Patton Elec. Co., Inc. v. Rampart Air, Inc.

• Decision Date: 30 September 1991
• Docket Number: Civ. No. F 90-177.
• Citation: 777 F. Supp. 704
• Parties: PATTON ELECTRIC COMPANY, INC., Plaintiff, v. RAMPART AIR, INC., and Connelly/Osth & Co., Defendants.
• Court: U.S. District Court — Northern District of Indiana

777 F. Supp. 704

PATTON ELECTRIC COMPANY, INC., Plaintiff, v. RAMPART AIR, INC., and Connelly/Osth & Co., Defendants.

Civ. No. F 90-177.

United States District Court, N.D. Indiana, Fort Wayne Division.

September 30, 1991.

Donald F. Strutz, J. Frank Kimbrough, Thomas L. Wooding, Wilks & Kimbrough, Fort Wayne, Ind., for plaintiff.

John W. Havins, Houston, Tex., for defendants.

ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on Defendants Rampart Air and Connelly/Osth & Co.'s¹ motion to dismiss under Rule 12(b)(6) and on Defendant Rampart Air's motion to dismiss under Rule 12(b)(2) of the Federal Rules of Civil Procedure. Also before the court is plaintiff's motion for default judgment under Rule 55(a).

Factual Background

In September 1988, Rampart Air, Inc., a Texas corporation, and Patton Electric Company, Inc., an Indiana corporation, entered into a series of agreements in connection with Patton's purchase of certain of Rampart's assets. These agreements included an Asset Purchase Agreement, a License Agreement, and a Sales Representative Agreement. A feature of the asset purchase transaction was Patton's agreement to pay ten percent commission in connection with sales of fans to W.W. Grainger & Co. and several other companies that were on Rampart's customer list. This ten percent commission was to be divided between Rampart and Connelly/Osth & Co., Rampart's sales agent, with Rampart receiving a six and one-half percent commission and Connelly/Osth receiving a three and one-half percent commission. However, as a result of Patton's direct competition with some of W.W. Grainger's fans, W.W. Grainger canceled purchase orders that it had previously placed and refused to place any additional orders with Patton.

Rampart Air and Connelly/Osth, by attorney John W. Havins, corresponded with Patton Electric on July 11, 1990 and informed Patton that Rampart Air and Connelly/Osth had lost commissions in the amount of at least $250,000. Havins demanded that Patton compensate his clients for the lost commissions or his clients would file a lawsuit in Texas against Patton. Throughout the month of August, 1990 the parties engaged in settlement negotiations. After not hearing from Mr. Strutz, Patton's attorney, for some time, but believing that Patton was still pursuing settlement negotiations, Mr. Havins telephoned Mr. Strutz on September 20, 1990 to inquire whether Patton had made a decision regarding settlement. Mr. Strutz advised Mr. Havins that Patton did not wish to settle and that Patton did not want to be sued in Texas. Mr. Strutz concluded by stating that Patton intended to file a declaratory action in federal court. Mr. Strutz failed to advise Mr. Havins that Patton had already filed its declaratory judgment action in this court on September 18, 1990. After learning that Patton did not intend to settle this dispute, Rampart and Connelly/Osth filed suit against Patton in the 215th District Court of Harris County, Texas on September 21, 1990.

On September 18, 1990 Patton filed with this court a "Complaint for Declaratory Judgment and Damages" against the defendants. In this complaint Patton claims that there is no provision in either the Asset Purchase Agreement or the Sales Representative Agreement prohibiting plaintiff from continuing to compete with W.W. Grainger Co., or with any of the other prospective customers to which defendants Rampart Air and Connelly/Osth anticipated selling products to pursuant to the Sales Representative Agreement. Patton further claims that defendants' threatened litigation in Texas is a spurious complaint contrived by the defendants to compel Patton to pay the defendants $449,550. In its prayer for relief, Patton seeks "a Declaratory Judgment in favor of the plaintiff against these defendants" and an "award of damages including attorneys fees, with punitive damages for defendants threatening to bring this spurious litigation in Harris County, Texas, in an amount to be determined by the Court...."

On October 29, 1990 defendants filed their motions to dismiss. On December 17, 1990, Patton filed an amended complaint entitled "First Amended Complaint for Damages for Fraud in the Inducement of a Contract, For Damages for Attempted Extortion by Use of the U.S. Mail, For Recision of a Contract/or Declaratory Judgment". Also on December 17, 1990 Patton filed its opposition to the defendants' 12(b)(6) motion to dismiss.

On February 7, 1991 the court held a hearing on defendants' motions to dismiss and ordered the attorneys to file further briefs addressing the issues raised by the motions including the issue of whether Patton's amended complaint "relates back" to the filing of Patton's original complaint.

Defendants' Motion to Dismiss Pursuant to Rule 12(b)(6)

In their Rule 12(b)(6) motion to dismiss,² defendants have asked the court to dismiss the plaintiff's complaint because plaintiff has purposefully misused the Declaratory Judgment Act to gain a tactical advantage for itself. Defendants claim that plaintiff filed its declaratory judgment action in anticipation of defendants filing a lawsuit in Texas against plaintiff. Defendants assert that by misusing the Declaratory Judgment Act, plaintiff has deprived the defendants of the right to choose the forum in which to pursue their claims against plaintiff.

In opposition, Patton argues that its suit against defendants has not been brought solely to obtain a declaratory judgment but that the main thrust of Patton's original complaint filed on September 18, 1990 was to recover actual and punitive damages for defendants' attempted extortion of $449,550 from plaintiff. Patton further argues that its First Amended Complaint includes a request for actual and punitive damages arising from defendants' alleged fraud in the inducement and alleged rescission of contract.

Patton's filing of an amended complaint raises the issue of whether that amended complaint "relates back" to the date of the filing of the original complaint. Rule 15(c) provides in pertinent part:

(c) Relation Back of Amendments. Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading.

Defendants claim that Patton is not entitled to the benefit of the relation back doctrine because the conduct, transaction or occurrence forming the basis of the claim asserted in Patton's amended pleading was not set forth in the original pleading. Specifically, defendants argue that Patton's original complaint does not give the defendants fair notice that damage claims exist.

Patton claims that its First Amended Complaint does relate back to the filing date of its original complaint because the same transaction/occurrence is involved; specifically, the representations prior to, and the performance under, the Asset Purchase Agreement and the Sales Representative Agreement.

A review of the plaintiff's original complaint and amended complaint reveals that the original complaint is centered around the parties' Asset Purchase Agreement and plaintiff's professed right to issue brochures comparing plaintiff's fans with W.W. Grainger's fans without being haled into a Texas court and forced to defend against a suit brought by Rampart and Connelly/Osth. The amended complaint, however, concerns the defendants' alleged representations to Patton which allegedly induced Patton to enter into the agreement and incur expenses for special packaging, etc. Although Patton's original complaint includes statements that defendants' threatened Texas litigation is "spurious" and "contrived", these statements are clearly made only in support of Patton's request for a declaratory judgment and not in support of a substantive claim that would give rise to damages. It is clear to this court that the claims in the amended complaint do not arise out of the same conduct, transaction, or occurrence set forth in the original complaint. In any event, if Patton does in fact have substantive causes of action arising out of the transaction in which the Asset Purchase Agreement and the Sales Representative Agreement were entered into, Patton will be able to assert these claims as counterclaims in the Texas action. See Fed.R.Civ. Pro. 13; Associated Mills, Inc. v. Regina Co., Inc., 675 F.Supp. 446 (N.D.Ill.1987). In their brief filed March 22, 1991, defendants have informed the court that Patton has filed counterclaims in the Texas case that mirror its claims set forth in the First Amended Complaint.

Confining the inquiry to the plaintiff's original complaint, the question before the court is whether plaintiff has purposefully misused the Declaratory Judgment Act which would require the court to dismiss plaintiff's suit for forum shopping. As the Seventh Circuit Court of Appeals held in Tempco Electric Heater Corp. v. Omega Engineering, Inc., 819 F.2d 746, 749 (7th Cir.1987), the mere fact that a plaintiff filed its declaratory judgment action first does not give it a "right" to choose a forum. At this point it is appropriate to note recent developments of the parallel suit in Texas, which was brought by the defendants in this action against Patton Electric. On August 14, 1991, the Fifth Circuit Court of Appeals vacated the district court's dismissal of the Texas suit. The Fifth Circuit remanded the case to the district court to determine whether the plaintiff in this action filed the anticipatory declaratory action here for purposes of forum shopping. The Fifth Circuit concluded that if Patton filed this suit as an anticipatory declaratory action for purposes of forum shopping, such an act would nullify the first-to-file rule:

Importantly, we have declined to follow the first-to-file rule where, as here, the first-filed action is initiated in an apparent attempt to pre-empt anticipated litigation and deprive a

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