Ondova Ltd. Co. v. Manila Industries, Inc.

• Decision Date: 26 June 2007
• Docket Number: Civil Action No. 3:07-CV-0001-D.
• Citation: 513 F.Supp.2d 762
• Parties: ONDOVA LIMITED COMPANY, Plaintiff, v. MANILA INDUSTRIES, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

513 F.Supp.2d 762

ONDOVA LIMITED COMPANY, Plaintiff, v. MANILA INDUSTRIES, INC., et al., Defendants.

Civil Action No. 3:07-CV-0001-D.

United States District Court, N.D. Texas, Dallas Division.

June 26, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David S. Coale, Carrington Coleman Sloman & Blumenthal, Dallas, TX, for Plaintiff.

Paul V. Storm, John W. MacPete, Robin L. Barnes, George. M. Tompkins, Storm LLP, Jonathan A. Manning, Franklin Howard Perry, Payne & Blanchard, Dallas, TX, A. Jennings Stone, Tom Bolt & Associates, St. Thomas, VI, for Defendants.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, District Judge.

Plaintiffs motion to remand presents the principal questions whether certain defendants were precluded from removing this case by a forum selection clause and whether the sole nondiverse defendant was improperly joined. Concluding that three defendants were prevented from removing the case but that the nondiverse defendant was improperly joined, the court grants the motion in part and denies it in part.

I

Defendant Munish Krishan ("Munish") is the owner and sole shareholder of defendant Manila Industries, Inc. ("Manila"). Before the events giving rise to this suit, Manila owned hundreds of thousands of automatically registered Internet domain names. For each name, Manila used the services of plaintiff Ondova Limited Company ("Ondova"), a domain name registrar, to register the name and provide the registry with the nameserver/IP address that Manila had designated as the web page to be associated with the domain name.¹ The relationship between Manila and Ondova is that of registrant-registrar and is governed by a Bulk Registration Agreement ("BRA") among Ondova, Munish, and Manila.² Jeff Baron ("Baron") is the sole owner and employee of Ondova.

After the domain names were registered, Manila licensed them to defendant Netsphere, Inc. ("Netsphere") who, in turn, had an exclusive contract with Google Inc. ("Google"). Under this arrangement, both Netsphere and Google operated web pages that contained advertising links at various domains owned by Manila.³ Each time a user clicks on an advertising link and is directed to the advertiser's website, the advertiser pays a fee. Google, Netsphere and Manila each received part of this "click-through" revenue.

Based on their registrant-registrar relationship, Manila and Ondova began to discuss forming a joint business for the purpose of obtaining favorable tax treatment.⁴ Ondova maintains that during these discussions, Munish stated that he was also acting on behalf of the following five friends and family members, whom Munish referred to as his "partners": Amir Asad ("Asad"), Biju Mathew ("Mathew"), Manish Aggarwal ("Aggarwal"), Amer Zaveri ("Zaveri"), and Rohit Krishan ("Rohit"). He also indicated that he wanted to structure the business so that at least two entities in which these individuals would have various percentage interests would own a significant part. Manila and Ondova jointly hired a law firm specializing in corporate structure and tax planning to formulate an outline of the overall tax transaction and business structure (the "Proposed Transaction"). If effected, the Proposed Transaction would have been based in the U.S. Virgin Islands, involved multiple entities and assignments, and ultimately resulted in a beneficial co-ownership by Munish and Baron of certain domain" names owned and registered by Manila.

One of the initial steps taken in anticipation of the joint business was the execution of a document ("Assignment Agreement") between Manila and an alleged Virgin Islands "shelf' company, HCB, LLC ("HCB"). Under the Assignment Agreement, Manila purported to assign to HCB all its domain names that as of the date of assignment were not subject to active claims. After the Assignment Agreement was executed, however, the parties discovered problems with the proposed assignment, including that to obtain favorable tax treatment, the domain names had to be transferred to a Virgin Islands company and that HCB was not, in fact, a Virgin Islands entity. Manila maintains that the Assignment Agreement was never performed, and that Manila and Netsphere treated it as a nullity.

During the months that followed, Ondova continued to act as registrar for Manila's domain names. Ondova repeatedly followed Manila's instructions about registering, renewing, transferring, and deleting Manila's domain names, including names that were subject to the Assignment Agreement, without objection from HCB. Manila alleges that although it and Ondova continued to discuss a possible joint venture after the Assignment Agreement fell through, they were unable to agree on the structure and terms of the overall deal. Ondova contends that Baron and Munish reached an agreement on the essential terms of the new business structure, that the assignment and related documents were effective, and that Munish repeatedly acknowledged both the fact of an agreement and the effectiveness of the assignment.

Nearly one year after the Assignment Agreement was executed, HCB, purportly acting as assignee of Manila's domain names, gave Ondova instructions regarding the domain names. Ondova followed HCB's instructions and reported to the .com/.net registry operator that the nameservers/IP addresses for all of Mahila's domain names had changed from the IP address associated with the Google parking service webpages to a new IP address associated with another parking service. Ondova was able to make these changes because only the registrar is authorized to communicate with the registry concerning the nameserver/IP address for a domain name. It is alleged that the change in domain names has resulted in a significant loss of click-through revenue to Manila, Netsphere, and Google.

Ondova filed the instant suit in Texas state court, alleging that it could not fulfill its obligations as registrar without accurate information. It also sought a declaratory judgment under the Texas Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-37.011 (Vernon 1997), specifying the ownership of the domain names and Ondova's resulting obligations, so that it could accurately perform its duties of registration and renewal. Ondova asserted in its amended complaint⁵ that it believed the domain names had been transferred, sold, or assigned to HCB and/or to Realty Investment Management, LLC ("RIM"). It averred that Netsphere was claiming ownership of the domain names or control over them, and that the individual defendants, including both Munish and Rohit, were the owners and decision-makers of Manila and Netsphere. Netsphere, Munish, Aggarwal, and Zaveri removed this case to this court, contending that Rohit was improperly joined⁶ and that his citizenship should be disregarded for diversity purposes, so that the court has subject matter jurisdiction based on diversity of citizenship.⁷

The day after Ondova filed suit in Texas state court, Manila, Netsphere, and Munish filed a similar lawsuit in federal court in California. They sought, inter alia, a declaratory judgment that Manila is the sole owner of all rights, title, and interest the registered domain names that are the subject of this suit; that Netsphere is the sole owner of all rights, title, and interest in its intellectual property; and that Baron, Ondova, HCB, and RIM do not have any ownership or interest either in Manila's domain names or in Netsphere's intellectual property. The California court dismissed the claims against Ondova and Baron and transferred the remaining actions against HCB and RIM to this court.⁸

After defendants removed the case, Ondova moved to remand, arguing that the notice of removal was defective because the parties filing it had affirmatively disclaimed federal jurisdiction, three of the defendants had waived their right of removal, and the removing defendants had failed to meet their burden of establishing diversity jurisdiction under the doctrine of improper joinder and party realignment. On the same day it filed its motion to remand, Ondova also filed a notice of dismissal without prejudice of its claims against Aggarwal, Zaveri, and Asad. The effect of this dismissal is that the only remaining defendants are Manila, Netsphere, Munish, Mathew, Rohit, HCB and RIM. Manila, Netsphere, and Munish have responded to Ondova's motion, and Ondova has filed a reply.⁹

II

Under 28 U.S.C. § 1441(a), "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants." This statute, however, "is subject to strict construction because a defendant's use of that statute deprives a state court of a case properly before it and thereby implicates important federalism concerns." Frank v. Bear Stearns & Co., 128 F.3d 919, 922 (5th Cir.1997). Thus defendants bear the burden of demonstrating that federal jurisdiction exists, and courts resolve any doubts concerning removal in favor of remand. See, e.g., Cantwell v. Deutsche Bank Secs., Inc., 2005 WL 2296049, at *2 (N.D.Tex. Sept.21, 2005) (Fitzwater, J.) (citing De Aguilar v. Boeing Co., 47 F.3d 1404, 1408 (5th Cir.1995); Manguno v. Prudential Prop.. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir.2002)).

III

A

Defendants removed this case based on diversity jurisdiction and, one week later, filed a motion to dismiss, alleging that the court lacked subject matter jurisdiction to hear the declaratory judgment action because there was no case or controversy, as required by the Declaratory Judgment Act. Ondova cites 28 U.S.C. § 1447(c), which provides that, if at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case must be remanded, and it argues that by asserting that this court lacks subject matter jurisdiction because there is no case or controversy, defendants expressly advocated a position that requires...