John Wiley & Sons, Inc. v. Visuals Unlimited, Inc.

JOHN WILEY & SONS, INC., Plaintiff, v. VISUALS UNLIMITED, INC., Defendant.

No. 11-CV-5453-CM

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

November 2, 2011

DECISION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

McMahon, J.:

In this action, Plaintiff John Wiley & Sons, Inc. ("Wiley") seeks a declaratory judgment that it is not liable to Defendant Visuals Unlimited, Inc. ("VUI") for fraud, and for copyright infringement for Wiley's use of photographs (1) "for which VUI lacks copyright ownership or a valid copyright registration"; (2) "that occurred more than three years ago"; or (3) "which is simply a reuse of the same photograph in a later edition or a revised version of the work for which VUI originally licensed the photograph." (Compl. ¶ 24.)

VUI now moves this Court to dismiss Wiley's complaint under Federal Rules of Civil Procedure 12(b)(6) and 9 and pursuant to the exceptions to the "first-filed rule."

For the reasons set forth below, VUI's motion to dismiss is GRANTED because I decline to exercise jurisdiction over Wiley's action under the Declaratory Judgment Act.

BACKGROUND

Wiley, a New York corporation with its principal place of business in Hoboken, New Jersey, and an office in New York (id. ¶ 2), is a global publisher of textbooks and other educational materials (id. ¶ 8). VUI, a New Hampshire corporation with its principal place of business in Hollis, New Hampshire (id. ¶ 3), is a stock photography agency that licenses photographs to publishers like Wiley (id. ¶ 10; Mot. to Dismiss at 6).

Beginning in 1994, VUI granted Wiley non-exclusive rights and licenses to include VUI's photographs in Wiley's publications in exchange for fees. (Compl. ¶ 11.) Until 2002, Wiley and VUI entered into these transactions in New York, which was Wiley's principal place of business during this time. (Opp'n at 3; Compl. ¶ 2.) After 2002, Wiley conducted its business primarily from Hoboken, New Jersey. (Folz Decl. ¶ 5.) VUI conducted its licensing business from New Hampshire at all times relevant to this litigation. (Id. ¶ 4.)

For each transaction, Wiley identified photographs it desired from VUI's stock collection, and provided the names of the publications in which VUI's photo would be included, as well as the estimated print-run for those publications. (Id. ¶ 11.) VUI determined its fee according to the number of copies, distribution area, language, time duration, and/or media (print or electronic) for each publication. (Mot. to Dismiss ¶ 6.) VUI then issued an invoice, and Wiley included the photographs in its publications. (Id.) In this manner, VUI "licensed hundreds of photographs to Wiley for inclusion in approximately seventy-nine separate Wiley publications." (Id. ¶ 11-12.) Wiley's estimates have not always been accurate, however, and demand for its publications has sometimes exceeded the estimated print-runs Wiley furnished to VUI. (Compl. ¶13.)

Wiley and VUI have recently discussed Wiley's sometimes inaccurate print-run estimates. (Id. ¶ 14; Folz Decl. ¶ 13.) In these discussions, VUI contended that Wiley's use of VUI's photos in excess of Wiley's print-run estimates, dating back to 1994, infringes VUI's copyrights. (Id. ¶¶ 14, 19, 24.) VUI also claimed that Wiley is liable to VUI for common law fraud for understating its print-run estimates. (Id. ¶¶ 14, 26.) VUI made Wiley aware that itretained litigation counsel and threatened to file claims against Wiley for copyright infringement and fraud, but never set "any deadlines or issued any specific warnings with respect to the timing of actually doing so." (Cf. id. ¶ 14; Opp'n at 3.) The parties were unable to resolve their dispute during these discussions. (See Compl. ¶ 14; Opp'n at 3.)

The last communication between the parties took place on July 20, 2011. (Folz Decl. ¶ 14.) The parties are not clear whether the settlement negotiations were at a terminal impasse, or whether the talks were ongoing. VUI implies that the settlement talks were not at a terminal impasse (see id.), but Wiley implies the opposite (see Opp'n at 13). There is no definitive statement before the Court either way.

On August 5, 2011, Wiley filed suit in this Court, seeking a declaratory judgment that it is not liable to VUI for copyright infringement or fraud relating to "all of the photographs licensed by VUI to Wiley over the entire course of the parties' dealings." (Compl. ¶ 24.) Wiley seeks this relief through an order declaring that

any use by Wiley of VUI photographs (i) that relates to photographs for which VUI lacks copyright ownership or a valid copyright registration, (ii) that occurred more than three years ago, or (iii) which is simply a reuse of the same photograph in a later edition or revised version of the work for which VUI originally licensed the photograph is non-actionable as copyright infringement.

(Id. at 7 ¶ A) Wiley also seeks an order declaring that "Wiley is not liable to VUI for any claim sounding in fraud." (Id. at 7 ¶ B.)

On August 26, 2011, three weeks after Wiley's filing, VUI filed a complaint against Wiley in the District of New Hampshire in a substantially identical — albeit mirror-image — lawsuit arising out of the same operative facts. Visuals Unlimited Inc. v. John Wiley & Sons, Inc., No. 11-cv-00415-LM (D.N.H. Aug. 26, 2011) (Docket No. 1). In its lawsuit, VUI assertsclaims for copyright infringement and fraud against Wiley, as well as copyright infringement against John Doe Printers 1-10. The events described are essentially the same as those described here, except that VUI's complaint: (1) provides substantially more detail regarding VUI's claim for fraud, and (2) specifically identifies thirteen copyrighted photos included in five Wiley publications that form the basis of VUI's infringement claim. Id. at Ex. 1.

DISCUSSION

A. The First-Filed Rule

"The propriety of a forum is a threshold matter that the Court must consider before addressing the merits of an action." 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 131 (S.D.N.Y. 1994) (citing Adam v. Jacobs, 950 F.2d 89, 92 (2d Cir. 1991)). Therefore, before reaching the substance of VUI's motion to dismiss Wiley's complaint, I must consider whether this action is properly before the Court in light of the first-filed rule.

Under the first-filed rule, the court in which the first of two overlapping cases was filed must determine which forum will hear the case. MSK Ins., Ltd. v. Emp'rs Reinsurance Corp., 212 F. Supp. 2d 266, 267 (S.D.N.Y. 2002) (collecting cases). Since this case was filed in the Southern District of New York before VUI filed a similar action arising out of the same dispute in the District of New Hampshire, this Court must decide which court will hear the case. Schnabel v. Ramsey Quantitative Sys., Inc., 322 F. Supp. 2d 505, 510-11 (S.D.N.Y. 2004) (Peck, M.J.). In accordance with this rule, the District of New Hampshire stayed VUI's pending suit until this Court decides the instant motion, and determines the proper forum for this action. Visuals Unlimited Inc. v. John Wiley & Sons, Inc., No. 11-cv-00415-LM (D.N.H. Aug. 26, 2011) (Docket No. 12).

The Second Circuit abides by the "first-filed rule," i.e., "Where there are two competing lawsuits, the first suit should have priority." Emp'rs Ins. of Wausau v. Fox Entm't Grp., Inc., 522 F.3d 271, 274-75 (2d Cir. 2008) (quoting First City Nat'l Bank & Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989)). The first-filed rule "applies when identical or substantially similar parties and claims are present in both courts," In re Cuyahoga Equip. Corp., 980 F.2d 110, 116-17 (2d Cir. 1992), and "avoids duplicative litigation by adhering to the inherently fair concept that the party who commenced the first suit should generally be the party to attain its choice of venue," Ontel Prods., Inc. v. Project Strategies Corp., 899 F. Supp. 1144, 1150 (S.D.N.Y. 1995). The rule also "embodies considerations of judicial administration and conservation of resources." Emp'rs Ins. of Wausau, 522 F.3d at 275 (quoting First City Nat'l Bank & Trust Co., 878 F.2d at 80). Here, the two suits arise out of the same facts, involve the same parties, and concern the same legal claims (although viewed through the lens of declaratory judgment in this case).

The first-filed rule raises a rebuttable presumption, not an invariable mandate, and the Second Circuit recognizes only two exceptions: "(1) where the 'balance of convenience' favors the second-filed action, and (2) where 'special circumstances' warrant giving priority to the second suit." Id. (internal citations omitted). "These improper filings, by necessity, often take the form of declaratory judgments," Ontel Prods., Inc., 899 F. Supp. at 1150, and the underlying purpose of the exceptions is thus to prevent federal declaratory judgment from becoming "a prize to the winner of a race to the courthouses." Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 219 (2d Cir. 1978) (quoting Perez v. Ledesma, 401 U.S. 82, 119 n.12 (1971) (Brennan, J. dissenting)), abrogated on other grounds by Pirone v. MacMillian, Inc., 894 F.2d 579 (2d Cir. 1990).

Because, for the reasons discussed below, I decline to exercise jurisdiction to hear Wiley's complaint under the Declaratory Judgment Act, there is no need to analyze whether any exception to the first-filed rule otherwise applies. Regardless of how the Court would rule on that issue, the complaint is going to be dismissed.

B. The Standard of Review for Declaratory Judgment

Under the Declaratory Judgment Act, 28 U.S.C. § 2201(a) (the "DJA"), a court "may declare the rights and other legal relations of any interested party seeking such a declaration" in "a case of actual controversy." An "actual controversy" exists if there is a "substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d...