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Arctic Cat Inc. v. Speed RMG Partners, LLC

United States District Court, D. Minnesota

August 16, 2019




         This case is a business relationship dispute over a contract for the development and sale of side-by-side off-road vehicles. Immediately following an unsuccessful mediation, Plaintiffs (collectively “Arctic Cat”) filed suit in this district, alleging, among other claims, breach of contract and declaratory judgment. Less than two hours later, Defendants (collectively “Speed RMG”) filed suit in the Central District of California, alleging breach of contract and other claims. Speed RMG argues that the Court should dismiss Arctic Cat's complaint for several reasons, including the first-filed rule, lack of personal jurisdiction, improper venue, standing, and failure to plead with particularity. Because compelling circumstances exist to deviate from the first-filed rule, the Court grants Speed RMG's motion, and orders the case be transferred to the Central District of California.


         In July 2015, Arctic Cat Sales Inc. entered into an Agreement with Speed RMG, in which Speed RMG agreed to provide designs of side-by-side off-road vehicles that Arctic Cat Sales would manufacture and sell, with Speed RMG receiving royalties in return. [ECF Nos. 1 (“Compl.”) ¶ 19; 1-1, Ex. 1 (“Agreement”).] Throughout the parties' relationship, each has accused the other of violating the Agreement. After Speed RMG sent Arctic Cat a formal notice of default, these disagreements culminated in a brief mediation in March 2019. Each party walked out of the mediation and almost immediately filed suit-Arctic Cat in Minnesota, and Speed RMG in California. Arctic Cat won the race to the courthouse by less than two hours, and thus argues the case should remain in Minnesota. Speed RMG argues that Arctic Cat's filing was simply a pre- emptive strike designed to deprive Speed RMG of its choice of forum, and thus argues for the complaint to be dismissed so that the parties can go forward in California. To understand the parties' arguments in the context of the first-filed rule, it is necessary to review the disagreements leading to the March 2019 mediation, detailed below.

         Chronology of the Relationship and Breach Allegations

         The parties first clashed in September 2016 over Speed RMG's alleged failure to assign patent applications to Arctic Cat, as Arctic Cat asserted was required under the Agreement. [ECF No. 43 (“Okerlund Decl.”) ¶ 7, Ex. A.] A month later, Arctic Cat refused Speed RMG's request to sign a separate “Intellectual Property Assignment Agreement” for the patents to be assigned. (Id. ¶ 7, Ex. A.) Arctic Cat contended that this separate agreement was unnecessary, since the Agreement already set forth the parties' obligations on assignment. (Id. Exs. A-B.) After Arctic Cat declined to sign the second agreement, Speed RMG articulated its “concerns about Arctic Cat's intentions for payment of royalties.” (Id. Ex. C at 10.)

         The second issue causing friction in 2016 was Speed RMG's alleged failure to provide proper CAD models and drawings for their designs, as well as its alleged failure to identify what designs were “novel.” Arctic Cat's counsel complained of these issues to Speed RMG, stressing that identifying novelty in designs was critical, and “the key to ensuring that [the Speed RMG parties] are paid every royalty they are due under the contract, just as it is key to ensuring that Arctic Cat is not forced to pay royalties for things Arctic Cat employees invented or things that are already known and in the public domain.” (Id. Ex. C at 2.)

         The third issue raised by Arctic Cat in 2016 was an allegation that Speed RMG was using Arctic Cat trademarks without authorization. (Id. ¶¶ 10, 12.) After several email exchanges about these issues, the parties met in Minnesota near the end of 2016. (Id. ¶ 11); [ECF No. 49 (“Nichols Suppl. Decl.”) ¶ 8.] Speed RMG alleges that at the meeting, the parties also addressed Speed RMG's growing criticisms of Arctic Cat for “its failure to produce vehicles as required, its failure to have prosecuted patents as required by the Agreement, its failure to have acknowledge novelty of the designs, and its failure to pay contemplated royalties.” (Nichols Suppl. Decl. ¶ 8.)

         In the month after the December 2016 meeting, Speed RMG sent Arctic Cat additional information about the novelty of its designs and renewed its request that Arctic Cat acknowledge the designs as novel. (Id. ¶ 9.) Arctic Cat did not respond until August 2017, when it denied novelty of the designs. (Id. ¶ 10, Ex. 1.)

         Throughout 2017, Speed RMG remained unhappy with Arctic Cat's performance, and in March, it communicated in writing what it viewed was a “history of Arctic Cat performance failures.” [ECF No. 27 (“Nichols Decl.”) ¶ 7, Ex. 1.] These include not only failure to acknowledge novelty for Speed RMG designs, but also failure to meet published vehicle release dates, failure to proceed with intended vehicle sales and royalty sales contemplated by the Agreement, and failure to cooperate in building race vehicles. (Id.) “As it now stands, we are nearly 20 months into this 60 month agreement and Arctic Cat has yet to sell a single vehicle from which we would receive royalties under the agreement. In the meantime, we have worked days, nights, and weekends to meet our deadlines and perform our obligations.” (Id. Ex. 1 at 2.) In December 2017, the parties met again to discuss their relationship. By then, Textron Specialized Vehicles (“TSV”) had acquired Arctic Cat Inc. [ECF No. 44 (“Tidwell Decl.”) ¶¶ 5, 9; Nichols Suppl. ¶ 12.]

         Months after that meeting, in March 2018, Arctic Cat provided Speed RMG with a description of the claims it considered novel. (Nichols Suppl. Decl. ¶ 14, Ex. 2.) Speed RMG disagreed with the scope of the identification, and its counsel Steve Nichols continued notifying Arctic Cat of its alleged breaches, explicitly stating that “Arctic Cat remains in breach of several of its material contractual obligations.” (Nichols Decl. ¶ 7, Exs. 2-3.) The record contains no indication that Arctic Cat's counsel responded, but the parties met again in June 2018. (Nichols Suppl. Decl. ¶ 15; Tidwell Decl. ¶ 10.)

         Following the June 2018 meeting, Arctic Cat counsel Brian Tidwell wrote to Nichols, raising again the issue of assignment of patent applications. (Tidwell Decl. ¶ 11, Ex. A.) Upon receiving the letter, Nichols telephoned Tidwell to explain why assigning the patent applications to Arctic Cat was not feasible. (Nichols Suppl. Decl. ¶ 17.) According to Nichols, because Arctic Cat disputed novelty on Speed RMG's designs, a future attempt by Arctic Cat to enforce the patent “would be highly problematic given [Arctic Cat's] documented position that the designs were not novel.” (Id.) Thus, Nichols proposed that Speed RMG would go forward with the patents and give Arctic Cat an exclusive license. (Id.)

         After this call, Speed RMG asserts that Arctic Cat's historical issues about the patent application assignment seemed to be resolved. This assertion finds support in the record. On July 31, 2018, the parties met in North Carolina, and Arctic Cat did not raise the patent assignment issue. (Nichols Suppl. Decl. ¶¶ 19-20.) Nor were any issues raised during later communications in which the parties appear to be working together to have Speed RMG apply for the necessary patents. (Id. ¶ 21, Ex. 3.)

         The relationship, however, continued to deteriorate, and in January 2019, Arctic Cat told Speed RMG that while it would sell one of the vehicle models that grew out of the relationship, “there isn't a business case for any of the other models listed in the agreement that justifies moving forward, and we encourage your team to pursue other partners as appropriate. We are not standing in your way.” [ECF No. 25 ...

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