Hunter Douglas, Inc. v. Menendez

• Decision Date: 16 March 2022
• Docket Number: Civil Action 4:21-cv-741
• Parties: HUNTER DOUGLAS, INC., Plaintiff, v. VICTOR MENENDEZ Defendant.
• Court: U.S. District Court — Eastern District of Texas

HUNTER DOUGLAS, INC., Plaintiff,
v.
VICTOR MENENDEZ Defendant.

Civil Action No. 4:21-cv-741

United States District Court, E.D. Texas, Sherman Division

March 16, 2022

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE.

Pending before the Court is Defendant Victor Menendez's Motion to Dismiss (Dkt. #6). Having considered the motion and relevant pleadings, the Court finds the motion should be DENIED.

BACKGROUND

Plaintiff Hunter Douglas, Inc. (“Hunter Douglas”) manufactures window coverings (Dkt. #1 ¶ 1). Defendant Victor Menendez (“Menendez”) is the former Vice President of Outdoor Products Division for Timberblinds, LLC (“Timberblinds”). Timberblinds is solely owned by Turnils North America, LLC (“Turnils”) and managed by Custom Brands Group (“Custom Brands”), which are both solely owned by Hunter Douglas (Dkt. #9, Exhibit 1 ¶ 2).

On February 1, 2017, Menendez and Timberblinds entered into an Employment Agreement and a Loan and Repayment Agreement (Dkt. #1 ¶¶ 2, 8). The Employment Agreement permitted Timberblinds to assign its rights and obligations under the Employment Agreement “to any Affiliate” (Dkt. #1, Exhibit A § 11). The Employment Agreement defined “Affiliate” as “all persons or entities (either directly or indirectly through one or more intermediaries) controlling, controlled by, or under common control with, the entity, and all predecessors, successors, and assigns of any such persons or entities” (Dkt. #1, Exhibit A § 5.6.). Timberblinds assigned its

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rights under the Employment Agreement to Hunter Douglas (Dkt. #1 ¶ 3).^[1]

Additionally, pursuant to the Loan and Repayment Agreement, Timberblinds agreed to loan Menendez $150, 000 subject to repayment over the course of his employment (“the Loan and Repayment Agreement”) (Dkt. #1 ¶ 8). Pursuant to a general assignment provision in the Loan and Repayment Agreement, Timberblinds assigned its rights under the Loan and Repayment Agreement to Hunter Douglas (Dkt. #1 ¶ 9).^[2]

In December of 2017, Menendez sent Hunter Douglas an invention disclosure for one of his inventions, the Hem Bar for Use with Architectural Structure Covering (the “Hem Bar”) (Dkt. #13, Exhibit A). According to Hunter Douglas, when Menendez transmitted the invention disclosure to Hunter Douglas, there was an assignment of intellectual property rights under the Employment Agreement (Dkt. #9, Exhibit 1, ¶¶ 6-7). Throughout 2018 and 2019, Menendez assisted Hunter Douglas with its patent application for, and prosecution of, the Hem Bar (Dkt. #1 ¶¶ 19-21).

On April 21, 2020, Timberlinds announced its upcoming merger with Custom Brands (Dkt. #13 at p. 2). By January 2021, Hunter Douglas decided to discontinue the Timberblinds' Outdoor Products Division, and transition its business activity to another recently-acquired subsidiary, Progressive Screens (Dkt. #13 at p. 2). When Hunter Douglas decided to discontinue the Outdoor Product Division within Timberblinds, Timberblinds transferred all remaining rights and obligations under the Employment Agreement and Loan and Repayment Agreement to Hunter Douglas (“2021 Assignment”) (Dkt. #13 at p. 2).

On March 2, 2021, Turnils' president notified Menendez he would receive a formal role at

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Progressive Screens (Dkt. #13 at p. 2). However, the reorganization apparently led to misunderstanding and miscommunication regarding Menendez's continued employment with any Turnils' owned company (Dkt. #13 at pp. 2-3). Menendez's employment with Timberblinds, or any other Turnils subsidiary, ended in March of 2021 (Dkt. #13 at p. 3).

On June 15, 2021, Menendez brough an action in this Court, alleging that Hunter Douglas had recorded an assignment containing Menendez's forged signature with the United States Patent and Trademark Office (“USPTO”), based on which Hunter Douglas filed an application to patent Menendez's Hem Bar invention in its own name (the “Menendez Suit”). See Menendez, v. Hunter Douglas Inc., et al., Case No. 4:21-cv-00451-ALM. Timberblinds is not a party to the Menendez Suit.

On September 24, 2021, Hunter Douglas initiated the underlying action against Menendez for breach of contract and breach of the duty of loyalty (Dkt. #1)

On October 14, 2021, Menendez moved to dismiss Hunter Douglas' claims for lack of subject matter jurisdiction and failure to join a party pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(7) (Dkt. #6). Hunter Douglas responded on October 28, 2021 (Dkt. #9). Menendez replied on November 4, 2021 (Dkt. #12). Hunter Douglas filed its Sur-Reply on November 12, 2021 (Dkt. #13).

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(1)

Under Rule 12(b)(1), “a claim is properly dismissed for lack of subject-matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the claim.” In re FEMA Trailer Formaldehyde Prods. Liab. Litig., 668 F.3d 281, 286 (5th Cir. 2012) (internal quotation marks omitted). There are two types of Rule 12(b)(1) challenges to subject-matter

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jurisdiction: facial attacks and factual attacks. Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981).

“In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). The pleading's allegations are presumed to be true, and “[i]f those allegations sufficiently allege a claim for recovery, the complaint stands and the federal court must entertain the suit.” Jones v. SuperMedia Inc., 281 F.R.D. 282, 286 (N.D. Tex. 2012) (citing Paterson, 644 F.2d at 523).

“A factual attack on the subject matter jurisdiction of the court, however, challenges the facts on which jurisdiction depends and matters outside of the pleadings, such as affidavits and testimony, are considered.” Oaxaca v. Roscoe, 641 F.2d 386, 391 (5th Cir. 1981). When examining a factual challenge to subject matter jurisdiction that does not implicate the merits of plaintiffs cause of action, the district court has authority “to weigh the evidence and satisfy itself as to the existence of its power to hear the case.” Garcia v. Copenhaver, Bell & Assocs., 104 F.3d 1256, 1261 (11th Cir. 1997); see also Clark v. Tarrant Cnty., 798 F.2d 736, 741 (5th Cir. 1986). Accordingly, the court may consider matters outside the pleadings, such as testimony and affidavits. See Garcia, 104 F.3d at 1261. The burden shifts to the plaintiff to prove subject matter jurisdiction by a preponderance of the evidence. MacKenzie v. Castro, No. 3:15-cv-0752, 2016 WL 3906084, at *2 (N.D. Tex. July 19, 2016).

A court's dismissal of a case for lack of subject matter jurisdiction is not a decision on the merits, and the dismissal does not prevent the plaintiff from pursuing the claim in another forum. See Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977).

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Federal Rule of Civil Procedure 12(b)(7)

The Federal Rules of Civil Procedure allow a district court to dismiss an action for “failing to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). Rule 19 provides for the joinder of all parties whose presence in a lawsuit is required for the fair and complete resolution of the dispute at issue. Fed.R.Civ.P. 19(a).

“[A] Rule 12(b)(7) analysis entails two inquiries under Rule 19.” H.S. Res., Inc. v. Wingate, 327 F.3d 432, 439 (5th Cir. 2003). First, the Court must determine under Rule 19(a) whether a person should be joined to the lawsuit. Id. “If joinder is warranted, then the person will be brought into the lawsuit.” Id. “But if such joinder would destroy the [C]ourt's jurisdiction, ” then the Court turns to Rule 19(b) and determines “whether to press forward without the person or to dismiss the litigation.” Id.

A required party is one “whose joinder will not deprive the court of subject-matter jurisdiction” and either: (1) the Court “cannot accord complete relief among existing parties” or (2) disposing of the action would “impair or impede” the person's interest or “leave an existing party subject to . . . inconsistent obligations.” Fed.R.Civ.P. 19(a)(1).

If joinder would destroy jurisdiction, under Rule 19(b), the Court “must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Fed.R.Civ.P. 19(b). The Court shall consider:

(1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties: (2) the extent to which any prejudice could be lessened or avoided by: (A) protective provisions in the judgment; (B) shaping the relief; or (C) other measures; (3) whether a judgment rendered in the person's absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

Fed. R. Civ. P. 19(b)(1)-(4).

A determination of improper joinder must be based on an analysis of the causes of action

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alleged in the complaint at the time of removal. See Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995). In this case, the burden is on Menendez, as the movant, to show that Timberblinds is a necessary and required party. See Sanson v. Allstate Tex. Lloyds, 4:17-CV-00733, 2018 WL 3630136, at *1 (E.D. Tex. July 31, 2018).

ANALYSIS

Menendez contends the Court lacks subject matter jurisdiction and that Timberblinds is an indispensable party whose absence warrants dismissal of the case (Dkt. #6). Hunter Douglas responds the Court has subject matter jurisdiction and that Timberblinds is not an indispensable party (Dkt. #9).

The Court first addresses Hunter Douglas' assertion thar the Court lacks subject matter jurisdiction over Menendez's claims. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (maintaining that when a party files several Rule 12 motions, and one of which is a Rule...