Hukui Tech, Inc. v. Intelligent Solutions, LLC

Background

Hukui Tech, Inc., Hukui Technology, Inc., and Hukui Bio Co., LTD. sued Intelligent Solutions, LLC and others over the distribution of Co-Diagnostics, Inc.’s COVID-19 diagnostic tests. Hukui Tech had entered a distribution agreement with Co-Diagnostics in March 2020. It later entered a customer referral agreement with Intelligent Solutions for sales-lead services connected to Hukui Tech’s distribution of those tests.

Co-Diagnostics later began distributing tests directly through Intelligent Solutions. Co-Diagnostics sued Hukui Tech in Utah state court, arguing that Hukui Tech had breached the distribution agreement by contracting with Intelligent Solutions and that Co-Diagnostics no longer owed Hukui Tech payments for tests sold afterward. Hukui Tech filed counterclaims alleging that Co-Diagnostics had prematurely ended their business relationship.

In this federal case, Hukui Tech asserted 10 contract-related claims against Intelligent Solutions. Hukui Tech alleged that Intelligent Solutions breached the customer referral agreement, improperly dealt with Co-Diagnostics while competing with Hukui Tech, and interfered with Hukui Tech’s distribution agreement with Co-Diagnostics. Hukui Tech sought $2.3 million in damages.

Motion to dismiss or stay

Intelligent Solutions moved to dismiss or stay the federal lawsuit because of the pending Utah state-court proceedings. The court considered the Colorado River abstention doctrine, which can allow a federal court to pause or dismiss a case in exceptional circumstances when a related dispute is proceeding in state court. The doctrine requires balancing several factors, including the order in which the cases were filed, the risk of duplicative or conflicting litigation, the governing law, and whether the state proceeding can protect the parties’ rights.

The court found that the factors did not support abstention. Neither case involved control over property; both concerned monetary obligations under contracts. The court also found that neither forum was clearly more convenient, and that the two cases concerned different contractual relationships. The Utah case would determine the rights of Hukui Tech and Co-Diagnostics under their distribution agreement, while the federal case would determine the rights of Hukui Tech and Intelligent Solutions under their customer referral agreement.

The court acknowledged that the Utah case was filed first, which favored abstention. It nevertheless found that this factor alone was insufficient. The court also concluded that the federal case involved routine state-law contract questions, that the Utah proceedings might not adequately resolve Hukui Tech’s claims against Intelligent Solutions, and that Hukui Tech had not engaged in improper forum shopping by filing in federal court.

The court rejected Intelligent Solutions’ argument that the two cases were substantially similar or that the federal case was merely an offshoot of the Utah case. The court stated that the contractual dispute with Intelligent Solutions was legally distinct from the dispute with Co-Diagnostics. It concluded that Intelligent Solutions had identified no exceptional circumstances warranting abstention.

Disposition

The court denied Intelligent Solutions’ motion to dismiss or stay the lawsuit. The opinion does not decide whether Hukui Tech or Intelligent Solutions ultimately prevails on the contract claims.