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Simpson Performance Products, Inc. v. Necksgen, Inc.

United States District Court, W.D. North Carolina, Statesville Division

August 22, 2017

SIMPSON PERFORMANCE PRODUCTS, INC., Plaintiff,
v.
NECKSGEN, INC., Defendant.

          ORDER

          Richard L. Voorhees United States District Judge

         THIS MATTER IS BEFORE THE COURT on (1) Defendant NecksGen, Inc.'s First Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. 11); (2) Magistrate Judge David C. Keesler's Memorandum and Recommendation on Defendant's First Motion to Dismiss (Doc. 15); and (3) Defendant NecksGen, Inc.'s Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(3) or, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404(a) (Doc. 20). Both motions have been fully briefed. (Docs. 16-18, 20, 23-24). Neither party filed an objection to Magistrate Judge Keesler's Memorandum and Recommendation that recommended denying Defendant's First Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) as moot, and the time to file objections has elapsed. Accordingly, Defendant's First Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Memorandum and Recommendation, and Defendant's Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(3), are all ripe for disposition. For the following reasons, the Memorandum and Recommendation (Doc. 15) is ADOPTED, Defendant's First Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. 11) is DENIED as moot, Defendant's Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(3) or, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404(a) (Doc. 20) is GRANTED to the extent that this Court (1) concludes that venue is improper in this District and (2) exercises its discretion under 28 U.S.C. § 1406(a) to transfer this action to a district where the action could have been brought, and this action is TRANSFERRED to the Southern District of California.

         I. PROCEDURAL AND FACTUAL BACKGROUND

         In August of 2016, Plaintiff Simpson Performance Products, Inc. filed suit against Defendant NecksGen, Inc. alleging one count of infringement of U.S. Patent No. 9, 351, 529 (the “'529 Patent”). (Doc. 1 at 3-7; see also Doc. 12 at 3-12). The '529 Patent relates to a restraint device that is used in conjunction with a helmet to stabilize a driver's head and neck in the event of a crash while operating a motorsport vehicle. (See Doc. 12 at 3). Plaintiff alleges that it is incorporated in Texas and has a principal place of business in Mooresville, North Carolina. Id. at 1. Plaintiff further alleges that Defendant is incorporated in California and that Defendant's principal place of business is in El Cajon, California. Id. This Court takes judicial notice that El Cajon, California is a city in San Diego County, California, and is within the Southern District of California. Finally, Plaintiff alleges venue was proper in this Court under 28 U.S.C. § 1391(b), (c) and under 28 U.S.C. § 1400(b). Id. at 3.

         On December 14, 2016, Defendant filed its first motion to dismiss under Fed.R.Civ.P. 12(b), arguing that Plaintiff's Complaint failed to state a claim for purposes of Rule 12(b)(6). (Doc. 11 (“first Rule 12(b) motion”)). Defendant's first Rule 12(b) motion was referred to Magistrate Judge David C. Keesler. (See Doc. 15). Within twenty-one days of Defendant filing its first Rule 12(b) motion, and while Defendant's first Rule 12(b) motion was before Magistrate Judge Keesler, Plaintiff amended its Complaint. (Doc. 12). In light of Plaintiff's Amended Complaint, Magistrate Judge Keesler issued a memorandum and recommendation recommending that Defendant's first Rule 12(b) motion be denied as moot. (Doc. 15). Neither party objected to Magistrate Judge Keesler's memorandum and recommendation and the time to file objections has elapsed.

         On January 25, 2017, Defendant filed a second motion to dismiss under Rule 12(b), arguing that Plaintiff's Amended Complaint failed to state a claim for purposes of Rule 12(b)(6). (Doc. 16 (“second Rule 12(b) motion”). Plaintiff filed a response to Defendant's second Rule 12(b) motion (Doc. 17) and Defendant filed a reply to Plaintiff's response (Doc. 18). On May 22, 2017, the United States Supreme Court issued its decision in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, a case addressing “where proper venue lies for a patent infringement lawsuit brought against a domestic corporation.” 137 S.Ct. 1514, 1516 (2017). Relying on TC Heartland, Defendant filed a third Rule 12(b) motion, this time seeking dismissal for improper venue under Rule 12(b)(3) or, in the alternative, a transfer of this case to the Southern District of California pursuant to 28 U.S.C. § 1404(a). (Doc. 20 (“third Rule 12(b) motion” or “Rule 12(b)(3) motion”). As to venue being improper in the Western District of North Carolina, Defendant argues that it (1) is incorporated in California, not North Carolina, and (2) does not have a regular and established place of business in North Carolina. (Doc. 20-1 at 8-13). In response, Plaintiff argues Defendant waived its defense of improper venue by failing to raise the venue issue in its two prior Rule 12(b) motions to dismiss. (Doc. 23 at 3-6). Defendant argues that an exception to the general rule of waiver applies because TC Heartland represents an intervening change in the law governing venue for patent litigation and that the venue defense was not available to it until the Supreme Court issued its decision in TC Heartland because binding precedent from the United States Court of Appeals for the Federal Circuit foreclosed the venue argument raised in its Rule 12(b)(3) motion. (Doc. 20-1 at 14-16; Doc. 24 at 7-15); see also VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1584 (Fed. Cir. 1990), cert denied, 499 U.S. 922 (1991).

         II. DISCUSSION

         A. Standard of Review

         In considering a motion to dismiss under Fed.R.Civ.P. 12(b)(3), this Court must determine whether venue is improper in the Western District of North Carolina. “To survive a motion to dismiss for improper venue when no evidentiary hearing is held, the plaintiff need only make a prima facie showing of venue.” Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004). “In assessing whether there has been a prima facie venue showing, [the court] view[s] the facts in the light most favorable to the plaintiff.” Aggarao v. MOL Ship Mgmt. Co., Ltd., 675 F.3d 355, 366 (4th Cir. 2012). A court reviewing a Rule 12(b)(3) motion may “consider evidence outside the pleadings. Id. at 365-66.

         B. Venue Analysis

         It is against the following backdrop that Defendant filed its third Rule 12(b) motion, seeking dismissal based on improper venue under Rule 12(b)(3). In patent infringement actions, venue is proper “in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” 28 U.S.C. § 1400(b). Section 1400(b) does not include its own definitional provisions; meanwhile, 28 U.S.C. § 1391(c), a subsection within the general venue statute, defines the term “residency.” The interaction between the patent venue statute and the general venue statute, particularly with respect to the effect of § 1391(c) of the general venue statute on the definition of the word “resides” in § 1400(b), has been a source of controversy in patent litigation for some time. See TC Heartland, 137 S.Ct. at 1518-19 (discussing various patent venue rulings and stating that “courts reached differing conclusions regarding whether § 1400(b)'s use of the word ‘resides' incorporated § 1391(c)'s definition of ‘residence.'”). In 1957, the Supreme Court, in Fourco Glass, “squarely rejected” the United States Court of Appeals for the Second Circuit's determination that § 1391(c)'s definition of residency applied to § 1400(b) and went on to hold that “§ 1400(b) ‘is the sole and exclusive provision controlling venue in patent infringement actions, and . . . is not to be supplemented by . . . § 1391(c).'” Id. at 1519 (quoting Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 229 (1957)).

         Subsequent to the Supreme Court's decision in Fourco Glass, Congress, in 1988, amended § 1391(c). Id. (citing Judicial Improvements and Access to Justice Act, §1013(a), 102 Stat. 4669). Relying on language in the 1988 congressional amendment, the Federal Circuit concluded that Congress intended to supersede the Supreme Court decision in Fourco Glass and that § 1391(c)'s amended language served to impart § 1391(c)'s definition of “residency” into the term “resides” in § 1400(b). VE Holding, 917 F.2d at 1578. The Federal Circuit's VE Holding decision stood for twenty-seven years, with the Federal Circuit affirming VE Holding multiple times, including after Congress again amended § 1391 in 2011, and with the Supreme Court denying certiorari on multiple writs seeking to challenge the VE Holding decision. See In re TC Heartland LLC, 821 F.3d 1338, 1341-43 (Fed. Cir. 2016); Trintec Indus., Inc. v. Pedre Promotional Prods., Inc., 395 F.3d 1275, 1280 (Fed. Cir. 2005) (citing VE Holding and stating, “although [defendant] moved to dismiss for lack of personal jurisdiction and improper venue, the venue point is a non-issue. Venue in a patent action against a corporate defendant exists wherever there is personal jurisdiction[] . . . Therefore, no separate venue inquiry is necessary.”); Century Wrecker Corp. v. Vulcan Equip. Co., 923 F.2d 870 (Fed. Cir. 1990) (unpublished), cert denied, 499 U.S. 962 (1991).[1] Then, in TC Heartland, the Supreme Court abrogated VE Holding and held that the 1988 congressional amendments to § 1391 did not render § 1391(c)'s definition of “residency” applicable to § 1400(b). TC Heartland, 137 S.Ct. at 1520-21.

         Pursuant to TC Heartland, § 1400(b) is the sole and exclusive venue statute governing patent litigation. Id. at 1521. As previously noted, § 1400(b) states that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” For purposes of the patent venue statute, a corporate defendant is said to “reside” only in its state of incorporation. TC Heartland, 137 S.Ct. at 1521. “[I]n determining whether a corporate defendant has a regular and established place of business in a district, the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there.” In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985).

         In response to Defendant's motion to dismiss for improper venue, Plaintiff does not attempt to argue that venue is proper in the Western District of North Carolina. (See Doc. 23). Nor could Plaintiff successfully advance such an argument in light of TC Heartland. Construing “resides” to only include a defendant's place of incorporation, it is apparent that venue is not proper under the first clause of § 1400(b) given that Plaintiff alleges that Defendant is incorporated in California. As to the section clause of § 1400(b), while Plaintiff's Amended Complaint contains allegations supporting the conclusion that Defendant conducts some business in the North Carolina by selling products in and shipping products to North Carolina, Plaintiff's allegations fall far short of permitting the inference that Defendant maintains a “permanent and continuous presence” in North WL 374529, at *3 (Fed. Cir.) (unpublished) (relying on VE Holding to state that, within context of venue challenge in patent litigation, “[u]nder 28 U.S.C. § 139[1](c), a corporate defendant resides where it is subject to personal ...


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