ECIMOS, LLC v. Carrier Corporation
Filing
39
ORDER denying 13 Motion to Dismiss. Signed by Judge Jon Phipps McCalla on 5/4/2016. (McCalla, Jon)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
________________________________________________________________
ECIMOS, LLC,
)
)
Plaintiff,
)
)
v.
)
Case No. 2:15-cv-2726-JPM-cgc
)
CARRIER CORPORATION,
)
)
Defendant.
)
________________________________________________________________
ORDER DENYING MOTION TO DISMISS, OR IN THE ALTERNATIVE TO STAY
COMPLAINT
________________________________________________________________
Before the Court is Defendant Carrier Corporation’s
(“Carrier”) Motion to Dismiss, or in the Alternative to Stay
Complaint, filed December 22, 2015.
(ECF No. 13.)
responded in opposition on January 21, 2016.
(ECF No. 15.)
Defendant filed a reply brief on February 4, 2016.
20.)
Plaintiff
(ECF No.
The Court held a hearing on the motion on February 25,
2016.
(Min. Entry, ECF No. 32.)
For the following reasons, the Court DENIES Defendant’s
Motion to Dismiss, or in the Alternative to Stay Complaint.
I.
BACKGROUND
This case involves allegations that Defendant began
developing its own version of the proprietary software licensed
to it by ECI, Plaintiff’s predecessor, by reverse-engineering
the software and, in doing so, disseminated confidential
information to unauthorized users.
28.)
(Am. Compl. ¶ 33, ECF No.
Based on these allegations, Plaintiff asserts claims for
breach of the software licensing agreement, misappropriation of
trade secrets, conversion, violation of the Digital Millennium
Copyright Act, and violation of the Copyright Act.
71.)
(Id. ¶¶ 41-
Defendant denies these allegations and brings three
counterclaims, alleging that Plaintiff’s claims, including the
claim for misappropriation of trade secrets, were brought in bad
faith and that Plaintiff breached a service contract.
(Answer
to Am. Compl. & Am. Countercl. at 15-18, ECF No. 35.)
Plaintiff filed a Complaint in the Chancery Court of
Tennessee for the Thirtieth Judicial District at Memphis on
October 26, 2015.
(Compl., ECF No. 1-3.)
Defendant removed
this action to federal court on the basis of federal question
jurisdiction on November 6, 2015.
1.)
(Notice of Removal, ECF No.
Defendant filed an Answer and Counterclaim on November 18,
2015.
(Answer & Countercl., ECF No. 7.)
Plaintiff filed an
Answer to Defendant’s Counterclaim on December 10, 2015.
(ECF
No. 9.)
On December 22, 2015, Defendant filed the instant Motion to
Dismiss, or in the Alternative to Stay Complaint of ECIMOS, LLC,
for failing to join Patrick White and Engineered Controls and
Integration, LLC (“New ECI”) as necessary parties and arguing
that the case should be stayed pending a state court
2
determination of the ownership of the copyrights at issue.
ECF No. 13.)
2016.
Plaintiff responded in opposition on January 21,
(ECF No. 15.)
reply brief.
(See
On February 4, 2016, Defendant filed a
(ECF No. 20.)
motion on February 25, 2016.
The Court held a hearing on the
(Min. Entry, ECF No. 32.)
By stipulation, Defendant filed an Amended Answer to
Complaint and Counterclaim on February 8, 2016.
Countercl., ECF No. 22.)
(Am. Answer &
With leave of Court, Plaintiff filed
an Amended Complaint on February 16, 2016, which modified only
the ad damnum request.
(Am. Compl., ECF No. 28; see also Mot.
to Amend, ECF No. 24.)
Plaintiff filed an Answer to Defendant’s
Counterclaim on February 25, 2016.
No. 33.)
(Answer to Countercl., ECF
On March 1, 2016, Defendant filed an Answer to
Plaintiff’s Amended Complaint and Amended Counterclaim.
to Am. Compl. & Am. Countercl., ECF No. 35.) 1
(Answer
Plaintiff filed an
Answer to Defendant’s Amended Counterclaim on March 24, 2016.
(Answer to Am. Countercl., ECF No. 37.)
1
Generally, the filing of an amended complaint renders moot any pending
motion to dismiss the original complaint. See Parry v. Mohawk Motors of
Mich., Inc., 236 F.3d 299, 306 (6th Cir. 2000) (“when plaintiff filed amended
complaint, new complaint supersedes all previous complaints and controls case
from that point forward” (citing In re Atlas Van Lines, Inc., 209 F.3d 1064,
1067 (8th Cir. 2000))). In the instant case, however, Plaintiff’s Amended
Complaint modifies only the ad damnum request and does not modify any legal
theory or factual basis for Plaintiff’s claims. Additionally, at the hearing
on the Motion to Dismiss, the parties agreed that the filing of the Amended
Complaint had no effect on the arguments raised in the Motion to Dismiss.
Accordingly, the Court finds that the Motion to Dismiss is not moot, and
considers the arguments therein as they apply to the Amended Complaint.
3
II.
LEGAL STANDARD
A.
Rule 12(b)(7) Motion to Dismiss
Rule 12(b)(7) of the Federal Rules of Civil Procedure
provides that a party may seek dismissal of an action for
“failure to join a party under Rule 19.”
“As the Fifth Circuit
indicated in Schutten v. Shell Oil Company, [421 F.2d 869, 873
(5th Cir. 1970),] the essence of Rule 19 is to balance the
rights of all those whose interests are involved in the action.”
7 Charles Alan Wright et al., Federal Practice & Procedure Civil
§ 1602 (3d ed. 2001).
According to the court in Schutten,
[t]he plaintiff has the right to “control” his own
litigation and to choose his own forum. This “right”
is, however, like all other rights, “defined” by the
rights of others. Thus the defendant has the right to
be safe from needless multiple litigation and from
incurring
avoidable
inconsistent
obligations.
Likewise the interests of the outsider who cannot be
joined must be considered.
Finally, there is the
public interest and the interest the court has in
seeing that insofar as possible the litigation will be
both effective and expeditious.
421 F.2d at 873.
The Sixth Circuit uses a three-part test to determine
whether a party is indispensable under Rule 19.
Laethem Equip.
Co. v. Deere & Co., 485 F. App’x 39, 43 (6th Cir. 2012); Soberay
Mach. & Equipment Co. v. MRF Ltd., Inc., 181 F.3d 759, 763-64
(6th Cir. 1999).
First, the court must determine whether the
party is necessary to the action under Rule 19(a).
4
Laethem, 485
F. App’x at 43; Soberay, 181 F.3d at 763-64.
A person is
necessary if:
(A) in that person’s absence, the court cannot accord
complete relief among existing parties; or
(B) that person claims an interest relating to the
subject of the action and is so situated that
disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the
person’s ability to protect the interest; or
(ii) leave an existing party subject to a
substantial risk of incurring double, multiple,
or otherwise inconsistent obligations because of
the interest.
Fed. R. Civ. P. 19(a)(1).
Second, if the person is a necessary party, the court must
decide if joinder will deprive the court of jurisdiction.
Glancy v. Taubman Ctrs., Inc., 373 F.3d 656, 666 (6th Cir.
2004).
If the court has personal jurisdiction over the person
and joinder will not destroy subject matter jurisdiction, then
the person should be joined.
Soberay, 181 F.3d at 764.
If the
court cannot exercise jurisdiction, then “the court must proceed
to the third step which involves an analysis under 19(b) to
‘determine whether in equity and good conscience the action
should proceed among the parties before it, or should be
dismissed, the absent person thus regarded as indispensable.’”
Id. (quoting Fed. R. Civ. P. 19(b)).
To evaluate
indispensability under Rule 19(b), courts consider four factors:
5
1) to what extent a judgment rendered in the person’s
absence might prejudice the person or those already
parties; 2) the extent to which the prejudice can be
lessened or avoided; 3) whether a judgment rendered in
the person’s absence will be adequate; and 4) whether
the plaintiff will have an adequate remedy if the
action is dismissed for nonjoinder.
Id.
B.
Colorado River Doctrine
Generally, a pending state court action is no bar to
federal proceedings.
Colo. River Water Conservation Dist. v.
United States, 424 U.S. 800, 817 (1976).
In “exceptional
circumstances,” however, the Colorado River doctrine permits a
federal court to stay an action pending resolution of a similar
state action based on judicial economy and federal-state comity.
Id. at 813; see Caudill v. Eubanks Farms, Inc., 301 F.3d 658,
660 (6th Cir. 2002) (“Abstention is ‘an extraordinary and narrow
exception to the duty of a District Court to adjudicate a
controversy properly before it.’” (quoting Colo. River, 424 U.S.
at 813)).
“[T]he principles underlying this doctrine ‘rest on
considerations of “[w]ise judicial administration, giving regard
to conservation of judicial resources and comprehensive
disposition of litigation.”’”
Romine v. Compuserve Corp., 160
F.3d 337, 339 (6th Cir. 1998) (alteration in original) (quoting
Colo. River, 424 U.S. at 817).
“Before the Colorado River doctrine can be applied, the
district court must first determine that the concurrent state
6
and federal actions are actually parallel.”
Id.
“The state
court proceedings need not be identical, merely ‘substantially
similar.’”
Bates v. Van Buren Twp., 122 F. App’x 803, 806 (6th
Cir. 2004) (quoting Romine, 160 F.3d at 340).
If this threshold
condition is satisfied, the court then turns “to a formal
analysis of the Colorado River test enunciated by the Supreme
Court.”
Romine, 160 F.3d at 340.
“Two cases are substantially similar ‘where (1) the parties
are substantially similar, and (2) [Plaintiff’s] claims against
[Defendants] are predicated on the same allegations as to the
same material facts . . . .”
United Am. Healthcare Corp. v.
Backs, 997 F. Supp. 2d 741, 752 (E.D. Mich. 2014) (alterations
in original) (quoting Doe v. Ann Arbor Pub. Schs., No. 11-15657,
2012 WL 1110015, at *3 (E.D. Mich. Apr. 3, 2012)).
As a general
rule, “[i]f a state court action and a federal action are truly
parallel, resolution of the state court action will also resolve
all issues in the federal action.”
Wright v. Linebarger Googan
Blair & Sampson, LLP, 782 F. Supp. 2d 593, 603 (W.D. Tenn.
2011).
If, however, there is “substantial doubt” that the state
court action “will be an adequate vehicle for the complete and
prompt resolution of the issues between the parties, it would be
a serious abuse of discretion for the district court to stay or
dismiss a case in deference.”
Chellman-Shelton v. Glenn, 197 F.
7
App’x 392, 394 (6th Cir. 2006) (quoting TruServ Corp. v.
Flegles, Inc., 419 F.3d 584, 593 (7th Cir. 2005)).
In Colorado River, the Supreme Court articulated four
factors that must be considered in deciding when abstention is
appropriate: “(1) whether the state court has assumed
jurisdiction over any res or property; (2) whether the federal
forum is less convenient to the parties; (3) avoidance of
piecemeal litigation; and (4) the order in which jurisdiction
was obtained.”
Romine, 160 F.3d at 340-41 (citing Colo. River,
424 U.S. at 818-19).
In subsequent cases, the Supreme Court
identified an additional four factors to be considered,
including “(5) whether the source of governing law is state or
federal; (6) the adequacy of the state court action to protect
the federal plaintiff’s rights; (7) the relative progress of the
state and federal proceedings; and (8) the presence or absence
of concurrent jurisdiction.”
Id. at 341 (citations omitted).
“No one factor is necessarily determinative; a carefully
considered judgment taking into account both the obligation to
exercise jurisdiction and the combination of factors counselling
against that exercise is required.”
818-19.
8
Colo. River, 424 U.S. at
III. ANALYSIS
A.
Rule 12(b)(7) Motion to Dismiss
Defendant asserts that Patrick White and New ECI are
necessary parties because they have brought a state court
lawsuit asserting that they own the software at issue in the
instant case.
(ECF No. 13-3 at 4-6.)
Additionally, Defendant
argues that joinder is not feasible because White and New ECI
would bring additional claims, which would destroy subject
matter jurisdiction.
(Id. at 7.)
Finally, Defendant maintains
that White and New ECI are indispensable parties and, because
White and New ECI cannot be joined, the Court must dismiss this
case.
(Id. at 4-6.)
Plaintiff argues that Defendant waived the defense of
failure to join a necessary party by not asserting it in its
Answer and Counterclaim.
(ECF No. 15 at 6.)
Plaintiff also
contends that ownership of the software is not an issue in the
present lawsuit, and accordingly, White and New ECI are not
necessary or indispensable parties.
(Id. at 8-9.)
Alternatively, Plaintiff argues that if the Court finds that
White and New ECI are necessary parties, joinder is feasible.
(Id. at 9-10.)
1.
Timeliness
As an initial matter, Defendant has not waived the defense
of failure to join a necessary party.
9
Rule 12(h)(1) of the
Federal Rules of Civil Procedure provides that defenses listed
in Rule 12(b)(2)-(5) are waived if not raised in a responsive
pleading.
Rule 12(h)(2) provides, however, that failure to join
a party may be raised “(A) in any pleading allowed or ordered
under Rule 7(a); (B) by motion under Rule 12(c); or (C) at
trial.”
Accordingly, Defendant’s defense that Plaintiff’s case
should be dismissed for failure to join White and New ECI is
timely raised and has not been waived.
2.
White and New ECI are Necessary Parties Under
Rule 19(a)(1)(B)(i) and (a)(1)(B)(ii)
The Court agrees with Defendant that White and New ECI are
necessary parties to this action.
“Rule 19(a) is disjunctive,”
which means that White and New ECI are necessary parties if
either: (1) complete relief in the dispute between ECIMOS and
Carrier cannot be obtained without White and New ECI; (2) White
and New ECI claim an interest in the subject matter of the case,
and disposition of the case without White and New ECI will
impair or impede White and New ECI’s ability to protect their
interests; or (3) White and New ECI claim an interest in the
subject matter of the case, and Carrier will be subject to
multiple or inconsistent obligations if White and New ECI are
not parties.
Hooper v. Wolfe, 396 F.3d 744, 748 (6th Cir.
2005).
10
White and New ECI are necessary parties because they have
an interest in establishing their ownership of the software at
issue and, if found to be the actual owners, in choosing to
litigate or not litigate any claims relating to the misuse of
that software.
White and New ECI have brought a claim against
ECIMOS and Stephen Olita, ECIMOS’s sole owner, in the Chancery
Court of Shelby County, Tennessee for the Thirtieth Judicial
District at Memphis.
(ECF No. 13-1.)
In this Complaint, White
and New ECI assert that “[New] ECI is the rightful owner of the
ECI software.”
(Id. ¶ 18.)
Accordingly, White and New ECI
easily satisfy the definition of persons who “claim[] an
interest relating to the subject of the action,” as they assert
to own the software at issue in the instant action.
Fed. R.
Civ. P. 19(a)(1)(B).
Additionally, White and New ECI are “so situated that
disposing of the action in [their] absence may” both impair
their ability to protect their alleged ownership interest in the
software and leave Carrier subject to a risk of incurring double
obligations.
Fed. R. Civ. P. 19(a)(1).
In the instant case,
Plaintiff’s ownership status affects its standing to bring many,
if not all, of the claims asserted in its Amended Complaint.
Compare Lexmark Int’l, Inc. v. Static Control Components, Inc.,
387 F.3d 522, 534 (6th Cir. 2004) (listing “ownership of a valid
copyright in the computer program at issue” as an element to
11
establish copyright infringement) with Williams-Sonoma Direct,
Inc. v. Arhaus, LLC, 304 F.R.D. 520, 527 (W.D. Tenn. 2015)
(acknowledging that “[w]ho has the right to bring a trade secret
claim appears to be a question that has not been decided under
Tennessee law”).
Thus, the Court will necessarily need to
resolve the issue of ownership to determine whether Plaintiff
has standing to proceed in this action and, for that matter,
whether the Court has jurisdiction to hear all of the claims.
If the Court resolves the ownership issue in White and New ECI’s
absence, their ability to assert their alleged ownership
interest would be impeded.
In its Response and at the hearing on the instant motion,
Plaintiff compared the interests of ECIMOS and White and New ECI
with that of co-owners of a musical copyright. 2
No. 15 at 9.)
(See, e.g., ECF
The instant case does not, however, present an
issue of co-owners.
In this case, ECIMOS asserts that it is the
sole owner of the software.
(Am. Compl. ¶ 5.)
White and New
ECI’s state court complaint shows that they also allege sole
ownership.
(See ECF No. 13-1 ¶ 18.)
Because ECIMOS and New ECI
are “alternative” owners rather than co-owners, and ownership is
2
Specifically, Plaintiff cites to cases from the Second Circuit: ABKCO
Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 971, 980 (2d Cir. 1991),
Davis v. Blige, 505 F.3d 90, 99 (2d Cir. 2007), Edwards B. Marks Music Corp.
v. Jerry Vogel Music Co., 140 F.2d 268, 269 (2d Cir. 1944), and Copyright.net
Music Publ’g LLC v. MP3.com, 256 F. Supp. 2d 214, 218 (S.D.N.Y. 2003). Each
of these cases involves issues of joint ownership, either through assignment
or co-ownership. Additionally, 17 U.S.C. § 501(b) explicitly provides that
“[t]he court may require the joinder . . . of any person having or claiming
an interest in the copyright.”
12
a yet-unsettled issue, there is a risk that ECIMOS’s prosecution
of these claims is not in the best interest of White and New
ECI.
Accord Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26,
39 (1976) (“The necessity that the plaintiff who seeks to invoke
judicial power stand to profit in some personal interest remains
an Art. III requirement.
A federal court cannot ignore this
requirement without overstepping its assigned role in our system
of adjudicating only actual cases and controversies.”) 3
Moreover, if the Court proceeded in White and New ECI’s
absence, Carrier would be at risk of imposing multiple
obligations should this Court and the state court reach
differing conclusions regarding ownership.
In such
circumstance, one could, hypothetically, envision the recovery
of damages by ECIMOS in the instant lawsuit while New ECI
pursues the same claims as authorized by the state court
decision.
Although joining White and New ECI does not eliminate
the possibility of this outcome, it will place all relevant
parties before the Court and allow the Court to consider all
arguments concerning the jurisdictional question of ownership.
3
For example, if ECIMOS’s confidence in its ownership interest
diminishes at any point during the proceedings, ECIMOS might not fully
prosecute these claims and accept a less favorable settlement agreement or
ECIMOS might refuse to negotiate to spite New ECI. Because ECIMOS’s interest
in the software is dependent on New ECI’s lack of interest, ECIMOS would not
adequately protect the interests of New ECI. In contrast, “[a] litigant may
serve as a proxy for an absent party if the interests of the two are
identical.” Ohio Valley Envtl. Coal. V. Bulen, 429 F.3f 493, 504-05 (4th
Cir. 2005); see also Sch. Dist. of City of Pontiac v. Sec’y of U.S. Dep’t of
Educ., 584 F.3d 253, 266 (6th Cir. 2009).
13
The possibility of inconsistent conclusions by this Court and
the state court would, therefore, be diminished.
Accordingly,
White and New ECI are necessary parties under Rule 19(a)(2) and
must be joined if joinder is feasible.
See Keweenaw Bay Indian
Cmty. v. State, 11 F.3d 1341, 1347 (6th Cir. 1993) (upholding
district court’s finding that two absent bands of the Chippewa
Tribe were necessary parties where one band sued the State of
Michigan for overharvesting and failing to regulate lake trout
resources but did not join two other bands who claimed fishing
rights in the lake).
3.
Joinder of White and New ECI is Feasible
The Court finds that joinder is feasible in this instance.
Because the Court has federal question jurisdiction in this
case, there is no risk of destroying subject matter jurisdiction
by joinder.
See PaineWebber, Inc. v. Cohen, 276 F.3d 197,
201-02 (6th Cir. 2001) (finding that joinder would destroy
diversity where “[t]he sole basis for subject matter
jurisdiction . . . [was] diversity of citizenship”).
If White
and New ECI raise additional claims upon joinder, as Defendant
asserts that they will, the Court may then evaluate whether it
has subject matter jurisdiction over those claims.
See Fed. R.
Civ. P. 13 (governing counterclaims and crossclaims).
The Court
need not speculate as to what additional claims the new parties
may bring once joined.
Additionally, there appears to be no
14
dispute that the Court may exercise personal jurisdiction over
White, a citizen of Tennessee, and New ECI, a two-member LLC
whose members are both citizens of Tennessee.
(See White Aff.
¶¶ 1, 5-7, ECF No. 13-2; ECF No. 13-1 at 1.) 4
See also Fed. R.
Civ. P. 4; Flynn v. Greg Anthony Constr. Co., 95 F. App’x 726,
739 (6th Cir. 2003) (“a state has jurisdiction over those
domiciled within its borders” (citing Milliken v. Meyer, 311
U.S. 457, 463-64 (1940))).
Accordingly, the Court finds that
joinder is feasible and that White and New ECI must be joined as
necessary parties. 5
B.
Colorado River Doctrine
Defendant alternatively argues that the instant matter
should be stayed pursuant to the Colorado River doctrine.
No. 13-3 at 8-10.)
(ECF
Specifically, Defendant asserts that
“factors three through eight weigh strongly in favor of
abstention.”
(Id. at 10.)
Plaintiff argues that the Colorado
River doctrine is inapplicable because the instant action and
4
According to White’s affidavit, he is a 51% owner and Olita is a 49%
owner of New ECI. (White Aff. ¶¶ 6-7.) Both White and Olita are citizens of
Tennessee residing in Shelby County. (ECF No. 13-1 at 1.)
5
If White and New ECI refuse to join, then they should be served as
defendants, rather than as involuntary plaintiffs. See Nat’l City Bank of
Mich. v. Forthright III, LLC, No. 08-12540, 2009 WL 236126, at *5-6 (E.D.
Mich. Feb. 2, 2009) (“The exception is that an involuntary plaintiff may be
joined to cure the original plaintiff’s inability to press a claim if the
original plaintiff and the involuntary plaintiff have ‘such a relationship
that the absent party must allow the use of his name as plaintiff.’ Absent
the ‘proper case’ exception, where there is an obligation to join as a
plaintiff, the preferred method is to designate and serve involuntary parties
as defendants, regardless of their appropriate interest alignment.”
(citations omitted)).
15
the state court action are not parallel.
(ECF No. 15 at 11-12.)
The Court agrees with Plaintiff that the Colorado River doctrine
does not apply in this case.
Defendant cannot make a threshold
showing that the cases are “substantially similar.”
While the state court action exclusively deals with the
ownership of the software, the instant case presents issues of
breach of contract, trade secret misappropriation, conversion,
and copyright infringement.
While the ownership of the software
is a jurisdictional question that must be resolved to ensure
that Plaintiff has standing, it is not the crux of the instant
lawsuit.
Resolution of the ownership question will not address
whether Carrier, which is not a party to the state court action,
violated a contract, misappropriated a trade secret, or
infringed any copyrights in connection with its use of the ECI
software, as alleged in the Amended Complaint.
There is,
therefore, more than “substantial doubt” that the concurrent
state proceeding will resolve the claims presented in the
instant lawsuit.
See Chellman-Shelton, 197 F. App’x at 394.
Because the instant case and the state court case cannot be
considered parallel, the Court need not analyze the Colorado
River factors.
The Court must fulfill its constitutional
obligation to exercise jurisdiction and decline to stay the
case.
16
IV.
CONCLUSION
For the foregoing reasons, the Court DENIES Defendant’s
Motion to Dismiss, or in the Alternative to Stay Complaint.
Plaintiff shall serve White and New ECI with a copy of an
Amended Complaint and a copy of this Order within twenty-one
(21) days (i.e., by May 25, 2016) of the date of entry of this
Order.
A telephonic status/scheduling conference is set for
June 1, 2016, at 10:00 a.m.
IT IS SO ORDERED this 4th day of May, 2016.
/s/ Jon P. McCalla
JON P. McCALLA
UNITED STATES DISTRICT JUDGE
17
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