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Precision Fabrics Group, Inc. v. Tietex International, Ltd.

United States District Court, M.D. North Carolina

November 7, 2017

PRECISION FABRICS GROUP, INC. Plaintiff,
v.
TIETEX INTERNATIONAL, LTD., Defendant. PRECISION FABRICS GROUP, INC. Plaintiff,
v.
TIETEX INTERNATIONAL, LTD., Defendant.

          MEMORANDUM OPINION AND ORDER

          Thomas D. Schroeder United States District Judge

         Before the court are the motions by Defendant, Tietex International, Ltd. (“Tietex”), to amend its answers to contest venue and to transfer these related actions to the District of South Carolina pursuant to Federal Rule of Civil Procedure 12(b)(3). (Doc. 211.)[1] Tietex contends that its failure to initially raise a venue defense should be excused in light of the Supreme Court's recent decision in TC Heartland, LLC v. Kraft Foods Group Brands, LLC, 137 S.Ct. 1514 (2017), which Tietex contends constitutes an intervening change of law. The court recently permitted discovery on the motion, and it has been fully briefed. For the reasons set forth below, the court will grant Tietex's motion to amend its answers and, finding that venue is improper in this district, exercise its discretion to transfer these actions to the District of South Carolina, pursuant to 28 U.S.C. § 1406(a).

         I. BACKGROUND

         A. Procedural History

         Plaintiff Precision Fabrics Group, Inc. (“PFG”) filed these actions on August 6, 2013, and August 5, 2014, alleging that certain Tietex products incorporating flame-retardant fabrics infringe on PFG's U.S. Patent Nos. 8, 501, 639 (‘639 Patent) and 8, 796, 162 (‘162 Patent), respectively. (Doc. 1 at 2; Doc. 29 at 2-3.)[2] In its answers and subsequent filings, Tietex did not contest venue in this district. (Doc. 6 at 2, 5; Doc. 28 at 2; Doc. 32 at 2.)

         In the ensuing four years, the court has conducted a Markman hearing, construed the claims (Doc. 57), entertained a motion for reconsideration (Doc. 127), resolved summary judgment motions (Doc. 152), and entertained a motion for reconsideration of the summary judgment ruling (Doc. 172). The case was set for trial during the July 2017 term of court.

         On May 22, 2017, the Supreme Court decided TC Heartland, holding that under 28 U.S.C. § 1400(b), “a domestic corporation ‘resides' only in its State of incorporation for purposes of the patent venue statute.” 137 S.Ct. at 1517. In reaching this conclusion, the Court rejected VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), where the Federal Circuit held that congressional amendment to 28 U.S.C. § 1391(c) applied to § 1400(b) such that a defendant corporation was deemed to “reside” in any district where it was subject to personal jurisdiction. Id. at 1584.

         The next day, on May 23, 2017, Tietex moved to continue the trial and gave notice that “[i]n light of this change in the law yesterday and because Tietex is not a corporation of the state of North Carolina, Tietex is now considering the impact on venue in this Court and any necessary motion related to venue will be filed promptly after Tietex considers the full effects of TC Heartland.” (Doc. 175 at 6.) Tietex contended that “[s]etting a trial date in September, October, or November 2017 will allow the Court ample time for consideration of any such a motion.” (Id. at 6-7) PFG opposed the motion to continue trial (Doc. 177), but on May 26 the court continued the trial to October 4, 2017 (Doc. 178). Tietex filed the present motions to amend its answers and transfer venue on August 7, 2017. (Doc. 211.)

         On September 15, 2017, the court held a hearing to consider the motions and, acting within its discretion, granted PFG's request to conduct limited discovery into whether venue was proper in the Middle District of North Carolina. See InVue Sec. Prods. v. Mobile Techs., Inc., No. 3:17-cv-00270-MOC-DSC, 2017 U.S. Dist. LEXIS 125693, at *2 (W.D. N.C. Aug. 9, 2017) (citing Mylan Labs, Inc. v. Akzo, N.V., 2 F.3d 56, 64 (4th Cir. 2003)). To accommodate this development, the court delayed trial to October 30, 2017. Once the parties filed updated briefing as a result of the venue discovery, the court, on October 16, issued an order directing the parties to stand down from trial preparation pending resolution of the motions.

         B. Factual Background

         The evidence, viewed in the light most favorable to PFG as the non-moving party, establishes the following:

         Tietex is a South Carolina corporation with its principal place of business in Spartanburg, South Carolina. (Doc. 6 at 2.) It manufactures and sells a broad range of fabrics nationwide, including some using a flame-retardant at issue in this case. (Id.; Doc. 32 at 5.) The company has been registered to do business in North Carolina since 2001 (Doc. 275-11 (proof of business registration)) and, for purposes of these motions, acknowledges it has conducted sales of the allegedly infringing product in this district (Doc. 273, Tr. at 16:18-20, 53:20-23; see Doc. 277 (listing sales attributable to Doug Owens)). Since at least August of 2013, Tietex has not owned, rented, or leased any real property in this district. (Doc. 274-1, Wallace Dep. at 42:12-23, 103:6-25; Doc. 274-2, Owens Dep. 124:8-24.) However, from 1991 until December of 2014, it did employ a regional sales manager, Doug Owens, who worked from his personal residence located in the district. (Doc. 275-7, Owens Dep. at 11:12-19; Doc. 268 at 14; Doc. 268-3 at 3.)[3]

         Owens was responsible for a large sales territory that encompassed most of the Southeast and the Midwest, including this district. (Doc. 263-3 at 3; Doc. 274-2, Owens Dep. 21:6-16; Doc. 274-1, Wallace Dep. at 43:18-25.)[4] Tietex provided Owens with a business card that listed his cell phone number (containing a local “336” area code) as well as his home address. (Doc. 275-3; Doc. 275-4, Wallace Dep. at 70:12-73:20.)[5] While the customers located within the district did not constitute a large portion of his overall sales, Owens occasionally visited some customers within the district to promote Tietex's products. (Doc. 274-2, Owens Dep. at 53:22-54:18; Doc. 274 at 10.) Owens accounted for millions of dollars in sales in 2013 and 2014, several hundred thousand dollars of which originated from customers in this district. (Doc. 275 at 18; Doc. 275-8; Doc. 277.)

         Customers generally placed orders directly with Tietex's customer service department located at its headquarters in Spartanburg, South Carolina, and all such orders were received, fulfilled, and shipped from that location. (Doc. 274 at 10; Doc. 274-1, Wallace Dep. at 102:15-103:5; Doc. 274-2, Owens Dep. at 51:19-52:16.) Owens occasionally placed orders for new customers (Doc. 274-2, Owens Dep. at 51:25-52:16), but he lacked the authority to bind the company (Doc. 274-1, Wallace Dep. at 102:11-14). To facilitate his work, he kept “[s]mall sample swatches” of fabric as well as marketing materials in his home (Doc. 274-2, Owens Dep. at 41:16-18), but there is no evidence that he maintained any inventory there (see Doc. 274 at 11; Doc. 274-1, Wallace Dep. at 101:19-21; Doc. 274-2, Owens Dep. at 41:2-43:16; 81:18-25). Tietex also provided him with a company car, which was registered in the company's name to his home address. (Doc. 275-6; Doc. 275-7, Owens Dep. at 27:13-28:25.) He was reimbursed for the taxes and expenses associated with his use of the car (Doc. 275-7, Owens Dep. at 27:13-28:25, 30:4-25), as well as his cell phone (Doc. 275-4, Wallace Dep. at 19:2-17).

         Tietex did not pay any part of Owens's residential expenses or exercise any control over his home. (Doc. 274-1, Wallace Dep. at 101:5-21.) No customers ever visited his residence, nor did Tietex ever hold meetings there. (Id.; Doc. 274-2, Owens Dep. at 122:21-23.) Similarly, Tietex did not publicly advertise Owens's home as its place of business. (See Doc. 274 at 14-15; Doc. 274-1, Wallace Dep. at 101:1-4, 101:22-102:10; Doc. 274-2, Owens Dep. at 122:5-7.)

         II. ANALYSIS

         While acknowledging the “late state of this case, ” Tietex argues that its motions are timely in light of “an emerging trend for courts to recognize that TC Heartland was a complete change in the venue law” after 27 years of Federal Circuit precedent to the contrary. (Doc. 212 at 2-3.) On the merits, Tietex argues that TC Heartland and applicable precedent make clear that venue is improper in this district.

         PFG argues that Tietex's motion should be denied because Tietex waived its right to object to venue and TC Heartland is not an intervening change in law that would excuse Tietex's failure to timely raise this defense. (Doc. 260 at 3.) In the alternative, PFG contends that the intervening law exception should not apply because a transfer at this late stage of the litigation would unduly prejudice it. (Doc. 275 at 2-3; Doc. 260 at 4.) PFG asserts that Tietex waived any right to challenge venue by its continued participation in the litigation and delay in bringing the present motions. (Doc. 275 at 11-12.) On the merits, PFG argues that venue is proper in this district. (Doc. 275 at 14; Doc. 260 at 4.)[6]

         A. Tietex's Motions to Amend Answers

         Federal Rule of Civil Procedure 15(a)(2) provides that “a party may amend its pleading only with the opposing party's written consent or the court's leave.” Leave to amend should be freely given “when justice so requires.” Fed.R.Civ.P. 15(a)(2). It may be denied where it “would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would have been futile.” U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 461 (4th Cir. 2013) (quoting Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en banc)).

         “Delay alone is an insufficient reason to deny leave to amend.” Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999) (citing Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986)). Delay must be accompanied by undue prejudice, bad faith, or futility. Id.; Foman v. Davis, 371 U.S. 178, 182 (1962). Prejudice may be undue where the proposed amendment would “belatedly . . . change the character of the litigation, ” such as raising an entirely new legal claim or requiring additional discovery. Equal Rights Ctr. v. Niles Bolton Assocs., 602 F.3d 597, 604 (4th Cir. 2010) (citing Deasy v. Hill, 833 F.2d 38, 42 (4th Cir. 1987)); Laber, 438 F.3d at 427.

         PFG does not contend Tietex is acting in bad faith. The question is whether granting Tietex leave to amend its answers would be futile or unduly prejudicial to PFG.[7] For the reasons set forth below, the court finds that it would not. Before reaching the questions of futility and the merits, however, the court must address the question of waiver.

         B. Venue under § 1400(b)

         “Venue is a waivable personal privilege of defendants.” Hand Held Prod., Inc. v. Code Corp., No. 2:17-167-RMG, 2017 WL 3085859, at *1 (D.S.C. July 18, 2017) (citing Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979)). “In most instances, the purpose of statutorily specified venue is to protect the defendant against the risk that a plaintiff will select an unfair or inconvenient place of trial.” Leroy, 443 U.S. at 183-184; Hoover Grp., Inc. v. Custom Metalcraft, Inc., 84 F.3d 1408, 1410 (Fed. Cir. 1996) (“Venue requirements exist for the benefit of defendants.”)

         Venue in patent infringement actions is governed exclusively by 28 U.S.C. § 1400(b). TC Heartland, 137 S.Ct. at 1520. Under § 1400(b), “[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.” 28 U.S.C. § 1400(b). While seemingly straightforward, the statute's application has been the subject of conflicting interpretations.

         In 1957, the Supreme Court held that § 1400(b) was the exclusive venue statute for patent cases and that a domestic corporation could “reside” only in its state of incorporation. Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 228 (1957). In 1990, however, the Federal Circuit, which exercises appellate jurisdiction over all patent cases, held that congressional amendment to the general venue statute, 28 U.S.C. § 1391(c), applied in patent cases. VE Holding, 917 F.2d at 1584. Under this more liberal approach, venue in patent cases became proper in any district where a defendant is subject to personal jurisdiction. Id.[8] The Federal Circuit's precedent prevailed, surviving certiorari petitions to the Supreme Court, until the Supreme Court's May 22, 2017 decision in TC Heartland. See VE Holding Corp. v. Johnson Gas Appliance Co., 499 U.S. 922 (1991) (denying certiorari petition); Century Wrecker Corp. v. Vulcan Equip. Co., 923 F.2d 870 (Fed. Cir. 1990) (table), cert. denied, 499 U.S. 962 (1991).[9]

         Though TC Heartland reaffirmed the Supreme Court's Fourco holding that “‘reside[nce]' in § 1400(b) . . . refers only to the State of incorporation, ” it rejected VE Holding's conclusion that the congressional amendment to § 1391(c) overrode § 1400(b). TC Heartland, 137 S.Ct. at 1520. In so doing, the Court abrogated the Federal ...


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