Fair Isaac Corporation v. PCI-U, LLC

Filing 29

ORDER denying 10 Motion to Dismiss for Lack of Jurisdiction; granting motion to transfer pursuant to 28 U.S.C. Section 1404(a). Signed by Judge Edward J. Davila on 10/30/2017. (ejdlc3S, COURT STAFF) (Filed on 10/30/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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FAIR ISAAC CORPORATION,

Case No. 5:17-cv-03324-EJD

Plaintiff,
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ORDER DENYING MOTION TO
DISMISS; GRANTING MOTION TO
TRANSFER

v.
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PCI-U, LLC,

Re: Dkt. No. 10

United States District Court
Northern District of California

Defendant.
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I. INTRODUCTION
Plaintiff Fair Isaac Corporation (“FICO”) initiated this suit for breach of a nondisclosure

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agreement and for declaratory relief. Defendant PCI-U, LLC (“PCI-U”) moves to dismiss the case

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for lack of personal jurisdiction, or in the alternative, to transfer the case to the U.S. District Court

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in the Northern District of Georgia pursuant to 28 U.S.C. §§1404(a) and 1406(a). FICO contends

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that PCI-U is subject to specific personal jurisdiction in this district and that venue is proper in this

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district and not in the Northern District of Georgia. The Court finds it appropriate to take the

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motion under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b).

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For the reasons set forth below, PCI-U’s motion to dismiss for lack of personal jurisdiction is

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denied and PCI-U’s motion to transfer is granted.

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II. BACKGROUND
A. California Case: FICO v. PCI-U filed June 8, 2017
Plaintiff FICO, a Delaware corporation with its principal place of business in San Jose,

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California, is a leading analytics software company. Complaint at ¶1. FICO provides analytics

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software and tools across multiple industries to manage risk, fight fraud, optimize operations and

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CASE NO.: 5:17-CV-03324-EJD
ORDER DENYING MOTION TO DISMISS;GRANTING MOTION TO TRANSFER

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enhance business performance. Id.
Defendant PCI-U is a Georgia limited liability company with its principal place of business

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in Atlanta, Georgia. Id. at ¶3. FICO alleges on information and belief that PCI-U’s members are

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all citizens of Georgia. Id. PCI-U is a fledgling company, organized in 2014, that developed a

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web-based service that permits small retailers to assess their compliance with credit card issuer

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contractual requirements through the use of an online questionnaire. Id. at ¶4.

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Prior to May of 2015, FICO had allegedly been developing a software product referred to

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internally as “Merchant Inspector” that produces a set of scores that encapsulate a payment card

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merchant’s fraud risk. Complaint at ¶7. FICO was allegedly testing its Merchant Inspector

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United States District Court
Northern District of California

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product and considering how to bring that product to market. Id. at ¶8.
FICO alleges that in May of 2015, PCI-U approached FICO representatives in California

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to discuss a potential joint marketing plan involving PCI-U’s online questionnaire and another

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FICO fraud management software product known as FICO® Falcon® Fraud Manager. Id. at ¶9.

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FICO alleges that from the inception of the first contact by PCI-U, FICO informed PCI-U that it

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was already developing Merchant Inspector and believed PCI-U’s questionnaire might be

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compatible with Merchant Inspector. Id.

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In June of 2015, the parties entered into a Non-Disclosure Agreement (“NDA”) in order to

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facilitate discussions concerning the potential joint marketing effort. Id. at ¶10. The NDA was

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allegedly “made” in California and is the only agreement ever made between FICO and PCI-U.

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Id. at ¶11. Following execution of the NDA, FICO allegedly disclosed confidential information,

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including information regarding Merchant Inspector. Id. at ¶12. Among other confidential

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information, FICO allegedly provided to PCI-U certain Power Point presentation slides that

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disclosed details concerning Merchant Inspector and other fraud management products. Id.

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Between June of 2015 and January of 2016, representatives of FICO and PCI-U allegedly

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had numerous meetings in California to discuss their potential joint marketing effort. Id at ¶14.

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During the time period the parties were exchanging information and assessing the viability of a

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joint marketing effort, FICO allegedly partnered with a company known as iboss Cybersecurity

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(“iboss”) in order to deploy certain cyber threat analytics developed by FICO. Id. at ¶15. These

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cyber threat analytics allegedly had nothing to do with any product developed by PCI-U. Id.

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Throughout the discussions, FICO allegedly made it clear to PCI-U that it was interested in

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developing additional general enterprise risk analytics to compliment the products it had already

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developed and intended to continue to do so independently of any of the matters being discussed

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with PCI-U. Id. at ¶16.

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In June of 2016, FICO acquired a company known as QuadMetrics, a cyber risk security

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scoring company. Id. at ¶17. FICO alleges on information and belief that PCI-U believes that

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FICO had an obligation to partner only with PCI-U with respect to all cyber-risk analytics, and
that FICO’s development and deployment of its cyber threat analytics through iboss and its

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United States District Court
Northern District of California

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acquisition of QuadMetrics were unlawful. Id. at ¶18. FICO denies that its development of cyber

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analytics through iboss was unlawful. Id. FICO also denies that its acquisition of QuadMetrics

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was unlawful. Id.

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In 2016, FICO released an analytic product known as Enterprise Security Score, which was

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allegedly developed “in furtherance of” the intellectual property acquired from QuadMetrics. Id.

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at ¶19. PCI-U has allegedly accused FICO of using PCI-U’s confidential information to develop

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and deploy FICO’s cyber threat analytics and the FICO Enterprise Security Score analytic. Id. at

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¶21. FICO denies PCI-U’s allegations. Id. at ¶22.

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Based upon the foregoing, FICO seeks a declaration of the parties’ respective rights under

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the NDA. Specifically, FICO seeks a declaration that: FICO was and continues to be lawfully

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entitled to develop cyber threat analytics, cyber-risk assessment software, and acquire companies

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such as QuadMetrics notwithstanding the joint-marketing discussions between FICO and PCI-U;

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FICO did not violate the NDA and did not use confidential information furnished by PCI-U; FICO

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has had and continues to have the right to engage in its lawful business activities, including the

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development and marketing of cyber threat analytics and the FICO Enterprise Security Score; and

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the cyber threat analytics and FCO Enterprise Security Score owned by FICO are unrelated to

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anything discussed or disclosed by PCI-U to FICO. FICO also asserts a claim for breach of the

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NDA based upon PCI-U’s alleged failure to return confidential information, including the Power

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Point presentation slides detailing FICO analytics and data.

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Subject matter jurisdiction is predicated on 28 U.S.C. §1332. Id. at ¶6. Venue is

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predicated on 28 U.S.C. Section 1391(b) because the NDA was allegedly “made” in this district

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and the events giving rise to this action allegedly occurred in this district. Id. at ¶5.

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B. Georgia Actions: PCI-U v. FICO

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Three weeks prior to the filing of the instant action, on May 18, 2017, PCI-U filed suit

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against FICO in the Northern District of Georgia, asserting violations of Georgia laws governing

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breach of contract, fraud, unjust enrichment, promissory estoppel, quantum meruit,
misappropriation of trade secrets and negligent misrepresentation, all of which were predicated on

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United States District Court
Northern District of California

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the NDA and the parties’ joint venture. See PCI-U v. FICO, No. 17-1809 ELR (N.D. Ga. 2017).

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A week later, the Georgia court issued an order directing PCI-U to file a notice indicating the

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citizenship of its members. In response, PCI-U submitted a notice indicating that its two members

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are Georgia residents and asserting that the court therefore had diversity jurisdiction. On June 6,

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2017, the Georgia court dismissed the action without prejudice because PCI-U’s notice, although

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identifying the residence of its members, was insufficient to establish the citizenship of its

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members for purposes of establishing diversity jurisdiction. Two days later, FICO filed the instant

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action in California for breach of the NDA and declaratory relief.

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Thereafter on June 13, 2017, PCI-U renewed its suit in Georgia state court. On July 14,

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2017, FICO removed the action to federal court invoking diversity jurisdiction. See PCI-U v.

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FICO, No. 17-2650 ELR (N.D. Ga. 2017). FICO filed a motion to dismiss for lack of personal

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jurisdiction or in the alternative to transfer the action to this district. FICO’s motion is fully

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briefed and remains under submission with the Georgia district court.
III. DISCUSSION

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A. Specific Personal Jurisdiction

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Rule 12(b)(2), Fed.R.Civ.P., provides that a court may dismiss a claim for lack of personal

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jurisdiction. Where, as here, the parties support their respective positions on personal jurisdiction

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with affidavits, the plaintiff must make a prima facie showing of jurisdictional facts to defeat a
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defendant’s motion to dismiss. Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d

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1280, 1285 (9th Cir. 1977). In assessing whether a plaintiff has made a prima facie showing, a

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plaintiff need only demonstrate facts that if true would support jurisdiction over the defendant.

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Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995); Duffy v. Scott, 2008 WL 2168902 (N.D.

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Cal. 2009) (citing Harris Rutsky & Co. Ins. Services, Inc. v. Bell & Clements Ltd., 328 F.3d 1122,

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1129 (9th Cir. 2003)). Unless directly contravened, plaintiff’s version of facts is taken as true, and

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conflicts between the facts contained in the parties’ affidavits must be resolved in plaintiff’s favor.

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Harris Rutsky & Co. Ins. Services, Inc., 328 F.3d at 1129.

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“Whether there is a basis for the exercise of personal jurisdiction in a diversity of
citizenship case depends upon two considerations: (1) whether a state statute potentially confers

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United States District Court
Northern District of California

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personal jurisdiction over the nonresident defendant, and (2) whether the exercise of jurisdiction

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accords with federal constitutional principles of due process.” Congoleum Corp. v. DLW

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Aktiengesellschaft, 729 F.2d 1240, 1241 (9th Cir. 1984). California's statutory limitation on

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personal jurisdiction is co-extensive with the outer limits of due process. Sher v. Johnson, 911

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F.2d 1357, 1361 (9th Cir. 1990); Cal. Code Civ. Proc. § 410.10. Accordingly, the jurisdictional

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inquiries under federal due process and California law merge into a single analysis. See Rano v.

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Sipa Press, Inc., 987 F.2d 580, 587 (9th Cir. 1993).

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Due process permits the exercise of jurisdiction if a court has either general or specific

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jurisdiction over a nonresident defendant. See Sher, 911 F.2d at 1361. “General jurisdiction

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applies where a defendant's activities in the state are ‘substantial’ or ‘continuous and systematic,’

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even if the cause of action is unrelated to those activities.” Id. (citing Data Disc, Inc. v. Sys. Tech.

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Assocs., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977)). “Where general jurisdiction is inappropriate,

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a court may still exercise specific jurisdiction if the defendant has sufficient contacts with the

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forum state in relation to the cause of action.” Id.

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Personal jurisdiction is properly exercised when the defendant has “certain minimal

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contacts with the forum such that the maintenance of the suit does not offend traditional notions of

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fair play and substantial justice.” Data Disc, 557 F.2d at 1287 (citing Int'l Shoe Co. v.

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Washington, 326 U.S. 310, 316 (1977); see Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476
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(1985). The Ninth Circuit employs a three-part test to determine whether specific jurisdiction

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exists: (1) the non-resident defendant must purposefully direct his activities or consummate some

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transaction with the forum or a resident thereof; or perform some act by which he purposefully

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avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits

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and protections of its laws; (2) the claim must be one which arises out of or relates to the

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defendant's forum-related activities; and (3) the exercise of jurisdiction must comport with fair

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play and substantial justice, i.e. it must be reasonable. Schwarzenegger v. Fred Martin Motor Co.,

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374 F.3d 797, 802 (9th Cir. 2004). “The plaintiff bears the burden of satisfying the first two

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prongs of the test.” Id. “If the plaintiff fails to satisfy either of these prongs, personal jurisdiction

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is not established in the forum state.” Id. But if the plaintiff succeeds on the first two prongs, “the

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United States District Court
Northern District of California

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burden then shifts to the defendant to ‘present a compelling case’ that the exercise of jurisdiction

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would not be reasonable.” Id. (citing Burger King Corp., 471 U.S. at 476-78).

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With respect to the first factor, purposeful availment, FICO alleges that PCI-U solicited

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FICO’s California representatives and proposed a business opportunity; that PCI-U entered into a

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contract with FICO that FICO negotiated from and executed in California; the contract necessarily

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required FICO to perform its contractual obligations from its operations in California; and that

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PCI-U met with FICO at is offices in California in a face-to-face meeting to define the joint

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business opportunity the parties were exploring. See Decl. of James Woodward at ¶¶10-14, 18-20.

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In contrast, PCI-U asserts that the business venture giving rise to the NDA was first

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discussed at an in-person meeting between PCI-U founder Charles Hoff and FICO employee Scott

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Zoldi in Florida, not California. Id. at ¶12. According to PCI-U, the NDA was drafted by PCI-U

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in Georgia, negotiated by PCI-U in Georgia and executed by PCI-U in Georgia. Id. at ¶14.

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Further PCI-U asserts that the information disclosed by PCI-U to FICO pursuant to the NDA was

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created in Georgia and is located in Georgia. Id. at ¶23. PCI-U acknowledges, however, that a

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representative travelled to California for one meeting. Id. at ¶24. PCI-U asserts that it met with a

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single PCI-U employee, Doug Clare, and the meeting lasted only a few hours. Id. at ¶25. PCI-U

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asserts that all other contact between the parties was via telephone and email. Id. at ¶26. PCI-U

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also asserts that the single trip to California “did not impose on PCI-U any obligation to perform
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its duties in the venture in California. To the contrary, PCI-U performed all of its duties in the

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venture in Georgia, not California.” Id. at ¶28.

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FICO’s allegations are meager. Nevertheless, they must be accepted as true at this stage in

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the proceedings. See Harris Rutsky & Co. Ins. Services, Inc., 328 F.3d at 1129. Accepting as true

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that PCI-U solicited FICO’s California representatives, that FICO negotiated from and executed

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the NDA in California, that the contract necessarily required FICO to perform its contractual

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allegations in California, and that the parties met in California, FICO has sufficiently alleged that

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PCI-U purposefully availed itself of the privileges of conducting activities in the forum. The

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second factor is also met. FICO alleges that its claims directly relate to, and arise out of, the
forum-related activities described above. As to the third factor, PCI-U has not carried its burden

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United States District Court
Northern District of California

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of presenting a “compelling case” that the exercise of jurisdiction would not be reasonable.

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Therefore, the Court concludes that FICO has made a prima facie showing of specific jurisdiction

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over PCI-U.

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B. Venue

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A court may transfer an action to another district where the action might have been brought

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for the convenience of the parties, the convenience of the witnesses, and in the interest of justice.

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28 U.S.C. §1404(a). In determining whether to transfer an action pursuant to Section 1404(a), the

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court considers the following factors: (1) the plaintiff’s choice of forum, (2) the convenience of

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the parties, (3) the convenience of the witnesses, (4) ease of access to the evidence, (5) familiarity

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of each forum with the applicable law, (6) feasibility of consideration of other claims, (7) any local

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interest in the controversy, and (8) the relative court congestion and time of trial in each forum.

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Barnes & Noble v. LSI Corp., 823 F.Supp.2d 980, 993 (N.D. Cal. 2011). “The burden is on the

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party seeking transfer to show that when these factors are applied, the balance

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of convenience clearly favors transfer.” Alul v. American Honda Motor Company, Inc., No. 16-

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04384 JST, 2016 WL 9116934 (N.D. Cal. Dec. 7, 2016) (citing Commodity Futures Trading

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Comm'n v. Savage, 611 F.2d 270, 279 (9th Cir. 1979)). A transfer is not appropriate if the result

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is merely to shift the inconvenience from one party to another. Van Dusen v. Barrack, 376 U.S.

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612, 645–46 (1964).
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Here, the action might have been brought in the Northern District of Georgia where PCI-U

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is clearly subject to personal jurisdiction and venue is proper. Although FICO’s choice of forum

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is a factor entitled to some weight, other factors weigh more heavily in favor of a transfer. The

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majority of witnesses with knowledge regarding FICO and PCI-U’s claims and defenses are in

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Georgia, not California. In particular, PCI-U witness Charles Hoff, as well as representatives from

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Bluefin, TSYS and Pritchard & Jerden, who participated in proof of concept meetings, are located

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in Georgia. Hoff Decl. at ¶32. PCI-U represents that other sources of proof, including documents

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and inventory, are located in Georgia, not California. Id. at ¶31. By comparison, FICO identifies

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only two potential witnesses in California, Mr. Zoldi and Doug Clare. Decl. of James Woodward

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United States District Court
Northern District of California

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at ¶14.
With respect to the convenience of the parties, PCI-U asserts that it has virtually no

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activities this district. Relying on upon the declaration of founder and chief executive officer

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Charles Hoff, PCI-U represents that it does not have employees in California, does not own or

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lease property in California, has no customers in California and has no suppliers in California.

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See Hoff Decl. at ¶5. PCI-U also represents that it does not derive any income from customers in

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California and spends no money with business in California. Id. PCI-U represents that its only

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office is in Georgia and its only employees are in Georgia. Id. at ¶¶3, 7. PCI-U represents that it

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is not registered to do business in California, does not hold a business license in California and

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owns no financial accounts in California. Id. at ¶8. Under these circumstances, PCI-U would be

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burdened by having to defend the case in this district.

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In comparison, FICO has not established that it would be significantly inconvenienced by a

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transfer of this action to the Northern District of Georgia. FICO is a large, global company with

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offices across the United States and has a far more substantial presence in Georgia than PCI-U has

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in California. Although FICO does not own, rent or lease any real property in Georgia, FICO has

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a significant number of clients in Georgia. Decl. of James Woodward at ¶7. FICO also has forty

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individuals in Georgia working as employees or independent contractors. In an attempt to

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minimize its presence in Georgia, the Vice President of FICO’s Legal Department represents that

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“less than 9% of its revenues are generated in that state.” Id. That is a significant sum, however,
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considering FICO’s 2016 revenue was in excess of $800 million. Hoff Decl. at ¶10. Therefore,

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transferring this case to Georgia will not result in merely shifting inconveniences from PCI-U to

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FICO.

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Finally, the interests of justice weigh in favor of transfer. The Court is troubled by the

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obvious waste of the parties’ resources and the judiciaries’ very limited resources caused by the

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two cases being litigated in two different courts on opposite sides of the country. Although

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FICO’s true motives are unknown, it is self-evident that FICO filed the instant action in response

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to PCI-U’s first-filed suit, which strongly suggests forum shopping. The Federal Rules of Civil

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Procedure should not be invoked for tactical advantage, but instead are to be construed,
administered and employed by the parties “to secure the just, speedy and inexpensive

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United States District Court
Northern District of California

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determination of every action.” Fed.R.Civ.P. 1. Transferring this action to Georgia will promote

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the just, speedy and inexpensive determination of the parties’ competing claims, as well as

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promote judicial economy.
IV. CONCLUSION

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For the reasons set forth above, PCI-U’s motion to dismiss for lack of personal jurisdiction
is DENIED. PCI-U’s motion to transfer pursuant to 28 U.S.C. §1404(a) is GRANTED.
THE CLERK OF COURT is directed to transfer this action to the Northern District of
Georgia.

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IT IS SO ORDERED.
Dated: October 30, 2017
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EDWARD J. DAVILA
United States District Judge

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