Unlimited Tech., Inc. v. Leighton
| Decision Date | 19 July 2017 |
| Docket Number | CIVIL ACTION NO. 17–1913 |
| Citation | 266 F.Supp.3d 787 |
| Parties | UNLIMITED TECHNOLOGY, INC. v. Richard LEIGHTON, a/k/a Rick Leighton, DTS Security, Inc. and Secure Vizual, LLC |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Casey Green, Colleen Heckman, Fernando I. Rivera, Sidkoff, Pincus & Green, P.C., Philadelphia, PA, for Plaintiff.
Robert W. Small, Reger Rizzo & Darnall LLP, Philadelphia, PA, for Defendant.
For purposes of applying the first-filed rule, which date governs the analysis—the date the concurrent federal case was filed in the state court or the date it was removed? The Third Circuit has not decided the issue. A few district courts, without analysis, have concluded that the operative date is the date of removal. Other courts have used the date of filing in the state court. We conclude that the date the action was filed in state court is what counts.
Unlimited Technology, Inc., filed this action to enforce the restrictive covenants in defendant Richard Leighton's employment agreement. Leighton moves to dismiss, stay, or transfer the action to the Northern District of Georgia, where he has a pending action to have the agreement declared unenforceable. Invoking the first-filed rule and 28 U.S.C. § 1404(a), Leighton argues that this action was filed after he had filed the action against Unlimited in the Georgia state court, which was removed to the United States District Court for the Northern District of Georgia. Opposing the motion, Unlimited contends that the action in this district was filed first because it was filed before the Georgia state court action was removed. Unlimited also claims that Leighton filed the Georgia action in bad faith and in anticipation of this action.
We must determine whether to rely on the state court filing date or the removal date for purposes of applying the rule, and whether exceptions to the rule apply. If the first-filed rule does not apply, we then analyze whether the action should be transferred pursuant to 28 U.S.C. § 1404(a).
We conclude that because the operative date for applying the first-filed rule is the date the case was filed in the state court and not the date of removal, the Georgia action was the first-filed action. However, we shall not apply the first-filed rule because the Georgia action was anticipatory and in bad faith. Therefore, the motion to transfer shall be denied.
This dispute began when Leighton left his employment with Unlimited, taking with him Unlimited's largest customer. After his departure, Unlimited conducted an internal investigation which, it alleges, revealed that he had been planning to leave and start a competing business while still working at Unlimited. Unlimited considered Leighton's leaving and starting a business a breach of the non-compete provision in his employment contract and an unauthorized taking of trade secrets.
Leighton began his employment with Unlimited, a security services company, in January 2014.1 As Unlimited's Vice President of Sales and its highest paid employee, he earned approximately $350,000 annually.2 His employment agreement contained non-compete, non-disclosure, and non-solicitation provisions.3
When Leighton joined the company, he brought with him Home Depot as a client. When he left, he took Home Depot, which had become Unlimited's largest customer.4
The parties dispute the reasons why Leighton joined Unlimited and what transpired at the time of his departure. According to Leighton, Unlimited reneged on its promise to give him an equity interest in the company.5 He claims that he was instead demoted in December 2015.6
After his departure on September 29, 2016, Leighton operated his own security services business in Georgia, taking with him the Home Depot account. After he announced he would be leaving the company, Leighton alleges he and Unlimited agreed to continue working together on some Home Depot projects.7 He claims that Brent Franklin, President of Unlimited, confirmed this agreement via email on October 11, 2016.8
Unlimited disputes the existence of any post-employment agreement. Instead, it claims that Leighton threatened to impede any future business with Home Depot if the company attempted to enforce the restrictive covenants in his employment agreement.9 Having lost Home Depot as a client, Unlimited agreed to serve Home Depot as Leighton's subcontractor.10
After his departure, Leighton contracted Unlimited to complete a project for Home Depot. He contends that Unlimited failed to adequately perform. At Home Depot's request, Leighton did not offer Unlimited any more Home Depot work.11 The parties had no further contact until the lawyers became involved.
On March 31, 2017, Casey Green, counsel for Unlimited, sent Leighton a cease-and-desist letter, demanding that Leighton or his counsel respond by April 17, 2017 "to avoid litigation."12 On April 7, 2017, Leighton's counsel in Georgia, Charles Hawkins, called Green to discuss potential settlement. Green claims and Hawkins denies that during the phone call, he assured Hawkins that suit would not be commenced while the parties were engaged in discussions.13
After discussing the case with his client, Hawkins spoke to Green again on Thursday, April 13, 2017. The attorneys dispute what was said during this phone call. They agree Unlimited wanted certain information. Green claims that Hawkins agreed to "voluntarily disclose" information with Unlimited for settlement purposes only.14 Hawkins counters that they merely discussed "the possibility" of Leighton sharing information.15 Hawkins insists that Green set a deadline of Monday, April 17, for Leighton to provide the information.16 Green denies that he gave any deadline.17
Following up on the telephone conversation earlier that day, Green sent Hawkins an email listing the documents Unlimited needed to assess whether there was a breach of contract and a theft of trade secrets. Green reiterated that Unlimited was still interested in reaching "an amicable pre-litigation settlement."18 The email did not set a deadline.
Hawkins ignored Green's email. Instead, without warning, he filed suit in the Georgia state court on April 18, 2017.19 In his complaint, Leighton seeks a declaration to clarify his rights and obligations, and to avoid violating his employment agreement. Specifically, he asks the court to declare that he did not violate any provision of his employment agreement because the parties had entered into a post-employment agreement that resulted in a novation, or at least, a substantial modification of the original agreement.
Only after Leighton filed his motion in this action did Hawkins attempt to justify filing the Georgia action without notice. He explains that the document request was "far more extensive" than what they had discussed on the phone.20 He states that "[a]ny modestly experienced attorney would know that producing such a large volume of documents on three days' notice would not be humanly possible."21 Hawkins claims that he "did not take seriously" that Unlimited was still interested in settling, despite Green's email stating the contrary.22 Hawkins suggests that Green "should have concluded that my clients were not interested in continuing settlement discussions after that deadline passed without any further communications from me."23 Yet, he discussed none of these concerns with Green. If he viewed the situation as he now claims, he should have addressed his concerns with Green. Instead, he gave the impression that Leighton was cooperating and pursuing settlement.
Unlimited did not learn that Leighton had filed the Georgia action until April 24, 2017, when its registered agent in Georgia was served with a copy of the complaint.24 Two days later, on April 26, 2017, Unlimited filed this action in the Eastern District of Pennsylvania. Unlimited removed Leighton's state court complaint to the Northern District of Georgia on May 3, 2017.25
Leighton has moved to dismiss, stay, and/or transfer this action. He contends that the first-filed rule favors dismissing or transferring this action to the Northern District of Georgia. Opposing the motion, Unlimited argues that the action here was filed before the Georgia action was removed to the federal court there, giving this action priority under the first-filed rule.
The first-filed rule requires, absent extraordinary circumstances, that federal cases sharing substantially similar subject matter be decided by the court where the litigation was first filed. EEOC v. Univ. of Pa. , 850 F.2d 969, 971 (3d Cir. 1988), aff'd on other grounds , 493 U.S. 182, 110 S.Ct. 577, 107 L.Ed.2d 571 (1990) ; Synthes, Inc. v. Knapp , 978 F.Supp.2d 450, 455 (E.D. Pa. 2013). The rationale for the rule is to promote sound judicial administration and comity among federal courts. EEOC , 850 F.2d at 971. It is also designed to relieve a party who first brings a controversy into a court of competent jurisdiction from vexation of multiple litigations covering the same subject matter. QVC, Inc. v. Patiomats.com, LLC , Civ. No. 12-3168, 2012 WL 3155471, at *3 (E.D. Pa. Aug. 3, 2012).
The parties agree that the actions are substantially similar. They dispute the date the Georgia action was filed for purposes of applying the first-filed rule. Unlimited argues that the operative date is the date the action was removed, which was after this action was filed. Leighton contends it is the date the action was filed in the Georgia state court. If Unlimited is correct, the Pennsylvania action is the first-filed case. On the other hand, if Leighton is correct, the Georgia case is.
The Third Circuit has not decided whether the state court filing date or the removal date is used to determine when a case is first filed. District courts within the circuit rely upon the date of removal. E.g. , Schulmerich Bells, LLC v. Jeffers Handbell Supply, Inc. , Civ. No. 17-0275, 2017 WL 697913, at *2 (E.D. Pa. Feb. 21, 2017) ; Just Born, Inc. v. Summit...
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