NCR Corp. v. BB 2009 Trust

NCR CORPORATION, Plaintiff, v. BB 2009 TRUST, Defendant.

Civil Action No. 11-0481 (NLH)(AMD)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

Date: February 9, 2012

OPINION

APPEARANCES:

Melanie K. Sharp

Erika R. Caesar

Young, Conaway, Stargatt & Taylor LLP

James E. Brant

Latham & Watkins LLP

Maximilian A. Grant

Michael David

Attorneys for plaintiff

Rodger Dallery Smith II

Morris, Nichols, Arsht & Tunnell

Paul S. Hessler

Robert H. Bell

Linklaters LLP

Attorneys for defendants

HILLMAN, District Judge

I. INTRODUCTION

Presently before the Court is defendant's Federal Civil Procedure Rule 12(b)(7) motion to dismiss this declaratory judgment action because of plaintiff's failure to join an indispensable party under Rule 19. For the reasons expressed below, the parties will be ordered to provide supplemental briefing, and defendant's motion will be continued for thirty-days.

II. BACKGROUND¹

On March 2, 2009, plaintiff NCR Corporation entered into a Trademark Usage License ("License Agreement") with defendant BB 2009 Trust (the "Trust"), which is the owner of the trademarks "BLOCKBUSTER EXPRESS" and "BLOCKBUSTER EXPRESS & Design," for NCR's use of these marks in connection with DVD vending kiosks. The Trust had been created just a few days before through a Trust Agreement entered into between NCR, Blockbuster, Inc., and theWilmington Trust Company.² Under the Trust Agreement, Blockbuster conveyed all its rights to the two trademarks to the Trust so that the Trust could license the marks to NCR, and NCR could pay the Trust license fees on revenue generated from the branded kiosks. According to NCR, such a Trust was necessary in order to protect NCR's investment in developing, marketing and operating the kiosks should Blockbuster became insolvent.³

During the next two years, NCR established and operated kiosks branded with the trademarks throughout the United States, while Blockbuster filed Chapter 11 Bankruptcy.⁴ As part of the bankruptcy proceedings, Blockbuster transferred substantially all of its assets to Blockbuster LLC, which is a wholly-owned, indirect subsidiary of DISH Network Corporation, and hereinafter referred to as "New Blockbuster." That transfer included allrights, title and interests in the Trust, as well as all rights, title and interests in all of Blockbuster's trademarks. As a result, the Court "forever barred, estopped and permanently enjoined" "all persons and entities" from "asserting, prosecuting or otherwise pursuing Interests" against New Blockbuster in any way relating to Blockbuster or the trademarks at issue here. (Def Ex. F ¶¶ L,4,6.)

Thereafter, in May 2011, counsel for Blockbuster notified NCR in writing that Blockbuster had (1) determined to discontinue the use of the marks, (2) withdrew its approval and terminated NCR's license to use the marks because NCR's use of the marks had become "inappropriate" due to the bankruptcy transfer, and (3) this "inappropriate use" was incurable and NCR was to immediately cease using the marks.⁵ (Def. Ex H.) Blockbuster and New Blockbuster also filed a joint instruction letter to the Trust,instructing the Trustee to notify NCR of the termination of its license, and acknowledging that the termination would dissolve the Trust.⁶ (Def. Ex. I.) The Trustee then provided NCR with written notice of the withdrawal of approval of NCR's usage of the marks and the termination of the license. (Def. Ex. J.) As per the License Agreement, NCR was to have 180 days to cease its use of the marks. (Def. Ex. D.)

NCR then filed its declaratory judgment action against the Trust, seeking a declaration that the Trust does not have the right to terminate the License Agreement and that NCR is not infringing on the Trust's trademarks. NCR contends that it did not use the marks in any way not provided for by the License Agreement or that had denigrated their value.⁷ NCR also contends that it was not provided with the opportunity to cure any inappropriate use, as required by the License Agreement. Ultimately, NCR claims that no grounds exist for the termination of its license to the marks, and a termination will cause substantial hardship and irreparable harm.

In lieu of filing an answer to the complaint, the Trustfiled the instant motion to dismiss NCR's complaint because of NCR's failure to join a required party--Blockbuster. The Trust contends that Blockbuster remains a party to the Trust Agreement, and it continues to have the right to direct the Trust with respect to the enforcement of the Trust's rights under the License Agreement. Because Blockbuster retains the right under the License Agreement to instruct the Trust to terminate the license, the Trust argues that an adjudication of NCR's rights without the participation of Blockbuster would provide hollow relief. The Trust therefore deems Blockbuster to be an indispensable party. Due to Blockbuster's bankruptcy, however, the Trust believes that Blockbuster is incapable of being joined because of the automatic stay entered by the bankruptcy court. Thus, the Trust argues that NCR's complaint must be dismissed in its entirety because of the impossibility of joining Blockbuster as a required party.

In response, NCR argues that it is seeking a declaration of its rights under the License Agreement, and that the only parties to that agreement are NCR and the Trust. NCR contends that Blockbuster is not a required party because NCR's rights under the License Agreement can be adjudicated entirely on that contract and solely between NCR and the Trust. NCR argues that to require Blockbuster's joinder, and subject NCR to Blockbuster's bankruptcy court dealings of which NCR has no part, would subvert the very purpose of establishing the Trust and theresulting License Agreement.

III. DISCUSSION

A. Jurisdiction

This Court has subject matter jurisdiction over NCR's declaratory judgment action pursuant to 15 U.S.C. §§ 1051, 1121(a), 28 U.S.C. § 1338(a), and 28 U.S.C. § 1332.

B. Standard for 12(b)(7) and Rule 19 motions

Federal Rule of Civil Procedure 12(b)(7) allows a motion to dismiss to be filed for "failure to join a party under Rule 19." Rule 19 provides a two-step analysis. Under Rule 19(a), the court must determine whether a party is "required to be joined if feasible." Fed. R. Civ. P. 19(a). If the court determines that the party should be joined but joinder is not feasible, the court moves to the second step of the analysis under Rule 19(b) to determine whether, "in equity and good conscience, the action should proceed among the existing parties or should be dismissed." Fed. R. Civ. P. 19(b) (listing four factors to consider). If a party is not necessary under Rule 19(a), the court does not need to conduct an analysis under Rule 19(b). Kuhn Const. Co. v. Ocean and Coastal Consultants, Inc., 723 F. Supp. 2d 676, 686 (D. Del. 2010) (citing Field v. Volkswagenwerk AG, 626 F.2d 293, 300 (3d Cir. 1980)).

IV. ANALYSIS

1. Whether Blockbuster is a required party under Rule 19(a)

Rule 19(a) provides:

(a) Persons Required to Be Joined if Feasible.

(1) Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:

(I) as a practical matter impair or impede the person's ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Under subsection 19(a)(1)(A), the inquiry is whether complete relief can be accorded to the parties absent the unjoined party. See Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 405 (3d Cir. 1993). The focus is on the parties to the action and not on the effect the decision may have on the nonparty. Id. Under subsection 19(a)(1)(B), the focus shifts from the effect on the parties to the effect of judgment on the non-party. Huber v. Taylor, 532 F.3d 237, 248(3d Cir. 2008).

Under both subsections, Blockbuster is a required party.⁸NCR's main argument is that its declaratory judgment action can be adjudicated solely on the allegations in its complaint and the License Agreement it entered into with the Trust, and that Blockbuster is irrelevant to that controversy. It is clear, however, that even though Blockbuster is not a signatory to the License Agreement, Blockbuster and its actions are essential to the interpretation, validity, and scope of the License Agreement. Because the interpretation, validity, and scope of the License Agreement is exactly what NCR is asking this Court to decide in its declaratory judgment action, this case cannot proceed without Blockbuster.

Blockbuster's indispensability is demonstrated by the numerous references to Blockbuster in the License Agreement. For example, the "Grant of License" provision states, "Upon notice to [the Trust] by an authorized representative of Blockbuster that Blockbuster has timely and properly exercised its rights under Section 9.e) of the Alliance Agreement . . . NCR's license shall cease to be exclusive with respect to DVD Vending Kiosks."(Def. Ex. D ¶ 2.) In the "Approvals" section, the Agreement provides, "[The Trust] reserves the right to approve the final form of the usage of the Licensed Marks and may, at any time, withdraw its approval and terminate this license, effective after reasonable notice to NCR and opportunity to cure, if [the Trust] receives instruction from Blockbuster, that the use of the Licensed Marks . . . is or becomes inappropriate . . . ." (Id. ¶ 6(a).) The provisions regarding termination of the Agreement also involve Blockbuster: "This License may be terminated by [the Trust] . . . Upon receipt of notice from Blockbuster affirming that (I) it has...