Des-Case Corporation v. Madison Industries Holdings LLC et al

Filing 75

MEMORANDUM AND ORDER TRANSFERRING CASE. Defendant's Motion To Transfer ( 42 ) is granted, and this case is transferred to the District Court for the District of Delaware. Signed by District Judge William L. Campbell, Jr on 4/17/18. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(gb)

IN THE UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
DES-CASE CORPORATION,
Plaintiff,
v.
MADISON INDUSTRIES HOLDINGS
LLC, et al.,
Defendants.

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NO. 3:17-cv-01239
JUDGE CAMPBELL
MAGISTRATE JUDGE BROWN

MEMORANDUM AND ORDER
I. Introduction
Pending before the Court are Defendants Madison Industries And Todd Technologies’
Motion To Transfer (Doc. No. 42), Plaintiff’s Response (Doc. No. 64), and Defendants’
Reply (Doc. No. 68).1 Through a Notice Of Joinder (Doc. No. 67), Defendant Filtration
Group Corporation has joined in the Motion To Transfer.
For the reasons set forth below, Defendants’ Motion To Transfer (Doc. No. 42) is
GRANTED. Accordingly, this action is TRANSFERRED to the District Court for the
District of Delaware.
II. Factual and Procedural Background
Through its Second Amended Complaint, Plaintiff Des-Case Corporation, a Tennessee
corporation with its principal place of business in Goodlettsville, Tennessee, names as
Defendants Madison Industries Holdings LLC, Filtration Group Corporation, and Todd

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The Court commends counsel for both parties for providing well-written and concise
briefs on the relevant issues.

Technologies Inc. LLC. (Doc. No. 66, at ¶¶ 1-4). Plaintiff alleges that, in 2014, Defendant
Madison Industries explored the prospect of buying an interest in Plaintiff, but Plaintiff’s
majority owner at the time, Pfingsten Partners, was not interested in the offer and negotiations
ended. (Id., at ¶ 10). According to Plaintiff, in late 2015 or early 2016, Pfingsten Partners
explored an interest in selling Plaintiff and hired Craig-Hallum Capital Group LLC (“CraigHallum”) to explore the sale of the company and recruit bidders. (Id., at ¶ 11). The proposed
sale was known by the code name “Project Purify.” (Id.) On February 22, 2016, Plaintiff
alleges, Craig-Hallum entered into a Confidentiality and Non-Disclosure Agreement (“NDA”)
with Defendant Madison Industries. (Id., at ¶ 13). Plaintiff further alleges that the NDA:
. . . provided that Craig-Hallum and Des-Case would share extensive
confidential information about ‘Purify’ or Des-Case for the sole purpose of
allowing Madison Industries to determine if they wanted to purchase DesCase. Des-Case was a third-party beneficiary of the NDA, which is attached to
this Complaint as Exhibit A, but was not a signatory to it.
(Id., at ¶ 13).
According to Plaintiff, Craig-Hallum shared Des-Case confidential information and
trade secrets with Defendant Madison Industries, as well as Madison’s representative,
Defendant Filtration Group. (Id., at ¶¶ 16-20). Plaintiff alleges that Defendant Madison
Industries subsequently made a purchase bid for the company that was unsuccessful. (Id., at ¶
22). Plaintiff contends that Defendants Madison Industries and Filtration Group then used
Plaintiff’s confidential information to design and market a competing line of products, and
formed Defendant Todd Technologies for that purpose. (Id., at ¶ 23). Plaintiff alleges that
Defendants are also contacting Plaintiff’s customers in an effort to sell these products. (Id., at
¶¶ 35-38).

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Plaintiff raises the following claims: (1) breach of contract against Defendant Madison
Industries; (2)

civil conspiracy against all Defendants; (3) intentional interference with

business relationships and/or prospective business advantage against all Defendants; (4)
unfair competition under the Lanham Act against all Defendants; (5) common law unfair
competition against all Defendants; (6) violation of the Tennessee Uniform Trade Secrets Act
against all Defendants; (7) breach of the Defend Trade Secrets Act against all Defendants; and
(8) violation of the Tennessee Consumer Protection Act against all Defendants. (Doc. No. 66).
III. Analysis
Defendants argue that this case should be transferred to Delaware, pursuant to 28
U.S.C. § 1404(a), based on a provision of the NDA. Plaintiff argues, on the other hand, that
neither the provision nor Section 1404 supports Defendants’ transfer request.
Section 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 or division
where it might have been brought or to any district or division to which all parties have
consented.” In ruling on a motion to transfer venue, a court typically considers factors
relating to the convenience of the parties and the public interest. Atl. Marine Const. Co. v.
U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 134 S. Ct. 568, 581, 187 L. Ed. 2d 487
(2013). Factors relating to the convenience of the parties include the relative ease of access to
sources of proof; availability of compulsory process for attendance of witnesses and the cost
of obtaining attendance of willing witnesses; and the possibility of a view of the premises, if
relevant. 134 S.Ct. at 581 n.6. Factors relating to the public interest include the local interest
in having localized disputes decided at home; the administrative difficulties resulting from
court congestion; and the interest in having a trial of a diversity case in a forum at home with
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the law that will be applied. Id. See also Means v. United States Conference of Catholic
Bishops, 836 F.3d 643, 651 (6th Cir. 2016) .
When the parties have entered into an agreement that contains a valid forum-selection
clause, “[t]he calculus changes.” Atl. Marine Const., 134 S.Ct. at 581. The district courts are
to adjust the usual Section 1404(a) analysis by considering arguments about public-interest
factors only, and by giving no weight to the plaintiff’s choice of forum. Id., at 582. In
addition, although the moving party generally bears the burden of demonstrating that transfer
is warranted, a party acting in violation of a valid forum-selection clause bears the burden of
showing that public-interest factors “overwhelmingly disfavor a transfer.” Id., at 583; see also
Means, 836 F.3d at 652 n.7.
In this case, Defendants rely on the following provision of the NDA to support their
transfer request:
10. Choice of Law & Venue. Any dispute or controversy arising out of or
relating to this Agreement shall be governed by Delaware law, without
application of conflicts of law principles, and the Receiving Party agrees to the
exclusive jurisdiction of the courts located in the State of Delaware.
(Doc. No. 66-1, at 4). The NDA identifies the “Receiving Party” as Madison Industries. (Id.,
at 2, 5). The first paragraph of the NDA states that the “Receiving Party” has requested
certain confidential information to evaluate a potential business transaction with the
“Disclosing Party.” (Id., at 2). The “Disclosing Party” is not identified by name, but is
described as being a “client” of Craig-Hallum. (Id.) “As a condition to furnishing such
Confidential Information,” the agreement continues, “the Disclosing Party has required that
the Receiving Party execute this Confidentiality and Non-Disclosure Agreement. . . “ (Id.)
The last page of the agreement states: “IN WITNESS WHEREOF, the undersigned has

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executed this Agreement for the benefit of Disclosing Party . . . ,” and is signed by a
representative of Madison Industries. (Id., at 5).
Plaintiff contends that it disclosed confidential information to Defendant Madison
Industries pursuant to the terms of the NDA, and thus, has standing as a third-party
beneficiary to recover damages and other relief for breach of the agreement. Citing Perez v.
Arch Ins. Co. (Europe), Ltd, 2014 WL 11906639, at *3 (S.D. Fla. Feb. 5, 2015), the parties
agree that “[t]hird-party beneficiaries stand in the shoes of the promisee and are subject to the
terms and conditions of the contract they seek to invoke.” The parties also agree that for a
third-party beneficiary to be bound by a forum-selection clause, it must be “‘closely related’
to the dispute such that it becomes ‘foreseeable’ that it will be bound” by the clause. Baker v.
LeBoeuf, Lamb, Leiby & Macrae, 105 F.3d 1102, 1106 (6th Cir. 1997).
The Court concludes that Plaintiff should be bound to the forum-selection clause
under this standard. First, Plaintiff ‘s agent, Craig-Hallum, represented the Plaintiff as the
“Disclosing Party” in requiring that Madison Industries execute the NDA before receiving
confidential information about the Plaintiff. Indeed, the first paragraph of the agreement
reflects this agency relationship by identifying the “Disclosing Party” as a “client” of CraigHallum. Moreover, the NDA was created “for the benefit of the Disclosing Party,” the
Plaintiff, and on that basis, Plaintiff now seeks damages for its alleged breach. Thus, Plaintiff
is appropriately bound to the terms of the NDA, and its forum-selection clause, as a thirdparty beneficiary. See Regions Bank v. Wyndham Hotel Management, Inc., 2010 WL 908753,
at *6 (M.D. Tenn. Mar. 12, 2010) (explaining that a non-signatory party is sufficiently
“closely related” to the dispute if the party had an agency relationship with one of the signing
parties, or directly benefitted from the agreement).
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Plaintiff argues, however, that even if it is bound to the terms of the NDA, Paragraph
10 of the NDA is not an enforceable, bilateral forum-selection clause. Plaintiff contends that
the provision merely identifies the choice of law for disputes and does not indicate the venue
for disputes. Plaintiff also points out that the provision does not use the word “shall.” In
Plaintiff’s view, the provision should be interpreted as merely indicating Defendant Madison
Industries’ consent to jurisdiction in Delaware, and does not specifically bind any party other
than Madison Industries. In so arguing, Plaintiff does not challenge the enforceability of the
provision in its entirety, but instead invites the Court to accept Plaintiff’s interpretation of that
provision.
In construing the language of a forum-selection clause, the court is to read the
provision “as a whole” and give it “its ordinary and natural meaning.’” Answers in Genesis of
Kentucky, Inc. v. Creation Ministries Int’l, Ltd., 556 F.3d 459, 466 (6th Cir. 2009). Applying
those principles here, the Court concludes that the provision is a valid and enforceable forumselection clause. Paragraph 10 is titled “Choice of Law & Venue,” and a reasonable reading of
the provision clearly indicates that the parties intended to select Delaware as the “venue” for
disputes arising out of the agreement, as well as the choice of law for disputes. As for the
absence of the word “shall,” Plaintiff has failed to cite authority indicating that a forumselection clause must use that term in order to be valid.
Plaintiff’s argument that the clause only binds Madison Industries is belied by the
expansive language of Paragraph 10, which begins with the phrase “[a]ny dispute or
controversy arising out of or relating to this Agreement” and provides for “exclusive
jurisdiction” of Delaware courts. The provision does not merely state that Madison Industries
“consents” to the jurisdiction of Delaware courts, but that it “agrees” to the exclusive
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jurisdiction of Delaware courts, implying the additional consent of another party. Plaintiff’s
strained interpretation would bind both Craig-Hallum (and presumably Plaintiff) and Madison
Industries to application of Delaware law in litigation arising out of any dispute relating to the
agreement, but would permit Craig-Hallum to bring an action to enforce the agreement in
courts outside Delaware, while limiting Madison Industries to the “exclusive jurisdiction” of
the courts in Delaware.
The Court is not persuaded that the parties intended such a tortured interpretation,
especially given that Madison Industries is a Delaware limited liability company, and its
“consent” to jurisdiction would presumably be unnecessary. (Verified Second Amended
Complaint, at § 2 (Doc. No. 66)). To the extent there is any ambiguity in the language on this
point, however, that ambiguity is construed against the party that drafted the agreement,
Plaintiff’s agent, Craig-Hallum. See, e.g., Organizational Strategies, Inc. v. Feldman Law
Firm LLP, 15 F. Supp. 3d 527, 530 (D. Del. 2014).
The cases cited by Plaintiff to support its argument do not address the circumstances
presented here. In Answers in Genesis of Kentucky, Inc., 556 F.3d at 465, the clause at issue
provided for the “non-exclusive jurisdiction” of the courts of the State of Victoria, Australia.
In EBI-Detroit, Inc. v. City of Detroit, 279 F. App’x 340, 346 (6th Cir. May 22, 2008), the
court determined that a forum-selection provision did not prevent the defendants from
removing the case from state to federal court in the same state, because the provision did not
address removal. In this case, the issue is not whether the clause prevents Defendants from
removing the case from state to federal court in Tennessee, but whether the clause requires
Plaintiff to litigate in Delaware rather than Tennessee.

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Plaintiff alternatively argues that the forum-selection clause is not broad enough to
cover the tort claims brought in this case. As a general rule, “contract-related tort claims
involving the same operative facts as a parallel claim for breach of contract should be heard in
the forum selected by the contracting parties.” Gen. Envtl. Sci. Corp. v. Horsfall, 25 F.3d
1048 (Table), 1994 WL 228256, at *8 (6th Cir. 1994) (quoting Lambert v. Kysar, 983 F.2d
1110, 1121-22 (1st Cir. 1993)). In this case, Plaintiff’s first claim is for breach of the NDA,
and six of the seven other claims reference the NDA and/or the improper use of the
confidential information Defendants allegedly obtained through the NDA. By contrast, in the
cases cited by Plaintiff in support, the plaintiffs did not pursue claims to enforce or interpret
the contract containing the forum-selection clause, but focused instead on claims arising under
federal and state statutes and state common law that did not depend on enforcement or
interpretation of the contract. See Gen. Envtl. Sci. Corp. v. Horsfall, supra; Fagan v. Fischer,
2015 WL 4321989 (D. N.J. July 14, 2015). The Court is persuaded that the forum-selection
clause in this case is broad enough to cover the claims raised by Plaintiff.
Having determined that Paragraph 10 of the NDA is a valid forum-selection clause
binding the parties and is broad enough to apply to Plaintiff’s claims, the Court must consider
whether Plaintiff has satisfied its burden of showing that public-interest factors
“overwhelmingly disfavor a transfer.” Atl. Marine Const., 134 S.Ct. at 583. As set forth
above, factors relating to the public interest include the local interest in having localized
disputes decided at home; the administrative difficulties resulting from court congestion; and
the interest in having a trial of a diversity case in a forum at home with the law that will be
applied. Id. at 581 n. 6.

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Plaintiff argues that it is not in the public interest to grant Defendants’ request to
transfer because Defendants have engaged in “gamesmanship” in this litigation. Specifically,
Plaintiff contends that “it is against the public interest to countenance the deliberate
gamesmanship exhibited by Todd Technologies’ efforts to remove itself from Colorado and
establish jurisdiction over itself in Delaware after allowing Plaintiff’s amendment deadline to
expire.” (Doc. No. 64, at 14). For its part, Defendant Todd Technologies has filed the affidavit
of its President, Todd A. Younggreen, stating that the company was incorporated in Delaware
before this litigation began, and that it inadvertently filed incorporation forms in Colorado,
rather than the forms for registering as a foreign entity. (Doc. No. 43-1). That error has now
been corrected. (Doc. No. 64-1). Plaintiff also points to Defendants’ delay in identifying
Defendant Filtration Group Corporation, rather than Filtration Group LLC, as the
appropriately-named defendant. In response, Defendants represent that they put Plaintiff on
notice early on in this litigation as to the proper defendant. The Court is not persuaded that
these disputes among the parties weigh against transfer.
Additionally, Plaintiff argues that transfer would result in a multiplicity of litigation in
different districts because Todd Technologies is not bound by the NDA. The prospect of
multiple lawsuits appears unlikely, however, as all three defendants have indicated their
support for transferring this case to Delaware. (Doc. No. 67). Thus, this factor does not weigh
against transfer.
For their part, Defendants argue that transfer is appropriate because the courts in this
District are congested. Plaintiff disputes that characterization. The Court is not persuaded that
either party has shown that this factor significantly favors either side in this analysis.

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Defendants also point out, and the Court agrees, that the desirability of having a
Delaware court apply Delaware law, as required by the NDA, in deciding the issues in this
case favors transfer.
Having considered the public-interest factors, therefore, the Court finds that Plaintiff
has failed to meet its burden of showing that the factors overwhelmingly disfavor a transfer.
Thus, pursuant to Section 1404(a), the Court concludes that this case should be transferred to
the District Court for the District of Delaware.
IV. Conclusion
For the reasons set forth herein, Defendant’s Motion To Transfer (Doc. No. 42) is
granted, and this case is transferred to the District Court for the District of Delaware.
It is so ORDERED.
_________________________________
WILLIAM L. CAMPBELL, JR.
UNITED STATES DISTRICT JUDGE

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