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Digital Technology Licensing: LLC v. Sprint Nextel Corporation

May 19, 2011

DIGITAL TECHNOLOGY LICENSING: LLC,
PLAINTIFF,
v.
SPRINT NEXTEL CORPORATION,
DEFENDANT.
SPECTRUM L.P. AND SPRINT SPECTRUM EQUIPMENT COMPANY, L.P., THIRD-PARTY PLAINTIFFS, V. : SANYO NORTH AMERICA CORPORATION, KYOCERA COMMUNICATIONS INC., AND PALM, INC., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Chesler, District Judge

NOT FOR PUBLICATION

OPINION

This matter comes before the Court on Third-Party Defendant SANYO North America Corporation's ("Sanyo" or "Third-Party Defendant") motion to dismiss Third-Party Plaintiffs Sprint Spectrum L.P.'s and Sprint Spectrum Equipment Company, L.P.'s (collectively "Sprint" or "Third-Party Plaintiffs") Third-Party Complaint("Complaint")[docket entry 129]. Sprint has opposed the motion. Sanyo also petitions this Court to stay a portion of the litigation pending arbitration [docket entry 165],which has been opposed by Plaintiff Digital Technology Licensing LLC ("DTL"). This Court has opted to rule based on the papers submitted and without oral argument, pursuant to Federal Rule of Civil Procedure 78. For the reasons expressed below, the Court will deny Sanyo's motion to dismiss the Complaint and will transfer the third-party action to the District of Kansas, thereby dismissing Sanyo's motion to stay as moot.

I.BACKGROUND

Sprint Nextel Corporation, through its wholly owned subsidiaries Sprint Spectrum L.P. and Sprint Spectrum Equipment Co., L.P., purchases and sells digital cellular products from numerous manufacturers, including Sanyo. On September 8, 1998, Sprint and Sanyo entered into a Subscriber Unit Purchase and Supply Agreement ("Agreement") under which Sanyo agreed to defend, at its own expense, all suits and claims against Sprint and its affiliates for infringement of any patent of any third-party alleged to cover cellular phones. In addition, the Agreement contains a forum selection clause that vests jurisdiction over any suit or legal proceeding arising out of or relating to the Agreement in the United States District Court for the District of Kansas.

DTL initiated this action in this forum against Sprint Nextel Corporation on November 9, 2007, asserting that digital cellular phones sold by Sprint infringed on its '799 patent. On May 18, 2010, Sprint filed a third-party action against Sanyo seeking indemnification for any liability related to any Sanyo products sold to it which infringed on DTL's patents. Sanyo now moves to dismiss the Complaint for improper venue pursuant to Fed.R.Civ.P. 12(b)(6), arguing that Sprint fails to state a claim upon which relief can be granted because of the parties' contractual agreement to litigate in Kansas. Sanyo also urges dismissal under Fed.R.Civ.P. 12(b)(3), contending that this Court is not a proper venue since the action can only be heard in the District of Kansas. In response, Sprint avers that enforcement of the forum selection clause contained in the Agreement would be unreasonable and that this Court is therefore the proper venue for this action.

II. DISCUSSION

Venue questions in federal court are governed either by 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a). As the Third Circuit has explained, "Section 1404(a) provides for the transfer of a case where both the original and the requested venue are proper. Section 1406, on the other hand, applies where the original venue is improper and provides for either transfer or dismissal of the case." Jumara v. State Farm Inc. Co., 55 F.3d 873, 878 (3d Cir. 1995).

As a threshold matter, the Court concludes that section 1406 is inapplicable here because the original venue, being the District of New Jersey, is proper. Under the federal venue statute, an action based upon diversity of citizenship may be properly filed "in a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated." 28 U.S.C. § 1391(a)(2). This district is where the subject matter of the dispute is located and where both parties transact business. We reject Sanyo's argument that the original venue is improper because the forum selection clause specifies litigation elsewhere. This is not the applicable legal standard. See Barbuto v. Medicine Shoppe Int'l, Inc., 166 F. Supp. 2d 341, 347-48 (W.D. Pa. 2001). Since venue is proper in this Court, Third-Party Defendant's motion will be denied insofar as it seeks dismissal under section 1406.

Sanyo's motion to dismiss is based upon the terms of a forum selection clause contained in the Subscriber Unit Purchase and Supply Agreement between the parties. The forum selection clause at issue in this case states as follows:

[Sanyo and Sprint] each hereby irrevocably (a) agrees that any suit, action or other legal proceeding arising out of or relating to this Agreement will be brought in the Federal Court for the District of Kansas which court will have exclusive jurisdiction over any controversy arising out of this agreement . . . (Def.'s Mot. to Dismiss at 2, Nov. 12, 2010.)

A forum selection clause is prima facie valid "and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). As the Third Circuit has defined the term, a forum selection clause is "unreasonable" if the resisting party can make a strong showing that the forum selected is "so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court or that the clause was procured through fraud or overreaching." Foster v. Chesapeake Ins. Ltd., 933 F.2d 1207, 1219 (3d Cir. 1991) (citations and internal quotations omitted).

The plain language of the forum selection clause encompasses this action within its scope and suggests that venue in Kansas is mandatory. Third-Party Plaintiffs do not contend that the forum selection clause was procured through fraud or overreaching. In fact, the Agreement was a freely negotiated contract entered into by two sophisticated business entities that expressed a mutual preference for Kansas venue. See The Bremen, 407 U.S. at 12 (emphasizing that choice of forum was made in arms-length negotiation between sophisticated businessmen). Furthermore, Third-Party Plaintiffs have made no attempt to bear their substantial burden of demonstrating that the chosen forum would be "so gravely difficult and inconvenient" as to deprive them of their day in court.

Instead, Third-Party Plaintiffs argue that Kansas is an unreasonable forum since Sprint must defend its patent infringement case in New Jersey, the result of which is central to any indemnity suit. According to Sprint, enforcement of the forum selection clause would "create parallel proceedings in different forums on the same set of facts and legal issues." (Pl.'s Opp'n Br. at 6, Feb. 18, 2011.) However, Sprint has made no demonstration that there is any overwhelming factual or other correlation between Sanyo's contractual or common law obligation to indemnify and the underlying patent infringement lawsuit. The indemnity suit between the parties solely concerns the contractual interpretation of their ...


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