chairman of the Board of iShares, Inc. See id. ¶¶ 28, 30; Most Aff. ¶¶ 5, 12. In 1999, Most also became the President and Chairman of the Board of The iShares Trust. See Am. Compl. ¶ 32; Most Aff. ¶ 5. Both iShares Inc. and The iShares Trust are ETFs consisting of iShares. See Pl. Opp. at 3; Most Aff. ¶ 7.
MSCI is the acronym for Morgan Stanley Capital International, Inc.See Mopex'[s] Memorandum of Law in Opposition to the Amex'[s] and Nathan Most's Motion to Dismiss Mopex' Claims That are Being Transferred to This Court From the Northern District of Illinois ("Pl. Opp.") at 3 n. 2.
B. Factual Allegations
In its Complaint, Mopex alleges the following. From September through November of 1992, Amex solicited ideas from members of the general public for the creation and development of new financial products for the securities industry, which Amex would then promote. See Am. Compl. ¶ 14. In accord with Amex's solicitation, Mopex confidentially developed new financial and trading products and methods. See id. ¶ 15. On October 15, 1992, Steven Bloom ("Bloom"), acting on behalf of Amex, sent a confidentiality agreement to Mopex, stating that new financial products and methods disclosed by Mopex would be maintained in confidence by Amex (the "confidentiality agreement"). See id. ¶¶ 17-18. Mopex and Amex agreed to meet on November 13, 1992, to discuss in confidence Mopex's new financial trading products and methods. See id. ¶ 16.
At the November 13th meeting, Mopex disclosed to Amex and Most its new financial trading products and methods. See id. ¶ 19. According to Mopex, these disclosures were trade secrets subject to the confidentiality agreement. See id. ¶ 20. On August 19, 1994, Most, acting on behalf of Amex, applied to the United States Securities and Exchange Commission ("SEC") for authority for Amex to create and trade financial products, and to employ methods that were based in substantial part on Mopex's trade secrets. See id. ¶ 21.
The Complaint does not identify the financial products and methods Amex sought to create, trade and employ.
On October 12, 1994, Mopex disclosed to Amex and Most, in confidence, additional new financial trading products and methods including, but not limited to, a new security that could be traded in real-time and derivative options linked to the trading of that security. See id. ¶ 23. According to Mopex, these disclosures constituted trade secrets and were subject to the confidentiality agreement. See id. ¶¶ 24-26. On October 12, 1995, Mopex filed a patent application in the United States Patent and Trademark Office (the "PTO") for "[a] mutual fund securitization process permitting the trading of open end mutual funds and linked derivative securities on or off the floor of a National Securities Exchange" (the "Patent Application"). See id. ¶ 27; United States Patent No. 6,088,685, Ex. A to Complaint in Patent Action ("Patent Compl.").
On March 18, 1996, AMEX began trading a product known as the WEBS Series funds ("WEBS"), a precursor to a group of securities called iShares. See Am. Compl. ¶ 41; Amended Appendix A to Pl. Opp. at A-2. According to Mopex, the WEBS substantially copied important elements of the inventions that Mopex had secretly disclosed to AMEX in 1992 and 1994. See Am. Compl. ¶ 42. In January 1996, after Most left Amex, he allegedly disclosed Mopex's trade secrets to BGI and/or Barclays, as well as to other unnamed third parties. See id. ¶ 34.
WEBS is an acronym for World Equity Benchmark Shares. See Am. Compl. ¶ 41.
In its First Amended Complaint, Mopex alleged that WEBS were introduced in November, 1996. See Am. Compl. ¶ 41; Appendix A to Pl. Opp. at A-2. Subsequently, Mopex determined that some of the WEBS began trading on the Amex on March 18, 1996. See Amended Appendix A to Pl. Opp. at A-2.
On May 13, 1997, Amex filed an application with the SEC to act as an exchange for certain option-related, financial products. See id. ¶¶ 36-37. According to Mopex, this application disclosed to the SEC certain information embodying Mopex's trade secrets. See id. On June 29, 1998, Amex began listing and trading certain financial securities based in substantial part on Mopex's trade secrets, which were embodied in the 1997 SEC Application. See id. ¶ 38.
The Complaint does not identify these products.
The Complaint does not identify these securities.
On September 8, 1998, the PTO issued a patent to Mopex based on its 1995 Patent Application — United States Patent No. 5,806,048 (the "'048 Patent"). See Def. Mem. at 3; Pl. Opp. at 4. On February 3, 1999, counsel for Mopex wrote to Amex to inform it that Mopex believed that the WEBS and the Select Sector SPDR funds infringed the '048 patent. See Ex. A. to Patent Action Compl. It also informed Amex that Mopex had a related continuation patent application currently pending in the PTO. See id. On July 11, 2000, Mopex was granted a "continuation patent," United States Patent No. 6,088,685 (the "'685 Patent"), which was based on the same 1995 Patent Application. See Def. Mem. at 3 n. 2; Pl. Opp. at 4.
C. Procedural Background
On August 10, 2000, Amex filed an action in this Court seeking a declaration that the '048 Patent and the '695 patent are invalid and not infringed by Amex. See Patent Compl. The Complaint states that Amex has listed and traded ETFs since at least 1993, including products called SPDRs, which are based on the SP 500 Index. See id. ¶ 9. It further states that Amex has more recently introduced two other ETFs called WEBS, which are based on foreign stock indexes created by Morgan Stanley Capital International, and Select Sector SPDR funds, which are based on specific industry sectors of the SP 500 Index. See id. In the Complaint, Amex asserts that none of its activities "with respect to the WEBS Series funds or the Select Sector SPDR funds, or with respect to the creation, listing and trading of other exchange traded funds, infringes the '048 patent or the '065 patent." Id. ¶ 14. It also asserts that "to the extent that the claims of the '048 patent and/or the '685 patent are construed to cover any of Amex's activities, the claims of the '048 patent and the '685 patent are invalid, inter alia, under 35 U.S.C. § 102, 103 and 112." Id. ¶ 15.
In its Memorandum of Law, Mopex claims that the Patent action was "secretly filed" and that Mopex first learned of the suit at an August 14th meeting between Mopex and representatives of Amex. Pl. Opp. at 4. Amex agrees that this meeting took place but asserts that it informed Mopex of the Patent Action by phone on August 11, 2000, the day after it was filed. See Affidavit of Michael J. Ryan, Esq., then Senior Vice President, Chief of Staff, and Chief Legal Officer of Amex ("Ryan Aff."), Ex. C to Pl. Opp., ¶¶ 9, 18.
In general, sections 102, 103 and 112 describe conditions for patentability, including novelty and non-obviousness, and the specification of the invention. See 35 U.S.C. § 102, 103 and 112.
On September 14, 2000, Mopex filed an answer to the Patent Action and asserted one counterclaim against Amex. See Def. Men. at 3; Pl. Opp. at 4. The counterclaim alleges that Amex was infringing the '685 Patent. See id.
On August 15, 2000, Mopex filed a separate patent infringement action against Amex; it was voluntarily dismissed on September 8, 2000.See Pl. Opp. at 4 n. 5; Def. Mem. at 3 n. 3.
On June 22, 2001, Mopex filed the Trade Secret Action in Illinois State court, naming as defendants Amex, Most, BGI and Barclays. See Complaint, Ex. B. to Def. Mem. The Complaint included claims for: misappropriation and theft of trade secrets, breach of confidential relationship, breach of contract, negligent misrepresentation, fraud, and taking of corporate opportunity. See id. ¶¶ 31-70. On August 3, 2001, the defendants removed the Trade Secret Action to the federal court in Illinois. See Def. Mem. at 3; Pl. Opp. at 5.
On August 31, 2001, Amex filed a motion to dismiss the claims against it because those claims were compulsory counterclaims in the Patent Action under Rule 13(a) of the Federal Rules of Civil Procedure. See Def. Mem. at 4-6; Pl. Opp. at 5. Alternatively, Amex moved to sever the claims against it from the rest of the Complaint and to transfer those claims to this Court pursuant to 28 U.S.C. § 1404(a). See Def. Mem. at 5; Pl. Opp. at 5. On the same day, Most filed a motion pursuant to Rules 12(b)(2) and 12(b)(5) of the Federal Rules of Civil Procedure to dismiss the claims against him for lack of personal jurisdiction and insufficient service of process. See id. On September 10, 2001, the parties appeared before the Illinois district court to allow defendants to present their respective motions. See Def. Mem. at 5. At that time, Amex and Most also moved jointly, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss all of the claims for failure to state a claim upon which relief could be granted. See id. at 5 n. 5. At the conference, the Illinois district court granted Mopex leave to file an amended complaint. See id. at 5; Transcript of 9/10/01 hearing, Ex. C. to Def. Mem., at 7.
Mopex filed its Amended Complaint on September 28, 2001 (the "Complaint"). See Pl. Opp. at 5; Am. Compl. The Complaint includes claims against Amex and Most for: (1) misappropriation and theft of trade secrets, see Am. Compl. ¶¶ 39-46, 55-66; (2) fraud, see id. ¶¶ 76-84, 94-102; (3) constructive fraud, see id. ¶¶ 67-75, 85-93; (4) negligent misrepresentation, see id. ¶¶ 120-127, 128-135; (5) breach of contract, see id. ¶¶ 103-110, 111-119; and (6) unfair competition (against Mopex), see id. ¶¶ 136-141. It also asserts claims against BGI for misappropriation and theft of trade secrets, see id. ¶¶ 47-54, and unfair competition, see id. ¶¶ 142-47.
At a status hearing before the Illinois district court on October 4, 2001, the parties agreed to transfer the claims against Amex to this Court pursuant to 28 U.S.C. § 1404(a). See Def. Mem. at 6; Pl. Opp. at 5. On October 10, 2001, the Illinois district court entered an order to that effect. See Order, Ex. E to Def. Mem. On October 18, 2001, Mopex filed a motion to transfer the claims against Most to this court pursuant to 28 U.S.C. § 1404(a). See Def. Mem. at 6; Pl. Opp. at 5. Most eventually consented to transfer and, on October 25, 2001, the Illinois district court ordered the claims against Most transferred to this Court. See Def. Mem. at 6; Pl. Opp. at 5. In doing so, the Illinois court stated that "the record will indicate that the court has made no rulings on [personal jurisdiction or service of process with regard to Most] or any other matters associated with this case other than the transfer." Def. Mem. at 7 (quoting Transcript of October 25, 2001 hearing, at 5)
II. DISCUSSION
The parties agree that all of the claims against Amex and Most would be time-barred under New York law. See Def. Mem. at 1, 21-25; Pl. Opp. at 1, 4, 7 n. 8. Mopex insists, however, that the Illinois statute of limitations applies and that its claims against Amex and Most were timely under Illinois law. Amex argues that, because the Illinois court would have dismissed the claims against Amex and Most, this Court must apply the New York statute of limitations. In any event, it contends that (1) all but the contract claims are time-barred under Illinois law, and (2) the claims for fraud, constructive fraud, and breach of contract should be dismissed for failure to state a claim.
Initially, Mopex only conceded that some of its claims were time-barred in New York but, in its Memorandum of Law, Mopex explicitly argued that all of its claims are time-barred in New York. See Pl. Opp. at 1 ("Mopex's claims . . . are time-barred here."); id. at 4 ("By [September 15, 2000], [Mopex's] claims against Amex and Most for trade secret misappropriation, fraud, constructive fraud, breach of contract, negligent misrepresentation, and unfair competition (against only the Amex) would have been time-barred here under applicable New York statutes of limitations.").
A. Legal Standard — Choice of Law
Generally, a federal court siting in diversity applies the substantive law, including choice-of-law rules, of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Valley Juice Ltd. v. Evian Waters of France, Inc., 87 F.3d 604, 607 (2d Cir. 1996). But when a case is transferred pursuant to 28 U.S.C. § 1404(a), the transferee court must apply the choice-of-law rules that the transferor court would have applied. See Van Dusen v. Barrack, 376 U.S. 612 (1964); Von Grabe v. Ziff Davis Publ'g Co., No. 91 Civ. 6275, 1995 WL 688912, at *4 (S.D.N.Y. Nov. 20, 1995). There is, however, a well-established exception to the Van Dusen rule. When the action could not have been maintained in the transferor court, the applicable law, including choice of law rules, is the state law of the transferee court.See Von Grabe, 1995 WL 688912, at *4; Lombard v. Econ. Dev. Admin. of Puerto Rico, No. 94 Civ. 1050, 1995 WL 447651, at *2 (S.D.N.Y. July 27, 1995); Aeguitron Med., Inc. v. CBS, Inc., No. 93 Civ. 950, 1994 WL 30414, at *3 (S.D.N.Y. Feb. 2, 1994). The theory behind this exception is that application of the Van Dusen rule to such actions "would permit a party to unfairly 'capture' the law of the transferor forum" by filing suit in a court in which the action could not be maintained and then carry that law to a proper forum. Caribbean Wholesales Svc. Corp. v. US JVC Corp., 855 F. Supp. 627, 631 (S.D.N.Y. 1994); see also Davis v. Costa-Gavras, 580 F. Supp. 1082, 1086 (S.D.N.Y. 1984).
The most common situation where Van Dusen is not applied is where the transferor court lacked personal jurisdiction over the defendant. See, e.g., Songbyrd, Inc. v. Estate of Grossman, 206 F.3d 172, 180 (2d Cir. 2000) ("[I]n a transferred action the law of the transferor jurisdiction applies, only if the transferor court has personal jurisdiction.") (citation omitted); Chaiken v. VV Publ'g Corp., 119 F.3d 1018, 1030 (2d Cir. 1997) ("[I]f [the transferor] court lacked jurisdiction over [defendant], the New York statute of limitations applies to [plaintiff's] claims against him.") Lombard, 1995 WL 447651, at *2. But lack of jurisdiction in the transferor court is but one example of where Van Dusen is not applicable. See Aequitron Med., 1994 WL 30414, at *3 (stating that Van Dusen does not apply "if the action could not have been maintained in the transferor court, for example for lack of jurisdiction." (emphasis added)). For example, one court in this district found Van Dusen inapplicable where the transferor court would have dismissed the case on grounds of forum non conveniens. See Caribbean Wholesales Svc., 855 F. Supp. at 632.
B. Analysis
Amex argues that New York law applies because the Illinois district court would have found that the claims against Amex and Most were not properly before it. Amex contends that the Illinois district court would have held that: (1) Mopex's claims against Amex are compulsory counterclaims in the Patent Action under Rule 13(a), (2) there was insufficient service of process on Most, and (3) it lacked personal jurisdiction over Most. Because the Illinois court did not reach these issues, this Court must determine whether the Illinois court would have dismissed Mopex's claims on these grounds. See Lombard, 1995 WL 447651, at *2; Davis, 580 F. Supp. at 1086.
Mopex does not contest Amex's general assertion that claims that would have been dismissed by the transferor court as compulsory counterclaims in another pending federal action do not fall under the Van Dusen rule. Amex has not identified, nor has this Court found, any cases discussing whether the exception to Van Dusen applies in this particular situation. However, this Court sees no reason why the exception should not apply. If Van Dusen were to apply, Mopex would be permitted to "capture" the law of a forum in which its suit was improperly brought.
1. Dismissal of Mopex's Claims Against Amex as Compulsory Counterclaims
a. Legal Standard
Rule 13(a) states in pertinent part:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim. . . .
Fed.R.Civ.P. 13(a). If a party fails to plead a compulsory counterclaim in a federal action, that party is barred from bringing a later independent action on that claim. See Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1 (1974) ("A counterclaim which is compulsory but is not brought is thereafter barred."); Crown Life Ins. Co. v. American Nat'l Bank and Trust Co. of Chicago, 35 F.3d 296, 300 (7th Cir. 1994) (noting that a compulsory counterclaim is waived if not set forth in the answer to the complaint); Harris v. Steinem, 571 F.2d 119, 121 (2d Cir. 1978); 6 Charles Alan Wright Arthur R. Miller, Federal Practice Procedure § 1417 (2d ed.) ("Fed. Prac. Proc."). Illinois state courts apply this rule to dismiss claims that should have been brought as counterclaims in pending federal actions. See Quantum Chem. Corp. v. The Hartford Steam Boiler Inspection and Ins. Co., 246 Ill. App.3d 557, 561 (Ill.App.Ct. 1993) (finding plaintiff's state court claims properly dismissed where claims "amount[ed] to compulsory counterclaims in a pending federal action"); McDonald's Corp. v. Levine, 108 Ill. App.3d 732, 747 (Ill.App.Ct. 1982).
In the Seventh Circuit, a counterclaim is compulsory under Rule 13(a) if it is "logically related" to the original action. Price v. United States, 42 F.3d 1068, 1072 (7th Cir. 1994). "There is no formalistic test to determine whether the claims are logically related."Id. at 1073. Rather, a court must conduct "a careful examination of the factual allegations underlying each claim," id., to determine whether "separate trials on each of [the parties'] respective claims would involve a substantial duplication of effort and time by the parties and the courts." AMP Inc. v. Richard Zacharias, No. 87 C 3244, 1987 WL 12676, at *1 (N.D. Ill. June 15, 1987) (quotation marks omitted). A claim may be logically related to an action even though there is not complete identity of issues and parties between the two cases. See AMP, 1987 WL 12676, at *2; see also Moore v. New York Cotton Exchange, 270 U.S. 593, 610 (1926) ("That [a counterclaim and the original action" are not precisely identical or that the counterclaim embodies additional allegations . . . does not matter."); Inforizons Inc., v. Ved Software Svcs. Inc., 204 F.R.D. 116, 119 (N.D. Ill. 2001) (finding claims logically related where "substantive issues involved in the two suits are substantially, if not entirely, identical."); Rohm and Haas Co. v. Brotech Corp., 770 F. Supp. 928, 934 (D. Del. 1991) ("[T]he addition of extra parties in the [original] action does not affect the compulsory counterclaim issue.").
The Second Cicuit has also adopted the "logical relationship" test. See Critical-Vac Filtration Corp. v. Minuteman Int'l Inc., 233 F.3d 697, 699 (2d Cir. 2000), cert. denied, 121 S.Ct. 1958 (2001). Under this test, "[a] claim is compulsory if "a logical relationship exists between the claim and the counterclaim and [if] the essential facts of the claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.'" Id.
b. Analysis
Amex asserts that the claims in the Trade Secret Action are logically related to the Patent Action. Mopex does not explicitly contest this assertion, but contends that the claims against Amex do not fall within the ambit of Rule 13(a) because they were time-barred in New York and could not have been brought "at the time of serving the pleading." Pl. Opp. at 8 (quoting Fed.R.Civ.P. 13(a)).
Mopex's reliance on Ferens v. John Deere Co., 494 U.S. 516 (1990), is misplaced. Mopex is correct that Ferens stands for the proposition that a plaintiff may file its state-law claims in a jurisdiction where the claims are still viable and then move to transfer those claims to a forum where the statute of limitations has run. However, Ferens merely held that the Van Dusen rule applies regardless of which party initiates the transfer. It did not involve claims that would have been dismissed by the transferor court.
i. Logical Relationship Test
Mopex has essentially conceded that the Patent Action and the trade Secret Action are logically related. It did not contest this point in its Memorandum of Law and, at a conference before this Court, counsel for Mopex explicitly described the overlapping factual and evidentiary issues in the two cases. At that conference, counsel for Mopex stated:
The alleged trade secrets have to do with these products that are covered by the patents. They are not exactly the same, the trade secrets are not exactly the same by [sic] what's covered in the patent, because there was some refinement by the time the patent was issued. But it's essentially the same basic subject matter.
So we have the same witnesses, the same documents, the same continuous course of conduct between the parties, all relevant to both the trade secret case and to the present case [the Patent Action].
Transcript of 10/16/01 Conference ("10/16/01 Tr."), at 22. Because claims in the Trade Secret Action and Patent Action involve many of the same parties, the same basic subject matter, the same underlying design concept, and much of the same evidence and course of conduct, they are logically related.
In Paine, Webber, Jackson Curtis, Inc., v. Merrill Lynch, Pierce, Fenner Smith, Inc., 587 F. Supp. 1112, 113-1114 (D. Del. 1984), the Delaware District Court found that a claim for trade secret infringement was not a compulsory counterclaim in an action seeking a declaration of patent invalidity, unenforceability and non-infringement. In that case, the court found that the trade secret counterclaim bore no logical relationship to the claims asserted in the complaint because there was no indication that there would be duplication of evidence, and the counterclaims arose out of completely different transactions and occurrences than the claims for patent invalidity, unenforceability and non-infringement. See id. at 1114. In comparison, Mopex has admitted that there is a substantial overlap between the issues and evidence in the Patent Action and the Trade Secret Action.
Counsel for Mopex did note that the Patent Action and the Trade Secret Action concern slightly different time periods because the Trade Secret Action "ha[s] to do with a very relatively short period of time right before the patent issued." 10/16/01 Tr. at 21-22. However, when determining whether a claim is a compulsory counterclaim under Rule 13(a), "the immediateness" of the underlying facts is not as important as "their logical relationship." Price, 42 F.3d at 1073; see also Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1291 (7th Cir. 1980). In the Trade Secret Complaint, Mopex tries to distinguish the two cases by stating that, because the misappropriation took place before Mopex's patents issued, "the relief sought is not duplicative of the relief sought in [Mopex's] separate lawsuit against Amex and Barclays for infringement of United States Patent No. 6,088,685." Am. Compl., Introduction. However, where it is undisputed that two claims involve the same underlying design concept and arise out of the same factual background, they may be logically related even thought they seek different forms of relief or relief for different time periods. See Beech Aircraft Corp. v. EDO Corp., 990 F.2d 1237, 1247 (Fed. Cir. 1993) (finding claim for patent infringement, seeking patent assignment, was compulsory counterclaim to an action for a declaration of non-infringement, which sought no affirmative relief); Rohm and Haas Co., 770 F. Supp. at 933 (finding fraud claim, which was based on facts occurring prior to issuance of patent, was a compulsory counterclaim in patent infringement action, which was based on facts occurring after issuance of patent)
ii. The Counterclaims Were Not Time-Barred in New York
Mopex's argument that the claims in the Trade Secret Action would have been time-barred if asserted as counterclaims in the Patent Action is incorrect. Where, as here, defendant's counterclaims are based on state law, the tolling provisions of N Y C.P.L.R. § 203(d) apply. See Weiss v. La Suisse, 161 F. Supp.2d 305, 314 (S.D.N.Y. 2001); Bank Brussels Lambert v. Credit Lyonnais (Suisse), No. 92 Civ. 6876, 2000 WL 1364348, at *1 (S.D.N.Y. Sept. 20, 2000); Aramony v. United Way of Am., No. 96 Civ. 3962, 1998 WL 205331, at *3 (S.D.N.Y. Apr. 27, 1998) ("C.P.L.R. § 203(d), not the federal tolling rule, governs the tolling of state law counterclaims."). Under section 203(d), the statute of limitations on all counterclaims is tolled upon the filing of the complaint. See N.Y. C.P.L.R. § 203(d); Aramony, 1998 WL 205331, at *3. If the statute of limitations on a counterclaim has run at the time the complaint is filed, the counterclaim is not time-barred if it "arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends." N.Y. C.P.L.R. 203(d);see also Geller Media Mgmt., Inc. v. Chenault, No. 95 Civ. 8301, 1997 WL 362446, at *2 (S.D.N.Y. July 1, 1997); Alvarex v. Attack Asbestos, 731 N.Y.S.2d 431, 2001 N.Y. Slip Op. 07963, at *2 (1st Dep't Oct. 18, 2001) (counterclaims that are time-barred at the time of the complaint are not time-barred if the "complaint makes affirmative demands for relief based on related causes of action."); Davis v. Davis, 463 N.Y.S.2d 462, 463 (1st Dep't 1983). In this situation, the otherwise time-barred counterclaims may be interposed as claims for equitable recoupment. See Farkas v. Farkas, No. 95 Civ. 8464, 1998 WL 3633, at *3 (S.D.N.Y. Jan. 7, 1998), aff'd in part, reversed in part on other grounds, 168 F.3d 638 (2d Cir. 1999); Geller Media Mgmt., Inc, 1997 WL 362446, at *2; Town of Amherst v. County of Erie, 668 N.Y.S.2d 848, 849 (4th Dep't 1998). To determine whether section 203(d) authorizes the assertion of otherwise time-barred counterclaims, courts apply a "transactional" analysis to those claims. Geller Media Mgmt., 1997 WL 362446, at *2 (quoting Pennzoil Co. v. Carlson, 558 N.Y.S.2d 754, 763 (4th Dep.'t 1990)). Under this analysis, counterclaims that "presen[t] a new theory" or allege a new cause of action will be permitted as long as they relate to the same transactions or occurrences as the complaint.Id. (citing Pennzoil, 558 N.Y.S.2d at 763).
As noted above, Mopex's claims in the Trade Secret Action arise out of the same transactions or occurrences as Amex's claims in the Patent Action. Thus, Mopex could have asserted its claims against Amex and Most as counterclaims in the Patent Action, regardless of whether the statute of limitations had run. Because Mopex's claims in the Trade Secret Action could have been brought as counterclaims "at the time of serving the pleading" in the Patent Action, they fall within the ambit of Rule 13(a). Accordingly, I find that the Illinois district court would have dismissed those claims as compulsory counterclaims that Mopex failed to assert in the Patent Action. See Baker, 417 U.S. at 469 n. 1; Crown Life Ins., 35 F.3d at 300.
The Illinois district court would have dismissed the claims even though Mopex could only have interposed them in the Patent Action as claims for equitable recoupment, as opposed to claims for affirmative relief. "The purpose of Rule 13(a) is judicial economy: 'to avoid a multiplicity of actions by resolving in a single lawsuit all disputes that ensue from a common factual background.'" Inforizons, 204 F.R.D. at 119 (quoting Price, 42 F.3d at 1073). Under a similar Illinois rule, which "avoid[s] duplicative litigation" by permitting courts to dismiss an action that is similar to a pending federal action, Illinois courts have not been deterred by the fact that complete relief would not be available in the pending action. Kapoor v. Fujisawa Pharmaceutical Co., Ltd., 298 Ill. App.3d 780, 790 (1998) (applying 735 I.L.C.S. 5/2-619(a) (3)); see also Katherine M. v. Ryder, 254 Ill. App.3d 479, 487 (1993) (same).
2. Service of Process Upon Most
Amex argues that the claims asserted against Most would have been dismissed by the Illinois district court pursuant to Rule 12(b)(5) for insufficient service of process. See Def. Mem. at 16. Here, again, the Court must look to the standards that would have been applied by the Illinois district court.
The Seventh Circuit has held that a defendant can raise the issue of insufficient service of process in a motion to dismiss. See Haven v. Polska, 215 F.3d 727, 732 (7th Cir. 2000).
a. Legal Standard
Where, as here, a defendant has been sued in his individual capacity, service of process must be perfected according to Rule 4(e) of the Federal Rules of Civil Procedure. See Robinson v. Turner, 15 F.3d 82, 84 (7th Cir. 1994); Sellers v. United States, 902 F.2d 598, 603 (7th Cir. 1990). Rule 4(e)(2) provides that the summons and complaint shall be made:
The 1993 amendments to the Federal Rules of Civil Procedure moved the text of Rule 4(d)(1) to Rule 4(e)(2) and moved the text of Rule 4(j) to Rule 4(m). See Committee Note to 1993 Amendment to Rule 4. Thus, case law referring to former Rules 4(d)(1) and 4(j) is equally applicable to current Rules 4(e)(2) and 4(m) respectively.
by delivering a copy of the summons and of the complaint to the individual personally or by leaving copies thereof at the individual's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.
Fed.R.Civ.P. 4(e)(2); Mid-Continent Wood Prod., Inc. v. Harris, 936 F.2d 297, 300 (7th Cir. 1991). Plaintiff bears the burden of establishing that process was properly affected. See PAR, Inc, v, Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir, 1997); Ellis, 1994 WL 87387, at *2.
When defending against a motion to dismiss, plaintiff need only make "a prima facie showing of jurisdiction facts." Ellis v. Welch, No. 92 C 4633, 1994 WL 87387, at *2 (N.D. Ill. 1994). When considering jurisdictional facts, a court is permitted to "receive and weigh affidavits." Id. (quoting Welles Products Corp. v. Plad Eguip. Corp., 568 F. Supp. 446, 448 (N.D. Ill. 1983)).
Pursuant to Rule 4(m), service of a summons and complaint must be made on a defendant within 120 days of filing the complaint unless the plaintiff can show "good cause" for his failure to effect service. See Fed.R.Civ.P. 4(m); Troxell v. Fedders of North Am., Inc., 160 F.3d 381, 382 (7th Cir. 1998).
The determination of whether or not good cause exists is one entrusted to the district court's discretion. See Troxell, 160 F.3d at 382-83. If "good cause" is shown, the court will grant an extension "for service for an appropriate period." Fed.R.Civ.P. 4(m); see also McMasters v. U.S., 260 F.3d 814, 818 n. 6 (7th Cir. 2001); Troxell, 160 F.3d at 382-83 (holding that district court is only required to grant a requested extension if good cause is shown). If good cause is not shown, the court, in its discretion, may either dismiss the action without prejudice or grant an extension of time for service. See Hernandez v. Lara, No. 00 C 1651, 2001 WL 629309, at *1 (N.D. Ill. May 25, 2001) (citing Panaras v. Liquid Carbonic Indus. Corp., 94 F.3d 338, 340 (7th Cir. 1996)).
b. Analysis
Most's affidavit states that he was never personally served in this action and Mopex does not contest this assertion. See Most Aff. ¶ 2. Purportedly, Mopex attempted to serve Most by leaving a copy of the Summons and Complaint with the Chicago office of BGI. See Def. Mem. at 20. However, Most was not employed by BGI or any company owned by BGI. See Most Aff. ¶ 9. In any event, delivery of a summons and complaint to an individual defendant's place of employment is not proper service of process. See Ellis, 1994 WL 87387, at *4; Cheek v. Doe, 110 F.R.D. 420, 421-22 (N.D. Ill. 1996); Lisak v. Mercantile Bancorp, No. 85 C 8293, 1986 WL 12315, at *3 (N.D. Ill. Oct 24, 1986), aff'd in part, vacated in part on other grounds, 834 F.2d 668 (7th Cir. 1987); Fed. Prac. and Proc. Civ. § 1096; 62B Am. Jur. 2d Process § 219 (1990). Most admits that he learned of the action when he received a phone call from counsel for BGI and that he received a copy of the Complaint from his counsel. See Most Aff. ¶ 2. But it is well-established that defendant's actual notice of the litigation is not sufficient to satisfy the requirements of Rule 4. See McMasters v. U.S., 260 F.3d 814, 817 (7th Cir. 2001); Mid-Continent Wood Prod., 936 F.2d at 301. Thus, I conclude that the Illinois district court would have found that Most was not properly served.
At the time, Most was employed by iShares, Inc. and The iShares Trust, neither of which were owned by BGI. See Most Aff. ¶ 9. BGI merely acts as an investment advisor to these entities. See id.
Mopex insists that its time for perfecting service does not expire until January 28, 2002 because the 120-day time period began to run upon the filing of the first Amended Complaint on September 28, 2001. See Pl. Opp. at 11-12. This assertion is incorrect. In a removed action, the 120-day period begins to run on the date the action is removed to federal court. See Alber v. Illinois Dept. of Mental Health and Developmental Disabilities, 786 F. Supp. 1340, 1376 (N.D. Ill. 1992); G.G.G. Pizza, Inc. v. Domino's Pizza Corp., Inc., 67 F. Supp.2d 99, 102 (E.D.NY. 1999); Fed. Prac. Proc. Civ. § 1137. The filing of an amended complaint does not, in itself, toll the service period. See Finch v. George, 763 F. Supp. 967, 968 (N.D. Ill. 1991), aff'd, 991 F.2d 799 (7th Cir. 1993) ("[T]he filing of the amended complaint does not reset the service clock. . . ."); Matlock v. City of Chicago, 1994 WL 463802, at *2 (N.D. Ill. Aug. 24, 1994) (no docket number provided); Williams-Guice v. Board of Educ. of City of Chicago, No. 92 C 7904, 1994 WL 30584, at *3 (N.D. Ill. Feb. 2, 1994); Fed. Prac. Proc. Civ. § 1137. Because the Trade Secret Action was removed to the Illinois district court on August 3, 2001, the time period for service of process expired on December 1, 2001.
Mopex has offered the Court no explanation for its failure to serve Most within the statutory time period. Its filing of an amended complaint is not, on its own, "good cause" for delay. See Fed. Prac. Proc. Civ. § 1137. Nor is "[c]ounsel's lack of diligence, inadvertence or negligence and half-hearted efforts to serve a defendant" a valid reason for delay. Serlin v. Arthur Andersen Co., 145 F.R.D. 494, 496 (N.D. Ill. 1993). While a district court always has the discretion to extend the time period for service, see Troxell, 160 F.3d at 38, Mopex has offered no reason why the Illinois district court would have done so. Therefore, I find that the Illinois district court would have dismissed Mopex's claims against Most without prejudice for failure to timely perfect service.
C. Dismissal of the Claims Against Amex and Most as Time-Barred
Because Mopex's claims against Amex and Most were improperly before the Illinois district court, this Court — the transferee court — must apply the choice-of-law rules of this jurisdiction. See Von Grabe, 1995 WL 688912, at *4; Lombard, 1995 WL 447651, at *2; Aequitron Med., 1994 WL 30414, at *3. Under these rules, a district court must apply the New York statute of limitations regardless of whether the claims asserted might be governed by the substantive law of another jurisdiction. See Architectronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 431 (S.D.N.Y. 1996). Although Mopex has conceded that all of its claims against Amex and Most are barred by the New York statute of limitation, I will briefly discuss each claim below.
1. Constructive Fraud and Negligent Misrepresentation
The essence of Mopex's constructive fraud and negligent misrepresentation claims allege that "at the time of acquiring Plaintiff's trade secrets," Amex and Most "misrepresented" or "negligently misrepresented" to Mopex that they wanted to jointly develop products with Mopex, would compensate Mopex for its trade secrets and intended to keep the secrets in confidence. See Am. Compl. ¶¶ 68-75, 85-93, 122-127, 130-135. The statute of limitations for constructive fraud and negligent misrepresentation is the six-year "catch-all" limitations period of N.Y. C.P.L.R. § 213(1). See Orr v. Kinderhill Corp., 991 F.2d 31, 35 (2d Cir. 1993) (constructive fraud); Lewis v. Rosenfeld, 138 F. Supp.2d 466, 473 n. 11 (S.D.N.Y. 2001) (negligent misrepresentation); Fandy Corp. v. Lung-Fong Chen, 691 N.Y.S.2d 572, 573 (2d Dep't 1999) (negligent misrepresentation); Dybowski v. Dyboska, 536 N.Y.S.2d 838, 839 (2d Dep't 1989) (constructive fraud). For constructive fraud, the statute of limiations begins to run at the time the fraud is committed. See Dybowski, 536 N YS.2d at 839. Mopex alleges that the trade secrets were revealed to Amex at two meetings on November 13, 1992 and October 12, 1994. See Am. Compl. ¶¶ 19, 23. Therefore, the latest date on which the fraud could have been committed was October 12, 1994, the date of the second disclosure. See id. ¶ 23. Thus, the statute of limitations on Mopex's constructive fraud claim expired on October 2000, long before this action was commenced in June 2001. For negligent misrepresentation, the statute of limitations is measured from the date of the alleged misrepresentation which is relied upon by the plaintiff. See Fandy Corp., 691 N.Y.S.2d at 573. Again, the latest date on which defendants could have made misrepresentations to Mopex, which Mopex relied on, was October 12, 1994. Thus, this claim would also have been time-barred as of October 2000, long before this action was commenced.
2. Fraud
Mopex alleges that Amex and Most committed fraud at the time they acquired the purported trade secrets at the November 1992 and October 1994 meetings. See Am. Compl. ¶¶ 77-82, 95-100. The statute of limitations for fraud is six years from the commission of the fraud or two years from when plaintiff discovered or, with reasonable diligence could have discovered, the fraud, whichever is later. See Fromer v. Yogel, 50 F. Supp.2d 227, 245 (S.D.N.Y. 1999); Baratta v. ABF Real Estate Co., Inc., 627 N.Y.S.2d 52, 53 (2d Dep't 1995) (citing N.Y. C.P.L.R. §§ 213(8), 203(f)). Measuring six years from the later of the two meetings, Mopex's fraud claims were barred as of October 2000, several months before this action was commenced. Even under the alternative time period of two years from discovery of the fraud, the fraud claims are still barred. According to Mopex, it could not have discovered the fraud until June 27, 1996. See Amended Appendix A to Pl. Opp. at A-2. Assuming, arguendo, that Mopex's asssertion is true, the fraud claims would have expired in June 1998, three years before this action was commenced.
Mopex argues that it could not have discovered the fraud until the publication of two Wall Street Journal articles, the earlier of which was published on June 27, 1996. See Amended Appendix A to Pl. Opp. at A-2. Amex disagrees, arguing that Mopex could have become aware of the alleged fraud when WEBS began trading on the Amex on March 18, 1996. See Reply Memorandum of Law in Support of the Amex's and Nathan Most's Motion to Dismiss Mopex's Claims That are Being Transferred to This Court From the Northern District of Illinois ("Def. Repl.") at 2-3. Indeed, Amex argues that detailed descriptions of WEBS that were published in the Federal Register prior to March 18, 1996 were sufficient to put Mopex on notice of any alleged fraud. See id. at 3. Because Mopex's claims would be time-barred under any of these measures, this disagreement need not be resolved.
3. Breach of Contract
Mopex's claims against Amex and Most for breach of the contract are based on their purported breach of the confidentiality agreement. Under New York law, the statute of limitations for breach of contract is six years. See N Y C.P.L.R. § 213(2). Based on the allegations in the Complaint, the breach occurred at least as early as August 19, 1994, when Most, on behalf of Amex, applied to the SEC for authority to trade financial products based on Mopex's trade secrets. See Am. Compl. ¶ 21. Because the cause of action for breach of contract would have accrued at that time, the statute of limitations would have expired in August 2000, almost a year before this action commenced.
4. Misappropriation of Trade Secrets
The statute of limitations for misappropriation of trade secrets is the three-year limit of N.Y. C.P.L.R. § 214(4). See Galet v. Carolace Embroidery Prod. Co., No. 91 Civ. 7991, 1994 WL 542275, at *4 (S.D.N.Y. Oct. 5, 1991); Lemelson v. Carolina Enter., Inc., 541 F. Supp. 645, 647 (S.D.N.Y. 1982). The action accrues either when the defendant first discloses the trade secret or when the defendant first makes use of plaintiff's idea. See Galet, 1994 WL 542275, at *4; Lemelson, 541 F. Supp. at 648.
Mopex alleges that Amex misappropriated its trade secrets by disclosing and using them in relation to WEBS. See Am. Compl. ¶ 41. According to the Complaint, Most, on behalf of Amex, disclosed or used the trade secrets at least as early as August 19, 1994, when he applied to the SEC for authority to trade financial products based on those trade secrets.See id. ¶ 21. Thus, the cause of action for misappropriation of trade secrets against Amex expired in August 1997, prior to the commencement of this action.
Mopex alleges that Most misappropriated its trade secrets by disclosing them to BGI, Barclays and/or third parties and assisting those entities to use the trade secrets in iShares. See id. ¶¶ 41, 60-64. Because Most's disclosures allegedly began in January 1996, see id. ¶ 34, this cause of action expired in January 1999. Therefore, it was time-barred at the commencement of this action in June 2001.
6. Unfair Competition
Mopex's unfair competition claim alleges that Amex exploited its trade secrets by using them without compensation and claiming them as its own, and by breaching the confidentiality agreement without compensation. See Am. Compl. ¶ 138. New York courts disagree as to which statute of limitations applies to a claim for unfair competition. Courts have held that unfair competition claims are subject to the six-year period for fraud claims, see Charles Atlas, Ltd. v. DC Comics, Inc., 112 F. Supp.2d 330, 334 (S.D.N.Y. 2000) (applying N.Y. C.P.L.R. § 213(1)), the six-year period of N.Y. C.P.L.R. § 213(2) for breach of contract claims, see Katz v. Bach Realty, Inc., 595 N.Y.S.2d 455, 456 (1st Dep't 1993), the three-year statute of limitations of N.Y. C.P.L.R. § 214(2) for actions to recover damages for injury to property, see Bausch Lomb Inc. v. Alcon Laboratories, Inc., 64 F. Supp.2d 233, 245 (W.D.N.Y. 1999), and the three-year statute of limitations of N.Y. C.P.L.R. § 214(4) for actions to recover upon a liability imposed by statute, see Byron v. Chevrolet Motor Div. of Gen. Motors Corp., No. 93 Civ. 1116, 1995 WL 465130, at *3 (S.D.N.Y. Aug. 7, 1995); De Medici v. Lorenzo De Medici, Inc., 475 N.Y.S.2d 391, 392 (1st Dep't 1984). Here, Mopex concedes that its unfair competition claim is subject to the three-year statute of limitations imposed by N.Y. C.P.L.R. § 214(4), because the "gravamen of [its] claim of unfair competition is the bad faith misappropriation of a commercial advantage belonging to another . . . by exploitation of proprietary information or trade secrets." Pl. Opp. at 4 n. 4 (quoting Eagle Comtronics, Inc. v. Pico Prods., Inc., 682 N.Y.S.2d 505, 506-07 (4th Dep't 1998)) (elipses in original). Based on the allegations in the Complaint, Mopex's unfair competition claim accrued at least as early as August 19, 1994, when Most, on behalf of Amex, applied to the SEC for authority to trade financial products based on Mopex's trade secrets. See Am. Compl. ¶ 21. Thus, the cause of action became time-barred in August 1997, prior to the commencement of this action.
III. CONCLUSION
For the foregoing reasons, I find that the Illinois district court — the transferor court — would have dismissed Mopex's claims against Amex as compulsory counterclaims in the earlier filed Patent Action pending before this Court, and would have dismissed Mopex's claims against Most for insufficient service of process. Because those claims were not properly before the Illinois court, this Court's choice-of-law rules apply. Pursuant to those rules, I find that all of Mopex's claims against Amex and Most are barred by various New York statutes of limitations. Accordingly, those claims must be dismissed.