Tattoo Art Inc v. Tat Int'l LLC, Civil Action No. 2:09cv314.

• Decision Date: 14 May 2010
• Docket Number: Civil Action No. 2:09cv314.
• Citation: 711 F.Supp.2d 645
• Parties: TATTOO ART, INC., Plaintiff,v.TAT INTERNATIONAL, LLC, and Kirk A. Knapp, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

711 F.Supp.2d 645

TATTOO ART, INC., Plaintiff,v.TAT INTERNATIONAL, LLC, and Kirk A. Knapp, Defendants.

Civil Action No. 2:09cv314.

United States District Court,

E.D. Virginia,

Norfolk Division.

May 14, 2010.

COPYRIGHT MATERIAL OMITTED

Mark R. Baumgartner, Esq., for Plaintiff.

Stephen E. Noona, Esq., for Defendant.

OPINION AND ORDER

MARK S. DAVIS, District Judge.

This matter is before the Court on Defendants TAT International, LLC (“TAT”) and Kirk Knapp's (“Knapp”) (collectively “Defendants”) Motion to Dismiss and Request for Costs and Attorney's Fees. (Docket Nos. 15 & 16.) The issues have been fully briefed, the parties have presented oral arguments, and the matter is now ripe for decision. For the reasons set forth below, the Court GRANTS Defendants' Motion to Dismiss and DENIES Defendants' Request for Costs and Attorney's Fees.

I. BACKGROUND

Plaintiff Tattoo Art, Inc. (“Tattoo Art” or “Plaintiff”) is a Virginia corporation that is in the business of creating, copyrighting, and selling tattoo flash designs. Defendant TAT is a Michigan-based business, operated and controlled by Defendant Knapp, that creates and sells stencils for use in applying airbrush body art. On December 29, 2005, Tattoo Art and TAT entered into a licensing agreement (“Licensing Agreement” or “the Agreement”) granting TAT the exclusive right to create and sell stencils depicting any of the several hundred Tattoo Art designs subject to the Agreement. (Defs.' Mot. to Dismiss, Ex. A.)

In May 2009, Tattoo Art sent TAT a letter terminating the Agreement based on TAT's failure to report sales and pay royalties, and its unauthorized alteration of Tattoo Art's copyrighted work. The termination letter directed TAT to cease and desist all reproduction and sale of Tattoo Art's designs, demanded an accounting of sales conducted pursuant to the agreement, and requested that TAT contact Plaintiff's counsel. Defendant Knapp acknowledged receipt of Plaintiff's termination letter.

After receiving the termination letter, Defendants apparently continued to sell the previously licensed tattoo designs. Upon learning of the continued infringement, Plaintiff attempted to contact the Defendants to negotiate a resolution without initiating litigation. However, at that time, Plaintiff never formally requested that the parties submit the dispute to mediation. Because the Defendants were unresponsive to Plaintiff's efforts to negotiate a resolution, the parties were unable to settle the dispute. The instant lawsuit resulted.

On July 7, 2009, Tattoo Art filed a Complaint alleging that TAT breached the terms of the Licensing Agreement and that both TAT and Knapp infringed Plaintiff's copyrights.¹ (Docket No. 1.) Even after filing its Complaint, Plaintiff continued to attempt to communicate with the Defendants in an effort to resolve the dispute. Defendants, however, refused to discuss the matter. On August 3, 2009, Defendants contacted Plaintiff to request an extension on the deadline for filing their answer, ostensibly to facilitate an amicable resolution outside of litigation. Plaintiff obliged. In fact, over the next several weeks, Plaintiff agreed to additional extensions for the filing of responsive pleadings in order to permit the parties to resolve the matter amicably. Although, at this time, neither party had requested mediation, both parties appeared interested in negotiating a resolution and avoiding litigation.

On September 23, 2009, the Defendants, for the first time, requested that the parties submit the dispute to formal mediation proceedings. Although Plaintiff advised counsel for the Defendants that it would agree to mediate the matter, mediation never took place, apparently because Defendants failed to respond. Thereafter, on October 12, 2009, the Defendants filed their Answer to Plaintiff's Complaint. (Docket No. 14.) On October 23, 2009, the parties exchanged emails that once again indicated a shared desire to mediate the matter rather than proceed with litigation. (Pl.'s Resp., Ex. 2.) Nevertheless, although both sides genuinely appeared to prefer mediation to litigation, Plaintiff and Defendants disagreed as to whether Tattoo Art would be required to dismiss the Complaint prior to the commencement of such mediation proceedings. In an apparent effort to ameliorate the Defendants' concerns, Plaintiff offered to agree to a consent order staying further discovery or other proceedings pending mediation or a settlement conference. Defendants did not respond to this offer, and mediation ultimately never took place.

Soon thereafter, Defendants filed the instant Motion to Dismiss and Request for Costs and Attorney's Fees. (Docket Nos. 15 & 16.) Plaintiff subsequently submitted a response, and the Defendants, in turn, filed a reply. (Docket Nos. 19 & 21.) The Court heard oral argument from the parties on the Defendants' motion, and the matter is now ripe for decision.

II. DISCUSSION

Defendants move for dismissal of Plaintiff's Complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). Defendants argue that the Licensing Agreement expressly requires the parties to request any dispute arising from the Agreement be submitted to mediation prior to initiating litigation. Defendants contend that Plaintiff failed to pursue mediation before filing its Complaint and that the instant lawsuit must therefore be dismissed. Plaintiff disagrees, arguing that Defendants have waived their right to mediation, and, in any event, that Defendant Knapp is not a party to the mediation provision. In addition, Defendants seek an award of costs and attorney's fees pursuant to a provision in the Agreement entitling the “prevailing party” in any action to enforce the Agreement to recoup costs incurred as a result of such action. For the reasons discussed below, the Court finds that because Plaintiff failed to request mediation of the underlying dispute prior to commencing litigation, the instant action must be dismissed. The Court further finds that Defendants are not entitled to an award of costs and attorney's fees as “prevailing part[ies]” in the action because the decision to dismiss is not an adjudication on the merits.

A. Applicable Law

At the threshold, because Defendants' Motion to Dismiss and Request for Attorney's Fees requires the Court to construe contractual provisions contained in the Licensing Agreement, the Court must determine which law governs any such interpretation. As the parties included a choice-of-law provision within the Agreement, this question is readily answered. Article XIII of the Licensing Agreement expressly provides that the Agreement “shall be construed in accordance with the laws of the Commonwealth of Virginia.” Defs.' Mot. to Dismiss, Ex. A. The enforceability of such choice-of-law provisions depends on the applicable choice-of-law rules. Because jurisdiction in the instant lawsuit is based on both the statute conferring exclusive jurisdiction on federal courts in copyright infringement suits (28 U.S.C. § 1338), and the statute conferring jurisdiction on federal courts in cases involving diversity of citizenship (28 U.S.C. § 1332) (breach of contract), the Court turns to the choice-of-law rules of the forum state to examine the Licensing Agreement's choice-of-law provision. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Twentieth Century Fox Film Corp. v. Marvel Enterprises, Inc., 155 F.Supp.2d 1, 13 (S.D.N.Y.2001) (“Because jurisdiction in this case is based on diversity of citizenship as well as the presence of federal question, we follow the choice of law rule of New York, the forum state.”) aff'd on other grounds, 277 F.3d 253 (2d Cir.2002). Here, because the action was filed in a federal court located in Virginia, the Court looks to that state's choice-of-law rules. “Virginia law looks favorably upon choice of law clauses in a contract, giving them full effect except in unusual circumstances....” Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir.2007) (citing Hitachi Credit America Corp. v. Signet Bank, 166 F.3d 614, 624 (4th Cir.1999); see also Hooper v. Musolino, 234 Va. 558, 566, 364 S.E.2d 207 (1988); Tate v. Hain, 181 Va. 402, 410, 25 S.E.2d 321 (1943)). The parties do not claim, nor does it otherwise appear, that any such unusual circumstances exist in this case. Accordingly, this Court must apply Virginia contract law when interpreting the provisions of the Licensing Agreement.

B. Motion to Dismiss

As mentioned above, Defendants move for dismissal on the grounds that Plaintiff failed to pursue mediation prior to filing the instant action. In short, Defendants argue that Plaintiff failed to satisfy a condition precedent that was necessary to trigger the right to commence litigation, namely requesting mediation of the underlying dispute. Analysis of Defendants' motion begins with examination of the mediation provision contained in the Licensing Agreement.

i. plaintiff failed to satisfy the condition precedent before commencing litigation

As an initial matter, Defendants and Plaintiff agree that the Licensing Agreement expressly provides that the parties will, at minimum, request mediation of any dispute arising from the Agreement prior to bringing a lawsuit. Indeed, a view to the contrary would be untenable. Article XIII of the Agreement reads, in relevant part, that:

In the event of any dispute arising from this Agreement, the parties agree to submit the dispute to mediation in Virginia Beach, Virginia, prior to filing any action to enforce this Agreement. In the event that Licensee refuses mediation or mediation is unsuccessful, Licensee consents and agrees to in personam jurisdiction and venue in the United States District Court for the Eastern District of Virginia, located in Norfolk, Virginia, provided such court has jurisdiction of such a dispute, otherwise Licensee consents and agrees to in personam

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