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SALTON, INC. v. PHILIPS DOMESTIC APPLIANCES

January 5, 2004.

SALTON, INC., Plaintiff/Counterclaim-defendant,
v.
PHILIPS DOMESTIC APPLIANCES AND PERSONAL CARE B.V., Defendant/Counterclaim-plaintiff



The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge

MEMORANDUM OPINION AND ORDER

Before the court is the motion of limited intervenor Electrical & Electronics, Ltd., ("E&E") to dismiss, or alternatively stay, this action involving Salton, Inc. ("Salton") and Philips Domestic Appliances and Personal Care B.V. ("Philips"). For the reasons stated below, the motion to dismiss is granted.

BACKGROUND

  This dispute centers around the production and sale of rival single-serve coffee makers. In 1998, Philips joined an ongoing project involving Sara Lee Corporation and Douwe Egberts Nederland B.V., to develop a single-serve coffee machine called "Cafe Senseo." According to Philips, it is a designer and seller of consumer products, but it does not always manufacture the products. For the Cafe Senseo, Philips initially hired E & E as its manufacturer. On November 22, 2001, Philips and E & E entered into a contract (the "Development and Purchase Agreement") requiring E & E to keep Philips' proprietary development and manufacturing information Page 2 confidential. However, the Development and Purchase Agreement allowed for the use of any information in the public domain and provided that information which belonged to the respective parties prior to their agreement was to be their own. (Compl. Ex. B. ¶¶ 27-28.) The Development and Purchase Agreement also contained a forum selection and choice of law clause which provided "This Agreement and any modification or renewal hereto shall be governed by the laws of Hong Kong. All disputes under the Agreement shall be settled in by the courts of Hong Kong." (Compl. Ex. B ¶ 36.)

  In March 2002, after E & E had for some time manufactured Cafe Senseo coffee machines, this first generation of the product was discontinued. In January 2003, Philips began selling the Cafe Senseo II, which is not manufactured by E & E and is sold only in Europe. At some point thereafter, Philips discovered that E & E had been developing and/or manufacturing another coffee maker known as the "One:One," which is alleged to contain parts and features substantially similar or identical to the Cafe Senseo. Philips later discovered that this product was being developed for Salton, as a customer for E & E. Salton slated the launch of the product in the United States for late 2003.

  In March 2003, Philips wrote to E & E alleging that during its design and manufacture of the One:One, E & E was using proprietary information which belonged to Philips and which E & E learned about through the manufacture of the Cafe Senseo. Philips alleged that this conduct was in breach of the Development and Purchase Agreement. Philips brought suit against E & E on May 24, 2003, in the High Court of the Hong Kong Special Administrative Region (the "HK Litigation"). In the HK Litigation, which is still pending, Philips seeks (a) an injunction against E & E's use, disclosure and dissemination of Philips' alleged proprietary information; (b) an Page 3 injunction against E & E's manufacturing or supplying of the One:One by itself or in conjunction with any third party; (c) an accounting of E & E's profits; and (d) interest, costs and other relief. (Compl. Ex. A ¶ 8.) In August 2003, E & E filed an answer denying Philips' claims and a counterclaim seeking monetary damages for Philips' alleged misrepresentations inducing E & E to expand its facilities to manufacture the Cafe Senseo II.

  In June 2003, Philips sent a letter to Salton in which Philips (a) accused E & E of breaching the HK Agreement and other purported obligations by misappropriating allegedly proprietary information from Philips in the manufacturing of Salton's One:One, and (b) threatened to sue Salton for tortious interference with the Development and Purchase Agreement between Philips and E & E. That letter prompted this law suit in which Salton seeks a declaratory judgment that (a) it has not tortiously interfered with the Agreement between Philips and E & E; (b) it has not misappropriated any trade secrets belonging to Philips; and (c) the One:One manufactured by E & E does not incorporate any proprietary information belonging to Philips. (Compl. ¶¶ 60-65.) Salton rests this court's jurisdiction in diversity of citizenship under 28 U.S.C. § 1332(a)(2). It represents that it is a Delaware Corporation with its principal place of business in Illinois, while Philips is a Dutch corporation with its principal place of business in the Netherlands.*fn1

  Along with its answer to Salton's Complaint, Philips filed a counterclaim alleging that Salton (1) violated the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. ("ITSA"); (2) tortiously interfered with the Development and Purchase Agreement; and (3) violated certain Page 4 copyrights held by Philips. Philips has further moved for a preliminary injunction, which this court is set to hear on January 8, 2004. All of these developments prompted E & E to intervene for the limited purpose of bringing the present motion seeking dismissal of this action in its entirety under Federal Rule of Civil Procedure 12(b)(7). In the alternative, E & E seeks a stay of this action pending the outcome in the HK Litigation.

  DISCUSSION

  Before addressing the merits of E&E's motion, the court must address the issue of standing in this suit. On December 11, 2003, this court granted E&E's motion for limited intervention for the purpose of presenting its motion to dismiss. The court takes a moment to explain its ruling. Absent this limited intervention, the court would have had no power to entertain E&E's motion. See Thompson v. Boggs, 33 F.3d 847, 858 n.10 (7th Cir. 1994) ("We add that the plaintiff has failed to direct us to any case, nor have we been able to locate any case, in which a court granted a motion to join made by a non-party to the lawsuit. It would seem that the proper course of action would be a motion to intervene under Fed.R.Civ.P. 24."). Moreover, as will be seen below, E&E meets the standard for intervention as of right under Rule 24(a)(2) in that it has an interest in the subject matter of this action. See, e.g., Navajo Tribe of Indians v. State of New Mexico, 809 F.2d 1455, 1472 n.25 (10th Cir. 1987) ("A party satisfying Rule 19(a)(2)(i), and yet not joined, thus requiring a Rule 19(b) analysis, would always satisfy the prerequisites for intervention as of right under Fed.R.Civ.P. 24(a). . . ."). For these reasons, the court allowed E&E to intervene for the limited purpose of presenting its motion to dismiss. See, e.g., Southern Utah Wilderness Alliances. Babbitt, No. 99 CV 852K, 2000 WL 33363302, at *1 (D. Utah Aug. 4, 2000) (allowing limited intervention by non-party to present motion to dismiss Page 5 for failure to join indispensable parties), appealed on other grounds, 301 F.3d 1270, cert. granted 124 S.Ct. 462 (2003).*fn2

  Under Federal Rule of Civil Procedure 12(b)(7), a case may be dismissed for "failure to join a party under Rule 19." The court's first task in a Rule 19 analysis is to determine whether E&E is a necessary party. See United States ex rel. Hall v. Tribal Dev. Corp., 100 F.3d 476, 478(7th Cir. 1996). If E&E is in fact a necessary party, and if it cannot be joined in this action, then the court must determine "whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable." Fed.R.Civ.P. 19(b).

 1. Is E&E a necessary party?

  Under Rule 19(a), a person qualifies as a necessary party if

 
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
E&E believes it is a necessary party based on (1) and (2)(i) set out above. It argues that in its absence complete relief cannot be afforded among Salton and Philips and that any disposition in this action will impair its ability to protect its interests. For its claim that complete relief cannot be afforded, E&E argues that Philips seeks to permanently enjoin any "manufacture" of Page 6 the One:One. Since E&E represents that it is the manufacturer of the product, it argues this court cannot grant such relief unless it is a party. However, E&E and Salton have a dispute between themselves as to the ownership of the One:One's technology. Salton apparently believes it is the ...

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