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Cobalt Iron, Inc. v. Bit Lasso, LLC

United States District Court, D. Kansas

September 6, 2017

COBALT IRON, INC., Plaintiff,
v.
BIT LASSO, LLC, ET AL., Defendants.

          MEMORANDUM AND ORDER

          JULIE A. ROBINSON CHIEF UNITED STATES DISTRICT JUDGE

         Plaintiff Cobalt Iron, Inc. brought this action against Defendants Bit Lasso, LLC and Mitch Haile, asking the Court to grant declaratory relief with respect to the parties' rights arising under an Independent Contractor Services Agreement. Before the Court is Defendants' Motion to Transfer Venue (Doc.7), requesting transfer of this matter to the United States District Court for the District of Massachusetts. The motion is fully briefed and the Court is prepared to rule. As described more fully below, the Court denies Defendants' motion to transfer.

         I. Background

         Cobalt Iron, Inc. (“Cobalt”) is a Delaware corporation with its principal place of business in Lawrence, Kansas. It primarily provides services and products for data protection. Richard Spurlock is Cobalt's CEO and founder. Cobalt has eleven employees and also contracts with outside service providers for specific projects and objectives.[1] Mitch Haile is a Massachusetts resident who resides in Somerville, Massachusetts and is the sole member of Bit Lasso, LLC (“Bit Lasso”).

         In October of 2012, Cobalt Iron, LLC and Haile executed an Independent Contractor Services Agreement (the “Agreement”), whereby Haile provided ongoing consulting, marketing, sales, and product development services to Cobalt Iron, LLC. The Agreement was signed by Haile as Contractor, and by Spurlock in his capacity as CEO of Cobalt Iron, LLC. Haile's compensation was set at $5, 000 per month. The Agreement stated that it “shall be governed by the laws of Kansas, excluding its conflict of laws principles.” Because Cobalt Iron, LLC's business involves technology and data security, Haile did not need to commute to Cobalt's only office building in Lawrence, Kansas and primarily worked from his home in Massachusetts. Bit Lasso sent invoices for services to Cobalt Iron, LLC from January 2013 through May 2015. Included on various invoices was a separate line item identified as “line of credit.” On June 23, 2013, Cobalt was incorporated. Prior to that time, Spurlock and Haile communicated about the future possibility of stock or stock option issuances, but no agreement was executed between the parties. In October 2016, Bit Lasso demanded payment of the “line of credit” appearing in a December 2014 invoice, as well as issuance of Cobalt Iron, Inc. stock, and Cobalt refused.

         On March 9, 2017, Cobalt filed this action in Douglas County, Kansas District Court (hereinafter “Kansas Action”), seeking a declaratory judgment pursuant to K.S.A. § 60-1701 that (1) Plaintiff does not owe Defendants any additional compensation, (2) Plaintiff is not obligated to pay for a line of credit that he claims he did not agree to, (3) there is no enforceable agreement requiring Plaintiff to issue stock to Defendant, and (4) Massachusetts Wage and Payment Law is inapplicable.[2] Cobalt sent a copy of the petition via Certified Mail to Defendants the same day.

         Five days later, on March 14, 2017, Haile filed an official Non-Payment of Wage and Workplace Complaint Form with the Massachusetts office of the Attorney General, wherein he requested permission to sue the Plaintiff under the Massachusetts Wage and Payment Law.[3]Defendant received permission to sue Plaintiff on March 23, 2017.[4] On April 5, 2017, Defendants filed a separate lawsuit in the United States District Court for the District of Massachusetts (hereinafter “Massachusetts Action”), [5] alleging claims for (1) breach of contract; (2) quantum meruit; (3) unjust enrichment; (4) fraudulent misrepresentation; (5) conversion; (6) violation of Massachusetts Wage Act; and (7) unfair or deceptive trade practices[6]-all of which emanate from largely the same factual background as the Kansas Action.

         The day before Defendants filed the Massachusetts Action, they removed the Kansas Action from the Douglas County District Court to this Court. On April 18, 2017, Defendant filed a Motion to Transfer Venue to the United States District Court for the District of Massachusetts. On June 12, 2017, the Massachusetts District Court stayed the Massachusetts Action pending this Court's resolution of his Motion to Transfer.[7]

         II. Discussion

         A. First-to-File Rule

         Cobalt argues that this Court should apply the first-to-file rule and decline to transfer this case to the District of Massachusetts. Under the first-to-file rule, “when two courts have concurrent jurisdiction, the first court in which jurisdiction attaches has priority to consider the case.”[8] The parties only need to be substantially similar for the rule to apply.[9] Further, “where identical actions are proceeding concurrently in two federal courts, entailing duplicative litigation and a waste of judicial resources, the first filed action is generally preferred in a choice-of-venue decision.”[10]

         However, the presumption usually afforded to the party who files first is not a rigid or mechanical rule. Courts carve out exceptions to the rule where the first-filed suit constitutes an improper anticipatory filing or under the threat of a presumed adversary filing the mirror image of that suit in a different district.[11] In other words, “a district court may decline to follow the first-to-file rule and dismiss a declaratory judgment action if that action was filed for the purpose of anticipating a trial of the same issues in a court of coordinate jurisdiction.”[12] The Tenth Circuit has also indicated “that the court which first obtains jurisdiction should be allowed to first decide issues of venue.”[13]

         Here, there is nothing in the record to indicate Cobalt's lawsuit is an improper anticipatory filing. There is no evidence that Cobalt misled or lulled Defendants, nor is there any evidence Defendants refrained from filing suit in reliance on any representations from Cobalt. Instead, the record indicates that Haile did not file his request to sue with the Massachusetts Labor and Employment Board until five days after the Kansas action commenced. Because jurisdiction first attached in Kansas, the Court must determine the appropriate venue to decide the case.[14]

         B. Transfer under 28 U.S.C. § 1404

         Defendants move to transfer this case to the District of Massachusetts pursuant to 28 U.S.C. § 1404(a), where the Court may transfer a case to any district where it might have been brought “for the convenience of the parties and witnesses” and “in the interest of justice.”[15] The parties do not dispute that this matter could have been brought in the District of Massachusetts. In determining whether to grant a motion to transfer, this Court considers the following discretionary factors:

the plaintiff's choice of forum; the accessibility of witnesses and other sources of proof, including the availability of compulsory process to insure attendance of witnesses; the cost of making the necessary proof; questions as to the enforceability of a judgment if one is obtained; relative advantages and obstacles to a fair trial; difficulties that may arise from congested dockets; the possibility of the existence of questions arising in the area of conflict of laws; the advantage of having a local court determine questions of local law; and, all other considerations of a practical nature that make a trial easy, expeditious and economical.[16]

         The Court examines each factor in turn, in considering whether this case should be transferred from its current trial location of Kansas City, Kansas.

         1. Plaintiff's Choice of Forum

         Courts generally hold that the plaintiff's choice of forum weighs against transfer.[17]“[U]nless the balance is strongly in favor of the movant[, ] the plaintiff's choice of forum should rarely be disturbed.”[18] In other words, the court will not transfer the case if doing so merely shifts the burden from one party to the other. The plaintiff's choice of forum receives less deference, however, if the plaintiff does not reside in the district.[19]

         Here, Cobalt and its CEO Richard Spurlock reside in the District of Kansas. Cobalt's cause of action is based on a dispute over compensation for services and other benefits under the Agreement. The parties disagree on where the operative facts giving rise to the litigation occurred: Cobalt argues that the Agreement is governed by Kansas law, all of Defendants' invoices were sent to Kansas, and the so-called “intellectual property” Defendants claim was converted in located in Kansas. Defendants argue that the Consulting Agreement was negotiated in Massachusetts and the unpaid compensation relates to work Haile completed in Massachusetts. This factor is neutral.

         2. Accessibility of Witnesses and Other ...


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