Three Rivers Provider Network, Inc. v. Medical Cost Containment Professionals, LLC et al

Filing 25

ORDER. IT IS HEREBY ORDERED, ADJUDGED, and DECREED that 13 defendants' motion to dismiss be, and the same hereby is, GRANTED. IT IS FURTHER ORDERED that 12 defendants' motion to set aside clerk's entry of default be, and the same hereby is, GRANTED. The clerk shall enter judgment accordingly and close the case. Signed by Judge James C. Mahan on 7/30/2018. (Copies have been distributed pursuant to the NEF - ADR)

1
2
3
4

UNITED STATES DISTRICT COURT

5

DISTRICT OF NEVADA

6

***

7
8

THREE RIVERS PROVIDER
NETWORK, INC.,

Case No. 2:18-CV-135 JCM (GWF)
ORDER
Plaintiff(s),

9
v.

10
11

MEDICAL COST CONTAINMENT
PROFESSIONALS, LLC, et al,

12

Defendant(s).

13
14

Presently before the court is a motion to dismiss filed by defendants Medical Cost

15

Containment Professionals, LLC (“Medical Cost”), Daniel Ayala (“Ayala”), Jarred Pierce

16

(“Pierce”), and Frank Whelan (“Whelan”). (ECF No. 13). Plaintiff Three Rivers Provider

17

Network, Inc. (“TRPN”) filed a response (ECF No. 19), to which defendants replied (ECF No.

18

21).

19

Also before the court is defendants’ motion to set aside clerk’s entry of default (ECF No.

20

12), to which plaintiff responded (ECF No. 20). Defendants have not replied, and the time for

21

doing so has since passed.

22

I.

23

Facts
The instant action involves an alleged breach of contract and conspiracy by former

24

employees of a medical billing company to form a similar organization that utilizes their

25

previous employer’s intellectual property and confidential information to grow its business.

26
27
28
James C. Mahan
U.S. District Judge

At the time of commencement of the suit, plaintiff was a proprietary provider network

1
2

with its corporate headquarters in Henderson, Nevada.1 (ECF No. 1 at 1). Plaintiff relies on its

3

contracts with clients, client lists, and intellectual property to serve as the foundation of its

4

business model. Id. at 6. The three individual defendants all held high-ranking positions at

5

TRPN: Ayala was plaintiff’s national account manager, Pierce was the vice president of

6

managed care, and Whelan served as plaintiff’s CFO. Id. The company provided the individual

7

defendants access to its intellectual property and had them sign confidentiality agreements. Id. at

8

4-6.

9

In its complaint, plaintiff claims that beginning sometime in late 2015, Ayala and Pierce,

10

both of whom were plaintiff’s employees at the time, violated their confidentially agreements

11

and began to support a competing business, Medical Cost. Id. at 6-7. This business would

12

negatively affect plaintiff by using plaintiff’s business model and confidential information

13

obtained from its contracts to steal away business, with the ultimate goal of replacing plaintiff in

14

the marketplace. Id. at 7.

15

The complaint establishes a rudimentary timeline of events related to the alleged

16

conspiracy, commencing with the allegation that Pierce began to steal proprietary information in

17

May of 2015. Id. In June of 2016, Ayala purportedly used his company email account to discuss

18

the fiscal budget for the new company. Id. On April 8, 2016, Pierce signed a termination

19

agreement with plaintiff. Id. In exchange for $50,000 in severance pay, Pierce promised to

20

maintain the strict confidentiality of all plaintiff’s proprietary information that he obtained while

21

employed with the company. Id. Ayala signed a similar agreement on August 3, 2016. Id.

22
23
24

In July of 2017, while still employed by plaintiff, Ayala officially filed to register
Medical Cost as an LLC in California. Id.
Plaintiff filed suit in the United States District Court for the District of Nevada on

25

January 24, 2018. Id. at. Plaintiff asserts four causes of action against all four defendants: (1)

26

conversion; (2) usurpation of corporate opportunity; (3) violation of the Uniform Trade Secrets

27
28
James C. Mahan
U.S. District Judge

1

Based on the pleadings in this case, it is unclear if plaintiff still maintains its headquarters
in Henderson.
-2-

1

Act; (4) unjust enrichment; and (5) constructive trust. Id. at 19-23. Plaintiff asserts the

2

following causes of action against the individual defendants only: (1) breach of contract; (2)

3

implied covenant of good faith and fair dealing; (3) civil conspiracy; and (4) breach of fiduciary

4

duty. Id. at 10-18. Additionally, plaintiff asserts breach of duty of loyalty against Whelan. Id. at

5

15-16.
In the instant motion, defendants move to dismiss for lack of personal jurisdiction. (ECF

6
7

No. 13).

8

II.

Legal Standard

9

Federal Rule of Civil Procedure 12(b)(2) allows a defendant to move to dismiss for lack of

10

personal jurisdiction. To avoid dismissal under Rule 12(b)(2), a plaintiff bears the burden of

11

demonstrating that its allegations would establish a prima facie case for personal jurisdiction. See

12

Boschetto v. Hansing, 539 F.3d 1011, 1015 (9th Cir. 2008). Courts accept allegations in a

13

plaintiff’s claim as true and should construe factual disputes in the plaintiff’s favor. Rio Props.,

14

Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002).

15

Personal jurisdiction over a defendant is proper when the law provides for jurisdiction and

16

the exercise of jurisdiction comports with notions of due process. Walden v. Fiore, 134 S.Ct. 1115,

17

1121 (2014). “Federal courts ordinarily follow state law in determining the bounds of their

18

jurisdiction over persons.” Daimler AG v. Bauman, 571 U.S. 117, 125 (2014). Nevada has

19

authorized its courts to exercise jurisdiction over persons “on any basis not inconsistent with . . .

20

the Constitution of the United States.” Nev. Rev. Stat. § 14.065.

21

Due process requires the defendant have at least “minimum contacts” with the forum state

22

so that “maintenance of the suit does not offend traditional notions of fair play and substantial

23

justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). “[T]he defendant’s conduct and

24

connection with the forum State [must be] such that he should reasonably anticipate being haled

25

into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). “[I]t is

26

the defendant, not the plaintiff or third parties, who must create contacts with the forum State.”

27

Walden, 134 S.Ct. at 1126.

28
James C. Mahan
U.S. District Judge

-3-

1

In analyzing whether a defendant has a sufficient connection with the forum state, courts

2

distinguish between general and specific jurisdiction. See Helicopteros Nacionales de Colombia

3

S.A. v. Hall, 466 U.S. 408, 414 n.8-9 (1984). General jurisdiction is appropriate where a

4

defendant’s activities in the forum state are so “substantial” or “continuous and systematic” that

5

the defendant is essentially at home in the forum state. Daimler, 571 U.S. at 127. “This is an

6

exacting standard, as it should be, because a finding of general jurisdiction permits a defendant to

7

be haled into court in the forum state to answer for any of its activities anywhere in the world.”

8

Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 801 (9th Cir. 2004).

9

If a court does not possess general jurisdiction, it still may exercise specific jurisdiction if

10

the defendant has sufficient minimum contacts with the forum state in relation to the cause of

11

action.

12

“purposefully directed” activities in the forum state. Burger King Corp. v. Rudzewicz, 471 U.S.

13

462, 472 (1985). The Ninth Circuit has established a three-prong test for determining specific

14

jurisdiction:

15
16
17
18
19
20
21

Specific jurisdiction allows a court to hear claims that arise out of a defendant’s

(1) The non-resident defendant must purposefully direct his activities or
consummate some transaction with the forum or resident thereof; or perform
some act by which he purposefully avails himself of the privilege of conducting
activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or relates to the defendant’s forumrelated activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice,
i.e., it must be reasonable.
Schwarzenegger, 374 F.3d at 802.
The plaintiff bears the burden of satisfying the first two prongs. Id. Accordingly,

22
if the plaintiff fails at the first step, the jurisdictional inquiry ends and the court must
23
dismiss the case. Boschetto, 539 F.3d at 1016. If a plaintiff meets this burden, a defendant
24

hoping to defeat jurisdiction must show that the court’s exercise of jurisdiction is

25
unreasonable. Schwarzenegger, 374 F.3d at 802.
26

The Ninth Circuit “often uses the phrase ‘purposeful availment,’ in shorthand fashion, to

27
include both purposeful availment and purposeful direction, but availment and direction are, in
28
James C. Mahan
U.S. District Judge

fact, two distinct concepts.” Id. The purposeful-availment analysis is appropriate for claims
-4-

1

sounding in contract, while the purposeful-direction analysis is appropriate for claims sounding in

2

tort. Id.

3

The plaintiff cannot be the defendant’s only connection to the forum state. Walden, 134

4

S.Ct. at 1122. “[I]t is the defendant’s conduct that must form the necessary connection with the

5

forum State that is the basis for its jurisdiction over him.” Id. (citing Burger King, 471 U.S. at

6

478).

7

III.

Discussion

8

A. Motion to dismiss

9

Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of

10

personal jurisdiction. Plaintiff’s complaint states that plaintiff is a Nevada corporation and that

11

each defendant either operates or resides primarily in California. (ECF No. 1 at 1-2). In its

12

response to the instant motion, plaintiff contends that the court has both general and specific

13

jurisdiction over defendants. (ECF No. 19). Because plaintiff asserts both types of personal

14

jurisdiction, the court will analyze whether it may exercise either general or specific jurisdiction

15

over defendants.

16

a.

17

“For an individual, the paradigm forum for the exercise of general jurisdiction is the

18

individual’s domicile; for a corporation, it is an equivalent place, one in which the corporation is

19

fairly regarded as at home.” Daimler, 571 U.S. at 137 (citations omitted).

General jurisdiction

i.

20

Individual defendants

21

Affiliation with a corporation located in Nevada does not automatically support a court’s

22

exercise of general jurisdiction over a defendant in Nevada. See Southport Lane Equity II, LLC v.

23

Downey, 117 F. Supp. 1286, 1296 (D. Nev. 2016). In Southport, the court held that subjecting

24

directors or officers of a corporation to jurisdiction in any forum in which a corporation operates,

25

when the directors themselves have no personal contact with the forum state, violates due process.

26

Id.

27

Here, plaintiff argues that the court may exercise general jurisdiction over the individual

28

defendants due to the fact that they: (1) executed severance agreements with plaintiff, a Nevada

James C. Mahan
U.S. District Judge

-5-

1

company; (2) worked for plaintiff and acted as plaintiff’s agent to contract other parties with the

2

company; and (3) filed tax returns for plaintiff as part of their employment duties. (ECF No. 19 at

3

4-7). The court finds that these connections to Nevada are not so “continuous and systematic” as

4

to render the individual defendants at home in the forum state. See Daimler, 571 U.S. at 127.

5

Plaintiff never alleges that the individual defendants reside in Nevada or have an intent to remain

6

in the state. Accordingly, the court cannot exercise general jurisdiction over the individual

7

defendants. See Southport, 117 F. Supp. at 1296.
ii.

8

Medical Cost

9

Plaintiff argues that the court may exercise general jurisdiction over Medical Cost due to

10

the fact that Medical Cost: (1) calls itself a “National” company; (2) has a single contractual

11

relationship with a company that “operates” in Nevada; and (3) has clients that have a national

12

presence, which includes Nevada. (ECF No. 19 at 8).

13

Again, plaintiff does not allege that Medical Cost is incorporated in Nevada or has a

14

sufficient nerve center in the state such that its principal place of business is Nevada. The fact that

15

Medical Cost contracts business with national companies such as AAA or McDonald’s has no

16

bearing on whether Medical Cost has continuous and systematic contacts with Nevada. See

17

Daimler, 571 U.S. at 127. Accordingly, the court cannot exercise general jurisdiction over Medical

18

Cost.

19

b.

20

Because plaintiff raises both contract and tort-based claims, the court will employ the tests

21

for purposeful availment and purposeful direction when evaluating the first prong of the Ninth

22

Circuit test for specific jurisdiction. See Schwarzenegger, 374 F.3d at 802.

23

Specific jurisdiction

i.

Purposeful-availment analysis

24

“[A] contract alone does not automatically establish minimum contacts in the plaintiff’s

25

home forum.” Boschetto v. Hansing, 539 F.3d 1011, 1017 (9th Cir. 2008). The purposeful-

26

availment analysis examines “prior negotiations and contemplated future consequences,” as well

27

as “the parties’ actual course of dealing.” Burger King, 471 U.S. at 478. When parties “reach out

28

beyond one state and create continuing relationship and obligations with citizens of another state,”

James C. Mahan
U.S. District Judge

-6-

1

they are “subject to regulation and sanction in the other state for the consequences of their

2

activities.” Id. at 479 (internal citations omitted).

3

The fact that a non-resident enters the forum state to execute or perform a contract with a

4

resident does not per se establish “minimum contacts.” Gray & Co. v. Firstenberg Mach. Co, Inc.,

5

913 F.2d 758, 760 (9th Cir. 1990). The Ninth Circuit has held that a defendant’s presence in the

6

forum to close a contract, without more, does not constitute personal availment. See FDIC v.

7

British-American Ins., 828 F.2d 1439, 1444 (9th Cir. 1987).

8

Here, plaintiff fails to allege that defendants have purposefully availed themselves of the

9

protections of Nevada laws. Plaintiff’s main argument is that through asserting “[n]ational

10

presence on a website, a single contractual relationship with a company that operates in Nevada,

11

dealings with national companies that have customers in Nevada, and previous acts as agents for

12

plaintiffs while not residing in Nevada, defendants have purposefully availed themselves of

13

Nevada law.” (ECF No. 19 at 12-15).

14

As defendants assert, none of these connections establish an ongoing business relationship

15

with a forum state resident that requires performance of a contract in Nevada. (ECF No. 21 at 7);

16

see Burger King, 471 U.S. at 472. Plaintiff attempts to salvage its argument by noting that

17

defendants’ severance agreements contain a Nevada jurisdiction provision. (ECF No. 19 at 12).

18

However, the agreements contain a choice of law provision only. (ECF No. 21-1 at 2-3).
ii.

19

Purposeful-direction analysis

20

A defendant purposefully directs an activity in the forum state when he (1) commits an

21

intentional act, (2) expressly aimed at the forum state, (3) that causes harm, the brunt of which is

22

suffered and the defendant knows is likely to be suffered in the forum state. Pebble Beach Co. v.

23

Caddy, 453 F.3d 1151, 1156 (9th Cir. 2006); Arandell Corp. v. Xcel Energy, Inc., 605 F. Supp. 2d

24

1118, 1131 (D. Nev. 2009). It is not enough that the defendant’s acts create “foreseeable effects

25

in the forum state.” Wash. Shoe Co. v. A-Z Sporting Goods, Inc., 704 F.3d 668, 675 (9th Cir.

26

2012).

27

When evaluating personal jurisdiction, the Ninth Circuit defines an intentional act as “an

28

external manifestation of the actor’s intent to perform an actual, physical act in the real world, not

James C. Mahan
U.S. District Judge

-7-

1

including any of its actual or intended results.” Id. at 674. Courts generally recognize that

2

misrepresentations underlying tort claims constitute intentional actions for the purposeful-

3

direction analysis. See Calder v. Jones, 465 U.S. 783, 789 (1984) (holding that publishing an

4

allegedly defamatory article constitutes an intentional act).

5

Here, defendants’ alleged conduct underlying plaintiff’s tort claims against them—

6

conversion and violation of the Uniform Trade Secrets Act—is intentional. See Wash. Shoe Co.,

7

704 F.3d at 674.

8

However, defendants did not expressly aim their intentional acts at the forum state. In

9

Walden, the Supreme Court clarified the threshold for exercising specific jurisdiction, noting that

10

a defendant’s knowledge of plaintiff’s residence in the forum state alone is insufficient to satisfy

11

a “minimum contacts analysis.”2 134 S.Ct. at 1124-25. Here, plaintiff’s main argument rests on

12

the notion that defendants knew plaintiff was a Nevada company and were aware that the harm

13

they allegedly caused would have an effect felt in Nevada. (ECF No. 19 at 13-16). Per the holding

14

in Walden, this argument alone is insufficient for the court to exercise specific jurisdiction over

15

defendants. 134 S.Ct at 1121. Accordingly, plaintiff fails to demonstrate that defendants expressly

16

aimed their actions at the forum state.
iii.

17

The suit did not arise out of defendants’ contacts with Nevada

18

The second prong of the Ninth Circuit test for specific jurisdiction states that “the claim

19

must be one which arises out of or relates to the defendant’s forum-related activities.”

20

Schwarzenegger, 373 F.3d at 802. In determining whether the claim “arises out of” the non-

21

resident’s forum-related activities, the Ninth Circuit uses a “but for” test, i.e., plaintiff’s not

22

suffering a loss “but for” defendant’s contacts satisfies the element. See Ballard v. Savage, 65

23

F.3d 1495, 1500 (9th Cir. 1995).

24

Assuming, arguendo, that defendants did purposefully avail themselves of Nevada law or

25

purposefully direct their actions at Nevada, the alleged injury does not arise out of their contacts

26

with the forum state. As defendants state, the individual defendants contracted in California for

27
Previously, the Ninth Circuit deemed an act “expressly aimed” when the defendant
allegedly engaged in wrongful conduct targeted at a plaintiff whom the defendant knew to be a
resident of the forum state. Dole Food Co. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002).
2

28
James C. Mahan
U.S. District Judge

-8-

1

their employment, performed their duties under that employment in California, and allegedly

2

performed the acts that violated the terms of their employment agreements in California. (ECF

3

No. 13 at 10); cf. Picot v. Weston, 780 F.3d at 1212-13 (holding that the contract did not anticipate

4

defendant discharging his contractual duties in the forum state). As plaintiff does not dispute these

5

facts, the court holds that plaintiff fails to demonstrate a prima facie basis for personal jurisdiction.

6

See Boschetto, 539 F.3d at 1015.

7

B. Motion to set aside clerk’s entry of default

8

Defendants also move to set aside clerk’s entry of default. (ECF No. 12). In its response,

9

plaintiff notes that it “is . . . willing to withdraw the default.” (ECF No. 20 at 3). The court will

10

therefore grant defendants’ motion.3

11

IV.

Conclusion

12

Accordingly,

13

IT IS HEREBY ORDERED, ADJUDGED, and DECREED that defendants’ motion to

14
15
16

dismiss (ECF No. 13) be, and the same hereby is, GRANTED.
IT IS FURTHER ORDERED that defendants’ motion to set aside clerk’s entry of default
(ECF No. 12) be, and the same hereby is, GRANTED.

17

The clerk shall enter judgment accordingly and close the case.

18

DATED July 30, 2018.

19

__________________________________________
UNITED STATES DISTRICT JUDGE

20
21
22
23
24
25
26
27

In its response to defendants’ motion to set aside clerk’s entry of default, plaintiff seeks
compensation for its attorney’s fees. (ECF No. 20 at 3). As plaintiff has not filed a separate motion
for attorney’s fees, the court will not consider its request.
3

28
James C. Mahan
U.S. District Judge

-9-