Automated Solutions, Inc. et al v. Fadal Machining Centers, LLC et al

Filing 31

MEMORANDUM DECISION AND ORDER Granting in Part and Denying in Part 10 MOTION to Dismiss filed by Fadal Machining Centers, LLC, MAG Industrial Automation Systems, LLC. Venue of this case shall be transferred to the Eastern District of Wisconsin. Signed by Judge Mikel H. Williams. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by jm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

AUTOMATED SOLUTIONS, INC., an
Idaho corporation; and CNCPROS.NET,
INC., an Idaho corporation formerly
known as Fadalcnc.com, Inc.

Case No. 1:10-CV-344-MHW
MEMORANDUM DECISION AND
ORDER

Plaintiffs,
v.
FADAL MACHINING CENTERS, LLC,
a Wisconsin LLC; and MAG
INDUSTRIAL AUTOMATION
SYSTEMS, LLC, a Delaware LLC,
Defendants.

Currently pending is Defendants Fadal Machining Centers, LLC (“Fadal”) and
MAG Industrial Automation Systems, LLC (“MAG”) (collectively, “Defendants”)
Motion to Dismiss or Transfer Venue Fed. R. Civ. P. 12(b)(2) or (3) and 28 U.S.C.
§ 1404 and § 1406.
BACKGROUND
Defendant Fadal is a Wisconsin limited liability company (“LLC”) with its
principal place of business in Chatsworth, California. Defendant MAG is a Delaware
LLC with its principal place of business in Sterling Heights, Michigan. Both do business
Memorandum Decision and Order - 1

is Wisconsin. Fadal is wholly-owned by G & L USA, LLC, a Wisconsin LLC, which is
in turn wholly-owned by MAG Industrial Automation Systems, LLC. Plaintiffs
Automated Solutions, Inc. (“ASI”) and CNCPros.net, Inc. (“CNC”) are both Idaho
corporations with their principal places of business in Ada County, Idaho.
Defendants engage in the manufacture and sale of vertical machining centers for
drilling, taping, thread milling, and the like. They also use computer controls for the
operation of their machines. These machines are sometimes called computer numeric
controlled machines (“machines”). In connection with its business, Fadal owns the Fadal
trademark. Similarly, Defendant MAG is owner of the MAG trademark and design mark.
Defendants have also secured several copyrights for software used to operate the
machines as well as copyrights for manuals.
Plaintiffs are distributors of replacement parts for these types of machines.
Plaintiff ASI is in the business of providing maintenance services to end-users of these
machines manufactured by Defendants and others.
On October 20, 2006, ASI entered into a distributor agreement (the Agreement)
with Fadal by which ASI could distribute certain products in a defined distributor
territory. (Sisterly Aff., Ex. F, Dkt. 10-11). In the Agreement, ASI acknowledged that
Fadal was the exclusive owner of certain trade designations. ASI was granted a nonexclusive, non-assignable privilege to use Defendants’ trade designations while the
Agreement was in effect. Neither CNC nor MAG were named parties to the Agreement.

Memorandum Decision and Order - 2

The Agreement provides, in part:
15.

Severability, Governing Law and Forum Selection.
(d) Any action, claim, suit or proceeding between the
parties, including but not limited to, those [in]
connection with or arising out of or related to this
Agreement or which in any way involves the
relationship between the parties, whether in contract,
tort or statute shall be initiated and prosecuted as to all
parties and their successors and assigns solely and
exclusively in the United States District Court, Eastern
District, State of Wisconsin and each party waives,
freely and completely, any right to dismiss and/or
transfer any action pursuant to 28 U.S.C. § 1404 or
§ 1406 and any successor statutes. In the event the
District of Wisconsin does not have subject matter
jurisdiction then such matters shall be solely and
exclusively determined under the jurisdiction of the
appropriate state court of competent jurisdiction
located in Fond du Lac County, Wisconsin. The
parties consent to in personam jurisdiction of the
courts described therein.

(Sisterly Aff., Ex. F at p. 8.)
The Agreement also states:
11.

Company Trade Designations and Intangible Property
(a)
Distributor acknowledges Company’s exclusive
ownership, license rights and/or other rights in
the various trademarks, trade names, service
marks, trade dress and other trade designations
and intangible property (collectively “trade
designations”) and intangible property relating
to Company’s business or the Products.
Company hereby grants Distributor a
nonexclusive, non-assignable, non-licensable
privilege to use Company trade designations
only in a lawful manner and in connection with
the distribution, advertising, display and sale of
the Products. This privilege to use such trade

Memorandum Decision and Order - 3

(b)

designations shall expire upon termination of
this Agreement. Such trade designations and
intangible property shall be used only in
manner, form and context specified or approved
in writing by Company and upon Company’s
request Distributor shall discontinue the way in
which Distributor uses any Company trade
designations and intangible property.
Distributor agrees to remove all Company trade
designations affixed in any fashion to property
owned or controlled by Distributor (including
equipment and office supplies) before leasing,
selling or otherwise transferring such property
or control thereof to another person or before
putting such property to any use not connected
with the distribution of the Products.

Id. at p. 7.
On May 15, 2009, the Agreement was terminated. However, Defendants contend
that Plaintiffs continued to use their trademarks in violation of 15 U.S.C. §§ 1114 and
1125 and 17 U.S.C. § 501. On or about June 25, 2010, Defendants sent Plaintiffs a letter
that addressed a number of matters between the parties in an effort to resolve them,
including whether Plaintiffs were infringing on Defendants’ trademarks and copyrights.
Defendants included a courtesy copy of a complaint to be filed in the Eastern District of
Wisconsin if an amicable agreement could not be reached between the parties without
judicial intervention.
Subsequently, Plaintiffs filed this present action in the District of Idaho on July 8,
2010 seeking declaratory judgment on the issues raised by Defendants in their June 25,
2010 letter (Sisterly Aff., Ex. H, Dkt. 10-13). Prior to the expiration of the 120-day

Memorandum Decision and Order - 4

period in which the complaint was to be served on Defendants, Plaintiffs sought an
extension for serving the complaint which the Court granted.
On December 8, 2010, Defendants Fadal and MAG filed their complaint against
Plaintiffs Automated Solutions, Inc. d/b/a ASI Machine and Supply, Inc. and
CNCPros.net, Inc. d/b/a Fadalcnc.com, Inc. in the Eastern District of Wisconsin. See
Fadal Machining Centers, LLC and MAG Industrial Automation Systems, LLC v.
Automated Solutions, Inc. and CNCPros.net, Inc., f/k/a Fadalcnc.com, Inc., Case No.
2:10-cv-01110-RTR (E.D. Wisc. filed Dec. 8, 2010). Subsequently, Plaintiffs ASI and
CNC served the complaint and summons from the Idaho action on Defendants MAG and
Fadal on December 10 and 13, 2010, respectively. The complaint and summons in the
Wisconsin action was served on Plaintiffs on December 20, 2010.
DISCUSSION
Defendants have filed a motion to dismiss or transfer venue on the grounds that
Plaintiffs agreed to sole and exclusive jurisdiction for this dispute in the Eastern District
of Wisconsin and Plaintiffs can adequately pursue the subject matter of their declaratory
judgment in the Wisconsin action. The Court will discuss the various legal theories
raised by the parties before providing its analysis.
1.

Forum Selection Clause
Forum selection clauses are prima facie valid and should not be set aside unless the

party challenging enforcement of such a provision can show it is “‘unreasonable’ under
the circumstances.” Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). A forum
Memorandum Decision and Order - 5

selection clause is unreasonable if: (1) its incorporation into the contract was the result of
fraud, undue influence, or overweening bargaining power, (2) the selected forum is so
gravely difficult and inconvenient that the complaining party will for all practical
purposes be deprived of its day in court, or (3) enforcement of the clause would
contravene a strong public policy of the forum in which the suit is brought. Id. at 12-13,
15, 18; Carnival Cruise Lines v. Shute, 499 U.S. 585, 591 (1991). To establish the
unreasonableness of a forum selection clause, Plaintiffs have the heavy burden of
showing that trial in the chosen forum would be so difficult and inconvenient that the
party would effectively be denied a meaningful day in court. Bremen, 407 U.S. at 18.
2.

First-to-File Rule
Under the “first-to-file” rule, when cases involving the same parties and issues

have been filed in two different districts, the second district court has discretion to
transfer, stay, or dismiss the second case in the interest of efficiency and judicial
economy. Cedars-Sinai Medical Center v. Shalala, 125 F.3d 765, 769 (9th Cir. 1997).
The first-to-file rule is an extension of federal comity which permits a district court to
decline jurisdiction over an action when a complaint has been filed in another district.
Pacesetter Systems, Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982). However,
this is “not a rigid or inflexible rule to be mechanically applied, but rather is to be applied
with a view that dictates sound judicial administration.” Id. at 95.

Memorandum Decision and Order - 6

3.

28 U.S.C. § 1404, § 1406
28 U.S.C. § 1404(a) provides: “For the convenience of parties and witnesses, in

the interest of justice, a district court may transfer any civil action to any other district
court or division where it might have been brought.” 28 U.S.C. § 1406(a) similarly
provides: “The district court of a district in which is filed a case laying venue in the
wrong division or district shall dismiss, or if it be in the interest of justice, transfer such
case to any district or division in which it could have been brought.” The Ninth Circuit
has stated that the issue of transferring is best left to the discretion of the trial judge. See
Commodity Futures Trading Comm’n v. Savage, 611 F.2d 270, 279 (9th Cir. 1979).
With regard to transferring a case under section 1404 and enforcing a forum
selection clause, the Supreme Court has stated:
Section 1404(a) is intended to place discretion in the district
court to adjudicate motions for transfer according to an
“individualized, case-by-case consideration of convenience
and fairness.” A motion to transfer under § 1404(a) thus calls
on the district court to weigh in the balance a number of case
specific factors. The presence of a forum-selection clause
such as the parties entered into in this case will be a
significant factor that figures centrally in the district court’s
calculus . . .
the parties’ agreement as to the most proper forum, should
receive neither dispositive consideration . . . nor no
consideration . . . but rather the consideration for which
Congress provided in § 1404(a) . . .
Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29-32 (1988) (internal citations
omitted).

Memorandum Decision and Order - 7

4.

Declaratory Judgment Act
Under the Declaratory Judgment Act, 28 U.S.C. § 2201(a),
In a case of actual controversy within its jurisdiction . . . any
court of the United States, upon the filing of an appropriate
pleading, may declare the rights and other legal relations of
any interested party seeking such declaration, whether or not
further relief is or could be sought. Any such declaration
shall have the force and effect of a final judgment or decree
and shall be reviewable as such.

5.

Analysis
Defendants argue that the forum selection clause found in the Agreement, quoted

above, controls the venue of this litigation, which should be the Eastern District of
Wisconsin. They contend the clause is presumptively valid and the burden is on Plaintiffs
to show that it is unreasonable, which they have not done. Defendants set forth that the
Agreement was negotiated at arm’s length, entered into freely and Plaintiffs had the
opportunity to review it with counsel. (Sisterly Aff., Ex. F, p. 10.) Further, Defendants
submit that litigating this case in the Eastern District of Wisconsin would not be so
gravely difficult and inconvenient that Plaintiffs would be deprived of their day in court;
Plaintiffs could have foreseen any inconvenience at the time they entered into the
Agreement and there are no Idaho laws implicated, only federal laws.
In response to Plaintiffs’ arguments as to who were the named parties to the
Agreement and who committed the alleged wrongful acts, Defendants contend that ASI
owns and/or controls the CNCPros.net website. First, Defendants note that the
CNCPros.net website automatically forwards all of its traffic to the FadalCNC.com
Memorandum Decision and Order - 8

website. (Cicotte Aff., Ex N, Dkt. 14-5.) Automated Solutions, Inc. was the listed
registrant for FadalCNC.com as January 30, 2010. (Cicotte Aff., Ex. O, Dkt. 14-6.) The
listed registrant for the domain name CNCPros.net was ASI until December 22, 20101
when it transferred to CNClistings, LLC. (Cicotte Aff., Exs. K & L, Dkts. 14-2, 14-3.)
CNClistings, LLC is a limited liability company of which the only member or manager
listed on its Certificate of Organization filed with the State of Idaho is Automated
Solutions, Inc. (Cicotte Aff., Ex. M, Dkt. 14-4.) Defendants submit it is clear that ASI
owned and controlled CNCPros.net as well as FadalCNC.com where the alleged unlawful
infringement occurred and that Defendants’ attempt to transfer ownership of the domain
name should not defeat the valid and enforceable forum selection clause.2
Plaintiffs respond that under the first-to-file rule, jurisdiction of this case should
remain in Idaho as the first action was filed in Idaho on July 8, 2010. The Wisconsin
action was not filed until December 8, 2010. As Idaho was the first to obtain jurisdiction
over the parties and issues in this action, the case should remain here. They also contend
that under the Declaratory Judgment Act, the filing of this action in Idaho conferred
jurisdiction upon this Court allowing it to make declarations regarding the rights and legal
relations of these parties. See 28 U.S.C. § 2201.
1

Defendants note that this occurred two days after Plaintiffs were served with the Wisconsin

action.
2

At the hearing on this motion, Plaintiffs advanced the argument that the forum selection clause
terminated along with the Agreement in May 2009 and therefore is unenforceable. The Court disagrees.
As found in the case Advent Electronics, Inc. v. Samsung Semiconductor, Inc., 709 F. Supp. 843, 846
(N.D. Ill. 1989), “[i]n the absence of contractual language expressly or implicitly indicating the contrary,
a forum selection clause survives termination of the contract.”
Memorandum Decision and Order - 9

Plaintiffs further assert that Idaho is the most convenient forum and proceeding
with the case in Idaho is in the best interest of justice. Plaintiffs set forth several reasons
as to why Idaho is the most convenient forum, including: the alleged actions of ASI and
CNC took place in Idaho where their offices are located; virtually all the witnesses and
documents are located in Idaho; and travel costs by both parties will be significantly less
if the matter is heard in Idaho instead of Wisconsin. With regard to the interests of
justice, they submit because the alleged wrongful acts occurred in Idaho, the Court should
apply Ninth Circuit case law. Additionally, as ASI and CNC are small businesses located
in Idaho, the Idaho community has a strong relationship to the case.
The Court agrees with Defendants that the forum selection clause should control
the venue in this case. Although Plaintiffs were the first to file, the Court finds that
should not defeat an otherwise valid and enforceable forum selection clause which
Plaintiffs have not shown to be unreasonable nor does the Court find it to be. While the
only named parties to the Agreement are Fadal and ASI, it appears from the record that
ASI owns and/or controls CNC. This is evidenced by the fact that the CNCPros.net
website redirects to FadalCNC.com, which is registered to Automated Solutions.
CNCPros.net was previously registered to Automated Solutions and is now registered to
CNClistings, LLC. Automated Solutions, Inc. is a member/manager of CNClistings,
LLC. All of these entities and websites connect back to ASI. Further, ASI and CNC, as
well as CNClistings, LLC, are all run by Brian Denny and located at the same address in
Meridian, Idaho. These entities are all interconnected and related to one another.
Memorandum Decision and Order - 10

As for Plaintiffs’ contentions regarding the most convenient forum, the
Declaratory Judgment Act and first-to-file rule, the Court finds they do not outweigh a
valid agreement between the parties to litigate in Wisconsin. The first-to-file rule is to be
applied on a case by case basis and not in a rigid manner. The Court must look at all the
facts surrounding the matter and make a decision using its sound discretion, keeping in
mind “sound judicial administration.” While it is very likely true that many of the
witnesses and documents may be located in Idaho, that does not make the forum selection
clause so “gravely difficult and inconvenient” that the it should be ignored. Plaintiffs
entered into the Agreement at arm’s length and could have foreseen any potential
inconvenience at that time. Further, while Plaintiffs may be located in Idaho, Defendants
do business in Wisconsin, giving it equal interest in the outcome of this case. With
respect to the Declaratory Judgment Act statute cited by Plaintiffs, while that confers
jurisdiction upon this Court to hear a declaratory action, it does not dictate that
jurisdiction may only occur in Idaho. Additionally, as recognized by the Seventh Circuit
in addressing a first-to-file issue where the first action filed was a declaratory judgment
action, “where the parallel cases involve a declaratory judgment action and a mirrorimage action seeking coercive relief - we ordinarily give priority to the coercive action,
regardless of which case was filed first. . . Courts have also departed from a first-to-file
rule where one party files its lawsuit in anticipation of an impending suit by the opposing
party.” Research Automation v. Schrader-Bridgeport Int’l, Inc., 626 F.3d 973 (7th Cir.
2010).
Memorandum Decision and Order - 11

As stated above, the Court finds the forum selection clause of the Agreement to be
valid and enforceable. There has been no showing that it is unreasonable. While
Plaintiffs were the first to file, the Court does not find that alone, or coupled with the
arguments regarding convenience, outweigh the enforceability of a valid forum selection
clause. Further the Court notes that attempts to avoid jurisdiction by transferring
ownership or by being the first to file should not be rewarded. The Court finds it
disconcerting that Plaintiffs did not serve the Idaho action on Defendants until Defendants
had filed their action in Wisconsin. Accordingly, the Court will transfer venue of this
case to the Eastern District of Wisconsin pursuant to 28 U.S.C. § 1404.
ORDER
IT IS HEREBY ORDERED:
1)

Defendants’ Motion to Dismiss or Transfer Under Fed. R. Civ. P. 12(b)(2)

or (3) and 28 U.S.C. §§ 1404 and 1406 (Dkt. 10) be GRANTED IN PART and
DENIED IN PART.
2)

Venue of this case shall be transferred to the Eastern District of Wisconsin.

IT IS SO ORDERED.
DATED: June 6, 2011

Honorable Mikel H. Williams
United States Magistrate Judge

Memorandum Decision and Order - 12