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Optimum Nutrition, Inc v. Upper 49th Imports Incorporated

November 29, 2011

OPTIMUM NUTRITION, INC., PLAINTIFF,
v.
UPPER 49TH IMPORTS INCORPORATED, DEFENDANT.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Defendant's motion to abstain and stay. For the reasons stated below, the court denies the motion.

BACKGROUND

In 1995, the parties allegedly entered into an oral distribution agreement (Agreement), whereby Defendant would purchase Plaintiff's products for distribution to Canadian retailers. Beginning in 2008, the amount of products that Defendant purchased from Plaintiff allegedly declined. Plaintiff alleges that the reason for the decline was Defendant's failure to adequately promote Plaintiff's products and Defendant's decision to sell Plaintiff's premium products to an international discount retailer at a reduced price. Plaintiff alleges that such actions by Defendant violated the Agreement.

Between August and October of 2010, Defendant allegedly placed various orders with Plaintiff for products that cost in excess of $300,000.00. Defendant allegedly received the products ordered, but failed to pay Plaintiff for the products that Defendant received. Plaintiff alleges that, because of the decline in sales to Defendant and Plaintiff's dissatisfaction with Defendant's distribution of Plaintiff's products, on October 21, 2010, Plaintiff delivered a written thirty-day notice to Defendant, terminating the Agreement effective November 21, 2010.

According to Plaintiff, after November 21, 2010, Plaintiff made repeated demands to Defendant for payment of the amounts allegedly owed to Plaintiff, and Plaintiff allegedly threatened Defendant with litigation to recover such amounts. On May 13, 2011, Defendant allegedly brought a breach of contract action against Plaintiff in Ontario, Canada (Canadian Action). According to Plaintiff, Defendant alleges in the Canadian Action that Plaintiff was "without rights to terminate" the Agreement. (Compl. Par. 62). Plaintiff brought the instant action and includes in its complaint various claims relating to the recovery of the amounts that are allegedly past due and a claim for a declaratory judgment as to whether Plaintiff properly terminated the Agreement. Defendant has moved to abstain and stay the instant action until the conclusion of the Canadian Action. Plaintiff opposes the motion.

LEGAL STANDARD

The Seventh Circuit has indicated that where there is parallel litigation and the "federal suit contains claims for both declaratory and non-declaratory relief, the district court should determine whether the claims seeking non-declaratory relief are independent of the declaratory claim." R.R. Street & Co., Inc. v. Vulcan Materials Co.,569 F.3d 711, 716 (7th Cir. 2009). If the claims for non-declaratory relief are dependent on the declaratory claim, the court may "exercise its discretion under Wilton/Brillhart and abstain from hearing the entire action." Id. at 716-17. In contrast, if the claimsfor non-declaratory relief are independent of the declaratory claim, the court "must hear the independent non-declaratory claims," unless the narrow exception carved out in Colorado River Water Cons. Dist. v. United States, 424 U.S. 800 (1976), applies. Id. at 717.The Seventh Circuit has also advised that, if the Colorado River abstention doctrine does not apply to the independent non-declaratory claims, "[t]he district court then should retain the declaratory claim under Wilton/Brillhart (along with any dependent non-declaratory claims) in order to avoid piecemeal litigation." Id.

DISCUSSION

Defendant argues that the Court should abstain from exercising jurisdiction over the instant action until the Canadian Action has concluded.

I. Dependency of Claims for Non-Declaratory Relief

As discussed above, in considering whether to abstain from exercising jurisdiction, the court must first determine whether the claims for non-declaratory relief are independent of the declaratory claim. In determining whether claims for non-declaratory relief are independent of the declaratory claim, the court examines whether such claims have their "own federal subject-matter-jurisdictional basis" and whether the viability of such claims is "wholly dependent upon the success of the declaratory claim." Id. at 717 n. 6. The latter test requires the court to determine whether "there are claims in the case that exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case." Id. (emphasis in original)(citations omitted)(internal quotations omitted).

In the instant action, even if the declaratory claim dropped out of the case, the court would have diversity jurisdiction over Plaintiff's non-declaratory claims. Plaintiff is allegedly a Florida corporation with its principal place of business in Evanston, Illinois. (Compl. Par. 1). Plaintiff is therefore a citizen of both Florida and Illinois. See 28 U.S.C. § 1332(c)(1)(stating that "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business"). Defendant admits that it is a Canadian corporation. (Mot. 2). Plaintiff has alleged that Defendant currently owes Plaintiff $232,764.34. (Compl. Par. 69, 78, 90). Thus, the court has diversity jurisdiction over the non-declaratory claims.

In addition, Plaintiff's non-declaratory claims survive even if Plaintiff does not succeed on its declaratory claim. The declaratory claim relates strictly to Plaintiff's termination of the Agreement and does not relate to any products Defendant purchased from Plaintiff and allegedly refused to pay for. The fact that any amount Defendant might owe to Plaintiff on the non-declaratory claims could be used to set-off any amount Plaintiff owed to Defendant if Plaintiff does not succeed on its declaratory claim is not enough to satisfy the test outlined by the Seventh Circuit. Since Plaintiff's non-declaratory claims are independent of its ...


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