KE Arms, LLC v. GWACS Armory LLC
| Decision Date | 08 March 2021 |
| Docket Number | No. CV-20-01625-PHX-JJT,CV-20-01625-PHX-JJT |
| Parties | KE ARMS LLC, Plaintiff, v. GWACS Armory LLC, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
At issue is Defendants' Motion to Dismiss for Lack of Personal Jurisdiction and Failure to State a Claim, and, in the alternative, to Transfer (MTD, Doc. 9). The Court also considered Plaintiff's Response (Resp. Doc. 11), and Defendants' Reply (Doc. 12). Plaintiff's Complaint requests declaratory relief and brings tort and contract law claims against GWACS Armory, LLC, GWACS Defense Inc., Joe Gudgel, and Russell Anderson (collectively, "Defendants"). Because there is stayed litigation in the Northern District of Oklahoma that would completely settle all issues in Plaintiff's declaratory relief request, the Court will decline to exercise jurisdiction under the Declaratory Judgment Act. The Court further grants Defendants' Motion to Dismiss Plaintiff's tort law claims for failure to state a claim and will transfer the contract law claim to the Northern District of Oklahoma pursuant to 28 U.S.C. § 1404(a).
There are currently two proceedings relating to the Non-Disclosure Agreement signed by Plaintiff KE Arms, LLC ("KEA") and Defendant GWACS Armory, LLC ("Armory") ( the "KEA NDA"). In the matter before this Court (the "Arizona Litigation"), KEA requests declaratory relief stating that at all times KEA has complied with its obligations under the KEA NDA and brings related claims for Tortious Interference, Business Disparagement, and Breach of the Covenant of Good Faith and Fair Dealing (Doc. 1-3, "KEA Compl."). In the Northern District of Oklahoma matter, Case 4:20-cv-00341-CVE-FHM, Armory sued KEA for breaching the KEA NDA as well as other parties for related conduct (Doc. 1-4, "Armory Compl.") (the "Oklahoma Litigation"). Because both the Court's decision not to exercise jurisdiction over KEA's request for declaratory relief as well as its decision on KEA's related claims are dependent on the Oklahoma Litigation, the Court will outline KEA's allegations as well as the relevant Armory allegations.
There are multiple parties involved in the two litigations. KEA and Armory are both limited liability companies that manufacture firearms. KEA is based in Arizona while Armory is from Oklahoma. GWACS Defense, LLC ("Defense") is a Delaware corporation that manufactures acoustical gunshot detection systems and Brownells, Inc. ("Brownells") is a large firearms dealer that operates throughout the United States. SST is also a firearms manufacturer and Cavalry Arms ("Cavalry"), is a former firearms manufacturer that developed the polymer lower receiver CAV-15 at issue in both litigations. Jud Gudgel and Russell Anderson are both individuals who reside in Oklahoma and are employed by Defense and Armory. Shawn Nealon is an individual who owned Cavalry. Finally, Russell Phagan is an individual who worked for Cavalry, SST, Armory, and currently is employed by KEA. (Armory Compl. ¶¶ 1-6, 12, 16, 25-26.)
The dispute in both actions centers around the ownership and use of the intellectual property ("IP") for the CAV-15 lower polymer receiver. There are multiple NDAs and purchase agreements outlining the various parties' obligations with regards to the IP. KEA's Complaint for declaratory relief and state law tort claims focuses solely on the KEA NDA and Armory's subsequent cease and desist demand letter (the "Demand"). Armory's complaint focuses on both the KEA NDA and the purchase agreement between Armoryand SST ("SST Purchase Agreement") as well as the NDAs signed between Armory and Brownells ("Brownells NDAs").
KEA filed its Complaint on April 27, 2020, alleging that KEA and Armory entered into the KEA NDA on June 2, 2015. According to the Complaint, the KEA NDA covers certain proprietary information but expressly excludes proprietary information that was already in KEA's possession at the time of Armory's disclosure, information that was available in the public domain or through a third party, or information that was independently developed by KEA. The KEA NDA further provides that either party may offer or develop products that are similar to products the other party offers or plans to offer. (KEA Compl. ¶¶ 12-13.) KEA subsequently developed products that were "similar to the products offered by [Armory]" using only proprietary information not subject to the KEA NDA and thus at all times complied with the KEA NDA. (KEA Compl. ¶¶ 14-15.) The Complaint lacks any detail as to what products KEA developed or with whom it developed them. KEA further alleges that on April 7, 2020, Mr. Anderson, representing Defendants, sent the Demand to KEA, which contained statements Defendants knew to be "false and disparaging" about KEA, including a claim that it had violated the terms of the KEA NDA. (KEA Compl. ¶¶ 16-18.) Mr. Anderson subsequently sent the Demand a second time to KEA on April 21, 2020, but this time copied "one of KE Arms largest customers/distributors." (KEA Compl. ¶ 19.)1 KEA's Complaint requests declaratory relief that it did not violate the KEA NDA and asserts a claim for Breach of the Implied Covenant of Good Faith and Fair Dealing against Armory as well as claims for Tortious Interference and Business Disparagement against all Defendants.
In the Oklahoma litigation, Armory alleges that SST purchased the IP for the CAV-15 polymer lowers and the designs for the MKI and MKII, which are products that use the CAV-15 IP, from Cavalry in 2010, which Armory subsequently acquired from SSTpursuant to the Purchase Agreement in February 2013. (Armory Compl. ¶¶ 17, 20.) KEA and Armory had ongoing discussions regarding the CAV-15 IP and ultimately entered the KEA NDA, which Armory alleges prohibited KEA from both using and disclosing Armory's proprietary information relating to the CAV-15 IP. (Armory Compl. ¶¶ 25-28.) Additionally, from 2015 through 2018, Armory had business discussions with Brownells about the CAV-15 IP and with both parties about partnership opportunities for the development of the new MKIII model. Armory entered into two separate NDAs with Brownells in 2013 and 2016 that protect the CAV-15 IP. (Armory Compl. ¶ 42.)
Armory further alleges that near the end of February 2016, KEA purchased two boxes of "Blue prints" and one thumb drive containing information pertinent to the CAV-15 IP from Defendant Shawn Nealon, who possessed the information from his time as owner of Cavalry. (Armory Compl. ¶ 31.) Subsequently, around September 2018, KEA and Brownells colluded to use Armory's IP for the CAV-15 to create polymer lower receiver products named MKIII. This all took place without Armory's knowledge or consent. (Armory Compl. ¶¶ 47-50.) Armory's Complaint does not discuss the Demand sent to KEA and Brownells.
Based on these allegations, Armory brought breach of contract claims against KEA for violation of the KEA NDA, Brownells for violation of the Brownells NDA, and SST for violation of the Purchase Agreement, as well as a Trademark Infringement claim against KEA and Brownells for their use of the MKIII mark, and a host of other related claims.
On January 21, 2021, the Northern District of Oklahoma granted KEA's Motion to Transfer Venue or Stay Proceedings and stayed the case pending a ruling from this Court on Defendants' Motion to Dismiss ("OK Order"). The Northern District of Oklahoma found that the first to file rule applied but stayed the case to allow this Court to determine whether to exercise jurisdiction over KEA's claims. (OK Order at 16.). KEA subsequently requested that this Court take judicial notice of the order and the court's findings (Doc. 15), and Defendants filed a motion in response arguing that while taking judicial notice of theexistence of the order was appropriate, KEA's request for judicial notice of the findings was overbroad. (Doc. 16.).
Under the Declaratory Judgment Act, district courts have the "unique and substantial discretion" to decide whether to issue a declaratory judgment. Wilton v. Seven Falls Co., 515 U.S. 277 (1995). The Declaratory Judgment Act states that "courts may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a) (emphasis added). Accordingly, a district court is under no compulsion to exercise jurisdiction. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942).
Where parallel state proceedings exist, "there is a presumption that the entire suit should be heard in state court." Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (citation omitted). In such situations, Courts should avoid gratuitous interference as it would be uneconomical and vexatious for a federal court to proceed with a declaratory judgment action in these situations. Wilton, 515 U.S. at 282-83 (citation omitted). However, the existence of a pendent state action does not automatically bar a request for federal declaratory relief. Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir. 1991). Courts consider several factors in determining whether to exercise jurisdiction or dismiss or stay the declaratory judgment proceeding. These factors include the need to: (1) avoid unnecessary determination of state law issues; (2) discourage litigants from filing declaratory actions in an attempt to forum shop; and (3) avoid duplicative litigation. Dizol, 133 F.3d at 1225; Chamberlain, 931 F.2d at 1367. In addition to the foregoing factors, the Ninth Circuit has adopted the following additional considerations:
[W]hether the declaratory action will settle all aspects of the controversy; whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a 'res judicata' advantage; or whether the use of a declaratory action...
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