ORDER GRANTING DEFENDANT'S MOTION FOR A STAY; DENYING PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION
Defendant Technology Modeling Associates' ("TMA's") motion for a stay and Plaintiff Silvaco Data Systems, Inc.'s ("Silvaco's") motion for a preliminary injunction were heard on June 16, 1995. The court has read the moving and responding papers and heard the oral arguments of counsel. For the reasons set forth below, the court grants TMA's motion for a stay and denies Silvaco's motion for a preliminary injunction without prejudice.
The motions currently before the court are but another battle in the ongoing war between competing computer software companies Silvaco and TMA. Both parties are Silicon Valley companies in the business of manufacturing software that performs computer assisted drawing ("CAD") used in the development of semiconductor technologies.
The events leading to the current litigation began in the summer of 1991 when TMA started to suspect that someone was illicitly stealing trade secrets by "dumpster diving" in the trash bins behind their offices. After hiring a private investigator to "stake out" the area, TMA discovered Silvaco's janitor removing trash bags full of TMA's documents from the dumpsters and transporting them back to Silvaco.
Consequently, on July 15, 1991 TMA filed suit in state court against Silvaco and its president Ivan Pesic for unfair competition, trespass, intentional interference with prospective economic advantage, misappropriation of trade secrets, conspiracy, unjust enrichment, and for the imposition of a constructive trust ("First State Action") Silvaco counter-claimed for intentional interference with prospective economic advantage, defamation, bad faith prosecution and unfair competition. The case was assigned to Judge William Martin. After substantial discovery was completed, the parties agreed to a settlement on July 27, 1992.
Thereafter, TMA allegedly found out that Pesic had perjured himself and had withheld documents during discovery in the First State Action. TMA reported this information to the police, who used it to obtain a search warrant to enter Silvaco's premises. Based on documents found in the police search, Pesic was indicted, tried, and ultimately acquitted on perjury charges.
After the criminal trial ended, Silvaco moved to enforce the terms of the settlement in the First State Action. TMA opposed this motion by arguing that Silvaco had obtained the settlement by engaging in fraudulent discovery and other inequitable conduct. Judge Martin agreed with TMA, and on February 21, 1995 he issued an order denying Silvaco's motion to enter judgment enforcing the settlement.
In October of 1994, just before Judge Martin issued his order refusing to enforce the settlement, Silvaco filed another suit in state court ("Second State Action"), once again alleging interference with prospective economic advantage, unfair competition, defamation and false light publicity. The second case was assigned to Judge Richard Turrone.
TMA demurred to the Second State Action. On February 24, 1995, Judge Turrone granted TMA's demurrer on the interference and unfair competition claims based on the "another action pending" doctrine under Cal. C.C.P. § 430.10(c). Judge Turrone appears to have stayed these claims because he found that they alleged continuing violations which were encompassed within the already pending First State Action. Judge Turrone also granted TMA's demurrer on the defamation and false light claims based on pleading defects. Thereafter, on May 31, 1995, the First and Second State Actions were consolidated for discovery purposes, although not, as of yet, for trial.
Silvaco filed the current action in federal court on May 19, 1995 alleging three causes of action: 1) false advertising under the Lanham Act; 2) false advertising under Cal. Bus. & Prof. Code § 17500 and; 3) unfair competition under Cal. Bus & Prof. Code § 17200. These claims are based solely on TMA's distribution of advertisements allegedly making false comparisons between TMA's and Silvaco's products.
Silvaco has now moved for a preliminary injunction to prevent TMA from continuing to distribute its allegedly false advertisements and to require TMA to send out corrective notices. TMA responds by moving for a stay of the federal action due to the existence of the pending state actions.
I. TMA's Motion for a Stay
TMA argues that the court should stay this action because extremely similar claims are already pending in the First and Second State Actions. Silvaco responds that a stay is not warranted because the state and federal actions involve different facts, evidence and legal issues, and because there are other factors that weigh in favor of exercising federal jurisdiction.
A. Legal Standard
Federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given them." Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S. Ct. 1236, 1246, 47 L. Ed. 2d 483 (1976). However, in the interest of "wise judicial administration," a federal court may stay its proceedings where a parallel state action is pending. Id. A stay under the Colorado River doctrine is appropriate only in "exceptional circumstances." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 19, 103 S. Ct. 927, 938, 74 L. Ed. 2d 765 (1983). Six factors may be relevant in determining whether a stay should be issued:
(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) whether state or federal law controls; (6) whether the state proceeding is adequate to protect the parties' rights.
Nakash v. Marciano, 882 F.2d 1411, 1415 (9th Cir. 1989) (internal citations omitted). In addition, the court may consider whether the plaintiff in the federal action has engaged in forum shopping. Id. at 1417.
Here, as a threshold question, the court must first determine whether the state and federal actions are parallel, or at least "substantially similar" so as to implicate the Colorado River doctrine in the first place. See Interstate Material Corp. v. City of Chicago, 847 F.2d 1285, 1287-88 (7th Cir. 1988); Crawley v. Hamilton County Commissioners, 744 F.2d 28, 31 (6th Cir. 1984); Hifonics Corp. v. Mark I Electronics Corp., 1992 U.S. Dist. LEXIS 15095, at *8 (N.D. Cal. 1992). If the answer is yes, the court must then evaluate the Nakash factors to determine whether a stay of the federal action is appropriate. If the answer is no, then the Colorado River doctrine does not apply and no stay may be imposed.
1. Similarity of the State and Federal Actions