Rocky Mountain Chocolate Factory v. Arellano

Filing 43

ORDER GRANTING MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION. ORDERED:1. Defendants' Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, Motion to Transfer Venue 22 is GRANTED; 2. Plaintiff's claims are DISMISSED WITHOUT PREJUDICE FOR LACK OF PERSONAL JURISDICTION; and, 3. The Clerk of Court is DIRECTED to TERMINATE this action, by Judge William J. Martinez on 10/19/2017. (dhans, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 17-cv-0582-WJM-CBS
ROCKY MOUNTAIN CHOCOLATE FACTORY, a Colorado Corporation,
Plaintiff,
v.
TIMOTHY ARELLANO, and
AGS ENTERTAINMENT LLC,
Defendants.

ORDER GRANTING MOTION TO DISMISS
FOR LACK OF PERSONAL JURISDICTION

In this trademark infringement action, Plaintiff Rocky Mountain Chocolate Factory
(“RMCF”) brings claims against Defendants, Timothy Arellano and AGS Entertainment
LLC (together, “Arellano,” except as addressed separately below) for violation of the
Lanham Act, 15 U.S.C. § 1114(1), for trade dress infringement, for false advertising in
violation of 15 U.S.C. § 1125(a)(1)(B), a tort claim for unfair competition, and a claim for
violation of the Colorado Trade Secrets Act, Colorado Revised Statutes, §§ 7-74-101 et
seq. (See generally ECF No. 25.) Now before the Court is Defendants’ Motion to
Dismiss for Lack of Personal Jurisdiction, or in the Alternative, Motion to Transfer
Venue. (ECF No. 22 (the “Motion”).) For the reasons explained below, the Motion is
granted to dismiss this action for lack of personal jurisdiction.
I. LEGAL STANDARD
The purpose of a motion to dismiss pursuant to Rule 12(b)(2) is to test whether

the Court has personal jurisdiction over the named parties. The plaintiff bears the
burden of establishing personal jurisdiction over a defendant. Behagen v. Amateur
Basketball Ass’n, 744 F.2d 731, 733 (10th Cir. 1984). As is true here, when the court
does not hold an evidentiary hearing before ruling on jurisdiction, “the plaintiff need only
make a prima facie showing” of personal jurisdiction to defeat a motion to dismiss. Id.
(citing Am. Land Program, Inc. v. Bonaventura Uitgevers Maatschappij, N.V., 710 F.2d
1449, 1454 n.2 (10th Cir. 1983)). A plaintif f “may make this prima facie showing by
demonstrating, via affidavit or other written materials, facts that if true would support
jurisdiction over the defendant.” OMI Holdings, Inc. v. Royal Ins. Co. of Can., 149 F.3d
1086, 1091 (10th Cir. 1998). To defeat the plaintiff’s prima facie case, a defendant
“must present a compelling case demonstrating ‘that the presence of some other
considerations would render jurisdiction unreasonable.’” Id. (quoting Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 477 (1985)).
To obtain personal jurisdiction over a nonresident defendant, the plaintiff “must
show that jurisdiction is legitimate under the laws of the forum state and that the
exercise of jurisdiction does not offend the due process clause of the Fourteenth
Amendment.” Benton v. Cameco Corp., 375 F.3d 1070, 1075 (10th Cir. 2004) (quoting
Soma Med. Int’l v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999)). In
Colorado, the state’s long arm statute “confers the maximum jurisdiction permissible
consistent with the Due Process Clause.” Archangel Diamond Corp. v. Lukoil, 123 P.3d
1187, 1193 (Colo. 2005) (referring to Colo. Rev. Stat. § 13-1-124). Thus, the Court
need only address the constitutional question of whether the exercise of personal

2

jurisdiction over the defendants comports with due process. Dudnikov v. Chalk &
Vermillion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (the state jurisdictional
analysis in Colorado “effectively collapses into the second, constitutional, analysis”).
The Court will accept the well-pled factual allegations of the complaint as true to
determine whether Plaintiffs have made a prima facie showing that personal jurisdiction
exists. Id. Any factual conflicts arising from affidavits or other submitted materials are
resolved in the plaintiff’s favor. Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir.
1995).
II. FACTUAL BACKGROUND1
Plaintiff, RMCF, is a Colorado corporation with its principal place of business in
Durango, Colorado. (ECF No. 26-1 ¶ 2.) RMCF operates as a franchisor,
confectionery manufacturer, and retail operator. (Id. ¶ 3.) RMCF franchises to others
the rights to operate RMCF stores. (Id.) A total of approximately 400 RMCF retail
stores are operated either by RMCF or its franchisees in numerous states, as well as in
Canada and the United Arab Emirates. (Id.)
RMCF owns and controls the service mark “Rocky Mountain Chocolate Factory”
and related trade names and trade marks. (Id.) According to an affidavit submitted by
an RMCF officer, “[i]n addition to receiving a license to use the RMCF Marks, RMCF
franchisees are provided . . . a variety of confidential information proprietary to RMCF,
including methods, strategies and techniques developed by RMCF such as gourmet

1

Consistent with the standard outlined in Part II, these facts are drawn from the wellpled facts of RMCF’s Complaint (ECF No. 25), and from the various affidavits and supporting
documents filed by the parties, as cited.

3

chocolate specialty recipes and cooking methods, confectionary manufacturing,
processing, ordering, stocking and inventory control, technical equipment standards,
order fulfillment methods and customer relations, marketing techniques, written
promotional materials, advertising, and accounting systems.” (ECF No. 26-1 ¶ 7.)
On or about March 31, 2015, RMCF entered into a f ranchise agreement with
non-parties Luke Joseph and Vegas Restaurants LLC (collectively, “Joseph”) to operate
a RMCF store in Summerlin, Nevada (the “Summerlin Store”). (Id. ¶ 12; ECF No. 35-2.)
The franchise agreement with Joseph permitted him to transfer his franchise, with
RMCF’s approval, provided certain conditions were met, including that Joseph “obtains
[RMCF’s] written consent,” that “[a]ll amounts due and owing . . . are paid in full,” and
that the transferee agreed to operate the Summerlin Store as an RMCF store and “to
execute the . . . Franchise Agreement.” (ECF No. 35-2 ¶ 16.2; see also ECF No. 26-1
¶ 13.)
In September 2015, Joseph communicated to RMCF that he wanted to sell the
Summerlin Store to Arellano. (See ECF No. 35-3; ECF No. 25 ¶ 20.) Individual
Defendant Timothy Arellano is a resident of Clark County, Nevada, and he is the sole
manager of Defendant AGS Entertainment, LLC (“AGS”), a Nevada LLC with a principal
place of business in Nevada. (ECF No. 22-1 ¶¶ 2–5.) There is no claim or evidence
that either Defendant is a Colorado resident. Other than the specif ic contacts detailed
in this Order, neither Defendant owns property in, does business in, advertises or holds
itself out in, or maintains any presence in Colorado. (See generally ECF No. 22-1
¶¶ 9–28, 33–54.)
Between November 2015 and February 2016, Arellano and RMCF pursued
4

negotiations to transfer Joseph’s RMCF franchise to Arellano. On November 19, 2015,
Arellano submitted an application to RMCF and disclosed certain financial information.
(ECF Nos. 35-1 ¶ 9; ECF No. 35-4; ECF No. 35-5.) On or about the sam e date, RMCF
sent Arellano a lengthy “Franchise Disclosure Document” (ECF No. 35-6), and Arellano
sent RMCF an acknowledgment of receipt (ECF No. 35-7). This receipt stated “[t]he
franchisor is [RMCF],” and listed RMCF’s address in Colorado. (ECF No. 35-7.)
The Franchise Disclosure Document sent to Arellano also included the form of the
proposed franchise agreement, which included a choice of law and forum selection
clause providing that the franchise agreement would be interpreted under Colorado law,
and that the state courts in La Plata County, Colorado, and federal courts in Colorado,
would be the exclusive venue for any claims asserted between the franchisee (i.e.,
Arellano) and the franchisor (i.e., RMCF). (ECF No. 35-6 at 93, ¶ 22.1.)
Subsequent communications reflect that around that time, Arellano substantially
took over operational control of the Summerlin Store from Joseph, and that the parties
continued negotiations to finalize a franchise agreement, until approximately February
2016. In particular, on November 19, 2015, Joseph e-mailed both Arellano and RMCF,
stating that he gave “100% permission to Mr. Timothy Arellano to place orders, to pay
for orders and [to] operate” the Summerlin Store. (ECF No. 35-8.) RMCF internal
e-mails reflect that on November 20, 2015, Arellano had a phone conversation with
Kraig Carlson, a Franchise Sales Specialist at RMCF, who reported that Arellano was
“in the process of trying to purchase” the Summerlin Store, and summarized items
requiring follow-up: “In case things come to fruition[,] [t]he following . . . need to be
addressed in order to have a chance to keep the [Summerlin S]tore open . . . .” (ECF
5

No. 35-9.) Carlson reported that Arellano “ha[d] been approv ed to order product,” but
that, among other issues, “[Joseph’s] debt [approximately $24,000] for product will have
to be taken care of.” (ECF No. 35-9.)
On December 7, 2015, Mr. Carlson sent Arellano a list of “items that we need to
get resolved ASAP in order to do a transfer of the store,” and in response Arellano later
sent RMCF an unexecuted copy of the purchase agreement for his acquisition of the
Summerlin Store from Joseph. (ECF No. 35-10.) (Id.) On January 19, 2016, Arellano
confirmed that he had “assumed the day to day operations in hopes to have a clean
purchase,” but communicated that “unfortunately [Joseph’s] debt will have to be his own
prior to such purchase.” (ECF No. 35-11.) 2
Nevertheless, on January 28, 2016, RMCF sent Arellano a preliminary franchise
approval letter, which still identified prerequisites for final execution, in particular reiterating that “all outstanding balances will need to be paid . . . along with attending
training in Durango, CO.” (ECF No. 35-12.) On February 1, 2016, RMCF again
communicated that “we are able to approve you as a [RMCF] Franchisee,” but
reiterated that the then-current amount of approximately $25,000 claimed due from
Joseph’s franchise must be paid before finalizing the franchise agreements, and that
Arellano must attend training in Durango, Colorado. (ECF No. 25-15 at 3.) 3
2

The purchase agreement between Arellano and Joseph—at least in the unexecuted
form transmitted to RMCF—made Arellano’s purchase of the Summerlin Store contingent on
Joseph’s cooperation in obtaining approval from RMCF of Arellano as a franchisee and on
Joseph’s certification that his franchise agreement with RMCF was “paid in full and is free of
any allegation or evidence of default or breach.” (ECF No. 35-10 at 6.)
3

Later in February, the parties communicated regarding an agreement for Joseph to
assign the lease for the Summerlin Store to Arellano, which called for RMCF’s approval as
franchisor, and RMCF again indicated it was witholding final approval of the franchise transfer

6

By the end of February 2016, however, the parties reached an impasse over
payment of the amounts claimed due from Joseph’s RMCF franchise. As a result,
RMCF and Arellano never executed a franchise agreement. On February 26, 2016,
Arellano communicated to RMCF that if the debt issue could not be resolved, Arellano
might abandon the RMCF franchise and instead “operate the store as an independent.”
(ECF No. 35-15 at 1–2.) Arellano communicated, in part, to Carlson as follows:
Since we are months into operation of [the] store the
financial toll in delaying transfer has impacted our business
operation and capitol [sic] tremendously and therefore we
may need to possibly look at dropping the Rocky [M]ountain
franchise name and operate the store as an independent
non-franchise store if this becomes the decision and reality
what concerns will your company have in the way of the
store’s conversion?
(Id.) On February 29, 2016, Carlson responded, again stating that “[a]ll amounts due
must be satisfied before [RMCF] can facilitate a transfer of the existing [franchise]
agreement.” (Id. at 1.) Arellano responded the same day, stating “I understand what
you require,” but, “I’m not in a position to wait for you and [Joseph] to resolve your
outstanding issues, so please let me know what issues I will have to remove [the
RMCF] name from the store and operate as an independent.” ( Id. at 1.) Following
these communications, the franchise agreement between the parties was never
finalized or executed. (ECF No. 25 ¶ 22.)
On July 13, 2016, RMCF terminated Joseph’s franchise agreement, largely
because of the failure to pay the past-due amounts. (ECF No. 26-1 ¶ 18.) RMCF’s

until the amounts due from Joseph’s franchise were resolved. (See ECF No. 35-15 at 2; ECF
No. 35-14 at 1, 9.)

7

termination letter to Joseph advised that he could no longer use any RMCF trade
secrets, signs, symbols, devices, trade names, trademarks, or other materials. (Id.)
Arellano, however, continued to operate the Summerlin Store. (Id. ¶ 26.) On August
11, 2016, RMCF sent Arellano a letter notifying him of the termination of Joseph’s
franchise and that RMCF viewed Arellano’s operation of the Summerlin Store as
trademark infringement. (Id., ¶ 19; id. at 10–11.)
As alleged by RMCF, Arellano continued to operate the Summerlin Store after
that date, and RMCF alleges his operation has continued to infringe on its trademarks,
trade dress, and trade secrets through the present day. (See ECF No. 25 ¶¶ 27–40;
ECF No. 26-1 ¶¶ 21–31.) RMCF has sent several additional demand letters to
Arellano. (See id. ¶¶ 19, 23, 24, 26, 30, 31.) Arellano, f or his part, has made certain
efforts to “de-identify” the Summerlin Store from RMCF’s marks, including changing the
name from “Rocky Mountain Chocolate Factory” to “Red Rock Chocolate Factory.”
(See, e.g. ECF No. 26-1 at 14–15; id. at 22.)
However, the parties have been unable to resolve their disputes, despite
repeated communications over many months. RMCF maintains that Arellano’s “deidentification” of the Summerlin Store has been perfunctory and insufficient, that he
continues to infringe on RMCF’s trademarks and trade secrets, and that this
infringement harms RMCF, including by impairing its ability to grow, operate, and/or
franchise competing RMCF stores in Nevada. (See ECF No. 25 ¶¶ 36–40; ECF No. 261 ¶¶ 29–36.) Arellano, on the other hand, has com municated that he has “no intention
of infringing on any rights or inflicting any harm on [RMCF],” but he believes he has

8

sufficiently removed all trademarked materials from the store and will not take further
steps to comply with RMCF’s demands. (See ECF No. 26-1 ¶ 31; id. at 39–41.)
The more specific details of how Arellano is allegedly infringing on RMCF’s
trademarks and trade secrets are not material to resolving the present Motion. Treating
RMCF’s allegations as true, however, this alleged infringement is occurring exclusively
at the Summerlin Store, in Nevada, but is harming RMCF both in Colorado, where it
claims it is entitled to receive royalty and other payments from Defendants, and also in
Nevada, where RMCF claims Arellano is allegedly engaged in false advertising and
unfair competition, and causing customer confusion. (See ECF No. 25 ¶¶ 42, 51,
52–55, 57.)
III. ANALYSIS
RMCF does not argue that Arellano is subject to this Court’s general jurisdiction,
only that the Court has specific jurisdiction over the claims in this action. (See ECF No.
35 at 8.) “A specific jurisdiction analysis involves a two-step inquiry.” First the Court
“must consider whether the defendant’s conduct and connection with the forum State
are such that he should reasonably anticipate being haled into court here.” Benton, 375
F.3d at 1075 (internal quotation marks omitted). “Second if the defendant’s actions
create sufficient minimum contacts, [the court] must then consider whether the exercise
of personal jurisdiction over the defendant offends ‘traditional notions of fair play and
substantial justice.’” OMI, 149 F.3d at 1091 (quoting Asahi, 480 U.S. at 113).
The two steps of this analysis “are complementary, such that . . . the due
process inquiry evokes a sliding scale: the weaker the plaintiff’s showing on minimum

9

contacts, the less a defendant need show in terms of unreasonableness to defeat
jurisdiction. The reverse is equally true: an especially strong showing of
reasonableness may serve to fortify a borderline showing of minimum contacts.’”
Benton, 375 F.3d at 1078–79 (quoting OMI, 149 F.3d at 1092 (alterations
incorporated)).
A.

Minimum Contacts
The “‘minimum contacts’ standard requires, first, that the out-of-state defendant

must have ‘purposefully directed’ its activities at residents of the forum state, and
second, that the plaintiff’s injuries must ‘arise out of’ defendant’s forum-related
activities.” Dudnikov, 514 F.3d at 1071. The Court addresses each inquiry in turn.
1.

Purposeful Availment / Purposeful Direction
a.

Legal Principles

The first step of the Court’s analysis may be phrased either as whether the
defendant “‘purposefully directed’ its activities at the forum state” or “‘purposefully
availed’ itself of the privilege of conducting activities or consummating a transaction in
the forum state,” depending on the factual context and the nature of the claims.
Dudnikov, 514 F.3d at 1071. The Supreme Court has made clear that the aim of this
inquiry is, in any event, “to ensure that an out-of-state defendant is not bound to appear
to account for merely ‘random, fortuitous, or attenuated contacts’ with the forum state.”
Id. (quoting Burger King, 471 U.S. at 475.)
Three additional principles further inform the Court’s analysis here. First, case
law makes clear that the requisite “minimum contacts” “must arise out of contacts that

10

the ‘defendant himself’ creates with the forum States.” Walden v. Fiore, ___ U.S. ___,
___, 134 S.Ct. 1115, 1122 (2014) (emphasis in original). Thus, “the unilateral activity of
another party is not an appropriate consideration when determining whether a
defendant has sufficient contacts with a forum State.” Dudnikov, 514 F.3d at 1073
(internal quotation marks omitted); accord OMI, 149 F.3d at 1092.
Second, the Court’s “‘minimum contacts’ analysis looks to the defendant’s
contacts with the forum State itself, not the defendant’s contacts with persons who
reside there.” Walden, 134 S. Ct. at 1122. “To be sure, a defendant’s contacts with the
forum State may be intertwined with his transactions or interactions with the plaintiff or
other parties. But a defendant’s relationship with a plaintiff or third party, standing
alone, is an insufficient basis for jurisdiction.” Id. at 1123. Rather, “it is the defendant’s
conduct that must form the necessary connection with the forum State that is the basis
for its jurisdiction over him.” Id. at 1122.
Third, the “mere foreseeability of causing an injury in the forum state is, standing
alone, insufficient.” Dudnikov, 514 F.3d at 1077. A plaintiff must establish “not only
that defendants foresaw (or knew) that the effects of their conduct would be felt in the
forum state, but also that defendants undertook intentional actions that were expressly
aimed at that forum state.” Id. (emphasis in original).
b.

Arellano’s Contacts With Colorado

Applying the foregoing principles, the Court finds that RMCF has made a
sufficient prima facie showing of minimum contacts, but just barely. Arellano
affirmatively directed communications and negotiations to RMCF in Colorado for the

11

purpose of establishing a business relationship, and thereby gained access to RMCF’s
trademarks and intellectual property. He also allegedly continued to use and benefit
from unauthorized use of that intellectual property, even after being put on notice of
RMCF’s claim of infringement. See Intercon, 205 F.3d at 1248 (after receiving notice of
alleged unlawful conduct causing harm in another state, defendant “should reasonably
have expected to be sued there”). Given this fact pattern, in the language typically
used in contract cases, Arellano “’purposefully availed’ [him]self of the privilege of
conducting activities or consummating a transaction in the forum state.” Dudnikov, 514
F.3d at 1071. That is, Arellano did business with RMCF in Colorado, and thereby
availed himself of the benefit of RMCF’s trademarks and licensed methods, which are
held in Colorado.
In reaching this conclusion, the Court focuses in particular on the Tenth Circuit’s
decision in Benton, on which both parties rely. In Benton, plaintiff was a uranium broker
who was a Colorado resident, and Defendant was Canadian entity that had “entered
into a series of approximately two dozen transactions” with the plaintiff over the course
of eight years. 375 F.3d at 1073. The parties then negotiated a memorandum of
understanding (“MOU”) for a more continuous set of transactions, and also to create a
joint venture. Id. After defendant completed a due diligence review in Colorado, it
declined to finalize the transactions, and plaintiff sued as a result. Id. The Tenth Circuit
observed that the facts presented “a very close case,” id. at 1076, and held, first, that
“minimum contacts” were established, but also, second, that given facts that “barely
satisf[ied]” the minimum contacts standard, “an exercise of personal jurisdiction over

12

[defendant] would offend traditional notions of fair play and substantial justice,” id. at
1080.
Comparing the facts here to Benton reveals that this case is even closer. Benton
held that the parties’ “‘prior negotiations’ and the ‘contemplated future consequences’”
of their MOU “centered around the continuing business relationship” to be created
between the parties. Id. at 1077. Even though the actual uranium sales “would occur
in places other than the state of Colorado,” the court held that “[b]y engaging in a
business relationship with [the plaintiff], who operates his business from Colorado,
[defendant] purposefully availed itself of the privilege of conducting activities with the
forum state.” Id. (internal quotation marks omitted).
The same analysis generally applies here, where Arellano “engag[ed] in a
business relationship with” RMCF. Arellano in effect acted as the de facto franchisee
for RMCF during the period from approximately November 2015 through February
2016, while he negotiated with RMCF to become the permanent and authorized
franchisee. During this period, RMCF gave him conditional or or preliminary approval to
operate the Summerlin Store and permitted him to use its trademarks and related
intellectual property. Like Benton, while the “phone calls and letters’ exchanged
between the parties during this period “are not necessarily sufficient . . . the
correspondence exchanged . . . during the negotiation . . . provides additional evidence
that [Arellano] pursued a business relationship with a Colorado business.” Id.
However, other facts show that this case is an even closer call on “minimum
contacts” than Benton. Benton stated that “even more important” to the court’s analysis

13

than the parties’ negotiated relationship was the fact that the defendant physically sent
employees to Colorado to conduct due diligence, and while this “would have not been
enough, in isolation, to establish minimum contacts, it represents an additional instance
in which [defendant] purposefully and knowingly availed itself of a business opportunity
in Colorado.” Id. Nothing similar occurred here. Further, the analysis in Benton
emphasized that the defendant “voluntarily conducted business with [the plaintiff] . . . for
many years prior to and at the time of the events at issue.” Id. at 1078. Again, nothing
similar is true here, where the parties had no contacts prior to “the events at issue,”
which lasted only a few months before the alleged trademark infringement began.
Moreover, Benton was decided before Walden, in which the Supreme Court
emphasized that “the plaintiff cannot be the only link between the defendant and the
forum,” which is quite nearly the precise circumstances that obtain here. 134 S. Ct. at
1122. RMCF does not identify any contacts between Arellano and the state of
Colorado other than the communications and negotiations with RMCF which are at
issue in this case. Thus the “intertwined” nature of Arellano’s contacts with Colorado
and his interations with RMCF further emphasizes the weakness of a showing of
“minimum contacts” with Colorado. See id. at 1123.
Furthermore, much of RMCF’s jurisdictional argument emphasizes actions taken
by RMCF or by non-party Joseph, and not by Arellano. Such conduct by other parties
does not establish jurisdiction over Arellano, and the Court does not consider acts
taken by other parties in its jurisdictional analysis. For instance, the fact that Joseph
had previously signed a franchise agreement consenting to jurisdiction and venue in
Colorado is of no moment, since it is equally undisputed that Arellano never did sign
14

such an agreement with RMCF, nor did he through some other paper ever consent to
jurisdiction or venue in Colorado.
Nevertheless, the Court also must account for the authority which holds that
where the defendants’ “express aim in acting” was to obtain benefits from the forum
state—here, to obtain access to RMCF’s trademarks and intellectual property—that fact
tends to establish jurisdiction. See Dudnikov 514 F.3d at 1075. In Dudnikov, for
example, the defendant had directed actions or communications to a third party in
California (eBay), but because the intended result of those actions was to thereby
impede the plaintiffs’ business operations in Colorado (by prompting eBay to terminate
the plaintiffs’ online auctions), the court held that the def endant’s actions “can be said
to have reached into Colorado,” thus supporting an exercise of jurisdiction. Id. A
similar analysis applies here, where Arellano’s negotiations with Joseph occurred in
Nevada, but were undertaken with an “express aim” of gaining access to RMCF’s
trademarks and licensed materials. Thus, in addition to Arellano’s own communications
with RMCF, the Court considers his overall course of conduct in negotiating to purchase
and take over the Summerlin Store as an RMCF franchise, and this tends to show
Arellano’s “purposeful availment” of benefits flowing from Colorado, namely, obtaining
access to RMCF’s trademarks and intellectual property.
Considering these precedents, together, and given the “light” burden of making a
prima facie showing of jurisdiction at this phase, see Wenz, 55 F.3d at 1505, the Court
finds that Arellano’s application to be a RMCF licensee or f ranchisee, his purposeful
acts in negotiating to take over the Summerlin Store and the RMCF franchise, and his
operations as RMCF’s de facto franchisee from approximately November 2015 through
15

February 2016 provide a sufficient showing of “minimum contacts,” with Colorado in this
case. However, even more than was true in Benton, this is a “very close case,” in which
Arellano’s demonstrated contacts with Colorado “barely satisf[y] the minimum contacts
standard.” See 375 F.3d at 1076, 1080.
2.

Arising Out Of

In regard to the second part of the minimum contacts analysis, the Tenth Circuit
has explained that “[s]pecific jurisdiction . . . is premised on something of a quid pro
quo: In exchange for ‘benefiting’ from some purposive conduct directed at the forum
state, a party is deemed to consent to the exercise of jurisdiction for claims related to
those contacts.” Dudnikov, 514 F.3d at 1078. The relevant inquiry is “whether plaintiffs’
injuries ‘arise out of’ defendants’ contacts with the forum jurisdiction.” Id. at 1078.
On the facts present here, the Court has little trouble concluding that the claims
brought by RMCF “arise out of” Arellano’s relevant contacts with Colorado. The
relevant contacts are Arellano’s actions taken to gain access to RMCF’s intellectual
property, and the gravamen of RMCF’s claims is that having negotiated to obtain such
access, Arellano then purposefully infringed on RMCF’s rights and exceeded the uses
permitted by RMCF.
B.

Reasonableness
Having found “sufficient minimum contacts” the Court still must “consider

whether the exercise of personal jurisdiction over the defendant offends traditional
notions of fair play and substantial justice.” Benton, 375 F.3d at 1078 (citing OMI, 149
F.3d at 1091). In deciding whether the exercise of jurisdiction is reasonable, courts

16

consider: “(1) the burden on the defendant, (2) the forum state’s interest in resolving the
dispute, (3) the plaintiff’s interest in receiving convenient and effective relief, (4) the
interstate judicial system’s interest in obtaining the most efficient resolution of
controversies, and (5) the shared interest of the several states in furthering fundamental
substantive social policies.” See, e.g., Intercon, Inc. v. Bell Atl. Internet Solutions, Inc.,
205 F.3d 1244, 1249 (10th Cir. 2000) (citing Burger King, 471 U.S. at 477; Asahi Metal
Indus. Co. v. Super. Ct. of Cal., 480 U.S. 102, 113 (1987)); Benton, 375 at 1078.
As noted above, the Court applies a “sliding scale.” Thus because RMCF’s
showing on “minimum contacts” is very weak, the reasonableness factors “may be so
weak that even though minimum contacts are present, subjecting the defendant to
jurisdiction . . . would offend due process.” OMI, 149 F.3d at 1095. 4
1.

Burden on Defendant of Litigating in the Forum

“While not dispositive, the burden on the defendant of litigating the case in a
foreign forum is of primary concern in determining the reasonableness of personal

4

RMCF argues that because Defendants did not specifically address their arguments to
the five traditional reasonableness factors, there is “no evidence that could support a finding
that litigating in Colorado will impose a meaningful burden.” (ECF No. 35 at 12.) However,
RMCF also makes only passing arguments addressed to these factors. This leaves the Court
to analyze the reasonableness factors mostly only its own. Certain case law appears to shift
the burden to defendants to “present a compelling case demonstrating ‘that the presence of
some other considerations would render jurisdiction unreasonable” once a plaintiff has made a
prima facie showing of jurisdiction. See OMI, 149 F.3d 1091 (quoting Burger King, 471 U.S. at
472); Employers Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1161 (10th Cir. 2010).
Certainly, Arellano’s counsel is cautioned that in different circumstances, the failure to identify
and argue to the controlling legal standards and factors could well have forfeited Arellano’s
jurisdictional objections. See ClearOne Commc'ns, Inc. v. Bowers, 643 F.3d 735, 764 (10th Cir.
2011). However, given the overall arguments advanced by Arellano showing that it would be
unreasonable for the Court to exercise jurisdiction, and RMCF’s own failure to advance specific
arguments on these factors, the Court finds Arellano’s failure to specifically tailor his arguments
to these factors is not fatal to his position overall.

17

jurisdiction.” OMI, 149 F.3d at 1096. This “primary concern” weighs against the
exercise of jurisdiction here. While the burden placed on Defendants located in
Nevada to defend in Colorado is less than in cases such as Benton or OMI involving
defendants in a foreign country, it would still impose real and substantial costs and
burdens on Arellano to defend in Colorado. Given the “sliding scale” relationship with
RMCF’s bare-minimum showing of “minimum contacts,” the Court finds that even this
comparatively small burden weighs against the exercise of jurisdiction.
Moreover, the Court also views this analysis in light of authority holding that the
“touchstone of the foreseeability that is critical to due process analysis . . . is that the
defendant’s conduct and connection with the forum State are such that he should
reasonably anticipate being haled into court there.” Burger King, 471 U.S. at 474
(ellipses in original; internal quotation marks omitted). Although more formally a part of
the Court’s “minimum contacts” analysis, the Court evaluates the degree of burden
which shows the exercise of jurisdiction would unreasonable in light of the “sliding
scale” relationship to the relative lack of foreseeability that Arellano might be “haled into
court” in Colorado. See OMI, 149 F.3d at 1091. Here, RMCF provided Arellano with a
proposed franchise agreement that included venue selection and jurisdictional waiver
terms, but this agreement was never executed. Indeed, RMCF did not allow Arellano to
sign the franchise agreement, because the preconditions that RMCF placed on doing
so were never met. Despite the absence of such an agreement, RMCF permitted
Arellano to operate the Summerlin Store and use its trademarks. None of the parties’
other communications included a forum selection agreement.
In these circumstances, it was more foreseeable that RMCF (which routinely
18

does business outside Colorado) might have to litigate in another forum if a dispute
arose prior to executing the franchise agreement, than it was that Arellano might have
to defend claims in Colorado, given that none of the alleged wrongful acts occurred in
Colorado, and the forum selection provision contemplated by the parties (or at least by
RMCF) was never executed. In the Court’s view it is highly significant on this issue that
RMCF, without a signed franchise agreement in hand with Arellano (and the venue and
choice of law protections it would have enjoyed under such an agreement), chose
nonetheless to initiate a business relationship directly with the Defendant. Plaintiff and
its lawyers should have foreseen the possibility that without such an executed franchise
agreement, a court might well determine that the appropriate forum for resolution of a
dispute with a Nevada LLC was in Nevada. Given these considerations, even
comparatively light burdens of defending in a foreign forum weigh against the exercise
of jurisdiction by this Court.
2.

Forum State’s Interest in Adjudicating the Dispute

“States have an important interest in providing a forum in which their residents
can seek redress for injuries caused by out-of-state actors.” OMI, 149 F.3d at 1096.
This consideration weighs somewhat in favor of exercising jurisdiction. There is a state
interest in providing a forum in which Colorado corporations such as RMCF can seek
redress in disputes with out-of-state actors. However, this factor weighs less heavily
here, where Plaintiff is a franchisor that has repeatedly and affirmatively placed itself
into commercial relationships with franchisees in several other states and countries.
In addition, “[t]he state’s interest is also implicated where resolution of the
dispute requires a general application of the forum state’s law.” Id. The interest in
19

adjudicating RMCF’s claim under the Colorado Trade Secrets Act in Colorado weighs
somewhat in favor of the Court’s exercise of jurisdiction. However, this is offset by the
fact that RMCF’s primary claims are brought under federal substantive law. And,
RMCF’s complaint is conspicuously silent as to whether its claim for the common law
tort of unfair competition is pled under Colorado or Nevada law. (ECF No. 25 ¶¶
56–59.) The Complaint likewise lacks factual allegations showing that this tort was
committed in Colorado, rather than in Nevada, which seems more plausible given the
facts. This makes it likely that Nevada substantive law governs this tort claim See
generally Restatement (Second) of Conflict of Laws § 145(1)–(2). As a result, the mix
of claims under federal, Colorado, and Nevada substantive law is, at most, a neutral
consideration in the Court’s jurisdictional analysis.
3.

Plaintiff’s Interest in Convenient and Effective Relief

This factor “hinges on whether the Plaintiff may receive convenient and effective
relief in another forum.” Benton, 375 F.3d at 1079 (quoting OMI, 149 F.3d at 1097). In
“cases where a plaintiff’s chances of recovery will be greatly diminished by forcing him
to litigate in another forum because of that forum’s law or because the burden may be
so overwhelming as to practically foreclose pursuit of the lawsuit,” this factor weighs
heavily. Id. However, this is not such a case. While there may be some slight
inconvenience to RMCF, the Court finds that, as in Benton, RMCF “has not established
that litigating the matter in [Nevada] would cause undue hardship,” and theref ore this
factor “weighs . . . against an exercise of jurisdiction.” 375 F.3d at 1079.
Adding to the weight of this factor, the Court sees no way in which RMCF’s
chances of recovery will be diminished by seeking relief in Nevada. To the contrary, a
20

primary part of the relief sought by RMCF is an injunction to halt Defendants’ allegedly
unlawful trademark infringements and related acts, which are occurring solely in
Nevada. While a district court may enter an injunction reaching beyond its territorial
bounds, it would undoubtedly be more “convenient and effective” for a court in Nevada
to consider, impose, monitor, and/or enforce an injunction which is addressed solely to
conduct occurring in Nevada. Indeed, such considerations would likely weigh against
granting RMCF the relief which it seeks in this Court. See 11A Charles A. Wright, et al.,
Federal Practice and Procedure § 2945 (3d ed., April 2017 update) (“One of the factors
that the court must take into account when deciding a request for an injunction is
whether the proposed decree would affect property or would restrain . . . . acts beyond
its territorial jurisdiction.”).
4.

Interstate Judicial System’s Interest in Obtaining Efficient Resolution

“This factor asks ‘whether the forum states is the most efficient place to litigate
the dispute.’” Benton, 375 F.3d at 1080 (quoting OMI, 149 F.3d at 1097). “Key to this
inquiry are the location of witnesses, where the wrong underlying the lawsuit occurred,
what forum’s substantive law governs the case, and whether jurisdiction is necessary to
prevent piecemeal litigation.” OMI, 149 F.3d at 1097.
The witnesses here appear to be divided between Durango, Colorado and Las
Vegas, Nevada. However, it appears likely that RMCF’s witnesses in Colorado are
already known and finite, and would testify primarily to facts have already occurred and
are not substantially disputed. On the other hand, Mr. Arellano, em ployees of the
Summerlin Store, or operators or employees of other RMCF stores in Nevada (with
whom Arellano is allegedly competing), are likely to be more numerous, and would
21

likely be the most relevant witnesses in resolving the key factual disputes regarding
whether Arellano’s conduct since February 2016 has constituted infringement or misuse
of RMCF’s intellectual property. In addition, all of the alleged acts of infringement have
occurred in Nevada. See Systems Designs, Inc. v. New Customware Co., Inc., 248 F.
Supp. 2d 1093, 1097 (D. Utah 2003) (“Trademark infringement is a tort.”); Allison v.
Wise, 621 F. Supp. 2d 1114, 1120 (D. Colo. 2007) (“As a m atter of law, in Colorado,
‘the place of injury is the place where the tort is committed.’” (quoting McAvoy v. District
Court in and for the City and County of Denver, 757 FP.2d 633, 635 (Colo. 1988))). As
noted above, the governing substantive law appears to be a mix of federal, Colorado,
and Nevada law, and RMCF seeks an injunction which would only have effects in
Nevada. For all these reasons, this factor weighs against an exercise of jurisdiction by
this Court.
5.

States’ Interest in Furthering Fundamental Substantive Social Policies

The last factor is “the interests of the several states, in addition to the forum
state, in advancing fundamental substantive social policies.” OMI, 149 F.3d at 1097.
“[A]nalysis of this factor focuses on whether the exercise of personal jurisdiction . . .
affects the substantive social policy interests of other states or foreign nations.” Id.
Neither party has identified substantive social policies which are materially affected by
whether this Court or a court in Nevada hears this dispute. This factor thus has
comparatively very little weight in this case.
To the limited extent the Court weighs this factor, the Court notes that most state
and federal courts recognize a policy favoring enforcement of contractual forum-

22

selection clauses, provided they were validly negotiated and agreed by the parties. See
generally, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972); accord Cagle v.
Mathers Family Tr., 295 P.3d 460, 465 (Colo. 2013) (“a forum selection clause is
presumptively valid unless it is unreasonable, fraudulently induced, or against public
policy”). As a corollary, although the Court’s jurisdictional analysis stands alone in the
absence of a contractual waiver or agreement, the Court is reluctant to impose
jurisdiction in a venue which the parties’ negotiations specifically considered, but did not
adopt. Moreover, Nevada law appears comparatively more reluctant to enforce forum
selection clauses. See Tandy Computer Leasing, a Div. of Tandy Elecs., Inc. v.
Terina’s Pizza, Inc., 784 P.2d 7, 8 (1989) (“While some forum selection clauses are
sufficient to subject parties to the personal jurisdiction of out-of-state courts, not all
forum selection clauses are enforceable.” (citing Burger King, 471 U.S. at 472 n.14)).
Thus, to the limited extent the Court considers this factor, it weighs against exercising
imposing jurisdiction where a plaintiff based in Colorado that regularly does business
elsewhere sought a home state forum selection clause, but nonetheless went forward
with the business relationship before the agreement containing the proposed clause
was executed.
* * *
In sum, because Defendants’ contacts with Colorado only “barely satisf[y] the
minimum contacts standard,” and because a majority of the reasonableness factors
weigh against the exercise of jurisdiction, the Court holds that its exercise of jurisdiction
in this case “would offend traditional notions of fair play and substantial justice.” Accord

23

Benton, 375 F.3d at 1080. 5 The Court therefore will not exercise specific personal
jurisdiction over the Defendants in this case.
IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1.

Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction, or in the
Alternative, Motion to Transfer Venue (ECF No. 22) is GRANTED;

2.

Plaintiff’s claims are DISMISSED WITHOUT PREJUDICE FOR LACK OF
PERSONAL JURISDICTION; and,

3.

The Clerk of Court is DIRECTED to TERMINATE this action.
Dated this 19th day of October, 2017
BY THE COURT:

_______________________
William J. Martínez
United States District Judge

5

Because the Court holds that it lacks personal jurisdiction, it need not reach
Defendants’ alternative argument that venue is improper. And, because the Court finds that it
lacks jurisdiction, it lacks authority to grant the relief sought by RMCF’s Amended Motion for
Preliminary Injunction. (ECF No. 26.)

24