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Silver Knight Sales & Marketing, Ltd. v. Globex International

November 6, 2006

SILVER KNIGHT SALES & MARKETING, LTD., PLAINTIFF
v.
GLOBEX INTERNATIONAL, INC., DEFENDANT-COUNTERCLAIMANT AND THIRD PARTY PLAINTIFF,
v.
MICHAEL DISABATO THIRD PARTY DEFENDANT



The opinion of the court was delivered by: Judge Holschuh

Magistrate Judge Abel

MEMORANDUM OPINION AND ORDER

This matter is currently before the Court on plaintiff Silver Knight and third party defendant Michael DiSabato's motion for reconsideration and objections to a July 5, 2006 Report and Recommendation in which Magistrate Judge Abel recommended that the Court grant defendant Globex's motion to transfer venue to the Northern District of Texas. As required by 28 U.S.C. § 636(c), the Court has made a de novo review of those portions of the Report and Recommendation to which Silver Knight and DiSabato specifically object. For the reasons stated below, the Court SUSTAINS the objections in part and OVERRULES them in part.

I. Background and Procedural History

Plaintiff Silver Knight, an Ohio limited liability company, manufactures, markets, distributes and sells sports apparel and novelty products. Third-party defendant Michael DiSabato serves as Silver Knight's president and sole managing member. Silver Knight has obtained licenses to use the logos and trademarks of various universities. Defendant Globex, a Texas corporation, also creates, manufactures and sells sports novelty items. Early in 2004, the two companies entered into a business relationship and marketed merchandise to various universities. During the course of the next year, the relationship deteriorated and two separate lawsuits ensued.

On August 8, 2005, Globex filed suit in the District Court of Dallas County, Texas, against "Michael DiSabato d/b/a Silver Knight Sales and Marketing." Globex asserted numerous claims arising from the failed business relationship. On September 9, 2005, DiSabato removed that suit to federal court in the Northern District of Texas. Shortly thereafter, he filed a motion to dismiss for lack of personal jurisdiction. On November 1, 2005, Silver Knight filed suit against Globex in the Court of Common Pleas of Franklin County, Ohio, also alleging claims arising from the failed business relationship. On February 16, 2006, Globex removed the action to the United States District Court for the Southern District of Ohio. Globex later filed a third party complaint against DiSabato and a counterclaim against Silver Knight. In April of 2006, Globex moved to add Silver Knight as a defendant in the Texas case.

On May 1, 2006, Globex moved, pursuant to 28 U.S.C. § 1404(a), to transfer venue in the Ohio case to the Northern District of Texas. On July 5, 2006, Magistrate Judge Abel issued a Report and Recommendation recommending that the Court grant Globex's motion, since the Texas case had priority under the first-to-file rule. As the Sixth Circuit noted in Zide Sport Shop of Ohio, Inc. v. Ed Tobergte Associates, Inc., "when actions involving nearly identical parties and issues have been filed in two different district courts, 'the court in which the first suit was filed should generally proceed to judgment.'" 16 Fed. Appx. 433, 437 (6th Cir. 2001) (quoting In re Burley, 738 F.2d 981, 988 (9th Cir. 1984)). Magistrate Judge Abel found that the Texas case and the Ohio case involved "substantially the same parties and purpose." With respect to Globex's forum non conveniens argument, Magistrate Judge Abel found that neither side had a clear edge concerning which forum was more convenient. He therefore concluded that "the first-to-file rule must be the tiebreaker." (Report and Rec. at 6).

DiSabato had also argued that transferring this action to Texas would be inappropriate because, as a threshold matter, the court must find that the action "'could have been brought' in the transferee court." Sky Tech. Partners, LLC v. Midwest Research Inst., 125 F. Supp. 2d 286, 291 (S.D. Ohio 2000). DiSabato noted that his motion to dismiss the Texas case based on lack of personal jurisdiction was still pending. Magistrate Judge Abel found it unlikely that DiSabato would succeed on his motion.

II. Standard of Review

Silver Knight and DiSabato have filed objections to Magistrate Judge Abel's Report and Recommendation. This Court is required to conduct a de novo review of those portions of the Report and Recommendation to which an objection has been made. Pursuant to 28 U.S.C. § 636(b)(1)(A), the magistrate judge's findings can be overturned only if they are "clearly erroneous or contrary to law." See also Fed. R. Civ. P. 72(a). The clearly erroneous standard applies to factual findings. It "mandates that the district court affirm the magistrate's decision unless, on the entire evidence, it is left with the definite and firm conviction that a mistake has been committed." Balalovski v. Lucent Tech., Inc., No. 2:00-cv-189, 2003 WL 21011148, *4 (S.D. Ohio April 10, 2003)(internal quotations omitted). A decision is contrary to law if the magistrate judge's conclusions ignore or contradict relevant legal principles. Gandee v. Glaser, 785 F. Supp. 684, 686 (S.D. Ohio 1992).

III. Silver Knight and DiSabato's Objections

Silver Knight and DiSabato argue that Magistrate Judge Abel erred in: (1) balancing the convenience factors under 28 U.S.C. § 1404(a); (2) finding that the Texas action was the first-filed case; and (3) finding that DiSabato and Silver Knight are "alter egos" for purposes of determining whether DiSabato is subject to personal jurisdiction in Texas. The Court will address the alter-ego issue first.

A. Alter-Ego Status

As noted earlier, transfer of venue is not appropriate unless the action could have been brought in the transferee court. Sky Tech. Partners, 125 F. Supp. 2d at 291. In their memorandum in opposition to Globex's motion to transfer venue, Silver Knight and DiSabato argued that transfer would be improper because the Northern District of Texas lacked personal jurisdiction over DiSabato. They noted that DiSabato had filed a motion to dismiss the Texas action based on a lack of personal jurisdiction. DiSabato had argued that the "fiduciary shield" doctrine prevented the Texas courts from exercising personal jurisdiction over him since his only contacts with the state were in his capacity as a corporate representative for Silver ...


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