United States District Court, W.D. Virginia, Roanoke Division
Michael F. Urbanski Chief United States District Judge.
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.
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.
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.
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.
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."
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.
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.
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)).
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.
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