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Mccoa, LLC v. Retail Services Systems, Inc.

United States District Court, W.D. Virginia, Roanoke Division

February 1, 2018

MCCOA, LLC, Plaintiff,
v.
RETAIL SERVICE SYSTEMS, INC., Defendant.

          MEMORANDUM OPINION

          Michael F. Urbanski Chief United States District Judge.

         This declaratory judgment action is before the court on defendant Retail Service Systems, Inc.'s ("RSS") motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. ECF No. 7. RSS argues that the court should dismiss die action for failure to state a claim for declaratory relief, and alternatively, for being filed in anticipation of a substantive suit being brought in another forum. The court held a hearing on the motion on January 26, 2018. For die reasons set form below, die court will GRANT die motion.

         I.

         MCCOA, LLC ("MCCOA"), a Virginia limited liability company, and RSS, an Ohio corporation, are both mattress retail companies. Compl. ¶¶ 2, 5, ECF No. 1-1; Notice of Removal ¶ 4, ECF No. 1-2. On July 11, 2017, RSS president Scott Andrew emailed Kathleen Bauer ("Kathleen"), the sole owner and manager of MCCOA, and her son Corey Bauer ("Corey"), the owner of another mattress company, Mattress Clearance Centers of America, LLC. Compl. ¶ 7, Ex. A, Ex. E. Andrew alleged that Corey and MCCOA were "inappropriately using RSS's proprietary business methodologies and trade secrets which were misappropriated from RSS without [its] permission." Compl. Ex. A. Andrew warned that if neither Kathleen nor Corey responded to his email by July 14, 2017, then RSS would "move forward in efforts to protect [its] business and people." Id. Although Corey did not respond, Kathleen emailed Andrew on July 13, 2017 to arrange a date to discuss Andrew's allegations. See Compl. Ex. B.

         On July 17, 2017, Andrew told Kathleen that RSS had defended its trade secrets in state and federal courts including in the United States District Court for the Southern District of Ohio. Compl. Ex. C. He claimed that RSS had secured a permanent injunction against mattress retail company Carolina Bedding Direct, LLC ("Carolina Bedding") while Corey served as a senior manager at the company. Id. Andrew linked Corey's experience at Carolina Bedding to RSS' allegations of misappropriation by MCCOA. Id.

         As an alternative to litigation in this case, Andrew proposed a "win/win" solution, under which RSS would purchase MCCOA. Compl. Ex. F. Kathleen wanted to negotiate a sale, but asked that RSS first release any claims it had against MCCOA. Compl. Ex. H. Andrew refused to do so, and on July 29, 2017, he wrote to Kathleen that, "[i]f legal action ends up being RSS's only means to protect our property, we already have (and had before we ever spoke), more than enough information ... to do so." Compl. Ex. I.

         On August 3, 2017, MCCOA filed a complaint in the Circuit Court of Franklin County, Virginia, seeking a declaratory judgment that MCCOA has not misappropriated any of RSS' trade secrets or otherwise violated any duty owed to RSS. MCCOA did not immediately serve the complaint and summons on RSS. Instead, counsel for both parties continued to negotiate a possible sale of MCCOA. PL's Ex. 1, ECF No. 16-1. On August 23, 2017, RSS' counsel informed MCCOA's counsel that "if I do not receive the substantiating information by end of day today (including a breakdown of sales and profit margins per dealer, as we previously discussed), RSS will withdraw its interest in making a purchase of MCCOA. RSS is interested in creating a win-win scenario for both parties, but the window of opportunity will close unless I receive this information today." Id.

         The next day, on August 24, 2017, RSS filed a complaint against Corey, Mattress Clearance Centers of America, LLC, and MCCOA in the Southern District of Ohio. The complaint alleged claims for misappropriation of trade secrets under the Ohio Uniform Trade Secrets Act, successor liability, and civil conspiracy. MCCOA has moved to dismiss the Ohio action for lack of personal jurisdiction and improper venue, and alternatively, to transfer the action to this court.

         Also on August 24, 2017, MCCOA notified RSS' counsel of the lawsuit pending in Franklin County. Pl's Ex. 1. Several weeks later, MCCOA served RSS with a copy of the summons and the complaint for the declaratory judgment action. RSS removed the action to this court and filed the instant motion to dismiss, arguing that MCCOA has failed to state a claim for declaratory relief and that this action is an improper attempt at forum shopping.

         II.

         The Declaratory Judgment Act permits a district court, in a case or controversy otherwise within its jurisdiction, to "declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). The United States Supreme Court has "repeatedly characterized the Declaratory Judgment Act as 'an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant.'" Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)).

         A district court has discretion to exercise declaratory judgment jurisdiction when: (1) '"the judgment will serve a useful purpose in clarifying and settling the legal relations in issue,'" and (2) '"it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.'" Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996) (quoting Aetna Cas. & Sur. Co. v. Ouarles, 92 F.2d 321, 325 (4th Cir. 1937)). While this discretion is broad, a "court must have 'good reason' for declining to exercise its declaratory judgment jurisdiction." Volvo Constr. Equip. N. Am., Inc. v. CLM Equip. Co.. 386 F.3d 581, 594 (4th Cir. 2004).

         III.

         When a declaratory judgment action raises the same issues as a substantive action pending in another forum, courts have considered the effect of the first-to-file rule. See. e.g., First Nationwide Mortg. Corp. v. FISI Madison, LLC, 219 F.Supp.2d 669 (2002); Hop-In Food Stores. Inc. v. S & D Coffee. Inc., 642 F.Supp. 1106 (W.D. Va. 1986). This rule provides that, "[o]rdinarily, when multiple suits are filed in different Federal courts upon the same factual issues, the first or prior action is permitted to proceed to the exclusion of another subsequently filed." Allied-Gen. Nuclear Servs. v. Commonwealth ...


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