Spar, Inc. And Spar Marketing Services, Inc. v. Information Resources, Inc.

Citations: 956 F.2d 392; 1992 U.S. App. LEXIS 2102; 1992 WL 24157Docket: 770

Court: Court of Appeals for the Second Circuit; February 10, 1992; Federal Appellate Court

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Plaintiffs-appellants Spar, Inc. and Spar Marketing Services, Inc. appeal a dismissal from the United States District Court for the Southern District of New York, which ruled their action against defendant-appellee Information Resources, Inc. (IRI) was barred by the statute of limitations. The sole appeal issue is whether the district court erred in denying Spar's motion to transfer the case to the Northern District of Illinois under 28 U.S.C. § 1406, despite proper venue in New York. Spar argued that a transfer would allow them to benefit from Illinois' longer limitations period, thus enabling them to pursue their claims. The district court found that § 1406(a) did not apply and did not assess whether Illinois would apply its five-year statute of limitations instead of New York's three-year statute. The appellate court affirmed the district court's judgment.

Spar initiated the action on April 15, 1991, alleging that IRI tortiously induced Thomas E. Dailey, a former Spar employee, to breach his employment contract. Dailey had agreed not to work for any competitor, including IRI, for two years following his departure from Spar. However, he accepted a position at IRI on March 28, 1986, and began work there on April 14, 1986. Spar claimed that Dailey, as a Vice President at IRI, developed products that directly competed with Spar’s offerings. Spar's claim arose over five years after Dailey's departure, exceeding the applicable statute of limitations.

Approximately one month after Spar filed a complaint in state court, IRI removed the case to the United States District Court for the Southern District of New York and subsequently moved to dismiss the complaint, citing New York's three-year statute of limitations for tortious interference claims. Spar responded by cross-moving to transfer the case to the Northern District of Illinois based on forum non conveniens and improper venue arguments. Judge Goettel denied the transfer motion and dismissed the complaint, determining that the venue was appropriate and the statute of limitations had expired, thus barring Spar's claim. 

On appeal, Spar contends that the district court erred in denying the transfer under 28 U.S.C. § 1406, asserting that it allows transfers even when venue is proper if procedural issues prevent resolution in the original district. The court acknowledges a liberal interpretation of § 1406 but concludes that Spar's lack of diligence in pursuing its claim and understanding of the statute of limitations does not warrant a transfer to avoid what amounts to forum shopping. 

Section 1406(a) states that a district court may dismiss or transfer a case if it is filed in the wrong division or district, but courts have generally interpreted this provision broadly. Past cases have allowed transfers even with proper venue when obstacles like jurisdiction issues exist in the original district. Spar argues that a transfer would serve the interest of justice by allowing the case to be adjudicated on its merits, referencing a similar case where a transfer was permitted due to statute of limitations issues. However, the court's stance is that Spar's procedural missteps do not merit a transfer under the circumstances.

The analysis asserts that while 28 U.S.C. § 1406 should generally be interpreted broadly, it disagrees with the Fourth Circuit's stance that a procedural bar in the transferor district mandates transfer to a transferee district without regard for the interests of justice. It emphasizes that a district court should evaluate whether transferring the case serves justice and that such determinations should receive deference. In this instance, transferring the case would be unjust as it would reward the plaintiffs for their lack of diligence in selecting an appropriate forum. The excerpt references the Supreme Court's ruling in Goldlawr, which aimed to protect diligent plaintiffs from losing their cases due to venue errors, but distinguishes this scenario by stating that knowledge of applicable statute of limitations is not obscure; thus, diligence is expected. The plaintiff, Spar, had sufficient opportunity to file within the limitations period, having previously initiated a related action in New York. Consequently, if Spar’s cause of action arose when informed about a position acceptance, it would also be barred under Illinois’ statute of limitations. The conclusion is that justice does not favor allowing plaintiffs to escape the repercussions of their failure to act timely.

Plaintiffs' attempt to transfer the case is viewed as forum shopping, leveraging the choice of forum with the most favorable law. While plaintiffs can initially choose a favorable forum before commencing action, their ability to seek a different forum generally ends once the action begins. Although 28 U.S.C. § 1406 allows for some rectification of erroneous forum choices, it should not be interpreted to provide an additional chance to choose a litigation district. The 'interest of justice' analysis should not serve to revive claims lost due to initial forum errors. The Supreme Court has expressed disapproval of forum shopping linked to plaintiff-initiated venue transfers, emphasizing that a transferee court must apply the law of the transferor court, including statutes of limitations.

In this case, the court upheld the district court's dismissal of the action, concluding that plaintiffs should not be allowed to seek a more favorable forum after failing to do so diligently before initiating the action. The dissenting opinion argues that penalizing plaintiffs for their lawyer's mistake contradicts the purpose of § 1406, which aims to facilitate access to justice rather than create technical barriers. The case involved Spar suing IRI for tortious interference with a contract after IRI removed the suit to federal court, claiming the statute of limitations had expired. Spar sought transfer to Illinois, where the limitations period had not yet run, but the district court denied the motion, asserting that § 1406 transfer only applies when venue is improper or personal jurisdiction is lacking. The majority affirmed the dismissal based on Spar's failure to meet the transfer requisites under § 1406.

Two critical questions arise in evaluating the transfer motion: whether venue was improperly established in the "wrong division or district," and whether the transfer aligns with the interests of justice. There is a consensus that the district court incorrectly ruled that 28 U.S.C. § 1406(a) does not apply, as it is established that if venue and personal jurisdiction are proper but the statute of limitations has expired, venue is considered laid in the "wrong division or district." 

The panel contends that the district court's decision regarding the interests of justice merits deference, but this is not applicable here since the district court failed to assess this aspect, mistakenly believing the venue was proper. After reviewing the relevant facts, it is argued that transfer serves the interests of justice. The substantive goals of statutes of limitations—notice of claim and litigation repose—are not compromised in this situation, as the filing of the lawsuit indicates the plaintiffs’ diligence, which tolls the statute of limitations.

The majority's position that the plaintiffs were not diligent due to their attorney's oversight of New York's statute is challenged. It is asserted that punishing the plaintiffs for their lawyer's lack of diligence is unjust unless it causes prejudice to the defendant, which it does not in this case. IRI, the defendant, has been adequately notified of the lawsuit in compliance with Illinois law, and any additional requirements from New York do not affect this notice.

Furthermore, there is no evidence of a strategic error from Spar's attorney intended to gain an advantage, since, had IRI not removed the case to federal court, the case would have been dismissed, preventing any alleged machination. Concerns about potential forum shopping are dismissed, as there would be no incentive for plaintiffs to file inappropriately and subsequently seek a transfer under § 1406.

In conclusion, the dissent argues for reversing the district court's decision and transferring the case to Illinois, emphasizing that the interests of justice are served by such a transfer without prejudice to the defendant, while also acknowledging the need for a remand to consider the interests of justice if the court agrees that § 1406(a) applies.