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Strukmyer, LLC v. Infinite Financial Solutions, Inc.

United States District Court, Fifth Circuit

December 6, 2013

Strukmyer, LLC, Plaintiff,
v.
Infinite Financial Solutions, Inc., et al., Defendants.

MEMORANDUM OPINION AND TRANSFER ORDER

DAVID L. HORAN, Magistrate Judge.

Defendants Infinite Financial Solutions, Inc., Silver Eagle Labs, Inc., Michael Lockwood, and Hanford Lockwood (collectively "Defendants") have filed a Motion to Transfer Venue, or in the Alternative, to Stay Pursuant to the First-to-File Rule. See Dkt. No. 7. This motion has been referred for determination to the undersigned magistrate judge for determination pursuant to 28 U.S.C. § 636(b) and an order of reference. See Dkt. No. 9. For the reasons set forth herein, Defendant's Motion to Transfer Venue [Dkt. No. 7] is GRANTED.

Background

On August 29, 2013, Infinite Financial Solutions, Inc., Silver Eagle Labs, Inc., and NicoSpan, Inc. sued Strukmyer, LLC, Silver Eagle Labs NV, LLC, Silver Eagle Labs, LLC, Robert Delk, and Does 1 through 4, alleging direct patent infringement, misappropriation of trade secrets, intentional interference with economic advantage, breach of fiduciary duty, unjust enrichment, conversion, and accounting and seeking a declaratory judgment. That lawsuit is pending in the United States District Court for the District of Nevada, Case No. 3:13-cv-466. The claims in that suit arise from the defendants' alleged misappropriation and unlawful use of certain trade secrets and patents belong to Infinite Financial Solutions, Inc., Silver Eagle Labs, Inc., and NicoSpan, Inc.

One week after Strukmyer, LLC was notified of the Nevada lawsuit, Plaintiff Strukmyer, LLC ("Strukmyer" or "Plaintiff") filed the instant suit in Dallas County court, suing Defendants for breach of contract, estoppel, conversion, and tortious interference with an existing contract. Defendants removed the suit to this Court on September 18, 2013. See Dkt. No. 2. Pursuant to the first-to-file rule, Defendants request that the Court transfer this case to the United States District Court for the District of Nevada, the court in which the first suit was filed. See Dkt. No. 7 at 7. Defendants alternatively request that the Court stay this action until the Nevada federal court determines whether it should proceed. See id.

Legal Standards

"Under the first-to-file rule, when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap." Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999). "The first-to-file rule is a discretionary doctrine" that "rests on principles of comity and sound judicial administration, " animated by the concern "to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result." Id. (internal quotation marks omitted).

According to this well-settled rule, typically, if the instant case pending before the Court and an earlier-filed case pending in another federal court "overlap on the substantive issues, the cases [should] be... consolidated in... the jurisdiction first seized of the issues." Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 917 (5th Cir. 1997) (internal quotation marks omitted). That is because "[t]he Fifth Circuit adheres to the general rule, that the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed, " and, "[t]herefore, the first to file rule' not only determines which court may decide the merits of substantially similar cases, but also establishes which court may decide whether the second suit filed must be dismissed, stayed or transferred and consolidated." Id. at 920 (internal quotation marks omitted). "Once the likelihood of a substantial overlap between the two suits ha[s] been demonstrated, it [is] no longer up to the [second filed court] to resolve the question of whether both should be allowed to proceed." Cadle, 174 F.3d at 605 (internal quotation marks omitted).

"The rule does not, however, require that cases be identical"; rather, regardless of whether the issues or parties in the cases are identical, "[t]he crucial inquiry is one of substantial overlap, '" and if the cases "overlap on the substantive issues, the cases [are] required to be consolidated in... the jurisdiction first seized of the issues." Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir. 1997) (internal quotation marks omitted); see also id. at 951 ("Complete identity of parties is not required for dismissal or transfer of a case filed subsequently to a substantially related action."). If this Court finds that the issues in the two case might substantially overlap, "the proper course of action [is] for the court to transfer the case to the [Nevada] court to determine which case should, in the interests of sound judicial administration and judicial economy, proceed." Cadle, 174 F.3d at 606.

Analysis

Timeliness of Defendants' Motion to Transfer

As a threshold matter, Plaintiff asserts that Defendants' invocation of the first-to-file doctrine was waived by Defendants' failure to file their motion within the time periods specified by Fed.R.Civ.P. 81(c)(2). Rule 81(c)(2) provides that "[a] defendant who did not answer before removal must answer or present other defenses or objections under these rules within the longest of these periods: (A) 21 days after receiving - through service or otherwise - a copy of the initial pleading stating the claim for relief; (B) 21 days after being served with the summons for an initial pleading on file at the time of service; or (C) 7 days after the notice of removal is filed." FED. R. CIV. P. 81(c)(2). Defenses covered by Fed.R.Civ.P. 12(b) are among the "other defenses or objections under these rules" contemplated by Rule 81(c)(2). See Nationwide Bi-Weekly Admin., Inc. v. Belo Corp., 512 F.3d 137, 141 (5th Cir. 2007) (explaining that Rule 81(c) operates to "set the deadline for [a defendant] to make its first responsive pleading or motion after removal").

In their motion to transfer, Defendants did not invoke Rule 12(b) at all. See Dkt. No. 7. In reply to Plaintiff's timeliness argument, Defendants suggest that the motion may be a Rule 12(b) motion - presumably (although Defendants do not so specify) a Rule 12(b)(3) improper venue challenge, because that is the only defense into which the first-to-file rule could possibly fit. See Dkt. No. 12 at 4. Defendants reply that Plaintiff's "waiver argument is inconsistent with the plain language of Rule 12(b) of the Federal Rules of Civil Procedure, which provides that a motion asserting any of these [Rule 12(b)] defenses must be made before pleading if a responsive pleading is allowed'" and that "[t]here is no deadline for filing a Rule 12(b) motion, as long as the motion is filed before the filing of an answer." Id. Defendants therefore contend that, "[b]ecause Defendants complied with Rule 12(b) by filing their motion to transfer before any responsive pleading, [Plaintiff's] waiver argument should be rejected." Id.

This dispute implicates a split among the courts as to whether Rule 12 or Rule 81 imposes a deadline to file a motion raising Rule 12(b) defenses. See 5C CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE §§ 1391, 1395 (3d ed. 2013). To be sure, "[o]nce the plaintiff effects service of process, ... Rule 12 is triggered and then the defendant must answer the complaint or risk default." Rogers v. Hartford Life & Accident Ins. Co., 167 F.3d 933, 937 (5th Cir. 1999). Filing a Rule 12(b) motion extends the time for answering, pursuant to Rule 12(a)(4). And, as Defendants note, Rule 12(b) itself only dictates that "[a] motion asserting any of these defenses must be made before pleading if a responsive pleading is allowed." FED. R. CIV. P. 12(b). Likewise, "Rule 12(h)(1) does not explicitly require motions under 12(b) to be made within the time required to file a ...


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