Brody Enterprises v. American Tonerserv Corporation et al
Filing
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ORDER Granting 16 Defendant MTS Partners Inc.'s Motion to Dismiss for Lack of Jurisdiction without prejudice. Signed by Judge Gloria M. Navarro on 6/23/11. (Copies have been distributed pursuant to the NEF - EDS)
UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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BRODY ENTERPRISES,
Plaintiff,
vs.
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MTS PARTNERS, INC., formerly known as
iPrint Technologies Inc., et al.
Defendant.
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) Case No.: 2:11-cv-00489-GMN-LRL
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ORDER GRANTING
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DEFENDANT MTS PARTNERS,
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INC.’S MOTION TO DISMISS
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[ECF #16]
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Before the Court is Defendant MTS Partners, Inc.’s Motion to Dismiss for Lack of
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Personal Jurisdiction, Failure to State a Claim and Motion to Transfer Venue. (ECF No. 16).
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Plaintiff filed a Response (ECF No. 20) and Defendant filed a Reply (ECF No. 24). Defendant
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argues lack of personal jurisdiction and concedes that this action might have been brought in the
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Northern District of California because it is subject to personal jurisdiction there. The Court
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agrees, therefore the Motion to Dismiss for Personal Jurisdiction (ECF No. 16) is GRANTED.
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FACTS
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Plaintiff, Brody Enterprises, a Nevada Corporation was a business which sold replacement
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toner cartridges for laser printers to businesses. (Complaint ¶7, ECF No. 1). Plaintiff entered into
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a “Customer List Purchase Agreement” with Defendant American Tonerserv Corporation
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(“ATS”) whereby ATS agreed to purchase Plaintiff’s customer list and accounts for $800,000.
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(Id. at ¶9). The purchase price was in the form of a promissory note. (Id. at ¶10). The security
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for the promissory note was a Security Agreement whereby the customer list and the accounts
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represented thereby would serve as collateral for ATS’s debt. (Id. at ¶11). ATS had trouble
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making the payments under the agreement from 2006 to 2010, so the parties modified the terms
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of the agreement multiple times. (Id. at ¶15).
On October 31, 2008, ATS acquired the business and/or assets iPrint Technologies, Inc.
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(“iPrint, Inc.”). (Id. at ¶16). ATS formed iPrint Technologies, LLC as a wholly owned
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subsidiary of ATS. (Id. at ¶17). iPrint, Inc. was the entity by which MTS was formerly known.
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(Id. at ¶20). ATS defaulted on its agreement with MTS to purchase the assets of iPrint
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Technologies and MTS foreclosed on its Security Agreement on December 17, 2010. (Id. at
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¶22). Given that iPrint Technology, LLC was a wholly owned subsidiary of ATS, Plaintiff
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alleges that MTS took all of the assets of iPrint, LLC, including the customer lists and accounts
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which Plaintiff had sold to ATS in 2006. (Id.). Plaintiff alleges that MTS further instructed
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ATS’s independent sales partners (“ISPs”) in Nevada to continue business as usual for MTS’s
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benefit. Thus MTS took the customer lists and account that was collateral security for the
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agreement between Plaintiff and ATS. Plaintiff asserts that the list and accounts are its property
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and MTS wrongfully took them.
Plaintiff alleges five causes of action against MTS: (1) breach of contract, (2) unjust
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enrichment, (3) tortuous interference with contract, (4) conversion, and (5) unfair
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competition/misappropriation of trade secrets.
DISCUSSION
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A.
Personal Jurisdiction
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A defendant may move to dismiss for lack of personal jurisdiction. Fed. R. Civ. P.
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12(b)(2). Personal jurisdiction over a nonresident defendant is established when a two-part test
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is satisfied. First, there must be personal jurisdiction under the laws of the state where it is
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asserted. Chan v. Society Expeditions, Inc., 39 F.3d 1398, 1404 (9th Cir. 1994). Second, the
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exercise of jurisdiction must satisfy due process. U.S. Const. amend XIV, 1; Chan, 39 F.3d at
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1404–05.
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For a non-resident defendant, the assertion of jurisdiction is constitutionally proper under
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the Due Process Clause of the Fourteenth Amendment only where there are continuous and
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systematic contacts with the forum state (general jurisdiction), Bauman v. DaimlerChrysler
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Corp., 579 F.3d 1088, 1094 (9th Cir. 2009), or when there are sufficient minimal contacts with
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the forum state such that the assertion of personal jurisdiction does not offend traditional notions
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of fair play and substantial justice (specific jurisdiction), Int’l Shoe Co. v. State of Wash., Office
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of Unemployment Compensation & Placement, 326 U.S. 310, 316 (1945) (quoting Milliken v.
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Meyer, 311 U.S. 457, 463 (1940)).
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1.
General Jurisdiction
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General personal jurisdiction exists only when a defendant’s forum activities are so
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substantial or continuous and systematic that defendant may be deemed present in the forum and
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subject to suit over claims unrelated to its forum activities. Brand v. Menlove Dodge, 796 F.2d
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1070, 1073 (9th Cir. 1986). A defendant whose contacts with a state are “substantial” or
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“continuous and systematic” can be brought into court in that state in any action, even if the
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action is unrelated to those contacts. See Helicopteros Nacionales de Colombia, S.A. v. Hall,
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466 U.S. 408, 415, 104 S.Ct. 1868, (1984). The standard for establishing general jurisdiction is
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“fairly high,” Brand v. Menlove Dodge, 796 F.2d 1070, 1073 (9th Cir.1986), and requires that
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the defendant’s contacts be of the sort that approximate physical presence. See Gates Learjet
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Corp. v. Jensen, 743 F.2d 1325, 1331 (9th Cir.1984). Factors to be taken into consideration are
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whether the defendant makes sales, solicits or engages in business in the state, serves the state’s
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markets, designates an agent for service of process, holds a license, or is incorporated there. See
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Hirsch v. Blue Cross, Blue Shield of Kansas City, 800 F.2d 1474, 1478 (9th Cir.1986).
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Plaintiff argues however that the Court does have general jurisdiction over Defendant
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based upon Defendant’s employment of Nevada based Independent Sales Partners (“ISP”).
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When MTS foreclosed on its Security Agreement with ATS it acquired Tony Naples and Joshua
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Greenrock who had been ISPs for Plaintiff and ATS. MTS contacted the Nevada ISPs and
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informed them it was to be business as usual but that the sales were now for MTS. (Greenrock
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Affidavit, Plaintiff’s Ex. 3, ECF 20-3). Based on the ISPs sales in Nevada, Plaintiff argues that
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Defendant is subject to general personal jurisdiction because they made sales, solicited and
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engaged in business of the state.
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Defendant argues that is has less than two (2%) percent of its customers located in
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Nevada. It maintains that these customers were obtained through nationwide sales campaigns,
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thus they were not directly aimed at Nevada. Defendant is not a Nevada corporation, does not
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have a physical presence in Nevada and does not maintain offices in the state, similar to the
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Defendants in Helicopteros.
Defendant argues that similar to Boaz v. Boyle & Co., 40 Cal.App. 4th 700 (Cal 1995) the
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nationwide solicitation of business is not sufficient to demonstrate general personal jurisdiction.
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In Boaz, the nonresident defendant had limited contacts with the forum state that consisted of
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targeting mailers to physicians, advertising principally in national medical publications, and
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deriving 9% of its sales from the forum’s physicians. Id. at 715-17. Based on those contacts, the
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court found that the defendant’s level of activity in the forum did not justify the assertion of
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general jurisdiction. Id. at 717.
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The Court finds that Plaintiff has not met the high burden of showing the court’s general
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personal jurisdiction over Defendant. Plaintiff claims that the Defendant makes sales, solicits or
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engages in business in Nevada. However its only argument to support their claim is that the
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ISPs were located in Nevada. Plaintiff does not allege that these ISPs actually sold to Nevada
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residents. Also, the Court takes the circumstances of the contacts into account. Defendants
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‘acquired’ the ISPs because ATS defaulted on their agreement. The interim status to keep the
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ISPs working while deciding what to do with the property from ATS does not establish a
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continuous and systematic presence in the state. The burden to establish general personal
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jurisdiction is high, and Plaintiff has not met that burden.
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2.
Specific Jurisdiction
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The Ninth Circuit employs a three-part test to determine whether the exercise of specific
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jurisdiction satisfies the requirements of due process: (a) the defendant must have purposely
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availed itself of the privilege of conducting activities in the forum; (b) the plaintiff’s claim must
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arise out of that activity; and (c) the exercise of jurisdiction must be reasonable. Shute v.
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Carnival Cruise Lines, 897 F.2d 377, 381 (9th Cir. 1990).
a.
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Purposeful Availment or Direction
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Under the first prong of the Ninth Circuit test the defendant must have either
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(1) “purposefully availed” himself of the privilege of conducting activities in the forum, or
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(2) “purposefully directed” his activities toward the forum. Schwarzenegger v. Fred Martin
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Motor Company, 374 F.3d 797, 802 (9th Cir. 2004). A purposeful availment analysis is most
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often used in suits sounding in contract while a purposeful direction analysis is most often used
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in suits sounding in tort. Id. While one of Plaintiff’s causes of action is breach of contract the
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remaining causes of action sound it tort, therefore the court will apply the purposeful direction
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analysis.1
Purposeful direction is determined under the “effects” test of Calder v. Jones, 465 U.S.
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783, 789–90 (1983). “Under Calder the ‘effects’ test requires that the defendant allegedly have
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(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that
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the defendant knows is likely to be suffered in the forum state.” Schwarzenegger, 374 F.3d at
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803. Cases following Calder have explained that the “effects” test is not satisfied merely by a
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foreign act with foreseeable effects in the forum; there must be “something more”-namely,
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“express aiming” at the forum state. Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223 F.3d
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1082, 1087 (9th Cir. 2000) (citing Calder, 465 U.S. at 789).
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Further, Defendant used this analysis and plaintiff did not object to its use or offer a different test in its Response.
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In this case the intentional act is MTS’s alleged taking and using of assets (customer list)
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which Plaintiff alleges rightfully belongs to it. Defendant argues that the second prong however
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is missing. MTS expressly aimed its alleged act of taking Plaintiff’s assets when it foreclosed
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against ATS in California. Thus, any express aiming would justify a California forum and not a
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Nevada forum. Finally, Defendant argues that there is nothing to indicate that in foreclosing on
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the Security Agreement against ATS, Defendant could have foreseen it would cause harm to
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Plaintiff in the forum. Defendant claims that it was not aware of the Security Agreement
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between Plaintiff and ATS.2
Plaintiff argues that Defendant’s intentional act was aimed at the Nevada forum because
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Defendant “loaned” money to Nevada ISP Joshua Greenrock to cover the commissions owed for
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sales in December 2010, which occurred before Defendant foreclosed on ATS’s business.
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Sometime after the “loan”, Mr. Greenrock was contacted by Arnold Brody, of Brody
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Enterprises. Mr. Brody told Mr. Greenrock that the old accounts belonged to Brody Enterprises
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because ATS had failed to pay the money owed under their contract. Thus, Mr. Brody told Mr.
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Greenrock to allocate the sales he made to Mr. Brody and not Defendant. When Defendant
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discovered this, they fired Mr. Greenrock. Subsequently Defendant sued Mr. Greenrock in Las
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Vegas Justice Court to collect on the ‘loan’ it had given to Mr. Greenrock. Plaintiff argues that
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Defendant’s action in employing and loaning money to Mr. Greenrock and finally in pursuing
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legal action against Mr. Greenrock demonstrates an intentional act aimed at the Nevada forum.
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By pursuing Mr. Greenrock for the ‘loan’, Defendant was aware that harm would occur in the
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forum.
b.
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The second prong of the Ninth Circuit’s test to determine whether the exercise of specific
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Activity in the Forum State
jurisdiction satisfies due process is that the plaintiff’s claim must arise out of that activity
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While Plaintiff does allege that Defendant knew of the agreement, Plaintiff offers no facts to establish that Defendant knew.
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conducted in the forum state.
Plaintiff argues that Defendant has submitted itself to a forum’s jurisdiction by filing a
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suit in that forum for activities that arise out of or are related to the same transaction. Plaintiff
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argues that Defendant’s suit against Mr. Greenrock in Nevada is based on Mr. Greenrock’s
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actions to fill orders on behalf of Plaintiff instead of Defendant. Defendant cannot now argue
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that it is not subject to personal jurisdiction in Nevada in connection with the misappropriation
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of the accounts from ATS.
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Plaintiff cites to three cases for the proposition that a defendant submits itself to a
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forum’s jurisdiction by filing a suit in that forum for activities that arise out of or are related to
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the same transaction. See General Contracting & Trading Co., LLC v. Interpole, Inc., 940 F.2d
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20, (1st Cir. 1991) (Third-party defendant submitted itself to court’s personal jurisdiction in first
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suit by instituting a second suit against third-party plaintiff in connection with same transaction);
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Threlkeld v. Tucker, 496 F.2d 1101 (9th Cir. 1974) (Ex-husband had submitted himself to
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court’s personal jurisdiction because of previous filings against ex-wife in the forum’s state
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courts, in addition to other minimum contacts with the forum); Larson v. Galliher, No. 2:06-cv-
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1471-RCJ-GWF, 2007 WL 81930 (D. Nev. January 5, 2007)(Defendant impliedly consented to
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the jurisdiction of the forum by filing an earlier action in the forum against the plaintiff
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involving essentially the same set of operative facts).
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Under Defendant’s argument there was no activity aimed at the forum state thus there can
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be no claim arising out of that activity. This court agrees that the cases cited by Plaintiff and
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this suit are distinguishable. First of all, in the cases cited the parties were parties to both suits.
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Plaintiff is not a party to the suit initiated by Defendant against Mr. Greenrock. Second, the
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facts of this suit are markedly different and do not involve the same basic claims, transactions,
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or nucleus of operative facts as compared to the suit against Mr. Greenrock. For example in the
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state court case against Mr. Greenrock the facts regarding terms of the loan and whether or not
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Mr. Greenrock was misappropriating sales from Defendant to Plaintiff or vice versa need to be
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examined. In this case, the operative facts revolve around the Security Agreement and whether
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or not Defendant has any rights to the customer list or if it rightly belongs to Plaintiff. Mr.
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Greenrock’s liability in regards to the repayment of the “loan” is not an operative fact that will
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change or determine who rightfully owns the customer list at issue. For this reason, this Court
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does not have specific personal jurisdiction over Defendant.
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c.
Reasonableness
Finally, under the third prong of the Ninth Circuit’s specific personal jurisdiction test,
Plaintiff must demonstrate that the exercise of jurisdiction is reasonable. The five factors to
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consider when determining if the exercise of personal jurisdiction would be unreasonable are:
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(1) the burden on the defendant; (2) the forum State’s interest in adjudicating the dispute; (3) the
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plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial system’s
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interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of
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the several states in furthering fundamental substantive social policies. World-Wide Volkswagen
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Corporation v. Woodson, 444 U.S. 286, 292 (1980).
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Plaintiff does not address these five factors in its Response; however, there is typically a
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presumption of reasonableness if the plaintiff has proven specific jurisdiction. In this case
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Plaintiff has not done so. Defendant argues that there is a burden placed on it to defend in
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Nevada because it does not maintain a physical presence in Nevada. It would be a significant
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inconvenience to Defendant given that its employee’s, ISPs and records are not in Nevada.
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Therefore, the first factor weighs in favor of the Defendant. The second factor would weigh in
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favor of jurisdiction in Nevada because Plaintiff is a Nevada corporation and thus the state has
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an interest in its own businesses. However, since the harm occurred outside the state this factor
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should be neutral. The third factor weighs in favor of adjudicating the case in Nevada as
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Plaintiff is a Nevada corporation.
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The fourth factor focuses on the location of evidence and witnesses. Defendant argues
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that more than 40 potential witnesses are located in California. All documents, information,
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computers, servers and other evidence related to Defendant are located in California. Thus the
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most relevant evidence is probably located in California and not Nevada. Plaintiff’s witnesses
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and evidence is most likely in Nevada. However given technological advances in communication
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and transportation this factor is probably at best neutral.
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Finally, the fifth factor examines the shared interest of the several states in furthering
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fundamental substantive social policies. Neither party has addressed whether Nevada has a
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special substantive social policy that would be affected by this case. Therefore, this last factor is
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neutral as well.
There is usually a presumption of reasonableness when the Plaintiff satisfies the first two
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prongs. There is no presumption in this case. Defendant has shown that the exercise of personal
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jurisdiction would be unreasonable and Plaintiff offers no argument that it would be reasonable.
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Plaintiff also failed to make arguments against Defendant’s failure to state a claim and motion to
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transfer venue arguments.
CONCLUSION
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Defendant MTS Partners, Inc.’s Motion to Dismiss (ECF 16) is hereby GRANTED and
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Plaintiff’s Complaint (ECF 1) is hereby DISMISSED without prejudice for lack of jurisdiction
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over Defendant MTS.
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011.
DATED this 23rd day of June, 2011.
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________________________________
__________________
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Gloria M. Navarro
Gloria
r
Navarro
United States District Judge
United
i
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