U.S. Court of Appeals for the Fifth Circuit, Noble House, L.L.C. v. Certain Underwriters at Lloyd’s, London, Subscribing to Policy MS-S 5722 (Marine Package), Docket No. 22-20281

Insurance Law

 

Forum Non Conveniens

 

Statute of Limitations (In the Foreign Forum)

 

Return-Jurisdiction Clause

 

Lloyd’s

 

 

 

 

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:21-CV-3585

 

 

 

Plaintiff-appellant Noble House, L.L.C. (“Noble House”) appeals a judgment of dismissal, without prejudice, based on forum non conveniens, granted in favor of defendant-appellee Certain Underwriters at Lloyd’s, London (“Underwriters”). The district court ruled that the parties’ insurance policy contained an enforceable forum-selection clause requiring litigation in the courts of England and Wales and that a return-jurisdiction clause was not required. We affirm.

 

 

On August 20, 2018, Noble House’s yacht lost its port-side rudder while entering a channel in the Bahamas. The following day, Noble House advised Underwriters, its insurer, of the casualty, which was allegedly covered by its marine-insurance policy. Noble House purchased the policy from Underwriters by way of a Texas-based insurance broker on February 1, 2018. The policy contained a forum-selection clause that selected the courts of England and Wales. Attached to the policy was a cover note with its own forum-selection clause that selected any court of competent jurisdiction within the United States. Allegedly, the cover note was not prepared by Underwriters, but by Noble House’s own insurance broker. Approximately two months after the casualty, on October 19, 2018, Underwriters issued a letter advising that coverage “may not exist.” Underwriters has not yet denied coverage. Noble House sued to recover its damages, first in the United States District Court for the Southern District of Florida on October 12, 2020. Months later, on March 2, 2021, that district court granted Underwriters’ motion to dismiss for lack of personal jurisdiction and dismissed the case without prejudice. Then, Noble House filed the instant suit in the United States District Court for the Southern District of Texas on November 1, 2021. Underwriters moved to dismiss on forum non conveniens grounds. On March 23, 2022, after hearing argument, the district court granted Underwriters’ motion and dismissed all claims without prejudice. Noble House filed a motion for reconsideration, which the court denied. This appeal followed.

 

 

As Underwriters correctly explains, the presence of a mandatory, enforceable forum-selection clause simplifies the “usual” analysis in two ways. Barnett, 831 F.3d at 300. “First, the plaintiff’s choice of forum merits no weight” because, by contracting for a specific forum, “the plaintiff has effectively exercised its ‘venue privilege’ before a dispute arises.” Atl. Marine, 571 U.S. at 63. Second, the private-interest factors “weigh entirely in favor of the preselected forum”; so, the “district court may consider arguments about public-interest factors only.” Id. at 64. “Hence, a valid forum-selection clause controls the forum non conveniens inquiry ‘in all but the most unusual cases.’” Barnett, 831 F.3d at 300 (quoting Atl. Marine, 571 U.S. at 66). “This harmonizes with the Supreme Court’s guidance that contractually selected forums often ‘figure centrally in the parties’ negotiations’ and become part of those parties’ ‘settled expectations’ –so if a plaintiff disregards such a contractual commitment, ‘dismissal works no injustice.’” Id. (quoting Atl. Marine, 571 U.S. at 66 & n.8).

 

 

We apply a “strong presumption” in favor of enforcing mandatory forum-selection clauses. Weber, 811 F.3d at 773 (citing Haynsworth,121 F.3d at 962-63). “The presumption of enforceability may be overcome, however, by a clear showing that the clause is ‘unreasonable’ under the circumstances.” Weber, 811 F.3d at 773 (quoting Haynsworth, 121 F.3d at 963). We’ve stated: Unreasonableness potentially exists where (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state. Haynsworth, 121 F.3d at 963 (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991), and M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 15, 18 (1972)).

 

 

If the forum-selection clause is both mandatory and enforceable, the court must decide whether, under Atlantic Marine’s balancing test, the case “is one of the rare cases in which the public-interest forum non conveniens factors favor keeping a case despite the existence of a valid and enforceable forum-selection clause.” Weber, 811 F.3d at 775-76.

 

 

Noble House’s insurance policy details that: “This Insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales.” The attached cover note provides: “It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Assured (or Reinsured), will submit to the jurisdiction of a Court of competent jurisdiction within the United States.” Importantly, the cover note states that it “is intended for use as evidence that insurance described herein has been effected against which a policy(ies) will be issued and that in the event of any inconsistency therewith the terms and conditions and provisions of the policy(ies) prevail.” (Fn. 2).

 

 

Even if this Court were to rely on the “available and adequate” standard, as Noble House suggests, Noble House’s argument that the courts of England and Wales are not “available and adequate” fails. By contracting for those courts’ exclusive jurisdiction, it necessarily agreed that such courts are available and adequate. See Atl. Marine, 571 U.S. at 63 (noting that a forum-selection clause “represents the parties’ agreement as to the most proper forum”) (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). (Fn. 4).

 

 

Noble House’s fear that its claims would be time-barred under the foreign fora’s statutes of limitations is not novel. Both the Supreme Court and this Court have acknowledged the risk of time-barred claims in the forum-selection-clause context. Unfortunately for Noble House, controlling caselaw affords it no sympathy. It is no secret that dismissal under forum non conveniens “makes it possible for plaintiffs to lose out completely through the running of the statute of limitations in the forum finally deemed appropriate.” Atl. Marine, 571 U.S. at 66 n.8. But dismissal of a suit “when the plaintiff has violated a contractual obligation by filing suit in a forum other than the one specified in a valid forum-selection clause ... works no injustice on the plaintiff.” Id. That is why we have said: “That an action may be time-barred in the chosen forum does not make a forum-selection clause unreasonable.” Barnett, 831 F.3d at 309 n.14.

 

 

(…) There is an express clause stating that the provisions in the policy supersede that in the cover note.

 

When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.” Atl. Marine, 571 U.S. at 64. Any grave inconvenience or unfairness of the selected forum Noble House “would suffer by being forced to litigate in the contractual forum as it agreed to do was clearly foreseeable at the time of contracting.” Bremen, 407 U.S. at 17-18. Because the applicable foreign statutes of limitations were certainly foreseeable at the time the parties executed the policy, their enforcement is not unfair.

 

 

(…) Courts enforce a forum-selection clause unless the contracted forum accords the plaintiff no remedies whatsoever. Id. at 774 & n.24; see also Barnett, 831 F.3d at 308 n.14. That’s because “it is the availability of a remedy that matters, not predictions of the likelihood of a win on the merits.” Weber, 811 F.3d at 774 (emphasis in original). Noble House’s failure to point to a substantive law that bars its claim for relief is fatal.

 

 

(…) “A return jurisdiction clause remedies the concern that the identified forum will remain available or that defendants will submit to its jurisdiction by permitting parties to return to the dismissing court should the lawsuit become impossible in the foreign forum.” Vasquez, 325 F.3d at 675. “The ‘failure to include a return jurisdiction clause in an f.n.c. i.e., forum non conveniens dismissal constitutes a per se abuse of discretion.’” Vasquez, 325 F.3d at 675 (quoting Robinson v. TCI/US West Communications, Inc.,117 F.3d 900, 907-08 (5th Cir. 1997)). “This is because, as this Court has repeatedly made clear, ‘courts must take measures, as part of their dismissals in forum non conveniens cases, to ensure that defendants will not attempt to evade the jurisdiction of the foreign courts.’” Rajet Aeroservicios S.A. de C.V. v. Castillo Cervantes, 801 F. App’x 239, 244 (5th Cir. 2020) (unpublished) (per curiam) (quoting Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1551 (5th Cir. 1991)). “Such measures often include agreements between the parties to litigate in another forum, to submit to service of process in that jurisdiction, to waive the assertion of any limitations defenses, to agree to discovery, and to agree to the enforceability of the foreign judgment.” Baris, 932 F.2d at 1551. “A return-jurisdiction clause assists in preventing defendants from circumventing these measures and ensures plaintiffs have the opportunity to proceed with the action in one of the forums.” Rajet Aeroservicios, 801 F. App’x at 244. The existence of a mandatory, enforceable forum-selection clause swallows the purpose of a return-jurisdiction clause whole. See Baris, 932 F.2d at 1551. As noted, an agreement is one of the express “measures” to ensure that defendants will not attempt to evade the jurisdiction of the foreign courts. See Baris, 932 F.2d at 1551. By agreement, Noble House and Underwriters are contractually bound to litigate their dispute in the courts of England and Wales. Accordingly, there is no concern that Underwriters will “attempt to evade jurisdiction of the foreign courts” or flout the litigation procedure and outcome. The clause ensures that Noble House will have the opportunity to proceed with the action in the foreign fora. See Rajet Aeroservicios, 801 F. App’x at 244. Moreover, should Underwriters evade the jurisdiction of the foreign courts, Noble House has a remedy in a breach-of-contract action, a protection which does not exist in the forum non conveniens context where there is no forum-selection clause. The parties’ agreement to proceed with the action in the selected fora obviates the need for a return-jurisdiction clause. See Baris, 932 F.2d at 1551.

 

 

A “total waiver of any statute of limitations defense” or laches defenses is similarly unnecessary. First, while such a waiver is one of the many “measures” provided to “ensure” that defendants will not evade the jurisdiction of foreign courts, none of those measures is mandatory. See id. (listing examples of protective measures that a court may often –but not “must” –utilize). Again, the primary concern that a defendant will evade jurisdiction is not present where the parties willingly submitted to foreign fora by agreement. So, waiver as a protective measure is redundant, gratuitous, and serves no purpose. Although not required, the district court confirmed that Underwriters’ statute-of-limitations defense did not encompass the time period including “the duration of the pendency of this action.” This exceeds what was expected of the court to ensure Underwriters would not “evade” jurisdiction. Accordingly, the district court did not err.

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, May 1, 2023, Noble House, L.L.C. v. Certain Underwriters at Lloyd’s, London, Subscribing to Policy MS-S 5722 (Marine Package), Docket No. 22-20281)

 

 

 

U.S. Court of Appeals for the Ninth Circuit, Lang Van, Inc. v. VNG Corp., Docket No. 19-56452

Foreign Defendants

 

Personal Jurisdiction

 

Long-Arm Jurisdiction Under Rule 4(k)(2) of the Federal Rules of Civil Procedure

 

Purposeful Availment

 

Google Play Store and Microsoft App Store

 

Geoblocking

 

Forum Non Conveniens

 

 

 

In assessing whether Lang Van established a prima facie case of jurisdiction, the panel analyzed jurisdiction under Federal Rule of Civil Procedure 4(k)(2), which provides for jurisdiction over foreign defendants that have ample contacts with the United States as a whole, but whose contacts are so scattered among states that none of them would have jurisdiction. Under Rule 4(k)(2), the plaintiff must prove: (1) the claim at issue arises from federal law; (2) the defendant is not subject to any state’s courts of general jurisdiction; and (3) invoking jurisdiction upholds due process. The plaintiff has the burden to show the first two prongs, and the burden then shifts to the defendant to show that application of jurisdiction would be unreasonable.

 

 

In 2014, Lang Van, Inc. (“Lang Van”) filed a copyright infringement suit against VNG Corporation (“VNG”). VNG, prior to discovery or answer, moved to dismiss for lack of personal jurisdiction.

 

 

Lang Van contends that personal jurisdiction exists over VNG, either under minimum contacts specifically directed at the State of California and/or under long-arm jurisdiction pursuant to Fed. R. Civ. P. 4(k)(2).

 

 

VNG contends that it is not subject to personal jurisdiction in any state’s courts of general jurisdiction. Accordingly, when assessing whether Lang Van has established a prima facie case of jurisdiction, the Court will analyze jurisdiction under Fed. R. Civ. P. 4(k)(2). See Holland Am. Line, Inc., 485 F.3d at 461 (“If  . . . the defendant contends that he cannot be sued in the forum state and refuses to identify any other where suit is possible, then the federal court is entitled to use Rule 4(k)(2).” (quoting ISI Int’l, Inc. v. Borden Ladner Gervais LLP, 256 F.3d 548, 551 (7th Cir.), as amended (July 2, 2001))).

 

 

A.   Jurisdiction under Rule 4(k)(2)

 

Rule 4(k)(2) was established in “response to the Supreme Court’s suggestion that the rules be extended to cover persons who do not reside in the United States, and have ample contacts with the nation as a whole, but whose contacts are so scattered among states that none of them would have jurisdiction.” ISI Int’l, Inc., 256 F.3d at 551 (citing Omni Cap. Int’l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 111 (1987)); see also Fed. R. Civ. P. 4(k)(2) advisory committee’s note to 1993 amendment.

 

 

Accordingly, Rule 4(k)(2) uses virtually the same analysis as the Calder effects test for traditional state court personal jurisdiction, see 465 U.S. at 788–90, but the Court looks at the nation as a whole when reviewing contacts. Under Rule 4(k)(2), the plaintiff must prove: (1) the claim at issue arises from federal law; (2) the defendants are not subject to any state’s courts of general jurisdiction; and (3) invoking jurisdiction upholds due process (namely, that jurisdiction is not unreasonable). Pebble Beach Co., 453 F.3d at 1159. The plaintiff has the burden to show the first two prongs; the burden then shifts to the defendant to show application of jurisdiction would be unreasonable.

 

 

Prong 3: 

 

Due process

 

“The due process analysis under Rule 4(k)(2) is nearly identical to the traditional personal jurisdiction analysis with one significant difference: rather than considering contacts between the . . . defendants and the forum state, we consider contacts with the nation as a whole.” Holland Am. Line Inc., 485 F.3d at 462 (citing Pebble Beach Co., 453 F.3d at 1159). First, there must be purposeful activities or transactions with the United States, with an act that shows defendant purposefully availing itself of the privileges of doing business in the United States, and thereby invoking the benefits and protections of its laws; second, the claim must arise out of activities that are related to the United States; and third, the exercise of jurisdiction must comport with notions of fair play and substantial justice. Washington Shoe Co., 704 F.3d at 672; Int’l Shoe Co. v. State of Wash., Off. of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945). There must also be “intentional conduct by the defendant that creates the necessary contacts with the forum.” Walden, 571 U.S. at 286. Walden requires the defendant to have ties to the forum “in a meaningful way,” apart from simply knowing the plaintiff has ties to the forum. Id. at 290.

 

 

(…) VNG chose not to geoblock access to Lang Van’s content on Zing MP3 which would have restricted the use of Zing MP3 in the United States or elsewhere outside of Vietnam. The First Circuit has stated that “if a defendant tries to limit U.S. users’ ability to access its website . . . that is surely relevant to its intent not to serve the United States” and that the “converse is also true,” such that the defendant’s “failure to implement such restrictions, coupled with its substantial U.S. business, provides an objective measure of its intent to serve customers in the U.S. market.” Plixer Int’l, Inc. v. Scrutinizer GmbH, 905 F.3d 1, 9 (1st Cir. 2018). VNG clearly did not attempt to limit U.S. users’ ability to access its website, even though deposition testimony indicates that it had the ability to geoblock users as of 2013, if not earlier.

 

 

Two courts have determined that a defendant “purposefully availed itself of the privilege of conducting business in the United States by distributing the Infringing content on platforms such as the Google Play store and Microsoft App store.” Blizzard Ent., Inc. v. Joyfun Inc Co., Ltd., No. SACV191582JVSDFMX, 2020 WL 1972284, at *6 (C.D. Cal. Feb. 7, 2020); Goes Int’l, AB v. Dodur Ltd., No. 3:14-CV-05666-LB, 2015 WL 5043296, at *9 (N.D. Cal. Aug. 26, 2015). VNG failed to geoblock users in the United States from the Zing MP3 app but did geoblock U.S. users’ access to certain U.S. studios, such as Universal Music. This selective geoblocking indicates purposeful conduct. Further, in 2012, VNG and Lang Van had been involved in negotiations and communications regarding the licensing of Lang Van’s content on Zing MP3.

 

 

B. Venue

 

The Court rejects defendant’s argument regarding forum non conveniens in Vietnam. VNG argues that the more appropriate venue is Vietnam and is an alternative to dismissal of this case. While the district court acknowledged this argument, it did not specifically address it on the merits. This Court has “discretion to reach forum non conveniens even if the district court declined to consider it.” Ranza v. Nike, Inc., 793 F.3d 1059, 1076 (9th Cir. 2015). VNG contends that the majority of witnesses and evidence are in Vietnam, and issues of Vietnamese contracts and copyright law would be better decided in Vietnam.

 

 

The Court finds that venue in this case is not proper in Vietnam. Copyright cases concerning alleged unlawful activities purposely directed toward the United States are more amenable to suit in the United States for the reasons set forth herein. We reverse and remand for further proceedings consistent with this opinion.

 

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, July 21, 2022, Lang Van, Inc. v. VNG Corp., Docket No. 19-56452, for Publication)

 

U.S. Court of Appeals for the Ninth Circuit, Global Commodities Trading Group, Inc. v. Beneficio De Arroz Choloma, S.A., a Honduran Company, Docket No. 18-16026

 

Jurisdiction

 

Personal Jurisdiction

 

Specific Jurisdiction Over Employees

 

Forum Non Conveniens

 

Import

 

Incoterms

 

CIF Contracts

 

California Law

 

 

The panel reversed the district court’s order dismissing for lack of personal jurisdiction, vacated its orders on the parties’ remaining motions, and remanded with instructions to deny the forum non conveniens motion in an action brought by Global Commodities Trading Group, Inc. (“Global”), a California corporation, against Beneficio De Arroz Choloma, S.A. (“Bachosa”), a Honduran corporation, and two of its officers to recover losses on contracts.

 

Global is a California corporation with its headquarters in Placer County, California. At the time of the events giving rise to this action, it was engaged in the business of international sales of agricultural commodities. Bachosa is a corporation organized under the laws of Honduras with its principal place of business in Choloma, Cortés, Honduras. It is engaged in the business of importing and processing rice and corn from countries including the United States. Bachosa has no offices, real property, or employees in California.

 

From 2008 through 2012, Bachosa purchased approximately 137,450 metric tons of agricultural commodities from Global for more than $50 million pursuant to hundreds of separately negotiated contracts. The contracts generally were cost, insurance, freight (“CIF”) contracts, meaning Global’s contractual performance was considered complete when the goods were loaded at the point of shipment. Global and Bachosa primarily negotiated their contracts by phone and email.

 

(…) Following the alleged January meeting in California, Global arranged for shipment under the contracts. The United States Department of Agriculture issued an inspection certificate for the rice and corn in Woodland, California. The goods were shipped from the United States from Port of Darrow, Louisiana to Puerto Cortes, Honduras on the MV UBC Sacramento on January 19, 2012.

 

(…) See, e.g., Boschetto v. Hansing, 539 F.3d 1011 (9th Cir. 2008) (holding that a single eBay sale to a California resident did not give rise to personal jurisdiction there).

 

Specific jurisdiction over Andonie and Jarufe presents a different question: when may a court exercise jurisdiction over individuals based on their contacts with a forum on behalf of a corporation?

 

We noted that the Supreme Court had allowed the exercise of specific jurisdiction over employees based on actions they took on behalf of a corporation. See, e.g., Calder v. Jones, 465 U.S. 783, 790 (1984) (“their status as employees does not somehow insulate them from jurisdiction”); Keeton, 465 U.S. at 781 n.13. As a matter of Arizona law, we held that the state’s long-arm statute allowed the exercise of personal jurisdiction to the limits of the federal Constitution, and therefore did not shield corporate officers from jurisdiction over their persons based on actions within the scope of their employment. Davis, 885 F.2d at 522.

 

California’s long-arm statute, like Arizona’s, imposes no limitations on personal jurisdiction beyond those required by due process. See Picot, 780 F.3d at 1211.

 

Although their status as officers of Bachosa does not foreclose personal jurisdiction over Andonie and Jarufe, their status also does not guarantee it. Personal jurisdiction over an individual who acts as an agent of a third party must be assessed on the individual’s actions alone.

 

(…) Our statement in Forsythe that “a corporate officer who has contact with a forum only with regard to the performance of his official duties is not subject to personal jurisdiction in that forum,” Forsythe, 576 F.2d at 783–84, is clearly irreconcilable with the Supreme Court’s decisions subjecting corporate employees to suit in exactly those circumstances. See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc); see also Davis, 885 F.2d at 521 (rejecting the fiduciary shield doctrine based on Calder and Keeton). However, our holding in Forsythe that a personal guaranty of a corporation’s debt may give rise to personal jurisdiction over a corporate officer remains good law.

 

We decide questions of forum non conveniens as a matter of federal law even in cases where state or foreign substantive law governs. Ravelo Monegro v. Rosa, 211 F.3d 509 (9th Cir. 2000). “To prevail on a motion to dismiss based upon forum non conveniens, a defendant bears the burden of demonstrating an adequate alternative forum, and that the balance of private and public interest factors favors dismissal.” Ranza, 793 F.3d at 1076 (quoting Carijano v. Occidental Petroleum Corp., 643 F.3d 1216, 1224 (9th Cir. 2011)). “Forum non conveniens is an exceptional tool to be employed sparingly . . . .” Ravelo Monegro, 211 F.3d at 514. To succeed, a defendant must make “a clear showing of facts which . . . establish such oppression and vexation of a defendant as to be out of proportion to plaintiff’s convenience.” Id. (alteration in original) (quoting Cheng v. Boeing Co., 708 F.2d 1406, 1410 (9th Cir. 1983)).

 

We hold that the balance of private and public interest factors does not favor dismissal. Both sides identify witnesses for whom appearance in their home country would be more convenient. Most of the key documentary evidence, although originally in Spanish, has already been translated into English. The defendants contend that evidence related to Honduran importation permits and the demurrage charges incurred by the Sacramento would be more easily accessible in Honduras. However, evidence related to the negotiations in California would be more easily accessible in California. That some witnesses would prefer to appear in Honduras falls well short of a clear showing of facts which establish such oppression and vexation of a defendant as to be out of proportion to plaintiff’s convenience. Ravelo Monegro, 211 F.3d at 514. Moreover, Global submitted evidence of significant safety concerns with travel to Honduras, particularly for those who travel to the country for the purpose of collecting debt owed by Honduran companies.

 

A plaintiff’s choice of forum—particularly a plaintiff’s “home forum”—is entitled to considerable deference. Ranza, 793 F.3d at 1076 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 255 (1981)); see also Ravelo Monegro, 211 F.3d at 512 (noting that dismissal for forum non conveniens is typically only appropriate where a plaintiff chooses a forum wholly unrelated to the dispute). This case presents no more than the ordinary burdens any foreign defendant will bear when called to defend an action in the United States against a domestic plaintiff. Those burdens are insufficient to overcome the presumption in favor of Global’s choice of its home forum.

 

The panel held that the district court had specific personal jurisdiction over the corporate defendant.

 

 

(U.S. Court of Appeals for the Ninth Circuit, August 26, 2020, Global Commodities Trading Group, Inc. v. Beneficio De Arroz Choloma, S.A., a Honduran Company, Docket No. 18-16026, For Publication)

U.S. Court of Appeals for the Federal Circuit, Communications Test Design, Inc. v. Contec, LLC, Docket No. 2019-1672

Declaratory Judgment Action (v. Complaint for Patent Infringement)

Declaratory Judgment Act

First-to-File Rule

Anticipatory filing was made in bad faith during active licensing discussions

Equitable considerations warranted departure from the first-to-file rule

Federal Comity

Forum Non Conveniens

Communications Test Design, Inc. (“CTDI”) filed suit in the United States District Court for the Eastern District of Pennsylvania, seeking declaratory judgment that its test systems do not infringe two of Contec, LLC’s patents (“the Pennsylvania action”). Six days later, Contec sued CTDI for patent infringement in the United States District Court for the Northern District of New York (“the New York action”). Contec moved to dismiss the Pennsylvania action, arguing that CTDI’s anticipatory filing was made in bad faith during active licensing discussions. The district court granted the motion, exercising its discretion to decline jurisdiction over CTDI’s declaratory judgment action. Commc’ns Test Design, Inc. v. Contec LLC, 367 F. Supp. 3d 350, 360 (E.D. Pa. 2019). In doing so, the court found that equitable considerations warranted departure from the first-to-file rule. CTDI appeals the district court’s dismissal of the Pennsylvania action. Because we conclude that the district court did not abuse the broad discretion accorded to it—both under the Declaratory Judgment Act, 28 U.S.C. § 2201(a) and pursuant to the first-to-file rule—we affirm.

(…) In September 2017, Contec sent a letter to CTDI to determine whether CTDI’s test systems infringed any claims of the asserted patents. Over the course of the following year, the parties exchanged numerous emails and letters. In June 2018, counsel for both parties met in person, and CTDI disclosed certain information about its test systems pursuant to a confidentiality agreement.

In September 2018, Contec’s counsel sent a letter to CTDI stating that “the parties’ extrajudicial process for obtaining information about CTDI’s systems, without the full discovery obligations that would be imposed during litigation, has proved unsatisfactory.” Counsel explained that Contec had a good faith basis to believe that CTDI infringes at least one claim of the asserted patents. The letter asked CTDI to indicate, by September 19, 2018, whether it was willing to “discuss potential terms for a patent license agreement.” Contec warned that, if it did not receive such confirmation, it would sue for patent infringement. Contec attached to its letter a draft of its proposed complaint.

On September 19—Contec’s stated deadline—Jerry Parsons, CTDI’s Chairman and chief executive officer (CEO), spoke on the phone with Hari Pillai, Contec’s CEO, about a possible license for Contec’s patents. During that conversation, Pillai proposed initial terms, and the executives agreed to talk again on September 24, when Parsons would make a counterproposal. After their discussion, Pillai emailed Parsons, confirming the follow-up call and indicating that he looked forward to the counterproposal.

Later that same day, CTDI’s counsel sent an email to Contec’s counsel, confirming that “CTDI will consider potential terms as requested in your most recent letter.” Counsel reiterated that, “despite our firm position on non- infringement and without admission, in an attempt to avoid an impasse, we remain willing to consider reasonable licensing terms and so, we encourage a continued conversation between the executives.”

On September 21—two days after accepting Contec’s request to discuss licensing terms—CTDI filed a declaratory judgment action in Pennsylvania. Later that afternoon, Parsons sent an email to Pillai, confirming that CTDI would put a licensing proposal together and accepting Pillai’s suggested time for their follow-up call on September 24. Parsons made no mention of the fact that CTDI had filed its declaratory judgment complaint.

On September 24—the day the CEOs were scheduled to talk—CTDI’s counsel emailed Contec’s counsel a copy of the declaratory judgment complaint. Counsel stated that official service would be held for a period of time to allow further discussion between the executives.

CTDI ultimately served its declaratory judgment complaint on October 15, 2018.

On September 27, 2018, Contec filed its complaint for patent infringement in the Northern District of New York.

On February 15, 2019, the district court granted Contec’s motion and dismissed CTDI’s complaint. At the outset, the court noted that “neither party disputes that an actual controversy exists here.” Commc’ns Test Design, 367 F. Supp. 3d at 355. Both the Pennsylvania and New York actions involve the same parties, the same patents, the same allegedly infringing products, and the same issue: whether CTDI’s test systems infringe Contec’s patents. The court recognized that, between CTDI’s first-filed declaratory judgment action and Contec’s subsequently filed patent infringement action, CTDI’s first-filed action is preferred “unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, require otherwise.” Id. at 356 (quoting Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931, 937 (Fed. Cir. 1993), abrogated on other grounds by Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995)).

Recognizing that the anticipatory nature of CTDI’s suit is “merely one factor in the analysis” under the first-to-file rule, the district court explained that “interference with ongoing negotiations constitutes another ‘sound reason that would make it unjust’ to exercise jurisdiction over the declaratory judgment action.” The court also considered the convenience of the parties and availability of witnesses and determined that, “on balance the Northern District of New York is a more convenient forum to resolve the dispute between the parties.” Given these considerations, the district court dismissed the Pennsylvania action in favor of Contec’s later- filed infringement action.

(…) The district court dismissed CTDI’s declaratory judgment action so that Contec’s patent infringement action— filed six days later—could proceed in New York. In these circumstances, where the issue is whether a suit for declaration of patent rights should yield to a later-filed infringement suit, the trial court’s discretion is guided by the first- to-file rule, “whereby the forum of the first-filed case is favored.” Genentech, 998 F.2d at 937. “The ‘first-to-file’ rule is a doctrine of federal comity, intended to avoid conflicting decisions and promote judicial efficiency, that generally favors pursuing only the first-filed action when multiple lawsuits involving the same claims are filed in different jurisdictions.” Merial Ltd. v. Cipla Ltd., 681 F.3d 1283, 1299 (Fed. Cir. 2012) (citing Genentech, 998 F.2d at 937– 38). The filing date of an action derives from the filing of the complaint. Id. (citing Fed. R. Civ. P. 3). Under the first-to-file rule, a district court may choose to stay, transfer, or dismiss a later-filed duplicative action. Id.

(…) Here, the district court carefully considered the record of the parties’ dispute, up to and including the competing filings, and concluded that several factors warranted departure from the first-to-file rule. Specifically, the court found that: (1) CTDI filed its declaratory judgment complaint in anticipation of Contec’s patent infringement complaint; (2) CTDI’s suit interfered with ongoing negotiations between the parties and did not serve the objectives of the Declaratory Judgment Act; and (3) on balance, the Northern District of New York is a more convenient forum. As explained below, we find no abuse of discretion in the district court’s analysis.

(…) As to Contec, the district court considered that: (1) its corporate headquarters are in New York; (2) it has no witnesses, physical facilities or place of business in Pennsylvania; (3) Contec’s employee files for its current and former employees, its email server and its record databases are maintained in its New York facility; (4) three of the six inventors of the patents at issue are current residents of New York; and (5) five of the inventors, “who would serve as key witnesses,” are beyond the subpoena power of the district court. On balance, the court found that these factors favored Contec’s later-filed New York action.

(…) We find no error in the district court’s balancing of the convenience factors, which is committed to the court’s sound discretion. These factors, coupled with the district court’s findings that CTDI’s complaint interfered with ongoing negotiations and was filed in anticipation of Contec’s infringement suit, support the district court’s decision to depart from the first-to-file rule and dismiss CTDI’s complaint.

(U.S. Court of Appeals for the Federal Circuit, March 13, 2020, Communications Test Design, Inc. v. Contec, LLC, Docket No. 2019-1672, Circuit Judge O’Malley)