Coral Chem. Co. v. Chemetall United States, Inc.
| Decision Date | 28 June 2016 |
| Docket Number | 4:16-cv-00023-RLY-DML |
| Parties | CORAL CHEMICAL COMPANY and DONALD LAFLAMME, Plaintiffs, v. CHEMETALL US, INC., Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
This diversity case arises out of breaches of non-competition and non-solicitation covenants in an employment agreement. Plaintiffs, Donald LaFlamme and his new employer, Coral Chemical Company, filed this declaratory judgment action against LaFlamme's former employer, Chemetall US, Inc., to have the covenants declared unenforceable. Less than a week after this action commenced, Chemetall filed a separate action for damages in the District of New Jersey, where it sought and obtained a temporary restraining order ("TRO") and a preliminary injunction enforcing the covenants against LaFlamme. Plaintiffs now move for a preliminary injunction against Chemetall's continued prosecution of the New Jersey litigation; and Chemetall moves to dismiss or, in the alternative, to transfer venue to the District of New Jersey pursuant to a forum-selection clause. Both motions require the court to determine whether this litigation belongs here or in New Jersey. For reasons explained below, the court finds that proper forum lies in New Jersey and therefore GRANTS Chemetall's motion to transfer and DENIES Plaintiffs' motion for injunctive relief.
LaFlamme, an Indiana resident, began his employment with Chemetall in June 2010 as a Technical Sales Manager ("TSM") for the "South Central Region." Chemetall, a Delaware corporation with its principal place of business in New Jersey, manufactures specialized chemical products and processes for use in a variety of industries. To ensure that TSMs can understand and therefore explain proprietary technology to Chemetall's customers, Chemetall hires TSMs with backgrounds in engineering or chemistry. As a safeguard for its proprietary information, Chemetall required LaFlamme to execute an "Agreement in Consideration of Employment" (the "Agreement") prior to his employment whereby he agreed not to compete, solicit, or disclose confidential information. The covenant not to compete provides, in relevant part:
In addition, [LaFlamme] agrees that, for the period of one (1) year from the date of termination of [his] employment . . . : (a) [LaFlamme] will not directly or indirectly . . . engage or participate in any employment or activity intended to or which does compete with Chemetall within any territory to which [LaFlamme] was assigned by Chemetall during the two (2) years prior to the termination . . . .
The covenant not to solicit provides as follows:
[LaFlamme] shall not . . . for one (1) year following the termination of [his] employment . . . with Chemetall directly or indirectly . . . solicit, attempt to solicit, assist another to solicit customers of Chemetall, or in any other way, attempt to influence customers of Chemetall to alter or terminate their business relationships with Chemetall.
(Filing No. 1-1 ("Agreement") at 4-6). The Agreement's choice of law and forum-selection clause provides for New Jersey law to govern and New Jersey as a forum. (Agreement at 7).
On January 12, 2016, LaFlamme resigned from his position at Chemetall but continued working there until Friday, January 29. On the following Monday, February 1, LaFlamme began his sales position with Coral. Coral, an Illinois corporation with its principal place of business in Illinois, manufactures industrial chemical products and directly competes with Chemetall in the area of surface treatments for metals. On February 6, upon learning of LaFlamme's employment at Coral, Chemetall sent Plaintiffs a letter demanding written assurances that LaFlamme would honor his obligations under the Agreement and terminate his employment at Coral. Plaintiffs did not respond to the letter and instead, on February 11, commenced this action to have the covenants declared unenforceable.
On February 16, Chemetall filed its complaint for damages and a motion for a TRO and a preliminary injunction in the District of New Jersey. The New Jersey court granted the TRO and promptly set a preliminary injunction hearing for February 29. Prior to the hearing, Plaintiffs, citing the first-filed rule, petitioned this court to enjoin Chemetall from proceeding in the New Jersey action. On February 25, the Magistrate Judge denied Plaintiffs' application for a TRO without prejudice, reasoning that Plaintiffs could advance their arguments regarding proper forum at the February 29 hearing in New Jersey. The Magistrate Judge declined to address the request for a preliminary injunction and instead reserved ruling on the merits pending the decision of the New Jersey court.
In a thorough and well-reasoned opinion, the New Jersey court granted Chemetall's motion for a preliminary injunction, subject to certain limitations. See Chemetall US Inc. v. LaFlamme, No. 16-780, 2016 WL 885309, at *16-18 (D.N.J. Mar. 8, 2016). The court heard Plaintiffs' arguments in support of applying Indiana law, as well as arguments on the merits in opposition to Chemetall's motion for a preliminary injunction. As to the choice of law issue, the court acknowledged Indiana's interest in seeing that its residents enjoy the protections afforded by Indiana law. It concluded, however, that because New Jersey has that same compelling interest with respect to its residents, Indiana did not have a "materially greater interest" than New Jersey, and therefore the parties' choice of law governed. Id. at *7-8. As to the underlying merits, the court found that the covenants not to compete or solicit lacked sufficiently narrow scope to pass scrutiny under New Jersey law. Accordingly, the court issued a preliminary injunction subject to limitations as to the scope of the covenants. See id. at *10, 15.
Plaintiffs subsequently filed in this court a "Supplemental Memorandum" in support of its outstanding motion for a preliminary injunction. Plaintiffs primarily argue that Chemetall improperly filed a duplicative suit in another district when, instead, it should have moved to transfer this action to New Jersey. Chemetall filed a brief in opposition to Plaintiffs' motion and also filed its own motion to dismiss or transfer. Plaintiffs did not submit a brief in opposition to Chemetall's motion and apparently rely on arguments made in their briefs in support of a preliminary injunction. The court now turns to the parties' motions.
The parties filed mirror image lawsuits in two different district courts, and each party claims to have chosen the proper forum. Plaintiffs invoke the first-filed rule in support of their motion for a preliminary injunction, arguing that Chemetall improperly filed a duplicative lawsuit in New Jersey. Chemetall moves to dismiss or transfer this matter on grounds that the Agreement contains a valid forum-selection clause. Because both motions require the court to determine the enforceability of the forum-selection clause, as a practical matter, the court addresses Chemetall's motion first.
Chemetall first moves to dismiss the Complaint for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. § 1406(a). Section 1406(a) requires a district court to dismiss or transfer a case "laying venue in the wrong division or district." In support of dismissal, Chemetall relies solely on the Agreement's forum-selection clause. This argument fails to acknowledge Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, — U.S. —, 134 S. Ct. 568, 581, 187 L. Ed. 2d 487 (2013), where the Supreme Court held that "a forum-selection clause does not render venue in a court 'wrong' or 'improper' within the meaning of § 1406(a) or Rule 12(b)(3)." 134 S. Ct. at 579. The Court made clear that a party may invoke a forum-selection clause through a motion to transfer under 28 U.S.C.§ 1404(a). Id. Thus, the court denies Chemetall's motion to dismiss this action for improper venue.1
In the alternative, Chemetall moves to enforce the forum-selection clause through a motion to transfer under § 1404(a). See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 30-31, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988) (). Section 1404(a) provides that "[f]or 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 to which all parties have consented." The calculus changes, however, when a party seeks to invoke or oppose a valid forum-selection clause. Atl. Marine Constr. Co., 134 S. Ct. at 581. A forum-selection clause waives a party's right to assert his or her own inconvenience as a reason to transfer, leaving the court to consider only public-interest factors. Id. at 582; see also Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1293 (7th Cir. 1989). Because the parties dispute the enforceability of the forum-selection clause, the court must resolve this threshold issue.2
Before turning to enforceability—that is, whether the forum-selection clause factors into the § 1404(a) analysis—the court must determine what law governs the inquiry. Generally, a district court sitting in diversity applies the choice of law rules of the state in which it sits. Jackson v. Payday Fin., LLC, 764 F.3d 765, 774 (7th Cir. 2014). When evaluating a forum-selection clause in a contract that also contains a choice of law provision, the court applies the law of the jurisdiction that the parties chose to govern the rest of the contract. Id. at 774-75 ().
Applying Abbott Laboratories, the court looks to the...
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