American Tel. & Tel. Co. v. Milgo Electronic Corp.

• Decision Date: 19 January 1977
• Docket Number: No. 76 Civ. 996.,76 Civ. 996.
• Citation: 428 F. Supp. 50
• Parties: AMERICAN TELEPHONE & TELEGRAPH COMPANY et al., Plaintiffs, v. MILGO ELECTRONIC CORPORATION and International Communications Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

428 F. Supp. 50

AMERICAN TELEPHONE & TELEGRAPH COMPANY et al., Plaintiffs, v. MILGO ELECTRONIC CORPORATION and International Communications Corporation, Defendants.

No. 76 Civ. 996.

United States District Court, S. D. New York.

January 19, 1977.

Fish & Neave, New York City, for plaintiffs, by Albert E. Fey, Seymour E. Hollander, Western Elec. Co., Inc., New York City, of counsel.

Morgan, Finnegan, Pine, Foley & Lee, New York City, for defendants, by Alfred P. Ewert, New York City, Stanley R. Jones, Harold L. Jackson, Jackson & Jones Law Incorporation, Tustin, Cal., of counsel.

MEMORANDUM AND ORDER

WHITMAN KNAPP, District Judge.

The defendants, Milgo Electronic Corporation ("Milgo") and International Communications Corporation ("ICC"), have moved to transfer the first cause of action in this case to the United States District Court for the District of Kansas pursuant to 28 U.S.C. § 1404(a). The major question presented is whether Kansas is a district in which this cause of action "might have been brought" within the meaning of § 1404(a).¹

I.

Before addressing the merits, a brief description of the chronology of events will be helpful. In January, 1976 Milgo sued American Telephone and Telegraph Company ("AT&T"), Western Electric Company, Inc. ("Western Electric") and others in the United States District Court for the District of Kansas seeking a declaratory judgment that several of its patents were valid and that the defendants were infringing them.² The case was assigned to Judge O'Connor. Another judge of the Kansas District Court, Judge Templar, already had declared two of these patents to be valid and infringed in a suit by Milgo against different parties.³ Defendants have asserted that the Kansas District Court is not on an individual calendar system, and therefore that after pretrial supervision the Milgo case against AT&T et al. may well be assigned to Judge Templar.

One month after the Kansas suit was filed two of the defendants in that suit, AT&T and Western Electric, joined with Bell Telephone Laboratories, Inc. ("Bell Labs"), a wholly owned subsidiary of AT&T, to file this New York action against Milgo and its wholly owned subsidiary, ICC. In the first cause of action they seek a declaratory judgment that four of the patents involved in the Kansas suit are invalid and that they are not infringing them. The second cause of action is one claiming patent interference under 35 U.S.C. § 291. We stayed this second cause of action pending a determination of this issue by the patent office.⁴

On April 12, 1976 the defendants moved to transfer the first cause of action to Kansas. We deferred decision pending the outcome of a motion that had previously been filed in Kansas by AT&T and Western Electric to transfer that action here. On July 23, 1976 the Kansas court denied transfer of that action to New York on the grounds that the defendants AT&T and Western Electric had failed to sustain their burden of showing that transfer would serve the convenience of the parties, witnesses, and be in the interests of justice.⁵ Thus, decision of Milgo's and ICC's motion to transfer the first cause of action in this case to Kansas is now in order.

II.

The threshold requirement for a change of venue to Kansas under Section 1404(a) is that Kansas must be a district in which this action "might have been brought". This means that at the time this New York complaint was filed, the defendants must have been amenable to personal jurisdiction in Kansas, subject matter jurisdiction must have existed there, and venue must have been appropriate. Thee v. Marvin Glass and Associates (S.D.N.Y.1976), 412 F.Supp. 1116. Subject matter jurisdiction has not been contested.

Defendants claim that all or at least some of the plaintiffs could have sued them in Kansas under one of two theories. First, they claim that all three plaintiffs in this action could have sued ICC in Kansas independently of the Milgo action since ICC was "doing business" in Kansas within the meaning of 28 U.S.C. § 1391(c)⁶ at the time this New York action was instituted. Thus, although ICC was not incorporated in Kansas and was not licensed to do business there (its February, 1974 license having lapsed in July, 1975), defendants claim ICC was nonetheless doing business in Kansas and thus venue would lie in Kansas under § 1391(c). Defendants further argue that if the suit could have been brought against ICC in Kansas, that it could also have been brought against its parent Milgo. Although Milgo was also not incorporated in Kansas and was not licensed to do business in Kansas at the time the New York suit was instituted, defendants argue that Milgo was doing business in Kansas through its wholly owned subsidiary, ICC, and therefore was also amenable to suit in Kansas by all three plaintiffs.⁷

We will not at this time accept this theory because ICC has only made the conclusory allegation that it was "doing business" in Kansas⁸ and has supplied no factual support for such conclusion — either by affidavit or otherwise. However, if within ten days of the filing of this opinion defendants move to reopen upon affidavits providing a factual basis for such allegation, we will entertain the motion.⁹

Alternatively, defendants point out that Milgo's earlier action in Kansas against two of the three plaintiffs here, seeking a declaratory judgment as to the same issues involved in the first cause of action here, enabled these plaintiffs (AT&T and Western Electric) to bring this cause of action as a counterclaim against Milgo in the Kansas action. Such ability to have counterclaimed, they assert, satisfies the Section 1404(a) "might have been brought" requirement. Plaintiffs, on the other hand, argue that the ability to have filed a counterclaim in the district to which transfer is sought does not satisfy Section 1404(a).

Section 1404(a) provides, in pertinent part, that "a district court may transfer any civil action to any other district or division where it might have been brought." Plaintiffs argue that the language quoted allows transfers only to districts where "it", i. e. the action "might have been brought," and does not allow transfers to districts where no independent action could have been filed but the claims could have been raised by counterclaim. In support of this argument they cite language from Hoffman v. Blaski (1960), 363 U.S. 335, 344, 80 S.Ct. 1084, 4 L.Ed.2d 1254, to the effect that to satisfy Section 1404(a), the district to which transfer is sought (the "transferee district") must be one in which, at the time the action was commenced, the plaintiffs had the right to sue "independently of the wishes of the defendant."

The Second Circuit has not yet ruled on the question whether the ability to have filed a counterclaim in the transferee district at the time an action was instituted satisfies Section 1404(a). In New York Central Railroad Company v. United States (2d Cir. 1961), 200 F.Supp. 944, the Court was presented with the question whether the ability to have intervened in another action pending in the district to which transfer was sought satisfied Section 1404(a). The court disallowed transfer because it found, assuming that plaintiffs could have intervened, that they could not have raised their claims in the transferee district. By way of dictum the court stated that the argument that the ability to have asserted a claim in the transferee district does not satisfy Section 1404(a) "is not to be readily dismissed, especially in view of the tendency to give a rather literal reading to § 1404(a) evidenced by Hoffman." 200 F.Supp. at 948. This language could be read as supporting the plaintiffs' position here. However, it does not purport to be anything more than dictum.

Two courts from other circuits have considered the question and have squarely held, after considering Hoffman, that the ability, at the time an action is instituted, to have raised the subject matter by counterclaim in the transferee district satisfies the "where it might have been brought" requirement of Section 1404(a). A. J. Industries, Inc. v. U. S. District Court, C. D. of California (9th Cir. 1974), 503 F.2d 384, 387-389; Leesona Corp. v. Duplan Corp. (D.R.I. 1970), 317 F.Supp. 290, 293. We agree.

In Hoffman, the defendants in an action in the United States District Court for the District of Texas moved to transfer the action to Illinois and consented to venue and personal jurisdiction in Illinois. No action was then pending in Illinois involving any of the parties to the Texas suit. The Supreme Court held that the action could not be transferred pursuant to § 1404(a) upon the motion and consent of the defendants to a district where, at the time the action was filed, venue did not exist and the defendants were not within the reach of process of the transferee court. Although the court did cite with approval language of the Seventh Circuit to the effect that transfers under § 1404(a) can only be to districts where a plaintiff has the right to sue "independently of the wishes of defendant" the full quotation and other language in the opinion reveal the court meant that transfers can only be to districts where a plaintiff has the right to bring his claims independently of the defendant giving his consent after plaintiff has filed his action. Thus, the court stated:

"We agree with the Seventh Circuit that:

`If when a suit is commenced, plaintiff has a right to sue in that district, independently of the wishes of defendant, it is a district "where the action might have been brought." If he does not have that right, independently of the wishes of defendant, it is not a district "where it might have been brought," and it is immaterial that the defendant subsequently makes himself subject, by consent, waiver of venue and personal jurisdiction defenses or otherwise, to the jurisdiction of some other forum.'" (emphasis supplied).¹⁰

The court also cited with approval the...