Opinion
Civil Action No: SA-04-CA-1150-XR.
May 6, 2005
ORDER
On this date, the Court considered Defendant's Motion to Dismiss or, in the alternative, to Transfer. Defendant seeks dismissal or transfer to the Eastern District of Pennsylvania for consolidation with a pending case in that court. Because Defendant has failed to establish that the Eastern District of Pennsylvania would be able to exercise personal jurisdiction over Plaintiff, the Court DENIES the motion without prejudice (docket no. 5).
I. Procedural and Factual Background
Defendant, a Pennsylvania corporation with its principal place of business in Spring City, Pennsylvania, is the owner of three patents that make up the basis of this action. Defendant is a textile manufacturer specializing in thermal protection products and provides oven seals and gasket clips for cooking appliances. Defendant was issued three United States patents, Nos. 4,986,033, 5,107,623, and 5,806,149, on January 22, 1991, April 28, 1992, and September 15, 1998, respectively. Plaintiff, a Texas corporation with its principal place of business in Texas, sells oven gasket clips that Defendant asserts violates the patents at issue.
On January 26, 2004, Defendant sent a cease and desist letter to HM Auto Parts, Inc., d/b/a HM Co., Inc. ("HM"), claiming that HM was infringing on its patents by selling certain oven gasket clips. HM sent a letter to Defendant on April 12, 2004 notifying HM that it was discontinuing its sale of the items at issue. At this time, Henry C. Height, Jr., a non-controlling interest holder in HM, and the son of HM's 60% shareholder, Henry C. Height, Sr., desired to continue selling the disputed oven gasket clips. Height, Jr., with his wife, formed Plaintiff, Tape Technologies Inc.
Apparently, Plaintiff was incorporated February 4, 2004.
On November 29, 2004, Defendant filed a patent infringement suit in the Eastern District of Pennsylvania against HM. Plaintiff was not a party to that action. On December 15, 2004, Plaintiff filed the current declaratory judgment action. Defendant amended its Complaint in the Eastern District of Pennsylvania adding Plaintiff and Height Jr. as defendants on December 20, 2004. In a letter dated December 21, 2004 to Defendant, HM pointed to Plaintiff as the seller of the oven gasket clips at issue during the period from February to October 2004.
The court in the Eastern District of Pennsylvania denied without prejudice Plaintiff's motion to dismiss on the basis of lack of personal jurisdiction on February 15, 2005. The court noted that the record was inadequate to establish personal jurisdiction over Plaintiff in Pennsylvania, but granted Defendant sixty days to conduct jurisdictional discovery.
The parties have not provided any further information as to the status of the pending action in the Eastern District of Pennsylvania.
Defendant now seeks to have this case either dismissed, transferred, or stayed, arguing that the case pending before the Eastern District of Pennsylvania is the first-filed case. Plaintiff responds that this case is first-filed, as it is a separate entity from HM and was not added in that case until after this case was filed.
II. Analysis
As this declaratory judgment action is between diverse litigants and was properly filed pursuant to 28 U.S.C. § 2201(a), the Court clearly has subject matter jurisdiction over the suit. However, a district court may decline to exercise its jurisdiction in a declaratory judgment action. This is because § 2201(a) grants discretion to the courts rather than an absolute right to litigants. See Wilton v. Seven Falls Co., 515 U.S. 277, 287-88 (1995); Sherwin-Williams Co. v. Holmes County, 343 F.3d 383, 389 (5th Cir. 2003). "In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Wilton, 515 U.S. at 289. The Court may, therefore, choose to dismiss the case by not exercising jurisdiction over it.
In determining whether to dismiss a declaratory judgment suit, the Fifth Circuit has put forward a three-step inquiry for district courts to consider: (1) whether the declaratory action is justiciable; (2) whether the court has authority to grant declaratory relief; and (3) whether the court should exercise its discretion to dismiss the action. Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000). Under this inquiry, it is clear that Plaintiff's declaratory action is justiciable in that there is an actual controversy between the parties as to the alleged infringement of Defendant's patents. It is also clear that the Court has authority to grant relief. See id. The decision to dismiss this action therefore rests on whether the Court should exercise its discretion to dismiss the action.
In St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir. 1994), the Fifth Circuit identified seven nonexclusive factors to consider in deciding whether to exercise the Court's discretion to dismiss a declaratory judgment action. These factors are:
(1) whether there is a pending state action in which all of the matters in controversy may be fully litigated;
(2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant;
(3) whether the plaintiff engaged in forum shopping in bringing suit;
(4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist;
(5) whether the federal court is a convenient forum for the parties and witnesses;
(6) whether retaining the lawsuit would serve the purposes of judicial economy; and
(7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending.Id. at 590-91 (citing Travelers Ins. Co. v. Louisiana Farm Bureau Fed'n, 996 F.2d 774, 779 (5th Cir. 1993)). As there are no state actions pending, the only relevant factors to consider in this case are numbers (2) through (6).
The first-to-file rule provides that once it is shown that there is substantial overlap between two cases, the court in which the case is first filed decides which of the two cases should proceed. Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 606 (5th Cir. 1999). There is clearly substantial overlap between this suit and the suit in the Eastern District of Pennsylvania — they involve the exact same determination, just sought through different procedural vehicles.
In general, the suit which is first filed where multiple suits involve substantial overlap controls which court should maintain jurisdiction. Texas Instruments Inc. v. Micron Semiconductor, Inc., 815 F. Supp. 994 (E.D. Tex. 1999). Cases suggest, however, that there is a "general policy that a party whose rights are [apparently] being infringed should have the privilege of electing where to enforce its rights." Id. at 997; see also Kinetic Concepts, Inc. v. Connetics Corp., No.Civ.A. SA-04-CA-0237-XR, 2004 WL 2026812, at * 3 (W.D. Tex. Sept. 8, 2004); Genentech, Inc. v. Eli Lilly Co., 998 F.2d 931, 937 (Fed. Cir. 1993) (noting that "an action for declaration of non-infringement of a trademark should give way to a later-filed suit for trademark infringement"). Therefore, whether the Court views the suit at issue or the suit in Pennsylvania as "filed first," the general rule applies in favor of the Pennsylvania patent infringement case.
Plaintiff clearly filed this suit in anticipation of litigation, and in order to gain the advantages of its preferred forum. Of course, "every litigant who files a lawsuit engages in [a form of] forum shopping when he chooses a place to file suit." Texas Instruments, 815 F. Supp. at 996. In the context of an infringement case, as noted above, however, the alleged victim of the infringement is generally given the initial right to choose the forum in which the infringement case will be heard.
The Court generally will not allow a party to secure its preferred forum by filing an action for a declaratory judgment when it has notice that another party intends to file suit involving the same issues in a different forum. See 909 Corp. v. Village of Bolingbrook Police Pension Fund, 741 F. Supp. 1290, 1292 (S.D. Tex. 1990). Lengthy negotiations and the tenor of the party's relations are likely to evidence an expectation that suit will be filed. See Granite State Ins. Co. v. Tandy Corp., 986 F.2d 94, 96 (5th Cir. 1992); Mission Ins. Co. v. Puritan Fashins Corp., 706 F.2d 599, 601 (5th Cir. 1983). This declaratory judgment action was filed during a period in which Defendant had filed suit less than a month prior against a related company involving the exact same products. Heights, Jr., the founder of Plaintiff, knew of the pending suit against HM in the Eastern District of Pennsylvania. Therefore, the three Trejo factors addressing forum shopping in anticipation of litigation, factors (2), (3), and (4), as well as the general rule of infringement cases applicable to the first-to-file rule, all weigh against the exercise of the Court's discretion to hear the declaratory judgment action.
In the abstract, allowing the case to go forward in Pennsylvania and dismissing this declaratory judgment action would be more exhaustive than this action because it would allow resolution of the infringement claims against both Plaintiff and HM in the same action. Allowing Defendant to go forward with its suit in the Eastern District of Pennsylvania, rather than issuing a declaratory judgment here, weighs in favor of both judicial economy and the convenience of both parties and the witnesses, factors (5) and (6), by avoiding piecemeal and duplicate litigation. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-18 (1976). Therefore, all the Trejo factors weigh against the court's entertainment of this declaratory judgment action.
There is a consideration unmentioned by either party, however, that keeps the Court from dismissing this case. There remains the question of whether the Eastern District of Pennsylvania may properly exercise personal jurisdiction over Plaintiff. Plaintiff has already filed one motion to dismiss for want of jurisdiction and the court in Pennsylvania noted that the record was insufficient to establish personal jurisdiction. The court granted Defendant sixty days to conduct jurisdictional discovery. As there exists some question as to whether the Eastern District of Pennsylvania would be able to exercise personal jurisdiction over Plaintiff were this Court to dismiss this action, it would not serve the purposes of the Declaratory Judgment Act or the ends of justice to dismiss in the hopes that jurisdiction in Pennsylvania might be warranted. See Travelers, 996 F.2d at 778 (noting that the district court may not dismiss a declaratory judgment "on the basis of whim or personal disinclination") (quotation omitted). Defendant has failed completely to establish the viability of jurisdiction in the alternate forum. See In re Volkswagon AG, 371 F.3d 201, 203 (5th Cir. 2004) (stating that in making a determination of whether a motion to transfer venue is proper the first consideration is whether the potential transferee forum would be a forum in which the claim could have originally been filed).
Defendant seeks dismissal, or in the alternative, either transfer for consolidation or a stay of this case pending the outcome in the Eastern District of Pennsylvania. Because Defendant has not established that the Eastern District of Pennsylvania could exercise personal jurisdiction over Plaintiff, the Court will not exercise its discretion to dismiss or to transfer the case. The Court also declines to stay the proceedings in this case pending the resolution of the Pennsylvania action. Defendant's motion is DENIED without prejudice, subject to reurging should the Eastern District of Pennsylvania affirmatively find it may exercise personal jurisdiction over Plaintiff.
Both parties are to ensure that this Court is informed on the status of the Eastern District of Pennsylvania case.
III. Conclusion
Plaintiff's declaratory judgment action against Defendant, claiming non-infringement, would be subject to dismissal, had Defendant established that the Eastern District of Pennsylvania, where the patent infringement case is pending, could exercise personal jurisdiction over Plaintiff. Because there remains some question as to whether the suit in the Eastern District of Pennsylvania against Plaintiff may properly continue, the Court will not exercise its discretion to dismiss this declaratory judgment. Defendant's motion is DENIED without prejudice (docket no. 5), subject to reurging should the Eastern District of Pennsylvania rule that it may exercise personal jurisdiction over Plaintiff.