Thursday, June 30, 2011

Farhang v. IIT Kharagpur- I

In an earlier post, I had written on the suit filed in a Californian District Court by M.D.Farhang and MA Mobile against IIT Kharagpur. There appears to be some confusion in the air on the facts of the case and the central issues at dispute. In this post, I’ll discuss a few salient conclusions in the Californian Court’s order of June 1, 2010.

Farhang filed a suit in the US on May 27, 2008, and IIT Kgp filed a suit sometime in August 2009. Do both suits cover the same issues? If yes, do Courts in both countries need to initiate parallel judicial proceedings? If one of the Courts can resolve all issues at dispute, shouldn’t principles of private international law kick in? (meaning thereby the other Court will have to let go of the matter respecting the principle of comity)

The Californian Court’s take on this issue is clear, but is it complete?...the Court discusses US case law on “international comity” and re-states the principle calling it “international abstention”. The Court says that instead of applying the principle of comity of nations as a factor in deciding jurisdiction, the Court must look for “true conflict”, and not merely a possibility of such a conflict.

The Californian Court goes on to justify the restatement on grounds that if “international comity” is invoked without application of mind, then any defendant in a US proceeding could file a suit in a foreign jurisdiction, invoke comity and deprive the Plaintiff from availing relief from US federal Courts. Therefore, US federal Courts must abstain from matters only under extremely limited circumstances, since they have a “virtually unflagging obligation” to exercise their jurisdiction.

To decide if the narrow window for abstention is available in a particular case, the following factors need to be considered:
(1) whether either court has assumed jurisdiction over a res,
(2) the relative convenience of the forums,
(3) the desirability of avoiding piecemeal litigation,
(4) the order in which the forums obtained jurisdiction,
(5) what law controls, and
(6) whether the foreign proceeding is adequate to protect the parties' rights. 

Mind you, this isn’t an exhaustive or mechanical list. If there is a substantial doubt that a foreign proceeding  may not resolve all contentious issues, the US Court need not even undertake the above analysis. It can assume jurisdiction over the matter directly. Fair enough, one must say. Let’s see how this principle of abstention has been applied in the case.

Following is the relevant excerpt from the Order:

"Applying this analysis to this case, the court finds substantial doubt that the Indian proceedings would resolve all of the issues in this action. In its complaint filed with the High Court at Calcutta, IIT makes the following claims: (1) IIT never entered into a valid and enforceable nondisclosure agreement (“NDA”) with Farhang; (2) IIT expended time, money, and resources into developing the disputed IP; and (3) Farhang has wrongfully detained and utilized the IP. In the Indian proceeding, IIT seeks: (a) a declaration that there is no valid NDA between IIT and Farhang; (b) a declaration that IIT is the owner of the disputed IP; (c) a permanent injunction restraining Farhang and other defendants from utilizing the IP without IIT's written permission; (d) a decree for Farhang to return the IP; and (e) damages for wrongful detention of the IP. 

Meanwhile, in the instant action, plaintiffs Farhang and M.A. Mobile Ltd. bring claims against IIT and other defendants for: (1) breach of the NDA, (2) breach of joint venture agreements, (3) breach of fiduciary duty, (4) fraud, and (5) misappropriation of trade secrets.

Even if a ruling by the High Court in Calcutta in favor of IIT on all counts could completely dispose of all of plaintiffs' claims in the federal action, there can be no doubt that a ruling by the High Court in Calcutta against IIT would leave various issues for this court to adjudicate. Therefore, there is substantial doubt that the Indian proceedings would completely resolve the issues in this action. Under these circumstances, granting a stay would be “a serious abuse of discretion.” Therefore, the court denies IIT's motion to stay this action."

On the face of it, this conclusion seems consistent with the principles of international abstention. This is so because, even if the High Court of Calcutta were to rule against IIT in the suit filed by IIT, there would remain certain outstanding issues for which there would be no remedy as far as Farhang is concerned. But this seems like an incomplete proposition...why?

The US Court does not take into account the very real possibility of Farhang filing a counter-claim against IIT in the Calcutta suit proceedings. If both IIT’s suit and Farhang’s potential counter-claim were to be consolidated and decided together, all issues could be resolved by the Indian Court.

Of course, one could say the same argument could be applied to the US proceedings as well. Also, the US suit was filed well before the Indian suit. That being the case, the other possible technicality that needs to be looked into is a strictly jurisdictional one i.e. does Farhang have a remedy in the US, specifically before the Californian Court, in the first place?

IIT seems to have raised this issue before the US Court. We’ll discuss this along with other important findings in the order in the next post. 

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