REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE

FILED UNDER SEAL

JACQUELYN D. AUSTIN, Magistrate Judge.

This matter is before the Court on Defendants' motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer venue. [Doc. 89.] Pursuant to the provisions of 28 U.S.C. § 636(b) and Local Civil Rule 73.02(B)(2)(e), D.S.C., this magistrate judge is authorized to review all pre-trial matters in cases involving litigation by individuals proceeding pro se and to submit findings and recommendations to the District Court.1

Plaintiffs filed this action on April 5, 2019, in the United States District Court for the Southern District of California (the "California District Court"), which, in turn, transferred the case on June 23, 2019, to this Court (the "Transfer Order"). [Docs. 1; 55.] On August 6, 2019, Defendants filed their motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer venue. [Doc. 89.] Plaintiffs filed a response opposing the motion on August 14, 2019, and Defendants filed a reply on August 19, 2019 [Docs. 992; 104.] This motion is now ripe for review.

BACKGROUND

The Transfer Order thoroughly sets out the procedural history of this case up to the point of its transfer to this Court:

[Doc. 55-1 at 2-12 (footnotes omitted).]

On May 15, 2019, Defendants filed a motion to dismiss or, in the alternative, stay this case pending resolution of the Kelley and Lazarus Actions under the "first-to-file" rule or, in the alternative, to stay pending resolution of the California state court case pursuant to the Colorado River doctrine. [Doc. 20.] The California District Court granted the motion and transferred this case to this Court under the first-to-file rule.3 [Doc. 55-1 at 20.] Although the court noted that Defendants had argued that transfer to this Court would be inappropriate because this Court does not have personal jurisdiction over them, the court ruled that the question of whether this Court has personal jurisdiction over Defendants was a question to be decided by this Court following the transfer. [Id. at 17-19.] The Court also noted that practical considerations favored transferring the case to this Court. In particular, the California District Court noted that Plaintiffs request preliminary injunctive relief in this case very similar to the preliminary injunctive relief sought and denied by this Court in Lazarus. [Id. at 19.] Were the California District Court to rule on Plaintiffs' similar request for preliminary injunctive relief in the present case, "it would result in a waste of duplication of the court's resources" and could "lead to inconsistent rulings which `may trench upon the authority of sister courts' and result `in piecemeal resolution of issues that call for a uniform result.'" [Id. at 19-20 (quoting Cadle v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999)).] Noting that the trial in this Court was set for October 22, 2019,4 the California District Court also determined that transferring this case to this Court, rather than simply staying the second-filed action, would serve "to secure a prompt adjudication of Plaintiffs' claims." [Doc. 55-1 at 20.]

DISCUSSION

In transferring this case to this Court pursuant to the first-to-file rule, the California District Court did not purport to address whether this Court possessed personal jurisdiction over Defendants, whether venue was proper in this Court, or whether considerations of convenience might justify this Court's transferring the case back to the California District Court. [Doc. 55-1 at 17-19.] Rather, it left those questions for this Court to decide, and it is those questions that are front and center in Defendants' motion to dismiss. See Cadle, 174 F.3d at 606 (holding that, under the first-to-file rule, "the court in which an action is first filed is the appropriate court to determine whether subsequently filed cases involving substantially similar issues should proceed" (internal quotation marks omitted)); Strukmyer, LLC v. Infinite Fin. Sols., No. 3:13-cv-3798-L, 2013 WL 6388563, at *7 (N.D. Tex. Dec. 5, 2013) (holding that, under the first-to-file rule, "the court in which the first suit was filed . . . is entitled to determine which forum should hear th[e] dispute" (internal quotation marks omitted)).

Defendants argue that this Court should dismiss this case because this Court lacks personal jurisdiction over them, South Carolina's Door Closing statute prohibits maintaining this action in this Court, and venue for this case is improper in South Carolina.5 [Doc. 89-1 at 8-20.] Defendants alternatively contend that this Court should transfer the case to the California District Court pursuant to either 28 U.S.C. § 1404(a) or 1406(a). [Doc. 89-1 at 20-24.] For reasons that the Court will explain, the Court concludes that even assuming it possesses personal jurisdiction over Defendants, venue is improper in this Court on the Plaintiffs' lone federal claim—for trade secret misappropriation—as well as on four of their six state law claims. Because the Court finds that the interest of justice supports transferring this case back to the California District Court rather than severing the case, the Court recommends that the entire case be transferred back to the California District Court.6

Venue

Under Rule 12(b)(3) of the Federal Rules of Civil Procedure, parties are permitted to file motions to dismiss for improper venue. Fed. R. Civ. P. 12(b)(3); Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 209 (4th Cir. 2007). To grant a motion under Rule 12(b)(3), the court must find that venue is improper. See Fed. R. Civ. P. 12(b)(3). "`When a defendant objects to venue under Rule 12(b)(3), the plaintiff bears the burden of establishing that venue is proper.'" Ameristone Tile, LLC v. Ceramic Consulting Corp., 966 F.Supp.2d 604, 616 (D.S.C. 2013) (brackets omitted) (quoting Butler v. Ford Motor Co., 724 F.Supp.2d 575, 586 (D.S.C. 2010)). However, the plaintiff is required "to make only a prima facie showing of proper venue in order to survive a motion to dismiss." Aggarao v. MOL Ship Mgmt. Co., Ltd., 675 F.3d 355, 366 (4th Cir. 2012). "In assessing whether there has been a prima facie venue showing, [the court] view[s] the facts in the light most favorable to the plaintiff." Id. Moreover, "[o]n a motion to dismiss under Rule 12(b)(3), the court is permitted to consider evidence outside the pleadings." Id. at 365-66. "In a case with multiple claims, plaintiffs have the burden of establishing that venue is proper as to each claim. Additionally, plaintiffs must establish that venue is proper as to each defendant." Magic Toyota, Inc. v. Southeast Toyota Distribs., Inc., 784 F.Supp. 306, 316 (D.S.C. 1992) (internal citation omitted).

A case filed in an improper venue must be dismissed, or, if it is in the interest of justice, transferred to a district in which it could have been brought. 28 U.S.C. § 1406(a). Under the general venue statute, a civil action may be brought, and venue is proper, in:

28 U.S.C. § 1391(b).

Whether Venue is Proper in this Court

Here, the parties agree that venue in this District cannot be premised on § 1391(b)(1) because none of the Defendants reside in South Carolina, as noted above.7 [Docs. 89-1 at 18; 102 at 7, 20, 21.] Likewise, venue in this District is not proper under § 1391(b)(3) because this action could have been brought in the Southern District of California, where all of the Defendants reside. [See Docs. 89-2; 89-3.] Accordingly, at issue with regard to each of Plaintiffs' claims is whether venue in South Carolina lies under subsection (2), and specifically, whether "a substantial part of the events or omissions giving rise to the claim occurred" in South Carolina.

Importantly, "[t]he test for determining venue [under § 1391(b)(2)] is not the defendant's `contacts' with a particular district, but rather the location of those `events or omissions giving rise to the claim.'" Cottman Transmission Sys., Inc. v. Martino, 36 F.3d 291, 294 (3d Cir. 1994); see also Zike, LLC v. Catalfumo, No. 6:11-1841-TMC, 2012 WL 12867973, at *3 (D.S.C. Feb. 29, 2012) ("`The statutory standard for venue focuses not on whether a defendant has made a deliberate contact—a factor in the analysis of personal jurisdiction—but on the location where events occurred.'" (quoting MTGLQ Inv'rs, L.P. v. Guire, 286 F.Supp.2d 561, 565 (D. Md. 2003))). In general, "in determining whether events or omissions are sufficiently substantial to support venue under [§ 1391(b)(2)], a court should not focus only on those matters that are in dispute or that directly led to the filing of the action. Rather, it should review `the entire sequence of events underlying the claim.'" Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004) (internal citation omitted).

Turning to the application of these principles to this case, the Court notes initially that, in presenting their venue arguments, the parties do not distinguish between Plaintiffs' different claims. Nonetheless, as noted, venue must be determined on a claim-by-claim basis, and the Court undertakes to analyze Plaintiffs' separate claims accordingly. See Magic Toyota, Inc., 784 F. Supp. at 316. As the Court will discuss, five of Plaintiffs' seven claims focus on allegations concerning Defendants' obtaining and using Plaintiffs' secret information to develop and manufacture a competing PBA product. The Court will begin with a discussion of those five claims, for which the Court concludes venue is not proper in this Court.

Plaintiffs' federal trade secret misappropriation claim ("Claim One") and its state law trade secret misappropriation claim ("Claim Two") both allege that "Defendants acquired, disclos[ed], and/or used the master batch records for manufacturing Donnatal® Elixir, raw material validation procedures and data, equipment validation procedures and data, product cost information, product stability data, and product specifications." [Doc. 1 ¶¶ 74, 85.] Plaintiffs' state law unfair competition claim ("Claim Three") similarly focuses on Defendants' "development and manufacturing of products through the unlawful use of Plaintiffs' confidential, proprietary, and trade secret information." [Id. ¶ 95.] Plaintiffs' state law conversion claim ("Claim Six") alleges that "Defendants copied and/or wrongfully obtained electronic files, data and documents without the authorization of Plaintiffs, including without limitation, documents containing or reflecting Plaintiffs' confidential information and Defendants have been unjustly enriched by virtue of their use of same." [Id. ¶ 120.] And Plaintiffs' state law breach of contract claim ("Claim Seven") alleges that Gites and Cavallino entered into non-disclosure agreements with IriSys and that they breached those agreements "by disclosing and using confidential information belonging to or relating to Plaintiffs to develop and manufacture a competing PBA elixir product." [Id. ¶¶ 127-30.]

Defendants' argument that venue is not proper in South Carolina regarding these claims is straightforward. [Doc. 89-1 at 19.] They contend that Plaintiffs allege Defendants misappropriated trade secrets from Defendants' former employer, IriSys, in San Diego and used these trade secrets to manufacture its competing product in San Diego and sell its competing product to Lazarus, which is not domiciled in South Carolina. [Id.] Defendants maintain that they have never manufactured or sold their competing product in South Carolina and because Gites and Cavallino had worked for IriSys in San Diego, any alleged misappropriation or breach of non-disclosure agreements they had entered into with IriSys arose entirely in San Diego. [Id.]

In arguing that venue is proper in South Carolina, Plaintiffs do not challenge these factual assertions. Rather, Plaintiffs contend that Kelley, working from South Carolina, engaged in communications with Defendants in which the parties discussed and explored the possibility of Defendants manufacturing a product to compete with Donnatal® and Kelley being involved in the distribution of that product.8 [Doc. 102 at 15, 21.] Plaintiffs also point to evidence that once Lazarus became Defendants' distributor, Kelley provided important assistance to Lazarus from South Carolina. [Doc. 99-1 at 9-10; see also Doc. 45-21 (VEV's manufacturing supply agreement with Lazarus).] Plaintiffs particularly focus on Kelley's sale to Lazarus of his South Carolina company so that Lazarus could use the address to list the PBA product in the drug databases.9 [Doc. 99-1 at 9-10.] They also focus on Kelley's taking on a role as a liaison for Lazarus to Defendants, supervising the work Defendants were doing in developing and manufacturing their product. [Docs. 99-1 at 10-11; 102-6.]

The Court concludes that the facts Plaintiffs identify do not establish the requisite connection between South Carolina and the allegations underlying any of the five claims at issue. Even to the extent that any of the pre-Lazarus communications between Defendants and Kelley may have referenced issues relating to Defendants' manufacture of the products, the Court concludes such communications were too tangentially related to Defendants' actual receipt of Plaintiffs' secret information or their actual use of it to develop and manufacture the product to establish venue for these claims. As for Kelley's assistance to Lazarus with the databases, that work pertained to the distribution of the products Defendants manufactured, not to Defendants' obtaining of Plaintiffs' trade secrets or their use of the trade secrets to develop and manufacture their products. And while Kelley's various connections to, and communications with, Defendants in his capacity assisting Lazarus may have made him privy to some of Defendants' conduct forming the basis of these five claims, that does not alter the fact that any conduct underlying these claims occurred in California, not South Carolina. Accordingly, the Court concludes that Plaintiffs have failed to demonstrate that a substantial part of the events that actually gave rise to Claims One, Two, Three, Six, or Seven occurred in South Carolina, and thus that venue is improper in this Court for each of these claims.10 As the Court will explain, given the conclusion that venue is improper here for these five claims, the Court concludes that the interest of justice supports transferring the case to the California District Court.11

Transfer/Severance

The venue statute requires district courts to dismiss a case filed in an improper venue or, in the interest of justice, to transfer the case to an appropriate district. 28 U.S.C. § 1406(a). When evaluating the propriety of a transfer, rather than a dismissal, within the context of § 1404, the "interest of justice" has been interpreted to include such factors as "the pendency of a related action, the court's familiarity with the applicable law, docket conditions, access to premises that might have to be viewed, the possibility of unfair trial, the ability to join other parties and the possibility of harassment." Bd. of Trustees, Sheet Metal Workers Nat. Fund v. Baylor Heating & Air Conditioning, Inc., 702 F.Supp. 1253, 1260 (E.D. Va. 1988). "Transfer, unlike dismissal, potentially restricts a plaintiff's ability to choose a proper venue, and so transfer should occur only when relevant factors show the transfer will serve the interest of justice." Flexible Techs, Inc. v. SharkNinja Operating LLC, No. 8:17-cv-00117-DCC, 2018 WL 1175043, at *8 (D.S.C. Feb. 14, 2018), Report and Recommendation adopted by 2018 WL 1158425 (D.S.C. Mar. 5, 2018). The decision whether to transfer or dismiss a case is committed to the sound discretion of the district court. United States v. Espinoza, 641 F.2d 153, 162 (4th Cir. 1981).

The Court notes that the parties agree that venue would be proper for all seven claims in the California District Court, which is the district in which Plaintiffs originally brought this action and the district of residence for all three Defendants. See 28 U.S.C. § 1391(b). Given that Plaintiff chose to bring suit in that Court, the interest of justice favors transferring these five claims back to that court as opposed to dismissing them. That leaves the question of what should be done with Claims Four and Five, which are state law claims for tortious interference with prospective economic advantage and tortious interference with contract. Rule 21 of the Federal Rule of Civil Procedure provides that district courts may "sever any claim against a party." See also Wohlford v. Davis, No. 7:18CV00224, 2019 WL 1294648, at *8 (W.D. Va. Mar. 20, 2019) ("In the interest of justice, this court may sever and transfer [claims for which venue is not proper to a] more appropriate venue and . . . more convenient forum."). Accordingly, assuming venue for these two claims is proper in this Court, severing the two claims from the remainder of this suit and keeping them in this Court would be a possibility. Even assuming venue for these two claims is proper here, however, the Court concludes that the interest of justice strongly favors transferring the entire case to the California District Court.

Defendants argue that many considerations favor transferring the entire case to the California District Court. Primarily, they contend that all of the Defendants are domiciled in San Diego, all of Defendants' owners and directors are located in San Diego, the San Diego Defendants manufacture all PBA Elixir exclusively in San Diego, and they do not sell the product directly to any customers in South Carolina. [Doc. 89-1 at 10.] On the other hand, Plaintiffs maintain that this case is inextricably intertwined with the Lazarus and Kelley Actions and thus that keeping the claims in this Court would be more judicially efficient. [Doc. 102 at 23.]

Initially, the Court notes again that the parties have not presented their venue argument on a claim-by-claim basis. Plaintiffs' judicial efficiency argument is that it would be more judicially efficient to keep this entire case in this Court than it would be to transfer the entire case to the California District Court. [Id.] But because the Court has concluded that venue in this Court is improper for at least five of Plaintiffs' claims, keeping all seven claims is not an option. And the primary efficiency benefit of keeping the entire case in this Court—being able to litigate all of the claims in the three cases in a single forum—melts away once it is determined that at least five of the claims will need to be transferred to the California District Court. In fact, the Court sees little to be gained by requiring Defendants, who are not parties to the Lazarus or Kelley Actions, to defend against Plaintiffs' claims piecemeal in both South Carolina and California. In addition to the burden that would be placed on Defendants by requiring them litigate in both fora, Defendants emphasize that the instant lawsuit is only in its beginning stages: "There have been no Rule 26 disclosures exchanged, the parties have not participated in a scheduling conference or an ENE, and the only discovery that has occurred is very limited discovery resulting from an order in the Concordia Plaintiffs' favor on a motion for expedited discovery for production of a forensic examination of certain electronic devices of Mr. Gites." [Doc. 89-1 at 2.] In contrast, the Lazarus and Kelley Actions "are over a year old, and substantial discovery has occurred" [id.], and the deadline for completion of discovery in those actions is less than one month away (September 23, 2019), with dispositive motions due two weeks later (October 7, 2019). [Lazarus Action, Doc. 130; Kelley Action, Doc. 76.] Adding claims from the more junior case to the mix in this Court would risk significantly delaying the disposition of the other two cases. In light of these considerations, the Court concludes that the interest of justice strongly favors transferring this suit back to the California District Court. Accordingly, the Court recommends that the case be transferred back to that district.

CONCLUSION

Wherefore, based upon the foregoing, the Court recommends that Defendants' motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer venue [Doc. 89] be GRANTED in part and DENIED in part. The Court recommends that Defendants' motion to dismiss for lack of personal jurisdiction be DENIED; that Defendant's motion to dismiss for improper venue be DENIED; and that the motion to transfer be GRANTED and that this action be transferred to the United States District Court for the Southern District of California.

IT IS SO ORDERED.