Consolidated Infrastructure Group, Inc. et al v. USIC, LLC et al
MEMORANDUM AND ORDER that Defendants' motion to supplement the record (Filing No. 25) is granted. Defendants' motion to dismiss or transfer (Filing No. 13 ) is denied to the extent that it seeks dismissal for lack of personal jurisdictio n. Defendants' motion to dismiss or transfer (Filing No. 13 ) is granted in part to the extent that this action shall be transferred to the United States District Court for the Southern District of Indiana pursuant to 28 U.S.C. § 1404(a ). Defendants' alternative Rule 12(b)(6) motions are denied without prejudice to reassertion in the Southern District of Indiana. The Clerk of Court is directed to transfer this action to the United States District Court of the Southern District of Indiana. Ordered by Senior Judge Joseph F. Bataillon. (ADB)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
GROUP, INC., ERIC MOODY, ZACK
MANTEY, BRIAN HANNA, TRAVIS
DANIELS, BRENT COFFIELD, and TOM
MEMORANDUM AND ORDER
USIC, LLC, USIC LOCATING SERVICES,
LLC, and LOCATE HOLDINGS, INC.,
This matter is before the court on a motion to dismiss or, in the alternative, to
stay or transfer this action, filed by defendants USIC, LLC; USIC Locating Services,
LLC; and Locate Holdings, Inc., (collectively, “USIC”), Filing No. 13.1
This is an action for declaratory judgment. The individual plaintiffs are former
employees of USIC.
Plaintiff Consolidated Infrastructure Group, Inc., (“CIG”) is a
company formed by a former USIC employee, and the six individual plaintiffs are also
former USIC employees. The plaintiffs seek a determination that (1) they have not
misappropriated trade secrets under the Defend Trade Secrets Act of 2016 (“DTSA”),
18 U.S.C. § 1832 et seq.; (2) that the restrictive covenants contained in the agreements
signed by plaintiffs Brian Hanna, Travis Daniels and Eric Moody are unenforceable; and
(3) the USIC restrictive covenants are unlawful restraints of trade under state and
Also pending is USIC’s motion to supplement the record. USIC submits more recent filings from
the case pending in the United States District Court for the Southern District of Indiana, USIC, et al., v.
Coffield, et al., No 1:16cv-3285 (S.D. Ind. Dec. 5, 2016). The pleadings in the other case are a matter of
public record and the motion will be granted.
federal antitrust laws, including the Sherman Act, 15 U.S.C. § 1. They also seek to
enjoin enforcement of the restrictive covenants. Jurisdiction is premised on 28 U.S.C.
§§ 1331 and 1337.2
USIC moves to dismiss for lack of personal jurisdiction under Federal Rule of
Civil Procedure 12(b)(2) and for failure to state a claim under Federal Rule of Civil
It also relies on the federal comity doctrine on concurrent
jurisdiction, the doctrine of forum non conveniens, and 28 U.S.C. § 1404(a) in its
alternative motion to stay or transfer this action to the United States District Court for the
Southern District of Indiana where an action involving the same parties, USIC, et al., v.
Coffield, et al., No 1:16cv-3285 (“the Indiana Action”) is pending.
Defendant USIC provides underground utility location and damage prevention
services throughout the United States and Canada. In their complaint, the plaintiffs
allege that USIC acquired its dominant market share by eliminating competition through
a series of acquisitions and by utilizing anticompetitive business practices to eliminate
or stifle competition.3 They allege USIC entered into a series of exclusive agreements
with vendors for software and equipment which provide USIC with a competitive
Section 1331 is the general federal question jurisdiction statute. 28 U.S.C. § 1331. Section
1337 ordains that “(t)he district courts shall have original jurisdiction of any civil action or proceeding
arising under any Act of Congress regulating commerce or protecting trade and commerce against
restraints and monopolies.” 28 U.S.C. § 1337.
According to the plaintiffs, USIC is the largest outsourced Locating Services contractor in the
United States, with a market share exceeding seventy (70%) percent. Additionally, USIC boasts that it
has captured over ninety-five (95%) of the outsourced Locating Services market for Fortune 500 utilities
and telecommunications companies in the states in which USIC operations.
advantage by denying rivals access to field tools. Further, they contend USIC utilizes
overly restrictive and anticompetitive employment agreements to restrict former
employees from working for rivals, and to threaten rivals with litigation.
CIG is a competing Locating Services provider formed in 2016. CIG hired seven
USIC employees in 2016, six of whom are now plaintiffs.4 Plaintiff Eric Moody was hired
by CIG in May 2016 and Brian Hanna, Travis Daniels, Brent Coffield, Zack Mantey and
Tom Orth were hired in September 2016. While employed at USIC, plaintiffs Moody,
Hanna and Daniels each signed a Protective Covenants Agreement (“Agreement”)
prohibiting them from, among other things:
(1) improperly competing with USIC
following termination of employment, (2) soliciting customers or employees of USIC, or
(3) utilizing confidential information or trade secrets belonging to USIC following their
separation from employment.
Hanna and Daniels also signed Non-Qualified Stock
Option Agreements containing similar restrictive covenants.
The covenants signed by Moody, Hanna and Daniels’ have explicit forum
selection and choice of law clauses, requiring that Indiana law governs any dispute and
that courts in Marion County, Indiana are the exclusive venue and forum for such
disputes.5 Though plaintiffs Brent Coffield, Zack Matney and Tom Orth did not sign
In the Complaint, plaintiffs allege former USIC employee Erik Egeberg, who was hired by CIG in
May 2016, filed a lawsuit in the District Court for Lancaster County, Nebraska, seeking a declaration that
the restrictive covenants contained in his agreement violated public policy and were therefore
unenforceable. Egeberg v. USIC, LLC et al., Case No. CI 16-2112, District Court of Lancaster County,
Nebraska. They allege that shortly after Egeberg challenged the legal validity of the restrictive covenants,
the matter was settled.
The forum selection clause provides:
The laws of the State of Indiana will control the interpretation and application of
this Agreement, without regard to any conflicts of law principles of Indiana or any other
noncompete or nondisclosure agreements, USIC contends they explicitly incurred and
acknowledged an ongoing obligation to refrain from disclosing USIC’s confidential
On October 14, 2016, USIC sent cease and desist letters to CIG and to each of
the individual plaintiffs asserting they had removed, retained, used, and/or disclosed
confidential information belonging to USIC.
The letters also asserted that plaintiffs
Moody, Hanna and Daniels had violated explicit written covenants not to compete with
USIC or solicit customers or employees of USIC.
The letters demanded that the
individual plaintiffs cease all such activity immediately, and stated that USIC would not
hesitate to pursue legal action should the actions continue.
On October 19, 2016, the plaintiffs filed this action for declaratory and injunctive
relief. Summonses were requested and issued on November 19, 2016, and the record
shows that service was effected on the defendants between November 18, 2016 and
November 28, 2016. Filing Nos. 4–10. USIC’s corporate disclosure statement shows
USIC, LLC is a limited liability company organized under the laws of Delaware and
based in Indianapolis, Indiana.
Its sole member is USIC Holdings, Inc. which is a
Delaware C Corporation with its principal place of business in Indianapolis, Indiana.
USIC Locating Services, LLC, USIC Locating Services, LLC is a limited liability
company based in Indianapolis, Indiana. Its sole member is USIC, LLC, which is a
state to the contrary. I consent to the personal jurisdiction of courts in Marion County,
over me and waive all rights to the contrary; and, the exclusive venue and forum for any
legal action in a court of law arising from this Agreement shall be a court of competent
jurisdiction located in Marion County, Indiana.
Filing Nos. 21-9, 21-10 and 21-11, Protective Covenants Agreements at 7.
limited liability company based in Indianapolis, Indiana.
Locate Holdings, Inc. is a
Delaware corporation. Filing No. 22.
USIC filed an action in Marion County, Indiana, Superior Court on November 9,
2016. See USIC, LLC, et al., v. Consolidated Infrastructure Group, Inc., et al., Cause
No. 49D01 16 11 PL 039993. Filing No. 21-2, Index of Evid., Ex. 1. In that case, USIC
asserts claims for misappropriation of trade secrets, breach of contract, tortious
interference with a contract, and seeks treble damages for pecuniary loss as a result of
a property offense under Indiana Code § 34-24-3-1, against CIG and the former
employees. On December 5, 2016, CIG and the former employees (the plaintiffs in this
action) removed the case to the United States District Court for the Southern District of
Indiana. Filing No. 21-4, Index of Evid. Ex. 3.
Court records in the Indiana case show that removal was based on diversity of
citizenship. See USIC, et al., v. Coffield, et al., No 1:16cv-3285, Filing No. 1, Notice of
Removal (S.D. Ind. Dec. 5, 2016).
Noting that USIC and CIG are both Delaware
corporations, USIC moved to remand.6 Id., Filing No. 11. In response, CIG and the
former employees argued that USIC fraudulently joined CIG as a defendant in an effort
to destroy diversity and to prevent removal and consolidation with this action. Id., Filing
No. 18. Further, the CIG defendants argued the Indiana court should construe USIC’s
complaint as alleging a claim under the federal DTSA, thus conferring federal question
jurisdiction, because in its complaint USIC did not specifically assert its misappropriation
For a federal court to have jurisdiction over a suit based on diversity, there must be complete
diversity of citizenship—no defendant can share the citizenship of any plaintiff. 28 U.S.C. § 1332(a).
of trade secret claim was based solely on Indiana law. Id. USIC responded that it only
seeks relief under Indiana state law. Id., Filing No. 21.
Defendants Daniels, Hanna, and Moody (the “signatory defendants”) filed an
answer to USIC’s complaint, for the most part denying the allegations. Id., Filing No. 7.
Defendant CIG and the other individual defendants (Coffield, Orth, and Matney, “the
non-signatory defendants”) moved to dismiss for lack of personal jurisdiction under
Federal Rule of Civil Procedure 12(b)(2), arguing they lacked sufficient minimal contacts
with the State of Indiana.
Id., Filing No. 8.
In response, USIC argues that those
defendants had impliedly consented to be bound by the forum selection clauses in the
other defendants’ agreements because the non-signing defendants are “closely related
parties,” making it foreseeable that they would be bound by the forum selection clauses.
Id., Filing No. 13. Alternatively, they argue that defendants Coffield, Orth, and Matney
purposefully directed activities at the state of Indiana in that they allegedly “reached into
USIC’s computer servers and networks located in Indiana to copy, remove, disclose and
otherwise misappropriate confidential and trade-secret information belonging to USIC,”
which included “financial statements showing USIC’s proprietary competitive pricing
scheme; proprietary training methods and programs; and private customer and
employee information.” Id. at 15. They argue that the actions of the former employees
were calculated to cause harm in Indiana and is sufficient to create specific personal
Also, they argue the Indiana court has personal jurisdiction over
defendant CIG because it is foreseeable that a third-party employer would be bound by
a forum selection clause in a contract entered into by an employee it recruited. Id. It
also argues the tortious actions aimed at Indiana by the former employees can be
imputed to CIG. Id.
All of the defendants in the Indiana action also moved to transfer the Indiana
action to the District of Nebraska pursuant to 28 U.S.C. § 1404(a).
Filing No. 22,
Motion; Filing No. 23, Brief. They argued venue was proper in Nebraska under 28
U.S.C. 1391(b)(2) because a substantial part of the events giving rise to the claims
alleged in this action occurred in Omaha, Nebraska.7 Filing No. 23. Further they argue
that USIC’s claims in the Indiana action would be compulsory counterclaims in the
Nebraska action. Id.
The motions to dismiss, to remand, and to transfer were referred to the United
States Magistrate Judge for a report and recommendation. Id., Filing No. 37. The
Magistrate Judge exercised his discretion to first examine the motion to remand rather
than the motions to dismiss. Filing No. 38, Report and Recommendation at 4. He
noted the motion to remand related to subject matter jurisdiction, and that not all
defendants had moved to dismiss for lack of personal jurisdiction. Id.
28 U.S.C. § 1391(b) governs venue and states that
A civil action may be brought in—
(1) a judicial district in which any defendant resides, if all defendants are
residents of the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions
giving rise to the claim occurred, or a substantial part of property that is
the subject of the action is situated; or
(3) if there is no district in which an action may otherwise be brought as
provided in this section, any judicial district in which any defendant is
subject to the court's personal jurisdiction with respect to such action.
The Magistrate Judge found there was not complete diversity and rejected the
Indiana defendants’ contention argument that the fraudulent joinder exception to
complete diversity applied. Id. at 5-6. He found USIC’s complaint adequately alleged
colorable claims against CIG and therefore found no fraudulent joinder.
Id. at 6.
Further, he rejected the CIG defendants’ federal question jurisdiction based on
application of the “well-pleaded complaint rule.” Id. at 7. Because complete diversity
was lacking and there was no federal question on the face of USIC’s complaint, the
Magistrate Judge found the Indiana federal district court lacked jurisdiction and
recommended to the district judge that the action be remanded to state court.8 The
Magistrate Judge further recommended that the District Court deny the defendants'
motion to transfer the action to Nebraska as moot and found the defendants’ motions to
dismiss for lack of personal jurisdiction could be addressed by the Indiana state court on
remand. Objections to the R&R have been filed, but have not been ruled on. Id., Filing
No. 41, Objection; Filing No. 44, Response.
In the motion presently pending in this court, USIC moves to dismiss for lack of
personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), arguing a lack of
sufficient minimum contacts with Nebraska to satisfy the exercise of specific personal
jurisdiction. It contends that the plaintiffs rely exclusively on allegations of “general”
personal jurisdiction over the Defendants; in other words, they assert “continuous”
contacts with the State of Nebraska, but not any contacts that relate to the claims at
The Magistrate Judge further recommended that the District Court deny the defendants' motion
to transfer the action to Nebraska as moot and found the defendants’ motions to dismiss for lack of
personal jurisdiction could be addressed by the Indiana state court on remand.
issue. Filing No. 14, Brief at 5. USIC argues these allegations do not satisfy the
standard for assertion of general personal jurisdiction, as recently clarified by the
Supreme Court in Daimler AG v. Bauman, 134 S. Ct. 746, 753 (2014).
In response, the Nebraska plaintiffs state that USIC has consented to jurisdiction
in this state by registering to conduct business in Nebraska. They submit evidence that
USIC is registered to conduct business in the state of Nebraska in accordance with
Nebraska law, and has appointed a registered agent for service of process in Nebraska.
Filing No. 21-3.
USIG further argues the action is subject to dismissal under the Supreme Court’s
Brillhart/Wilton doctrine,9 in deference to the Indiana action addressing the same issues.
USIC also moves to dismiss under Federal Rule of Civil Procedure 12(b)(b)(6) based on
the forum selection clause of the agreements at issue.
In its alternative motion to stay or transfer under 28 U.S.C. § 1404(a), it argues
that the Indiana action takes priority because USIC’s complaint in the Indiana action
was the first filed based on service of process, and because USIC is the “true plaintiff.”
It also argues that Indiana is the more convenient forum.
The plaintiffs take essentially the opposite position, arguing that the court has
personal jurisdiction over the matter, the motion to transfer should denied on the basis
of the “first-filed rule,” venue is proper in this district, and the convenience of the parties
favors litigation in this forum.
In Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494-95 (1942) and Wilton v. Seven
Falls Co., 515 U.S. 277, 289-90 (1995), the Supreme Court explains that it is usually appropriate to
dismiss—or, at a minimum, stay—a federal declaratory-judgment action where there is a parallel statecourt action presenting the same issues between the same parties.
“To survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must
plead ‘sufficient facts to support a reasonable inference that the defendant[ ] can be
subjected to jurisdiction within the state.’” Creative Calling Sols., Inc. v. LF Beauty Ltd.,
799 F.3d 975, 979 (8th Cir. 2015) (quoting K–V Pharm. Co. v. J. Uriach & CIA, S.A.,
648 F.3d 588, 591-92 (8th Cir. 2011). When jurisdiction is challenged on a pretrial
motion to dismiss, the nonmoving party need only make a prima facie showing of
jurisdiction. Pangaea, Inc. v. Flying Burrito LLC, 647 F.3d 741, 745 (8th Cir. 2011). The
evidence is viewed in the light most favorable to the plaintiff. Viasystems, Inc. v. EBM–
Papst St. Georgen GmbH & Co., 646 F.3d 589, 592 (8th Cir. 2011). However, if the
defendant controverts or denies jurisdiction, the plaintiff still carries the burden of proof.
See Dairy Farmers of Am., Inc. v. Bassett & Walker Int'l, Inc., 702 F.3d 472, 475 (8th
At the motion stage, the action should not be dismissed for lack of
jurisdiction if the evidence, viewed in the light most favorable to the plaintiff is sufficient
to support a conclusion that the exercise of personal jurisdiction over the defendant is
proper. Creative Calling, 799 F.3d at 979. The plaintiff's prima facie showing must be
tested, not by the pleadings alone, but by the affidavits and exhibits presented with the
motions and opposition thereto. Dairy Farmers, 702 F.3d at 475
“‘Federal courts ordinarily follow state law in determining the bounds of their
jurisdiction over persons.’” Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014) (quoting
Daimler AG, v. Bauman, 134 S. Ct. at 753. This is because a federal district court's
authority to assert personal jurisdiction in most cases is linked to service of process on
a defendant ‘who is subject to the jurisdiction of a court of general jurisdiction in the
state where the district court is located. See Daimler AG, 134 S. Ct. at 753 (quoting
Fed. Rule of Civ. Proc. 4(k)(1)(A).
Nebraska's long-arm statute, Neb. Rev. Stat. § 25-536, “extends Nebraska's
jurisdiction over nonresidents having any contact with or maintaining any relation to this
state as far as the U.S. Constitution permits.” Erickson v. U-Haul Int'l, Inc., 738 N.W.2d
453, 463 (Neb. 2007); see Pecoraro v. Sky Ranch for Boys, Inc., 340 F.3d 558, 561 (8th
Cir. 2003) (stating that the Nebraska long-arm statute authorizes the exercise of
personal jurisdiction to the maximum extent permitted by the due process clause of the
Fourteenth Amendment of the United States Constitution). Due process requires that
nonresident defendants must have “minimum contacts” with the forum state such that
the exercise of personal jurisdiction does not offend “traditional notions of fair play and
substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
The minimum contacts must be “such that [the] defendant ‘should reasonably anticipate
being haled into court there.’” Burlington Indus., Inc. v. Maples Indus., Inc., 97 F.3d
1100, 1102 (8th Cir. 1996) (quoting World-Wide Volkswagen Corp. v. Woodson, 444
U.S. 286, 291-92, 297 (1980).
The minimum contacts necessary for due process may be the basis for either
“general” or “specific” jurisdiction. Dairy Farmers, 702 F.3d at 475; Johnson v. Arden,
614 F.3d 785, 794 (8th Cir. 2010). The Due Process Clause permits the exercise of
“general jurisdiction” to hear “any and all claims against” a defendant if its “affiliations
with the State are so continuous and systematic as to render [it] essentially at home in
the forum State.” Daimler AG, 134 S. Ct. at 754 (internal quotation marks omitted).
“Specific jurisdiction,” by contrast, is proper when a defendant has certain contacts with
the forum State and the cause of action arises out of those contacts. Creative Calling,
799 F.3d at 979-80. The inquiry whether a forum state “may assert specific jurisdiction
over a nonresident defendant ‘focuses on ‘the relationship among the defendant, the
forum, and the litigation.’”
Walden, 134 S. Ct. at 1121 (quoting Keeton v. Hustler
Magazine, Inc., 465 U.S. 770, 775 (1984)).
Specific jurisdiction can be shown by
proving that the defendants availed themselves of the privileges of conducting business
in the state. See J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780, 2789 (2011)
(plurality opinion) (explaining that purposeful availment hinges on “whether a defendant
has followed a course of conduct directed at the society or economy existing within the
jurisdiction of a given sovereign”).
It is essential in each case that there be some act by which the defendant
purposefully avails itself of the privilege of conducting activities within the forum state,
thus invoking the benefits and protections of its laws. Dairy Farmers, 702 F.3d at 477;
see also Hanson v. Denckla, 357 U.S. 235, 253 (1958). The Eighth Circuit has set forth
a five-part test for measuring a defendant's contacts with a forum state: (1) the nature
and quality of the contacts with the forum state, (2) the quantity of those contacts, (3)
the relation of the cause of action to the contacts, (4) the interest of the forum state in
providing a forum for its residents, and (5) the convenience of the parties. Dairy
Farmers, 702 F.3d at 477; Wells Dairy, 607 F.3d at 518. The third factor distinguishes
whether the jurisdiction is general or specific. Johnson, 614 F.3d at 794. The first three
factors are primary factors, and the remaining two are secondary. Id.
A court is to look at all the factors in the aggregate and examine the totality of the
circumstances in determining personal jurisdiction. Id.; see Dairy Farmers, 702 F.3d at
477. Additionally, a parent corporation may be subject to a court's personal jurisdiction
through the contacts of its subsidiary if the subsidiary constitutes the “alter ego” of the
parent. E.g., Anderson v. Dassault Aviation, 361 F.3d 449, 452-53 (8th Cir. 2004).
Consent is another traditional basis of jurisdiction, existing independently of longarm statutes. Knowlton v. Allied Van Lines, Inc., 900 F.2d 1196, 1199 (8th Cir. 1990).
One of the most solidly established ways of giving such consent is to designate an
agent for service of process within the State. Id. In Nebraska, a foreign corporation that
wishes to transact business in the state must acquire a certificate of authority from the
Secretary of State and must “continuously maintain in this state” a registered office and
a registered agent. Neb. Rev. Stat. §§ 21–20,168; 21–20,174. Under Nebraska law, “a
registered agent of a foreign corporation authorized to transact business in this state is
the corporation's agent for service of process, notice, or demand required or permitted
by law to be served on a foreign corporation.” Neb. Rev. Stat. § 21–20,177. Under
Nebraska law, “[b]y designating an agent upon whom process may be served within this
state, a defendant has consented to the jurisdiction in personam by the proper court.”
Mittelstadt v. Rouzer, 328 N.W.2d 467, 469 (Neb. 1982); see also Ytuarte v. Gruner &
Jahr Printing & Pub. Co., 935 F.2d 971, 973 (1991) (stating that the appointment of an
agent for service of process by corporate defendants gives consent to the jurisdiction of
a state's courts for any cause of action, whether or not arising out of activities within the
state). Such consent is a valid basis of personal jurisdiction. Ytuarte, 935 F.2d at 973;
Sondergard v. Miles, Inc., 985 F.2d 1389, 1394–95 (8th Cir. 1993) (recognizing consent
as another means to acquire personal jurisdiction over a nonresident defendant). A
defendant may voluntarily consent or submit to the jurisdiction of a court which
otherwise would not have jurisdiction over it. Knowlton, 900 F.2d at 1200.
Parallel Litigation – First Filed Rule
“To conserve judicial resources and avoid conflicting rulings, the first-filed rule
gives priority, for purposes of choosing among possible venues when parallel litigation
has been instituted in separate courts, to the party who first establishes jurisdiction.”
See Nw. Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1006 (8th Cir. 1993). “A suit
is parallel when substantially the same parties are contemporaneously litigating the
same issues in another forum.” Interstate Material Corp. v. City of Chi., 847 F.2d 1285,
1288 (7th Cir. 1988). Absent compelling circumstances, the first-filed rule generally
gives venue priority to the party who filed suit first. See Nw. Airlines, Inc., 989 F.2d at
1005. However, the “rule ‘is not intended to be rigid, mechanical, or inflexible.’” Id.
(quoting Orthmann v. Apple River Campground Inc., 765 F.2d 119, 121 (8th Cir. 1985)).
The court must apply the rule “in a manner best serving the interests of justice.” Id.
There are two "'red flags' signaling potentially compelling circumstances: first,
that the 'first' suit [is] filed after the other party gave notice of its intention to sue; and,
second, that the action [is] for declaratory judgment rather than for damages or
equitable relief." Boatmen's First Nat. Bank v. Kansa Public Emps. Retirement Sys., 57
F.3d 638, 641 (8th Cir. 1995); see Nw. Airlines, 989 F.2d at 1007. Other factors that
may be considered in deciding whether to apply the first-filed rule are the period of time
from the date the first-filer receives notice of a possible lawsuit by the natural plaintiff to
filing of the first-filer's lawsuit; failure of the first-filer to allege that the natural plaintiff's
claims are having an adverse effect on the first-filer; evidence that the first-filer
promised or indicated in some manner that it would not sue, reliance on that indication
by the natural plaintiff, followed by the filing of a surprise complaint by the first-filer; and
which lawsuit would further the interest of speedy adjudication. (i.e., which suit has
further progressed). See Anheuser–Busch, Inc. v. Supreme Int'l Corp., 167 F.3d 417,
419 (8th Cir. 1999); Midwest Motor Express, Inc. v. Cent. States Se., 70 F.3d 1014,
1017 (8th Cir. 1995). A short period of time between notice of intent to sue and the
filing suggests that the first-filer raced to the courthouse to usurp the natural plaintiff’s
forum choice. See BASF Corp. v. Symington, 50 F.3d 555, 557-58 (8th Cir. 1995). The
“true plaintiff” in a declaratory judgment action could be considered to be the party
entitled to injunctive relief or damages. U.S. Fire Ins. Co. v. Goodyear Tire & Rubber
Co., 920 F.2d 487, 489 (8th Cir. 1990).
Declaratory judgments are not to be used defensively to deny a prospective
plaintiff's choice of forums. Prudential Ins. Co. of Am. v. Doe, 140 F.3d 785, 790 (8th
Cir. 1998). The “general rule,” however, is that a court should “favor[ ] the forum of the
first-filed action, whether or not it is a declaratory action.” Genentech, Inc. v. Eli Lilly
and Co., 998 F.2d 931, 937 (Fed. Cir. 1993), abrogated on other grounds by Wilton v.
Seven Falls Co., 515 U.S. 277 (1995).
Fed. R. Civ. P. 12(b)(6) and 28 U.S.C. § 1404(a)
The law is unsettled regarding whether Rule 12(b)(6) is an appropriate
mechanism for enforcing a contractual forum-selection clause. See Atl. Marine Const.
Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 579–80 (2013) (declaring
that a forum-selection clause should not be enforced via a Rule 12(b)(3) motion, but
expressly declining to reach the issue of whether Rule 12(b)(6) would be appropriate);
see In re Union Elec. Co., 787 F.3d 903, 907 & n.3 (8th Cir. 2015). The Eighth Circuit
has also declined to take a position on the viability of Rule 12(b)(6) as an enforcement
mechanism for a forum-selection clause. See Rainforest Cafe, Inc. v. EklecCo, LLC,
340 F.3d 544, 545 n. 5 (8th Cir. 2003). In Atlantic Marine, the Supreme Court held that
28 U.S.C. § 1404(a) provided a freestanding basis to enforce a forum-selection clause
by codifying “the doctrine of forum non conveniens for the subset of cases in which the
transferee forum is within the federal court system.” Id. at 580.
Under Rule 8 of the Federal Rules of Civil Procedure, a plaintiff's complaint must
contain “a short plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(1). Though the statement need not contain detailed factual
allegations, it must contain “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009).
Rule 8 “demands more than an unadorned, the-defendant-
unlawfully-harmed-me accusation.” Id. A defendant may obtain dismissal of a claim
that fails to satisfy Rule 8 by filing a motion pursuant to Rule 12(b)(6).
On a Rule 12(b)(6) motion, the Court considers not whether the plaintiff will
ultimately prevail, but whether the facts permit the court to infer “more than the mere
possibility of misconduct.” Id. at 679. For purposes of this determination, the Court
“accept[s] as true the facts alleged, but not legal conclusions or ‘[t]hreadbare recitals of
the elements of a cause of action, supported by mere conclusory statements.’” Barton
v. Taber, 820 F.3d 958, 964 (8th Cir. 2016) (quoting Iqbal, 556 U.S. at 678). “To survive
a motion to dismiss under Rule 12(b)(6) a plaintiff must allege sufficient facts, as
contrasted with bare legal conclusions, to articulate a claim ‘that is plausible on its
face.’” Hageman v. Barton, 817 F.3d 611, 619 (8th Cir. 2016) (quoting Iqbal, 556 U.S.
at 678). “‘A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.’” Id.
Under 28 U.S.C. § 1404(a), a district court may transfer any civil action to any
other district or division where it might have been brought, “[f]or the convenience of the
parties and witnesses” or “in the interest of justice.” 28 U.S.C. § 1404(a). The historical
and statutory notes associated with this section indicate that “[s]ubsection (a) was
drafted in accordance with the doctrine of forum non conveniens, permitting transfer to a
more convenient forum, even though venue is proper.” See Historical and Statutory
Notes, 28 U.S.C. § 1404. In general, the party seeking transfer bears the burden of
establishing that the transfer should be granted. Terra Int’l, Inc. v. Miss. Chem. Corp.,
119 F.3d 688, 695 (8th Cir. 1997). Section 1404(a) was designed to prevent a scenario
in “which two cases involving precisely the same issues are simultaneously pending in
different District Courts” because such a scenario “leads to the wastefulness of time,
energy and money.” Cont'l Grain Co. v. The FBL-585, 364 U.S. 19, 26 (1960). Section
1404(a) is the appropriate provision to enforce a forum-selection clause. Atl. Marine
Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 579 (2013).
A district court considering a motion pursuant to § 1404(a) would ordinarily
considerations.” Id. at 581. However, in Atlantic Marine, the Supreme Court stated that
“[t]he presence of a valid forum-selection clause requires district courts to adjust their
usual § 1404(a) analysis in three ways.” Id.
First, no weight is accorded to the plaintiff's choice of forum. Id. Rather, “the
plaintiff bears the burden of establishing that transfer to the forum for which the parties
bargained is unwarranted.”
Second, the court “should not consider arguments
about the parties' private interests.”10 Id. at 582 (explaining that “[w]hen parties agree to
a forum-selection clause, they waive the right to challenge the preselected forum as
inconvenient or less convenient for themselves or their witnesses or for their pursuit of
Therefore, the court must assume that the parties' private interests
“weigh entirely in favor of the preselected forum.”
The court “may consider
arguments about public-interest factors only.”11 Id. Because such factors will rarely
defeat a forum-selection clause, “the practical result is that forum-selection clauses
should control except in unusual cases.” Id. Third, “a § 1404(a) transfer of venue will
not carry with it the original venue's choice-of-law rules—a factor that in some
circumstances may affect public-interest considerations.” Id.
Indeed, “[a] proper application of § 1404(a) requires that a forum-selection clause
be given controlling weight in all but the most exceptional cases.” Id. at 579 (internal
quotation marks and citation omitted).
Also, the interests of justice include holding
The “[f]actors relating to the parties' private interests include ‘relative ease of access to sources
of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining
attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action;
and all other practical problems that make trial of a case easy, expeditious and inexpensive.’” Atl. Marine,
134 S. Ct. at 581 n.6 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241, n. 6 (1981)).
In Atlantic Marine, the Supreme Court noted that these factors may include: “‘the
administrative difficulties flowing from court congestion; the local interest in having localized controversies
decided at home; [and] the interest in having the trial of a diversity case in a forum that is at home with
the law.’” Atl. Marine, 134 S. Ct. at 581 n.6 (quoting Piper Aircraft, 454 U.S. at 241 n.6).
parties to their bargained-for agreement. See In re Union Elec. Co., 787 F.3d at 909–
Forum Selection Clause
“Because ‘the enforceability of a forum selection clause concerns both the
substantive law of contracts and the procedural law of venue,’ there is some
disagreement among the circuits over whether state or federal law applies.” Servewell
Plumbing, LLC v. Fed. Ins. Co., 439 F.3d 786, 789 (8th Cir. 2006) (quoting Sun World
Lines, Ltd. v. March Shipping Corp., 801 F.2d 1066, 1068-69 (8th Cir. 1986)) (citations
omitted). Although the Eighth Circuit has yet to adopt a position on the issue, where the
parties do not argue that the state and federal standards differ, the court will apply
federal law. See M.B. Rests., Inc. v. CKE Rests., Inc., 183 F.3d 750, 752 (8th Cir.
1999); cf. Rainforest Café, Inc. v. EklecCo, L.L.C., 340 F.3d 544, 546 (8th Cir. 2003)
(recognizing that the Eighth Circuit has not explicitly ruled on the issue, but stating the
Eighth Circuit is “inclined to agree” that “federal law controls the question of whether [a]
forum selection clause applies” in a diversity case).
To determine whether a forum-selection clause applies, a district court must
interpret the language of the clause, see Rainforest Café, Inc. v. EklecCo, L.L.C., 340
F.3d 544, 546 (8th Cir. 2003), which is done according to the plain language of the
contract and the intent of the parties as expressed in the disputed clause, see Norfolk S.
Ry. Co. v. Kirby, 543 U.S. 14, 31–32, (2004).
Forum selection clauses are
presumptively valid and enforceable “unless they are unjust or unreasonable or invalid
for reasons such as fraud or overreaching.” M.B. Restaurants, Inc. v. CKE Restaurants,
Inc., 183 F.3d 750, 752 (8th Cir. 1999). A forum-selection clause is valid if it is “a freely
negotiated private . . . agreement, unaffected by fraud, undue influence, or overweening
bargaining power.” See M/S Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 12 (1972).
The party opposing enforcement of a forum selection clause has the burden of “clearly
show[ing]” the clause is invalid or should not be enforced. See Bremen, 407 U.S. at 15
(explaining that the party arguing that a forum selection clause is inapplicable “bear[s] a
heavy burden of proof”).
The court first finds the defendants’ motion to dismiss for lack of personal
jurisdiction should be denied. The evidence establishes that USIC has consented to
suit in this jurisdiction by obtaining a certificate to transact business in this state and
designating a registered agent for service of process. The court need not address the
“minimum contacts” issue, but notes that the defendants’ activities in this state are not
the sort of random or attenuated conduct that has been held insufficient to confer
jurisdiction on the court. The evidence shows that USIC has sales territories that cover
Nebraska, has salespeople based in Nebraska, and conducts at least a small amount of
business in Nebraska.
The court next finds that the "first-filed" rule is of limited applicability in this case.
The record shows there are two red flags indicating compelling circumstances that
militate against application of the rule. First, the CIG and the individual plaintiffs were
on notice that USIC was going to take legal action against them in Indiana and shortly
thereafter the plaintiffs filed this action, suggesting that they raced to the courthouse to
usurp USIC’s forum choice. The plaintiffs' month-long delay in serving the defendant, or
at least informing it of the pendency of the action, is also suspect. Also, the plaintiffs
are not “true” plaintiffs in this action since they seek declaratory judgment rather than
damages. In the Indiana action, USIC seeks damages and enforcement of the contracts
Also, the record shows USIC and CIG are direct competitors in the services they
provide. The parties settled a similar action involving the same issues. Given the
previous litigation history between USIC and CIG on the same issue, CIG was on
constructive notice that USIC would file an imminent action after the individual plaintiffs
resigned and began to work at CIG. This constructive notice, coupled with the short
time between the plaintiffs’ receipt of the cease and desist letter and the filing of this
action is evidence that the plaintiffs attempted to preempt USIC’s imminent lawsuit.
Indeed, USIC’s lawsuit was filed in Indiana state court before USIC was served with the
plaintiffs' complaint in this action. Also, as discussed below, the forum-selection clause
dictates that the court cannot give deference to the plaintiffs' choice of forum. Due to
these compelling circumstances, the first-filed rule does not apply to this action and
Indiana, not Nebraska, is the proper forum for this action.
In considering the defendants’ alternative motion to transfer venue, the court
finds the motion should be granted. In sum, the plaintiffs failed to meet their burden of
“establishing that transfer to the forum for which the parties bargained is unwarranted.”
See Atl. Marine, 134 S. Ct. at 581.
There is evidence that a valid forum selection clause governs the parties’
dispute. Although the plaintiffs argue that it would be unreasonable to enforce the
forum selection clause, they present no evidence or argument that the clause is
unconscionable or the result of fraud. They do not argue that the agreements were
affected by fraud, undue influence, or overreaching.
Nor do they contend that the
Agreements were not freely negotiated.
Under the terms of the forum selection clause in the Protective Covenants
Agreements, three of the plaintiffs agreed to litigate any disputes involving the
application or interpretation of the agreements in Indiana. The heart of the dispute is
interpretation and applicability of the non-compete, nonsolicitation and nondisclosure
clauses of the agreements. It is clear that the subject matter of this dispute falls within
the scope of the forum selection clause—the claims relate to the plaintiffs employment
with and separation from USIC.
Since the court’s analysis involves a valid forum-selection clause, the court
follows the framework of Atlantic Marine. The court affords the plaintiffs' choice of forum
no weight, does not consider private interests, and considers public-interest factors only
to determine whether the parties’ forum selection clause is enforceable.
district court may have a local interest in deciding cases that involve state law from its
district. Indiana has an interest in deciding an agreement that was entered into by an
entity that has its principal place of business in Indiana.
The court finds the plaintiffs have not demonstrated the “extraordinary
circumstances unrelated to the convenience of the parties” required for the court to
deny transferring this action pursuant to the valid forum-selection clause. Atl. Marine,
134 S. Ct. at 575. They have not met their high “burden of establishing that transfer to
the forum for which the parties bargained is unwarranted.” Id. at 581–82.
Accordingly, the court will enforce the forum-selection clauses and transfer the
signatory plaintiffs’ claims against USIC to the Southern District of Indiana. The court
must next consider whether to transfer the non-signatory plaintiffs’ claims. In deciding
whether to grant a transfer of claims where some claims are not governed by a forum
selection clause, the court applies the ordinary Section 1404(a) analysis to those claims
and considers the private interests of the parties, the public interest in litigating the case
in the chosen forum, and the interests of judicial economy implicated by a potential
Here, the private interest factors are inconclusive. Some weight is given to the
plaintiffs’ choice of forum, but many of the witnesses and most of the documentary
evidence is likely to be in Indiana. Although CIG is headquartered in Nebraska, the only
individual plaintiff who lives in Nebraska is Eric Moody. The other individual plaintiffs
reside in Missouri, Iowa, and Florida.
Nebraska would seem to be no more
inconvenient than Indiana for those plaintiffs. Also, the plaintiffs have not made a strong
showing of inconvenience with respect to the Indiana forum. The public interest factors
do not weigh strongly either way given that this is essentially an employment dispute
that is unlikely to have broader effect on the public at large, except to the extent that the
interest of justice is served by holding parties to the benefit of their bargain.
The interests of judicial economy, however, strongly favor a transfer. Allowing
two cases that involve the same issues to simultaneously proceed in different courts
would lead to a waste of time, energy, money and judicial resources. If the court were
to instead keep this case here, it would be ignoring the valid forum-selection clauses
agreed to by the other three individual plaintiffs. Atlantic Marine militates against this
Accordingly, the Court finds that the interests of judicial economy favor the
transfer of the entire action to the Southern District of Indiana.
IT IS ORDERED:
Defendants’ motion to supplement the record (Filing No. 25) is granted.
Defendants’ motion to dismiss or transfer (Filing No. 13 ) is denied to the
extent that it seeks dismissal for lack of personal jurisdiction.
Defendants’ motion to dismiss or transfer (Filing No. 13 ) is granted in part
to the extent that this action shall be transferred to the United States District Court for
the Southern District of Indiana pursuant to 28 U.S.C. § 1404(a).
Defendants’ alternative Rule 12(b)(6) motions are denied without prejudice
to reassertion in the Southern District of Indiana.
The Clerk of Court is directed to transfer this action to the United States
District Court of the Southern District of Indiana.
Dated this 18th day of May, 2017.
BY THE COURT:
s/ Joseph F. Bataillon
Senior United States District Judge
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