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Thomson, Inc. v. Parental Guide of Texas, Inc. (S.D.Ind. 2003)

United States District Court, S.D. Indiana, Indianapolis Division
May 12, 2003
CASE NO. 1:03-cv-0072-DFH (S.D. Ind. May. 12, 2003)

Opinion

CASE NO. 1:03-cv-0072-DFH

May 12, 2003


ENTRY ON PENDING MOTIONS


In this diversity action, plaintiff Thomson, Inc. seeks a declaratory judgment declaring that it owes nothing more to defendant Parental Guide of Texas, Inc. ("Parental Guide") under a patent license and release agreement. The agreement was used to settle claims in a patent infringement action brought by Parental Guide in the Eastern District of Texas. The case come before the court on Parental Guide's motion to dismiss the action or to transfer it to the Eastern District of Texas. For the reasons explained below, the court stays this action to allow the parties' dispute to be resolved in a coercive action that Parental Guide has filed in the Eastern District of Texas.

In the Texas litigation, Parental Guide sued Thomson and other television manufacturers for infringing a patent by using the so-called "v-chip" that can be used to regulate children's access to certain television programming. Parental Guide and Thomson eventually reached a settlement of the patent litigation. Under the terms of the settlement, Thomson received a license to practice the patent in question. Thomson paid Parental Guide $4 million. Thomson also agreed to pay Parental Guide an additional royalty amount (up to $6.5 million, depending on sales of televisions) "if and only if there is a Favorable Termination of the Lawsuit. . . ." The parties' agreement defined "Favorable Termination" as meaning:

either (a) a final, irrevocable and nonappealable judgment and/or order in the Lawsuit, which holds (specifically or to the effect) that claims of the `964 Patent are valid, enforceable and infringed by accused television sets that were manufactured or sold by an active defendant in the Lawsuit, or (b) settlement agreements are reached with all remaining defendants in the case before the expiration of thirty (30) days after the United States District court for the Eastern District of Texas renders its final judgement, provided however that at least one defendant must have remained in the lawsuit as of the date of such judgment.

Thomson Ex. E, at 2. The agreement further provides that "if and only if all defendants in the Lawsuit settle with Parental Guide before any Favorable Termination of the Lawsuit, Thomson will pay no further royalty" (i.e., beyond the initial payment of $4 million). Id.

About two weeks after Thomson and Parental Guide reached their agreement, the last remaining defendant in the Texas lawsuit (Mitsubishi) filed and served an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure. That offer of judgment provided that the patent in question was valid and enforceable and that Mitsubishi would pay Parental Guide $1.1 million, yet would retain the right to appeal several of the district court's interlocutory decisions. Parental Guide immediately accepted the offer of judgment. Mitsubishi then filed an appeal with the United States Court of Appeals for the Federal Circuit but later dismissed the appeal and satisfied the judgment.

In January 2003, about three months after Mitsubishi's offer of judgment was accepted, Parental Guide informed Thomson that it believed the acceptance of the offer of judgment (with or without the dismissal of the later appeal) amounted to a "Favorable Termination" so as to require Thomson to make the additional royalty payment. Thomson disagreed with that interpretation.

On January 16, 2003, Thomson filed this action seeking a declaratory judgment to the effect that it owes Parental Guide no further payments. Parental Guide received notice of this lawsuit on January 17, 2003. On the next day the federal courts were open, January 21, 2003, Parental Guide filed a coercive action in the Eastern District of Texas seeking relief for Thomson's alleged breach of contract by failing to make further payments.

For these purposes, an action is "coercive" when it seeks coercive relief, such as damages or injunctive relief, as distinct from only declaratory relief.

Parental Guide then moved to dismiss this action, arguing both that the court lacks personal jurisdiction over it and that the court should not entertain a declaratory judgment action on a dispute that belongs in the Eastern District of Texas. The court grants Parental Guide's motion to dismiss the action. The court does not reach the issue of personal jurisdiction or many other issues argued by the parties. Instead, because Parental Guide quickly filed an action seeking coercive relief in the Eastern District of Texas, this court finds no reason to exercise its discretion under the Declaratory Judgment Act to hear this case. The parties' dispute should be resolved in the coercive action in the Eastern District of Texas, which incidentally is already familiar with the underlying dispute.

"Declaratory judgment actions serve an important role in our legal system insofar as they permit prompt settlement of actual controversies and establish the legal rights and obligations that will govern the parties' relationship in the future." Hyatt International Corp. v. Coco, 302 F.3d 707, 711 (7th Cir. 2002). Declaratory judgment actions can be especially useful when a party asserts a right to coercive relief but delays actually filing an action seeking such a relief. A party on the receiving end of such a threat may want to avoid increasing potential damages or other prejudice from sheer uncertainty. Delays can also cause prejudice from failing memories and disappearing evidence. A party facing such a threat may seek a resolution of the dispute through a declaratory judgment.

In this case, the court is satisfied that the parties' dispute has crystallized to the point of an actual case or controversy sufficient to invoke the court's subject matter jurisdiction. Also, the elements of diversity jurisdiction are present here. However, the fact that jurisdiction is available under the Declaratory Judgment Act does not require the court to exercise such jurisdiction. Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) ("If a district court, in the sound exercise of its judgment, determines after a complaint is filed that a declaratory judgment will serve no useful purpose, it cannot be incumbent upon that court to proceed to the merits before staying or dismissing the action.").

In disputes between sophisticated parties with counsel, declaratory judgment actions are often used as weapons in procedural duels to secure the choice of a preferred forum. See, e.g., Hyatt International, 302 F.3d at 711-12 ("natural" defendant filed declaratory action in Illinois as effort to avoid coercive suit in Italy). When dealing with such duels between declaratory and coercive actions over the selection of a forum, the Seventh Circuit has long rejected a rigid "first to file" rule. Tempco Electric Heater Corp. v. Omega Engineering, Inc., 819 F.2d 746, 749-50 (7th Cir. 1987) (affirming dismissal of declaratory action filed two business days before coercive action). A declaratory action "aimed solely at wresting the choice of forum from the `natural' plaintiff will ordinarily be dismissed and the coercive case will be allowed to proceed in the usual way." Nucor Corp. v. Aceros y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 577 (7th Cir. 1994), quoting Allendale Mutual Ins. Co. v. Bull Data Systems, Inc., 10 F.3d 425, 431 (7th Cir. 1993), citing in turn Tempco, 819 F.2d at 747. The Seventh Circuit has clearly instructed district courts not to reward plaintiffs in declaratory judgment actions with the choice of forum when they win proverbial "races to the courthouse." Tempco, 819 F.2d at 749-50; accord, Hyatt International, 302 F.3d at 712 (the Declaratory Judgment Act "is not a tactical device whereby a party who would be a defendant in a coercive action may choose to be a plaintiff by winning the proverbial race to the courthouse"); Kyle v. Consolidated Roofing Waterproofing, Inc., 2001 WL 899639, *5 (S.D.Ind. July 5, 2001) (denying motion to transfer later-filed coercive action to Texas; later-filed coercive action took priority over preemptive declaratory judgment action filed first in Texas); Institute For Study Abroad, Inc. v. International Studies Abroad, Inc., 2001 WL 849348, *5 (S.D.Ind. May 23, 2001) (Tinder, J.) (dismissing preemptive declaratory judgment action filed in anticipation of Texas action).

In both Tempco, 819 F.2d at 749, and Nucor, 28 F.3d at 577 n. 4, the Seventh Circuit held that it should review de novo a district court's discretionary decision about whether to exercise jurisdiction under the Declaratory Judgment Act. Since those cases were decided, the Supreme Court has held that the Courts of Appeals should review such decisions only for abuse of discretion. Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995).

Thomson seeks to distinguish Tempco on the basis that the coercive plaintiff-declaratory defendant had explicitly threatened litigation before the declaratory judgment action was filed. In this case, the parties had stated their different views on the legal effect of Mitsubishi's offer of judgment in the Texas case, but Parental Guide had not explicitly threatened to sue Thomson.

This effort to distinguish Tempco is not persuasive. First, there is no indication in Judge Eschbach's opinion for the court in Tempco that the court's decision turned on whether the threat of litigation was expressed or implied when the declaratory action was filed. In fact, Thomson's proposed distinction would also conflict with the reasoning of Tempco, which was based on a desire to avoid "races to the courthouse" and a desire to apply a clear rule that would minimize the use of declaratory actions "as an instrument of procedural fencing either to secure delay or to choose a forum." 819 F.2d at 750, quoting American Automobile Ins. Co. v. Freundt, 103 F.2d 613, 617 (7th Cir. 1939). Thomson's proposed interpretation would also make the choice of forum depend on facts likely to be hotly disputed. One can easily imagine conflicting testimony over just how clear the "threat" was in a telephone conversation. That approach would be inconsistent with Tempco's goal of resolving such forum contests quickly and clearly.

Thomson also argues that it has not engaged in forum-shopping, but that it had legitimate reasons for filing this action when and where it did. To secure dismissal, however, Parental Guide is not required to prove that Thomson filed this action solely to defeat Parental Guide's choice of forum. In determining whether the exercise of jurisdiction under the Declaratory Judgment Act would serve a useful purpose, the court exercises its discretion in light of all the circumstances, without trying to divine whether Thomson had only a single purpose for its procedural tactics. Nevertheless, Thomson's remarkable speed — filing the already-drafted complaint the same day that Parental Guide called to ask for payment — is best explained as a well-planned effort to seize the choice of forum the instant that an arguable basis for filing the declaratory action was available. In any event, to the extent that Thomson felt a genuine need to resolve quickly its dispute with Parental Guide, the quick filing of the Texas action ensures that such relief should be available to Thomson. Such resolution also will proceed more quickly without further sparring over the choice of forum.

Thomson suggests that this case is analogous to Nucor Corp. v. Aceros y Maquilas, in which the Seventh Circuit affirmed a district court's exercise of jurisdiction over a declaratory judgment action filed in response to a threat of a coercive lawsuit in Texas. The key point in Nucor, however, was that after the coercive plaintiff-declaratory defendant threatened to file suit, it did not actually do so until eight months after the declaratory action was filed, and in the same month that the district court denied a motion to dismiss the declaratory action. 28 F.3d at 579. That delay in filing the coercive action showed that there had been no "race to the courthouse," and that fact distinguished the case from Tempco. In light of that delay in filing the threatened lawsuit, the Seventh Circuit held that the party seeking the declaratory judgment was entitled to proceed without delay to obtain the desired clarification and resolution of its rights. In this case, by contrast, Parental Guide responded immediately by filing a coercive action in the Eastern District of Texas. See also Institute For Study Abroad, Inc. v. International Studies Abroad, Inc., 2001 WL 849348, *5 (distinguishing Nucor on precisely this basis and dismissing preemptive declaratory judgment action filed in anticipation of Texas action).

There is no reason to proceed with duplicate actions in Texas and Indiana. Under the Seventh Circuit's reasoning in Tempco, the coercive action in Texas is entitled to priority. Thomson has not identified any unusual circumstances that would justify a departure from the usual course, which is to stay or dismiss the declaratory judgment action and to allow the coercive action to proceed. In fact, given the Texas court's familiarity with the parties and the underlying action, there is even more reason for the court to exercise its discretion not to entertain this declaratory action.

As for the choice between stay or dismissal, the Seventh Circuit has taught: "When comity among tribunals justifies giving priority to a particular suit, the other action (or actions) should be stayed, rather than dismissed, unless it is absolutely clear that dismissal cannot adversely affect any litigant's interests." Central States, Southeast and Southwest Areas Pension Fund v. Paramount Liquor Co., 203 F.3d 442, 444 (7th Cir. 2000). In this case, there may be a remote possibility that Parental Guide could voluntarily dismiss its Texas action, which might leave Thomson stranded. Accordingly, the court will take the cautious approach of staying this action rather than dismissing it, and will direct the clerk to close the action administratively.

So ordered.


Summaries of

Thomson, Inc. v. Parental Guide of Texas, Inc. (S.D.Ind. 2003)

United States District Court, S.D. Indiana, Indianapolis Division
May 12, 2003
CASE NO. 1:03-cv-0072-DFH (S.D. Ind. May. 12, 2003)
Case details for

Thomson, Inc. v. Parental Guide of Texas, Inc. (S.D.Ind. 2003)

Case Details

Full title:THOMSON, INC., Plaintiff, v. PARENTAL GUIDE OF TEXAS, INC., Defendant

Court:United States District Court, S.D. Indiana, Indianapolis Division

Date published: May 12, 2003

Citations

CASE NO. 1:03-cv-0072-DFH (S.D. Ind. May. 12, 2003)