United States District Court, E.D. North Carolina, Northern Division
JAMES C. FOX, District Judge.
This litigation, now in its third year, is before the court on Beach Mart's motion to enjoin L&L from prosecuting a lawsuit in the Southern District of New York [DE-191] and L&L's motion to stay these proceedings pending resolution of the New York action [DE-198]. Regrettably, the court finds that yet another potentially lengthy delay is necessary in this case. The motion to enjoin [DE-191] is DENIED and the motion to stay [DE-198] is ALLOWED.
RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
L&L purportedly owns the rights to the trademark "Wings, " which L&L registered with the United States Patent and Trademark Office on July 1, 2008. L&L owns and operates a number of Wings stores in North Carolina and elsewhere, which offer beach accessory items and clothing. Beach Mart also owns a number of beach accessory stores, which it also operates under the Wings name. Beach Mart's principal, Israel Golasa, was at one time an employee at L&L and a personal friend of L&L's principal, Shaul Levy. According to L&L, Levy negotiated a contract with Golasa to allow Beach Mart to use the "Wings" name at Beach Mart stores, in an effort to help Beach Mart's business get started.
However, the parties' relationship deteriorated. Under a revised 2005 contract, Beach Mart allegedly agreed to limit its use of the Wings mark to "Super Wings" or "Big Wings." When L&L became aware that Beach Mart continued to use the Wings mark by itself on various store signs and other places, L&L sent a letter purporting to terminate the 2005 agreement and ordering Beach Mart to cease using the Wings name altogether. Beach Mart promptly filed suit in September, 2011 for breach of the 2005 agreement and L&L counterclaimed for trademark infringement, breach of contract, and a variety of state law unfair competition claims.
After a lengthy initial discovery period, the parties filed cross motions for summary judgment in September, 2012. However, after the initial discovery period had closed, the court allowed Beach Mart to amend its complaint to add the affirmative defense of trademark abandonment. After the court allowed the amendment, Beach Mart promptly filed a motion requesting a supplemental discovery period to address its allegations of L&L's "naked licensing" of the trademark. The court allowed the supplementary discovery period, which necessitated another continuance of the trial until September 30, 2013. During this supplemental discovery period, which ended in August, 2013, Beach Mart uncovered the Morrow Agreement.
The Morrow Agreement, executed in 1993, is a licensing agreement between Shepard Morrow and L&L, in which Morrow purportedly licensed the use of the Wings mark to L&L. According to Beach Mart, the Morrow Agreement indicates that L&L never owned the Wings mark and that L&L perpetrated a fraud on the USPTO when it registered the mark. After discovery of the Morrow license, Beach Mart decided that it needed to pursue a host of substantially different claims against L&L. Once the supplemental discovery period ended, Beach Mart promptly moved to continue the trial so the parties could brief the issue of whether Beach Mart should be allowed to bring essentially an entirely new case against L&L.
After another round of briefing and a hearing, the court ultimately allowed Beach Mart to bring its new claims on December 16, 2013. The court noted in its order allowing the amendment [DE-183] that L&L itself was largely responsible for the lateness of the proposed amendment because it knew about the Morrow Agreement and did not disclose it to Beach Mart in the course of the initial discovery period. In addition, because the parties expressed interest in further settlement negotiations at the hearing on the motion to amend, the court stayed all formal motions practice and ordered the parties to focus on settlement of this matter, which the court observed would result in significant conservation of resources moving forward.
Despite the stay of this case and the court's encouragement to focus on settlement, the parties apparently used the brief stay of motions practice to strengthen their litigation positions. Beach Mart moved forward with the formation of Super Wings, an entity whose sole shareholder is Beach Mart's principal, Israel Golasa. After its formation, Super Wings immediately executed an agreement with Morrow in which Morrow assigned all of his right, title, and interest in the Wings trademark (whatever that may be) to Super Wings. Although Beach Mart disputes this, L&L maintains that this action was nothing more than an effort to defeat the joinder of Morrow as a necessary party in this litigation. After Beach Mart disclosed to L&L the purported assignment from Morrow to Super Wings, L&L filed a new case in the Southern District of New York against Morrow and Super Wings (civil number 1:14-CV-00809-GBD) ("New York action"). In the New York action, L&L requests, among other things, a declaratory judgment that Morrow has no rights in the Wings name and that the 1993 Morrow Agreement terminated in 1994. In addition to the declaratory judgment claims, L&L brought alternative claims for breach of contract by Morrow and tortious interference with contract by Super Wings. Notably, L&L challenges the assignment between Morrow and Super Wings in the New York action, alleging that it is void because Morrow had no rights to assign, or alternatively because it failed to comply with the provisions of the 1993 agreement. L&L served the complaint and summons from the New York action on Israel Golasa minutes before the scheduled February 11, 2014 settlement conference before this court.
When motions practice reopened in this court, Beach Mart immediately filed a motion to enjoin L&L from prosecuting the New York action under the first-filed rule and other equitable considerations. The court ordered expedited briefing, and L&L filed its response and a motion to stay this litigation pending resolution of the New York action a week later. Both motions have been fully briefed. The court also allowed Beach Mart's request for oral argument on the motions, which was held on April 2, 2014.
A. First-Filed Rule
Beach Mart's primary arguments in support of its motion to enjoin relate to the "first-filed rule." The first-filed rule states that "where an action is brought in one federal district court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action." Meeropol v. Nizer, 505 F.2d 232, 235 (2d Cir. 1974); see also Ellicott Mach. Corp. v. Modern Welding Co., 502 F.2d 178, 180 n.2 (4th Cir. 1974) (noting the Fourth Circuit has adopted the Second Circuit's first-filed rule). The purpose of the rule is to avoid inconsistent judgments and foster judicial economy. Horne & Hardart Co. v. Burger King Corp., 476 F.Supp. 1058, 1060 (S.D.N.Y. 1979). Although no bright-line rule exists, courts often consider the following factors when deciding if a second-filed action should be enjoined: (1) the chronology of the filings; (2) the similarities of the parties involved; and (3) the similarities of the issues raised. Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F.Supp.2d 357, 360 (W.D. N.C. 2003); Plating Res. Inc. v. UTI Corp., 47 F.Supp.2d 899, 903 (N.D. Ohio 1999).
With respect to the similarity of parties factor, the parties in the two actions do not need to be identical. See Byerson v. Equifax Info. Servs. LLC, 467 F.Supp.2d 627, 635-36 (E.D. Va. 2006); Spotless Enters. Inc. v. The Accessory Corp., 415 F.Supp.2d 203, 205-06 (E.D.N.Y. 2006). However, the rule applies only in cases of concurrent jurisdiction. See EEOC v. Univ. of Pennsylvania, 850 F.2d 969, 971 (3d Cir. 1988) ("[I]n all cases of federal concurrent jurisdiction, the court which first has possession of the subject must decide it." (internal quotation marks omitted)); Buffalo Wild Wings, Inc. v. BWR McAllen, Inc., No. H-10-1265, 2010 WL 2640122, at *2 (S.D. Tex. ...