Nailcare Academy LLC v. Medinails, Inc

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

FORT MYERS DIVISION

NAILCARE ACADEMY LLC and

JANET MCCORMICK, a Florida

limited liability company,

Plaintiffs,

v. Case No.: 2:21-cv-405-SPC-NPM

MEDINAILS, INC and ROBERT

SPALDING,

Defendants.

/

OPINION AND ORDER1

Before the Court is Defendants Medinails, Inc. and Robert Spaulding’s

Motion to Transfer (Doc. 22). Plaintiffs Nailcare Academy LLC and Janet

McCormick responded in opposition (Doc. 28). The Court grants the Motion.

BACKGROUND2

This is a trademark infringement, unfair competition, and contract case.

All parties are in the nail business, specifically teaching others how to care for

nails. McCormick and Spaulding formed a partnership in 2008 (the

1 Disclaimer: Documents hyperlinked to CM/ECF are subject to PACER fees. By using

hyperlinks, the Court does not endorse, recommend, approve, or guarantee any third parties

or the services or products they provide, nor does it have any agreements with them. The

Court is also not responsible for a hyperlink’s availability and functionality, and a failed

hyperlink does not affect this Order.

2 These are facts alleged (Doc. 1).

“Partnership”). Things soured and litigation followed. In 2015, the suit

settled: McCormick sold her interest to Spaulding and the parties dissolved the

Partnership. A settlement memorialized the terms (the “Agreement”).

In part, the Agreement divided intellectual property. McCormick took

all rights associated with the trademark and copyright for an advanced nail

technician (“ANT”). Spaulding got all trademark and copyright revolving

around a medical nail technician (“MNT”). The Agreement also contained a

forum-selection clause (“FSC”) and set boundaries on the parties’ future

relationship. After McCormick and Spaulding went their separate ways, they

continued working in the nail industry through the corporate parties.

Nailcare used the ANT trademark since 2009 and later registered it. The

same is true for Nailcare’s registered “SAFE SALON” mark. Still, Defendants

marketed products with similar names, thus infringing on those marks.

Defendants also breached the Agreement by using Plaintiffs’ materials and

failing to pay amounts due. So Nailcare sued Medinails for infringing on the

ANT mark (Count 1); infringing on the Safe Salon mark (Count 2); and unfairly

competing by using various infringing marks (Count 3). And McCormick sues

Spaulding for breaching the Agreement (Count 4).

Now, the parties dispute whether the FSC requires transferring this

action to Tennessee.

LEGAL STANDARD

When an FSC points to another federal court, the proper enforcement

mechanism is a motion to transfer under 28 U.S.C. § 1404(a). Atl. Marine

Constr. Co. v. U.S. Dist. Ct., W. Dist. of Tex., 571 U.S. 49, 52, 59-60 (2013).

That provision follows: “For the convenience of parties and witnesses, in the

interest of justice, a district court may transfer any civil action to any other

district or division where it might have been brought or to any district or

division to which all parties have consented.” 28 U.S.C. § 1404(a). Under

§ 1404, district courts have somewhat broad discretion. Stewart Org., Inc. v.

Ricoh Corp., 487 U.S. 22, 31 (1988).

In applying the statute, many courts use a two-step approach. Gaby’s

Bags, LLC v. Mercari, Inc., No. 2:19-cv-785-FtM-38MRM, 2020 WL 495215, at

*2 (M.D. Fla. Jan. 30, 2020). The first question is whether the case might have

been brought in the transferee district or the parties consented to suit there.

Epler v. Air Methods Corp., No. 6:21-cv-461-PGB-DCI, 2021 WL 2806207, at *2

(M.D. Fla. June 4, 2021). At the second step, courts consider several factors

related to convenience and the interest of justice. Id.

DISCUSSION

It is unclear whether Defendants believe venue is proper here. Compare

(Doc. 22 at 4 n.4), with (Doc. 23 at 2). But that is irrelevant. Beside a

perfunctory, alternative request buried within a footnote, the Motion only

seeks transfer under § 1404. So it is unnecessary to address improper venue

under 28 U.S.C. § 1406 or Rule 12(b)(3). And the Court follows the useful two-

step approach applicable to § 1404 motions.

A. Step One

To start, Plaintiffs could have sued in Tennessee because it was a proper

venue. Both Defendants are residents of Signal Mountain, Tennessee. The

Court notices the location of that town (i.e., Hamilton County, which is within

the Chattanooga Division). Fed. R. Evid. 201(c)(1). So venue exists there even

without the FSC. 28 U.S.C. §§ 1391(b)(1), 1404(a).

Because an FSC is at issue, however, the Court addresses three other

matters: whether the FSC is (1) mandatory; (2) applicable (i.e., the claims fall

within its scope); and (3) valid.3 E.g., Azima v. RAK Inv. Auth., 926 F.3d 870,

874-75 (D.C. Cir. 2019). If the answers are “yes,” the clause is typically

enforceable. Atl. Marine, 571 U.S. at 64. For reference, here is the FSC:

Any action, suit or other proceeding arising out of or in

connection with this Settlement Agreement shall be

commenced only in the federal court sitting in

Chattanooga, Tennessee, and the Parties each agree

to submit to the personal jurisdiction and venue of that

court.

3 As commenters note, Atlantic Marine glossed over the first step by presuming the FSC

satisfied all three parts. E.g., Matthew J. Sorensen, Note, Enforcement of Forum-Selection

Clauses in Federal Court After Atlantic Marine, 82 Fordham L. Rev. 2521, 2553-56 (2014).

The Court’s analysis combines the traditional § 1404 inquiry with three crucial questions not

discussed in Atlantic Marine. Then, it turns to the modified second-step inquiry.

(Doc. 1-4 at 8).

1. Mandatory

It helps to begin with the simplest issue—whether the FSC is mandatory

or permissive. See Slater v. Energy Servs. Grp. Int’l, Inc., 634 F.3d 1326, 1330

(11th Cir. 2011). In this context, “the term shall is one of requirement.” Slater,

634 F.3d at 1330 (cleaned up). And the Agreement added “only” for good

measure. There is no doubt any action within the scope must be filed in

Tennessee. Glob. Satellite Commc’n Co. v. Starmill U.K. Ltd., 378 F.3d 1269,

1272 (11th Cir. 2004) (“The contract provision, . . . because it uses the

imperative ‘shall,’ is most reasonably interpreted to mandate venue [there]

alone.”). With that decided, the Court turns to the heart of the dispute.

2. Applicable (Scope)

Courts look at each claim individually to determine whether it falls

within an FSC. Bailey v. ERG Enters., LP, 705 F.3d 1311, 1317 (11th Cir.

2013). Settlement agreements—like the Agreement—are just contracts

subject to the regular rules of interpretation. Norfolk S. Corp. v. Chevron,

U.S.A., Inc., 371 F.3d 1285, 1290 (11th Cir. 2004). And the goal is to effect a

contract’s plain language. Brown Jordan Int’l, Inc. v. Carmicle, 846 F.3d 1167,

1179 (11th Cir. 2017).4

4 Tennessee law likely applies for interpreting the Agreement. Yet the parties make no

argument on it. So the Court assumes there are no relevant, distinctive aspects of state law

Count 4 is for breach of contract. It is hard to conceive of a claim more

within the scope of an FSC than breach of the contract containing the clause.

By filing Count 4 here, McCormick breached the Agreement. But the suit is

proper, she says, “to promote judicial economy, as a cost savings measure for

all parties.” (Doc. 28 at 10). Simply put, McCormick misunderstands the law

and has the matter backwards.

Count 4 is subject to the FSC. So the issue is not whether it would be

more convenient or efficient to try Count 4 here. Indeed, courts cannot even

consider judicial economy as a basis to ignore an enforceable FSC. Atl. Marine,

571 U.S. at 62 n.6, 64 (listing the public-interest factors).5 If the Court

considered judicial economy, the question becomes whether it is more efficient

to transfer the other claims too—whether or not they fall within the scope of

the FSC—because Count 4 must be in Chattanooga. Alternatively, the issue

would be whether the “public-interest factors overwhelmingly disfavor”

severing Count 4. See In re Rolls Royce Corp., 775 F.3d 671, 681 (5th Cir. 2014)

(explaining “the private factors of the parties who have signed [FSCs] must, as

and relies on general contract principles. E.g., John Wyeth & Brother Ltd. v. CIGNA Int’l

Corp., 119 F.3d 1070, 1074 (3d Cir. 1997) (Alito, J.).

5 When the Supreme Court speaks of “administrative difficulties,” it refers to those that

“follow for courts when litigation is piled up in congested centers instead of being handled at

its origin.” Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09 (1947). For that reason, the typical

analysis compares the filing statistics of the respective courts (as the parties did here).

Outside some noncontrolling cases loosely citing judicial economy, Plaintiffs cite no binding

law allowing courts to disregard valuable contractual rights for their own simple convenience.

matter of law, cut in favor of severance and transfer to the contracted for

forum”). Given that enforcing FSCs “furthers vital interests of the justice

system,” McCormick did not come close to make that showing. See Atl. Marine,

571 U.S. at 63 (citation omitted).6

In short, Count 4 is within the FSC’s scope.

Next up are Counts 1 and 3. Respectively, those are for trademark

infringement and unfair competition related to the ANT mark. According to

Plaintiffs, these claims are outside the scope. Defendants disagree. Again, the

FSC applies to all actions “arising out of or in connection with” the Agreement.

(Doc. 1-4 at 8). Cases defined these and similar phrases.

“The term ‘arising out of’ is broad, but it is not all encompassing.” Doe v.

Princess Cruise Lines, Ltd., 657 F.3d 1204, 1218 (11th Cir. 2011). “When

determining if a dispute arises out of . . . an underlying contract, we generally

consider whether the dispute in question was an immediate, foreseeable result

of the performance of contractual duties.” Hearn v. Comcast Cable Commc’ns,

LLC, 992 F.3d 1209, 1213 (11th Cir. 2021). “In other words, there must be

6 Plaintiffs ignored Defendants’ argument that Nailcare is bound by the Agreement. (Doc. 22

at 10 n.7). The Court interprets Nailcare’s silence as acknowledging its rights are derivative

of McCormick’s. See Lipcon v. Underwriters at Lloyd’s, London, 148 F.3d 1285, 1299 (11th

Cir. 1998); Stiles v. Bankers Healthcare Grp., Inc., 637 F. App’x 556, 562 (11th Cir. 2016); see

also (Doc. 28 at 16-17 (arguing the Agreement was a contract between Nailcare and

Defendants)); (Doc. 22-1 at 9).

some direct relationship between the dispute and the performance of duties

specified by the contract.” Id. (cleaned up).

Counts 1 and 3 arise out of the Agreement. To infringe on the ANT mark

or unfairly compete by using a similar mark was a foreseeable, direct result of

Defendants’ nonperformance of contractual duties. See id. The Agreement

“divided the intellectual property assets of the Partnership between”

McCormick and Spaulding. (Doc. 1 at 8). In doing so, it gave McCormick “a

contractual right to the use of the [ANT] Mark.” (Doc. 1 at 6); (Doc. 1-4 at 4

(“McCormick owns all rights and legal title (including, but not limited to, all

copyrights or trademarks) to the” ANT mark.)). When Defendants infringed

the ANT mark and used a similar one, they breached the Agreement (and vice

versa). In other words, breach goes hand in hand with infringement and unfair

competition here.7 McCormick impliedly concedes this point in Count 4,

alleging Spaulding breached (in part) by failing to transfer or assign the

trademark rights he had in the ANT mark.

Nailcare argues its trademark rights are not limited to contract. Rather,

they derive from use in commerce alone. That statement jumps the gun. It

7 See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 18:15 (5th

ed. 2021 update) (“If the trademark . . . has been sold, the seller’s later use of the trademark

. . . is in derogation of the asset he sold to another, and constitutes both trademark

infringement and breach of contract.”); see also Raymond T. Nimmer & Jeff C. Dodd, Modern

Licensing Law § 11:39 (2019 update) (“Stated simply, then, in a license relationship, both

infringement and breach may result in cases when the defendant’s conduct fails to perform

a contractual obligation and infringes the exclusive rights of the rights owner.”).

presupposes Nailcare is a senior user of the ANT mark with priority. But

Nailcare only started using the ANT mark in 2009—after the Partnership

formed. (Doc. 1 at 4; Doc. 1-4 at 2). So Nailcare’s exclusive right to use the

mark depended—at least in part—on the assignment of any rights Spaulding

or the Partnership had. See (Doc. 1 at 4 (alleging Nailcare “has the exclusive

right to use the ANT Mark . . . as stated in” the Agreement), 6 (Nailcare “is the

senior user and possesses a contractual right to the use of the” ANT mark.)).8

Counts 1 and 3 thus are “arising out of” the Agreement.

Even if they are not, Counts 1 and 3 are “in connection with” the

Agreement. “Connected with” conveys “the necessity of some direct

connection.” Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204, 1219 (11th Cir.

2011). Otherwise, “the term would be meaningless.” Id. Importantly,

however, “arising out of” and “in connection with” do not mean the same thing.

E.g., Phillips v. Audio Active Ltd., 494 F.3d 378, 389 (2d Cir. 2007). That

interpretation would render one surplusage—violating a cardinal tenet of

contract interpretation. Golden Door Jewelry Creations, Inc. v. Lloyds

Underwriters Non-Marine Ass’n, 117 F.3d 1328, 1338 (11th Cir. 1997).

As Plaintiffs concede, the phrase “in connection with” broadens the scope

of claims to which the FSC may apply. Yet they’re right the FSC’s reach is not

8 Again, Plaintiffs ignore the relationship between McCormick and Nailcare. It is unclear if

Nailcare even existed in 2009 or if McCormick assigned Nailcare her rights to the ANT mark.

limitless. Bah. Sales Assocs., LLC v. Byers, 701 F.3d 1335, 1340-41 (11th Cir.

2012). For instance, “the fact that a dispute could not have arisen but for an

agreement does not mean that the dispute necessarily ‘relates to’ that

agreement.” Id. at 1341.

In this context, the Eleventh has not specifically defined the phrase “in

connection with.” But cf. Hunstein v. Preferred Collection and Mgmt. Servs.,

Inc., 17 F.4th 1016, 1034 (11th Cir. 2021) (using dictionary definition of phrase

for statutory interpretation), vacated on other grounds, 17 F.4th 1103. Still,

other circuits provide guidance. One explained, the term “reaches every

dispute between the parties having a significant relationship to the contract

and all disputes having their origin or genesis in the contract.” Simula, Inc. v.

Autoliv, Inc., 175 F.3d 716, 721 (9th Cir. 1999). Another, surveying cases, said

the phrase fits “if ‘the origin of the dispute is related to [the contract],’ meaning

it ‘has some logical or causal connection’ to the” contract. Azima, 926 F.3d at

877 (quoting John Wyeth, 119 F.3d at 1074); see also Coregis Ins. v. Am. Health

Found., Inc., 241 F.3d 123, 128-30 (2d Cir. 2001).

Whatever the precise definition, the FSC applies to “[a]ny action”

connected with the Agreement. (Doc. 1-4 at 8). The Eleventh just interpreted

a similar clause (“any issues or disputes in connection with” a contract). Don’t

Look Media LLC v. Fly Victor Ltd., 999 F.3d 1284, 1299 (11th Cir. 2021). Don’t

Look emphasized that “any means all.” Id. (cleaned up). There, plaintiff’s

RICO claims revolved around defendant’s fraudulent promises made in an

earlier contract between the parties. On those facts, Don’t Look held the

extracontractual RICO claims fell within the FSC scope because they were “in

connection with” the contract. Id.

The answer here is the same. The Agreement wound up and dissolved

the Partnership. It also divided intellectual property—giving McCormick

exclusive rights to the ANT mark. By ending their business relationship,

Spaulding promised not to use the ANT mark. So the infringement and unfair

competition claims for that mark are directly connected to “the business

relationship evidenced by the contract.” Id. (quoting Stewart Org., Inc. v. Ricoh

Corp., 810 F.2d 1066, 1070 (11th Cir. 1987) (en banc)); see also Slater v. Energy

Servs. Grp. Int’l, Inc., 634 F.3d 1326, 1331 (11th Cir. 2011); Frida Kahlo Corp.

v. Pinedo, No. 18-21826-Civ-Scola, 2021 WL 4147876, at *2-3 (S.D. Fla. Sept.

13, 2021) (holding infringement claims fell within scope of FSC in contract

assigning the marks). And these claims are safely “in connection with” the

Agreement that split the intellectual property. See Azima, 926 F.3d at 877.

So Counts 1 and 3 fall within the scope of the FSC.

Finally comes Count 2. That alleges trademark infringement of the Safe

Salon mark. The Agreement does not mention that mark. What’s more,

Medinails does not discuss it. So Nailcare says it cannot fall under the FSC.

The Court disagrees.

While the Motion may not address Count 2, the Answer and

Counterclaims do. (Doc. 23). According to Medinails, the Safe Salon mark was

Partnership property. In fact, it wants to cancel Nailcare’s registration over

that fact. If true, the mark might be Spaulding’s (or an assignee’s) because he

bought McCormick’s Partnership interest. Or the mark could be general

Partnership property distributed upon dissolution. See J. Thomas McCarthy,

McCarthy on Trademarks and Unfair Competition §§ 16:42, 16:44 (5th ed. 2021

update) (explaining the trouble splitting mark after partnership dissolution).

Either way, the Agreement and facts surrounding the Partnership are vital to

understanding the ownership of the Safe Salon mark. And the Defenses and

Counterclaims clarify Count 2 is inside the scope of the FSC. See, e.g., Frida,

2021 WL 4147876, at *3 (“As the Plaintiffs’ claims regarding the assigned

marks depend on a resolution of the Defendants’ argument concerning

ownership of the marks, as interpreted in the Assignment, the [FSC]

controls.”).9

In short, the FSC applies to all claims because they fall within its scope.

9 See also Omron Healthcare, Inc. v. Maclaren Exports Ltd., 28 F.3d 600, 601-03 (7th Cir.

1994) (holding FSC in distribution contract governed later trademark-infringement suit);

Crescent Int’l, Inc. v. Avatar Communities, Inc., 857 F.2d 943, 944-45 (3d Cir. 1988) (applying

FSC even though “only one of [plaintiff’s] claims is based on a breach” because “all of them

involve allegations arising out of the agreement implicating its terms”); see also In re

Remicade (Direct Purchaser) Antitrust Litig., 938 F.3d 515, 524 (3d Cir. 2019) (concluding

FSC controlled because extracontractual claims could not “be adjudicated without reference

to, and reliance upon” the contract (cleaned up)).

3. Valid

Finally, FSCs “are presumptively valid and enforceable unless the

plaintiff makes a ‘strong showing’ that enforcement would be unfair or

unreasonable under the circumstances.” Krenkel v. Kerzner Int’l Hotels Ltd.,

579 F.3d 1279, 1281 (11th Cir. 2009) (quoting Carnival Cruise Lines, Inc. v.

Shute, 499 U.S. 585, 593-95 (1991)). But these clauses are not impregnable.

An FSC “will be invalidated when: (1) its formation was induced by fraud or

overreaching; (2) the plaintiff would be deprived of its day in court because of

inconvenience or unfairness; (3) the chosen law would deprive the plaintiff of

a remedy; or (4) enforcement of the clause would contravene public policy.” Id.

(quoting Lipcon, 148 F.3d at 1296).

Plaintiffs say the FSC violates public policy. But they make no strong

showing for invalidation. In fact, they make no showing at all. Unlike a fine-

print FSC within an adhesion contract—which are regularly upheld—

McCormick and Spaulding negotiated for the Tennessee forum. The

Agreement was a comprehensive contract (presumably prepared by lawyers)

that stipulates to the FSC. Yet according to Plaintiffs, enforcement violates

public policy because Defendants seek to transfer claims outside the FSC

scope. As detailed above, that is incorrect.

To the extent that Plaintiffs argue enforcement of the FSC deprives them

of their “venue privilege,” the position is a nonstarter. Atlantic Marine

explains McCormick “effectively exercised” that privilege by contracting for the

FSC. 571 U.S. at 63. With no other argument, the FSC is valid.

Having concluded the FSC is mandatory, applicable, and valid, the Court

finds it is enforceable. See Azima, 926 F.3d at 874-75. And the inquiry pivots

back to § 1404(a).

B. Step Two

At this point, courts consider convenience of the parties and witnesses,

along with the interest of justice. 28 U.S.C. § 1404(a). When transfer is based

on an FSC, however, the “calculus changes.” Atl. Marine, 571 U.S. at 63. For

instance, courts cannot consider plaintiff’s choice of forum. Id. at 63-64. And

the private-interest factors automatically favor transfer. Id. at 64. So courts

simply consider public-interest factors—i.e., “the administrative difficulties

flowing from court congestion; the local interest in having localized

controversies decided at home; and the interest in having the trial of a diversity

case in a forum that is at home with the law.” Id. at 62 n.6 (cleaned up).

“Because those factors will rarely defeat a transfer motion, the practical result

is that [FSCs] should control except in unusual cases.” Id. at 64.

Plaintiffs fail to meet their heavy burden. See id. at 62 (explaining the

burden is on the party opposing valid FSC’s enforcement). As the parties’

show, no meaningful difference in court congestion could impact this case.

What’s more, Tennessee has a greater interest than Florida in resolving this

case because it inevitably involves the Partnership windup and Agreement—

which all occurred in Tennessee. Finally, this is mostly a federal-question, not

diversity, case. So there is little to no interest in either forum being “at home

with the law.” If there is, however, Tennessee has a greater interest because

that state’s law likely governs the Agreement.

At bottom, the relevant factors do not overwhelmingly disfavor enforcing

the FSC. So transfer is appropriate. See id. at 67.

Accordingly, it is now

ORDERED:

1. Defendants’ Motion to Transfer (Doc. 22) is GRANTED.

2. The Clerk is DIRECTED to TRANSFER this action to the United

States District Court for the Eastern District of Tennessee,

Chattanooga (Southern) Division.

3. The Clerk is DIRECTED to CLOSE the case. In doing so, the Clerk

is DIRECTED to MOOT any pending motions and TERMINATE all

deadlines that remain on the Fort Myers docket.

DONE and ORDERED in Fort Myers, Florida on January 6, 2022.

UNITED STATES DISTRICT JUDGE

Copies: All Parties of Record