Signify N. Am. Corp. v. Menard, Inc.

1

SIGNIFY NORTH AMERICA CORPORATION and SIGNIFY HOLDING B.V., Plaintiffs, v. MENARD, INC., Defendant, v. LUMINEX INTERNATIONAL COMPANY, LTD., AMERICAN LIGHTING, INC., RICHPOWER INDUSTRIES, INC., EAST WEST COMMERCE CO., INC., AFX, INC., ALERT REEL MANUFACTURING, LLC, BEST LIGHTING PRODUCTS, INC., K LIVE D/B/A BULB STAR, CL CORPORATION D/B/A PINEGREEN LIGHTING, GOOD EARTH LIGHTING, INC., GT INDUSTRIAL PRODUCTS, L.L.C., SOARING TECHNOLOGY CO., LTD, and ZONE INDUSTRY CORPORATION, Third-party defendants.

No. 22-cv-706-jdp

United States District Court, W.D. Wisconsin

August 31, 2023

OPINION AND ORDER

JAMES D. PETERSON, DISTRICT JUDGE

Plaintiffs Signify North America Corporation and Signify Holding B.V (collectively “Signify”) are suing defendant Menard, Inc. for selling more than 100 different lighting products that infringe six patents related to LED lighting. In response, Menard has filed third-party complaints against more than a dozen companies that manufacture the accused products, contending that the third parties are contractually obligated to indemnify Menard for any infringement. For their part, four of the third-party defendants have asserted claims against Signify, seeking declaratory relief for noninfringement and invalidity.

Seven motions are before the court that fall into three groups: (1) Signify's motion to sever all the third-party claims Dkt. 100; (2) motions by two third-party defendants to dismiss some of Menard's claims in the third-party complaints, Dkt 104 and Dkt. 115; and (3) Signify's motions to dismiss the third-party defendants' claims for declaratory relief and to strike their affirmative defenses Dkt. 129; Dkt. 154; Dkt. 155; Dkt. 163. For the reasons explained below, the court will resolve the motions as follows: Signify's motion to sever will be denied Soaring Technology Co.'s motion to dismiss will be denied; American Lighting, Inc's motion to dismiss will be granted; and Signify's motions to dismiss the third-party defendants' claims and strike their affirmative defenses will be granted in part and denied in part.

ANALYSIS

A. Motion to sever

Signify's motion to sever Menard's claims against the third-party defendants relies on two Federal Rules of Civil Procedure. Rules 14(a)(4) allows the court to “strike the third-party claim, sever it, or to try it separately.” Rule 21 allows the court to “sever any claim against a party.” A decision under either rule is discretionary and governed by considerations of judicial economy and fairness to all parties involved. See Gaffney v. Riverboat Services of Indiana, Inc., 451 F.3d 424, 442 (7th Cir. 2006); Fed.R.Civ.P. 14(a)(4) advisory committee's notes to the 1963 amendments.^[1] The court will deny the motion to sever. Rule 14(a)(1) allows a defendant to join “a nonparty who is or may be liable to it for all or part of the claim against it.” It's undisputed that all of Menard's third-party claims meet that standard because Menard is alleging that it has agreements with each of the third-party defendants that require them to indemnify Menard for any infringement claims involving the products they manufacture for Menard.

Signify's primary argument for severance is that Menard's third-party claims will add more complexity to the case and interfere with Signify's litigation strategy of focusing on Menard rather than its various suppliers. New claims and defendants always have the potential to create more complexity, so accepting this argument would mean that the court would have to sever all third-party claims, which would be inconsistent with Rule 14. The court must weigh all the costs and benefits of allowing joinder; the court cannot resolve the motion only on Signify's preferences.

The court concludes that joinder of the third-party claims is appropriate for three reasons. First, the manufacturers will be involved in this case regardless of whether they are parties. To prove direct infringement against Menard, Signify will first have to prove that the accused products meet all limitations of one or more claims. As the designers and manufacturers of the products, it is likely that the third-party defendants possess much of the relevant discovery and that some of the witnesses who need to be deposed are the employees of the third-party defendants. So some of the procedural complexity that Signify is concerned about is unavoidable. Including the manufacturers as parties could actually simplify some issues by facilitating cooperation.

Second, each of the third-party defendants has a strong interest in the result of this case. As will be discussed in the context of Signify's motions to dismiss, if Menard is found liable for infringement, it follows that the manufacturers of the accused products are also liable. For this reason, four of the third-party defendants have asserted claims against Signify, seeking declarations of noninfringement and invalidity. Signify states repeatedly throughout its briefs that it is not suing the third-party defendants for infringement, and it has not threatened to sue them. But Signify also has not provided any of them with a covenant not to sue, so the implicit threat is clear. A finding that the accused products infringe Signify's patents or that the patents aren't invalid would adversely affect the third-party defendants' legal interests.

The third reason for denying Signify's motion to sever is that Menard contends not just that the third-party defendants have the duty indemnify Menard but also that they have the duty to defend Menard in this case. As in any case involving potential insurance coverage, any dispute about that issue will have to be resolved regardless of whether Signify prevails on its claim, and that dispute is generally decided before liability.

Signify contends that manufacturers who wish to protect their interests may choose one of three options: (1) work behind the scenes with Menard to assert their views; (2) take over Menard's defense themselves; or (3) file a motion to intervene after Menard's claims are severed. The court isn't persuaded that any of these proposals would serve judicial economy or fairly balance the interests of all parties involved.

As for the first proposal, subordinating the third-party defendants to behind-the-scenes advisors would leave them at the mercy of Menard, potentially creating chaos and confusion when the nonparties' positions don't align with Menard's. As for the proposal of the third-party defendants taking over Menard's defense, it could lead to Menard being represented by more than a dozen sets of lawyers, leading to the same procedural complexity that Signify is concerned about now but without the benefit of resolving all disputes in one lawsuit. As for the suggestion that the third-party defendants could file a motion to intervene, it would waste time and resources to sever claims only to allow them to be reasserted through another procedural device. That would defeat the central purpose of severing the claims in the first place.

The court understands why Signify chose to sue Menard rather than each of the manufacturers: it is more efficient to sue one defendant than a dozen. And the court is sensitive to Signify's concerns about the case becoming unmanageable. All things being equal, as the number of parties in a case increases, so too does the risk that disputes or delays could derail the case. But there are other ways of maintaining order and protecting Signify's interests without creating satellite litigation or encouraging a round of motions to intervene.

First, to prevent issues about indemnification from overwhelming other issues, the court will stay discovery and all other proceedings about indemnification until liability is determined on Signify's claims. After all, if Signify's claims fail, there will be no need to indemnify Menard. This ruling does not apply to any disputes about the third-party defendants' duty to defend.

Second, the court expects Menard and the third-party defendants to coordinate a litigation strategy, acting as a united front whenever possible. For example, Menard and the third-party defendants should designate which party will take the lead for taking or defending a deposition, for filing a motion, or for preparing a brief. Menard and the third-party defendants should not question witnesses separately or file separate motions or briefs unless it is determined after consultation that Menard and the third-party defendants disagree on a significant issue. Even then, any separate questioning or briefing should be limited to the area of disagreement. The court will consider striking any motion or brief that is cumulative.

If any of the parties have other suggestions for special rules that should govern the proceedings, they may present those suggestions to the magistrate judge during the September 7 status conference.

B. Third-party defendants' motions to dismiss

Two third-party defendants move to dismiss Menard's third-party claims against them. First, Soaring Technology Co. moves to dismiss Menard's third-party claim because Signify's infringement allegations against Menard are too conclusory. Second, American Lighting moves to dismiss Menard's third-party claim on the ground that it is subject to an arbitration clause. For the reasons explained below, the court will deny Soaring's motion and grant American Lighting's motion.

1. Soaring's motion to dismiss

Menard alleges that Soaring has a duty to indemnify Menard because Signify's complaint identifies as an accused product a lighting product with SKU number 349-1293, Soaring manufactures a product with SKU number 349-1293, and Soaring's contract with Menard requires Soaring to indemnify Menard for patent infringement related to that product.

Soaring...