Verosol BV v. Hunter Douglas, Inc.

• Citation: 806 F. Supp. 582
• Decision Date: 05 November 1992
• Docket Number: Civ. A. No. 4:92cv23.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: VEROSOL B.V. and Verosol U.S.A., Plaintiffs, v. HUNTER DOUGLAS, INC. and Bloch Enterprises, Inc., d/b/a/ Wythe Contract Sales, Defendants.

806 F. Supp. 582

VEROSOL B.V. and Verosol U.S.A., Plaintiffs, v. HUNTER DOUGLAS, INC. and Bloch Enterprises, Inc., d/b/a/ Wythe Contract Sales, Defendants.

Civ. A. No. 4:92cv23.

United States District Court, E.D. Virginia, Newport News Division.

November 5, 1992.

Avery Tillinghast Waterman, Jr., Patten, Wornom & Watkins, Newport News, Va., Leonard J. Marsico, David R. Kuhn, Buchanan Ingersoll, P.C., Pittsburgh, Pa., for plaintiffs Verosol B.V. and Verosol USA.

Molly Boyd Joseph, Jones, Blachman, Woltz & Kelly, P.C., Newport News, Va., for defendant Hunter-Douglas, Inc.

Joe Samuel Frank, Leonard Claro Heath, Frank, Gordon & Heath, Newport News, Va., for defendant Bloch Enterprises, Inc.

MEMORANDUM OPINION AND ORDER

PAYNE, District Judge.

Verosol B.V., a Netherlands corporation, ("Verosol") and Verosol USA, a Pennsylvania corporation and Verosol's American subsidiary, ("Verosol USA") initiated this declaratory judgment action under 28 U.S.C. § 2201 (1988) against Hunter-Douglas, Inc. ("Hunter-Douglas"), a Delaware corporation, and Bloch Enterprises, Inc. ("Bloch"), a Virginia corporation, seeking a declaration that a License Agreement entered into between Verosol and Hunter-Douglas was terminated by Verosol according to the terms of the Agreement.

Bloch filed motions to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) contending that, because it was not a party to the Agreement and was not granted rights thereunder, there is no case or controversy between it and plaintiffs and that, for the same reasons, the complaint fails to state a claim against it upon which relief can be granted. Hunter-Douglas filed a motion to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(2) on the ground that this court lacks personal jurisdiction over it. As an alternative to dismissal, Hunter-Douglas asks this court to transfer the action to the United States District Court for the District of New Jersey (Newark Division) under 28 U.S.C. § 1404(a) (1988), or, if venue is not proper in this court, under 28 U.S.C. § 1406(a) (1988).

Pursuant to a referral order under 28 U.S.C. § 636(b)(1)(B) (1988), the Magistrate Judge conducted a hearing and issued a report recommending that Bloch's motion to dismiss be denied. Defendants filed timely objections and plaintiffs have responded. The motions have been fully briefed and argued by the parties.¹

For the reasons set forth below, upon de novo review of the Magistrate Judge's report and recommendation, see 28 U.S.C. § 636(b)(1)(C) (1988); Fed.R.Civ.P. 72(b), the court grants Bloch's motion to dismiss. Furthermore, assuming, without deciding, that plaintiffs have met their prima facie burden of proving that Hunter-Douglas is subject to personal jurisdiction in this forum, and venue is therefore proper under 28 U.S.C. § 1391(c) (1988), the court holds that this action should be transferred to the federal court in New Jersey pursuant to 28 U.S.C. § 1404(a). Moreover, even if personal jurisdiction were lacking, and venue were therefore improper under § 1391(c), transfer would be appropriate under 28 U.S.C. § 1406(a).

STATEMENT OF FACTS

The facts as alleged in the Amended Complaint are as follows. By assignment, Verosol owns all of the right, title, and interest in and to United States Patent No. 3,946,788 for "Foldable Curtain Screen or Blind Construction and a Method for Producing Curtain Blind Construction" ("'788 Patent"). Pursuant to a License Agreement dated October 2, 1984, Verosol granted Hunter-Douglas, a manufacturer and distributor of window coverings, "a personal, non-exclusive, non-transferable right and license under the '788 patent for Hunter-Douglas to itself manufacture, assemble and sell blinds or have its fabricators assemble and sell its blinds ... according to the method and construction as claimed in said patent." In return for the right to use the patent, the Agreement requires Hunter-Douglas to, among other things, pay Verosol royalties and file quarterly reports regarding sales of products on which royalty payments are due. The License Agreement gives each party the right to terminate the Agreement upon the material default of the other party if, after receiving written notice, the default is not cured within thirty days.

On March 13, 1991, Verosol, through Verosol USA, notified Hunter-Douglas in writing that Hunter-Douglas had materially defaulted its obligations under the License Agreement by failing to provide reports and pay accrued royalties, and that Hunter-Douglas had thirty days to cure. Hunter-Douglas allegedly failed to cure and, on May 22, 1991, Verosol notified Hunter-Douglas in writing that the Agreement was terminated. After Verosol terminated the Agreement, Hunter-Douglas admitted that approximately $40,000 in royalties would have been due on July 12, 1991 had the Agreement not been terminated and further anticipated paying $40,000-45,000 in future royalties. Verosol allegedly refused requests by Hunter-Douglas to reinstate the Agreement.

Thereafter, Hunter-Douglas sent a check to Verosol in the amount of $85,000, representing its admitted past due and anticipated future royalties. By letter dated October 21, 1991, Verosol advised Hunter-Douglas that Verosol deposited the check into an escrow account, from which it issued Hunter-Douglas a check for $45,000. In so doing, Verosol reiterated that it refused to reinstate the Agreement. Verosol also advised Hunter-Douglas that Verosol had issued a check to Verosol USA in the amount of $36,000, which represented the pre-termination royalties owed by Hunter-Douglas. Verosol further stated that it was holding the remaining $4,000 in escrow pending a determination of additional royalties due. Hunter-Douglas promptly returned the $45,000 check to Verosol, claimed that the Agreement was still in effect, and expressed its intention to continue to use the '788 Patent.

On March 25, 1992, Verosol and Verosol USA filed an Amended Complaint against Hunter-Douglas and Bloch seeking a declaratory judgment that the License Agreement between Verosol and Hunter-Douglas was terminated on May 22, 1992. The Amended Complaint does not seek relief for patent infringement. Hunter-Douglas is a party to the License Agreement; Bloch is not. Nevertheless, with regard to Bloch, the Amended Complaint asserts that, "pursuant to a claim of right derived indirectly from Defendant, Hunter-Douglas, Inc. and its alleged rights under the License Agreement," Bloch has sold and continues to offer to sell blinds within the claims of the '788 Patent.

At oral argument, plaintiffs' counsel admitted that one of the reasons Bloch, a local retailer, has been joined as a defendant in this action, despite selling only two Hunter-Douglas shades allegedly within the claims of the '788 patent, is to take advantage of this court's efficient docket system. Bloch's presence is, of course, irrelevant to whether this court has personal jurisdiction over the non-resident defendant licensee Hunter-Douglas, or whether venue is proper in this court. See 28 U.S.C. § 1391(c). Bloch's presence is highly relevant, however, to Hunter-Douglas' motion to transfer this action to federal district court in New Jersey because such transfers can only be made to a district in which the action originally could have been brought. See, e.g., 28 U.S.C. §§ 1404(a) & 1406(a); Hoffman v. Blaski, 363 U.S. 335, 342-44, 80 S.Ct. 1084, 1088-90, 4 L.Ed.2d 1254 (1960); City of Virginia Beach v. Roanoke River Basin Ass'n, 776 F.2d 484, 489 (4th Cir.1985). Because the district court in New Jersey cannot assert personal jurisdiction over Bloch, the effect of naming Bloch as a defendant — assuming Bloch is a proper defendant — is to prevent transfer of this action to that district.

DISCUSSION

I. Bloch's Motions.

Plaintiffs brought this action under the Declaratory Judgment Act, 28 U.S.C. § 2201 (1988), which provides in pertinent part:

In a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such a declaration, whether or not further relief is or could be sought.

28 U.S.C. § 2201(a); see also Fed.R.Civ.P. 57. The remedy afforded by the Declaratory Judgment Act is available only in a "case of actual controversy." This requirement reflects, as it must, the limitation on the judicial power imposed by Article III of the Constitution that restricts the exercise of such power to "cases" and "controversies". E.g., Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937). To determine whether a controversy exists in a declaratory judgment action that comports with the requirements of Article III, the test is "whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941); see also Mobil Oil Corp. v. Attorney Gen. of Va., 940 F.2d 73, 75 (4th Cir.1991). "The difference between an abstract question and a `controversy' ... is necessarily one of degree." Maryland Casualty, 312 U.S. at 273, 61 S.Ct. at 512.

In light of these principles, the court first addresses Bloch's motion to dismiss for lack of subject matter jurisdiction. See Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990) (holding that a "court should consider a Rule 12(b)(1) challenge first since if it must dismiss the complaint for lack of subject matter jurisdiction, the accompanying defenses and objections become moot and do not need to be determined.") (quoting 5 Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 1350, p. 548 (1969); Cf. Bell v. Hood, 327 U.S. 678, 682, 66...