Corry v. Cfm Majestic Inc.

• Decision Date: 13 August 1998
• Docket Number: Civil Action No. 98-407-A.
• Citation: 16 F.Supp.2d 660
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Arthur A. CORRY, Plaintiff, v. CFM MAJESTIC INC., et al., Defendants.

16 F.Supp.2d 660

Arthur A. CORRY, Plaintiff, v. CFM MAJESTIC INC., et al., Defendants.

Civil Action No. 98-407-A.

United States District Court, E.D. Virginia, Alexandria Division.

August 13, 1998.

Michael W. Robinson, Michael Ciatti, Venable, Baetjer & Howard LLP, McLean, VA, Paul F. Strain, David J. Heubeck, Venable, Baetjer & Howard LLP, Baltimore, MD, for Plaintiff.

Regis E. Slutter, George A. Hovanec, Jr., David M. Schlitz, Burns, Doane, Swecker & Mathis, LLP, Alexandria, VA, Michael H. Baniak, Harold V. Johnson, Michael E. Milz, Frank C. Nicholas, Brinks Hofer Gilson & Lione, Chicago, IL, for Defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

In this diversity action, plaintiff, a UK citizen domiciled in the state of Florida, is a patentee who sues a licensee and its subsidiaries,¹ with principal places of business in Mississauga, Ontario, and Huntington, Indiana, for breach of contract, patent infringement, misappropriation of trade secrets and breach of confidences. So constituted, this suit could not have been brought in this district, as it is not a permissible venue; none of the CFM entities reside in the Eastern District of Virginia, and none of the events giving rise to the claim occurred here.² To remedy this, plaintiff added a claim for patent infringement against one of the CFM entities' distributors, Thulman Eastern Corporation ("Thulman"), which has its principal place of business in Annapolis Junction, Maryland, and a place of business within this district in Chantilly, Virginia.

At issue before the Court is whether to transfer the entire action to the Northern District of Indiana, or, in the alternative, to grant defendants' motion to sever and stay the action as to codefendant Thulman, and then to transfer the main action against the CFM entities to the Northern District of Indiana. For the reasons that follow: (1) transfer of the entire action to Indiana is inappropriate because there is no jurisdiction over Thulman in that state; (2) severance and stay of the patent infringement claim against Thulman is warranted given that resolution of the claims against the CFM entities may dispose of the claim against Thulman; and (3) transfer of the remaining claims against the CFM entities to Indiana is appropriate on the basis of an assessment of the factors pertinent to transfer under 28 U.S.C. § 1404(a).

I

In April 1992, plaintiff, an inventor, and CFM Inc. entered into a contract (the "1992 Agreement") whereby plaintiff agreed to disclose his proprietary technology to CFM Inc., and to allow CFM Inc. to use that technology to manufacture gas fireplaces and gas fireplace components. Since 1992, CFM Inc. has manufactured and sold products incorporating this technology throughout the United States and Canada. Under the 1992 Agreement, CFM Inc. agreed to pay plaintiff: (1) a minimum monthly royalty of $2,500, which amount would be credited against any additional royalties due; (2) a five percent royalty on all products manufactured and sold by CFM Inc. using plaintiff's technology; (3) and a five percent improvement royalty on all products manufactured or sold by CFM Inc. using plaintiff's "improvements." Soon after signing the 1992 Agreement, plaintiff began making a number of improvements to his technology, many of which the CFM entities have used. Among the most recent of these is an improvement that relates to molding technology and that is covered by U.S. Patent No. 5,700,409 ("the '409 Patent"). On November 30, 1992, plaintiff and CFM Inc. entered into a second agreement (the "In-House Mold Making Agreement"), whereby plaintiff agreed to divulge to CFM Inc. additional mold manufacturing technology.

On August 1, 1996, plaintiff and CFM Inc. entered into a Deed of Assignment (the "Amendment") that amended the 1992 Agreement by granting CFM Inc. the right to assign plaintiff's licensed technology to CFM affiliates. The Amendment provided that all new licensees would be subject to the 1992 Agreement and would pay all royalties to plaintiff. The current record does not disclose whether the two agreements and the Amendment were signed in Indiana or Canada, although it is certain that none was signed in Virginia. Shortly after signing the Amendment, CFM Inc. assigned plaintiff's technology to its various subsidiaries.

The financial significance of the business agreements between plaintiff and CFM Inc. is readily apparent. Since the 1992 Agreement, the CFM entities have allegedly sold at least $175,000,000 in gas fireplace products made using plaintiff's licensed technology. Significantly, the CFM entities manufacture many of these products at a plant in Huntington, Indiana. Also significant is the fact that the CFM entities sell their products nationwide through approximately one thousand dealers, one of which is Thulman.

Thulman is the nation's largest distributor of fireplace products. It has sold over $1,000,000 of fireplace products manufactured by the CFM entities, some of which were manufactured using plaintiff's licensed technology. The record does not disclose the quantity of products sold by Thulman that were manufactured using plaintiff's technology. Nor is it known whether Thulman sells more products made using plaintiff's technology than any of the other one thousand CFM entity dealers.

Plaintiff alleges that since December 1, 1997, the CFM entities have refused to pay plaintiff the minimum $2,500 monthly royalty. Moreover, plaintiff claims, the CFM entities have never paid either the five percent royalty for use of plaintiff's technology or the five percent improvement royalty. As a result, on January 8, 1998, plaintiff sent the CFM entities notice that they were in breach of the 1992 Agreement. Approximately two months later, plaintiff formally terminated the 1992 Agreement, pursuant to Paragraph 17 of that agreement, which provides that if a breach by CFM Inc. is not cured within fourteen days after receipt of written notice, plaintiff may terminate the Agreement. Paragraph 7 of the 1992 Agreement also provides that CFM Inc. must cease using plaintiff's licensed technology upon termination of the Agreement.

On March 25, 1998, plaintiff filed this action alleging three counts against the CFM entities, and one count against Thulman. The first count, solely against the CFM entities, alleges breach of contract on the grounds that the CFM entities have refused to pay (i) the minimum monthly royalty of $2,500 since December 1, 1997, (ii) the five percent Royalty for use of plaintiff's technology since May 1, 1993, and (iii) the five percent improvement royalty since May 1, 1993. The second count alleges infringement of the '409 patent by both the CFM entities and Thulman, and claims that the CFM entities' infringement is willful, wanton and deliberate. The third count alleges misappropriation of trade secrets and breach of confidences solely by the CFM entities.

The CFM entities now move to transfer the entire action to Indiana, or in the alternative to sever and stay the action as to Thulman, and then to transfer the remaining, main action between plaintiff and the CFM entities to the Northern District of Indiana.³ Plaintiff contends that the entire action cannot be transferred to Indiana because there is no personal jurisdiction over Thulman in that state. Defendants disagree, but argue in the alternative that if Thulman cannot be sued in Indiana, then the patent infringement claim against Thulman should be severed and stayed in this district, thereby allowing the remaining claims against the CFM entities to be transferred to Indiana pursuant to 28 U.S.C. § 1404(a) for the convenience of the witnesses and the parties and in the interest of justice. In response, plaintiff argues that severance is inappropriate and that, in any event, an assessment of the relevant § 1404(a) factors weighs against transfer of the claims against the CFM entities.

II

A motion to transfer will only be granted if the case "might have been brought" in the transferee district. See 28 U.S.C. § 1404(a). In other words, transfer is possible only if venue and personal jurisdiction are proper in the transferee forum. And, importantly, these requirements cannot be waived. See Hoffman v. Blaski, 363 U.S. 335, 343-344, 80 S.Ct. 1084, 4 L.Ed.2d 1254 (1960) (denying transfer despite defendant's willingness to waive jurisdiction and venue objections to transferee forum).⁴ Given these principles, the threshold issue is whether plaintiff's entire suit can be brought in the Northern District of Indiana because, if so, the motion to sever and stay becomes moot.

Personal jurisdiction comes in two varieties — specific and general. Specific jurisdiction exists when the claim in issue arises from the defendant's contacts with the forum state,⁵ whereas general jurisdiction depends on a defendant's contacts with the forum state unrelated to the claim in issue, but those contacts must be "continuous and systematic." Helicopteros, 466 U.S. at 415, 104 S.Ct. 1868 (1984) (relying on Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 446-47, 72 S.Ct. 413, 96 L.Ed. 485 (1952)). Specific jurisdiction is not at issue here; the parties do not dispute that there is no specific jurisdiction over Thulman in Indiana, as none of the alleged infringing acts by Thulman occurred in Indiana. But the parties vigorously dispute whether Thulman's contacts with the Majestic Products Company in Huntington, Indiana, satisfy the requirements for general jurisdiction.

The threshold for satisfying the requirements for general jurisdiction is substantially greater than that for specific jurisdiction. See 16 James Wm. Moore et al., Moore's Federal Practice § 108.40 (3d ed.1997) (citing Helicopteros, 466 U.S. at 414-15, 104 S.Ct. 1868). Typically, courts assert general jurisdiction only over nonresidents who are essentially domiciled within the forum state. See id. at § 108.41[3] ("The threshold for `continuous and systematic' contact...