CERTAINTEED CORPORATION v. NICHIHA USA, INC. et al

Filing 34

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE LAWRENCE F. STENGEL ON 10/29/2009. 10/30/2009 ENTERED AND COPIES MAILED, E-MAILED.(ap, )

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA CERTAINTEED CORPORATION, Plaintiffs v. NICHIHA USA, INC. and BRUNO C. DEMEY Defendants : : : : : : : :

Civil Case Number

NO. 09-CV-3932-LS

MEMORANDUM OPINION S t e n g e l, J. O c to b e r 29, 2009

D e f en d a n t Nichiha USA, Inc. ("Nichiha") and Defendant Bruce Demey filed m o tio n s to dismiss, transfer, or stay on September 2, 2009 and September 5, 2009, r e sp e c t iv e l y. For the reasons set forth below I will deny the motions.

I.

FACTS P lain tiff CertainTeed Corporation ("CertainTeed") and Nichiha are competitors in

th e business of manufacturing fiber cement. See First Amended Complaint at ¶ 40, C e rta in T e e d Corp. v. Nichiha USA, Inc., No. 09-3932 (E.D. Pa. filed Sept. 3, 2009) [ h e re in a f te r First Amended Complaint]. Demey was employed by CertainTeed from M a rc h 2003 until he resigned on August 20, 2009. Id. at ¶ 18. Demey has accepted an o f f er of employment from Nichiha. Id. at ¶ 38. C e rta in T e e d 's headquarters is located in Valley Forge, Pennsylvania, and it has m a n u f ac tu rin g plants in Indiana, North Carolina, and Oregon. Id. at ¶¶ 1, 10. The m a jo rity of CertainTeed's confidential information and trade secrets are located in Valley

F o r g e Pennsylvania, and its computer servers are located in Valley Forge. Id. at ¶ 16. A lth o u g h Demey resided in South Carolina, he made repeated trips to Valley Forge, in c lu d in g trips to attend product development, business strategy, technical, and m a n u f ac tu rin g -re la te d meetings. See First Amended Complaint at ¶ 19. W h ile employed by CertainTeed, Demey was the Director of Manufacturing and T e c h n o lo g y. Demey traveled between CertainTeed's plants and its headquarters. Id. at ¶ 2 3 . He was the "highest ranking manufacturing and technical employee within C e rta in T e e d 's fiber cement siding business and knew virtually every manufacturing and te c h n ic a l aspect of the business." Id. at ¶ 24. This knowledge included information le a rn e d at, and presented to, CertainTeed's parent Saint-Gobain Corporation. Id. During h is employment, Demey was familiar with, and was involved in the development of, c o n f id e n tial information and trade secrets, including information relating to m a n u f ac tu rin g formulations and processes, product development plans, manufacturing p ro c e ss e s and technical operations information. Id. at 26. O n September 16, 2004, Demey executed a Non-Compete Employee Agreement (" N o n -C o m p e te Agreement") with CertainTeed in exchange for a lump sum payment of $ 2 5 ,0 0 0 . See First Amended Complaint at ¶ 29. Among other provisions, the NonC o m p e te Agreement states Demey shall "use his best efforts and diligence" both during an d after his employment "to protect the confidential, trade secret, and/or proprietary n a tu re of all Confidential Information." See First Amended Complaint at Exh. A at ¶¶ 4,

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6 . It also provides that during the one-year period following his termination he shall not, w ith o u t written consent of a company officer, "engage in or contribute [his] knowledge to a n y work or activity that involves a product, process, apparatus, service or development . . . which is then competitive with or similar to" those he worked on while CertainTeed, or w h ic h he had gained confidential information about while at CertainTeed. Id. at ¶ 8. The N o n -C o m p e te Agreement provides Pennsylvania law would apply. Id. at ¶ 13. On June 2 5 , 2009, Saint-Gobain Corporation wrote to Demey to further explain the terms of the N o n -C o m p e te Agreement. See First Amended Complaint at ¶ 67. C e rta in T e e d alleges prior to Demey's August 20, 2009 resignation, he negotiated a p o s itio n with Nichiha as Director of Engineering and Manufacturing, and claims Demey h a d accepted an offer of employment before he resigned. Id. at ¶ 38. CertainTeed alleges D e m e y would use the confidential information and trade secrets obtained during his C e r ta in T e e d employment to fulfill his responsibilities with Nichiha. Id. at 52. It also a lle g e s negotiations between Nichiha and Demey likely included disclosure of co n fid en tia l information and trade secrets. Id. at ¶ 46. CertainTeed maintains Demey's e m p lo ym e n t with Nichiha is contingent upon the termination of Demey's non-compete o b lig a tio n s with CertainTeed. Id. at ¶ 62. C e rta in T e e d alleges a breach of contract claim and breach of fiduciary duty claim a g a in st Demey, a tortious interference with contractual relations claim and an unfair c o m p e titio n claim against Nichiha, and a violation of the Pennsylvania Uniform Trade

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S e c re ts Act, a violation of the South Carolina Trade Secrets Act, a violation of the North C a ro lin a Trade Secrets Protection Act, a violation of the Indiana Uniform Trade Secrets A c t, a violation of the Oregon Uniform Trade Secrets Act, and a civil conspiracy claim a g a in s t Demey and Nichiha.

II.

COURT PROCEEDINGS AND FILINGS O n August 24, 2009 Demey filed a complaint and motion for a preliminary

in ju n c tio n in the Superior Court of Fulton County, State of Georgia against CertainTeed se e k in g , inter alia, declaratory relief pursuant to Georgia State law "that the non-compete a n d non-disclosure terms of the Non-Compete Agreement are an impermissible restraint o f trade and competition, and thus are unlawful, invalid, and unenforceable under Georgia la w ." Notice of Removal at Ex. 1, Verified Complaint for Declaratory Judgment and O th e r Injunctive Relief at ¶ 19, Demey v. CertainTeed Corp., No. 09-2338 (N.D. Ga. filed A u g . 26, 2009). Demey also sought an injunction preventing CertainTeed from taking a c tio n to enforce the covenants against Demey, recover damages or other remedies based o n the covenants, or preclude or disrupt Demey's ability to engage in employment with N ic h ih a . Id. at ¶¶ 24-25. On August 26, 2009, CertainTeed removed the state court action to the United S ta te s District Court for the Northern District of Georgia ("Georgia Action"). On S e p te m b e r 2, 2009, United States District Court Judge Timothy C. Batten, Sr. granted

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D e m e y's motion for a temporary restraining order. The order enjoined CertainTeed from e n f o rc in g the non-competition covenant in Georgia, required Demey post a $15,000 bond w ith the Clerk, bound Demey to Georgia's trade secret laws, and granted expedited d is c o v e ry. If Demey does not move to Georgia, Judge Batten indicated he would rec o n sid e r his ruling on the TRO and preliminary injunction.1 On September 9, 2009, N ic h ih a and Demey filed a first amended complaint in the Georgia Action, which adds N ic h ih a as a party to the Georgia Action.2 C e rta in T e e d commenced this action in the Eastern District of Pennsylvania on A u g u s t 28, 2009 ("Pennsylvania Action"). On August 31, 2009, it requested a p relim inary injunction and temporary restraining order.3 O n September 2, 2009, Nichiha filed a motion to dismiss, transfer or stay the P e n n s ylv a n ia Action. On September 3, 2009, CertainTeed filed a first amended c o m p lain t in the Pennsylvania Action, removing any claim to enforce the non-compete

Contrary to CertainTeed's contention, Judge Batten did not deny Nichiha and Demey's motion to dismiss, transfer, or stay the Pennsylvania Action. Rather, Judge Demey merely denied the defendants motion to order CertainTeed to voluntarily dismiss the Pennsylvania Action. See First Amended Complaint at Exh. D at 25:13-22, Transcript of Temporary Restraining Order Proceedings before the Honorable Timothy C. Batten. On September 14, 2009, CertainTeed filed a motion to dismiss plaintiffs' c o m p la in t and dissolve the temporary restraining order and preliminary injunction. Judge B a tte n has not yet addressed this motion. In addition, on August 31, 2009, CertainTeed filed in the Georgia Action a m o tio n to dismiss, transfer or stay in light of the Pennsylvania Action, which Judge B a tte n denied. 5
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c o v e n a n t in Georgia.

III.

F IR S T -F IL E D RULE T h e first-filed rule enjoins "the subsequent prosecution of `similar cases . . . in

d if f ere n t federal courts.'" Equal Employment Opportunity Comm. v. University of P e n n s ylv a n ia , 850 F.2d 969, 971 (3d Cir. 1988). The rule provides, where federal co n cu rren t jurisdiction exists, if the cases "involve the same parties and issues, the court o f the first-filing must proceed to decide the matter." The first-filed rule "encourages s o u n d judicial administration and promotes comity among federal courts of equal rank." Id. For the first-filed rule to apply, however, "the later-filed case must be `truly d u p lic a tiv e '" of the first-filed case. Grider v. Keystone Health Plan Ctr., Inc., 500 F.3d 3 2 2 , 333 n.6 (3d Cir. 2007) (citing Smith v. S.E.C., 129 F.3d 356, 361 (6th Cir. 1997)). Therefore, the case "must be materially on all fours" with the first-filed case, such that "a d e te rm in a tio n in one action leaves little or nothing to be determined in the other." Id. (qu o tin g Smith, 129 F.3d at 361). T h e Georgia Action and Pennsylvania Actions are not "materially on all fours," s u c h that "a determination in one action leaves little or nothing to be determined in the o th e r." The Georgia Action is limited to the enforceability of the Non-Compete A g ree m en t in Georgia, and a request to enjoin CertainTeed from preventing Demey's e m p lo ym e n t with Nichiha. The Pennsylvania Action raises numerous issues, including

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v io la tio n s of trade secret laws, civil conspiracy, and unfair practices, in addition to the e n f o rc e ab ility of the Non-Compete Agreement in all states but Georgia. Therefore, the c a se s are not "truly duplicative," and the first-filed rule does not apply. Moreover, the in itia l relief granted in the Georgia Action is limited to Georgia. The relief sought in the P e n n s ylv a n ia Action extends beyond Georgia's borders. N ich ih a argues all claims in the Pennsylvania Action are compulsory c o u n t e rc la im s in the Georgia Action. Federal Rule of Civil Procedure 13(a)(1) provides a p a rty "must state as a counterclaim any claim that ­ at the time of [the pleadings'] service ­ the pleader has against an opposing party if the claim (A) arises out of the transaction or o c c u rre n c e that is the subject matter of the opposing party's claim; and (B) does not re q u ire adding another party over whom the court cannot acquire jurisdiction." "`A claim is compulsory if it bears a logical relationship to an opposing party's claim,' such that s e p a ra te trials on each party's claim `would involve a substantial duplication of effort.'" Zelenkofske Axelrod Consulting, L.L.C. v. Stevenson, 1999 WL 592399 (E.D. Pa. Aug. 5 , 1999) (quoting Savarese v. Agriss, 883 F.2d 1194, 1208 (3d Cir. 1989)). Claims are lo g ic a lly related if the claims contain "(1) many of the same factual issues; (2) the same f a ctu a l and legal issues; or (3) offshoots of the same basic controversy between parties." Id. (quoting XEROX Corp. v. SCM Corp., 576 F.2d 1057, 1059 (3d Cir. 1978)). N ic h ih a relies on Zelenkofske Axelrod Consulting, L.L.C. v. Stevenson, 1999 WL 5 9 2 3 9 9 (E.D. Pa. Aug. 5, 1999), to support its contention the actions are truly duplicative,

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a n d the claims raised in the Pennsylvania Action are compulsory counterclaims in the G e o rg ia Action. However, as discussed above, the cases are not truly duplicative. Although both address the enforceability of the non-compete agreement, at this stage I c a n n o t say all the claims in the Pennsylvania Action are compulsory counterclaims in the G e o rg ia Action. The violations of the trade secret law and the misappropriation of trade se c re ts are not so logically related to whether the non-compete agreement is enforceable p u rs u a n t to Georgia public policy such that separate trials would require "substantial d u p lic a tio n of efforts." See AcademyOne, Inc. v. Collegesource, Inc., 2009 WL 792865, a t *3 (E.D. Pa. Mar. 23, 2009) (finding no logical relationship existed, where only the c o m p la in ts had been filed, because, although the cases involved the same parties and c o m p e titiv e relationship, the actions are separate and distinct and are able to proceed sim u ltan eo u sly without substantial duplication). A c c o rd in g ly, I find the first-filed rule does not apply.4

IV .

VENUE W h e re jurisdiction is based solely on diversity of citizenship, a case "may, except

a s otherwise provided by law, be brought only in (1) a judicial district where any d e f en d a n t resides, if all defendants reside in the same State, (2) a judicial district in which

Demey and Nichiha argue a stay is a possible remedy for an action subject to the firstfiled rule. See Nichiha's Memorandum at 21 (citing RJF Holdings III, Inc. v. Refractec, Inc., 2003 WL 22794987 (E.D. Pa. Nov. 24, 2003)). Because the first-filed rule does not apply, the Pennsylvania Action will not be stayed. 8

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a substantial part of the events or omissions giving rise to the claim occurred, or a s u b s ta n tia l part of property that is the subject of the action is situated, or (3) a judicial d istric t in which any defendant is subject to personal jurisdiction at the time the action is c o m m e n c ed , if there is no district in which the action may otherwise be brought." 28 U .S .C .A . § 1391(a). "The test for determining venue is not the defendant's `contacts' w ith a particular district, but rather the location of those `events or omissions giving rise to the claim.'" Cottman Transmission Systems, Inc. v. Martino, 36 F.3d 291, 294 (3d Cir. 1 9 9 4 ). "[V]enue does not have to have greatest connection to the cause of action or be th e `best forum' for the action, as multiple districts could be proper based on the operative f a cts ." Paul Green School of Rock Music Franchising, LLC v. Rock Nation, LLC, 2009 W L 129740, at 2 (E.D. Pa. Jan. 13, 2009) (citing Cottman Transmission Sys., 36 F.3d at 2 9 4 ) .5 C e rta in T e e d claims Demey misappropriated confidential information and trade s e c re ts and breached the Non-Compete Agreement. CertainTeed stores its confidential in f o rm a tio n and trade secrets on computers located in Valley Forge, Pennsylvania. Demey discussed CertainTeed's confidential information and trade secrets with key m a n a g e m e n t personnel at meetings held in Valley Forge. Demey's employment with

It is unclear whether the plaintiff or defendants bears the burden when venue is challenged. See Simon v. Ward, 80 F. Supp. 2d 464, 466-67 (E.D. Pa. 2000) (cataloging cases discussing burden in venue challenges); Myers v. Am. Dental Ass'n, 695 F.2d 716, 724 (3d Cir. 1982) (defendant must establish venue is improper); Liev v. Am. Pacific Int'l, Inc., 489 F. Supp. 690, 696 (E.D. Pa. 1980) (plaintiff must establish venue is proper). Even if CertainTeed bears the burden, it has established venue is proper. 9

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C e rta in T e e d was partly negotiated in Pennsylvania, he performed services for C e rta in T e e d in Pennsylvania, his responsibilities included participation in strategic d is c u ss io n s in Pennsylvania with chief executive officers of CertainTeed and Saint G o b a in , and traveled to Valley Forge, Pennsylvania during his employment with C e r ta in T e e d . Moreover, the non-compete agreement states Pennsylvania law applies. C e rta in T e e d has established a "substantial part of the events or omissions giving ris e to the claim occurred" in Pennsylvania. See Dollar Discount Stores of Am., Inc. V. P e tr u s h a , 2001 WL 881725, at *1 (E.D. Pa. Apr. 25, 2001) (venue proper where franchise a g re e m e n t executed, confidential and proprietary information was disseminated, d e f e n d a n t's application was reviewed and approved, and defendant received training in th e district); G & K Services, Inc. v. Ambler, 2007 WL 712290, at *3 (E.D. Pa. Mar. 6, 2 0 0 7 ) (venue proper where, although defendant lived in Maryland, she traveled during the w e e k to plaintiff's headquarters in Exton, Pennsylvania, her business cards listed the E x to n office as her mailing address, her supervisor was located in Exton, she participated in conference calls with employees located in Exton to develop strategies, and received c o n f id e n tial information for training courses identifying Exton as the regional office); see also Paul Green School of Rock, LLC, 2009 WL 129740, at *2 ("trade secrets have a s itu s in their state of origin" (quoting Harry Miller Co. v. Carr Chem, 5 F. Supp. 2d 295, 2 9 8 (E.D. Pa. 1998)).6 Nichiha alleges Paul Green School of Rock Franchising is not applicable because CertainTeed does not allege a specific trade secret. However, CertainTeed does allege the theft 10
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C itin g ProModel Corp v. Story, 2007 WL 4124502 (E.D. Pa. Nov. 19, 2007), N ic h i h a alleges the Eastern District of Pennsylvania is not a proper venue because C e rta in T e e d 's claims are based on Demey's post-employment conduct, and "economic h a r m without other substantial activity within the district . . . is insufficient to establish v en u e." See Defendant's Reply Brief in Support of Defendant Nichiha USA, Inc's M o tio n to Dismiss, Transfer, or Stay at 11, CertainTeed Corp. v. Nichiha USA, Inc., No. 0 9 -39 3 2 (E.D. Pa. filed September 24, 2009) [hereinafter Defendant's Reply]. In P r o M o d e l Corp, the court noted ProModel did not allege the defendant committed any w r o n g f u l acts in Pennsylvania and that all claims were based on the defendant's "post e m p lo ym e n t conduct, alleging that he is `selling products and services similar to those he s o ld for ProModel.'" ProModel, 2007 WL 4124502, at *2-3. Unlike the plaintiff in ProModel, CertainTeed alleges wrongful conduct occurred in Pennsylvania, including obtaining CertainTeed confidential information and trade se c re ts. Although Demey now seeks employment in Georgia, Demey and Nichiha would b e sharing and utilizing confidential information and trade secrets which originated, and a re stored, in Valley Forge, Pennsylvania.7 In addition, CertainTeed alleges contract

of trade secrets occurred in Pennsylvania and alleges the unfair competition may have occurred in Pennsylvania. See Paul Green Sch. of Rock Franchising, 2009 WL 129740, at *2. Therefore, venue does not rest solely on the situs of a trade secret. Nichiha also allege ProModel applies because, as in ProModel, CertainTeed is attempting to forum shop. See Nichiha's Reply at 11-12. Unlike ProModel, where the only connection to Pennsylvania was economic harm suffered, here CertainTeed alleges wrongful conduct occurred in Pennsylvania and the employment agreement provides Pennsylvania law 11
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n e g o tia tio n s between Nichiha and Demey occurred while Demey was in Pennsylvania. Therefore, a "substantial part of the events or omissions giving rise to the claim[s]" a g a in s t Nichiha occurred in Pennsylvania. Accordingly, I find venue is proper as to both Nichiha and Demey.

C.

TRANSFER

A district court may transfer venue "[f]or the convenience of the parties and w itn e ss e s, in the interest of justice." 28 U.S.C.A. § 1404(a). A trial court has discretion to determine whether a civil action should be transferred. See Jumara v. State Farm Ins. C o ., 55 F.3d 873, 879 (3d Cir. 1995); Perry v. Markman Capital Management, Inc., 2002 W L 31248038, at *9 (E.D. Pa. Oct. 4, 2002). To transfer a civil action, a court must d e ter m in e whether the action could have been brought in the district to which transfer is s o u g h t and, if so, whether venue in that district is proper and whether the district can e x e rc is e jurisdiction over all defendants. See Demey's Memorandum (citing Hayes, 2009 U .S . Dist. LEXIS 53074, No. 08-293 and Shutte v. Armco Steel Corp., 431 F.2d 22, 24 ( 3 d Cir. 1970)). Here, there is no dispute that the Northern District of Georgia is a p ro p e r venue. See Omnibus Response of Plaintiff CertanTeed Corporation to D e f en d a n ts ' Motion to Dismiss, Transfer, or Stay, CertainTeed Corp. v. Nichiha, No. 93 9 3 2 (E.D. Pa. filed Sept. 8, 2009) (not arguing Georgia is not a proper venue).

applies. 12

W h e n considering a motion to transfer venue, Courts look to both public and p riv a te factors. The private factors considered are: (1) plaintiff's forum preference as m a n if e ste d in the original choice; (2) the defendant's preference; (3) whether the claim a ro s e elsewhere; (4) the convenience of the parties as indicated by their relative physical a n d financial condition; (5) the convenience of the witnesses; and (6) the location of the b o o k s and records. Jumara, 55 F.3d at 879. T h e public factors to be considered are: (1) the enforceability of the judgment; (2) p ra c tic a l considerations that could make the trial easy, expeditious, or inexpensive; (3) the re la tiv e administrative difficulty in the two forums resulting from Court congestion; (4) th e local interest in deciding local controversies at home; and (5) the familiarity of the tria l judge with the applicable state law in diversity cases. Id. at 879-80. A lth o u g h Demey chose Georgia for the Georgia Action, CertainTeed, plaintiff in th is case and defendant in the Georgia Action, chose Pennsylvania for this action. The p la in tif f 's choice of forum should be a "paramount consideration." Shutte v. Armco Steel C o rp., 431 F.2d 22, 25 (3d Cir. 1970). CertainTeed's key witnesses, including Demey's su p erv isors, are located in this district, and the documents relating to Demey's e m p lo ym e n t are maintained on servers located in the Valley Forge office. In addition, for th e non-party witnesses, the Eastern District of Pennsylvania is as convenient as Georgia. A motion to transfer should not be used to shift inconvenience from one party to another. See Perry v. Capital Management, Inc., 2002 WL 31248038, at *9 (E.D. Pa. Oct. 4, 2002)

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(citing Elbeco Inc. v. Estrella de Plat Corp., 989 F. Supp. 669, 679 (E.D. Pa. 1997)) T h e public factors also weigh against transfer. CertainTeed's headquarters is lo c a te d in Pennsylvania. In addition, the Pennsylvania Action involves issues of P e n n s ylv a n ia law, and the Eastern District of Pennsylvania is more familiar with applying th is law than the Northern District of Georgia. Nichiha argues the case should be transferred to Georgia because where two cases in v o lv e "precisely the same issues," the presence of related litigation in a different venue is "powerful" and may "tilt the balance in favor of transfer." See Defendant's Reply at 14 (c itin g Weber v. Basic Comfort Inc., 155 F. Supp. 2d 283, 286 (E.D. Pa. 2001)). As d is c u ss e d above, however, the Pennsylvania Action and the Georgia Action do not in v o lv e the same issues. Moreover, the Federal Court in Georgia has limited the granted p re lim in a ry relief to Georgia. Therefore, this factor does not require transfer. Therefore, this action will not be transferred to the Northern District of Georgia. A n appropriate order follows.

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