Cree, Inc. v. Watchfire Signs, LLC

• Decision Date: 01 December 2020
• Docket Number: 1:20CV198
• Court: U.S. District Court — Middle District of North Carolina
• Parties: CREE, INC., Plaintiff, v. WATCHFIRE SIGNS, LLC, Defendant.

CREE, INC., Plaintiff, v. WATCHFIRE SIGNS, LLC, Defendant.

1:20CV198

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

December 1, 2020

MEMORANDUM OPINION AND ORDER

Plaintiff, Cree, Inc. ("Cree"), initiated this declaratory judgment action on February 28, 2020, against Defendant Watchfire Signs, LLC ("Watchfire"). (ECF No. 1.) Defendant moves to either dismiss or transfer this action to the United States District Court for the Central District of Illinois.¹ (ECF No. 14.) For the reasons stated below, the Court will grant Defendant's motion to transfer.

I. BACKGROUND

Cree, a North Carolina corporation with a principal place of business in Durham, North Carolina, is an innovator in light-emitting diodes ("LEDs") and manufactures LED lamps and components. (ECF No. 1 ¶¶ 1, 8.) Watchfire, a limited liability company organized under the laws of Delaware with its principal place of business in Danville, Illinois, manufactures digital displays that use LED components, including components manufactured by Cree. (ECF No. 1 ¶¶ 2, 9.)

On January 17, 2020, Watchfire filed suit against Cree in Illinois state court alleging two counts of breach of warranty and one count of fraudulent inducement in relation to an ongoing business relationship between the parties in which Watchfire purchased and used Cree's LED bulbs for its high quality displays. (See ECF No. 16-1.) Cree removed the Illinois state action to the United States District Court for the Central District of Illinois on February 21, 2020 ("Illinois Action"). (See Notice of Removal [ECF No. 1], Watchfire Signs, LLC v. Cree Inc., 2:20-cv-02040-CSB-EIL (C.D. Ill. Feb. 21, 2020).) On February 28, 2020, Cree filed a motion to transfer venue in the Illinois Action, requesting that the court transfer its pending action to this District. (See Mot. to Change Venue [ECF No. 6], Watchfire Signs, LLC v. Cree Inc., 2:20-cv-02040-CSB-EIL (C.D. Ill. Feb. 28, 2020).) On the same day, Cree filed the instant action in this Court seeking declaratory judgment as to, among other things: (1) whether Cree's terms and conditions apply to its sale of LEDs to Watchfire; (2) whether Cree was in breach of any warranty to Watchfire in connection with the C4SMB LEDs; (3) whether Watchfire failed to comply with the terms of the warranty; (4) the remedy Watchfire can recover under any warranty; (5) Cree's liability to Watchfire in connection with the C4SMB; and (6) whether Watchfire's claims against Cree with respect to the C4SMB LEDs are time-barred. (ECF No. 1 at 8-10.) On April 15, 2020, Watchfire filed the instant motion to either dismiss Cree's action, stay the action, or transfer it to the Central District of Illinois. (ECF No. 14.)

II. DISCUSSION

Watchfire urges this Court to dismiss or transfer this action, arguing primarily that the first-filed rule is applicable and favors the action currently before the Central District ofIllinois.² (ECF No. 14 at 1.) Defendant contends that "[t]his action involves precisely the same issues and parties involved in the Illinois [A]ction" and "[e]very question raised by [Cree] in this case is already at issue in [Watchfire's] earlier-filed action currently pending in federal court in the Central District of Illinois." (ECF No. 16 at 1, 2.) Plaintiff opposes Defendant's motion and argues that transferring or dismissing the action is not appropriate because it falls into one of the exceptions to the first-filed rule. (ECF No. 17 at 1.) Specifically, Plaintiff argues that Watchfire engaged in anticipatory filing and the balance of convenience weighs in favor of the instant matter moving forward in this District. (Id. at 7-9.) The Court will first address Watchfire's motion to transfer.

A. Motion to Transfer

"The Fourth Circuit follows the first-filed rule, which holds that when similar suits are raised in different forums, 'the first suit should have priority.'"³ Cellular Sales of Knoxville, Inc. v. Chapman, No. 1:19CV768, 2020 WL 3868806, at *2 (M.D.N.C. July 9, 2020) (quoting Ellicott Mach. Corp. v. Modern Welding Co., 502 F.2d 178, 180 n.2 (4th Cir. 1974)); see also Carbide & Carbon Chems. Corp. v. U.S. Indus. Chems., Inc., 140 F.2d 47, 49 (4th Cir. 1944)) (holding that the earlier-filed lawsuit should be allowed to proceed "without interference from" subsequently filed lawsuits). The rule is founded on the notion of judicial economy and "embodies the concept that the simultaneous prosecution in two different courts of cases relating to the same parties and issues leads to the wastefulness of time, energy, and money." Cellular Sales, 2020WL 3868806, at *2 (quoting MEI Techs., Inc. v. Detector Networks Int'l, LLC, No. CIV 09-0425 RB/LFG, 2009 WL 10665141, at *3 (D.N.M. July 6, 2009) (citation and internal quotations omitted). Multiple lawsuits are governed by the first-filed rule when the basis for each suit is predicated on the same factual issues. Davis v. Zuccarello, No. 1:16-CV-01086, 2017 WL 2729089, at *2 (M.D.N.C. June 23, 2017) (citing Allied-Gen. Nuclear Servs. v. Commonwealth Edison Co., 675 F.2d 610, 611 n.1 (4th Cir. 1982)).

However, "[e]ven where the first-filed rule is applicable, a court may prioritize the second-filed suit if the 'balance of convenience' favors the second-filed suit or 'special circumstances' counsel a departure from the first-filed rule." Great W. Cas. Co. v. Packaging Corp. of Am, 444 F. Supp. 3d 664, 670 (M.D.N.C. 2020). Generally, the court that decides to dispense with the first-filed rule in a particular situation is generally the court that is presiding over the first filed action. See Supreme Int'l Corp. v. Anheuser-Busch, Inc., 972 F. Supp. 604, 607 (S.D. Fla. 1997) ("[T]he 'first-filed' court is the more appropriate forum in which to determine whether the first-filed case should proceed, or whether it should give way for reasons of judicial economy to this action."); see also Tex. Instruments Inc. v. Micron Semiconductor, Inc., 815 F. Supp. 994, 999 (E.D. Tex. 1993) (opining that the court presiding over the first filed suit is given the responsibility to determine which suit should proceed and the sister court should not usurp its decision).

1. Applicability of First-Filed Rule

In determining whether the first-filed rule is applicable, courts apply a three-factor test, considering "(1) the chronology of the filings, (2) the similarity of the parties involved, and (3) the similarity of the issues being raised." Dillon v. BMO Harris Bank, N.A., 16 F. Supp. 3d 605, 617 (M.D.N.C. 2014) (quoting Remington Arms Co. v. Alliant Techsystems, Inc., No. 1:03CV1051,2004 WL 444574, at *2 (M.D.N.C. Feb. 25, 2004)). First, with respect to the chronology of the filings, Watchfire initiated its action in Illinois state court on January 17, 2020, (ECF No. 16-1), and Cree initiated the instant action forty-two days later on February 28, 2020, (ECF No. 1). Second, the parties in both actions are identical. Third, the same factual issues provide the basis for each suit. Indeed, Watchfire's earlier-filed complaint in the Illinois Action asserts three claims. Two of those claims are with respect to Cree's alleged breach of warranties. In the Illinois Action, Watchfire alleges that Cree made specific warranties under what it refers to as the "Flex Terms." (ECF No. 16-1 ¶ 31.) According to Watchfire's complaint, the "Flex Terms are the operative contract between the parties concerning at least all C4SMB parts Flex purchased and installed into module for Watchfire to use in its digital signs." (Id. at ¶¶ 31, 35.) Watchfire contends that, in the alternative, that should Cree's terms and conditions ("Cree Terms") be found to be the operative terms controlling the dispute, Watchfire performed all of its obligations to Cree, and Cree violated the warranty under those terms. (ECF No. 16-1 ¶¶ 51-54.)

In the present action, Cree seeks a declaratory judgment stating that: (1) Cree's terms and conditions apply; (2) it did not breach its warranty; (3) Watchfire failed to comply with the warranty set forth in Cree's terms and conditions; and (4) Watchfire's claim is barred by the limitations articulated in Cree's terms and conditions. (ECF No. 1 at 8-9.) In order to resolve the issues before it, the Central District of Illinois will necessarily have to determine the question Cree is now asking this Court to declare—what terms apply to the dispute between the parties.

The Illinois Action also includes a count for fraudulent inducement, which is not included in Plaintiff's claims in the current action. The Court, however, does not viewWatchfire's fraudulent inducement claim as central to the disagreement between the parties, as that claim appears to be contingent upon Cree's knowledge of its abilities to perform under the applicable warranty at the time it sold C4SMB LED bulbs to Watchfire. (See ECF No. 16-1 ¶¶ 58-75.) While the cases may not be the "mirror image" of one another, they need not be when it is clear that they arise from the same nucleus of facts and involve the same parties. See Great W, 444 F. Supp. 3d at 671. Therefore, the Court finds that the first-filed rule is applicable to the instant matter.

2. Exceptions to the First-Filed Rule

Having found that the first-filed rule applies, the Court must now turn to whether any reason exists that would cause the Court to decline to apply the first-filed rule and dismiss, stay, or transfer Cree's action. See id. Generally, there are two categories of exceptions to the first-filed rule in the Fourth Circuit. First, "Fourth Circuit precedent and precedent from outside our circuit suggest an exception to the first-filed rule under 'special circumstances.'" Family Dollar Stores, Inc. v. Overseas Direct Imp. Co., No. 3:10-CV-278, 2011 WL 148264, at *3 (W.D.N.C. Jan. 18, 2011). "Special circumstances counseling a departure from the first-filed rule include 'forum shopping, anticipatory filing, or bad faith filing.'" Great W., 444 F. Supp. 3d at 670 (quoting Nutrition & Fitness...