Progressive EMU Inc v. Nutrition & Fitness Inc

Filing 22

MEMORANDUM OPINION. Signed by Judge William M Acker, Jr on 6/26/12. (KGE, )

FILED
2012 Jun-26 PM 03:13
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
PROGRESSIVE EMU, INC., f/k/a
JOHNSON EMU, INC.,
Plaintiff,
v.
NUTRITION & FITNESS, INC.,
Defendant.

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CIVIL ACTION NO.
12-AR-01079-S

MEMORANDUM OPINION
Before the court is the motion of defendant, Nutrition &
Fitness, Inc., (“NFI”) to dismiss or alternatively to transfer.
Plaintiff, Progressive Emu, Inc., f/k/a Johnson Emu, Inc., (“Pro
Emu”) responded and NFI replied.
Facts
Pro Emu is an Alabama corporation with its principal place of
business in Jefferson County, Alabama.

Pro Emu is engaged in

raising emu birds and the procurement of emu oil for resale.
is

a

North

Carolina

corporation

with

its

business in Fayetteville, North Carolina.

principal

NFI

place of

NFI is a marketer of

various health products.
Pro Emu developed a blue emu cream (“Blue Emu”) using emu oil
and blue coloring and other ingredients. In an effort to introduce
Blue Emu to a mass market, Pro Emu hired Bill Kazmaier, who, in
turn, introduced Pro Emu to NFI.

The business plan was to form an

exclusive relationship in which Pro Emu would manufacture and NFI

would market Blue Emu and other potential products using emu oil.
The terms of the joint venture were negotiated in Alabama.
Pro Emu and NFI entered into an operating agreement (“2002
Agreement”) in 2002 which included: NFI was required to use only
Pro Emu’s oil in all products containing emu oil; Pro Emu agreed
that NFI could jointly own all current or future trademarks related
to products containing emu oil; NFI agreed to purchase from Pro Emu
specific quantities of the Blue Emu product at specific prices by
specific

dates;

Pro

Emu

granted

NFI

a

worldwide

licence

to

distribute, market, and advertise any products containing Pro Emu’s
oil. The parties operated under this Agreement from May 2002 until
March 2003.

NFI caused the Blue Emu trademark to be registered

with the U.S. Patent and Trademark Office for the benefit of the
joint venture.

Blue Emu was sold to Wal-Mart and other mass

markets, which caused a large increase in sales of Blue Emu.
The Agreement was amended in January 2003 (“2003 Agreement”)
to include, among other things, that: NFI could select third
parties to manufacture “Emu Products” using Pro Emu’s oil; Pro Emu
agreed to sell emu oil to NFI for NFI’s use in manufacture of Emu
Products; NFI had no right to purchase oil it did not need to
manufacture Emu Products; NFI’s exclusive remedy for any failure by
Pro Emu to supply oil was to temporarily suspend Pro Emu’s right to
sell emu oil to NFI and NFI could then purchase oil from third
parties; NFI agreed to pay for all marketing and promotional

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expenses; Pro Emu was to receive royalties of 8% of net revenues
for Blue Emu and 5% of net revenues1 for other Emu Products.
In January 2004, the Agreement was amended to permit Pro Emu
to sell emu oil to any third parties except those selling products
to “Mass Retail Markets”, and NFI was granted the right of first
refusal to distribute any new Pro Emu products to Mass Retail
Markets. By letter dated September 20, 2011, NFI demanded that Pro
Emu refrain from selling emu oil to all third parties, including
those not in the Mass Retail Market.
On March 28, 2012, Pro Emu filed suit against NFI in Alabama
state court alleging breach of contract and seeking a declaratory
judgment for certain intellectual property rights and the buying
and selling of emu oil.

On April 10, 2012, NFI properly removed

the case to this court.

Exactly one day later, on April 11, 2012,

NFI filed a mirror image complaint against Pro Emu and its CEO,
Chris

Binkley

Carolina.2

(“Binkley”),

in

the

Eastern

District

of

North

On May 25, 2012, the E.D.N.C., Hon. James C. Fox, held

a hearing on Pro Emu’s motion to dismiss or transfer venue.

At the

conclusion of said hearing, Judge Fox found that the “first-filed”

1

Net revenues was defined as total revenues reduced only by
discounts and refunds.
2

In its suit, NFI alleges breach of contract, breach of
covenant of good faith and fair dealing, unfair trade practices,
tortious interference with contracts and business relations, and
a declaratory judgment for certain intellectual property rights.
These claims all relate back to the contract that is in dispute
in this court.
-3-

rule is applicable, and he stayed the E.D.N.C. proceedings to allow
this court to decide the appropriate forum and whether an exception
to the first-filed rule is applicable.

Judge Fox’s reasoning is

very convincing.
Discussion
NFI argues that Pro Emu’s complaint is due to be dismissed
because (1) it is barred by the statute of limitations, (2) it is
an improper anticipatory declaratory judgment action, and (3) it
fails

to

state

a

claim

under

Fed.R.Civ.P.

12(b)(6),

or

alternatively, NFI argues the action should be transferred under 28
U.S.C. § 1404(a) to the E.D.N.C.
Venue
Although under 28 U.S.C. § 1404(a) the court may transfer this
action “for the convenience of the parties and witnesses, in the
interest of justice,” the court normally accords deference to the
plaintiff’s choice of forum, and the burden is on the movant to
show that the suggested forum of the E.D.N.C is more convenient
and/or would serve the interest of justice. See In re Ricoh Corp.,
870 F.2d 570, 573 (11th Cir. 1989)(per curiam).

There has been no

such showing.
“The first-to-file rule is a doctrine of federal comity,
intended

to

avoid

conflicting

decisions

and

promote

judicial

efficiency, that generally favors pursuing only the first-filed
action when multiple lawsuits involving the same claims are filed
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in different jurisdictions.” Merial Ltd. v. Cipla Ltd., 2012 WL
1948879 at *11 (11th Cir. May 31, 2012).

The burden is on the

movant to establish that the suggested forum is more convenient.
Furthermore, the party objecting to jurisdiction in the first-filed
forum has the burden of proving “compelling circumstances” to
warrant an exception to the first-filed rule. Manuel v. Convergys
Corp., 430 F.3d 1132, 1135 (11th Cir. 2005)(citing Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Haydu, 675 F.2d 1169, 1174 (11th
Cir. 1982)).
NFI

argues

that

Pro

Emu’s

complaint

is

an

improper

anticipatory declaratory judgment action “designed to dictate the
forum in which the true plaintiff’s claims, i.e., NFI’s claims, are
to be adjudicated.” (Doc. 20, at 2).

Where there has been a filing

of a declaratory judgment action, one equitable consideration is
whether the action was filed in anticipation of suit in another
forum. See Manuel, 430 F.3d at 1136. The court is entitled to take
this into account in determining whether compelling circumstances
exist to warrant an exception to the first-filed rule. Manuel v.
Convergys Corp., 430 F.3d 1132, 1135 (11th Cir. 2005).

Even if the

court finds that the filing was anticipatory, “this consideration
does not transmogrify into an obligatory rule mandating dismissal.”
Id.

In its complaint, Pro Emu clearly asserts a cause of action

for breach of contract in addition to its request for declaratory
judgment.
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Pro Emu’s filing was not improperly anticipatory. NFI has not
presented anything to suggest that NFI had threatened Pro Emu with
specific legal proceedings prior to Pro Emu’s filing of it’s
complaint on March 28, 2012.

To the contrary, Pro Emu has written

a letter charging NFI with a contract violation. NFI’s counsel
stated at the May 25, 2012 hearing in the E.D.N.C. that the parties
had no discussions during previous few months, that NFI had not
indicated it would file suit, and that NFI had not learned of its
alleged breach of contract until the Alabama lawsuit was filed.
Although there “undoubtedly was a reasonable apprehension that a
controversy
requirements

existed
for

a

sufficient

to

satisfy

declaratory

judgment

the

constitutional

action,

this

is

not

equivalent to an imminent threat of litigation.” Manuel, 430 F.3d
at

1137.

“Otherwise,

‘each

time

a

party

[seeks]

declaratory

judgment in one forum, a defendant filing a second suit in a forum
more

favorable

to

defendant

could

always

prevail

under

the

anticipatory filing exception.’” Id. (internal citation omitted).
Here,

there

has

been

no

showing

that

Pro

Emu’s

complaint

constitutes an improper anticipatory declaratory judgment action or
improper forum shopping.
NFI further argues that the E.D.N.C. is a more convenient
forum for the parties and the witnesses because NFI’s principals
and employees reside in the E.D.N.C.

Yet, there has been no

showing to tip the scales of convenience to the North Carolina

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forum.

The contract was executed in Alabama.

allegedly breached in Alabama.
both lawsuits.

The contract was

The contract is the centerpiece of

Alabama’s connection to this action is neither

slight nor manufactured.

Apart from being the forum where the

action was first filed, Pro Emu is headquartered and operates out
of Alabama.
witnesses

Additionally, many, if not most, of the potential

are located

in Alabama,

and

most

of

the documents

relating to this action would likely be found in Alabama.

There

has been no showing of compelling circumstances here to justify an
exception to the first-filed rule.

In fact, it is NFI which first

invoked the jurisdiction of this court by its timely removal.
Pursuant to the first-filed rule, this court is the appropriate
forum, and insofar as the motion to dismiss seeks a transfer of
venue, it will be denied.
Statute of Limitations
NFI argues that Count III of the complaint should be dismissed
under the statute of limitations. Count III of the complaint seeks
declaratory judgment with respect to intellectual property rights,
namely, that Pro Emu owns the trade secrets rights associated with
Blue Emu cream, that Pro Emu and NFI jointly own the Blue Emu
trademark and trade dress, and that upon breach of the parties
Agreement, Pro Emu is entitled to all intellectual property rights
associated with Blue Emu.
NFI argues that Alabama’s six-year statute of limitations for

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“actions

under

any

simple

contract”

applies

to

Count

III

-

Declaratory Judgment - Intellectual Property Rights. See Ala. Code
§ 6-2-34(9).

Actions for breach of contract arise at the time

breach occurs. Stephens v. Creel, 429 So. 2d 278, 280 (Ala. 1983).
NFI alleges the “breach of contract” claim accrued at the time NFI
registered the Blu Emu trademark.

Pro Emu replies that its

trademark claims are not breach of contract claims and thus are not
subject to Alabama’s six year statute of limitations.

Rather, Pro

Emu alleges that it developed the product and owned the Blue Emu
trademark and product when NFI and Blue Emu entered into a joint
venture agreement.
interest

is

a

Therefore, Pro Emu argues that its ownership

property

right,

and

not

a

contract

right.

Consequently, Pro Emu correctly argues that its property right is
not subject to Alabama’s six-year statute of limitations for
contracts.
Anticipatory Declaratory Judgment
See prior discussion under “Venue”, supra.
Failure to State a Claim
To survive NFI’s motion to dismiss, Pro Emu’s complaint must
contain sufficient factual matter to state a claim to relief that
is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662
(2009).

Thus, in considering the motion to dismiss, the court

accepts all factual allegations as true.
NFI asks the court to assume some of Pro Emu’s facts are not
-8-

true because Pro Emu did not attach evidentiary support to its
complaint.

However, pursuant to Fed.R.Civ.P. 8, the plaintiff is

supposed to allege a short and plain statement of operative facts,
not evidentiary support for the alleged operative facts.
1) Breach of Contract
NFI argues that Pro Emu’s claim for breach of contract is not
based upon the terms of the written agreement between the parties,
and, if the case is not dismissed or transferred, NFI wants the
court to construe agreements outside the pleadings.

This would be

proper under a motion for summary judgment but not a motion to
dismiss. See Fed.R.Civ.P. 12(d).
Pro Emu’s complaint properly alleges breach of contract.

Pro

Emu alleges that NFI agreed to pay royalties to Pro Emu on Blue Emu
sales in the amount of eight percent (8%) of total revenue, less
discounts and refunds.

Pro Emu further alleges that NFI was

required to pay for all marketing, advertising, and any other
expenses.
deducting

Pro Emu claims that NFI breached the agreement by
advertising,

marketing,

and

promotional

and

other

expenses from the total revenue upon which Pro Emu’s royalty was
based,

and

deductions.

therefore,

Pro

Emu

was

harmed

by

NFI’s

wrongful

Additionally, Pro Emu alleges that NFI breached the

contract by paying per gallon of emu oil instead of per barrel, and
consequently, Pro Emu was damaged by NFI’s reduction in payment.
There

are

enough

factual

allegations

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to

raise

a

reasonable

expectation that discovery will reveal evidence of the necessary
elements of Pro Emu's claims.
2) Declaratory Judgment - Oil Sales
NFI argues that Count II of the complaint relies not upon
allegations of fact, but rather generalized, unsupported statements
of the agreement and its amendments.

Pro Emu asserts a claim for

declaratory judgment alleging there is a justiciable controversy
regarding whether 1) Pro Emu is entitled to sell oil to third
parties outside the Mass Retail Market, 2) NFI is not entitled to
purchase emu oil from Pro Emu that NFI does not require withing
sixty (60) days for use in the manufacture of Emu products, 3) NFI
may refuse consent to Pro Emu to sell oil to Mass Retail Markets if
it does not require the oil for its manufacturing within sixty (60)
days, 5) NFI’s exclusive remedy for any failure of Pro Emu to
provide NFI with oil ordered is to purchase the product from third
parties, and 6) NFI’s wrongful deductions from Pro Emu’s royalty
payments constitute a material breach that excuses Pro Emu’s future
performance.

Pro Emu has stated a plausible claim, or claims,

against NFI for declaratory judgment, and thus NFI’s motion to
dismiss will be denied.
3) Declaratory Judgment - Intellectual Property Rights
NFI argues that Pro Emu’s complaint fails to identify any
particular intellectual property rights associated with Blue Emu
products.

However, under Count III, Pro Emu sufficiently claims

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ownership interests in the Blue Emu trademark, trade secret, and
trade dress. Pro Emu has again stated plausible claims against NFI
for declaratory judgment.
Accounting
In its responsive brief, Pro Emu does not dispute, or even
respond to, NFI’s arguments with respect to a dismissal of Count IV
-

Accounting.

Pro

Emu

provides

nothing

in

support

of

its

Accounting claims, and thus, as a matter of law, abandons all such
claims. See Rowe v. Schreiber, 139 F.3d 1381, 1382 n.1 (11th Cir.
1998)(arguments not clearly raised in the briefs are considered
abandoned); Continental Technical Services, Inc. V. Rockwell Int’l
Corp., 927 F.2d 1198, 1199 (11th Cir. 1991)(“An argument not made
is waived....”).

This is not intended to preclude discovery with

respect to the calculation of damages.
Conclusion
For the foregoing reasons, NFI’s motion to dismiss will be
denied except as to Count IV.

Insofar as the motion seeks a

transfer of venue, the motion will be denied.
NFI claims that this is nothing more than an anticipatory
declaratory judgment action, but if offers nothing to show that Pro
Emu knew it would soon be sued in the Eastern District of North
Carolina.

The court is unconvinced that compelling circumstances

exist to justify not only an exception to the well-established
first-filed rule, but also to justify the abrogation of the court’s
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informed discretion.
A separate order effectuating this opinion will be entered.
DONE this 26th day of June, 2012.

_____________________________
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE

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