College Envy, LLC v. Dirty World, LLC
Filing
22
REPORT AND RECOMMENDATION: The Magistrate Judge recommends that the motion to transfer the case to the District Court of Arizona be granted and the case be transferred under the Court's inherent authority, or if there is a lack of personal jurisdiction, under 28 U.S.C. § 1406(a). Signed by Magistrate Judge Joe Brown on 1/6/2016. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
COLLEGE ENVY, LLC,
)
)
)
)
)
)
)
)
)
Plaintiff
v.
DIRTY WORLD, LLC,
Defendant
TO:
No. 3:15-0960
Senior Judge Haynes/Brown
Jury Demand
THE HONORABLE WILLIAM J. HAYNES, JR.
REPORT AND RECOMMENDATION
For
the
reasons
stated
below,
the
Magistrate
Judge
recommends that the Defendant’s motion to change venue (Docket
Entry 17) be granted and this case be transferred to the District
of Arizona pursuant to the Court’s inherent authority under the
first-to-file rule or alternatively under 28 U.S.C. § 1406(a).
BACKGROUND
This case involves a photograph entitled “Baby Keg” that
was published on the Defendant’s website. The photograph was
copyrighted by Mr. Palacios on behalf of the Plaintiff, College
Envy, LLC. It appears that the photograph generated a considerable
stir at the time because it reportedly showed college students
serving beer to an infant. It further appears that there was an
investigation to see if any criminal law was violated by the
individuals participating in the photograph.1
1
It appears the photo was taken by Mr. Palacios as a family joke and
no beer was consumed by the child.
According to the complaint (Docket Entry 1) the Plaintiff
sent the Defendant a notice demanding that the photograph be
removed
(Docket
Entry
9-4).2
There
was
no
response
and
the
photograph remained for viewing.
The matter remained dormant between the parties until
June 2, 2015, when counsel for the Plaintiff sent a demand letter
(Docket
violated
Entry
the
20-1)
stating
copyright
law
that
by
the
making
subject
photograph
commercial
use
of
had
the
Plaintiff’s copyrighted material and demanding that the Defendant
respond within 20 days and offering a settlement of $150,000.
Attached to the letter was a proposed complaint which the Plaintiff
stated would be filed unless there was a response received within
the 20-day period.
The Defendant’s response was 21 days later (June 23,
2015) to file its own lawsuit against the Plaintiff in the District
of Arizona, Dirty World, LLC v. College Envy, LLC, No. 2:15-CV01152-JJ2).
In its Arizona complaint, Dirty World seeks declaratory
judgement that the activities in publishing the photograph did not
constitute an infringement and is entitled to protection under the
Digital Millennium Copyright Act, 17 U.S.C. § 512, et seq. (DMCA).
Dirty World also seeks a declaration that the photograph was fair
2
The email to the Defendant stated that the photograph apparently
was stolen from the copyright owner and posted by unknown individuals.
It further stated that the Plaintiff was not interested in litigating the
matter, but wanted the photograph removed. The photograph was not
removed.
2
use, and finally, a declaration that placing its logo on the
photograph does not constitute an infringement under 17 U.S.C. §
1202.
College Envy promptly moved to dismiss the Arizona case
for lack of jurisdiction, or in the alternative, to transfer the
case to the Middle District of Tennessee on July 29, 2015 (Docket
Entry 12 in the Arizona case). The matter was fully briefed in
Arizona.
On November 9, 2015, Judge Tuchi entered an order denying
College Envy’s motion to dismiss for lack of personal jurisdiction,
or in the alternative, to transfer the matter to the Middle
District of Tennessee. Judge Tuchi entered an extensive and wellreasoned opinion, setting out a good bit of the background of the
dispute over the photograph and holding that College Envy was
subject to jurisdiction in the District of Arizona, and further,
after considering the various grounds for changing the venue,
denying a change of venue to the Middle District of Tennessee. A
copy of the Arizona complaint and Judge Tuchi’s rulings are
contained in the Tennessee case (Docket Entry 15, Attachments 1 and
2).
From
a
review
of
the
docket
sheet
in
Arizona,
it
appears that the case is set for a scheduling conference before
Judge Tuchi on January 25, 2016.
The parties have fully briefed the matter in this case
(Docket Entries 17, 18 and 20). The matter has been referred to me
3
for case management and a report and recommendation as to any
dispositive matter (Docket Entry 21). This case is presently under
a scheduling order (Docket Entry 15) and a trial date has been set
for October 25, 2016 (Docket Entry 19).
This matter is ready for decision.
LEGAL DISCUSSION
The Magistrate Judge believes that the Defendant’s motion
for
a
change
of
venue
should
be
granted.
In
view
of
this
recommendation, the Magistrate Judge does not believe that it is
necessary to discuss in any detail the alternative motion of the
Defendant to dismiss the case for lack of jurisdiction.
The Magistrate Judge would note that in support of the
motion to dismiss the Defendant attached the affidavit of Nik
Lamas-Richie. (Docket Entry 17-3). While this declaration purports
to have a good deal of information about how Dirty World works, and
why it has no real contacts with Tennessee, the Magistrate Judge
did not consider it because the individual giving it provides no
indication of how the information was acquired or what his job is
with the company. In the second paragraph of the declaration he
simply states that he is employed by Dirty World. There is no
indication whether he is a high ranking officer or a janitor. From
the other affidavits filed in the case (Docket Entries 17-1 and 172) on behalf of the Defendant, and on behalf of the Plaintiff
(Docket Entry 20-2 and 20-10) it appears that although Dirty World
has limited contacts with Tennessee, it nevertheless has sufficient
4
contacts to meet the bare minimums of International Shoe Company v.
Washington, 327 U.S. 310 (1945). The Defendant received and posted
material from all over the United States on its web site. According
to the affidavit of Mr. Brooks (Docket Entry 20-10), 748 of the
posts are from Tennessee, including 548 from Nashville, as well as
posts from three separate universities in Tennessee. It appears
that the Defendant responded to a number of the posts using the
signature “Nik.” (Docket Entry 20-11).
The
Plaintiff
also
cites
the
Defendant
actively
participated in litigation against it in Memphis in the case of
Gauck v. Karamian, 805 F. Supp. 2d, 495 (W.D. Tenn. 2011). It is
interesting to note that many of the arguments Dirty World used in
the Arizona case to convince the District Judge there that College
Envy had sufficient contacts to be subject to the jurisdiction of
Arizona apply to show cause why, when the shoe is on the other
foot, Dirty World is subject to jurisdiction in Tennessee.
It appears to the Magistrate Judge that although the
contacts in Tennessee for Dirty World are less than the contacts in
Arizona
for
College
Envy,
nevertheless
they
are
minimally
sufficient for the Plaintiff, who has the burden of proof to
establish jurisdiction. The Plaintiff shows Dirty World accepts
posts from Tennessee residents and maintains information about
Tennessee schools, and that it responds to various correspondence
from Tennessee residents as well as soliciting advertising nation
wide.
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The Sixth Circuit in Neogen Corp. v. Neo Gen Screening,
Inc., 282 F.3d 883 (6th Cir. 2002) pointed out that while merely
maintaining
a web site outside of Tennessee which can be accessed
by Tennessee residents does not, in itself, constitute purposeful
availment of the privilege of operating in the Plaintiff’s state.
The fact that Dirty World shows itself as welcoming advertisement
from anyone supports purposeful availment. Its site is not passive;
it is interactive. The Neogen Court also noted that the fact that
the contacts, while an insignificant percentage of the company’s
overall business was not determinative, the issue was whether they
represented something more than random, fortuitous or attenuated
contacts.
While the contacts are minimal, the Magistrate Judge
nevertheless concludes that they do meet the bare minimum. Even if
there were no personal jurisdiction, this Court still has the
ability to transfer this case under 28 U.S.C. § 1406. See Pittock
v. Otis Elevator Co., 8 F.3d 325, 329 (6th Cir. 1993) (citing
Goldlawr, Inc. v. Heiman, 369 U.S. 463 (1962)). The Magistrate
Judge also notes that the lack of jurisdiction was presented as an
alternative argument.
The Magistrate Judge will now turn to the principal
argument
of
whether
a
change
of
venue
is
appropriate.
The
Magistrate Judge believes that under the first-to-file rule, the
case should be transferred. As an initial matter, it must be noted
that the first-to-file rule is not a strict rule, but is a doctrine
6
that encourages comity among courts of equal rank. AmSouth Bank v.
Dale, 386 F.3d 763, 791 n.8 (6th Cir. 2004), this rule generally
applies
where:
(1)
the
two
actions
involve
nearly
identical
parties; (2) the two actions involve nearly identical issues ; and
(3) no equitable
reasons or special circumstances are present to
defeat the first-to-file rule. Long v. CVS Caremark Corp., 2010 WL
547143 at *2 (Ohio, Feb. 11, 2010). When these conditions are met
the court where the first case was filed should generally proceed
to judgment. Nanologix, Inc. v. Novak, 2013 WL 6443376 (S.D. Ohio).
When the first-to-file rule is properly raised, a district court
presiding over the second-filed case has four possible actions: (1)
dismissing the case without prejudice; (2) transferring the secondfiled case to the district in which the first-filed case is
pending; (3) stay the proceedings in the second-filed case while
the first-filed court decides whether to retain or relinquish
jurisdiction; or (4) proceed without interruption. Id. at *2.
As the Plaintiff points out in its brief, the first-tofile rule is not a hard and fast rule. It is more in the nature of
a guideline. The Plaintiff strenuously argues that the Defendant
jump-filed
its
case,
rather
than
entering
into
settlement
discussions, to obtain a favorable forum by suing, rather than
negotiating. The Plaintiff cites the Sixth Circuit case of Zides
Sport Shop of Ohio, Inc. v. Ed Tobergate Assoc., 16 F. App’x 433
(6th Cir. 2001). In Zides, the court pointed out that while the
court in which the first suit was filed generally should proceed to
7
judgment, there are exceptions. 16 F. App’x at 437. The Plaintiff
who is allowed to file first does not have an absolute right to
bring a declaratory judgment in the forum of his choosing. Id.
(citing Tempco Electric Heater Corporation v. Omega Engineering,
Inc., 819 F.2d 746, 749-50 (7th Cir. 1987)). The court further
pointed out that the Sixth Circuit has never adhered to a rigid
first-to-file rule. Id. The court noted that factors against
enforcement
of
the
first-to-file
rule
include
extraordinary
circumstances, inequitable conduct, bad faith, and forum shopping.
Id. (citing Alltrade, Inc. v. Uniweld Products, Inc., 946 F.2d 622,
628 (9th Cir. 1991)). The Zides court went on to point out the
first-to-file rule should not apply where the first-to-file party
acted in bad faith. Id. at 438. The court noted that the plaintiff
in the first-to-file case there had misled the defendant by going
along with written correspondence about settlement while, in fact,
the plaintiff had already filed but not served a declaratory
judgement action. Id.
In particular, the Zides plaintiff filed its case one day
before the date the parties had negotiated as a deadline for
continuing settlement discussions. Id. The Sixth Circuit noted that
the District Court stated:
If plaintiff’s conduct was not mere deceptive
gamesmanship then they would have informed the
defendant that they did not intend to make another
settlement offer and that they preferred to seek a
judicial resolution. If it was not gamesmanship
Plaintiff would not have filed suit in this court
during the extension period they requested for
8
their new counsel. If it was not gamesmanship they
would have informed the Defendant in the March 26,
1999, letter that they had filed suit.
Id. The court also found that the defendant actually would have
filed its own action much earlier had the plaintiff not requested
the extension period. Id.
In this case there is no such misleading by the Defendant
Dirty World. Counsel for the Plaintiff demanded a response within
20 days or the Plaintiff would take legal action. Defendant Dirty
World waited 21 days and then filed its suit. Dirty World made no
effort to negotiate or request more time to consider the demand. As
Dirty World pointed out in a later email to the Plaintiff’s
counsel, Dirty World disputed liability and believed that this was
a good case to establish legal principles concerning the DMCA.
One of the purposes of the first-to-file rule is to
prevent inconsistent results of similar cases. Another purpose is
to prevent the unnecessary duplication of court efforts. The
District Judge in Arizona has specifically ruled that College Envy
is subject to jurisdiction in Arizona and has denied its motions to
transfer the case for the convenience of the parties to the Middle
District of Tennessee. For this Court to deny the motion to
transfer would result in two district courts trying the same facts
on parallel tracks. Were this a case where the Arizona court had
not ruled on jurisdiction, or the motion had been pending for an
unusual amount of time, there might be a stronger argument for this
9
Court to allow this case to proceed. However, that is not the case.
The Arizona court has ruled and the case is set to proceed there.
The District Judge in Arizona has issued a well-written opinion
stating why the case there should not be transferred for the
convenience of the parties. While the Plaintiff in this case has
argued that it would be more convenient for the Plaintiff to have
the case tried in Tennessee, one side or the other will be
inconvenienced by having the suit tried in the other’s home
district. This is not a case where Defendant Dirty World has picked
a district where they have limited connections. Although, as the
Plaintiff
points
out,
Defendant
Dirty
World
is
a
Delaware
corporation, it is clear from the affidavit of its president and
owner that it is headquartered in Arizona and conducts the majority
of its business from that district. It is also clear that the
photograph in question was taken in and initially published in
Arizona. The District Court in Arizona fairly analyzed the factors
for transfer.
Plaintiff
College
Envy
argues
that
it
is
a
small
corporation and that it will be more expensive for the Plaintiff to
litigate in Arizona, rather than in Tennessee. The Plaintiff has
not presented any specific evidence about its financial status,
other than to argue that it is a small company (Docket Entry 20-2).
After carefully reviewing the pleadings in both the case
in Arizona and this case, the Magistrate Judge is unable to
conclude that Defendant Dirty World acted in an improper way or in
10
any fashion misled College Envy before filing the suit in Arizona.
Dirty World simply received the Plaintiff’s demand for $150,000,
viewed it as unreasonable and presenting an opportunity to resolve
several issues about the DMCA and chose to file its action then and
there,
rather
than
engage
in
settlement
discussions.
While
settlement should be encouraged, it is not required before filing
suit. It should be noted that Dirty World did wait until the
expiration of the 20 days given by the Plaintiff to respond before
filing its lawsuit. In College Envy’s memorandum, College Envy
argues that Dirty World’s counsel attempted to mislead College Envy
about
the
statute
of
limitations,
citing
an
email
from
the
Plaintiff’s counsel (Docket Entry 20-5). In that email counsel for
Dirty World stated that he believed that the statute of limitations
for filing College Envy’s lawsuit suit would not expire in three
years so long as the photograph remained posted. He also advised
that damages would be limited to the three years prior to the
filing of the case. The Magistrate Judge sees nothing misleading
about this statement and, in any case, it was made after Dirty
World filed its suit in Arizona.
Accordingly, the Magistrate Judge believes that the
first-to-file rule should be used in this case. The District Court
in Arizona has denied a motion to dismiss or transfer. It would be
a waste of judicial resources to continue this litigation in two
separate proceedings. Considering the four options available, for
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the reasons stated above, the Magistrate Judge believes that
transfer is the most appropriate.
RECOMMENDATION
For
the
reasons
stated
above,
the
Magistrate
Judge
recommends that the motion to transfer the case to the District
Court of Arizona be granted and the case be transferred under the
Court’s inherent authority, or if there is a lack of personal
jurisdiction, under 28 U.S.C. § 1406(a).
Under Rule 72(b) of the Federal Rules of Civil Procedure,
any
party
has
14
days
from
receipt
of
this
Report
and
Recommendation in which to file any written objections to this
Recommendation with the District Court. Any party opposing said
objections shall have 14 days from receipt of any objections filed
in this Report in which to file any responses to said objections.
Failure to file specific objections within 14 days of receipt of
this Report and Recommendation can constitute a waiver of further
appeal of this Recommendation. Thomas v. Arn, 474 U.S. 140 106 S.
Ct. 466, 88 L.Ed.2d 435 (1985), Reh’g denied, 474 U.S. 1111 (1986).
ENTERED this 6th day of January, 2016.
/s/
Joe B. Brown
JOE B. BROWN
United States Magistrate Judge
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